2023-06-02 08:50:31 ET
SentinelOne ( NYSE: S ) was downgraded to Hold by Canaccord Genuity with a price target down to $14 from $20, after the company cut its fiscal 2024 revenue outlook.
Canaccord analysts said SentinelOne reported weak Q1 results with revenue of $133M, below the firm's expectations of $137M. In addition, the Q2 and F2024 outlook, which below the firm's estimates, due to a tough macro impacting deal size and pipeline conversion rates.
The company also cited lower usage and consumption trends by its larger customers resulting in a change in how Annualized recurring revenue (ARR) is calculated. The new methodology plus correcting some previous errors in certain contracts reduced ARR by $27M or 5% as of Q4/F2023, the analysts added.
Given the slower growth rate and large ongoing operating losses plus the accounting change, the firm has now tagged the stock as Hold.
The analysts noted that the due to the accounting changes, lowered guidance, and lack of profits, they believe the company's stock will trade at a discount to the group and likely remain in the penalty box for several quarters.
The firm added that the downgrade was based on the shares trading ~5x EV/sales its lowered C2024 estimates.
While it was a modest discount to the cybersecurity comparable group, the analysts think that SentinelOne will trade below the group due to the accounting changes and lowered guidance.
The analysts think it will take several quarters of strong execution by the company to win back shareholders.
The firm still believes SentinelOne has strong technology and long-term growth potential, however it wants to see execution versus the lowered guidance before becoming more constructive on the shares.
BTIG rating action:
BTIG also downgraded SentinelOne's stock to Neutral from Buy.
BTIG analysts said that there are too many unknowns around recent execution, competition, and the impact of a weak macro environment on SentinelOne's business. The firm added that it needs to see a couple of quarters of stable execution to gain more confidence in trend lines, and feels that at this point a Neutral rating is appropriate.
S -37.50% to $12.95 premarket June 2
More on SentinelOne
- SentinelOne: Why I'm A Lone Voice Bearish
- SentinelOne: Disappointing Growth Outlook Raises Red Flags For Hypergrowth Company
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SentinelOne slumps ~35% after downgrades at Canaccord, BTIG on outlook, macro impact