SentinelOne shares decline on disappointing guidance; Stock set to test the 20-sma

SentinelOne, a security software provider, surpassed earnings expectations for its fiscal fourth quarter ending January 31. Despite the positive results, the company's cautious outlook for the upcoming quarters led to a decrease in its share price. 

After rallying from $15.50 in mid-November to $31 on February 16, SentinelOne's stock experienced a 10% pullback leading up to the earnings announcement. The company's guidance, which met but did not exceed expectations, prompted a further 12% decline in after-hours trading.

The stock is now approaching a critical support level at the 20-day simple moving average ($24.50). Traders are advised to monitor how the stock performs as it nears this key support threshold.

For Q4, SentinelOne reported revenue of $174.2 million, marking a 38% increase from the previous year and beating both the company's guidance and the consensus of $169 million. 

The company's annualized recurring revenue (ARR) also saw significant growth, reaching $724.4 million, a 39% increase compared to the previous year. In the fourth quarter, the company saw strong growth in key metrics, such as customers with ARR of $100,000 or more, which grew by 30% to 1,133. The dollar-based net retention rate was approximately 115%.

SentinelOne's non-GAAP gross margin stood at 78%, surpassing the company's guidance of 77.5%, and non-GAAP operating margin improved to -9%, outperforming the projected -14%. The company reported a loss of 2 cents per share on an adjusted basis for the quarter.

Despite the impressive performance during the last quarter, the company's shares experienced a decrease of 12% in late trading on Wednesday, primarily due to weaker-than-expected guidance for the upcoming quarter. 

Looking ahead to the first fiscal quarter ending April 30, SentinelOne anticipates revenue of $181 million, a 36% increase YoY, aligning with analyst consensus. The company's non-GAAP gross margin is expected to be around 77.5%, with a non-GAAP operating margin of -14%. 

For the full fiscal year ending January 2025, SentinelOne forecasts revenue in the range of $812 million to $818 million, with a non-GAAP gross margin between 77.5% and 78.5%, and a non-GAAP operating margin between -2% and -6%. 

CEO Tomer Weingarten acknowledged several challenges impacting the company's margin guidance, including costs associated with recent acquisitions. However, Weingarten remains optimistic, stating that SentinelOne expects positive free cash flow and positive operating income in the fourth quarter of the current fiscal year. 

Weingarten also highlighted that the company is not witnessing the buyer fatigue mentioned by Palo Alto Networks in their recent quarterly earnings report. He noted that companies are maintaining an aggressive spending approach in areas where SentinelOne operates, such as endpoint security, data analytics, and cloud security. Weingarten believes these areas represent significant pain points for enterprises, and SentinelOne provides efficiency gains for its customers. 

Furthermore, Weingarten emphasized SentinelOne's unique selling approach, focusing on acquiring new accounts rather than expanding within existing customer bases. This strategy differentiates the company from Palo Alto Networks, allowing SentinelOne to target untapped market segments. 

Overall, SentinelOne's Q4 earnings report indicates remarkable growth and margin improvement. While the company's soft guidance for the upcoming quarters led to a decline in share price, SentinelOne's continued focus on customer acquisition and market optimization presents potential for future success.