Why Are SentinelOne (S) Shares Soaring Today

Petr Huřťák /
2023/12/06 10:49 am EST

What Happened:

Shares of cyber security company SentinelOne (NYSE:S) jumped 15.9% in the morning session after the company reported a "beat and raise "quarter. Third-quarter results exceeded Wall Street's expectations for revenue, ARR (recurring revenue) and EPS. Notably, the company's net new ARR growth accelerated 11% year on year, which is a rare feat for a company already growing quite robustly. Looking ahead, the company's revenue guidance for the next quarter exceeded Consensus estimates, and there were upward revisions to full-year revenue and non-GAAP operating income margin guidance. Lastly, management reiterated the guidance for positive free cash flow by the second quarter of the next fiscal year, highlighting the focus on balancing growth and profitability. Overall, this was a strong quarter that should satisfy shareholders. 

During the earnings call, SentinelOne highlighted some important business updates. Michael Cremen was appointed as the new Chief Revenue Officer (CRO). He joined SentinelOne from Elastic, where he helped the company grow its business to over $1 billion. 

SentinelOne also introduced PinnacleOne, a new strategic risk analysis and advisory group led by renowned cybersecurity experts Chris Krebs and Alex Stamos. PinnacleOne was launched to help "enterprises and governments build world class cybersecurity programs." Chris Krebs was the former director of the U.S. Department of Homeland Security's Cybersecurity and Infrastructure Security Agency (CISA), while Stamos has previously held key security roles, serving as the Chief Security Officer at Facebook and the Chief Information Security Officer at Yahoo.

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What is the market telling us:

SentinelOne's shares are very volatile and over the last year have had 31 moves greater than 5%. But moves this big are very rare even for SentinelOne and that is indicating to us that this news had a significant impact on the market's perception of the business. 

The previous big move we wrote about was 7 days ago, when the company gained 5.9% following robust earnings results from CrowdStrike and Okta. CrowdStrike's Q3 results topped analysts' ARR (annual recurring revenue) and revenue expectations and beat on non-GAAP operating income and non-GAAP EPS by a more convincing amount. Notably, CrowdStrike surpassed the $3 billion ARR milestone. Looking ahead, While CrowdStrike's next quarter's revenue guidance was only in-line, non-GAAP operating income was head, and full year guidance was also raised. 

Separately, Okta reported Q3 earnings results that beat Wall Street's sales estimates, driven by better-than-expected subscription revenue. Its adjusted operating income, free cash flow, EPS, and next quarter's revenue and EPS guidance also topped analysts' forecasts. Overall, these results indicate that demand for cybersecurity products remains strong even in a challenging macroeconomic environment. 

Moreover, the macro provided a tailwind, as many tech stocks flashed green. Specifically, the yield on the 10-year Treasury fell below 4.3%, the first time it has dropped to these levels since September 2023. There seems to be increased optimism in the market that because inflation is stabilizing, interest rates could stabilize or even move lower. As a reminder, lower rates are a good for stock valuations, especially for tech companies where the market needs to discount back cash flows further out in the future. When the math is done to discount these cash flows back to today, a lower assumed discount rate leads to higher present values.

SentinelOne is up 63.9% since the beginning of the year. Investors who bought $1,000 worth of SentinelOne's shares at the IPO in June 2021 would now be looking at an investment worth $561.88.

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