What Happened:
Shares of cyber security company SentinelOne (NYSE:S) jumped 5.9% in the morning session after 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.
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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%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The biggest move we wrote about over the last year was 6 months ago, when the stock dropped 34.9% on the news that the company reported first-quarter results that missed analysts' revenue estimates. Earnings per share (EPS) beat. However, the company continued to burn cash. Guidance was also weak. Revenue guidance for the next quarter was below Consensus. Full year guidance revenue was lowered and also came in below expectations. Lowering guidance is always a worrisome sign, and the company reducing full year revenue guidance by more than 6% is also a meaningful magnitude. Additionally, operating margin guidance was maintained on the lower revenues; it would have been much more comforting had margins increased, showing that the company was perhaps prioritizing profits and efficiency over growth at all costs. Management called out a difficult macro backdrop and acknowledged that the quarter was a "tough" one. The overall results and commentary were weak, with the topline miss and underwhelming guidance providing little reason to be optimistic.
SentinelOne is up 31.3% since the beginning of the year, but at $19.14 per share it is still trading 10.5% below its 52-week high of $21.38 from May 2023. Investors who bought $1,000 worth of SentinelOne's shares at the IPO in June 2021 would now be looking at an investment worth $450.12.
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