SentinelOne CEO and co-founder Tomer Weingarten recently told me he's "glad and grateful that we had a great quarter last quarter, but I wouldn’t take any quarter, by any company, for granted at this point in the time.” I thought Tomer was preparing me to be disappointed this cycle. I wasn’t.
SentinelOne released earnings this week that beat consensus estimates for the top and bottom line for the third consecutive quarter, showing a dramatic year-over-year increase in revenue, annual recurring revenue (ARR), and growth in gross margin.
It did this while competing in one of the fiercest segments in the technology market and aggressively broadening its solution portfolio. The company demonstrated steady execution, showing growth in all the right areas.
Financial Performance
SentinelOne exhibited a robust financial performance during the fiscal third quarter, surpassing expectations across several key metrics. The company reported a significant 42% growth in revenue, reaching $164 million, while the Annual Recurring Revenue (ARR) saw a 43% year-over-year increase, amounting to $664 million.
This growth was underscored by a net new ARR of $52 million for the quarter, indicating an 11% year-over-year acceleration. SentinelOne's focus on expanding its customer base and enhancing its existing customer engagements contributed to this growth trajectory, showing that its focus and efforts are paying off.
The company also achieved a remarkable gross margin of 79%, a record high that illustrates the scalability and efficiency of its business model. Its margin performance aligns with the company's long-term target range and reflects healthy pricing strategies and the substantial value delivered to customers.
Key Milestones
On its earnings call, SentinelOne highlighted several key non-financial milestones that show its technological advancements, market expansion, and strategic initiatives are paying off.
SentinelOne experienced strong demand for its cloud security and data lake solutions, which saw triple-digit growth. The company also began delivering its new product, Purple AI, to enterprises, marking a significant step in its product offering expansion.
On the partnership front, SentinelOne solidified its leadership in the mid-market enterprise sector and expanded its business with leading Managed Service Providers (MSPs), securing larger and longer-term commitments.
The company's total customer base exceeded 11,500, a notable increase that underscores its growing market presence. This number is particularly significant, considering it doesn't include customers served by MSSP partners.
The launch of PinnacleOne, SentinelOne’s new strategic advisory practice, marked a significant step in providing comprehensive cybersecurity guidance and services to enterprises and governments. Including renowned industry experts Chris Krebs and Alex Stamos in this initiative added credibility and expertise to the team. This one will be a market expander.
Analyst’s Take
The cybersecurity segment is doing well, with nearly every publicly traded cybersecurity company showing growth. SentinelOne’s closest competitor in the space, CrowdStrike, also announced estimate-beating earnings, growing its top line by 34% and its ARR by 35%. Palo Alto Network's top line was up 20% during the same period. SentinelOne's 42% revenue growth shows it outperforming a strongly performing competitive landscape. Collectively, earnings also show the cybersecurity is performing better than most other IT infrastructure segments.
SentinelOne’s earnings release paints a picture of a company navigating a complex cybersecurity landscape with notable agility and strategic foresight. Its 42% year-over-year revenue growth and 43% increase in annual recurring revenue (ARR) are commendable, a clear demonstration of SentinelOne's growing market presence in an increasingly competitive space. This is higher growth than most of its competitors are seeing.
Its raised guidance for fiscal year 2024 is a bold statement of confidence, one that reflects the company's solid fundamentals and growing market demand for its innovative cybersecurity solutions.
CEO Tomer Weingarten doesn’t take any of this for granted. He told me that he knows there’s a bearish view of companies like SentinelOne and that the company must continuously prove itself. Tomer said he's "fine with proving it, because I think we're undervalued."
He said SentinelOne is "marching towards profitability, and we want to remove excuses from people who think we're not a good company." There's little doubt that customers are responding to SentinelOne's strategic focus.
The company’s fiscal third-quarter earnings showcase a company in an intense growth phase, adeptly capitalizing on market opportunities while facing significant external challenges. Tomer and his team are successfully removing the excuses for people to doubt the company.
SentinelOne’s ability to continue executing its strategic initiatives while facing a challenging competitive landscape and depressed macro environment will be critical to its long-term success in the dynamic cybersecurity market. SentinelOne's leadership team, however, has continuously demonstrated it has a steady hand in managing the bottom line while growing its market and expanding its footprint.
Disclosure: Steve McDowell is an industry analyst, and NAND Research an industry analyst firm, that engages in, or has engaged in, research, analysis, and advisory services with many technology companies, which may include those mentioned in this article. Mr. McDowell does not hold any equity positions with any company mentioned in this article.
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