Partnerships With Lenovo And MSSPs Will Expand Market Reach In AI-native Cybersecurity

Key Takeaways

• Transformation into an AI-native cybersecurity platform and strategic partnerships are anticipated to drive revenue growth and expand market reach.
  
• Focus on AI innovations and phasing out legacy products could increase efficiencies and improve net margins long-term.
  
• SentinelOne faces potential challenges in revenue growth and earnings stability due to reliance on non-GAAP measures, product retirements, and economic uncertainties.

Catalysts

Operates as a cybersecurity provider in the United States and internationally.

• SentinelOne has transformed its business model from an endpoint-focused approach to a comprehensive AI-native cybersecurity platform, which is expected to drive future revenue growth as enterprises increasingly require integrated solutions.
  
• The company is investing heavily in AI-powered innovations and prioritizing this technology to redefine security applications, which could lead to improved net margins by reducing operational costs and increasing efficiencies.
  
• SentinelOne's announced expectation to surpass $1 billion in both ARR and revenue highlights strong growth prospects, potentially boosting earnings as scale efficiencies are realized.
  
• Strategic partnerships with Lenovo and managed service providers (MSSPs) are anticipated to expand market reach and drive revenue growth through increased channel contributions and bundled solutions.
  
• The phasing out of legacy products, like the deception solution, is intended to refocus resources on high-growth areas like cloud security and AI, which may enhance operating margins and profitability in the long term.

SentinelOne Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming SentinelOne's revenue will grow by 21.7% annually over the next 3 years.
• Analysts are not forecasting that SentinelOne will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate SentinelOne's profit margin will increase from -35.1% to the average US Software industry of 12.1% in 3 years.
• If SentinelOne's profit margin were to converge on the industry average, you could expect earnings to reach $178.5 million (and earnings per share of $0.46) by about April 2028, up from $-288.4 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 66.0x on those 2028 earnings, up from -21.3x today. This future PE is greater than the current PE for the US Software industry at 30.2x.
• Analysts expect the number of shares outstanding to grow by 5.36% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.38%, as per the Simply Wall St company report.

SentinelOne Future Earnings Per Share Growth

Risks

• Statements cautioning that forward-looking financial guidance is subject to change and may not be accurate could undermine confidence in the predictability of SentinelOne's future revenue and earnings.
  
• The company's reliance on non-GAAP financial measures, which exclude various expenses, can obscure true profitability and potentially lead to discrepancies in perceived net margins.
  
• Continued impact from the retirement of legacy product offerings, like the deception solution, might lead to near-term revenue churn and affect net ARR growth, impacting both revenue and profitability.
  
• The decision to retire certain products and the resulting churn suggest potential challenges in maintaining customer adoption and retention, which could impact revenue growth forecasts.
  
• Economic and political uncertainties, along with federal spending unpredictability, could lead to variability in spending behavior by customers, potentially affecting future earnings stability and revenue projections.

Valuation

• The analysts have a consensus price target of $24.708 for SentinelOne based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $36.0, and the most bearish reporting a price target of just $18.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.5 billion, earnings will come to $178.5 million, and it would be trading on a PE ratio of 66.0x, assuming you use a discount rate of 7.4%.
• Given the current share price of $18.61, the analyst price target of $24.71 is 24.7% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.