It wasn’t a household name a few weeks ago, but CrowdStrike (NASDAQ: CRWD) gained a lot of (unwanted) publicity after a bug in a software update caused major outages across the globe, impacting numerous industries. The outage grounded flights and delayed surgeries and at the very least is a black eye for the cybersecurity company. CrowdStrike has taken a big hit as a company and as a stock since the incident.
Are any cybersecurity competitors set to take advantage of CrowdStrike’s misstep? One potential candidate to gain from CrowdStrike’s pain is rival SentinelOne (NYSE: S).
Similar to CrowdStrike, SentinelOne specializes in endpoint security. Endpoint security is the protection of a network and its endpoints, such as smartphones, computers, and laptops, from cybersecurity attacks. The company’s platform ranks highly as an endpoint security leader in the Gartner Magic Quadrant for Endpoint Protection Platforms, but is below CrowdStrike.
The company’s main offering is its Singularity Platform, which it calls the world’s first “purpose-built AI-powered Extended Detection and Response (XDR) platform.” The platform can be deployed in public, private, or hybrid cloud environments and uses artificial intelligence (AI) agents to predict, monitor, and eliminate threats. The company also says it can automatically roll back any changes before an attack occurs, eliminating manual and time-consuming incident clean-ups. One of the big knocks on CrowdStrike after the software bug was that customers needed to implement a time-consuming manual fix.
SentinelOne has been growing more quickly than CrowdStrike, but from a much smaller base. In the first quarter, the company grew revenue 40% year over year to $186.4 million. By comparison, CrowdStrike grew its Q1 revenue by 33% to $921 million. In terms of annual recurring revenue (ARR), SentinelOne grew its ARR by 35% year over year to $762 million, while CrowdStrike’s ARR increased 33% to $3.65 billion.
Both companies have similar adjusted gross margins, which take out non-cash expenses such as stock compensation and amortization. SentinelOne’s Q1 adjusted gross margin checked in at 79%, while CrowdStrike’s adjusted subscription gross margin was 80%.
One of the biggest differences between the financials of the companies is that CrowdStrike is profitable while SentinelOne has not yet turned a profit. In Q1, CrowdStrike reported adjusted earnings per share of $0.93, while SentinelOne reported a small adjusted loss of less than $0.01.
One strike against SentinelOne, however, is that the company had to lower its full-year revenue forecast last quarter, taking it from $812 million-$818 million to $805 million-$818 million. The company blamed the current macro environment along with a new go-to-market strategy. However, it thinks its new partner-supported go-to-market strategy focusing on pipeline quality and retention will be a solid growth driver for the company in the long run.
It also introduced a number of emerging solutions that have been performing well. Its Data Lake offering, which centralizes and transforms data from any source into actionable intelligence, has been its fastest-growing solution, growing over 100% last quarter. Meanwhile, its Cloud and Identity solutions have also been growing nicely.
Image source: Getty Images.
Given its much smaller size, SentinelOne doesn’t need to take a lot of business away from CrowdStrike to benefit from its misstep. CrowdStrike will continue to be the leader in the space, and I wouldn’t really expect it to lose any major customers. However, the outage could certainly push some potential customers SentinelOne’s way, helping bolster its growth.
From a valuation perspective, meanwhile, SentinelOne trades at a large discount to CrowdStrike despite similar revenue growth. Based on next year’s analyst estimates, SentinelOne trades at just over 7 times on a forward price-to-sales (P/S) basis, while CrowdStrike trades at a nearly 13 times multiple. That’s a wide gap for two stocks in the same industry growing revenue at a similar pace.
S PS Ratio (Forward 1y) data by YCharts
CrowdStrike’s misstep happens at a time when SentinelOne just implemented a new go-to-market strategy that it will undoubtedly look to take advantage of going forward. At the same time, the company is on the brink of turning profitable and is already generating free cash flow.
This combined with one of the cheaper valuations in the cybersecurity space makes SentinelOne a solid buy at the moment.
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Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends CrowdStrike. The Motley Fool recommends Gartner. The Motley Fool has a disclosure policy.
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