HorsePlayAndrew Update August 2021

HorsePlayAndrew · September 3, 2021, 11:55am

Summary

These updates certainly are more fun to write when you’ve had a strong month right?! August was very kind to me, pretty much driven by my conviction and the extremely large position I had in Upstart.

I’ve also realised I deviated too far from the Saul principles earlier in the year, and stretched myself when I went looking for hidden gems. I made some big losses on stocks like Skillz and Aterian, when I should have been looking for higher quality, more predictable companies. I seemed to be attracted to companies with significantly more complicated stories than our SaaS darlings (hello fiverr, pinterest, skillz etc) I should have also realised that most of my gains in the past two years have come from stocks where I held large positions. Livongo, Zoom, Peloton, Fastly and now Upstart, they made my performance because I held 20%+ positions. My portfolio was too big and held too many wildcards.

So I am vowing to learn from that and keep myself in check.

My background

See details here. https://discussion.fool.com/horseplayandrew-update-nov-2020-from…

Performance to date

2021 > 51%
2020 > 209%

January > 29%
February > 23%
March > 1.7%
April > -6%
May > 11%
June >21%
July >15%
August >51%

August 2021 Activity

Upstart - 33.0%
Datadog - 13.0%
Crowdstrike - 12.0%
Sea - 9.5%
Zoom Info - 8.0%
Fubo - 7.0%
Roku - 5.0%
Digital Ocean - 5.0%

Cash - 7.5%

SOLD

Docusign In order to bulk up my Upstart position Docusign was the victim in waiting. Nothing against them, steady, impressive growth that has trended back nicely. If I was to have a 10-15 portfolio they would be in. Update: earnings released today confirms that they will be decelerating over the next few quarters if anything.

Fiverr As I posted on the board, I exited on the day of their results. I was really shocked by how management had led us down the garden path with their Q1 earnings report. Pretty much everything was trending in the right direction, the tone was very bullish on the call, and then BAM! Talk of a covid recovery slow down and a real loss of momentum. I’ll be watching closely to see if they can turn it around but management have lost my confidence.

Stem Another victim of my closet clearing. I’ve been an advocate of Stem for most of the year and the opportunity they have with energy storage but their margins, low revenue base and potential have worked against them. Will watch them closely like a child that flies the nest…

BUYS

Zoominfo Saul’s bullishness of them prompted me to look deep into them and I really like what I see. I spoke to some of the tech start ups I invest in about the product and the praise was glowing, becoming an indispensable tool for lead generation. Q2 was a break out for me, revenue, free cash flow and gross margins all trending up, and the earnings call had a lot of bullish chat from the CEO/founder. Importantly they are making some big strides with large customers now, $100k+ customers up 69%, which we all know is crucial for hyper growth takeoff and sustainability. Conviction is high for what they can do over the next few quarters.

DigitalOcean I mentioned these guys last month. A cloud platform, heavily targeted at developers and start ups. The CEO feels strongly they are in their own market, away from the cloud titans of Amazon/Google/Microsoft. You wouldn’t look twice if you took their previous years numbers, but revenue growth is trending up nicely now, it’s gone from 24% in Q3 2020, to 35% in Q2 2021 and have 30% EBITDA margins. NRR is also on the move from 104% a few quarters ago to 117%. Management believe this is reflective of them engaging with their very large customer base (600,000) and the fact most of their customers go from idea to scale up in a short space of time.

What I don’t like is it’s not founder led and low inside ownership, CEO is ex-sengrid (no bad thing), and steering away from the large enterprise market means their ARPU is very low at $58 per month. I didn’t share it as an individual post because these guys don’t qualify as a Saul stock just yet, but I think at a 6b market cap, and likely to pull off $450m in revenue in 2021 I think they were worth a try out position

My biggest buy was a top up of Upstart. I had high confidence that they would smash Q2 so I made a VERY big earnings play on them and it worked out extremely well. I’ve trimmed them recently as the position was just too big after their knock out August.

My companies

Upstart I think we all know that right now, this company is firing on all cylinders. Clearly institutional investors are waking up to them, hence the sustained rise since the Q2 knock out. I love that they have achieved these numbers with the headwind of Covid cheques. It looks like we will have a continuous stream of new bank partners added as we head into Q3 earnings. I can see them doing roughly $930m this year, so they are on their way to a 30b valuation comfortably hence my large position right now. The key is what growth rate they can throw up in 2022. Are they having their Zoom moment in 2021? I’ll be looking for signs in the next earnings to see what can be sustained. Their small bank customer base and headwind market conditions would suggest they can keep up next year even without a significant ramp up in Auto revenue (which I don’t think will come until 2023).

Datadog Firstly, I’d like to acknowledge the excellent analysis of DDOG from the board last year after they delivered a rough Q2 2020 earnings. DDOG duly delivered the improved revenue growth that was predicted and which gave me the confidence to finally buy a few months back. There is lots of evidence that they can sustain their hyper growth and I really like that they are a pure play on the growth of the cloud titans, a market that is predicted to grow 27% until at least 2025 I believe. They are in my top tier for conviction.

Crowdstrike A lukewarm reception to their Q2 earnings. There was a lot of evidence pointing to them accelerating again with the clear tailwinds for mission critical, cybersecurity software. But let’s not forget they are execution masters, right across the board their numbers are world class and just delivered 70% revenue growth on a high base. I’ve trimmed a little to build up some cash but will be watching very closely to see if Q3 is pointing towards a slow down of the hyper growth years as we know CRWD has a super high price tag.

Sea They quietly go about their business. Delivered another knock out earnings and recently announced expansion into India. So we now have this Amazon-esque beast surging in Asia, South America and soon to be India. In hindsight I should have had a bigger position, so I may look to add if we get a market correction in the future.

Zoominfo See above.

Fubo This is one wildcard I’m not giving up on yet. I think they have a lot of potential good news heading their way over the autumn and winter. The sports betting app should be launching and the NFL season should drive the user numbers further. Q2 was a strong earnings again, revenue up 196%, ad revenue up 281%(small base of $16.5m though), ARPU up 30% and subscribers up 138%. I also really liked hearing on the call how their user engagement/viewing hours is way above other streaming services. They increased guidance to $560-570m. There is still a lot of risk with this position because of the negative contribution margins but I feel its certainly worth holding the next few quarters to see how it plays out.

Roku Roku has had a rough month. News about TCL rolling out with Google was not a good look on top of the poor user numbers in their Q2 report. It has certainly knocked my confidence in them after seeing what stagnating user growth can do to a stock like Pinterest. I’ve significantly reduced my position after earnings to reflect that the stock is likely to tread water for a few quarters until they can show that it’s not just the ARPU that will sustain their growth. This reflects my decision to try and move away from complicated stories. I am also concerned on their international growth. Living in the UK, Roku does not appear to be making great inroads just yet. They are in a great position to benefit from the shift in advertising dollar to CTV but they need to show significant growth globally if Roku becomes a great investment from this point on. Also news today from Amazon that they are moving into manufacturing their own TVs, and the threat that Apple is eyeing this space just shows the challenges that lie ahead for Roku. Hmmm, its a strong candidate for the chop.

DigitalOcean See above.

Watch List

Asana/Monday.com I’m currently researching both these companies. There isn’t a great deal to seperate them so there is a strong case to back both. What I know for sure though is that the TAM is massive, every large enterprise is a possible customer, yes project management has been around for years but these guys are offering up a new, millenial style of organising work, in this new remote working environment. Asana’s latest quarter is suggesting that they aren’t too far behind with their revenue growth. Asana seem to be ahead in the large enterprise space and the founders look mission driven. But how can you bet against Monday.com that just delivered 96% revenue growth… would love further opinions on these two. .

dLocall Still digging deeper on these guys but their revenue growth and NRR are truly outstanding. You couldn’t really get a hotter space than global payments right now and the customer list is impressive. Being based in Uruguay and in its early years may put a lot off but I will keep looking into them.

I’m still following Stem, Fiverr, Pinterest, Cloudflare, Docusign and Twilio. I also like the look of Snap, a name not mentioned on here barely at all…

Previous updates

Thanks for reading and as ever truly grateful for this magical board and those who contribute.

Andrew

GolfCaddy4PLynch · September 3, 2021, 4:02pm

Great update. Since you mentioned D-Local here is what I learned doing my DD.

I found this podcast that the Motley Fool did on the stock.
https://www.fool.com/investing/2021/08/19/dlocal-what-invest…

I was listening to this nodding long thinking how this was such a great under-the-radar pick. Then I got to the end of the podcast and heard this.

“Essentially the company making deals with other businesses for which the insiders, whether that be directors or management, have a financial stake. Nearly 5% of the total payment volume that DLocal committed to last year, did go through local processors, for which directors had an ownership stake. Theoretically, if they don’t have strong controls in their audit committee, then the directors could potentially pay more to funnel more money through their own processors to enrich themselves as opposed to DLocal or their shareholders. A practice that’s made all the much easier when you consider that management and directors owned nearly, I think, over 50% of this business. It is a company controlled by the management team and the entire management team, which I don’t even know what to make of this.”

OK, that’s a red flag. But wait maybe it’s ok I thought. In South America business is more relationship driven. I know that. I listened on.

“But virtually, the entire management team comes from a separate business called AstroPay, that they also founded out of Uruguay. AstroPay is a payment processing service, theoretically competitive, but they are really focused on serving industries that in the jurisdictions in which they’re operating are questionable at best and are legal at worst. These include online gambling and adult entertainment. They own controlling stakes in both of these competitive businesses, but it almost feels that they just carved out the legal part of AstroPay’s business and turned it into DLocal to try to separate the two. I’m not quite sure what to make of it.”

Huh? It’s an offshoot of a processor for gambling and adult content? OK, maybe it’s cool, porn and gambling are not illegal in most places. But then…

"It’s so funny, Emily, because those really aren’t your words. You’re nearly quoting from the prospectus in calling these at worst illegal businesses. The company says, hey, AstroPay, they operate in online gambling, adult entertainment, and these businesses could be illegal, which to me was so curious.’

What?!? Illegal businesses? They admit this in the S1. That for me is a hard no. I am going to pass.

You may feel differently, but I wanted to share.

Best of luck,
GC4P

MovedOn · September 3, 2021, 4:38pm

MNDY/ASAN:

It’s very discouraging to see ASAN stock sky rocketing and MNDY is down despite MNDY revenue growth rate is higher. It’s not a good time for comparison because MNDY has headwind of lockup expiration and ASAN just reported earning. Note that ASAN stock went nowhere for the first few months due to similar reason of lockup expiratoin.

My portfolio contains 40% to 100% growthers. So Asana’s 60% growth is by no mean the lowest in my portfolio.

I owned two payment processors in my portolio: NUVEI and DLocal because digital payment market is massive and they serve different regions of the world.

But giving two choices: MNDY is growing at 100% and ASAN is growing at 60%. I will pick MNDY but not own both.

Below is table of quarterly revenues from both showing MNDY is quickly catching up Asana. The catcup slowed down a bit but it’s stablized at 2% per quarter or 8% per year. So I predict MNDY will catcup in 1 to 2 years.

A higher revenue growth rate has 2 possible reasons: 1. Low pricing. 2. Larger addressable market. 3. Slightly superior producs. Not by a large margin but it’s better.


Quarter	MNDY (m) ASAN (m) MNDY/ASAN Change
						
June-21	70.62	89.5	78.91%	1.99%
Mar-21	58.97	76.67	76.91%	3.64%
Dec-20	50.1	68.37	73.28%	0.96%
Sep-20	42.6	58.91	72.31%	2.23%
Jun-20	36.46	52.02	70.09%	3.63%
Mar-20	31.9	48	66.46%	4.60%
Dec-19	26.6	43	61.86%	6.33%
Sep-19	21.1	38	55.53%	4.01%
June-19	17	33	51.52%