CrowdStrike Selloff a Buying Opportunity After Outage

Key Morningstar Metrics for CrowdStrike

• Fair Value Estimate: $300.00
• Morningstar Rating: 3 stars
• Economic Moat: Narrow
• Morningstar Uncertainty Rating: High

CrowdStrike CRWD said a faulty update was the reason behind the massive technology outage that affected millions of users in the early hours of July 19. Customers using the firm’s security platform were locked out of their Windows devices. While details are still emerging, CrowdStrike’s initial response emphasized that this incident was not a security breach and the faulty update has been rectified. We find some credence in this response, considering that within hours of the outage, companies with operations affected by CrowdStrike’s update have been able to gradually resume services.

Investors appear to have been spooked by recent high-profile security incidents and sold CrowdStrike shares Friday, with the stock dropping more than 11%. We think this reaction is overly punitive, especially considering the update doesn’t represent a breach of CrowdStrike’s security apparatus. While the stock still trades in 3-star territory, we think the pullback represents a good buying opportunity for long-term investors looking for high-quality security/software exposure.

While we don’t have a full postmortem on the faulty update that led to this morning’s chaos, we suspect that CrowdStrike’s central cloud, which pushes updates across its entire customer base simultaneously, played a key role. While this feature lets the company continuously update its products, it also means a substandard update can be pushed onto the entire customer base, halting operations at major airports and media networks, among others.