CRWD vs SentinelOne

Below is a comparison between CRWD and SentinelOne. I’ve also compared the SentinelOne of today versus CRWD when CRWD had a similar ARR (CRWD of 3 years ago). This analysis is part of my CRWD update in my most recent portfolio update which I’ve just posted on my blog:
https://gauchorico.com/2021-06-04-portfolio-update/

The portfolio update contains a bunch of figures and tables that take me considerable time to reformat (manually) for a Motley Fool post. Unfortunately, I don’t have time to do this until after the weekend (maybe). So for now here’s my comparison of CRWD and SentinelOne…

GR
@GauchoRico on Twitter

On Thursday, SentinelOne filed its S-1 for its planned, upcoming IPO. SentinelOne is a smaller cloud-native competitor, and perhaps has been somewhat of a thorn in CRWD’s side; CRWD makes direct comparisons to SentinelOne in its marketing, so the competition must be more than a mere flea on an elephant’s back. Now that the S-1 has been filed, we have information to run some comparisons.


	           CRWD(31Apr)	S(30Apr)   CRWD(4/30/18)
ARR	           $1194M	$161M	   $170M
ARR Growth	   74%	        115%	   140%
Revenue	           $303M	$37M	   $47M
Rev Growth	   70%	        108%	   >108%
NDBER	           125%	        124%	   123%
Customers	   11420	4700	   1491
Cust Growth (Y/Y)  82%(69%)	74%	
Cust (>$100K)		        277	
S&M spend*	   $135M	$36M	   $37M
Sub Gross Margin   79%	        53%	   62%
Op Margin	   10%	        -127%	   -66%
FCF Margin	   39%	        -87%	   -35%

•3 months (incl. SBC)

The above table compares CRWD against SentinelOne. The far right column of the table shows a comparison when CRWD’s ARR was most similar to SentinelOne’s current ARR. It took CRWD (founded in 2011) seven years to reach $170M ARR whereas it took SentinelOne (founded in 2013) eight years to reach $161M ARR; thus, on an ARR basis, CRWD has expanded its two-year head start to three years. Also, CRWD was a much faster growing company when it was SentinelOne’s current size; in addition, CRWD is still growing at a very rapid clip considering that CRWD’s ARR is more than 7x that of SentinelOne. And when considering that CRWD is still adding customers (on a percentage basis) almost as fast as SentinelOne and that CRWD receives about 3x more revenue per customer, CRWD probably isn’t slowing down as a result of SentinelOne’s presence in the market. CRWD is also investing almost 4x as much in sales and marketing efforts which undoubtedly helps with CRWD’s customer acquisition. Despite having substantially all of its revenue coming from recurring subscriptions, SentinelOne has surprisingly low gross margins of 53% (non-GAAP) compared to CRWD’s 79% non-GAAP subscription revenue margin. And looking at SentinelOne’s operating and FCF margins, one can see that CRWD has a much better business; it seems that SentinelOne is having to spend a lot more than CRWD to build and operate its business. When CRWD was SentinelOne’s current size, CRWD had a higher gross margin, operating margin, and FCF margin. In summary, SentinelOne better pick up its growth, improve its margins, and raise the output of its sales & marketing and research & development teams, or SentinelOne may not be able to reach a big enough scale to achieve a high enough operating profitably to satisfy investors. A large part of CRWD’s success can be explained by its expansion of product modules (now at 19) which provide higher and higher gross margin contributions with each additional module sold to any given customer. It likely doesn’t help SentinelOne that it needs to compete head-to-head with CRWD for many/most customer wins. When CRWD was at SentinelOne’s size, CRWD was the only viable cloud-native security solution. PANW’s CEO complained about CRWD having eight sales people for every one that PANW has to target the next generation cloud security opportunities; PANW is choosing margin over growth in this respect as PANW certainly has the resources available should it choose to do so. SentinelOne probably doesn’t have the luxury of turning down business so it must try to win by offering price concessions (this could further explain SentinelOne’s low gross margins). After reviewing the S-1, I’m not particularly concerned about SentinelOne as a serious threat to CRWD.

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GauchoRico, Thanks for sharing your writeup. I guess since CRWD mentions SentinelOne as a competitor they shouldn’t just be ignored. But, I’m with you thinking we should’t be particularly concerned about Sentinel being a serious threat to CRWD. While a two year head start does count for something, they’ve essentially been competing in the same space for 7 years and CRWD is earning more than 7x revenue and, as you point out, has significantly better margins. The market noise it creates might have a little impact in the short term and I think it’s certainly not a mere coincidence that Sentinel announced its IPO on the same eve as CRWD’s earnings report. But, in the end, the market will react to the numbers. And if CRWD is sandbagging, as they consistently have, their 2022 ARR growth may not slow at all - defying the law of large numbers (hopefully). Gaucho, that’s something you also pointed out on your blog, which I highly recommend others check out.

Best,

Brian

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Despite having substantially all of its revenue coming from recurring subscriptions, SentinelOne has surprisingly low gross margins of 53% (non-GAAP) compared to CRWD’s 79% non-GAAP subscription revenue margin.

Like most of the companies discussed here, SentinelOne is able to classify itself as an “emerging growth company.” As such, the company is only required by the SEC to disclose two years’ worth of historical data in its S-1, despite having been in business since 2013. Emerging growth companies aren’t limited to just two years’ worth of data in the S-1, they just don’t have to disclose more than that if it’s not in their interest. I appreciated that CrowdStrike’s S-1 had three full years’ worth of data in it (2017-2019).

With just two years’ worth of data for SentinelOne (2020 and 2021) it’s hard to see trends. That said, in years 2020 and 2021, SentinelOne’s gross margin shrank from 61% in 2020 to 58% in 2021. The reason given was higher third-party cloud infrastructure expenses (likely AWS fees).

SentinelOne also provides the most recent last 8 quarters of data in addition to fiscal years 2020 and 2021, but that doesn’t improve the gross margin picture. Gross margin was 63% in the quarter ending 7/31/2019 and 51% in in the quarter ending 4/30/2021. Despite that, operating margin has been able to improve very modestly over that 8 quarter range due to R&D and S&M costs increasing at a slightly lower pace than revenue growth. This is in contrast with CrowdStrike, which has had gross margins steadily trend higher for all years there is public data for (36% in FY 2017, 74% now).

Unrelated, did you all see the jab at CrowdStrike in SentinelOne’s S-1?

We pioneered the world’s first purpose-built AI-powered XDR platform to make cybersecurity defense truly autonomous, from the endpoint and beyond. Our Singularity Platform instantly defends against cyberattacks - performing at a faster speed, greater scale, and higher accuracy than possible from any single human or even a crowd.

SentinelOne S-1:
https://www.sec.gov/Archives/edgar/data/0001583708/000162828…

SEC Definition of Emerging Growth Company:
https://www.sec.gov/smallbusiness/goingpublic/EGC

Mike

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