While it may be a well-known name within the investing world, it's likely that a few months ago, most people had never heard of the cybersecurity company CrowdStrike (NASDAQ: CRWD) . That all changed on July 19 when a faulty update pushed out by CrowdStrike crashed Windows-operated computers worldwide.
For investors, the question was about how this incident would impact CrowdStrike's business. Would potential customers flee and seek out other providers? Would existing customers stop spending on more products? It will be a while before we get the full answer to these questions, but when the company reported earnings recently, investors got their first details on what the future might look like. Let's dig in and see if CrowdStrike is still a buy.
First, an apology
When CrowdStrike's earnings results were announced via a press release, it was clear there had been no drastic impact on the business so far. Revenue for the fiscal second quarter of 2025 (ended July 31, 2024) was $964 million, an increase of 32% year over year and above the high end of the company's guidance. The company also exceeded its estimates on the bottom line, with adjusted earnings per share (EPS) coming in at $1.04, above company guidance of $0.99.
However, investor attention was on the earnings call, where management would address the outage for the first time. CrowdStrike CEO George Kurtz began his remarks with an apology and a commitment to never allowing this to happen again.
Kurtz also laid out specific actions the company has taken to avoid this kind of failure in the future, including more controls for customers over when and how they receive an update, quality control enhancements, and a layered rollout of new updates that allow testing in smaller cohorts rather than the entire customer base at once.
The $60 million mistake
Importantly, the vast majority of the deals CrowdStrike was working on before the July incident remains in its pipeline. However, deals expected to close during the second quarter are now delayed until future quarters. All told, this had a $60 million impact on the company now that these deals are delayed. This will be vitally important to watch. If these deals eventually fall through, it could suggest the impact of the July incident is worse than management anticipated.
The clearest way this impact is demonstrated is through the company's third-quarter and full-year guidance. For the third quarter, CrowdStrike expects revenue of $982 million at the midpoint, which would represent a year-over-year increase of 25%. This would be a slowdown from the revenue growth seen in Q2. The company also lowered its guidance for the full year.
|
Metric |
Previous FY 2025 Guidance |
Updated FY 2025 Guidance |
|---|---|---|
|
Total revenue |
$3.976 billion to $4.01 billion |
$3.89 billion to $3.9022 billion |
|
Non-GAAP income from operations |
$890.1 million to $916.5 million |
$774.7 million to $783.9 million |
|
Non-GAAP net income |
$985.6 million to $1.012 billion |
$908.8 million to $918 million |
|
Non-GAAP EPS |
$3.93 to $4.03 |
$3.61 to $3.65 |
Data source: CrowdStrike. GAAP = generally accepted accounting principles. EPS = earnings per share.
CrowdStrike's stock is up since the earnings report, which indicates the market may have been expecting the impact to be worse than it was. The does make some sense; even with the the updated guidance, CrowdStrike is still expecting revenue growth of around 28% and EPS to grow by approximately 18%. These represent a deceleration from previous quarters but they're still strong results.
Is CrowdStrike stock still a buy?
It's too early to say with certainty that CrowdStrike's troubles are in the rearview mirror, but the commentary and Q2 results were certainly more good news than bad. Management was positive about its prospects on the earnings call, but it's also in the company's best interest to present the situation in the most positive light possible.
Investors should keep an eye on results and guidance. If the company meets or beats its expectations in the coming quarters, investors can be more confident that things will be fine in the end. However, if there are further downward guidance revisions or evidence of unexpected slowing growth, it could signal more trouble.
Starting a small position or making reasonable additions to an existing position could make sense after this quarterly update, but it is also reasonable to continue to take a wait-and-see approach with this stock.
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