SentinelOne (S)

Cybersecurity AI platform provider SentinelOne (NYSE:S) met Wall Street’s revenue expectations in Q2 CY2025, with sales up 21.7% year on year to $242.2 million. The company expects next quarter’s revenue to be around $256 million, close to analysts’ estimates. Its non-GAAP profit of $0.04 per share was $0.01 above analysts’ consensus estimates.

Company Overview

Built on the principle of "fighting machine with machine," SentinelOne (NYSE:S) provides an AI-powered cybersecurity platform that autonomously prevents, detects, and responds to threats across endpoints, cloud workloads, and identity systems.

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 competes with endpoint security providers like CrowdStrike Holdings, Inc. and VMware Carbon Black, legacy antivirus companies including Trellix (formerly McAfee), Symantec (owned by Broadcom), and Microsoft, as well as broader network security providers such as Palo Alto Networks who offer comprehensive security portfolios.

A company’s long-term sales performance can indicate its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Thankfully, SentinelOne’s 44.2% annualized revenue growth over the last three years was incredible. Its growth beat the average software company and shows its offerings resonate with customers, a helpful starting point for our analysis.

This quarter, SentinelOne’s year-on-year revenue growth of 21.7% was excellent, and its $242.2 million of revenue was in line with Wall Street’s estimates. Company management is currently guiding for a 21.5% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 21% over the next 12 months, a deceleration versus the last three years. Despite the slowdown, this projection is noteworthy and implies the market is baking in success for its products and services.

While reported revenue for a software company can include low-margin items like implementation fees, annual recurring revenue (ARR) is a sum of the next 12 months of contracted revenue purely from software subscriptions, or the high-margin, predictable revenue streams that make SaaS businesses so valuable.

SentinelOne’s ARR punched in at $1 billion in Q2, and over the last four quarters, its growth was fantastic as it averaged 26.2% year-on-year increases. This performance aligned with its total sales growth and shows that customers are willing to take multi-year bets on the company’s technology. Its growth also makes SentinelOne a more predictable business, a tailwind for its valuation as investors typically prefer businesses with recurring revenue.

This quarter, SentinelOne reported 1,513 enterprise customers paying more than $100,000 annually, an increase of 54 from the previous quarter. That’s quite a bit more contract wins than last quarter but also quite a bit below what we’ve observed over the previous year. This indicates the company is optimizing its go-to-market strategy to reinvigorate growth.

The customer acquisition cost (CAC) payback period measures the months a company needs to recoup the money spent on acquiring a new customer. This metric helps assess how quickly a business can break even on its sales and marketing investments.

It’s relatively expensive for SentinelOne to acquire new customers as its CAC payback period checked in at 65 months this quarter. The company’s drawn-out sales cycles partly stem from its focus on enterprise clients who require some degree of customization, resulting in long onboarding periods. The complex integrations are a double-edged sword - while SentinelOne may not see immediate returns from its sales and marketing investments, it is rewarded with higher switching costs and lifetime value if it can continue meeting its customer’s needs.

What makes the software-as-a-service model so attractive is that once the software is developed, it usually doesn’t cost much to provide it as an ongoing service. These minimal costs can include servers, licenses, and certain personnel.

SentinelOne’s gross margin is good for a software business and points to its solid unit economics, competitive products and services, and lack of meaningful pricing pressure. As you can see below, it averaged an impressive 75% gross margin over the last year. Said differently, SentinelOne paid its providers $25.02 for every $100 in revenue.

SentinelOne’s gross profit margin came in at 75% this quarter, in line with the same quarter last year. On a wider time horizon, SentinelOne’s full-year margin has been trending up over the past 12 months, increasing by 1.6 percentage points. If this move continues, it could suggest better unit economics due to more leverage from its growing sales on the fixed portion of its cost of goods sold (such as servers).

SentinelOne’s expensive cost structure has contributed to an average operating margin of negative 37.2% over the last year. This happened because the company spent loads of money to capture market share. As seen in its fast revenue growth, the aggressive strategy has paid off so far, and Wall Street’s estimates suggest the party will continue. We tend to agree and believe the business has a good chance of reaching profitability upon scale.

Over the last year, SentinelOne’s expanding sales gave it operating leverage as its margin rose by 7.4 percentage points. Still, it will take much more for the company to reach long-term profitability.

SentinelOne’s operating margin was negative 33.3% this quarter.

If you’ve followed StockStory for a while, you know 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 has shown weak cash profitability over the last year, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 1.8%, subpar for a software business.

SentinelOne burned through $7.15 million of cash in Q2, equivalent to a negative 3% margin. The company’s cash burn was similar to its $5.44 million of lost cash in the same quarter last year. These numbers deviate from its longer-term margin, but we wouldn’t read too much into the short term because investment needs can be seasonal, causing temporary swings.

Over the next year, analysts predict SentinelOne’s cash conversion will improve. Their consensus estimates imply its free cash flow margin of 1.8% for the last 12 months will increase to 9.5%, giving it more flexibility for investments, share buybacks, and dividends.

Companies with more cash than debt have lower bankruptcy risk.

SentinelOne is a well-capitalized company with $810.8 million of cash and $17.68 million of debt on its balance sheet. This $793.1 million net cash position is 12.6% of its market cap and gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

It was good to see SentinelOne narrowly top analysts’ annual recurring revenue expectations this quarter. Full-year sales guidance was also in line with analysts' estimates. Zooming out, we think this was a decent quarter. The stock traded up 6.9% to $18.85 immediately after reporting.

Updated: November 8, 2025 at 9:08 PM EST

Before making an investment decision, investors should account for SentinelOne’s business fundamentals and valuation in addition to what happened in the latest quarter.

There are definitely a lot of things to like about SentinelOne. First off, its revenue growth was exceptional over the last five years. And while its operating margins reveal poor profitability compared to other software companies, its surging ARR shows its fundamentals and revenue predictability are improving. On top of that, its gross margin suggests it can generate sustainable profits.

SentinelOne’s price-to-sales ratio based on the next 12 months is 5.1x. Looking at the software landscape right now, SentinelOne trades at a pretty interesting price. If you trust the business and its direction, this is an ideal time to buy.

Wall Street analysts have a consensus one-year price target of $23.53 on the company (compared to the current share price of $16.92), implying they see 39.1% upside in buying SentinelOne in the short term.