Looks like $CRWD and $S have played out more or less how you expected! However, I think this presents a great buying opportunity for SentinelOne which just isn't getting enough credit for its high growth rate and now first quarter of + FCF.
I published a piece prior to earnings and included some comments post-earnings as well (see below). Would love to hear your thoughts!
Thanks for the note. Good write up. You've clearly done the work to understand the numbers.
I haven't followed S as much recently, but two factors mentioned in this original recap still come into play for me two years later:
1) CRWD has always had much better numbers at the same stage of growth. While you compare the two now, the better comparison is at a similar revenue run rate. From that perspective, CRWD is the much better performer. Even with the huge difference in size now, CRWD still carries a higher NRR.
2) Part of the reason I sold was SentinelOne management's difficulty in meeting guides, particularly with ARR. It appears that is an issue in yesterday's report as well with the company being forced to restate a couple down. The whole point of owing software companies is the recurring revenue and extra visibility that revenue stream provides in estimating future business. S's management team is by far the worst I have owned in reliably presenting their numbers in a way that makes sense.
If interested, you can probably skim through a few of the monthly reports posted past this date. It should give my thinking on S through the date I eventually exited.
If I take a step back and give my impartial take on the reaction today, it's largely due to exactly the 2 points you're making.
1. $S is an earlier stage/scale business relative to $CRWD, $ZS, etc. and therefore SHOULD have a meaningfully higher growth rate. However, brutal environment, so I still think their growth rate is very impressive. But seeing others in the space revise earnings up while $S didn't (basically flat, let's be real...0.4% lol) probably caused some sell action.
2. Absolutely. Management needs to improve guidance and be more consistent. I didn't love that they didn't formally report NRR all of a sudden. That's a super important metric and even if it's declining slightly (they noted after an analyst question that it was above 110% still), they should report it and not be cagey.
Thanks for taking the time to respond so thoughtfully! You may not follow as closely of late, but you very obviously have a great understanding of the business. Cheers.
Thanks for sharing, what's your plan with your $S position going forward? Totally agree with management tone not giving a sense of security, confidence. In this environment the big gets bigger and separates itself more from the competition. I think $CRWD can give a +20% CAGR return from here in the next 10yrs.
I obviously can't tell anyone else what to do, but I halved my $S position for now. I'm really trying to hold myself accountable to keeping my allocations matched with my conviction levels. As I wrote in the review, I exited the call with less conviction in exactly where the SentinelOne/Attivo combination is headed.
Nicely written! Crowdstrike is a company I’d like to own more of. First class all the way. But with almost a $40B mrkt cap I don’t know how to look farther into the future for much expansion. Can a security company grow into a $80B+ company before growth comes to a halt?
On the other hand S1 is small, growing fast with little debt. They are experiencing some hiccups as a younger public company as expected. I think the path to profits comes with time hopefully. I find to hard to believe they can’t 3x from here unless there are serious problems, with I guess management. For me it’s hard to cut them off completely with the growth there showing and size. I feel there is more room for error with this small of company. Maybe the thesis needs more time.
Can you expound on my points. What should be my thought process when weighing my options for a smart investment?
I guess my comment is I'd take a 2X or 3X any time! That's why I own both. But to your point, timeline does come into play. The "first class" gives some comfort in a skittish market. Smaller companies are indeed allowed "hiccups," but at the same time we should always adjust when hiccups are either added or removed. I felt CRWD was business as usual this quarter. On the other hand, S gave me some new things to think about. I hope that was clear in the write up.
Regarding SentinelOne, it’s also disappointing that they aren’t reporting customers with ARR > 1m anymore. In their S-1 filed in June 2021, they had shared the numbers as on April 2020 and April 2021, so I was expecting they would share the latest number as on April 2022 in the latest earnings report. I can't seem to find it in the shareholder letter, news release or the 10-Q.
Though it’s not that CrowdStrike is the beacon of transparency either. They never share large customer count. So maybe SentinelOne took a page out of their book. I sent an email to IR on Thursday but haven’t heard back.
A fair point though for a company this small total and $100K+ customers should give us plenty of direction. I weight $1M+ more heavily for firms like Snowflake or ZScaler who make it a regular part of their reports. Thanks for reaching out to IR and feel free to let us know what you get back.
“We do not disclose this number. Instead we report and disclose $100K+ ARR customers. That said, $1M+ ARR continues to grow faster than $100K ARR customers.”
I can't disagree, though it's always management's job to speak as positively as possible. I like to leave calls feeling the numbers, basic narratives, and tone of the comments all match. I had that feeling with CRWD but admittedly didn't feel it as strongly with S. Most of it was the clumsiness around Attivo, which management had to know was going to be a main topic. It's always subjective though, so I'd be curious to hear what others might think.
Coming back to this a few years late...lol
Looks like $CRWD and $S have played out more or less how you expected! However, I think this presents a great buying opportunity for SentinelOne which just isn't getting enough credit for its high growth rate and now first quarter of + FCF.
I published a piece prior to earnings and included some comments post-earnings as well (see below). Would love to hear your thoughts!
https://open.substack.com/pub/intrinsicinsights/p/s-unlocking-value-in-the-cloud?r=2lehzc&utm_campaign=post&utm_medium=web
Thanks for the note. Good write up. You've clearly done the work to understand the numbers.
I haven't followed S as much recently, but two factors mentioned in this original recap still come into play for me two years later:
1) CRWD has always had much better numbers at the same stage of growth. While you compare the two now, the better comparison is at a similar revenue run rate. From that perspective, CRWD is the much better performer. Even with the huge difference in size now, CRWD still carries a higher NRR.
2) Part of the reason I sold was SentinelOne management's difficulty in meeting guides, particularly with ARR. It appears that is an issue in yesterday's report as well with the company being forced to restate a couple down. The whole point of owing software companies is the recurring revenue and extra visibility that revenue stream provides in estimating future business. S's management team is by far the worst I have owned in reliably presenting their numbers in a way that makes sense.
If interested, you can probably skim through a few of the monthly reports posted past this date. It should give my thinking on S through the date I eventually exited.
Thanks again for the note.
If I take a step back and give my impartial take on the reaction today, it's largely due to exactly the 2 points you're making.
1. $S is an earlier stage/scale business relative to $CRWD, $ZS, etc. and therefore SHOULD have a meaningfully higher growth rate. However, brutal environment, so I still think their growth rate is very impressive. But seeing others in the space revise earnings up while $S didn't (basically flat, let's be real...0.4% lol) probably caused some sell action.
2. Absolutely. Management needs to improve guidance and be more consistent. I didn't love that they didn't formally report NRR all of a sudden. That's a super important metric and even if it's declining slightly (they noted after an analyst question that it was above 110% still), they should report it and not be cagey.
Thanks for taking the time to respond so thoughtfully! You may not follow as closely of late, but you very obviously have a great understanding of the business. Cheers.
Thanks for sharing, what's your plan with your $S position going forward? Totally agree with management tone not giving a sense of security, confidence. In this environment the big gets bigger and separates itself more from the competition. I think $CRWD can give a +20% CAGR return from here in the next 10yrs.
I obviously can't tell anyone else what to do, but I halved my $S position for now. I'm really trying to hold myself accountable to keeping my allocations matched with my conviction levels. As I wrote in the review, I exited the call with less conviction in exactly where the SentinelOne/Attivo combination is headed.
Nicely written! Crowdstrike is a company I’d like to own more of. First class all the way. But with almost a $40B mrkt cap I don’t know how to look farther into the future for much expansion. Can a security company grow into a $80B+ company before growth comes to a halt?
On the other hand S1 is small, growing fast with little debt. They are experiencing some hiccups as a younger public company as expected. I think the path to profits comes with time hopefully. I find to hard to believe they can’t 3x from here unless there are serious problems, with I guess management. For me it’s hard to cut them off completely with the growth there showing and size. I feel there is more room for error with this small of company. Maybe the thesis needs more time.
Can you expound on my points. What should be my thought process when weighing my options for a smart investment?
Hi, Tim.
Thinking about this further, I thought this post might help with how I think through a company if you haven't seen it already:
https://thestocknovice.substack.com/p/hey-what-stock-should-i-buy?s=w
and here's another about weighing new information from things like earnings:
https://thestocknovice.substack.com/p/determining-portfolio-fit?s=w
Good comments, Tim.
I guess my comment is I'd take a 2X or 3X any time! That's why I own both. But to your point, timeline does come into play. The "first class" gives some comfort in a skittish market. Smaller companies are indeed allowed "hiccups," but at the same time we should always adjust when hiccups are either added or removed. I felt CRWD was business as usual this quarter. On the other hand, S gave me some new things to think about. I hope that was clear in the write up.
Thanks a lot for this recap!
Regarding SentinelOne, it’s also disappointing that they aren’t reporting customers with ARR > 1m anymore. In their S-1 filed in June 2021, they had shared the numbers as on April 2020 and April 2021, so I was expecting they would share the latest number as on April 2022 in the latest earnings report. I can't seem to find it in the shareholder letter, news release or the 10-Q.
Though it’s not that CrowdStrike is the beacon of transparency either. They never share large customer count. So maybe SentinelOne took a page out of their book. I sent an email to IR on Thursday but haven’t heard back.
A fair point though for a company this small total and $100K+ customers should give us plenty of direction. I weight $1M+ more heavily for firms like Snowflake or ZScaler who make it a regular part of their reports. Thanks for reaching out to IR and feel free to let us know what you get back.
Here’s the reply from Doug Clark, VP of IR:
“We do not disclose this number. Instead we report and disclose $100K+ ARR customers. That said, $1M+ ARR continues to grow faster than $100K ARR customers.”
Great. Thanks for sharing with everyone.
Is it just me, or did the S CEO seem as though he was laying on the cheerleading a little heavy? It was a bit of a turnoff for me.
Thanks, Jill.
I can't disagree, though it's always management's job to speak as positively as possible. I like to leave calls feeling the numbers, basic narratives, and tone of the comments all match. I had that feeling with CRWD but admittedly didn't feel it as strongly with S. Most of it was the clumsiness around Attivo, which management had to know was going to be a main topic. It's always subjective though, so I'd be curious to hear what others might think.