Published on July 1st, 2021 📆 | 2283 Views ⚑0
Despite CrowdStrike, 3 Reasons To Buy SentinelOne After Record Cybersecurity IPO
There are many publicly-traded cybersecurity companies. However, Mountain View-based SentinelOne — which went public on June 30 — can brag that it is “the highest-valued cybersecurity IPO ever,” according to CNBC.
After enjoying a 21% rise on its first day of trading, is it too late to invest in SentinelOne?
After speaking with CEO, Tomer Weingarten, a few hours prior to its IPO, I see three reasons to consider buying the stock:
- Large Addressable Markets
- Superior Product Performance
- Aiming For Triple-Digit Growth
To be sure, there are risks to buying it now. After all, lockups will expire — creating downward pressure on the stock as early investors sell. What’s more, those ambitious growth goals are tough to beat every quarter.
(I have no financial interest in the securities mentioned in this post).
SentinalOne’s Boffo IPO
SentinelOne supplies a service that defends — with help from an AI-based platform — computer networks from cyberattacks. “Its Singularity Platform incorporates AI into an extended detection and response (XDR) platform to enable autonomous cybersecurity defense,” according to CNBC.
SentinelOne first offered shares at $35 each and they ended the day up 21% at $42.50. SentinelOne’s IPO valuation was a record for a cybersecurity company. How so? “Its implied valuation was $8.9 billion — $2.2 billion more than CrowdStrike’s $6.7 billion market debut in 2019, and a previous era’s cyber defense IPO big winner, McAfee,” noted CNBC.
SentinelOne is growing fast and losing money. According to its prospectus, revenue grew 108% in the latest quarter ending in April to $37.4 million, while its net losses more than doubled from $26.6 million to $62.6 million. Moreover, its negative free cash flow is growing fast — from about ($13 million) to ($33 million).
Two years ago, when SentinalOne raised $120 million, it was valued at $500 million. Now it’s worth about $10 billion, according to MarketWatch. That’s a pretty impressive 347% compound annual growth rate in value.
Large Addressable Markets
SentinelOne has expanded the scope of its business since I first spoke with Weingarten about two years ago. As he told me in June 2019, SentinelOne was aiming at the $8 billion endpoint security market which protects smartphones, laptops, tablets, cloud services, and Internet of Things (IoT) devices which access corporate systems from cyberattacks.
Now SentinelOne is aiming at three markets valued at nearly $30 billion:
- Corporate Endpoint Security. A $9.7 billion market in 2021 and growing to $12 billion in 2024; comprising Modern Endpoint Security, Server Security (physical servers and cloud workload security), Information Protection and Control, and Endpoint Management;
- Cybersecurity Analytics, Intelligence, Response, and Orchestration. A $13.1 billion market in 2021 and growing to $17.1 billion in 2024; comprising Device Vulnerability Assessment, Forensics and Incident Investigation, Policy and Compliance, Security Device Systems Management, SIEM, and Software Vulnerability Assessment; and
- IT Operations Management. A $5.9 billion market in 2021 and growing to $11.1 billion in 2024.
Superior Product Performance
Not surprisingly, these markets are full of rivals. Yet SentinelOne is doing pretty well. Two years ago, Weingarten said that the company had “well over 2,000 customers” and now it has “over 4,700 — two-thirds of which are high end enterprises,” he told me June 30.
SentinelOne is competing effectively with rivals such as CrowdStrike and Palo Alto Networks. As he told CNBC, “We maintain an incredible win rate across every competitor out there. Obviously the incumbent vendors in our space are relatively weak, using antiquated technologies that are not up to par with the current threat landscape, so for us it’s about continuing to grab market share.”
SentinelOne prides itself on having fended off cyberattacks — most notably the recent SUNBURST one [the malware that tricked systems into uploading it as an update to the SolarWinds’ Orion software] for all of its customers, he told me.
Its Singularity platform does this in a “highly autonomous fashion — deflecting attacks in real-time with no human intervention. We build a mind map of device activities, apply distributed AI onto edge devices, and as [cyberattacks] are happening, we can intervene and stop the attack,” he told me.
Weingarten has referred to CrowdStrike as its “main competitor.” CrowdStrike is much larger than SentinelOne. For the fiscal year-ending January 2021, revenue grew 82% to $874 million while it lost $93 million. Since its April 2019 IPO, CrowdStrike stock has bolted at a 135% annual rate to $252 a share — valuing the company at nearly $57 billion.
Customers give CrowdStrike high marks. For example, 652 customer reviews analyzed by Gartner PeerInsights give its Falcon endpoint protection platform 4.9/5 stars. One customer noted “Overall I am thrilled we went with CrowdStrike. The support is very responsive in my experience so far. The proof of concept demo I went through before selecting this product was thorough and set us up for success when we did decide to continue our relationship with CrowdStrike.”
They also love the SentinelOne Singularity Platform. 670 customers gave it 4.9/5 stars, according to Gartner PeerInsights. 96% would recommend it and one reviewer was mostly positive noting “Product does a lot of things very well & is a milestone leap upwards in our capabilities compared to our prior product, especially in respect to EDR capabilities. Support has been relatively effective, but can be a little slow on response times.”
Clearly competition in this industry will remain fierce.
Aiming For Triple-Digit Growth
SentinelOne has been growing at triple-digit rates — but is slowing down. In 2019, Weingarten told me the company was enjoying“300% growth year-on-year.” Yesterday he said, “We have grown at over 100% year over year for the last several quarters and in the first quarter annual recurring revenues were up 116%.”
SentinelOne views cash flow positivity and profitability as “a long-term target,” he told me. “As we spend more, we grow more. We are [investing to] acquire new market share while improving unit economics by operating in a more efficient manner.”
SentinelOne will use the proceeds from its IPO for acquisitions, more sales people, and expanding what its product does for customers. “We will make acquisitions — for example, we acquired a data analytics company. We will put more boots on the ground. And we will add more modules to our service,” he said.
Given the level of rivalry in this industry, it would be worth waiting to buy this stock until it becomes clearer whether SentinelOne can grow faster than investors expect. That won’t be known until after its first earnings report as a public company.
If it beats expectations and raises guidance, I expect the stock to go up.