SentinelOne (NYSE:S) Reports Strong Q1, Provides Strong Full Year Guidance

Jabin Bastian /
2022/06/01 4:42 pm EDT

Cyber security company SentinelOne (NYSE:S) reported results ahead of analyst expectations in the Q1 FY2023 quarter, with revenue up 109% year on year to $78.2 million. On top of that, guidance for next quarter's revenue was $95.5 million at the midpoint, 12.5% above what analysts were expecting. SentinelOne made a GAAP loss of $89.8 million, down on its loss of $62.6 million, in the same quarter last year.

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SentinelOne (S) Q1 FY2023 Highlights:

  • Revenue: $78.2 million vs analyst estimates of $74.6 million (4.83% beat)
  • EPS (non-GAAP): -$0.21 vs analyst estimates of -$0.24
  • Revenue guidance for Q2 2023 is $95.5 million at the midpoint, above analyst estimates of $84.8 million (includes results of the Attivo Networks)
  • The company lifted revenue guidance for the full year, from $368 million to $405 million at the midpoint, a 10% increase (includes results of the Attivo Networks)
  • Free cash flow was negative $54.7 million, compared to negative free cash flow of $7.07 million in previous quarter
  • Net Revenue Retention Rate: 131%, in line with previous quarter
  • Customers: 7,450, up from 6,700 in previous quarter
  • Gross Margin (GAAP): 65.3%, up from 51.1% same quarter last year

“Our Q1 results demonstrate the combination of a robust demand environment for our leading cybersecurity platform and impressive execution across the board. We once again sustained triple-digit growth with significant margin expansion, added a record number of new customers, and exited the quarter with an extremely strong pipeline,” 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 $37.3 million, to $78.2 million.

SentinelOne Total Revenue

This was another standout quarter with the revenue up a splendid 109% year on year. On top of that, revenue increased $12.6 million quarter on quarter, a very strong improvement on the $9.61 million increase in Q4 2022, and a sign of acceleration of growth, which is very nice to see indeed.

Guidance for the next quarter indicates SentinelOne is expecting revenue to grow 108% year on year to $95.5 million, slowing down from the 121% 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 72.4% over the next twelve months. The guidance now includes the expected results of the Attivo Networks acquisition.

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 131% in Q1. That means even if they didn't win any new customers, SentinelOne would have grown its revenue 31% year on year. Significantly up from the last quarter, this is a great retention rate and a clear proof of a great product. We can see that SentinelOne's customers are very satisfied with their software and are using it more and more over time.

Key Takeaways from SentinelOne's Q1 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 $6.62 billion and more than $1.61 billion in cash, the company has the capacity to continue to prioritise growth over profitability.

We were impressed by the very optimistic revenue guidance SentinelOne provided for the next quarter. And we were also excited to see the really strong revenue growth. Zooming out, we think this was a strong quarter. But the market was likely expecting more and the company is down 0.6% on the results and currently trades at $24.48 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.