SentinelOne (NYSE:S) Reports Bullish Q2, Provides Optimistic Full Year Guidance

Petr Huřťák /
2022/08/31 4:21 pm EDT

Cyber security company SentinelOne (NYSE:S) reported Q2 FY2023 results topping analyst expectations, with revenue up 124% year on year to $102.5 million. Guidance for next quarter's revenue was $111 million at the midpoint, 2.59% above the average of analyst estimates. SentinelOne made a GAAP loss of $96.3 million, down on its loss of $68.1 million, in the same quarter last year.

Is now the time to buy SentinelOne? Access our full analysis of the earnings results here, it's free.

SentinelOne (S) Q2 FY2023 Highlights:

  • Revenue: $102.5 million vs analyst estimates of $95.6 million (7.15% beat)
  • EPS (non-GAAP): -$0.20 vs analyst estimates of -$0.25
  • Revenue guidance for Q3 2023 is $111 million at the midpoint, above analyst estimates of $108.1 million
  • The company lifted revenue guidance for the full year, from $405 million to $416 million at the midpoint, a 2.71% increase
  • Free cash flow was negative $66.8 million, compared to negative free cash flow of $54.7 million in previous quarter
  • Net Revenue Retention Rate: 137%, up from 131% previous quarter
  • Customers: 8,600, up from 7,450 in previous quarter
  • Gross Margin (GAAP): 64.6%, up from 58.9% same quarter last year

“We delivered hyper growth and outperformance across all aspects of our business in Q2 - ARR, revenue, customer growth, net retention, and margins,” said Tomer Weingarten, CEO of SentinelOne.

With roots in the Israeli cyber intelligence community, SentinelOne (NYSE:S) provides software to help organizations efficiently detect, prevent, and investigate cyber attacks.

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

As you can see below, SentinelOne's revenue growth has been incredible over the last year, growing from quarterly revenue of $45.7 million, to $102.5 million.

SentinelOne Total Revenue

This was another standout quarter with the revenue up a splendid 124% year on year. On top of that, revenue increased $24.2 million quarter on quarter, a very strong improvement on the $12.6 million increase in Q1 2023, and a sign of re-acceleration of growth, which is very nice to see indeed.

Guidance for the next quarter indicates SentinelOne is expecting revenue to grow 98.1% year on year to $111 million, slowing down from the 128% year-over-year increase in revenue the company had recorded in the same quarter last year. Ahead of the earnings results the analysts covering the company were estimating sales to grow 78.2% over the next twelve months.

In volatile times like these we look for robust businesses with strong pricing power. Unknown to most investors, this company is one of the highest-quality software companies in the world, and their software products have been the default standard in critical industries for decades. The result is an impressive business that is up an incredible 18,152% since the IPO. You can find it on our platform for free.

Product Success

One of the best things about software as a service businesses (and a reason why they trade at such high multiples) is that customers tend to spend more with the company over time.

SentinelOne Net Revenue Retention Rate

SentinelOne's net revenue retention rate, an important measure of how much customers from a year ago were spending at the end of the quarter, was at 137% in Q2. That means even if they didn't win any new customers, SentinelOne would have grown its revenue 37% year on year. Significantly up from the last quarter, this is an absolutely exceptional retention rate, meaning SentinelOne's software is extremely successful with their customers who are rapidly expanding the use of it across their organizations.

Key Takeaways from SentinelOne's Q2 Results

Since it has still been burning cash over the last twelve months it is worth keeping an eye on SentinelOne’s balance sheet, but we note that with a market capitalization of $7.77 billion and more than $1.21 billion in cash, the company has the capacity to continue to prioritise growth over profitability.

We were impressed by the exceptional revenue growth SentinelOne delivered this quarter. And we were also glad to see the improvement in net revenue retention rate. On the other hand, there was a deterioration in gross margin and cash burn has increased. Zooming out, we think this was a fantastic quarter that should have shareholders cheering. The company is up 4.02% on the results and currently trades at $28.4 per share.

SentinelOne may have had a good quarter, so should you invest right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.

One way to find opportunities in the market is to watch for generational shifts in the economy. Almost every company is slowly finding itself becoming a technology company and facing cybersecurity risks and as a result, the demand for cloud-native cybersecurity is skyrocketing. This company is leading a massive technological shift in the industry and with revenue growth of 70% year on year and best-in-class SaaS metrics it should definitely be on your radar.

The author has no position in any of the stocks mentioned.