SentinelOne’s reaction to the CrowdStrike disruption
Tomer Weingarten is not an opportunistic lawyer.
This phrase usually points to a lawyer who targets accident victims to persuade them to pursue legal claims. However, Weingarten, CEO of SentinelOne, asserts that this isn’t the modus operandi of his company.
The CEO made these remarks during the earnings call for the cybersecurity firm, wherein he addressed the industry as a whole and specifically the recent CrowdStrike IT disruption, which was caused by a flawed software update leading to a global technological crisis.
“We’re discussing the largest IT disruption ever, affecting millions, disrupting thousands of companies, and costing billions,” Weingarten stated. “This was an extensive outage on a global scale, unmatched in its reach and impact. I’ve genuinely never witnessed anything of this magnitude in my lifetime.”
Weingarten further stated, “This was a preventable incident arising from a lack of adherence to software deployment best practices.”
While SentinelOne possesses “an extensive portfolio” independent of the CrowdStrike situation, Weingarten admitted that “some clients are opting to transition away.”
“We’re not here for opportunistic gains,” he remarked. “If someone comes to my hospital, I’m certainly going to assist them, but we are proceeding at the rhythm of our customers.”
Weingarten opined that inadequate platform architectures pose significant dangers, leading to single points of failure, “as illustrated by the series of recent breaches at Microsoft and the singular IT outage caused by our direct competitor, CrowdStrike.”
“Reliance on unstable software can swiftly disrupt our daily lives and cost billions in damages to the businesses they’re intended to safeguard,” he noted.
Since the outage, there has been considerable blame attribution, with Ed Bastian, CEO of Delta Air Lines—which canceled over 5,500 flights—accusing CrowdStrike. In response, CrowdStrike claimed it had conducted necessary “testing and validation” on its system and asserted that Delta refused help to restore its operations.
“Self-styled industry leadership and excessive marketing create an illusory sense of reliability; ultimately, the end users bear the brunt of this, which is why we must concentrate on facts, not fiction,” Weingarten stated. “Operational excellence and procedural controls are vital for reliable software. Anything less is a betrayal of customer trust.”
Financial results and market perspective
SentinelOne, based in Mountain View, California, has been garnering attention in the cybersecurity field, especially due to its recent financial outcomes. The company announced adjusted earnings of 1 cent per share, a notable turnaround from the 8-cent loss reported in the same quarter a year prior. This signifies a breakthrough for SentinelOne, marking its first quarter with positive adjusted net income and earnings per share.
The quarterly revenue reached $132 million, showing a 33% year-over-year rise. This slightly surpassed analysts’ projections, which anticipated revenue of $127.3 million. The company’s annualized recurring revenue (ARR) from subscription services also enjoyed a solid increase, climbing 32% to $108 million, exceeding the $101.8 million forecast.
Despite these favorable financial results, SentinelOne’s stock dipped 2.7% to $22.08 at the last update. Year-to-date, the stock has decreased by 12.3%, though it has risen by 45.3% over the past year. This varied stock market performance mirrors the broader uncertainty present in the technology sector, notably in cybersecurity, where competition is intense and market conditions can change quickly.
Experienced trader Stephen Guilfoyle from TheStreet Pro expressed his admiration for SentinelOne’s results, remarking, “Color me impressed.” He highlighted that there is little evidence to indicate that SentinelOne has directly captured business from CrowdStrike following the latter’s IT disruption, but the company’s overall growth indicators remain robust. “Sales are increasing, margins are improving, guidance appears strong, and free cash flow is notable, with unadjusted profitability on the horizon,” Guilfoyle remarked, emphasizing the firm’s solid financial standing.
Following the earnings report, analysts have revised their stock price targets for SentinelOne. Scotiabank analyst Patrick Colville raised the firm’s price target to $32 from $28, maintaining a sector-perform (neutral) rating. Colville highlighted that while new ARR decreased year-over-year in the second quarter, the CrowdStrike incident could potentially benefit SentinelOne as more clients and partners reconsider their cybersecurity choices. However, he warned that CrowdStrike customers are not under immediate pressure to switch, and the total impact of the outage on SentinelOne’s business is yet to be seen.
DA Davidson similarly raised its price target on SentinelOne to $34 from $31.50, retaining a neutral rating. The firm recognized the company’s strong second-quarter earnings supporting an upward revision in forecasts but also suggested that ARR growth might slow to around the 20s shortly. DA Davidson believes the stock is currently fully valued.
On a more optimistic note, BTIG lifted its price target on SentinelOne to $40 from $35 and maintained a buy recommendation. The firm was especially impressed with the company’s operational profits and free cash flow, which significantly exceeded Wall Street expectations. BTIG also noted that SentinelOne’s management adopted an assertive stance on the potential for gaining additional market share in the endpoint security sector following the CrowdStrike incident. The firm pointed out that some major clients have already transitioned to SentinelOne, showcasing a positive trend for the company’s future growth.
