Missed CrowdStrike’s run? This could be the next big Cybersecurity stock

CrowdStrike’s IPO was received with much fanfare back in Jun 2019. After it IPO-ed at $34 a share, it skyrocketed by about 97% on its first trading day.

It has constantly posted good business performances and earnings. Today, about 2 years on, it is now trading at ~$244.90 (at the point of writing).

If you had missed this hypergrowth stock, fret not. In this article, we’ll look into a young company that is a close rival to CrowdStrike – SentinelOne. Their financials are quite similar to Crowdstrike’s in its early hypergrowth phase in 2017. This company is not traded on the markets yet, it has filed for IPO and is said to start trading in the 2^nd half of 2021.

The cybersecurity industry is very fragmented. There is room for SentinelOne to disrupt other legacy companies and grow rapidly to rival Crowdstrike.

But, is it as good as it sounds, and should you be looking to add SentinelOne into your portfolio to capture outsized growth?

Let’s find out.

What is SentinelOne?

SentinelOne is a cybersecurity company founded in 2013, it filed for IPO on 3^rd Jun 2021.

They were in the spotlight recently due to the SolarWinds SUNBURST Attack. SUNBURST is a malware that tricked systems into uploading it as an update into Solarwind’s Orion Software used by thousands of customers.

SentinelOne has confirmed that devices protected by their services were autonomously excluded from the SUNBURST backdoor attack at the early stage, without any software updates or configuration changes. In this particular case of the cyber attack, other cybersecurity companies may have had to manually update and configure changes to defend their IT systems.

SentinelOne was valued at $3 billion, and raised $267 million in their latest funding round led by Tiger Global Management. In total, they have raised $696.5 million in funding thus far. Their investors include big name VCs like Sequoia, Insight Partners and Third Point Ventures.

Their IPO is still in the early stages of discussions and the IPO date is not confirmed yet. However, they are said to be targeting a valuation of $10 Billion, which will more than triple their investment.

Why is SentinelOne a close rival to Crowdstrike?

CrowdStrike and SentinelOne are direct competitors in the Endpoint Protection Platform (EPP) space offering similar solutions.

There are many similarities between these two companies:

• Both are multi-tenant platforms that protect endpoints across public, private, hybrid clouds and on-premise workloads.
• Both utilise XDR AI technology that continuously scan for threats and autonomously stop attacks.
• Both also recently acquired a log management company to expand their XDR capability. Crowdstrike acquired Humio and SentinelOne acquired Scalyr.

Here’s a description of CrowdStrike’s Falcon Platform:

And here’s a description of SentinelOne’s Extended Detection and Response (XDR) Platform:

CrowdStrike vs SentinelOne (Financials)

Let’s take a look at what their financials suggest.

Here’s an apple-to-apple comparison between CrowdStrike (at IPO) and SentinelOne (today) by Jamin Ball, Partner at Altimeter Capital:

As you can see, SentinelOne’s numbers although weaker, are pretty similar to those of CrowdStrike’s during its IPO.

Given the similarities in their business model, investors are getting excited at the prospect of a young company with hypergrowth potential.

However, that’s not all to the story.

CrowdStrike vs SentinelOne (Key Differences)

There are stark differences between these 2 companies.

Annual Recurring Revenue

CrowdStrike was founded in 2011 and had $313 million ARR during their IPO. Today, they have achieved $1.19 billion in Annual Recurring Revenue (ARR).

SentinelOne was founded 2 years later in 2013 and has $161 million ARR, 7.4x less revenue than CrowdStrike.

You’ll also notice that SentinelOne has way more customers than CrowdStrike at its IPO. This suggests that SentinelOne’s average customer spend is smaller.

SentinelOne will have to put up a tough fight in order to increase its market share in the coming years.

Market Share – SentinelOne faces off a giant

CrowdStrike is a strong leader in the Endpoint Protection Platform (EPP) space and they are way ahead of their competitors. As of this writing, CrowdStrike is the largest IT security company by market cap, valued about $55.3 billion.

Gartner ranks Crowdstrike at the top most right of the leader board. This demonstrates that Crowdstrike has a clear understanding of what the market needs in terms of their ability to execute. They are also innovators and thought leaders based on the completeness of vision criteria.

The advantage that CrowdStrike has over SentinelOne and other competitors is their superior architecture. They built a modern endpoint security platform with a cloud native architecture, born and bred in the cloud.

Like other cloud disrupters, their architecture is scalable, frictionless and has a highly efficient business model. Their single lightweight agent platform is designed to be automatically installed and operational on an endpoint in less than 30 secs without any reboot.

This is where CrowdStrike’s competitive advantage lie. There is no downtime and service disruptions.

Imagine having to reboot your operational network if you are a payments processor? Every second is lost income in transaction fees!

Here is what CrowdStrike’s CEO George Kurtz had to say about a customer win over SentinelOne, that suggests his confidence in CrowdStrike’s superior service:

Can SentinelOne deliver similar market performance for growth investors?

Here’s a quick look at multiple comparison using P/S ratio at IPO:

• CrowdStrike P/S: 11.4/0.313 = 36.4x (at $11.4 billion market cap first day closing of IPO)
• SentinelOne P/S: 10/0.161= 62.1x (assuming $10 billion market cap)

At a P/S multiple of 62.1x, SentinelOne looks expensive considering that it has weaker financial and SaaS metrics, as compared to CrowdStrike at IPO in 2019.

For SentinelOne to deliver similar market performance, it would have to put up a good fight in the coming years.

That said, SentinelOne’s potential $10B market cap is a mere 18% compared to CrowdStrike’s current 55.3B market cap. As a smaller company, it could experience exponential growth if its growth plans are well executed.

Hence, it may deliver fast growth in the short term as it continues to expand its business while facing off CrowdStrike in the cybersecurity space.

I’ve barely scratched the surface in this article, if you would like to know more, join me at my next live webinar.

Disclaimer: I’m vested in CrowdStrike