The attention generated by initial public offerings (IPOs) and growing demand for cybersecurity came together in the recent IPO of SentinelOne (NYSE: S). The company went public on June 30 at an IPO price of $ 35 per share and is trading around $ 52 at the time of writing.

SentinelOne operates in a growing industry. Research firm Gartner estimates that global spending on IT security and risk management will reach $ 150.4 billion this year, up from $ 133.8 billion in 2020. The size and strong growth of the industry has led to a multitude publicly traded cybersecurity companies. An investor has no shortage of choice.

But does SentinelOne stand out as a solid long-term investment? Or should you ignore the latter entering the crowded cybersecurity realm?

Image source: Getty Images.

Strong growth abounds

The growth of the cybersecurity industry is a given in the current climate. High-profile cyber attacks are occurring with increasing frequency, including the Colonial Pipeline hack and an alleged state-sponsored attack on Microsoft. The stakes are so high that the World Economic Forum has ranked cyberattacks as one of the top global threats for 2021.

In this environment, SentinelOne is experiencing strong growth. The company’s 2021 fiscal year, which ended Jan. 31, saw revenue double year-over-year to $ 93.1 million, from $ 46.5 million in 2020. This growth continued in its first fiscal quarter of 2022, ended April 30. Revenue more than doubled to $ 37.4 million from $ 18. million the previous year.

The company generates revenue from subscriptions to its cybersecurity services, so a key performance indicator is annualized recurring revenue (ARR). This measures the execution rate of annual revenue generated by subscribed customers. SentinelOne has successfully developed the ARR over time.

A bar graph shows the annualized recurring revenue growth over the past 6 quarters.

DATA SOURCE: SENTINELONE. TABLE BY AUTHOR.

The company’s ability to acquire customers has fueled its ARR growth. It ended the first quarter with more than 4,700 customers, up from around 2,700 the previous year.

Other factors to consider

While revenue and customer growth have been strong, SentinelOne’s finances are not perfect. Its net loss in the first quarter of the year was $ 62.6 million, compared to $ 26.6 million last year. It’s common for tech companies to sacrifice profitability to fuel growth, so it’s not too surprising that this business is operating at a loss.

Its gross margin has declined significantly year over year, from 58% in the first fiscal quarter of last year to 51% this year. The decrease is due to increased expenses due to factors such as adding staff and increasing infrastructure costs to support customer growth.

SentinelOne expects costs to decrease over time as it improves operational efficiency. One of the steps taken in this effort is the acquisition of Scalyr, which is expected to help the company advance its data ingestion and other technical capabilities.

The balance sheet is strong, with total assets of $ 520.6 million, most in cash and cash equivalents of $ 395.5 million, eclipsing total liabilities of $ 220 million.

Revenue is also expected to continue to grow, as cybersecurity is a must-have for almost every organization today. The company has the global expansion of the industry like a tailwind, and it has international growth opportunities: its international revenue was only about 30% of its total first quarter revenue. .

The final verdict

The key question regarding SentinelOne’s long-term outlook is how it will fare in a crowded area. The company claims that the proprietary technology in its Singularity platform can detect threats with greater accuracy and speed than its competitors, such as Mcafee and CrowdStrike Holdings.

Independent testing by SE Labs found that the platform accurately stops 100% of cyber threats launched against it. This is the kind of result that attracts customers to a cybersecurity solution.

Its strong product, combined with the large size of the cybersecurity industry, allows SentinelOne to capture its market share. The company’s growing customer base proves it does just that.

Given its proprietary technology, strong balance sheet, and ARR’s continued growth opportunities, SentinelOne is poised to experience further success over the next several years as the demand for cybersecurity continues to grow. I think these factors strongly justify the purchase of SentinelOne.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.


Leave a Reply

Your email address will not be published.