CrowdStrike stock's rally continues, but analysts point to alarming trend

CrowdStrike Holdings (CRWD) is looking to end a roller-coaster year on a high after the cybersecurity juggernaut recovered from mixed earnings and “the largest IT outage ever” involving its software.

Since Dec 10, CrowdStrike’s stock price rallied 4.7% to $362.97, snapping a two-day skid. CRWD stock declined by as much as 5.7% over the previous two trading sessions.

Wild price fluctuations have become the norm for CrowdStrike. The stock rallied 61% between January and July, eventually reaching an all-time high of $398.33.

Then, in a shocking twist, CRWD collapsed more than 40% between July 8 and Aug. 2, giving up most of its yearly gains. Thus began the long road to recovery for CRWD stock, from $217 on Aug. 2 to the current price of nearly $360 a share.

Zooming out, CRWD stock is up nearly 40% this year, higher than the tech-heavy Nasdaq and large-cap S&P 500 Index. The company’s market cap stands at $87.8 billion.

While investors would normally welcome such a strong return, industry analysts are still dissecting what went right and what went wrong for CrowdStrike in 2024.

CrowdStrike’s wild year

After riding high on strong corporate earnings in the first half of 2024, CrowdStrike ran into trouble in July amid reports that the cybersecurity company triggered a global IT outage due to a defective software update.

The domino effects were staggering.

According to engineering services firm Parametrix, the outage cost Fortune 500 companies a whopping $5.4 billion in direct losses, with healthcare, banking, and airline sectors among the hardest hit.

Delta Air Lines said it suffered a direct hit of $550 million due to the faulty software update. While CrowdStrike quickly fixed the problem, the brand suffered a black eye that it’s still recovering from.

Luckily, the company’s finances weren’t deeply impacted by the outage, with CrowdStrike reporting strong third-quarter earnings and revenue.

However, analysts flagged an alarming trend in the company’s annual recurring revenue (ARR)—an important financial metric related to subscription growth.

In the third quarter, ARR was down 31% year over year to $153 million, signaling that existing CrowdStrike clients were waiting to be wooed by bigger discounts before renewing their contracts.

Analysts say customers still want to be compensated for the summer outage.

Because of this, UBS’ Roger Boyd described the Q3 results as just “ok,” while Jefferies analyst Joseph Gallo said the summer outage would undermine the company’s ARR targets by around $30 million in Q4.

The good news is that CrowdStrike has a strong balance sheet, with $4.26 billion in cash and cash equivalents. The company remains cash flow positive and has a strong subscription base, which should help weather short-term challenges.