Shares of CrowdStrike (CRWD +2.76%) jumped 34% in 2024, according to data provided by S&P Global Market Intelligence. In July, CrowdStrike stock was trading up more than 50% for the year but then it had a major incident involving a faulty software upgrade. That incident dropped the stock into negative territory for a time before it eventually rebounded and posted a 34% full-year gain.
The rise, fall, and rebound for CrowdStrike stock was unusually dramatic because the stakes are clearly high here. For starters, the cybersecurity space is one of the largest and fastest-growing investment opportunities around and CrowdStrike is considered a leader. This has pushed the stock to expensive valuations and leaves little room for error.
CrowdStrike calls its 2024 error the July 19th incident -- a mistake in a software update caused widespread information technology (IT) outages for numerous clients around the world. It was a disaster on multiple levels and many investors, including myself, believed that CrowdStrike's growth rate would consequently drop as frustrated customers tried out products from its competitors.
NASDAQ: CRWD
Key Data Points
However, CrowdStrike's business proved to be incredibly resilient and there are no indications so far that it has suffered any long-term damage from the IT outage. This is why CrowdStrike stock rebounded sharply from its 2024 lows.
Moving past a bad thing
As a subscription software business, CrowdStrike likes to measure growth in annual recurring revenue (ARR). In the company's third quarter, it reported a net ARR increase of $153 million compared to the second quarter. Granted, CrowdStrike had a net ARR increase of $218 million in Q2, which was almost entirely before the problem on July 19. Therefore, growth did take a small step back from Q2 to Q3. That said, the company still took a meaningful step forward despite what could have been a much larger fallout.
CrowdStrike's ARR grows in multiple ways. First, it can attract new customers. Second, existing customers can spend more by buying additional software modules. Both continue to happen with CrowdStrike and that's why the stock rebounded to close the year.
A couple of positive trends for the new year
CrowdStrike's platform is called Falcon. Within the Falcon platform, customers can choose from dozens of software modules related to cybersecurity, depending on their needs. The company hopes its customers will use more and more of the products it offers and there's encouraging news here.
CrowdStrike changed its subscription model. Called Falcon Flex, customers can now use any cybersecurity module that they'd like to use, within their contracted spending. This allows for greater experimentation without necessarily committing to the module itself. Management says this new model is boosting adoption rates.
Another positive trend is that CrowdStrike's incident didn't prevent it from still being a trusted partner for government agencies. On Jan. 8, three of the company's software modules achieved Federal Risk and Authorization Management Program (FedRAMP) authorization. Not all businesses get this stamp of approval and it opens up CrowdStrike's base of potential customers.
Despite some choppy seas in 2024, CrowdStrike is cruising in open water in 2025.
