📊 Our Stocks in Charts: Q2 Earnings Pt. 2

Let’s take a closer look!

One of my favorite things to do is update you all on the most important financial and operational data reported each quarter by the companies we’re familiar with.

You all seem to have loved the last one I shared, so let’s keep the momentum rolling! Without further ado, let’s jump into this.

The theme of this post is “sticky, defensive companies” that will likely bode well during times of global macroeconomic uncertainty.

SentinelOne (S)

The above stock price chart is courtesy of Katie Stockton and her team of technical analysis wizards at Fairlead Strategies. Can’t recommend her enough if you’re into those sort of things!

— Q2 Earnings Results:

• Revenue: $102.5 million, an increase of +124% YoY

• Operating Loss: -$108.2 million, compared to -$67.2 million last year

• Net Loss: -$96.3 million, compared to -$68.2 million last year

— Q2 Operational Results:

• Annualized Recurring Revenue (ARR): $438.6 million, an increase of +122% YoY

• Total Customer Count: 8,600, an increase of +60% YoY

  • Customers w/ >$100K in ARR: 755, an increase of +117% YoY

• Dollar-Based Net Revenue Retention Rate: 137%, a new record

— My Thoughts:

To the above comment — this “resistance” is apparent by their record-high dollar-based net revenue retention rate hitting 137%.

For those of you who might not be familiar with this metric — this is the “land and expand” strategy. SentinelOne would sell their cybersecurity services to a customer, then after 12-months when it’s time to “re-up” on the contract, the customer sees such value in the services that they buy more.

As of this quarter, +37% more.

The first thing someone might see when looking at this company’s financials is their growing operating loss — but this -$50M expansion comes from a place of high-demand and growth (headcount and stock-based compensation). Their Non-GAAP operating expenses as a percent of revenue actually decreased from 160% to 129% year-over-year, displaying strong unit economics.

As a percent of revenue (non-GAAP):

— Sales & Marketing Expense: 65%, compared to 81% last year

— General & Administrative Expenses: 24%, compared to 31% last year

— Research & Development Expenses: 40%, compared to 49% last year

Their expenses, as a percent of revenue generated, are all decreasing across the board — a wonderful thing!

Finally, the company grew their international revenue by +135% — now representing 33% of total revenue. This growth remains a key focus for the company’s go-to-market strategy as they head into 2023.

To be honest, I haven’t been this excited about a company in a very long time. They IPO’d during the “mania” phase in the markets, and their stock price certainly reflected that. However, now after trading down some -70% from their “mania” peak in late-2021, they trade at ~15X forward revenue (which is frothy) but much more reasonable — even in a bear market.

I’ll be slowly accumulating a sizable (2-4%) position in this company over the coming months and quarters.

Palo Alto Networks (PANW)

The above stock price chart is courtesy of Katie Stockton and her team of technical analysis wizards at Fairlead Strategies. Can’t recommend her enough if you’re into those sort of things!

— Q2 Earnings Results:

• Revenue: $1.6 billion, an increase of +27% YoY

• Operating Income: $15.4 million, compared to -$60.4 million last year

• Profits: $3.3 million, compared to -$119.3 million last year

• Adj. Free Cash Flow: $485.0 million, a 33% margin

• Remaining Performance Obligation: $8.2 billion, an increase of +40% YoY

— Q2 Operational Results:

• Network Security Customers: 3,556, up +51% YoY

  • Customers w/ >$1M in ARR: 210, up from 27 in 2019

• Prism Cloud Credits Consumed: 3.1 million, up +55% YoY

• Cortex Customers: 4,000

  • Customers w/ >$1M in spend: 52

My Thoughts:

Starting from the top — the company reported billing growth of +44% ($2.7B), which is the highest they’ve reported in four years. Mind you, this was during macroeconomic uncertainty around the world.

Their remaining performance obligation (services and products they’re already sold via contracts to customers) also grew +40% to $8.2 billion.

All of this contributed to the company reported GAAP profitability for the first time ever. Their management team also guided to full year GAAP profitability during the year of 2023.

Incredible!

Getting into the weeds of things — it’s important to think about who exactly this company is selling to.. everyone participating in this “digital transformation” secular growth trend.

Buying cybersecurity products and services from Palo Alto Networks is no longer a “let’s protect ourselves just to be safe,” but instead now a conversation anyone moving to the cloud is having. As you all remember from this post, cloud is the future — and it’s where everyone will eventually end up.

The number of customers who spend $1M or more with the company has exceeded 1,200 — with 50% of their total customer count purchasing every single product / service they offer. 80% of that purchasing is coming in the form of subscription — giving us, the investor, a better lens as it relates to revenue going forward.

This cybersecurity company is my favorite large-cap company in the industry.

This industry is growing +14% compounded annually, and at +29% growth over the last 12-months PANW is clearly growing market share.

Broadcom (AVGO)

The above stock price chart is courtesy of Katie Stockton and her team of technical analysis wizards at Fairlead Strategies. Can’t recommend her enough if you’re into those sort of things!

— Q2 Earnings Results:

• Revenue: $24.2 billion, an increase of +21% YoY

• Operating Income: $10.2 billion, an increase of +72% YoY

• Profits: $8.1 billion, an increase of +71% YoY

— Q2 Operational Results:

• Semiconductor Solutions Revenue: $6.6 billion, up +32% YoY

  • Networking: $2.3 billion, an increase of +35% YoY

  • Server Storage Connectivity: $1.1 billion, up +70% YoY

  • Broadband: $1.1 billion, up +20% YoY

  • Wireless: $1.6 billion, up +14% YoY

• Infrastructure Software Revenue: $1.8 billion, up +5% YoY

  • Renewal Rates: 128% on expiring contracts

  • Renewal Rates: 140% on strategic accounts

My Thoughts:

The company has nothing but momentum and tailwinds at the moment — and hopefully for the foreseeable future despite macroeconomic uncertainty. It’s understandable to see slightly lumpy spending on cloud, but their planning and execution is deliberate and resilient.

Their continued buildout of higher speed networks, cloud AI, advanced WiFi, and 5G are critical to their customer base — with 75% of global semiconductor sales going toward their top 100 customers.

The company’s dividend is also nothing to scoff at — having grown +43% compounded annually since 2016.

This is the type of company I think of when I hear “dividend growth stock.”

I’ll be accumulating shares. I’m excited.

Feel free to respond to this email or comment on the post if you have specific callouts / questions!

Disclaimer: This is not financial advice or recommendation for any investment. The content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice.