Thread by @InvestiAnalyst

The Rising Challenge of SentinelOne:

$CRWD is the undoubted leader of the endpoint cybersecurity market. However, there is a very compelling thesis for $S - SentinelOne.

I'll outline my research notes in this full thread (and an upcoming Spaces!):

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1/ First, what is $S?

Similar to $CRWD, they are a cybersecurity firm that provides Endpoint detection (EPP) & Endpoint response (EDR)

This is just simply an advanced anti-virus(AV) installed on your computer or device to protect you compared to McAfee or Norton type of AV.

2/ If you knw $CRWD, yu pretty much knw $S as they're similar. However, I'll focus on differences.

First, $S anti-virus product is uniquely architectured to combine best of both worlds of EPP & EDR into ONE single platform called XDR.

$S AV solution is unique for this reason.

3/ $S Unique's product is called the singularity. It brings together 3-layers of an AI agent on your computer.

Their solution is slightly more architectured to be HIGHLY autonomous. This means an AI agent attacks a virus, cleans it & restore your system without any human need.

4/ Autonomous is a key area that $S is using to differentiate their platform from $CRWD.

$CRWD platform has heavily catered to enterprises and their platform needs *more human labour* for installation. However, $S requires less humans and they're improving. Listen to CC.

5/ The reason Autonomous is key (and you'll hear over and over in their CC & Website) is that this will lead to a HIGHLY SCALABLE and profitable biz LT.

We're beginning to see signs. Gross Margins Acceleration:
Q4 "22:54%
Q1 "22-51%
Q2 "22-59%
Q3 "22-64% *highest ever since 2018

6/ Gartner Voice of the Customers:

The ranking is extremely tight, but I find it impressive for a company that is still young, SentinelOne beat Crowdstrike in this category.

Personally, I've spoken to developers who say they love $S Singularity platform as its easy and scales.

7/ This is an expert call analysis quote from Tegus on SentinelOne customers or partners: h/t to @publiccomps for grabbing it.

They comment on sectors $CRWD wins and $S areas. Some differences:

8/ Key Technical differences between $CRWD vs $S by @convequity.

Convequity and partner have tremendous work on this topic (I have an announcement below!)

But this document highlights important differences. Interesting stuff!

9/ Gartner's Review:

SentinelOne Improvements:

See the increasing ranking of SentinelOne over the last 3-years. The ranking is also similar in Forester

https://twitter.com/InvestiAnalyst/status/1408122759620698114?s=20

10/ MITRE which is like the Gartner for Cybersecurity has ranked $S over most of the industry players including $CRWD.

It appears $S Static AI performs well in the area of detecting and analyzing new threats on an endpoint must faster than peers.

11/ Speed of Detection, configuration, and response to cyber attacks:

$S product is more superior to $CRWD both in Elastic's report and in MITRE ATT&CK report. It implies for every attack, how quick is a providers process and SPEED of their AI in responding to attacks.

12/ From my research, most of this product advantages that $S has over $CRWD is based on their unique architecture of have ONE-integrated product that combines 3-key areas of AI for protection. Meanwhile, $CRWD has individual modules where customers have the choice to buy

13/ GTM:

$S has differentiated itself by using Partner ecosystem reseller programs for sales. They also cater a lot to SMB's as $S PRICING is more affordable.

$CRWD has been more effective in their enterprise GTM and won more. $CRWD use typical SaaS land & expand for modules.

14/ $S Customer growth:

+ This $S GTM seems to be working as they just achieved their HIGHEST EVER NRR quarter (130%)
+ triple-digit growth in customers of
140%!

Total customers grew 75%, this was a slowdown from 80% but still very impressive. Gross

15/ GTM Customer Expansion:

$CRWD is now trying to target and go to mid-markets. Meanwhile, $S is now targeting the large enterprises after capturing many SMB's.

See the growth of customers with ARR >100K:
- Q4 21": 111%
- Q1: 127%
- Q2: 138%
- Q3 2022: 140% YoY (Crazy!)

16/ Few Metrics: Last 4-qtrs of Revenue Growth:

+ Q4 2021 Fiscal: 108%,
+ Q1 "22 Fiscal: 121%
+ Q2 "22: 128%
+ Q3 "22: 128%,
+ Q4 "22 Guide: 104% YoY, (likely 128% again using similar past estimates).

This Qtr they had a big 13% beat above consensus

17/ Sequential growth is a better measure of strength:
Revenue: Q3 2022:

Consistent QoQ Revs of: 2022: 25% > 22% > 22%

$61M next Q guidance vs $57M Estimates ( a 7% raise).

18/ ARR:
- $237M ARR (+131%):
Q4 2021 Fiscal: 117% YoY
Q1 "22 Fiscal: 124%
Q2 "22: 129%
Q3 "22: 130%,

+ Net acceleration QoQ of: 2% > 7% > 13%

19/ $S Operating leverage and economics are poor:

$CRWD had similar growth rates to $S though all similar negative margins, during this stage as seen by the chart.

When $CRWD was at this level, they broadly had slightly better metrics than $S

https://twitter.com/jaminball/status/1400832464134750212?s=20

20/ $S is gradually going into the Zero-Trust Cybersecurity area with big partnerships with Cloudflare This is future boost for future growth amongst enterprise and I touched briefly on this thread on $ZS.

https://twitter.com/InvestiAnalyst/status/1467999866567774214?s=20

19/ More on Margins:

+ N-GAAP Operating Income: It went from -126% a year ago to now -69%. For comparison, during this Qtr in 2018, $CRWD had a similar -55% and -66%

+ $S FCF last 4-Qts is improving: -85% > -87%> -98% > NOW,-37%.

We know from $CRWD margins, thing will improve.

20/ Yes, $CRWD is the leader of the EPP Industry when yu combine the full Product + GTM. Discl: $CRWD is one of my largest holdings, so this not a REBUKE!

However, there is no reason why $S AND $CRWD cannot cannibalize legacies!

See more on this Vast TAM momentumcyber.com/cybersecurity-…

21/

This is a 27-PAGES report, yes, I said 27! Authored by @convequity that goes into detail on all the areas where $S1's product is better than $CRWD using evidence and data points.

It was said the report got the attention of official $CRWD reps!

seekingalpha.com/article/445438…

22/ The GREAT announcement!

I will be hosting a technologist @convequity on Twitter Spaces this Saturday who authored that report above!

We'll go in-depth on $CRWD vs $S. We'll Open it to people's opposing thoughts!

23/ Now, my core thesis boils down to 3-tweets:

TI:
a/ If a company w/ <$200 ARR already has a similar advanced product than a $1.7B ARR (even better than incumbents in niche areas)

If we assume a Long-Term 40% R&D spend, what will $S market leadership look like in 5-yrs?!

24/

TII:

+ Founder-Led
+ 98% Glassdoor + High Product Velocity
+ Improving profit margins (as seen w/ $CRWD at this stage)
+ Valuation was 30x 2022 Sales on 100% growth and on a forward basis, not crazy to assume 70% 3yr CAGR?

25/ TIII:

• High, defensible product moat
• >100%+ growth (Revs, Custs, DBNRR ALL accelerating)
• Mission-critical product (Cybersecurity is no longer luxury!)
• Early into the most important and fastest-growing TAM of our era’

As a result of TI-TIII, I started a position.

26/ For my followers that know, you'll notice as an ex-PM, I'm a #1 Product-first Investor, #2 Revenue, #3 Bottom-margins in the context of valuation.

I have a fundamental belief that if you have product-market fit with a high moat, #2 Flows and Ultimately, a durable #3 evolves.

27/ Hope you me join me and @convequity on Sat!

See @convequity past in-depth analysis of the cybersecurity industry: On $FTNT, $PANW, $NET $PLTR and his latest analysis on SaaS business economics of 2021 compared to 2007 evaluating if we're in a bubble.

twitter.com/i/spaces/1BdGY…

28/ Our conversation should be fun (We'll have a recording available!)

Hope this thread on the $S and $CRWD thesis was helpful. Long Cybersecurity. I'll put out a future write-up on this! Happy to hear your thoughts!

Thanks for reading my late-night blurb!