CrowdStrike Faces $60 Million Compensation After Global Outage, But Client Claims Could Be Higher
Cybersecurity firm CrowdStrike has announced it will offer approximately $60 million in credits to customers affected by a massive computer outage last month. The company’s move comes in the wake of claims from clients who allege their damages could far exceed the offered compensation.
Despite the setback, CrowdStrike revised its full-year earnings guidance downward by $86 million to $109 million but still expects to generate $3.9 billion in revenue for the year. Investors reacted positively to the earnings report, pushing the company’s stock up over 5% in Thursday trading, following the release of its quarterly results on Wednesday.
The $60 million in credits are part of what CrowdStrike has termed a “customer commitment package.” The company reassured investors that it has retained 98% of its customer base despite the incident. However, a CrowdStrike spokesperson clarified that the credits are not directly tied to the losses clients may have suffered during the outage.
Additionally, CrowdStrike’s Chief Financial Officer, Burt Podbere, noted in a call with investors that the full cost of the incident is still uncertain, as potential litigation could arise. However, the company has insurance in place to mitigate some of these costs.
The forecasted compensation might fall short of actual client claims, with Delta Air Lines, one of the most severely impacted clients, estimating its losses at around $500 million. This figure includes lost revenue from thousands of cancelled flights and other associated costs. CrowdStrike has indicated that its contract with Delta limits its liability to less than $10 million.
The company’s strong quarterly performance, including record adjusted earnings of $260.8 million—a 47% increase from the previous year—helped alleviate investor concerns. Despite the outage, CrowdStrike’s balance sheet remains robust, with $4 billion in cash, up $300 million from the previous quarter.
While CrowdStrike’s stock has recovered 33% from its post-outage low, it remains down more than 20% since the incident. The company acknowledged that the outage was caused by a flawed software update impacting systems running Microsoft programs.
Delta Air Lines was hit the hardest by the outage, taking nearly a week to resume normal operations due to issues with its crew tracking software. The airline is now preparing to sue CrowdStrike and Microsoft to recover its estimated $500 million in losses. Both companies have criticized Delta, with CrowdStrike’s legal team prepared to fight any lawsuit, citing a contractual cap on liability in the “single millions.”
Industry analysts, including Raj Joshi of Moody’s, have expressed concerns about the long-term impact of the outage on CrowdStrike. Joshi noted that while the immediate financials may not reflect the full impact, there could be a lag before performance deterioration becomes evident. He also highlighted the challenge CrowdStrike might face in selling additional services to clients who have already endured the outage.
Moody’s had upgraded CrowdStrike’s credit rating from junk bond status to investment grade in May, with a positive outlook. However, following the outage, Moody’s revised its outlook from positive to neutral, indicating potential challenges in the company’s growth trajectory. The key question, according to Joshi, is whether CrowdStrike can manage customer relationships effectively and restore confidence after the incident.
