What happened
Shares of cybersecurity company SentinelOne (S 1.70%) plunged 29.4% in June, according to data provided by S&P Global Market Intelligence. The stock fell roughly 40% during the first couple of days of the month after the company reported its most recent quarterly financial results. Therefore, this is a business-related drop in the stock price.
So what
On June 1, SentinelOne reported results for the fiscal first quarter of its 2024, which ended in April. Revenue of $133 million was up a blistering 70% year over year but was below the $137 million that management was guiding for. And its commentary explaining the miss didn't calm investors' fears.
In its letter to shareholders, management wrote, "Macroeconomic pressures continue to impact deal sizes, sales cycles, and pipeline conversion rates." In other words, the deals aren't as big as it would like, it's taking longer to close deals than expected, and it isn't winning as many of the potential deals as it had hoped.
This is what the market reacted to in June, but in fairness, SentinelOne is gaining new business. The company ended the first quarter with 10,680 customers, which was up 43% year over year and up from the 10,000 customers it had at the end of the previous quarter.
Moreover, the dollar-based net retention rate was 125% in the quarter. This metric compares its current recurring revenue from its customer base to what it was one year ago, to measure how existing customers are spending money. The quarter's retention rate suggests higher spender per customer, even if that was its slowest retention rate since going public.
Therefore, SentinelOne is gaining new customers that are increasing their spend over time, which is good. But the company isn't doing this at the rate that it or the market expected. Moreover, with a whopping $115 million loss from operations in the quarter, investors don't appear to have the patience to stick with the stock, given the uncertainty.
Now what
Unfortunately for shareholders, the dynamics at work in the first quarter appear set to deteriorate throughout the year. Management expects to generate $141 million in revenue in the current quarter and $590 million to $600 million for its entire fiscal 2024.
Given its guidance, SentinelOne expects about 38% year-over-year revenue growth in the second quarter -- a far cry from its 70% growth in the first.
Revenue is expected to be up 42% in fiscal 2024 compared to fiscal 2023. However, in the back half of the year, it's only expected to grow 33% from the comparable period of fiscal 2023 on the high end of guidance, which again shows deceleration.
Some investors might see value in SentinelOne stock now that it trades around nine times trailing sales -- that's certainly cheaper than many other stocks in its space. But as long as the growth rate is dropping and the company is burning cash, the stock could indeed continue to trade at a cheaper valuation than that of its peers.
