SentinelOne's (NYSE:S) Q4: Beats On Revenue But Stock Drops

Full Report / March 13, 2024

Cyber security company SentinelOne (NYSE:S) announced better-than-expected results in Q4 FY2023, with revenue up 38.1% year on year to $174.2 million. The company expects next quarter's revenue to be around $181 million, in line with analysts' estimates. It made a non-GAAP loss of $0.02 per share, improving from its loss of $0.13 per share in the same quarter last year.

SentinelOne (S) Q4 FY2023 Highlights:

  • Revenue: $174.2 million vs analyst estimates of $169.4 million (2.8% beat)
  • EPS (non-GAAP): -$0.02 vs analyst estimates of -$0.04
  • Revenue Guidance for Q1 2024 is $181 million at the midpoint, roughly in line with what analysts were expecting
  • Management's revenue guidance for the upcoming financial year 2024 is $815 million at the midpoint, in line with analyst expectations and implying 31.2% growth (vs 49.2% in FY2023)
  • Gross Margin (GAAP): 72.3%, up from 68.5% in the same quarter last year
  • Free Cash Flow was -$10.64 million compared to -$26.38 million in the previous quarter
  • Annual Recurring Revenue: $724.4 million at quarter end, up 38.8% year on year
  • Net Revenue Retention Rate: 115%, in line with the previous quarter
  • Market Capitalization: $8.35 billion

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

Cyber attacks are costly for organizations, as they lead to the loss of sensitive information, destruction of assets, and a diminished brand image. While organizations invest in tools and devices to prevent cyber threats, they still get breached due to their reliance on old security solutions that are slow, don't scale, don't talk to each other and are often unable to keep up with the new threats.

SentinelOne's software allows organizations to monitor all their online assets and networks, and to automate the process of defending against cyber attacks. Its main promise is speed and autonomy, its machine learning based system is able to automatically not only identify an attack, but also block and remediate it and its detection capabilities run locally and don't depend on any cloud-based connections, which reduces the response time even further.

Once the SentinelOne software is installed on a system such as a laptop or a web server, it can identify every IT asset within the organization. It then connects signals and data from these assets in one place where further analysis is performed to detect security threats. SentinelOne also provides analysts with detailed information on malicious software and processes running on a network by proactively searching for suspicious activities. This makes it faster and more efficient for organizations to 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.

SentinelOne faces competition from legacy security platforms who are shifting to modern cloud offerings such as Microsoft (NASDAQ:MSFT), Palo Alto Networks (NYSE:PANW) and McAfee (NASDAQ:MCFE) as well as cloud-native innovators such as CrowdStrike (NASDAQ:CRWD).

Sales Growth

As you can see below, SentinelOne's revenue growth has been incredible over the last three years, growing from $29.87 million in Q4 2021 to $174.2 million this quarter.

SentinelOne Total Revenue

Unsurprisingly, this was another great quarter for SentinelOne with revenue up 38.1% year on year. However, its growth did slow down compared to last quarter as the company's revenue increased by just $10.01 million in Q4 compared to $14.74 million in Q3 2024. While we'd like to see revenue increase by a greater amount each quarter, a one-off fluctuation is usually not concerning.

Next quarter's guidance suggests that SentinelOne is expecting revenue to grow 35.7% year on year to $181 million, slowing down from the 70.5% year-on-year increase it recorded in the same quarter last year. For the upcoming financial year, management expects revenue to be $815 million at the midpoint, growing 31.2% year on year compared to the 47.1% increase in FY2024.

Large Customers Growth

This quarter, SentinelOne reported 1,133 enterprise customers paying more than $100,000 annually, an increase of 73 from the previous quarter. That's quite a bit more contract wins than last quarter and about the same as what we've seen in past quarters, demonstrating that the business has the sales momentum required to drive continued growth. We've no doubt shareholders will take this as an indication that the company's go-to-market strategy is running smoothly.

SentinelOne customers paying more than $100,000 annually

Product Success

One of the best parts about the software-as-a-service business model (and a reason why SaaS companies trade at such high valuation multiples) is that customers typically spend more on a company's products and services over time.

SentinelOne Net Revenue Retention Rate

SentinelOne's net revenue retention rate, a key performance metric measuring how much money existing customers from a year ago are spending today, was 115% in Q4. This means that even if SentinelOne didn't win any new customers over the last 12 months, it would've grown its revenue by 15%.

Despite falling over the last year, SentinelOne still has a good net retention rate, proving that customers are satisfied with its software and getting more value from it over time, which is always great to see.


What makes the software as a service business so attractive is that once the software is developed, it typically shouldn't cost much to provide it as an ongoing service to customers. SentinelOne's gross profit margin, an important metric measuring how much money there's left after paying for servers, licenses, technical support, and other necessary running expenses, was 72.3% in Q4.

SentinelOne Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.72 left to spend on developing new products, sales and marketing, and general administrative overhead. SentinelOne's gross margin is lower than that of a typical SaaS businesses and its decline over the last year is putting it in an even deeper hole. Gross margin has a major impact on a company’s ability to develop new products and invest in marketing, which may ultimately determine the winner in a competitive market. This makes it a critical metric to track for the long-term investor.

Cash Is King

If you've followed StockStory for a while, you know that we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can't use accounting profits to pay the bills. SentinelOne burned through $10.64 million of cash in Q4 , increasing its cash burn by 58.1% year on year.

SentinelOne Free Cash Flow

SentinelOne has burned through $83.63 million of cash over the last 12 months, resulting in a negative 13.5% free cash flow margin. This low FCF margin stems from SentinelOne's constant need to reinvest in its business to stay competitive.

Key Takeaways from SentinelOne's Q4 Results

Although SentinelOne beat analysts' revenue expectations this quarter, its net revenue retention rate of 115% missed estimates of 118%. That means its existing customers bought fewer products, and the company is more dependent on new customers (expensive to acquire) to generate growth. Its revenue guidance for the upcoming year also came in below expectations, suggesting a slowdown in demand amidst an intense competitive landscape with cybersecurity peers like CrowdStrike. Overall, this was a tough quarter for SentinelOne. The company is down 10% on the results and currently trades at $25.15 per share.

Is Now The Time?

When considering an investment in SentinelOne, investors should take into account its valuation and business qualities as well as what's happened in the latest quarter.

There are several reasons why we think SentinelOne is a great business. While we'd expect growth rates to moderate from here, its revenue growth has been exceptional over the last three years. And while its growth is coming at a cost of significant cash burn, the good news is its customers are increasing their spending quite quickly, suggesting they love the product. On top of that, its efficient customer acquisition is better than many similar companies.

SentinelOne's price-to-sales ratio of 10.3x based on the next 12 months indicates the market is optimistic about its growth prospects. But looking at the tech landscape today, SentinelOne's qualities stand out. We still like the stock at this price, despite the higher multiple.

Wall Street analysts covering the company had a one-year price target of $29.12 right before these results (compared to the current share price of $25.15), implying they see short-term upside potential in SentinelOne.

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