Cyber security company SentinelOne (NYSE:S) met Wall Street’s revenue expectations in Q3 CY2024, with sales up 28.3% year on year to $210.6 million. The company expects next quarter’s revenue to be around $222 million, coming in 0.6% above analysts’ estimates. Its GAAP loss of $0.25 per share was 22.3% below analysts’ consensus estimates.
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SentinelOne (S) Q3 CY2024 Highlights:
- Revenue: $210.6 million vs analyst estimates of $209.7 million (28.3% year-on-year growth, in line)
- Adjusted EPS: -$0.25 vs analyst expectations of -$0.20 (22.3% miss)
- Adjusted Operating Income: -$10.68 million vs analyst estimates of -$6.26 million (-5.1% margin, 70.7% miss)
- Revenue Guidance for Q4 CY2024 is $222 million at the midpoint, roughly in line with what analysts were expecting
- Adjusted Operating Margin Guidance for Q4 CY2024 is (3%) at the midpoint, in line with what analysts were expecting
- Operating Margin: -42.3%, up from -49.6% in the same quarter last year
- Free Cash Flow was -$12.65 million compared to -$5.44 million in the previous quarter
- Annual Recurring Revenue: $859.7 million at quarter end, up 29.5% year on year
- Market Capitalization: $8.74 billion
“Our Q3 results demonstrate strong execution and business momentum. We exceeded our topline growth expectations and re-accelerated new business growth,” said Tomer Weingarten, CEO of SentinelOne.
Company Overview
With roots in the Israeli cyber intelligence community, SentinelOne (NYSE:S) provides software to help organizations efficiently detect, prevent, and investigate cyber attacks.
Endpoint Security
Almost every company is slowly finding itself becoming a technology company and facing cybersecurity risks. As the volume of internet enabled devices grows, every device that employees use to connect to business networks represents a potential risk. Endpoint security software enables businesses to protect devices (endpoints) that employees use for work purposes either on a network or in the cloud from cyber threats.
Sales Growth
Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Thankfully, SentinelOne’s 65.8% annualized revenue growth over the last three years was incredible. Its growth surpassed the average software company and shows its offerings resonate with customers, a great starting point for our analysis.
This quarter, SentinelOne’s year-on-year revenue growth of 28.3% was excellent, and its $210.6 million of revenue was in line with Wall Street’s estimates. Company management is currently guiding for a 27.5% year-on-year increase in sales next quarter.
Looking further ahead, sell-side analysts expect revenue to grow 25.8% over the next 12 months, a deceleration versus the last three years. Still, this projection is commendable and suggests the market sees success for its products and services.
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Annual Recurring Revenue
While reported revenue for a software company can include low-margin items like implementation fees, annual recurring revenue (ARR) is a sum of the next 12 months of contracted revenue purely from software subscriptions, or the high-margin, predictable revenue streams that make SaaS businesses so valuable.
SentinelOne’s ARR punched in at $859.7 million in Q3, and over the last four quarters, its growth was fantastic as it averaged 33.8% year-on-year increases. This performance aligned with its total sales growth and shows that customers are willing to take multi-year bets on the company’s technology. Its growth also makes SentinelOne a more predictable business, a tailwind for its valuation as investors typically prefer businesses with recurring revenue. 
Enterprise Customer Base
This quarter, SentinelOne reported 1,310 enterprise customers paying more than $100,000 annually, an increase of 77 from the previous quarter. That’s quite a bit more contract wins than last quarter and about the same as what we’ve seen over the previous year. Shareholders should take this as an indication that SentinelOne’s go-to-market strategy is running smoothly.
Key Takeaways from SentinelOne’s Q3 Results
We struggled to find many resounding positives in these results. Revenue was just in line, which usually isn't enough for a high-growth SaaS stock. In addition, operating profit missed, meaning that the revenue growth was less profitable than expected. Overall, this was a mediocre quarter, especially in light of some strong earnings results from larger software names. The stock predictably traded down 10.8% to $25.59 immediately following the results.
So should you invest in SentinelOne right now? When making that decision, it’s important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it’s free.
