Labor Day Hangover Cure

Let’s dive right in!

As the Federal Reserve cuts rates in September and quantitative easing begins soon, it’s my hunch that Ethereum’s price (alongside other altcoins) will quickly begin rising in price. This is a Q4 2024 / Q1 2025 timeline, so buying now made sense for me. 

It finally happened! SentinelOne delivered non-GAAP profitability — a massive milestone for any company, especially growing at this rate, to achieve. During the quarter, revenue grew by +33% to $199M, while annualized recurring revenue grew by +32% to $806M. Management raised their revenue guidance for the year — likely as the company took customers from Crowdstrike. Additionally, the company stated their Endpoint security market share grew faster than any of the other Top 10 vendors in 2023!

Heading into this earnings call, Wall Street was worried about the company's ability to maintain 30%+ growth — which was clearing executed upon. This growth is being exacerbated by Crowdstrike’s misfortune of losing some of the “big boys,” with SentinelOne’s CEO claiming some of them have already made the decision to switch. 

Free cash flow came in close to positive territory at only -$5.5M, compared to -$15.0M last year, another step in the right direction. Management also expects their dollar based net retention rate to improve as we round the corner into the second-half of the year. Duration for new contracts during the quarter were 25 months, compared to 19 months last year’s quarter. 

I’ll remain an optimistic shareholder of SentinelOne.

All eyes on Crowdstrike last week as investors tried to make out how the July 19th outage would negatively impact their business. Ultimately, it didn’t knock them off their course of delivering $10B in annual revenue by the end of the decade — although I’ll specifically keep my eye out for net-new ARR over the coming quarters as that’s going to be the real tell. 

Wall Street, specifically Deutsche Bank, has hosted dozens of calls with execs that use Crowdstrike for their own cybersecurity services. These calls focused on churn likelihood, as investors need to figure out quickly if the outage suffered in July is going to experience a multi-year fallout. 

According to them, here are three reasons why they aren’t churning:

Crowdstrike remains best of breed — their platform is leaps and bounds ahead of their competitors. 

Crowdstrike has a multi-decade long track record of innovation and resilience. 

The number of modules embedded inside of security stacks — 65% of CRWD customers are using 5+ products as of last quarter. 

With that being said, management did state they let a large customer ($60M+ in ARR) slip this quarter. Only time will tell if they’ll be able to get them back. To right the ship, CRWD introduced “Customer Commitment Packages” that includes flexible payment terms, discounting, and extended contract terms. These “packages” will negatively impact subscription revenue by about -$60M during the following 6 months. 

It's my opinion that CRWD will come out of this event with customer loyalty that stretches far beyond if they hadn’t even experienced the outage to begin with. I’ll remain a bullish shareholder into 2025 and beyond unless the company convinces me the fallout remains far worse than expected. 

$10B by 2030!

The company delivered an impressive $1B+ beat and guidance raise — cooling Wall Street’s nerves around rumors of a Blackwell delay. Management stated they’ll ship “several billion dollars worth” of these Blackwell chips during the 4th quarter. Their strong +122% top line revenue growth was powered by accelerated purchase of Hopper, and Wall Street is now speculating this demand will continue into Q4 (maybe even accelerate) and Blackwell is introduced. 

The biggest negative red flag during the quarter was their gross profit margin contracting -3.2% into Q4, and now seemingly more so into next quarter as Blackwell truly ramps up. This contraction was inventory-focused in nature. Nvidia’s stock price skyrocketed because over the last 24-months not only did they deliver insane growth, but margins also expanded. Growth remains unprecedented, but gross margins are contracting which tells me their might be customer fatigue. 

Management guided their gross profit margins down again -0.7% for next quarter (an implied -2.0% decrease sequentially) as new product mix rises. Additionally, operating expenses are growing aggressively, up +52% YoY. Management increased their operating expense growth guidance to +45% for the year, or about $11.5B. 

On the flip side, the company has delivered $15.4B to shareholders in the form of share buybacks and dividends — and were just authorized to spend $50B more on share buybacks in the coming 12-months or so. 

I’ll remain a shareholder for a very, very long time.

Salesforce’s results beat Wall Street’s estimates as the business generated record operating margins, grew billing by +10% YoY, and the FY2025 operating margin and cash flows targets are now moving higher. 

Salesforce’s results were slightly ahead of expectations as management seemed to execute during a still-challenging demand environment. Current remaining performance obligations (future revenue) outperformed expectations by +1%, though management did note that early renewals positively impacted this quarter. 

Looking forward, cRPO is expected to increase by about +8% due to typical deceleration that comes with the seasonality. Overall revenue guidance for the entire year of 2024 was unchanged, though operating cash flow and free cash flow were raised due to operating efficiency – a good thing! 

80% of new deals involve multiplied products, 50% of the top 100 deals included at least one industry cloud, and 1,500 AI deals have now been signed. Additionally, the company announced a record $4.3B in share buybacks. 

All in all, I’ll have my eye on this company. I’m encouraged by growing cash flow, buy intimidated by their softer revenue outlook when compared to current remaining performance obligations.

What We’re Watching:

Asana (ASAN) — EPS Estimate of -$0.08 & Revenue Estimate of $177.70M

Broadcom (AVGO) — EPS Estimate of $1.20 & Revenue Estimate of $12.96B

Dick’s Sporting Goods — EPS Estimate of $3.85 & Revenue Estimate of $3.40B

I don’t really like using ‘seasonality’ as much of an investment thesis. However — I’m interested to see if yet another September will end up in the red!

Who cares?

Well, you should care. Turkey has been a member of NATO since 1952. This is yet another major shift in favor of Russia and China.

Disney (DIS) Stock Performance, 5-Year Chart, Seeking Alpha

AT&T (T) Stock Performance, 5-Year Chart, Seeking Alpha

Despite the growth of streaming, both companies still rely heavily on traditional TV revenue. These disputes are typically resolved quickly, but if prolonged, they could disrupt significant events like Monday Night Football and the presidential debate set for ABC on September 10.

Very interested to see where all of this goes. Disney stock is down nearly -35% over the last five years, so deals like this have become all-the-more important.

What We’re Watching:

Jobs Report

In July (reported in August) — the U.S. economy added fewer jobs than expected and the unemployment rate unexpectedly rose to its highest level in nearly three years.

The Bureau of Labor Statistics (BLS) released labor market additions of +114K nonfarm payrolls — well below the +175K expected.

The unemployment rate rose to 4.3% — up from 4.1% in June.

Wage growth slowed to +3.6% YoY — down from +3.9% YoY in June.

After the payroll revisions debacle from last month, this jobs report will be closely watched and dissected. Analysts expect the unemployment rate to slightly drop to 4.2% and nonfarm payrolls to come in at +162K.

According to Bank of America (above), private sector job growth is at recessionary levels. We’ll be interested to revisit this after this week’s report.

S&P Manufacturing PMI

Trading Economics

In August — the S&P Global U.S. Manufacturing PMI fell to 48 from 49.6 in the previous month — firmly below market expectations of 49.6. This marked the second consecutive contraction in the US factory activity, at the sharpest pace this year. This was mostly driven by a second successive decline in inflows of new work for manufacturers, which also fell at the sharpest pace since December, to underscore the higher impact of restrictive interest rates in factory activity.

In the meantime, employment levels nearly stalled in the period to record the smallest gain since January. The drop in demand from factories eased capacity pressures for the deliveries of raw materials and reduced suppliers' delivery times. On the price front, input costs accelerated the most since May — but producers were not able to fully pass the pressures to consumers.

Economists view the next reading as a strong influence of the extent of Fed rate cuts.