The big story heading into CrowdStrike's (CRWD, Financial) Q2 earnings report was the massive outage on July 19 that affected about 8.5 million Windows devices, causing major disruptions for its customers, including Delta Air Lines (DAL, Financial). Despite the 23% plunge in stock since the incident, CRWD surpassed EPS and revenue expectations and provided better-than-feared Q3 and FY25 guidance.
- After the close on Tuesday, competitor SentinelOne (S, Financial) issued a strong Q2 report, raising concerns that the outage might cause some customers to switch to SentinelOne. According to SentinelOne CEO Tomer Weingarten, some large global companies are now engaging with SentinelOne and deciding to switch.
- However, CRWD CEO George Kurtz downplayed the customer migration, stating that while some deals have been delayed, most are still in play. CRWD has introduced a "customer commitment package" offering incentives and discounts to retain customers, which is expected to impact revenue by about $30 million in each of the next two quarters.
- Considering these discounts, CRWD's Q3 and FY25 revenue guidance appears reasonable. At the midpoint of its new FY25 revenue guidance of $3.890-$3.902 billion, the outlook is only lower by about $95 million, indicating that the company does not expect a mass customer exit.
- CRWD still faces significant litigation risks. DAL, which reported 7,000 flight cancellations and a $380 million revenue hit in its September quarter due to the outage, is suing CRWD for $500 million. CRWD stated that DAL refused its help during the outage and that it's too early to determine legal responsibilities.
- Apart from the outage, CRWD delivered a solid Q2 performance. Annual Recurring Revenue (ARR) increased 32% year-over-year to $3.86 billion, with $217.6 million from new ARR in the quarter. For context, ARR was $3.65 billion last quarter, with $211.7 million net new ARR added.
- CRWD's unified and streamlined platform continues to gain traction. In Q2, deals with eight or more modules increased by 66% year-over-year, and 48% of customers with $100,000 or more in ending ARR adopted at least eight modules.
Overall, while CRWD will face a near-term hit, the company seems to have averted a disaster following one of the worst incidents in the cybersecurity industry.
