SentinelOne IPO Pricing: A Positive Sign for Tech & VCs

SentinelOne IPO Price Range Increased

With the second quarter nearing its conclusion, companies intending to launch an Initial Public Offering (IPO) are facing a critical deadline to do so before the end of June. Among these is SentinelOne, a cybersecurity firm that has secured funding from prominent investors including Insight Venture Partners, Redpoint, Tiger Global Management, Data Collective, and Anchorage Capital.

Prior to its public offering, SentinelOne successfully amassed a significant amount of capital, raising close to $500 million across two funding rounds in 2020. Consequently, its IPO represents a substantial liquidity opportunity for numerous investment firms.

IPO Market Sentiment

The Exchange previously noted that SentinelOne’s IPO would serve as an important indicator of the current IPO market conditions. Its rapid expansion, coupled with its rate of financial loss, made it a key test case. Investor response to its valuation would reveal the public market’s willingness to invest in startups that are not yet profitable.

Today’s announcement suggests a positive market outlook. SentinelOne has revised its IPO price range upwards, increasing it from $26 to $29 per share to $31 to $32 per share. This represents a considerable increase in both its valuation and the total capital it aims to raise.

We are now analyzing the implications of this new valuation range. This includes comparing SentinelOne’s growth and revenue figures to those of comparable publicly traded companies.

Valuation Analysis

The goal is to determine whether SentinelOne is currently undervalued, fairly priced, or overvalued in relation to its peers. This assessment will provide insight into the company’s potential performance in the public market.

Here's a breakdown of key considerations:

• Growth Rate: Examining SentinelOne’s revenue growth trajectory.
• Revenue Multiples: Comparing its valuation to revenue generated.
• Peer Comparison: Assessing its standing against established cybersecurity companies.

Understanding these factors is crucial for evaluating the attractiveness of SentinelOne’s IPO and its long-term prospects.

Assessing SentinelOne’s Valuation

Previously, SentinelOne’s valuation reached $2.7 billion pre-money during its last funding round. Consequently, the company’s worth was nearly $3 billion following the $267 million investment. The company is poised to significantly surpass this valuation in its initial public offering (IPO), assuming no unforeseen issues arise.

The current IPO price range, set between $31 and $32 per share, establishes a considerably higher valuation for the company. Considering an anticipated share count of 253,530,006 after the IPO, including a private placement, SentinelOne’s value would fall between $7.86 billion and $8.11 billion.

A calculation of SentinelOne’s fully diluted valuation – factoring in shares potentially issued through vested options and earned Restricted Stock Units (RSUs) – yields a range of $9.46 billion to $9.77 billion. This figure would further increase if the company’s underwriting banks exercise their greenshoe option to purchase additional equity at the IPO price.

Each valuation calculated represents a substantial improvement compared to the company’s 2020 funding round. It prompts consideration of whether criticism from venture capitalists regarding IPO pricing stems from regret over the prices they secured in earlier investment stages.

However, let's analyze the company’s new valuations to determine the effective price public investors might pay for SentinelOne stock. The following calculations are based on the company’s Q1 2021 revenue, annualized:

• Run rate multiple based on SentinelOne’s higher simple valuation: 54.2x.
• Run rate multiple based on SentinelOne’s higher fully diluted valuation: 65.3x.

While these figures are subject to potential calculation errors, they appear to indicate a premium valuation. SentinelOne benefits from operating in the software sector, which is experiencing growth due to the global shift towards digitalization. Furthermore, the company specializes in cybersecurity, a particularly strong segment within the software market.

Strong IPO pricing is therefore anticipated. However, the current valuation appears notably high.

Considering comparable companies, SentinelOne experienced over 108% growth from Q1 2020 to Q1 2021. Shopify and Snowflake, both listed on the Bessemer Cloud Index, serve as its closest market comparisons. Shopify’s enterprise/run rate multiple is 44.7x, while Snowflake’s is 74.6x. Therefore, SentinelOne’s valuation isn’t entirely unreasonable.

While not inexpensive, the valuation may be justifiable for investors optimistic about the company’s future. The current market conditions are certainly favorable.

The increased price range suggests a strong market appetite for SentinelOne’s IPO. Snowflake and Shopify are valued as potentially transformative companies – and have, to a degree, delivered on that promise. SentinelOne’s pricing reflects an expectation of similar success.