What does the Future Hold for SentinelOne?

SentinelOne confronts an ambiguous future amidst financial adversities, accrued losses, and shifts in the cybersecurity market landscape.

SentinelOne, founded in 2013, is an endpoint-focused cybersecurity company that has hired independent investment advisors, Qatalyst Partners, to explore its future. SentinelOne raised nearly US$700 million before going public on June 30, 2021. Once a high-flying stock, SentinelOne reached US$78.50 a share during the height of the pandemic, only to recently close at US$17. The current market value of SentinelOne is US$5.12 billion, making it a sizable acquisition target. This valuation is nearly half its IPO market cap of nearly US$9 billion. The company has lost money since its inception, and achieving profitability in the future is always in question by shareholders. As of July 31, 2023, it had an accumulated deficit of US$1.196 billion. This analyst believes a sale to a private equity (PE) firm is the most likely avenue for the company. The PE firm can remove SentinelOne from public scrutiny, allowing a rebuild to profitability with a subsequent relaunch as a public company.

SentinelOne’s problems became apparent on June 1, 2023, when it was announced it would lay off 5% of its 2,100 global workforce following a weak announced forecast. The company hopes to achieve US$40 million in savings from these layoffs and other planned spending cuts. SentinelOne’s over 11,000 customers, US$500 million annual recurring revenue (ARR), and extensive 6,000 channel partner network will fit many PE firm investments theses. SentinelOne will need to attract new customers to thrive. About 1,000 customers have an ARR of US$100,000, or a fifth of its total ARR. Using simple math, SentinelOne’s remaining customers generate US$40,000 annually. In the last year, SentinelOne added 2,500 new customers, worth approximately US$100 million. Acquiring and onboarding these many customers can strain any company and increase costs.

The acquirer must consider several critical factors, including the integration of US$772 million in acquisitions (Attivo, Scalyr) and how they have or have not been monetized, the health of their channel, account churn, the emergence of lower-priced endpoint security providers, and its sizable, accumulated deficit. This analyst expects the selling price to be around US$26 to US$28 a share, making a projected sale price of US$7.5 to US$8.1 billion. Insight Partners, a PE firm, controls 47.7% of SentinelOne’s voting shares, and Redpoint Ventures holds 22.9%, making a sale to a PE firm not so crazy. We cannot rule out a cybersecurity company to make a run at SentinelOne; in August 2023, Reuters reported that Wiz (US$10 billion valuation) said it was considering a bid to acquire the company. Shortly after the announcement, SentinelOne ended its exclusive partnership. So, it became apparent that the deal would not happen.

Whoever acquires SentinelOne must make painful decisions to return it to profitability while counteracting current market headwinds.

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