Dave Ahern's avatar
$117.9k follower assets
An expert's opinion on the continued strength for both $CRWD and $S going forward based on the magic number for both. Each company exceeds the magic number of 1. Not an expert by any stretch, but learning every day.
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My $S trades
While I have expressed some concerns about the long term durability of growth in the pure play cyber security sector, the near term demand is undeniable. I decided to open a starter position in SentinelOne (S) to get some exposure for my portfolio. While the top security providers all turned in strong quarterly reports in this latest cycle (CRWD, ZS, PANW), I prefer SentinelOne for the following reasons. This isn't necessarily a knock on the other companies - just splitting hairs here.

  • S is still a <$10B company with just over $400M revenue run rate. The smaller size implies S has more runway before having to deal with the law of large numbers.
  • High growth. With total revenue and estimated organic revenue both increasing over 100% y/y, S is growing faster than peers (albeit at a smaller run rate). Full year guidance was raised to 103% from 98% previously.
  • Increasing Net Retention Rate (NRR). This is probably the most significant indicator to me. SentinelOne's NRR increased from 131% to 137% from Q1 to Q2, and was 129% a year ago. This demonstrates that their expand motion with existing customers is very strong, which helps maintain growth and drives operating leverage as sales efficiency goes up. Normally, as a company expands, NRR goes down.

  • Net expansion isn't the only story. Customer additions hit a new record (even on an organic basis), with total customers reaching 8,600 and growing by 60% y/y. Customers with ARR over $100k increased by 117%. They closed their largest new customer contract ever in the quarter.
  • Improving operating leverage. While still solidly unprofitable, the company is making significant progress. On a Non-GAAP basis, gross margin increased by 1000 bps y/y from 62% to 72%. Operating margin increased from -98% to -57%. Non-GAAP operating expenses increased by 85% y/y, versus overall revenue growth of 124%.
  • From a product point of view, I like their emphasis on high scale, efficient data processing. They have already absorbed the Scalyr acquisition and integrated that into the core platform. Now all customers and products benefit from Scalyr's abiliy to ingest massive amounts of machine and application data in real time.
  • SentinelOne works well with the partner channel and are driving a lot of growth from managed service providers. They have built an extensive and diverse network of channel partners, including MSSPs, MDR providers and IR firms.

While the valuation is high at about 25 P/S, it is inline with other security peers. Arguably, those are more profitable, but are growing at a slower rate. The high revenue growth of SentinelOne should bring down the valuation multiple quickly, allowing price to continue to increase. I plan to publish a longer analysis and may bump my allocation over time. I remain heavily weighted to other software infrastructure providers that have security exposure, but also address other market segments outside of security.
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Very hard to have any sort of productive discussion on twitter, I give up, Long $ASAN
I posted a comment similar to this last week here. Twitter sucks absolutely terrible now. I use Commonstock way more lately
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Jared Watson's avatar
$19.1m follower assets
SentinelOne $S Conference Highlights (9/08/2022)
TLDR: Using a baseball game analogy, SentinelOne is in the first inning of a generational cybersecurity opportunity. The company sees significant competitive advantage in (1) cloud security (2) identity security (3) managed service providers (MSPs), and is correspondingly funneling resources into these channels in order to continue the hypergrowth trajectory, with the underlying goal to get to cash flow positive.

Primary speaker: Nicholas Warner, current President of Security and former COO/CRO

Notes:
  • SentinelOne sees massive demand for a platform that can consolidate disparate tech stacks that are common with on-prem
  • The main driver of upside of the business is currently the velocity of the managed service business, especially for small and medium sized business
  • There is an ongoing mass adoption of managed service for cloud native technology in general, but especially cybersecurity
  • Expects to continue to see MSP momentum globally across all sizes of business
  • First inning of generational cybersecurity opportunity
  • Threat actors are either trying to steal (1) data or (2) credentials. Attivo enables S1 to protect the full estate.
  • Enabling MSPs to sell modules has been a significant boon - MSPs used to only be able to sell S1 Control (basic package). Allowing MSPs to sell Ranger, etc. is an incredibly efficient way to cross and up-sell.
  • 100% API infrastructure and multi-tenancy built into the backend - early on design decisions. These benefit MSPs as S1 is the only one who offers these functions.
  • SIEM displacement - still in the beginning of a multi-year journey. Arcsight, Splunk, etc. built for on-prem and don’t work as well in the cloud.
  • Salesforce displacing Oracle CRM is an example of how a cloud-native solution offers a completely different user experience, just like SentinelOne versus legacy providers
  • Scalyr offers a fully cloud native data experience which is why the acquisition and full backend migration is so significant
  • Company is pouring resources into MSPs, cloud business with the objective of taking advantage of a generational expansion opportunity, while also getting to cash flow positive
Thanks for sharing as always!

Started my position last week, excited to add more when I can👍🏼
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Jared Watson's avatar
$19.1m follower assets
SentinelOne $S at Citi’s Global Technology Conference
SentinelOne is presenting today, 10:30am ET, at Citi’s Global Technology Conference.

I’ll be taking notes and will post any takeaways from the conference.

SentinelOne Quarterly Report
$S SentinelOne reported earnings yesterday, in which showed it accelerated growth:

Total revenue came in at 102M, up 124% YoY.
ARR grew a bit slower than total rev, it was up 122% to now account for 438M.

Total customers increased greatly, at a 60% rate.
Interestingly, large customers more than doubled in the past year.

SentinelOne reported a record Dollar Based Net Revenue Retention Rate, at 137%.

Gross Margin increased 600bps.
Opearting expenses as a % of revenue trended down YoY.

Operating margin was still highly negative, 106%.

Raised Guidance:

Personal comment:
SentinelOne is still in hyper growth mode. The only thing that matters to them at the moment is top line growth and customer acquisition. It's encouraging to see the trend in operating expenses and the guided lower operating loss.
Still little to no debt, with 1.2bn in cash.
Something to keep an eye on is the high SBC.

No position but watching closely.
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Jared Watson's avatar
$19.1m follower assets
SentinelOne ($S) Earnings Recap
Highlights:
• Annualized Recurring Revenue (ARR) grew 122% year-over-year to $439 million at
the end of the fiscal second quarter. Revenue in the quarter grew 124% year-over-year
to $103 million.
• Added a record number of customers in the second fiscal quarter, over 1,100
customers sequentially. Total customer count grew by about 60% year-over-year to over
8,600 at quarter-end. Customers with ARR over $100K grew 117% year-over-year to 755.
Dollar-based net revenue retention rate was 137%.
• Fiscal second quarter GAAP gross margin was 65%, up 6 percentage points year-over-year. Non-GAAP gross margin was 72%, up 10 percentage points year-over-year.
• Fiscal second quarter GAAP operating margin was (106)%, up 41 percentage points
year-over-year. Non-GAAP operating margin was (57)%, up 42 percentage points
year-over-year.

Takeaways:
Just like for $SNOW, going into earnings there was investor hesitancy that $S could maintain their best-in-class, YoY historical growth rate (100+%) in the current macro environment.

Not only did SentinelOne prove that enterprise cybersecurity spend is recession-proof, $S proved that they are the disruptor I thought they were and re-accelerated both ARR and NRR in Q2 to record highs of 122% and 137% respectively.

SentinelOne continues to execute their unique go-to-market strategy of becoming the partner of choice for MSPs (managed service providers), MSSPs (managed security service providers), and resellers; where $CRWD loses out by competing with these potential channel partners.

They also continue to work their way upmarket from SMB, winning their largest contract ever, and prove the demand and resiliency of a differentiated, AI-driven product that reduces customer overhead.

As management reiterated repeatedly in the Q&A, XDR is in extremely early innings, and SentinelOne is set up the best out of any (yes, any) cybersecurity company out there to take advantage of the opportunity.

If you're interested in the company that's disrupting the disruptors, or you're a CrowdStrike investor who wants to learn more about the competition, let me know and I'm happy to answer any questions about one of my favorite companies (and top 3 position).

PS, I would be remiss to not include the following Twitter thread, which convinced me to double down nearly a year ago: https://twitter.com/InvestiAnalyst/status/1468796820788629506?s=20&t=bO6tZgFWqc5Hj0I8kS3_Xg.
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Thank you for introducing me to this company! I’ve been looking into their product offering and GTM strategy in depth and results today made me adjust my strategy. Will be buying aggressively over the next 6 months.
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$S - SentinelOne killing it!
Revenue increased 124% year-over-year

ARR up 122% year-over-year

Gross margins up 6%

Operating margins up 41%, so much leverage ahead

Free deep dive -

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