SentinelOne’s management commented on the price difference between S and CRWD in the last earnings call:
Tal Liani – Bank of America Merrill Lynch – Analyst
Got it. And about pricing, is it – is being cheaper than next-gen competition the strategic goal for you? I mean how do you characterize your pricing versus competition?
Tomer Weingarten – Co-Founder and Chief Executive Officer
Yeah. I don’t think we’re cheaper than the competition. I think if you look at it apples-to-apples, you’ll see that the prices are pretty much similar. I think we take a different approach.
I think we take a much more transparent approach, and we don’t force customers to opt into tiers. We don’t force them to use our service. So all in all, I mean, they can actually choose what they want to procure from us. But again, apples-to-apples, I think you’ll see that prices are very, very similar. I don’t think we’re cheaper by any degree.
Nick Warner – Chief Operating Officer
One thing I would add to that – this is Nick here.From a budget perspective, what we don’t try to do is hijack a customer’s security budget into forcing them to buy reams of services hours to support a nonautomated product. What we’re bringing is automation and machine learning, ease of use, and really we’re democratizing very advanced technology. What that enables customers to do is achieve the outcome we’re driving for them and our prospects and customers, which is protection and prevention. And so, from an apples-to-apples perspective, we’re typically at or higher from a technology perspective, but we enable customers to best put that money to use buying technology and more importantly, really implement that technology fully to get the best protection and visibility on the planet.
Nick Warner made a clear reference to (in their view) CRWD’s inferior product and as a result higher cost to the customer due to more manual involvement. What I understand after comparing S and CRWD for hours is that S is much more automated and can investigate/resolve possible threats within seconds, while CRWD usually will require either a specialist at the customer to investigate or a CRWD specialist (at an additional cost), and it might take hours to investigate. I quote a comparative article between CRWD and S:
CRWD: As already alluded, the brain of CRWD is in the cloud and utilizes EDR to understand the global landscape of threats. The very nature of this cloud-based EDR approach requires the computation of petabytes of data that quickly detects potential threats but also generates large numbers of false alerts. The notion of the false alert volumes necessitates the need for thorough investigation which is why the full response [detection through to removing threat from system] time takes hours instead of seconds. Ultimately, CRWD’s approach is rather labour-intensive but is still way more autonomous than legacy signature-based AV.
S: The brain of S is in a hybrid form that utilizes both end-to-end automation and AI in the front-end EPP and cloud-powered global intelligence in the back-end EDR, and blends the two harmoniously together. The story technique applied in TrueContext ID radically reduces the number of alerts and the manual investigation for the EDR side of operations. So, as aforementioned, for the high majority of threats, this results in full automated response and recovery [system cleanup] within seconds, and results in relatively less manpower requirements [versus CRWD] for the more sophisticated attacks.
The more I look at SentinelOne, the more I start to appreciate the business. I am still investigating but I took a small 4% position. They are growing at 121% (and ARR at 127%) in their last quarter and still relatively small at an EV of 12 billion, offering more upside then CRWD in my opinion. Valuation wise, they are trading at estimated 35 times 2022 revenue after the recent 25% correction which offers good upside compared to peers. Even if the stock price only grows at half the revenue growth rate, we are probably looking at 40-50% annualized returns in the near future.
Couple of additional comments from my end:
- Gross margin is low at 62%, however looking back to CRWD’s numbers, they had the exact same 62% gross margin in Q1 2019 with revenue of 47.3m, vs. S at 45.8m
- Non gaap profitability is worse than CRWD at that time. S has negative margin of 98% vs. CRWD’s negative 66% at the time. However management guided in the last investor presentation to long term gross margins of 75-80% and operating margin exceeding 20%. If management’s predictions are reliable and trustworthy, this may indicate similar rate of profitability to CRWD in the future.