Suddenly everything was blue: around 8.5 million Windows PCs crashed without warning a few days ago, paralyzing parts of air traffic, the healthcare sector and stock market trading, among other things. However, one of the biggest blackouts in IT history was not caused by a malicious hacker attack, but by the cyber security company Crowdstrike. A software error made by the Americans during an update of their flagship product "Falcon Sensor" led to the so-called "blue screen of death". This bug cost the company, which was founded in 2011 and is based in Austin, Texas, around USD 30 billion in market capitalization. Following the share price crash, the situation now needs to be reassessed.
While Crowdstrike is working diligently to deal with the problem, customers and insurers are licking their wounds. Air France-KLM, for example, is facing losses of around EUR 10 million as a result of the global technology failure, while analysts estimate that Delta Air Lines could even face losses of several hundred million dollars. Meanwhile, insurer Parametrix estimates that the financial losses caused by the outage could amount to around USD 15 billion worldwide, bringing the insurance loss to between USD 1.5 and 3.0 billion.
About a week after the update failure, Crowdstrike reports that more than 97% of Windows security sensors are back online. The Falcon tool, which identifies unusual behavior and vulnerabilities to protect computer systems from threats such as malware and viruses in real time, has thus largely resumed its work. "Our recovery efforts have been enhanced thanks to the development of automated recovery techniques and by mobilizing all of our resources to support our customers," says CEO George Kurtz, confirming the rapid progress.
Even though Crowdstrike quickly managed to get customers' computers back up and running, reputational damage remains. It is not easy for companies to change security providers, as the software is usually deeply embedded in the entire IT infrastructure. However, it could well become more difficult to find new customers. This in turn could slow down Crowdstrike's growth. Last year, new customers accounted for just under half of the 34% increase in revenue. Before the shutdown, the analyst consensus was that revenue would increase by an average of 23% over the next five years. However, this estimate is now likely to be put to the test by the research houses. This also applies to profit expectations. Convincing new customers could cost more money as well as additional investments in order to avoid such crises in the future.
Speaking of crises: Crowdstrike is certainly not the first company to come under such pressure. Just think of the emissions scandal in the car industry, the balance sheet problems at Clariant or the fatal crashes at Boeing. How quickly the resulting share price losses can be recouped varies and also depends on how quickly management can restore confidence. A study conducted by PricewaterhouseCoopers in 2020 came to the conclusion that companies in crisis can be divided into two groups: Firstly, the winners, whose shares had risen by around 10% after 250 days, and the losers, whose share prices had fallen by 15% over the same period.
In the case of Crowdstrike, it is of course still too early to determine what the restructuring concept and thus the prospects of success will look like. However, the company will not be able to avoid profit revisions and downgrades from analysts for the time being. "The globally disruptive nature of this event is likely to have an impact on Crowdstrike's financial and operational performance," believe the experts at J.P. Morgan. This makes analysts more cautious. Just three days after the incident, six brokerage houses had already lowered their price targets and two others downgraded the share rating from "buy" to "neutral".
Investors can take advantage of the potential consolidation phase of the Crowdstrike share price with yield enhancement products. The recent sharp rise in volatility makes barrier reverse convertibles attractive. Leonteq has launched two new soft-callable BRCs with a maximum term of 15 months. The structures promise double-digit percentage returns even in the event of price stagnation or even further moderate setbacks. The products, which are offered in CHF and USD, each have a risk buffer of a comfortable 41%. If the barrier remains intact, the maximum return will be achieved. The coupons amount to an attractive 12.00% p.a. for the CHF variant and even 16.00% p.a. for the USD product. The issuer has the right to terminate the BRCs prematurely after six months at the earliest.
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