CrowdStrike: We Don’t Share Market’s View, Firm Remains High-Quality

Key Morningstar Metrics for CrowdStrike Holdings

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

Investor confidence in CrowdStrike Holdings CRWD has plummeted following the global IT outage caused by a faulty content update. The firm’s shares are down more than 20% since the incident in the early hours of July 19. After doing a more extensive review, following our initial reaction Friday morning, we are maintaining our $300 fair value estimate and narrow economic moat rating for the company. We continue to view CrowdStrike as a high-quality security vendor with an exceptional track record of profitable growth that we see continuing.

While we viewed CrowdStrike’s shares as overvalued before the chaos, we are not as pessimistic as the market about the outage’s impact on the firm’s business. We now view shares as marginally undervalued, but still trading in 3-star territory. CrowdStrike’s robust platform, strong relationships with end customers and value-added resellers, and its expansive platform that stands to benefit from vendor consolidation within security, all underscore our confidence in the firm’s long-term potential.

While we maintain our confidence in the firm’s long-term opportunity, we think there will be short-term costs. We believe CrowdStrike’s management and sales teams will have to work extensively at assuaging customer concerns. We foresee the company needing to offer discounts and credits to existing customers to entice them to stay. While this creates near-term headwinds, our base case doesn’t include a doomsday scenario with substantial customer churn and materially lower medium-to-long-term top-line expansion.