Good Morning!

Welcome back to The Crossover!

I am very excited for today’s edition as we dive into the cybersecurity space with SentinelOne $S, revisit one of our favorite FinTech names in PayPal $PYPL, and also discuss one of the best performing stocks over the past few years, Build-A-Bear Workshop $BBW.

I am not kidding. This is not a late April fools joke. Build-A-Bear Workshop stock has absolutely crushed it, and I look forward to sharing a few reasons why.

Another non-late April Fool’s Joke that feels like it should be? There were wild ostrichs running around Cleveland, OH. Even I cannot make that up.

Showtime!

Three quick housekeeping announcements/reminders before we get started:

1. All opinions in The Crossover are 100% my own.

2. No Artificial Intelligence/ChatGPT is used in writing The Crossover. (Who needs AI when you have AL!)

3. The Crossover is not investment advice and is for education and entertainment purposes solely.

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THE DYNAMIC DUO

1. SentinelOne: A Cybersecurity Winner?

The News: SentinelOne, the enterprise cybersecurity platform company, announced their Q4 earnings a couple weeks back. Here were some of the key stats:

• Revenue: $174.2M representing 38% YoY growth

• ARR: $724.4M representing 39% growth

• Non-GAAP Gross Margin: 78% vs. 75% last year

• Non-GAAP Operating Margin: (9%) vs.(35%) last year

• # of Customers with ARR over $100k: 1,133 representing 30% growth

• Cash and Cash Equivalents: $1.1B

In Fiscal Year 2025, the Company expects revenue between $812-$818M, (which would represent 30% growth), 77.5%-78.5% gross margin, and Non-GAAP Operating Margin of (6%) - (2)%.

Here is what CEO Tomer Weingarten had to say about the Company’s year in the press release:

“We closed the year on a very strong note and surpassed our fourth quarter top and bottom line expectations. In fiscal year 2024, we delivered industry-leading revenue growth of 47% and operating margin improvement of more than 30 percentage points compared to the prior year,” said Tomer Weingarten, CEO of SentinelOne. “Our pace of innovation and security leadership remain unmatched. Enterprises are selecting SentinelOne at a record pace across endpoint, data, cloud security, and more. We are giving control back to the enterprises through enterprise-wide visibility and autonomous cybersecurity.”

Alan’s Angle:

I have been bullish on the cybersecurity space for quite a while now, however, I am pretty sure this is the first time I am sharing my own thoughts on the space in the newsletter.

The technical complexities of this industry are deep, and I will be the first one to admit that I have a lot to continue to learn. However, at the highest level, there are several reasons why cybersecurity is a necessity — and will only become more critical to our lives. A few of the reasons include, the speed of technological innovation outpacing the speed of development of sufficient cybersecurity protections, the fact that our entire lives nearly run online, and the increased sophistication of cyber attacks & devastating losses it causes to enterprises.

Specifically, in regard to SentinelOne, there are three key reasons that make the stock attractive to me right now:

1. Stock is down 25% in the past couple of months and is trading at 9x ARR

2. Company has continued strong top line growth represented by 38% last year and projected 30% next year

3. The Company is achieving this while driving meaningfully towards profitability

Additionally, check out this chart I put together (that took me so much longer than I feel like it should have) that displays this growth:

The explosive growth in revenue, ARR, large customers, and ultimate driving towards profitability is remarkable. This company looks and feels special.

I have have built a medium sized position at $22.20 and ready to buy more if it falls below $20.

Links: S1 | 2024 Shareholder Letter | 2024 10-K | Q4 Earnings Transcript

2. PayPal’s Executive Conversations

The News: Even though PayPal shared earnings last month, there has been plenty of news in the couple of weeks since as CEO Alex Chriss and CFO Jamie Miller both participated in conversations at conferences recently.

Specifically, Alex spoke at the Morgan Stanley Tech, Media, and Telecom Conference and Jamie at the Wolfe Research FinTech Forum.

Alan’s Angle:

There was obviously a lot covered in these conversations, but I specifically want to highlight a takeaway from each of their conversations.

1. CFO Jamie Miller @ Wolfe Research Forum

The long story short, is Wall St. absolutely loved what Jamie had to say. The stock opened the day at $59.98, reached heights of $63.30, and closed at $62.45 while the S&P 500 was down on the day.

While Jamie talked highly of how impressed she is by the company’s assets, the leadership team, and the rapid changes occurring at the company, what I think got the stock moving was Jamie’s color and confidence in the company’s 2024 guidance.

Here is a quick excerpt from Jamie during the conversation:

“And so, when you think about guidance, we feel really strongly that, we want to give you guidance that, we are convicted around that, we can meet, or exceed and we need to get back into a rhythm, of really meeting our commitments.”

It sounds like to me — and I assume Wall St. — that PayPal’s 2024 FCF guide of “approximately $5B” is looking pretty good. $5B of FCF is serious and sounds like that it might a conservative guidance too.

Overall, I thought Jamie crushed it, and I share the link to the transcript of the full conversation below.

2. CEO Alex Chriss @ Morgan Stanley Conference

One of my favorite parts of Alex’s conversation — and an emphasis of his since taking over at $PYPL — was around Venmo. I think Venmo is an extraordinary asset that has not been prioritized enough in years past.

Venmo has ~90M active accounts in the US, is deeply penetrated in the key GenZ demographic, and processed around $270B in payments in 2023 (representing 9% growth). What I also love about Venmo is the fact that “no other mobile payment service has a social feed as active, useful, and as personal as Venmo.”

Specifically, at the Morgan Stanley Conference Alex detailed how PayPal has “not done a very good job of monetizing this product” and that there is so much more that can be done.

Interestingly, he discussed practically several issues that his son encounters with his college friends when it comes to using Venmo that just doesn’t make sense. For example, he discussed how his son needs to be able to have debit and credit cards on Venmo and have it include “routing information so that he can pay the rent for his apartment, getting the ability for him to be able to not just have money come in but also move out in the right way.”

Additionally, Alex emphasized how Venmo needs to be available both online and offline and continued to say:

“It makes no sense that when he sits around with his six friends, and they each send him $10 for the pizza that he then has to pay for that pizza using something else. That makes absolutely no sense to me. And so it has to be available for him to be able to complete his purchases in every single situation.”

I just love the way that Alex is thinking about Venmo. It is logical, it is practical, and it is consumer first. Venmo is a real asset and whether it is based on official press releases, comments at conferences, or in earnings, it is clear to me that it is a core priority for Alex, Jamie, and Co.

The TL;DR: While I thought the conferences were great, I am very comfortable with my position a little under $59 a share. I do not anticipate adding more unless the stock falls to the low $50s. Also, $10 for pizza sounds like a lot!

Links: Alex Chriss Transcript | Jamie Miller Transcript | Q4 Investor Update

3. Build-A-Bear’s Soar Continues

The News: Build-A-Bear Workshop continues its remarkable turnaround story. The Company announced Q4 earnings and their performance for FY 2023:

• Total Revenues for ‘23 were $486.1M and increased 3.9%

• Dilluted EPS was $3.65

• Build-A-Bear now has 525 locations, 359 of which or corporately managed.

The Company expects total revenue growth in the low-to-mid-single-digits (percentage) and pre-tax income growth in the low-single-digits (percentage).

Finally, the Company announced a $0.20 quarterly dividend

Alan’s Angle:

Who would have thought that in 2024, Build-A-Bear Workshop would be stuffing the pockets of shareholders! Build-A-Bear Workshop continues to be one of the best corporate turnaround stories and the stock is up over 800% since 2020!

So much of the credit belongs to CEO Sharon Price John and her team who have done a fantastic job running the Company. $BBW has dramatically shifted several areas of the business to lead their turnaround including becoming a multi-generational brand, shifting reliance away from shopping malls to other high traffic areas, prioritizing profitable store models, increasing average order value, and growing their e-commerce presence to be a meaningful part of the Company’s business.

I might spend some time over the coming weeks going deeper into this turn around story and looking more into how $BBW has set themselves up for their brightest days to still be ahead. Let me know if you would be interested in learning more!

Finally, The Build-A-Bear story shows us that it is not always the company with the greatest technology or that is talked about in the papers all the time that can be the biggest winners. Sometimes, it can be an old legacy name that is just misunderstood by the markets.

-Alan

KEY CHART

Cocoa Goes Loco

Who needs $NVDA when you have cocoa beans! cocoa beans futures have taken off this past year for a plethora of reasons that could have serious implications on chocolate manufactures and the consumer in the near future.

Here were three of key stats from a great CNBC article on the Cocoa bean crisis:

• Cocoa prices have more than tripled in cost over the past year and is up 129% in 2024

• The rise in cost has occurred due to supply side disruptions in the Ivory Coast and Ghana (responsible for 60% of supply) as they have been hit by devastating diseases and other environmental factors

• The World is facing largest Cocoa supply deficit in more than 60 years and consumers could see impacts late this year or in the beginning of 2025

And one final note, specifically towards my Mom and Dad — stock up on Dark Chocolate now as the high cocoa concentration will likely make your favorite post dinner treat a whole lot more expensive!

GOLDEN NUGGETS

ESPN, CAVA, Delly, Doing Nothing at Cafes

Business Videos:

1. Jensen Huang, Founder & CEO of NVIDIA (Stanford School of Business)

2. Disney’s Fight To Save ESPN From Cord Cutters (CNBC)

3. Sam Altman: OpenAI, GPT-5, Sora, Board Saga, Elon Musk, Ilya, Power & AGI (Lex Fridman Podcast #419)

Business Articles:

1. Costco’s Former CFO Talks Membership Fees, Hot Dogs, and Charlie Munger (Barrons)

2. Adam Neumann Bids to Buy Back WeWork for More Than $500 Million (WSJ)

3. Mock earnings helped prep for IPO, Cava CFO says (CFO Dive)

Sports Tweets:

1. Unbelievable Game Winning Goal in Chicago (@MLS)

2. NBC Sports is Planning an NFL RedZone-style Whip-Around Show for the Paris Olympics (@MySportsUpdate)

3. Matthew Dellavedova with the Season-Saving Game-Winner in the NBL Finals (@acrossthecavs)

General/Life:

1. More Time at Cafe’s Doing Nothing (@aIIegoricaI)

2. Are Your 30’s Greater Than Your 20’s? (@Codie_Sanchez)

3. Horses Running on Cleveland Highway (@imfromcle)

MEME OF THE MONTH

I Would Probably be in Jail for Life…

Thanks for the read! Let me know what you thought by replying back to this email.

— Alan

Disclaimer: The Crossover is not a professional financial service. All materials released from The Crossover are for educational and entertainment purposes. The Crossover is not a replacement for a professional's opinion. Contributors to the Crossover might have positions in the equities in the The Crossover Portfolio or mentioned in the newsletter.;