Hi Saul,
Sounds like we’re thinking alike on Zscaler. I’m sort of more on the fence than you about keeping some (still have a small position for now), but I’ve certainly reduced it too, because I think others will be stronger. But SentinelOne, I’m out. Obviously they’re still growing fast as you point out, but ARR grew 16% sequentially, which annualizes to 81% annually. That’s nowhere near the well-over-100% growth they’ve been seeing. The last 6 quarters ARR grew sequentially:
27%
23%
23%
20%
23%
16%
The CFO said, While we don’t specifically guide for ARR, I do want to remind you that we are a subscription business, which gives us higher visibility. Our ARR and revenue growth track very closely. Therefore, based on our Q2 revenue guidance, net new ARR should grow at or slightly above 20% sequentially. This is consistent with last year’s Q2 seasonal growth and still comes on top of our Q1 outperformance.
BUT, this year it includes Attivo!!! He later said Attivo would contribute roughly $35 million to ARR in Q2. To get to 20% sequentially they would need to add about $68 million total. So wait…Attivo is contributing more than half of what they will grow sequentially??? Their organic sequential ARR growth (without Attivo) would be more like 10%!? I mean surely they will beat that, but that’s still a heck of a slow down from even the disappointing 16% in Q1.
Also, back to revenue, the CFO said Attivo would contribute about $8 million in Q2. With that included it’s a 22.6% sequential guide. Without that $8 million, it’s a 12.4% sequential guide. Last quarter the sequential guide was 14.3%. To me, that’s just too much slow down for such a company with such a small revenue base, and one that is investing so much into growth. If it were all organic, that would be different. But it isn’t.
Saul, what do you think about the (organic) slow down? Are you willing to give them full credit for inorganic growth?
Bear