SentinelOne’s 101% Revenue Growth Outpaces CrowdStrike’s

The business of trying to protect corporate computing networks from cyberattacks at their endpoints — such as laptops and smartphones — is large, growing modestly, and crowded with competitors.

According to Fortune Business Insights, the endpoint security industry is expected to grow at an 8.3% compound annual rate from $14 billion in 2021 to about $25 billion in 2028. Its August 21 report profiles 33 competitors.

Two such competitors — Mountain View, Calif.-based SentinelOne and Sunnyvale, Calif.-based CrowdStrike — have been publicly duking it out for years. As I wrote in June 2019, SentinelOne commented critically on Crowdstrike’s products and did so again this month. In July, Crowdstrike faulted SentinelOne for setting its prices so low that it can’t make a profit, according to CRN.

Now that they are both publicly-traded (with SentinelOne having completed its IPO in June), it is clear that SentinelOne is growing twice as fast but CrowdStrike is five times larger.

I think SentinelOne stock has more upside potential. How so? Although both companies get very positive feedback from customers and are investing in future growth, SentinelOne gets the edge for two reasons:

  • It’s growing faster
  • Its product fends off more cyberattacks before they penetrate a company’s network

(I have no financial interest in the securities mentioned).


Financial Performance and Prospects: Advantage SentinelOne

Investors like companies that beat growth expectations and raise guidance — ideally for revenue and earnings. Unless a company is at risk of burning through its cash, investors often put more emphasis on revenue growth than on losses.

By that measure, both SentinelOne and Cr0wdStrike have done well. However, SentinelOne is growing much faster — albeit from a much smaller base.

In its most recent financial report SentinelOne beat revenue expectations but lost more money than expected. It also forecast very rapid revenue growth for the current quarter.

How so? In the three months ending July 31, SentinelOne’s revenues rose about 121% to $45.8 million about $6 million more than analysts projected.

SentinelOne also raised its forecast for revenue in the October-ending quarter. It anticipates 101% revenue growth to $49.5 million — about $9 million more than analysts had expected, according to CRN.

Meanwhile its net loss of $46 million was about 116% worse than the year before and its net loss per share of 62 cents was a whopping 42 cents worse than the analyst consensus.

Nevertheless, the company is in solid financial shape. While its operations burned through $42 million in cash, SentinelOne ended the quarter with $1.7 billion in balance sheet cash.

CrowdStrike — which is about 7.3 times bigger than SentinelOne — reported expectations-beating growth in revenue and earnings per share while its guidance for the October-ending quarter suggests a significant growth slowdown.

Crowdstrike’s total revenue increased 70% in the second quarter to $337.7 million — over $24 million more than analysts expected while its non-GAAP earnings per share of 11 cents was two cents a share more than the consensus, according to ZDNet.

For the third quarter, Crowdstrike expects total revenue in the range of $358 million to $365.3 million — the midpoint of which is 56% higher than its third quarter 2020 results.

Crowdstrike was pleased with the results. As CEO George Kurtz said, “CrowdStrike delivered an outstanding second quarter with rapid subscription revenue growth and record net new ARR generated in the quarter. The success of our platform strategy and our growing brand leadership has led to a groundswell of customers turning to CrowdStrike as their trusted security platform of record.”

Customer Value Propositions: Both Very Strong

Customers give both companies high marks.

CrowdStrike’s Falcon endpoint security service received 4.9/5 stars from 757 customers, according to Gartner Peer Insights. One five star review praised the company’s responsive service and its thorough concept demonstration. A critical review noted that CrowdStrike’s “support team feels their product is so good that…they would prefer for the software to cause issues to learn and then correct it.”

SentinelOne’s Singularity Platform received 4.8/5 stars from 342 reviews. A favorable review praised SentinelOne’s team, noting that “it has been nothing short of amazing in sales, customer service, quality of the product, and technical support.” A less favorable review complained of the need for updates that “require significant changes in the enterprise.”

SentinelOne argued that CrowdStrike’s product does not do enough to stop cyberattacks preemptively. In June 2019, Weingarten said that SentinelOne wins in competition against CrowdStrike and others because its technology is “more effective and efficient. Others let you see something’s happening and sends you to an analyst. We have an advantage with no human intervention.”

Earlier this month, Weingarten again asserted that customers prefer its prevention first approach. As he told CRN, “[We recently won over a multi-million dollar customer that was] feeling more and more frustrated by the need to constantly put out fires. And if you take a more prevention-first approach, you can actually stop these fires from even happening.”

SentinelOne says its solution reduces customer pain. As Weingarten told me in a September 17 interview, “We offer a shift from detect and react — which involves costly human intervention to remediate. Our artificial intelligence deflects more attacks [than do rival products].”

In July, CrowdStrike dinged SentinelOne for its low prices. As CRN noted, Kurtz said SentinelOne was “buying growth [to impress investors]. At some point, you’ve got to reverse the losses and start generating cash.”

Weingarten pushed back — noting that SentinelOne’s “technology costs as much or more than competing products. [Unlike CrowdStrike,] we don‘t try to…hijack a customer’s security budget by forcing them to buy reams of service-hours to support a non-automated product,” he told CRN.

New Product Initiatives: Both Very Strong

SentinelOne and CrowdStrike are investing in future growth opportunities.

As Weingarten told me on September 17, “We are constantly innovating — we release two new modules every quarter. We listen to customers: What do they need? What can we solve for?”

Analysis of corporate data represents a significant opportunity for SentinelOne. As he said, “We acquired a data analytics company. It enables companies to gain insight through many use cases from their data — such as logs which must be maintained for regulatory purposes. This is our Ranger product which maps out everything on a corporate network and automatically provisions and deploys software to the most common source of breaches — such as previously unknown or leftover devices that can access the network. There are many companies that do this. But unlike Microsoft’s product which is cumbersome to operate, ours is easy to consume and enable.”

In its most recent earnings announcement, CrowdStrike highlighted its new products which include “Falcon X Recon+, a new managed solution that simplifies the process of hunting and mitigating external threats to brands, employees and sensitive data,” noted its press release.

CrowdStrike sees Falcon as the wave of the future. As Kurtz said, “We believe that our extensible Falcon platform, purpose-built to leverage the power of the cloud, collecting data once and reusing it many times, is a fundamental cornerstone to building a durable growth business over the long-term.”

It remains to be seen how much additional revenue these new products will generate for the companies.

Customer Satisfaction: Slight Advantage To SentinelOne

Both companies have been adding new customers and selling more products to its existing ones.

SentinelOne reported that its total customer count grew “more than 75% to over 5,400 customers as of July 31, 2021,” according to its latest earnings report.

CrowdStrike has been adding customers a bit faster. It told investors that it added “1,660 net new subscription customers in the quarter for a total of 13,080 subscription customers as of July 31, 2021, representing 81% growth.”

SentinelOne takes care of customers after the sale. “Happy customers stay longer. We have a net promoter score (NPS) of 70 — which is the highest for us and high compared to the industry. We have a 97% gross retention rate — which means that most of our customers stay with us. And those customers buy more over time — as evidenced by our 129% net retention rate. We work closely with our customers to become a trusted partner and we work with a network of providers to add capabilities that customers need [which the partners can do better than us],” he said.

CrowdStrike also reports strong gross and net retention rates of 97.6% and 124.8%, respectively according to its August 2021 corporate overview. I could not find its most recent NPS.

Simply put, both companies are adding customers and selling more to existing ones — SentinelOne’s net retention rate is slightly higher than CrowdStrike’s.

Advantage SentinelOne

SentinelOne stock has popped 63% since its June IPO. That’s far more compelling than CrowdStrike whose shares are up a more modest 5% since then and have risen 32% so far in 2021.

My guess is that it all comes down to expected revenue growth. While SentinelOne is expecting 101% growth in the current quarter, CrowdStrike forecasts a more modest 56% rise in revenue.

To be fair, as a company gets bigger it becomes more difficult for it to sustain triple-digit growth. Back in the first quarter of 2019, SentinelOne boasted 217% ARR growth while CrowdStrike reported 109% revenue growth. Since then, both companies’ growth rates have dropped roughly by half.

Sadly for investors, Bank of America BAC analyst Tal Liani expects considerable deceleration in CrowdStrike’s revenue growth from 60% in 2021 to 36% in 2022, according to Investor’s Business Daily.

That growth slowdown is why I think SentinelOne stock will continue to have more upside.

The Tycoon Herald