Shares of cloud-based cybersecurity company SentinelOne(NYSE: S) crashed on Thursday after the company disappointed the market with its outlook for the coming year. As of 9:50 a.m. ET, SentinelOne stock was down 13%.
SentinelOne isn't growing fast enough for investors
For its fiscal fourth quarter of 2024 (the period that ended in January), SentinelOne beat expectations. Management guided for Q4 revenue of $169 million, but the company delivered revenue of $174 million. And while it lost $0.24 per share during the quarter, that too was better than the market expected.
The trouble relates to SentinelOne's guidance for its fiscal 2025 (the period that started in February). The company expects to generate revenue of between $812 million and $818 million, which is about a 31% increase from fiscal 2024. That's a sharp deceleration from its 47% top-line growth in fiscal 2024 and isn't good enough to please the market.
The competitive landscape is tough
Some will point out that SentinelOne's guidance is better than guidance from top rival CrowdStrike -- CrowdStrike is guiding for growth of 28% to 30% in the coming year. But CrowdStrike's annual revenue is already above $3 billion, whereas SentinelOne generated revenue of only $621 million in the past year. Therefore, CrowdStrike's growth is more impressive given its larger size, even if the growth rate is comparable.
The other issue to consider when comparing these two companies is that CrowdStrike generates positive free cash flow at an impressive 31% margin. Granted, the company gets a free-cash-flow boost because of its use of stock-based compensation. However, SentinelOne has high stock-based compensation as well but has negative free cash flow nonetheless.
The cybersecurity space is competitive, and investors naturally want to go with the leaders. Even though its growth rates are strong, it seems there are enough questions about SentinelOne to keep many investors on the sidelines.
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Jon Quast has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends CrowdStrike. The Motley Fool has a disclosure policy.
