Guggenheim analysts have downgraded CrowdStrike (NASDAQ” NASDAQ:CRWD) to Neutral from Buy, citing anticipated resistance to new deals in the near term due to the fallout from a recent quality assurance issue that disrupted IT systems globally.
The investment firm also noted existing risks in fourth-quarter consensus estimates, particularly in annual recurring revenue (ARR).
"With the stock still trading at the highest multiple of recurring revenue across our entire Software coverage, we are stepping away for the time being,” Guggenheim analysts said in a note.
They explained that CrowdStrike has significantly expanded its technology offerings, now boasting 28 modules, and has aggressively targeted new markets, enhancing its next-gen endpoint security opportunity.
This expansion has resulted in best-in-class gross retention rates and rejuvenated growth. However, the recent global disruptions caused by CrowdStrike are likely to negatively impact its business, even if only temporarily.
"The restoration of its reputation may take more time and will likely affect new business signings at least in the near-term,” analysts added.
CRWD shares fell 4% in premarket trading Monday.
Elsewhere, Wells Fargo analysts cut their CRWD estimates “in anticipation of higher costs and legal expenses” following the outage “but have not seen evidence of customer churn yet.” As such, they reiterated an Overweight weighting on the stock.
“We believe the stock will inevitably re-rate following the global outage,” analysts added.
Wells Fargo also reduced the price target on the stock from $435 to $350.
Meanwhile, analysts at KeyBanc Capital markets said they expect the last week’s developments to cause risk to CRWD’s Q2 ending in July.
They anticipate potential credits being issued to affected customers and foresee win rates being impacted in the near to medium term. SentinelOne (NYSE:S) and Palo Alto (PANW) are expected to be the biggest beneficiaries from this situation, with Microsoft (NASDAQ:MSFT) also likely gaining a competitive edge in security.
Although CrowdStrike was quick to resolve the issue that caused the outage, this is “a nightmare scenario for the security company,” BTIG analysts said in a recent note.
“As it stands, we are doubtful that the event will negatively impact the CRWD story longer term,” they said.
“However, it is happening with only 12 days left in the quarter and is creating a lot of near-term uncertainty. As such, we expect it will be an overhang on shares for the next six months,” BTIG’s team added.
CrowdStrike shares plummeted more than 11% on Friday.