A brief update on my positions and thoughts
I thought I’d write a brief update as I made some changes in my portfolio since my end of January summary.
First, in January I had sold out of my Mongo position. Here’s a synopsis of what I wrote:
MongoDB, had a very uncomfortable month, with Amazon entering the field as a competitor, and then Red Hat, representing the pure open-source point of view, attacking Mongo too, for trying to protect their open source model from being used for free as Amazon was doing, a veering away from pure open-source. I read all the positive opinions on Mongo which seemed very convincing, and all the negative opinions on Mongo, which also seemed very convincing, and decided, since I have zero technical knowledge to help me decide which is right, or if the truth is somewhere in-between, that Mongo was just too much of a battleground stock for me, and I sold out of part of my position, and then all of it…. I am in no way sure that I was correct in doing so. I may have been completely wrong. In fact the preponderance of evidence seemed to be that this could be even a positive for Mongo, and I know that they will have great results for their Jan quarter, but it made me worry about the long term viability of their open source business model… As I said, I simply have other companies without that kind of issue and existential worry. Again, I may be completely wrong but that’s what I did.
Well I decided I was wrong and bought back into Mongo these past two weeks, and I currently am up to a 3% position.
Second, Square. I wrote last month that it had been 2.6% of my portfolio at the end of December and was now (end of January) up to 4.7%. It’s now up to 5.3%, although the price has dropped from $78 to $72, as I have added significant amounts as my confidence has returned as they keep coming out with amazing new products, and the CEO has regained seriousness.
To get money for this I reduced Alteryx from 20% plus to 17% plus. (Having 0% in Mongo and 20% in Alteryx just didn’t make sense to me). I have no current plans to reduce Alteryx further. I also eliminated my speculative position in Guardant Health, feeling that I would rather speculate in little SaaS companies.
I added trivial amounts to my huge Twilio position and to my smaller Elastic and Nutanix positions. They are now 21.1%, 6.7% and 9.0% positions.
And as far as the EV/S question that worries so many people, I have to say I don’t have the answer to what is overvalued. I just know that:
Of course a company with 90% gross margins is worth a much higher EV/S ratio than a company with 30% or 40% gross margins because each million dollar of sales is worth so much more to the company.
Of course for a company with a subscription model and recurring revenue, and with a 125% net retention rate, each million dollar of sales is worth much more to the company, pretty much forever.
Of course a company consistently growing revenue at 50% to 70% is going to have EV/S ratios higher than were seen previously, because those growth rates weren’t seen before either.
And of course, of course, of course, companies with 80-90% gross margins AND a subscription model with recurring revenue AND 125% net retention rates AND growing revenue at 50% to 70% …are going to have very high EV/S rates (…duh), and I don’t know what is high, and I will never sell out just because the price has gone up. I don’t know where these guys will ultimately end up.
(Example: I bought Shopify originally at about $26 or something, and in a few months it was up over 70% !!! at $47. That’s clearly over-hyped and a SELL, right? No, I added, and eventually sold up over 400%, in two years.)
Just my thoughts.
Saul