SentinelOne's (NYSE:S) Q4 Sales Top Estimates But Full Year Guidance Underwhelms

Kayode Omotosho /
2023/03/14 4:16 pm EDT

Cyber security company SentinelOne (NYSE:S) reported Q4 FY2023 results that beat analyst expectations, with revenue up 92.1% year on year to $126.1 million. The company expects that next quarter's revenue would be around $137 million, which is the midpoint of the guidance range. That was roughly in line with analyst expectations. SentinelOne made a GAAP loss of $93.7 million, down on its loss of $71.7 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) Q4 FY2023 Highlights:

  • Revenue: $126.1 million vs analyst estimates of $124.7 million (1.13% beat)
  • EPS (non-GAAP): -$0.13 vs analyst estimates of -$0.16
  • Revenue guidance for Q1 2024 is $137 million at the midpoint, roughly in line with what analysts were expecting
  • Management's revenue guidance for upcoming financial year 2024 is $635.5 million at the midpoint, missing analyst estimates by 2.42% and predicting 50.5% growth (vs 108% in FY2023)
  • Free cash flow was negative $25.4 million, compared to negative free cash flow of $64.7 million in previous quarter
  • Net Revenue Retention Rate: 130%, down from 134% previous quarter
  • Customers: 10,000, up from 9,250 in previous quarter
  • Gross Margin (GAAP): 68.5%, up from 63.1% same quarter last year

“We continued to deliver leading growth and margin improvement, a result of stronger execution and our competitive position. Our ARR crossed half a billion dollars, and our global customer-base exceeded 10,000 - two major milestones. Our sights are set much higher,” 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 two years, growing from quarterly revenue of $29.9 million in Q4 FY2021, to $126.1 million.

SentinelOne Total Revenue

This was another standout quarter with the revenue up a splendid 92.1% year on year. But the growth did slow down a little compared to last quarter, as SentinelOne increased revenue by $10.8 million in Q4, compared to $12.8 million revenue add in Q3 2023. So while the growth is overall still impressive, we will be keeping an eye on the slowdown.

Guidance for the next quarter indicates SentinelOne is expecting revenue to grow 75.1% year on year to $137 million, slowing down from the 109% year-over-year increase in revenue the company had recorded in the same quarter last year. For the upcoming financial year management expects revenue to be $635.5 million at the midpoint, growing 50.5% compared to 106% increase in FY2023.

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 130% in Q4. That means even if they didn't win any new customers, SentinelOne would have grown its revenue 30% year on year. Despite the recent drop this is still 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 Q4 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 $3.95 billion and more than $623.5 million 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 the really strong revenue growth. On the other hand, it was unfortunate to see that SentinelOne's revenue guidance for the full year missed analysts' expectations and it indicates quite a significant slowdown in growth. Overall, it seems to us that this was a complicated quarter for SentinelOne. The company is down 2.14% on the results and currently trades at $14.15 per share.

Should you invest in SentinelOne 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.