Lossmaking SentinelOne leapfrogs Check Point in value

SentinelOne IPO Photo: SentinelOne
SentinelOne IPO Photo: SentinelOne

Wall Street investors prefer fast growing, exciting companies like SentinelOne, to profitable slow growth, veteran companies.

On Friday, the share price of Israeli cybersecurity company SentinelOne (NYSE: S) rose 6.58% to $69.04, giving it a market cap of $17.7 billion. Last week SentinelOne leapfrogged veteran Israeli cybersecurity company Check Point Software Technologies Ltd. (Nasdaq: CHKP), which has a market cap of $16.5 billion, to become Israel's most valuable cybersecurity company, and overall Israel's second most valuable company.

Only veteran Israeli software solutions company NICE Systems Ltd. (Nasdaq: NICE; TASE:NICE), with a market cap of $18.633 billion is worth more and last week SentinelOne also exceeded work operating systems company monday.com (Nasdaq: MNDY) in value. monday.com, which like SentineOne held its IPO only a few months ago, currently has a market cap of $16.605 billion.

SentinelOne's rise in value has been meteoric. In February 2020, seven years after it was founded, Israeli cybersecurity company SentinelOne (NYSE:S) became a unicorn when it completed a financing round at a valuation of more than $1 billion. In November 2020, another financing round pushed its valuation up to more than $3 billion and in triple in value again for its IPO on Wall Street at the end of June at a company valuation of $9 billion. And in less than three months the company's market cap has almost doubled.

SentinelOne develops and markets an AI-based platform for securing end-points. It was founded in 2013 by two friends from Petah Tikva - CEO Tomer Weingarten and Almog Cohen, who no longer holds a position at the company.

But among all these facts and figures, the most notable for SentinelOne was overtaking Check Point in value. Check Point is a huge company in Israeli terms and was founded 20 years ago, long before SentinelOne. But SentinelOne is buoyed by the prevalent trend on Wall Street where investors very much value high growth tech companies and expectations of continued fast growth, even at the expense of profitability.

Weingarten related to this trend when speaking to "Globes" shortly after the IPO. "Like every company in our lifecycle, profitability is not something that is expected or goes hand in hand with very significant growth.

"Expenditure is a conscious decision that we control, and we know how much we are investing and what we get for it. It's a kind of gear that can be shifted up or down. Of course, the long-term aim is unequivocally to become a profitable company but there are some stops on the way."

Negative cash flow of $32.6 million

SentineOne has yet to publish its financial results for the second quarter - they will be announced on Wednesday but its results for 2020 and the first quarter of 2021 showed that the company was growing fast but was far from profitability. In 2020, revenue grew 100% to $93.1 million and in the first quarter of 2021 revenue was $37.4 million, up 108% from the corresponding quarter of 2020.

Alongside growing revenue, expenses have also risen significantly. In the first quarter of 2021, more than doubling to $80.7 million from the corresponding quarter of 2020. Accordingly net loss grew to $62.6 million in the first quarter of 2021, compared with $26.6 million in the first quarter of 2020 - net loss in 2020 was $118 million. There was negative cash flow of $30.8 million in the first quarter of 2021 and free cash was a negative $32.6 million.

In complete contrast, Check Point reports single-digit but consistent growth (some investors see this as disappointing), profitability and positive cash flow.

In the second quarter of 2021, Check Point reported $526 million revenue, up 4.1% from the corresponding quarter of 2020, GAAP net profit of $186 million and non-GAAP net profit of $217 million. Cash flow ion the second quarter was $264 million and at the end of the quarter Check Point had $4 billion in cash, almost 25% of its market cap.

Check Point is using all this money to buy back its own shares and occasionally makes an acquisition, such as last week when it bought Israeli email security solutions company Avanan for an estimated $270-280 million.

It seems that in the eyes of investors, stable and profitable Check Point vis perceived as 'boring' while the big money is poured into companies seen as exciting, even though they are burning through a lot of money.

While Check Point might be worth less than SentinelOne, Check Point's CEO has shares in the company worth $3.67 billion while SentinelOne's CEO Tomer Weingarten 'only' has shares worth $583 million.

Published by Globes, Israel business news - en.globes.co.il - on September 5, 2021

Copyright of Globes Publisher Itonut (1983) Ltd. 2021

SentinelOne IPO Photo: SentinelOne
SentinelOne IPO Photo: SentinelOne
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