AMS PORTFOLIO REVIEW – NOVEMBER 2021
BACKGROUND & OVERVIEW
I run investments in both the UK (an investment legacy from my UK origins focused mainly on stable high yield income producing investments) as well as here in Singapore, (where I have been living for approaching 12 years).
My Singapore investments are split between a US portfolio and an Asia portfolio (listed equities in Singapore, Hong Kong and Australia). My US portfolio is principally a Saul style pure growth portfolio whilst my Asia portfolio is a mix of High Yield income producers (mostly REITs) and Asia located growth plays (e.g. Ali Baba, Meituan Dianping and Afterpay). This Portfolio summary will focus only on the US portfolio.
The US portfolio has produced outsized returns since discovering Saul’s board - I’m up ~300% since 2016 Year End (and that doesn’t factor in ongoing withdraws during the period whilst getting my own consulting business up and running with my business partner).
The portfolio has also gone through a considerable reconstitution. Going back 4 years I had 120+ stocks in my US portfolio and very low concentration amongst holdings, (my top 15 holdings were between 1.5% and 2.5% in value), I had a lot of long held positions with many investments under water and if I’m honest with myself a lot of equities where the investment thesis had changed and I had not acted accordingly.
As of today my US portfolio is down to ~40 positions with much more substantial investment sizes and higher overall concentration. My holding period has come down although I still own stocks for longer in duration than many on this board and will tend to stick with positions when conviction and investment theses remain strong even if there might be short term weaknesses in the share price or quarter to quarter transitions. Cloud and tech now dominate my portfolio in terms of holdings and value and I’m no longer allocating investment towards old economy plays no matter how favourable the situations or the tailwinds. I have also reduced my exposure to China considerably for a number of reasons, including; the tailing off of its hypergrowth emerging era, the delisting risk in the US and the availability of China plays on the HK market. In common with others on this board the position sizes are driven by a combination of performance and conviction – as a result positions are stratified into tiers within the portfolio. My investment selections, entries and exits are now financial/business performance driven as far as possible and there’s no room for story or narrative investing, turnaround speculation or value fishing. Key mega themes that I do pay attention to and am comfortable maintaining outsized exposure to include: eCommerce (~20%), Cybersecurity (~15%), Big Data (35%), Fintech (~5-10%) and throughout that – the Cloud. These mega themes are in part a function of secular tailwinds and in part the respective TAMs involved. I have also had exposure to Genomics although I have exited that sector for now.
PORTFOLIO COMPOSITION:-
The top tier ~6-17.5% positions include: Shopify, Crowdstrike, Upstart, Datadog and The Trade Desk that represent my highest conviction holdings together with outstanding growth rates and market positioning and potential.
The second tier of 2.9-5.5% positions are high conviction strong growth plays including a mix of mature performers (ZScaler, MongoDB, Elastic & Cloudflare) as well as younger rising stars (Palantir and Snowflake) as well as reformed Pure Storage.
The third tier of 1-2.6% positions is a mix of: early stage positions (Monday, Digital Turbine, ZoomInfo, Babylon Holdings and Exp World), deliberately lower exposure situations - either due to either lower conviction and/or lower growth levels (Nutanix) or sector over exposure and self enforced limits (e.g. eCommerce in the case of MercadoLibre, SEA, DLocal & Global-e Online)
Outside the top 20, other notable and/or recent positions that I am: following with interest, considering building a more significant position in and seeing some high returns with include: SoFi, FuboTV & Innovative Industrial Properties.
Confluence and Bill and a few gene sequencing players are also on my watchlist. Amplitude, Babylon, FuboTV and SoFi and ZScaler are positions I am looking to build with most interest (or re-build in the case of ZScaler).
3 holdings I would mention that sit outside of my US portfolio include:
Afterpay at ~10% of my US portfolio in value (which I hold in my Asia portfolio and via an Australia listing), up over 300% in 2020 and up over 500% for me overall. If the Square acquisition goes through then this will come into my US Portfolio as a Square holding.
Ali Baba at ~5% of my US portfolio in value (which I hold in in my Asia portfolio via an HK listing) and is probably a candidate for a 2-10 trillion $ franchise.
Meituan Dianping at 1.25% of my US portfolio in value with stellar returns to date (250%) and another potential trillion $ business in the making.
Buys & Sells in the Month
New positions: Amplitude
Additions: Upstart
Sells: Crowdstrike
Exits:
This hasn’t been a particularly active month for me with no exits, one sell (a further trimming of my Crowdstrike at around it’s all time high), a position increase for Upstart and 1 new position – Amplitude.
I will be keeping an eye on any remaining China holdings and looking to sell into strength and exit as China seems intent on unleashing the sum of all fears from a systemic and existential risk to a foreign investor perspective.
PERFORMANCE REVIEW:-
Monthly Performance
Month US Port S&P
Jan + 6.42% - 1.1%
Feb + 0.16% + 2.6%
Mar - 13.98% + 4.2%
Apr + 4.93% + 5.2%
May - 0.98% + 0.5%
Jun + 16.48% + 2.2%
Jul - 0.15% + 2.3%
Aug + 8.71% + 2.9%
Sep - 4.21% - 4.8%
Oct + 10.31% + 6.9%
Nov - 7.73% - 0.8%
YTD + 17.4% + 21.6%
My portfolio ended -7.73% on the month, having reached an all time high early in the month (up 30%+ for the year at that point). I ended +17.4% for the year to date, (accounting for withdraws), which is disappointingly lagging the index benchmark. Whilst my ~10% exposure to Upstart held me back previously, it insulated me from some of the downdraft that others experienced this month. Overall my portfolio performance suffered from significant volatility and lost ground mid month and in the final few days despite some of my larger positions regaining significant ground and ending close to ATHs (Shopify, The Trade Desk, Pure Storage & ZScaler). eCommerce and digital advertising has also underperformed in recent months where my exposure to Mercadolibre, DLocal and SEA in eCommerce and Digital Turbine and FubTV in digital advertising has held back portfolio returns.
Overall portfolio allocation rankings, theme & YTD returns
**# Holding Portfolio(%) Previous Mth (%) Mega-Theme YTD-SP-Change(%)**
1 Shopify 17.0% 15.1% eCommerce/Fintech/Cloud + 38%
2 The Trade Desk 10.7% 7.1% Digital + 34%
3 Datadog 8.4% 7.2% Big Data/Cloud + 86%
4 Crowdstrike 7.7% 10.3% Cybersecurity/Cloud + 6%
5 Upstart 6.9% 9.6% Digital/Fintech +422%
6 Cloudflare 5.2% 5.0% Big Data/Cloud +161%
7 Snowflake 4.5% 4.3% Big Data/Cloud + 30%
8 MongoDB 3.4% 3.3% Big Data/Cloud + 47%
9 Elastic 2.9% 3.0% Big Data/Cybersecurity + 9%
10 Pure Storage 2.9% 2.3% Big Data/Cloud + 42%
11 ZScaler 2.9% 2.5% Cybersecurity/Cloud + 78%
12 Palantir 2.6% 3.0% Big Data/Cloud - 11%
13 Monday 2.5% 2.4% Digital/Cloud +100%
14 Sea 2.4% 2.6% eCommerce/Fintech/Cloud + 50%
15 ZoomInfo 2.4% 2.4% Cloud + 45%
16 MercadoLibre 2.0% 2.3% eCommerce/Fintech - 26%
17 Nutanix 1.9% 1.8% Big Data/Cloud + 9%
18 Global-e 1.9% 1.7% eCommerce/Fintech +125%
19 eXp World 1.8% 2.3% Cloud + 16%
20 Digital Turbine 1.8% 2.7% Digital - 04%
NB 2021 YTD SP Change are share price changes not portfolio position gains
Total % gain rankings
**# Holding % Gain Thesis Check Conviction**
1 Shopify 2318% On Track High
2 The Trade Desk 1041% On Track High
3 Cloudflare 495% On Track High
4 MongoDB 444% On Track Medium
5 Cloudstrike 378% On Track High
6 Datadog 261% On Track High
7 MercadoLibre 228% On Track High
8 Elastic 115% On Track Medium
9 Pure Storage 71% On Track Medium
10 ZScaler 71% On Track High
11 Sea 60% On Track High
12 Palantir 35% On Track High
13 Industrial Properties 33% On Watch Medium
14 Snowflake 29% On Track High
15 eXp World 19% On Watch Medium
16 Global-e Online 14% On Watch Medium
17 Zoom Info 9% On Track Medium
18 Digital Turbine 9% On Track Medium
19 Upstart 2% On Track High
20 SoFI -4% On Track Medium
NB Gains are actual gains of investment holdings in aggregate within my portfolio not % change since beginning of the year or since first purchase.
BUSINESS SCALE, PERFORMANCE, VALUATION AND POTENTIAL OF TOP HOLDINGS
Size, Growth, Valuation, TAM & Penetration Rates for Top Holdings
**# Holding MCap($bn) RevGr(%) TTM($bn) P/S(TTM) TAM($bn)Pen(%) DBNER Margin(%) RPO($m) RPO(%) LFLGr(%)**
1 Shopify 198 46% $4.21 47 250 1.7% NA 12% NA NA 46%
2 The Trade Desk 50 39% $1.12 45 725 0.2% NA 26% NA NA 47%
3 Datadog 57 75% $0.88 64 24 3.7% 130% -2% $719 127% 75%
4 Crowdstrike 53 70% $1.14 47 37 3.1% 120% -6% $1700 84% 70%
5 Upstart 17 250% $0.62 28 92 0.7% NA 18% NA NA 250%
6 Cloudflare 64 51% $0.59 110 72 0.8% 124% -11% $545 60% 54%
7 Snowflake 109 104% $0.85 128 84 1.0% 169% -89% $1500 118% 104%
8 MongoDB 34 44% $0.70 49 73 1.0% 120% -33% $281 27% 44%
9 Elastic 14 50% $0.67 21 53 1.3% 129% -17% $776 35% 50%
10 Pure Storage 9 37% $1.97 4 50 3.9% NA -4% $1248 27% 38%
11 ZScaler 47 62% $0.76 61 72 1.1% 128% -27% $1533 98% 57%
12 Palantir 42 36% $1.43 29 119 1.2% NA -38% $874 172% 36%
13 Monday 15 95% $0.26 57 45 0.6% 115% -59% $117 80% 95%
14 Sea 165 122% $8.30 20 150 5.5% NA -15% NA NA 122%
15 ZoomInfo 28 60% $0.67 42 70 1.0% 108% 28% $712 56% 60%
16 MercadoLibre 64 62% $6.27 10 50 12.5% NA 9% NA NA 73%
17 Nutanix 8 21% $1.46 5 90 1.6% 124% -37% $1470 22% 23%
18 Global-e 9 77% $0.22 42 40 0.6% 172% -17% NA NA 77%
19 eXp World 5 95% $3.30 2 22 15.0% NA 1% NA NA 95%
20 Digital Turbine 5 338% $0.71 8 369 0.2% NA 15% NA NA 63%
RevGr = Latest Quarter Year on Year Revenue Growth
Pen. = Penetration of TTM Revenues as a % of TAM
DBNER = Dollar Based Net Expansion Rate
Margin = EBITDA Margin % (I felt GM doesn't really differentiate much between our investments and better shows progress of operating leverage)
RPO = Remaining Performance Obligations $m Total and YoY Growth %
LFLGr = Underlying Latest Quarter YoY Revenue Growth normalised for acquisitions, one time exceptions and FX variations
One of the observations I would make looking at TTM revenues is that our SaaS companies are starting to reach the $1bn run rate mark in FY2021. I am monitoring Market Cap and historic P/S for my holdings in this exercise as I want to keep an eye on relative size and valuations and keep scale relative to growth and valuation and potential all in view together. Whilst I have kept notes on the definitions of the TAM, for the purposes of these reviews I have added latest DBNER as and where published and depending on the business model. I have also added RPO $ and growth %, underlying EBITDA Margin and underlying like for like revenue growth as additional indicators and metrics that I feel that we should be tracking.
Given that our holdings are growing as fast as ever but now at scale, it does make me think that aside from just holding the positions until the underlying story changes, we might need to recalibrate our thinking of where we look for growth. Traditionally the small emerging players have offered us speedster growth opportunities but some of our holdings are now becoming large enterprises and in some cases profitable. We might be sleep walking our way into a mature high growth portfolio composition as opposed to the emerging super high growth portfolio we have typically been used to. On the other hand it is possible that in this digital global era the potential for scale is orders of magnitude higher than ever before and hyper growth can be sustained further than ever before ahead of maturity kicking in.
I guess it is a classic “this time it’s different”, but is it really moment. I know I have stuck with companies that have evolved into fully fledged enterprises with sustained growth and established profitability levels (such as Shopify and The Trade Desk), when Saul and others have opted for an agile strategy of switching to catch the next big wave that the swell is producing but we are looking at scale being reached in our portfolio almost across the board faster than we have ever experienced – the question becomes do we also hit the wall faster than ever before or is the runway for growth also elongated out. Unless our companies can add new products and new markets and unless the terminal growth of the end market TAM allows continued growth then we run the risk of share prices and multiples correcting and probably faster than ever before given the current stretch in multiples out there.
Comments & Notes
1) Shopify – cornerstone investment in a top class SaaS business with the largest TAM in the world providing the operating system for the future of commerce, supported by substantial tailwinds and expecting a future $1 trillion potential, watching for post covid new normal in eCommerce and 2021 laps with pandemic growth compares from 2020, as well as its pipeline of solution additions, entry into B2B and potential for increasing its take rate. The company has reached the $1bn/quarter run rate and is growing at 46%. Latest results showed a weak July (as per all re-opening impacted online players), but a bounce back in August and September. Will be watching to see if that bounce continues and can re-establish 50%+ growth. Shopify’s BFCM results at +23% YoY was best in class. Revenue Growth declining
2) The Trade Desk – A disruptor with a massive TAM & a strong moat, watching for dynamics between DSP and SSP, CTV progress and browser/device privacy measures. What I like the most about TTD is i) the massive near $1 trillion TAM ii) the outright leadership is has in the DSP space iii) that not only is this already profitable but all growth practically drops straight to the bottom line with incredible leverage in its business. The threats I can see are: i) Unified ID 2.0 or whatever replaces cookies not becoming de facto or not matching current programmatic ad profitability levels ii) walled gardens representing 50% of the market holding out & iii) some kind of SSP/DSP combination player coming through the middle of the market to seize an advantage. Revenue Growth declining
3) Datadog – best in class in the unified monitoring space. Maintaining strong growth rates but dropping, watching for de facto market leadership position, offering extensions and optionality as well as signs of declines in growth. Revenue Growth accelerating
4) Crowdstrike – One of the fastest growing companies in the rock solid cybersecurity sector with an expanding TAM, watching for competition and relative security performance from ZScaler and others. RPO are running at one of the highest levels in the SaaS universe and covering the annualised run rate by 1.5x. Crowdstrike has the enviable position of becoming the base platfom on which companies assemble their cybersecurity needs from both collaborating providers as well as an increasing range of Crowdstrike’s own set of solutions. Revenue Growth declining
5) Upstart – best in class AI disrupter of financial profiling and risk management across financial services and insurance industry. Looking for expansion into adjacent financing origination opportunities but concerned for market saturation and competition from fintech and big banking. Revenue Growth declining
6) Cloudflare – strong CDN player with high growth rates, improving competitive position, strong customer acquisition count and new solution/offerings emerging. Watching for maintaining continued growth, edge computing adoption and potential competition from Fastly. Possesses one the most stretched valuations in my portfolio. Revenue Growth accelerating
7) Snowflake – Incredible technology supported by the big data mega theme of our time. Has potentially the greatest sales efficiency of any business model with expansion coming from underlying data storage and usage growth. Extraordinary leadership and cornerstone investors. Triple digit RPO/revenue growth rates. Looking out for potential emerging competition and growth rate declines vs ultra high valuation. Revenue Growth declining
8) MongoDB – disrupting a sizeable space against an established player, benefitting
from strong big data tailwinds. Watching for continued penetration of Atlas which has just crossed the 50% of revenues mark and its stronger growth rate, competition from native AWS DB solutions and signs of declining growth rates. Revenue Growth accelerating
9) Elastic – undervalued but proven track record in a sweet spot of multiple optionalities including security, application monitoring and big data and reaching profitability. Revenue Growth accelerating
10) Pure Storage – storage market disruptor with strong underlying fundamentals having passed through a business model transition and has completely self healed and is supported by strong tailwinds. Looking for product set expansion and continued growth re-acceleration. Revenue Growth accelerating
11) ZScaler – vying with Cloudstrike for the premier cybersecurity player.
Represents the next generation of fully cloud based security. Growth reaccelerating and positive operational metrics looking stronger by the quarter. Supported by a massive RPO at 2x its annualised run rate Elite management calibre. Revenue Growth accelerating
12) Palantir – AI disruptor and potential leader in commercial and military/govt
space. If Palantir can genuinely become either the de-facto operating system for the organisation or the de-facto AI operating system this might have previously un-imaginable potential. Top quality visionary leaders with a strong track record. Revenue Growth declining
13) Monday – one of the leading productivity/project/collaboration management SaaS players with strong market share and position (overtaking Asana in 2021) and high growth rates coming from re-investment that is impacting the bottom line. Needs to fight off competitor providers (e.g. Asana and Smartsheets) and demonstrate path towards profitability. Revenue Growth accelerating
14) Sea – in the sweetspot of eCommerce, mobile gaming and fintech and increasingly dominating SE Asia. Obtaining digital banking licenses and ramping up offsite & physical retail payment wallet/payment processing services. Expanding into India, MEA and LatAm. Backed by Tencent. Looking for continued triple digit growth and achieving profitability. Revenue Growth declining
15) ZoomInfo – a cloud based marketing information platform with high growth rates that is becoming indispensable as a lead generation and go to market tool and securing key integrations with SFDC etc. Revenue Growth accelerating
16) MercadoLibre – the Amazon of LatAm with a strong moat and fintech business driving massive growth in a highly unbanked region. Watching for competition from Stone, Amazon and Sea as well as local market challenges in LatAm. Revenue Growth declining
17) Nutanix – under valued, under respected disruptor with a large TAM supported by strong tailwinds negotiating multiple business model transitions. Looking for growth re-ignition. Vying for the position of THE operating system of the “cloud” vs VMWare. Revenue Growth accelerating
18) Global-e Online – a Shopify investment and partner company offering cross border ecommerce transaction and service solutions, growing at almost 77% with 17.5% take rate on cross border eCommerce GMV and already profitable and a growing gross and net margin. Growth about to benefit from Shopify installing Global-e Online as a native cross border solution for its merchants which has been cemented and augmented by the acquisition of Flow. Revenue Growth declining
19) Exp World – operating in a massive market (housing transactions) offering a cloud solution and supported by a ZIRP environment. Very fast growing and penetrating global housing market plus commercial real estate but concerned by market penetration and also the use of company stock for the basis of the sales incentive system. Revenue Growth declining
20) Digital Turbine – uniquely positioned without direct competition with long term exclusive OEM and carrier contracts deriving revenues from preloaded apps and media advertising on Android mobile devices which is going through a massive 5G upgrade boom and at the sweet spot of Adtech, digital and mobile Has a $billion run rate thanks to some choice acquisitions, with every organic and acquired business growing at triple digits, has reached profitability and has one of the lowest market capitalisations and valuations out there. Revenue Growth declining.
Honourable Mention: Square – strong fundamentals, very high growth rates operating in multiple significant opportunities. Bitcoin and fintech payment wallets offer massive potential upside, but make no mistake – they are a fast growing fintech behemoth with or without bitcoin. Latest quarter reached $2.03bn in revenue excluding bitcoin – up 45% (excl. Bitcoin). Watching for continued Cash App expansion and adoption and continued expansion in gross profits (up 43%), net inc and adjusted EBITDA (up 38%). The impending Afterpay acquisition will prove a masterstroke in customer and revenue synergies across consumer and seller ecosystems and catapult international expansion. Revenue Growth declining
GLTAH!
Ant