ValuationAnalysis – Fountainheadinvesting

Sentinel One (S) Post Market $17.25 – 10% drop after falling 6% during the day.

Sentinel One declared Q1-2025 (April 2024) results today, which beat estimates but guided in line for the next quarter and 1% below for FY2025.

These were all solid numbers:

Q1 Non-GAAP EPS of $0.00 beats by $0.05.
Revenue of $186.36M (+39.7% Y/Y) beats by $5.3M.
Annualized recurring revenue increased 35% to $762 million as of April 30, 2024.
Customers with an ARR of $100,000 or more grew 30% to 1,193 as of April 30, 2024.
Gross margin: GAAP gross margin was 73%, compared to 68%. Non-GAAP gross margin was 79%, compared to 75%.
Operating margin: GAAP operating margin was (43) %, compared to (86) %. Non-GAAP operating margin was (6) %, compared to (38) %.
Cash flow margin: Operating cash flow margin was 23%, compared to (21) %. Free cash flow margin was 18%, 42 percentage points higher compared to (24) %.
Q2 Guidance: $197 million revenue, vs. consensus of $197.75M; Non-GAAP gross margin 79%; Non-GAAP operating margin (6) %.
2025 Guidance: $808-815 million revenue vs. consensus of $817.28M; Non-GAAP gross margin 78-79%; Non-GAAP operating margin (6)-(2) %.

Even the slightly lower guidance (At mid-point, $807.5Mn in revenue is lower by just 1%) sunk the stock, as did a weaker market environment, which saw marquee names like Dell and Salesforce get hammered 20% for weaker guidance in the case of Salesforce and inline expectations in the case of Dell.

In this market, which seems to have stalled for now and is fuzzy about direction because of inflation and higher interest rates, small companies like Sentinel One, which are not growing exceptionally fast are getting the short shrift – perhaps even a 31% growth rate for FY2025 wasn’t good enough.

Nonetheless, the valuation has become attractive at 6x sales, margins continue to improve, there is solid cash generation and Sentinel One is getting close to adjusted break even. I may add some shares tomorrow after the PCE report, and upgrades/downgrades. Will post again.

Airbnb – ABNB $145 Buy on declines around $125.

Solid long-term player, well entrenched, and has the virtuous cycle and network of being one of the largest players, with a large and wide choice of rentals and therefore attracting the largest number of travelers – perpetuating the network/cycle.

Had amazing revenue growth from $2.5Bn to $9.9Bn in 6 years through 2023 but has now come down to an estimated more sedate growth of 12% for the 3-5 years, but earnings should grow faster at 13-15% – it has matured and has good operating margins of 18-19%, this should improve. This is more of an earnings story now.

Has gone up 34% in the past year to $145, and with an earnings growth of only 12-14% the P/E multiple of 32 is high, more than two times the earnings growth – hence my preference for a dip for a better price. Unfortunately, with this raging market and because it is the largest player it deserves a premium, it might not happen. If you want to buy now and add more on declines that is not a bad strategy. I would think its still worth a 10-12% return in the next few years with the possibility of more upside.