Cybersecurity has been top of mind for most companies and governments in recent years as ransomware attacks, phishing attacks and denial-of-service (DOS) attacks have increased. The potential disruption to businesses from these kinds of attacks has translated into an increase in cybersecurity spending and there are different companies that help with different aspects of a company’s security infrastructure.
We have all heard various stories of companies falling victim to cybersecurity attacks but my favorite anecdote was of a large private equity firm that was doing due diligence on the security company KnowBe4 (KNBE). They triggered a test phishing email to its internal staff to see how many would end up falling for the phishing attack. A phishing attack is triggered by malicious actors that want to get money or access to company systems by sending an email to company employees masquerading as someone the employee might know, for example the CEO of the company. Clicking on an attachment or a link in the email, often triggers the “payload” and in other cases the attackers what the employee to respond to them. The private equity firm (KKR if I remember correctly) was shocked by just how many of its employees ended up opening or engaging with the test phishing email they sent through KnowBe4 and ended up investing in the company.
KnowBe4 (KNBE) went public almost a year ago at $16 per share and is still up 44% from that IPO price. SentinelOne (S) is another cybersecurity company, which focuses on endpoint security by securing desktops, laptops, phone and other endpoint devices. The company provides SaaS, hybrid and on-premise solutions as well as one-click remediation and rollback services. The company has hundreds of global customers including three out of the Fortune 10 companies.
SentinelOne’s stock had been hit hard in recent months along with other technology companies and last week dipped below its June 2021 IPO price of $35 per share. This probably triggered the insider purchase by independent director Mark Peek who picked up 30,000 shares at an average price of $34.40 through a trust. Mr. Peek also purchased 30,000 shares last December at a much higher average price of $48.02. Shortly after the company went public Dan Loeb and Third Point, picked up an additional 2.2 million shares at an average price of $41.08 last July. They have recently been sellers of the stock as you can see here. Mr. Peek is currently a Managing Director at Workday ventures having previously worked as Workday’s CFO and Co-President from 2012 to 2018. Before he joined Workday (WDAY), he spent 5 years as the CFO of VMWare (VMW).
Like most SaaS technology companies, SentinelOne is focused on growth and is not profitable. The company grew its revenue by 120% last fiscal year (ended Jan 2022) to $205 million and analysts expect revenue to grow to $370 million this fiscal year, representing over 80% growth year-over-year. Valuation is rich at over 23 times fiscal 2023 sales and the company has over $1.6 billion in net cash on its balance sheet to fund its growth. Whether the market is willing to continue affording a rich valuation to an unprofitable technology company in this environment remains to be seen.