CrowdStrike Holdings' partners anticipate experiencing a significant reduction in new bookings, projecting around a 20% decline in the latter half of the year. This forecast, highlighted in a Monday report by Morgan Stanley, stems from a global technology outage that occurred on July 19, which raised concerns over the company's operational stability. The outage occurred following an update deployed by CrowdStrike for its Falcon sensors integrated into Microsoft Windows systems.
CrowdStrike swiftly responded to the incident, claiming they had isolated the issue and implemented a fix to restore service. According to a subsequent update shared on their website, CrowdStrike noted that as of July 24 at 5 PM PT, over 97% of Windows sensors were operational, a considerable recovery compared to the status prior to the content update. In light of the recent developments, Morgan Stanley's latest assessments suggest a 20% decrease in net new annual recurring revenue for CrowdStrike during the third and fourth quarters.
Previously, the firm had projected a 15% drop for the third quarter and a subsequent 6% decrease for the last quarter of the fiscal year. These revised expectations from Morgan Stanley are notably below the prevalent predictions in the Wall Street community. The brokerage previously described the outage as unprecedented, characterizing it as "one of the largest in history" with repercussions extending to multiple key sectors including airlines, banking, and healthcare organizations. The anticipated 20% fall in new bookings for the second half of the year is primarily informed by the channel’s historical experiences with outages and breaches, given the current lack of visibility regarding the comprehensive impact on the sales pipeline.
Morgan Stanley noted that most business transactions had been temporarily suspended throughout the past week; however, discussions with potential clients are reportedly resuming. The firm determined that less than 25% of CrowdStrike’s customers had been adversely affected by the outage, with the majority experiencing little to no disruptions. Despite the situation, CrowdStrike has not yet implemented significant concessions or credits for impacted clients.
Analysts suggest that any negative fallout from the incident will likely manifest through extended sales cycles and increased pricing pressure on contract renewals. Morgan Stanley's estimates now indicate that CrowdStrike's net new annual recurring revenue could decline by 7% year over year, bringing the total down to $810 million. Although existing customers face considerable switching costs when considering alternatives, market analysts believe that prospective clients may face longer evaluations before committing to new security solutions.
The brokerage has adjusted its price target for CrowdStrike’s stock to $360, down from a previous target of $396, while still maintaining an overweight rating on the stock. Notably, Morgan Stanley has removed CrowdStrike from its list of top stock picks. In a somewhat optimistic turn, Morgan Stanley expressed confidence in CrowdStrike's capacity to mitigate long-term reputational damage following the outage, thanks in part to the company’s prompt response and feedback from partners indicating limited risk of attrition.
The firm anticipates that forthcoming catalysts could include insights from Microsoft regarding the outage in their upcoming financial results report, along with the potential for CrowdStrike to preannounce its second-quarter results in early August. Morgan Stanley underscored the belief that preliminary figures concerning the second-quarter annual recurring revenue and overall revenue performance could serve to alleviate investor apprehensions regarding the company’s future prospects.
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