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:
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…
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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.