CrowdStrike (CRWD) reported better than expected sales and earnings for the quarter that ended July 31 late today, but the company’s lower full-year revenue guidance suggests that the July 19 global Windows outage caused by a faulty CrowdStrike update may be having at least a near-term effect on business.
CrowdStrike’s quarterly revenue of $963.9 million and earnings of $1.04 a share were both better than Wall Street analysts expected, but annual revenue guidance of $3.89 to $3.9 billion was below expectations of $3.98 to $4.01 billion, and the company substantially lowered its earnings outlook too.
CrowdStrike’s Cloudy Sales Outlook
On a conference call following the earnings release, CrowdStrike CFO Burt Podbere cited a few reasons for the cloudy outlook.
For one, the company paused prospecting operations immediately after the outage, but they’ve now resumed. Another reason for the “less than typical” visibility into financial forecasts is uncertainty about any legal costs that may arise from the outage.
But the biggest hit – nearly $70 million – will come from “incentives related to our customer commitment package” as the company tries to get customers to buy into a more comprehensive platform purchase, an approach that’s also being pursued by rivals like Palo Alto Networks (PANW).
Podbere said CrowdStrike is “expecting extended sales cycles” and more time spent convincing executives to close deals in the months ahead.
CEO George Kurtz also said he’s expecting “headwinds” for the next year before sales reaccelerate, including some deals delayed by the outage, but he nonetheless struck an upbeat tone on the call.
Kurtz said the company has closed one “7-figure” and one “8-figure” deal since the outage, among some other wins.
Long-Term CrowdStrike Sales Outlook Drifts Lower
But despite the upbeat earnings call – and the congratulatory tone of some of the Wall Street analysts on the call – those same analysts appear to hold plenty of doubts about CrowdStrike’s long-term prospects.
At least a half dozen analysts have lowered their earnings and sales estimates for CrowdStrike for the next 18 months since the outage, and the five-year expected revenue growth rate has dropped even more dramatically, from roughly a 28% annual expected growth rate to under 19%, according to analyst estimate services.
That’s still an enviable growth rate for most companies, but it suggests that analysts are concerned that CrowdStrike’s competitors may get more attention from competitors in the wake of the outage.
Security Deals Get More Scrutiny
The CrowdStrike outage changed the calculus for endpoint detection and response (EDR) buyers in particular, after a security tool that was supposed to save users trouble created a bigger cyber incident than any cyberattack ever.
For those who can get by with less, something like Microsoft’s free Defender endpoint security tool may be good enough. For everyone else, security tools that integrate deeply with users’ environments could get a lot more scrutiny from buyers going forward.