SentinelOne: Reversal In-Play For Cybersecurity Stocks

Key Points

• SentinelOne results confirm a bottom for cybersecurity stocks. 
• Analysts see 30% upside or more for this and other cybersecurity stocks. 
• A reversal is in-play for this stock but there is a critical hurdle to be crossed. 

The Q4 results from SentinelOne NASDAQ: S echo news from cybersecurity companies from DataDog NASDAQ: DDOG to Crowdstrike NASDAQ: CRWD. The takeaways are that fears of slowing were overblown. Within the cybersecurity sector, market leaders like Palo Alto Networks and AI-powered solutions like Crowedstrike and SentinelOne are set up to outperform. AI, artificial intelligence, is not just a fad. It is the evolution of digital computing and the Internet and a phenomenon happening for white and black hats alike. AI will become increasingly important in securing connections, networks and endpoints across industries and verticals. 

“CrowdStrike’s growing market share showcases customers' recognition of the Falcon platform’s technology leadership and advanced AI that drives better security outcomes, consolidation and lower TCO,” said George Kurtz, CrowdStrike’s president, chief executive officer and co-founder. 

SentinelOne Doubles On YOY Basis 

That’s right, SentinelOne growth slowed to a mere 92% in Q4, but the company more than doubled on a full-year basis. The full-year revenue came in at up 106%, and sequential growth is expected to remain strong. The Q4 revenue reached $126.09 million or $1.4 million better than expected.

The combination of customer acquisition and increased services per customer drove the gain. Annual recurring revenue is up 88%, and new customers are up 50% in evidence of that statement. Customers contributing more than $100,000 in ARR increased by 75%, which indicates accelerated adoption by large corporations and organizations. The net retention rate, a measure of business growth among existing customers, is up 130% and is consistent with metrics reported by Crowdstrike. 

“We continue to strengthen our technology leadership. Once again, we are a leader in Gartner's Magic Quadrant for Endpoint Protection Platform and achieved the top ranking across all three Gartner's Critical Capabilities for Endpoint Protection Platforms,” said Tomer Weingarten, CEO of SentinelOne.

The earnings and guidance are also favorable if mixed on a full-year basis. The company posted a net loss of $0.13 adjusted but beat the consensus by $0.03 on leverage, top-line strength and internal efforts to improve efficiency. The Q1 guidance is strong and expects revenue to grow by 8.7% sequentially and 75% compared to last year. The only bad news is that growth is slowing from triple-digits to high-double-digits, which may affect the share price (although it doesn’t seem to be a problem now).

The Analysts Put The Bottom In SentinelOne 

Analysts have been lowering their price targets for SentinelOne for the past year, but that trend is over. The 2023 guidance has sparked at least 5 analysts' commentaries, including 2 price target increases and 2 reductions. The takeaway from the activity is that reductions and increases offset each other, there was very little change in the Marketbeat.com consensus target, and the consensus target is about 35% above the current price action. The consensus sentiment is a Moderate Buy that shows no sign of slipping. 

The chart of SentinelOne is favorable and shows a bottom in place, but there is risk in the near term. The market is still below the 150-day EMA, which can be expected to provide resistance if only a tiny amount. If the market can get above this level, it may continue upward. If not, this cyber stock may be range bound until later in the year.