CRWD strike lowers outlook due to outages; Is the news priced in to shares?

CrowdStrike Holdings (CRWD) delivered better-than-expected Q2 results, with both revenue and earnings per share (EPS) surpassing analyst estimates. The company reported revenue of $963.9 million, slightly above the consensus estimate of $958.2 million, and adjusted EPS of $1.04, exceeding the expected $0.97. Despite these solid figures, the company’s Q3 guidance fell short of market expectations, with revenue projected between $979.2 million and $984.7 million, compared to the consensus estimate of $1.012 billion, and adjusted EPS guidance of $0.80-$0.81, well below the expected $0.96.

CrowdStrike's full-year FY25 guidance was also revised downward. The company now expects revenue in the range of $3.89 billion to $3.90 billion, down from the previous forecast of $3.98 billion to $4.01 billion. Adjusted EPS guidance was lowered to $3.61-$3.65 from $3.93-$4.03. The revisions were primarily driven by the anticipated $60 million headwind in subscription revenue due to the implementation of the Customer Commitment Package (CCP) following the July outage. This package, designed to mitigate potential customer churn, includes discounts, free modules, and flexible payment terms, impacting financial performance in the near term.

Shares slipped in initial reaction. Shares hit $252 but has climbed back to the $260 level. Analysts lowered their price targets following the news but the stock has been rather stoic which suggests this news had been priced into shares.

The July IT outage, which caused the deferral of deals worth over $60 million in annual recurring revenue (ARR), was a significant setback for CrowdStrike. Although the company demonstrated strong retention and added net new ARR of $217.6 million, the outage’s impact will likely be felt over the next 12 months. Management has taken steps to address the issues that led to the outage and remains confident in winning back deferred deals. However, the financial hit from the CCP and the potential for increased customer scrutiny could weigh on growth in the near term.

Despite the setback, analysts remain optimistic about CrowdStrike's long-term prospects. D.A Davidson raised its price target from $290 to $310, maintaining a Buy rating, while Cantor, T.D. Cowen, and Oppenehiemer adjusted their price targets downward but reiterated confidence in CrowdStrike’s competitive position and growth trajectory. The company’s Rule of 60 achievement, with revenue growth of 32% and a free cash flow margin of 28%, underscores its strong operational execution despite the challenges faced during the quarter.

Looking ahead, CrowdStrike anticipates a reacceleration of growth by the second half of FY26 as market demand remains robust and new product ramps continue to gain traction. While the stock may remain range-bound in the short term due to the guidance cut and concerns over the outage's impact, analysts see potential catalysts in upcoming quarters, including government (SLED/FED) contracts and budget flushes that could drive a stronger finish to FY25 and beyond.

In summary, while CrowdStrike's Q2 performance exceeded expectations, the fallout from the July outage and the subsequent impact on guidance present near-term challenges. However, with strong fundamentals, proactive customer retention strategies, and a clear path to recovery, CrowdStrike is well-positioned to regain momentum and continue its growth trajectory in the cybersecurity space. The stock's recent price target adjustments reflect cautious optimism, with the potential for significant upside as the company navigates through these challenges.