Motley Fool Money - Profitability Predictions and Paramount Punches Back

Episode Date: December 8, 2025

We review the results from SentinelOne (S) and Snowflake (SNOW) and predict which stock is more likely to record profits first. We also take a critics-eye view of the Netflix-Warner Bros. deal amid Paramount’s hostile counter offer. Rick Munarriz, Sanmeet Deo, and Tim Beyers: - Review last week’s results from SentinelOne and Snowflake. - Predict which of the two will reach GAAP profitability first. - Give a critics choice take on the Netflix-Warner Bros deal, including some thoughts on Paramount’s just-launched hostile takeover. Companies discussed: S, SNOW, NFLX, WBD, PSKY Host: Tim Beyers Guests: Rick Munarriz, Sanmeet Deo Producer: Anand Chokkavelu Engineer: Dan Boyd Disclosure: Advertisements are sponsored content and provided for informational purposes only. The Motley Fool and its affiliates (collectively, “TMF”) do not endorse, recommend, or verify the accuracy or completeness of the statements made within advertisements. TMF is not involved in the offer, sale, or solicitation of any securities advertised herein and makes no representations regarding the suitability, or risks associated with any investment opportunity presented. Investors should conduct their own due diligence and consult with legal, tax, and financial advisors before making any investment decisions. TMF assumes no responsibility for any losses or damages arising from this advertisement. We’re committed to transparency: All personal opinions in advertisements from Fools are their own. The product advertised in this episode was loaned to TMF and was returned after a test period or the product advertised in this episode was purchased by TMF. Advertiser has paid for the sponsorship of this episode. Learn more about your ad choices. Visit ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠megaphone.fm/adchoices Learn more about your ad choices. Visit megaphone.fm/adchoices

Profits, who needs profits. You're listening to Motley Fool Money. Welcome, fools. I'm your host, Tim Byers, and with me are two of my teammates, Rick Munaras, whom I've served with on Rule Breakers for over 20 years now. And longtime full San Mateo, who's with me allocating capital in the Supernova Odyssey portfolio, and that's been fun and frantic. Hopefully, you're both fully caffeinated because we got some spicy earnings to get to. Today we're going to be talking about Fiscal Q-3, 2026 earnings from Sentinel 1, ticker S, and from Snowflake, ticker S-N-O-W. And predicting which of these two will reach gap profitability first and ideally when. So we're going to make some reckless predictions here, and we want your reckless predictions to

leave them in the comments below. We're also going to provide a Critics' Choice view of the Netflix Warner Brothers Discovery Deal, which got a little bit spicier this morning as we are recording this. But let's start with earnings. So Rick, Sandmeet, I'm going to give you some quick overviews on the Sentinel 1 earnings. There was some good stuff here. There was some strong growth, annual recurring revenue, up 23 percent, year over year, to 1.05 billion. This is a company, remember, that competes directly with CrowdStrike. It is CrowdStrike's most direct competitor. they make endpoint security. So, meaning your device, your iPhones, your computers, they protect those things.

And they do it with some AI here. Non-gap operating margins were decent, 7%. It was a 1,200 basis point improvement. The non-gap net income margin was 10%. So that was up 1,000 basis points. So some good stuff here. Revenue up 23% to $258.9 million. and emerging products, mostly AI products, now account for 50% of quarterly bookings.

But the gap losses are big, Sandmeet. Gap operating margin for the quarter was negative 28%. And the gap net loss margin was negative 23%. So give me your take here. How do you look at this quarter and Sentinel 1 overall? Sounds like a very strong quarter in terms of their current revenue growth and their business fundamental. you know, cybersecurity, you know, there's a few major players that I think, you know, are really ramping up. And it's a very important industry that's very much needed. And I don't think it's going to ever be a winner-takes-all kind of area. So, so I would like to see, I can't anticipate them generating profits soon because it's just an area where they have to invest in their business and continue to grow, continuing to scale, continue to provide value to their customers.

So profits may come much later down the road. I mean, Rick, let me get your take here, and I'll give you this. So this is another of those companies that issues a lot of stock-based compensation, equivalent to 29% of revenue during the quarter. That worth it? Not worth it? What do you think about this company? I think it's the price of admission of your tech company. You have to pay up with stock-based

compensation. That's how you hire the best programmers and everything else you need to make the company run smoothly. And in this case, I think the report was solid. And again, yeah, it's stock-based compensation is a big reason why we're talking about non-gap profitability instead of non-gap, which would be gap profitability. But it is the kind of thing where you are seeing improvements and margin-wise, they are getting better. It's Sentinel 1 a lot like, well, like Snowflake, five, six years ago, these companies were seeing doubling the revenue year after year. And now it's slowed dramatically, both in the 20-plus percent range now a little more than 20 percent for Snowflake. But it is the kind of thing where I'm comfortable with where they are now,

especially now that they're improving their finances. They are doing things necessary to continue to grow, possibly stabilizing here at this level. As a growth investor, I'd love to see that. But I do think that, yeah, gap profitably is still many, many years away. And I did cheat. I did look at it up. Analysts don't see this happening for Senate. No, once is until 2032, which is a long time for that to happen. But I think investors will forgive that because as long as you're making growth and you're generating healthy free cash flow, which they are, I think everything will work out just fine for Sentinel 1 investors. All right. Let's pivot to Snowflake here. So similar story. This is an unprofitable company

that has absolutely throttled the market year-to-date Sandmead. Stock is up beating the market by over 66% so far this year. And the result, were pretty good. Product revenue growth, 29%. Comes in at $1.16 billion. The remaining performance obligations, if you don't know what that is, think of it as backlog. I'm sorry, $7.88 billion. That's big.

That was up over 37%. And the non-gap operating margin did expand by 450 basis points year over a year and reached 11%. Give me your take here. And then I'll bring in some other stats here. but you follow this company, so tell me where you're at. Yeah, this is a classic case of fantastic business, tough stock, because the business fundamentals just continue to improve quarter after quarter.

They continue to announce strategic partnerships. Their pipeline is growing with RPO. It's surged 37%. So their business fundamental, and they also signed a deal with Anthropic to kind of create a software layer to their data, warehouse, storage, all that. So fundamentally, this business just continues to perform and execute. But it's a very high valuation stock.

And because it's a very high valuation stock, they recently in the quarter reported some slowing guidance for the next revenue for the next quarter. So that wasn't looked so favorably when you have such a high value stock that isn't executing to perfection. So not too concerned because as a business, this company is performing phenomenally. Rick, let me give you a, I'm going to give you another bit of data here.

Snowflake Intelligence, which is their enterprise AI agent, they've been investing a lot in AI. So for those who don't know how Snowflake works, it's like Sandmeet said. It is an archival storage environment. They get paid more when customers put more data into the system and do stuff in the system. So Snowflake Intelligence is the gateway to do more stuff with AI inside Snowflake. And Rick being used by 1,200 customers. This is what Snowflake says. And it is now 50% of new bookings.

So how are you feeling about this company and its path to profitability? I like the growth. And again, this investments in AI sort of have to scare you away about profitability specifically, but these are heavy investments now for payoff long into the future. But I think it's the right move. I think you're seeing that kind of growth is impressive. The fact that it's so much hard of business model makes me excited in the fact that I see this company is, yes, Sanmete mentioned growth may be slowing and understandably so, but they have the cows in there.

They are a leader in this whole data mining thing, and I do think that this is a company that will continue. As far as profitability goes, I also cheated. 2031 is when the analyst's turning profitable on a gap basis. So again, five, six years from now, it's a very long way. for investors, but I do think that, especially with Snowflake, which has even stronger free cash flow and a stronger free cash flow margin than Sentinel One, I do think that it's positioned well. And yeah, again, the company has not been the best of stocks sometimes, but I do think that it's a, it's a very important company that not very well understood and not very even well known.

It's not a household name. You don't go and see mainstream investors say Snowflake, and they just looking out the windows, think, for Snowfall. This is a very legit company and doing a lot of of things right. Well, I mean, Snowflake is a household name. Just, it's not the company that is the household name. All right. Let's make a prediction here. And Rick, I'm going to start with you because you brought us the analyst predictions. And I'm going to summarize here. You said analyst saying Sentinel 1, gap profitability 2032, Snowflake, gap profitability 2031. Agree or disagree, Rick. Where are you? there first to gap profitability. Yeah, so the funny thing about analysts, the further, even sometimes near-term expectations

are out of whack. The further you go, it's more like dropping, you know, trying to land up a parachute into like a tin cup down to ground level. And so I take no faith in that the numbers, the companies will change a lot. I think cybersecurity is going to continue to be a very important field. And Sentinel One, they are improving this last quarter notwithstanding as far as a margin front. I do think Sentinel 1 will actually get there faster sooner than Snowflake. But I think both companies will get there eventually.

But I don't think investors are going to punish them. But again, against what I read, I'm going with Sentinel 1. All right, Sammy? I'm going to agree with Rick. I think Sentinel 1 will get there faster. Snowflake is kind of a slow burn that, you know, like Rick had said too, you know, this is one of those companies that they're going to make some big investments now. And then you're going to see way down the road those.

investments paying off in cash flow generation that will be sustainable, but they have to build for that. Yeah. To be fair, we want your predictions, listeners, but I will say, Snowflake has been aggressively saying, don't look to us for profitability, because it may never come. That's fine right there. That's probably not right, but they are going full Amazon in this area. So it does seem like Sentinel 1 is likely to get there first. So if that matters to you, maybe that's one for your watch list. All right. Up next, is it Siskel and Ebert or Statler and Waldorf?

We're going to go armchair critic over the Netflix Warner Brothers deal. You're listening to Motley Full Money. These days, I'm all about quality over quantity, especially in my closet. If it's not well made and versatile, it's just not worth it. That's honestly what I love Quince. The fabrics feel elevated, the cuts are thoughtful, and the pricing actually makes sense. Quince makes high-quality wardrobe staples using premium fabrics like 100% European linen, silk and organic cotton poplin. They work directly with safe ethical factories and cut off the middlemen, so you aren't paying for brand markups or fancy stores, just quality clothing.

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in which this deal exists, we're talking about big screen entertainment here. We're going to play the role of critics and give a thumbs up or thumbs down. on what we've seen so far and no promises, but we will try to be a bit more Siskel and Ebert than Statler and Waldorf. But you know what, Rick? If you want to yell from the rafters that this is terrible, I am not going to stop you. So why don't we start with you on what we've seen so far and then we'll update folks on what we saw from Paramount this morning. Yeah, so a very interesting development of that from. But as far as Netflix, I think I'm going to give it, can I give it two thumbs up? I forget if two thumbs up was what Cisco and Iber both had their.

I have two hands. I can give it two thumbs up. To me, it's a smart deal. They have the largest installed base of premium subscribers. $302 million at the start of this year. Netflix, the longer reports. They're subscribers, but revenue is still growing, so you know the business is still growing. Warner Brothers Discovery was about a third of that. So I do think that this is a business that Netflix will be able to take these properties, the properties they keep and make them stronger and find new outlets for them. I don't think they're going to get rid of the HBO Max. They'll just never name it terribly like HBO Max did with the Max name. But I think that they'll continue because I think that's another incremental revenue revenue scene. But not only are you taking your

largest premium price streaming service competitor at that pricing cat range in the mid-teens a month, but you're also doing this in a case where you're prohibiting anyone else from buying Max and getting that much stronger and catching up to Netflix. Netflix is always default cable to me. Now it's even more default default-de-fault cable. If the deal goes through, sorry. Well, that's a big one. We're going to get to that in a minute here, but on the basis of what we know so far, Sandmead, I mean, Rick's giving it two thumbs up. Where are you on this? And remember, it's a $72 billion deal. It's a cash in stock deal. So Netflix may be taking on up to $50 billion in debt to do this deal. There's going to be a complicated spinoff. If this deal goes through, they're going to spin off what

they are calling Discovery Global, which will be some of the legacy media assets of Warner Brothers. What do you think here? Are you with Rick? You know, when the deal was, when it was rumored, I wasn't so hot on it. You know, I am a Netflix shareholder. It's been one of my biggest and best holdings. I wasn't too hot on it. As I started to think about it, the announcement came out.

I'm going to say I'm going to give it one thumb up, one thumb down. And the one thumb up is more for the strategic reasons. I think this puts them as the streaming media powerhouse, like Disney Who at this point. And down the thumb for just the fact that the financial burden is onerous. I mean, they're taking on a ton of debt. They have been relatively, you know, lower debt profile, a leaner, meaner kind of company. You know, I always think of Netflix as that young, lean, mean upstart. They're not really that anymore.

They're more of the dominant play. But, you know, it is a big financial commitment for something, you know, that you can't have one without the other. So I'm just not, I'm not fond of the financial commitment, but you just kind of have to have it if you want that dominance. All right. Let me, let me give you, I'm going to give you a wrinkle and you tell me whether or not this convinces you to go two thumbs up. What if I tell you that that Warner Brothers or that Discovery Global Business is going to be spun off and it's going to be spun off as a public entity and because of Netflix's interest that 100% interest in that entity, that they're going to get a rich payday. Let's say that payday

in the equity they spent out to the market is $15 billion. And now they got an extra bit of war, extra bit in the war chest there to decide to maybe pay down that debt early, do some other things with it. Does that change your opinion? It definitely helps. And that gets my, my thumb to go kind of sideways and going to head towards up because you know, and look I also give it a thumbs up for the management team. You know, this is a seasoned,

very intelligent management team has been around with Netflix for a very long time. I can't imagine they do something like this without having a very clear idea of how they're going to manage it all because they know what they have with Netflix without

Warner Brothers Discovery. they want to make sure it continues on. So I've always been fond of the management team. Yeah. All right. We got a two thumbs up and we got one and a half thumbs up. Let's talk about what happened this morning, Rick. And then we're going to move on to close out today's show.

Paramount Skydance announced a hostile bid. They previously bid. They bid at least twice for Warner Brothers Discovery. Both those bids were turned down by the Warner Bros. Board. Today, it's an all-cash offer that is a premium over what Netflix has bid. $30 a share, roughly $108.4 billion. Paramount stock is on the rise. As we talked this morning, Rick, I was up more than 6 percent. Warner Brothers stock up more than 7 percent. Paramount is ticker PSK-W. P-S-K-Y. Rick, reactions to this? It feels a little, I mean,

It's getting spicy. I hate that Paramount stock went up when Netflix stock went down when they had announced a deal last week. To me, this was like, well, there's no fairness here. But yeah, I think I see why Paramount's doing this. And again, it's an easy, not only is it more money, it's going to be very tempting for the Warner's Brothers Discovery Board to look at this. First of all, it's more money. So that right away says, well, hey, you know, you know, shareholder, you know, we got to do right by our shareholders. And also, this is going to have a clear path to to just clearing the regulatory antitrust regulatory barriers. Even though Paramount Skydance just added Paramount just a couple months ago, they're still not this monster that anyone's really scared of.

So I think this is the kind of thing that would definitely put Skydance, Paramount and Warner Bros. All three together in one company would be very, very interesting, very, very competitive. And the money's coming from some, they're not, they don't have the money on their own. They're just turning to sovereign wealth funds, which I know seems like a weird thing. But, you know, electronic arts had the same thing a couple of months ago. We're already used to this by now. Sometimes you're getting international money with these deals, but they're not doing governance to the actual thing.

So that's good. Yeah, I think it's an interesting thing. I don't think this is the last word. I hope this doesn't become a bidding war because then whoever wins will be a loser, whether it's Paramount or Netflix. But I'm really curious how this, yeah, definitely a story that was already interesting became must-watch TV right now. Okay, yes or no, Sanmeat.

Will there be an ongoing bidding war for Warner Brothers, I don't think so. I think that Paramount's going to try their hardest to get to get this asset, which, you know, rightfully so, they should. But I think that Netflix is going to win out. And I think that even though there's a regulatory concerns, one thing I was reading through is, you know, the argument for, you know, it's just not about, it's not just about streaming dominance. It's, Netflix is going to argue total views, which, you know, you have YouTube in there, or screen time views, I should say. And you have YouTube in there, which is a dominant, dominant eyeball generator, I guess you could say, for screen time. And they have their own share of movies and other things.

And a lot of the younger generation watches more of YouTube in short form than they do of streaming. So they might be able to win an argument there with the regulators in terms of that this isn't as monopolistic as they might, as people might think. I got news for you, pal. It's not just the younger generation. It's older folks, too, we're watching a lot of YouTube. All right. Up next, we give you the preview for tomorrow. You're listening to Motley Full Money.

If you're early in your career and looking for insight, inspiration, and honest advice, listen to the Capital Ideas podcast. Hear from Capital Group professionals about leaning into the differences that make you use. unique, making decisions that last, and what it means to lead with purpose. The Capital Ideas Podcast from Capital Group, available wherever you listen, published by Capital Client Group, Inc. All right, fools, on tomorrow's show, we've got a bit more on the Netflix strategy shift. They're going to go a little deeper, I am sure, on the Paramount bid. That'll be Emily Flippen, who has Jason Hall and Dan Kaplanarlinger.

They're going to go deeper on the merger, what it means for investor, streamers, and how to evaluate. and I think this is the thing you're not going to want to miss listener, is how to evaluate mega mergers to determine whether they're accretive or dilutive. That's a big thing. A lot of big mergers do a lot of damage and don't create a lot of value. So you're going to want to listen to that. They're going to be talking about what Netflix is actually buying,

whether or not it's smart capital allocation and a framework for judging those mega mergers. Again, that's with Emily Flippin, Jason Hall, and Dan Kaplinger. But for today, thanks very much to Rick Munar. and San Mateo. As always, people on the program may have interests in the stocks they talk about, and the Motley Fool may have formal recommendations for or against. So don't buy or sell stocks based solely on what you hear. All personal finance content follows Motley Fool editorial standards and is not approved by advertisers, advertisements are sponsored content and provided for informational purposes only. You'll see our full advertising disclosure. Please check out our show notes.

That's it for today's Motley full money. Thanks again to Rick and Sandmeet, our engineer, as always. It's the incomparable Dan Boyd. Our producer is Anand Chaka Baloo. Your host and buyers, thank you for listening. See you again tomorrow. Cool on, everyone.