SentinelOne (NYSE:S) Reports Upbeat Q3 But Stock Drops

Kayode Omotosho /
2021/12/07 4:21 pm EST
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Cyber security company SentinelOne (NYSE:S) reported strong growth in the Q3 FY2022 earnings announcement, with revenue up 128% year on year to $56 million. Guidance for next quarter's revenue was surprisingly good, being $60.5 million at the midpoint, 7.01% above what analysts were expecting. SentinelOne made a GAAP loss of $68.5 million, down on its loss of $30.1 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) Q3 FY2022 Highlights:

  • Revenue: $56 million vs analyst estimates of $49.5 million (12.9% beat)
  • EPS (non-GAAP): -$0.15 vs analyst estimates of -$0.18
  • Revenue guidance for Q4 2022 is $60.5 million at the midpoint, above analyst estimates of $56.5 million
  • Free cash flow was negative $20.6 million, compared to negative free cash flow of $44.7 million in previous quarter
  • Net Revenue Retention Rate: 130%, up from 125% previous quarter
  • Customers: 6,000, up from 5,400 in previous quarter
  • Gross Margin (GAAP): 63.6%, up from 57.8% same quarter last year

“Customers continue to choose Singularity XDR because of our protection, detection, response, and automation capabilities. Our business is performing extremely well. Q3 marks the third consecutive quarter of triple digit ARR growth,” 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.

The cyber attack surface is projected to expand as the volume of internet enabled devices grows. Given the scarcity of cyber security talents, more organizations are expected to adopt automated cybersecurity platforms to efficiently manage cyber attacks and to stay up to date with the threat landscape.

Sales Growth

As you can see below, SentinelOne's revenue growth has been incredible over the last year, growing from quarterly revenue of $24.5 million, to $56 million.

SentinelOne Total Revenue

This was another standout quarter with the revenue up a splendid 128% year on year. On top of that, revenue increased $10.2 million quarter on quarter, a very strong improvement on the $8.35 million increase in Q2 2022, and a sign of re-acceleration of growth, which is very nice to see indeed.

Analysts covering the company are expecting the revenues to grow 70.3% over the next twelve months, although estimates are likely to change post earnings.

There are others doing even better than SentinelOne. Founded by ex-Google engineers, a small company making software for banks has been growing revenue 90% year on year and is already up more than 400% since the IPO in December. 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 130% in Q3. That means even if they didn't win any new customers, SentinelOne would have grown its revenue 30% 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 Q3 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 $11.9 billion and more than $1.66 billion in cash, the company has the capacity to continue to prioritise growth over profitability.

We were very impressed by the strong improvements in SentinelOne’s gross margin this quarter. And we were also excited to see that it outperformed Wall St’s revenue expectations. Zooming out, we think this was a fantastic quarter that should have shareholders cheering. But investors might have been expecting more and the company is down 7.54% on the results and currently trades at $47.3 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.