Wall Street has been in a good mood lately as fears of an economic recession have started to look less likely to pan out. Friday morning's report on employment showed that the U.S. added more than 300,000 jobs in May, and news that the U.S. Senate quickly passed the debt ceiling bill also helped send stock index futures higher by about half a percent before the market opened today.
Yet there were some stocks that didn't participate in the rally, including some whose investors hoped they would become hot AI stocks. SentinelOne (S -0.10%) and PagerDuty (PD -1.84%) are both tapping into ways to make technology accessible to business customers, but both companies didn't live up to their shareholders' expectations with their latest financial results. Below, you'll learn more about each of these companies, their AI plans, and what went wrong in recent months.
SentinelOne crashes on future concerns
SentinelOne was the worst performer in the stock market early Friday, with shares falling 36%. The self-proclaimed AI-focused cybersecurity company reported fiscal first-quarter financial results for the period ended April 30 that were highly disappointing for growth investors.
To be clear, SentinelOne continued to see a huge inflow of customers and revenue. Sales jumped 70% year over year to $133 million, with annualized recurring revenue moving higher by 75% to $564 million. Customer counts were up 43% to 10,680, and 917 of those clients spent over $100,000 on SentinelOne's platform, up 61% from 12 months ago. Dollar-based net retention rates remained above 125%, showing continued adoption from clients.
SentinelOne lauded the launch of its Purple AI cybersecurity innovation, which autonomously responds to potential threats. Yet CEO Tomer Weingarten also noted that macroeconomic challenges remained in place, and losses widened from year-ago levels.
What shocked investors the most was SentinelOne's guidance, in which the company projected full-year revenue of $590 million to $600 million. That would represent a slowdown in growth rates to just over 40%, and with sales having doubled in each of the past three years, shareholders found that forecast extremely discouraging. Despite the promise in AI, there's also immense competition, and SentinelOne failed to convince investors that it will definitively carve out a niche in which to prosper over the long run.
PagerDuty misses the mark
Shares of PagerDuty also fell sharply, losing 16% of their value early Friday. The digital operations management software company reported fiscal first-quarter results for the period ended April 30 that suggested customers are pulling back on their IT spending.
PagerDuty's financial numbers were mixed. Revenue climbed 21% year over year to $103 million. The company posted adjusted net income of $19.3 million, reversing a year-earlier loss and working out $0.20 per share. However, PagerDuty's client count came in at 15,089, up by just 49 customers from 12 months ago. Moreover, dollar-based net retention rates fell 10 percentage points to 116%.
PagerDuty has high hopes that its larger customers can pick up the slack. It had 764 clients spending over $100,000 on its platform as of April 30, up from 655 a year ago. Moreover, with the introduction of its first three generative AI-supported features for its operations cloud, PagerDuty believes that enterprise users will get a simpler customer experience that should resonate with clients.
Even an increase in PagerDuty's full-year earnings guidance to between $0.60 and $0.65 per share on an adjusted basis wasn't enough to drive enthusiasm about the stock. That was largely because the company cut its sales guidance to a new range of $425 million to $430 million, down more than $20 million from previous estimates. With a new annual growth rate of just 15% to 16%, PagerDuty's revenue isn't growing as quickly as investors want to see.
