SentinelOne (S) Reports
SentinelOne (S) is one of our newer positions and has been hit hard during the recent market retreat. Part of this is because it is a recent IPO, part is because the broader group of security stocks has sold off (NET, ZS, OKTA, CRWD, etc.).
Now, with S trading 40% off the high and just 10 points above its IPO price of 35, with lockup expiration this week (200 million shares can trade starting tomorrow, 12/9) and with a solid earnings report in the bank and good full-year guidance it feels like a time to be buying and not selling.
Yes, this could backfire if growth stocks continue their decline. But given all the factors, it would seem S has far more upside potential than downside risk. To that point, both Morgan Stanley and Bank of America are bullish on the name with post-earnings price targets of 77 and 67, respectively (stock at 45 today).
On to the results.
Revenue was up 128% to $56 million versus $49.6 million consensus (+102%). Annual Recurring Revenue (ARR), the figure analysts are most focused on, was up 131% versus +127% the previous quarter and 9% ahead of consensus. Net Revenue Retention (NRR), a measure of how much existing customers are spending with the company, was up 130%. That’s up from 129% in the previous quarter and 115% in the year-ago quarter.
More than 10% of ARR is now coming from new products. When combined with the uptick in NRR, this suggests SentinelOne is having some success selling more products to existing customers.
Gross margin was up 9% to 67% and should continue to go higher over time, although migration to a new platform (Scalyr, which was acquired) will hold the pace of gains back until migration is complete (management guided to GM of 62% to 63% next quarter). Migration will take a few quarters.
International growth was 159% and now makes up one-third of total revenue.
Q4 guidance is $60-$61 million vs consensus $56.6 million.
Stepping back, SentinelOne is a smaller player than its best-recognized competitors—Microsoft (MSFT) and CrowdStrike (CRWD)—but appears to have a toehold and is growing at a very brisk pace, while pulling in some larger enterprise deals. It’s not a “sure bet” by any means, but there’s no doubt management is investing to pave the way for a much larger business.
I think shares could be volatile in this 40 to 50 range for the next week or so as we get through lockup expiration (Omicron and growth stock volatility being other factors) but on balance, S seems like a decent value right here. Will be keeping a close eye on it but keeping at buy for now. BUY