HorsePlayAndrew Update June 2022

HorsePlayAndrew · July 18, 2022, 1:37am

Summary

I’ve been offline from the board a fair bit the past two months as my private investments and businesses have taken my focus away but to be fair it’s been a pretty good time to avoid the noise of US equities right now.

It’s a real shame the board seems to be at conflict, my advice would be to refrain from responding to the antagonists and let the quality posters shine through as maybe that will encourage more to return.

I think a big topic of conversation needs to be around future earnings and what that holds for our high fliers in a recession so I will be focusing on that below.

I have been playing around with cash positions over the past two months with some gains and some losses, but ultimately know I was far too late to protect my capital adequately. I did manage to get out of my crypto positions before their implosion but I am back in now. I am comfortable still being in the market because we know macro conditions will turn eventually, and I am confident our companies will deliver outsized performance so I can’t afford to miss that rocket when it launches.

My background

Entrepreneur, ex-founder of SaaS & marketplace business, exited, now founder of horseplay.ventures, sendtrumpet.com, angel investing & building other startups. Tweeting here:
https://twitter.com/andrewwebster11

Performance

2022 > -59%
2021 >21%
2020 > 209%
2019 > 41%

June 2022 -59%

June 2022 Portfolio

DDOG - 19%
SNOW - 18%
NET - 14.9%
MDB - 14.41%
CRWD - 14.2%
Crypto - 10.44%
S - 8.7%

SOLD

Bill I have concerns around the impending recession and when I screened my companies durability against this, Bill appeared to me most likely to have a wobble when this comes. Their growth numbers are still great and I like their acquisitions but the story is more complicated than our true SaaS players so I will wait it out for now.

MNDY There were quite a few amber/red flags on the last earnings, and the revenue growth is slowing down, the guide was pretty terrible and comes at a cost, with FCF/profit a long way off so I am bowing out but will be watching this space closely as I am fan of the work/OS.

UPST Seems like an age ago but that earnings back in May was a dark, dark day for me. I’ve been a UPST bull and got swept away in the hype but ultimately we were let down by management who are clearly demonstrating they lost control of the numbers.

BUYS

CRWD Thank you to a lot of the board members who continued to bang the drum here. I have owned them in the past and now revenue seems to be stabilising, I think they have many things going for them and in today’s demanding climate of FCF positive/profitability, I think they are likely to deliver pretty decent returns over the next 18-24 months.

I have been topping up my other positions along the way with the proceeds from above.

My companies

Datadog Still my biggest position and the star of the show around here. However, the revenue growth % will be coming down over the next few quarters so will they get the CRWD treatment until it stabilises? Considering what happened to DDOG during Covid, are they likely again to take a bigger hit vs our other companies when the recession comes biting? The numbers are still at hyper levels, product innovation is humming and they still have great tailwinds from the cloud computing titans but I am scratching my head on this one at the moment.

Snowflake My conviction is growing in SNOW despite the warnings from management and the deliberate short term cut to usage they were prepared to take for the long haul. There is certainly some concern that with a recession coming, usage will fall but we were told May was bouncing back and I think they may be being over cautious. At least management have set the markets expectations ahead of time, so there is more likely to be upside vs downside in my opinion. I am confident they can deliver revenue in the 70-80% range over the next two years so that should make this a very good investment if I can withstand the turbulence that will be coming with it.

Cloudflare Their incredible consistency continued with their May earnings. The product innovation is market leading, management are the best in the business and if anyone is likely to withstand recessionary growth pressures, it’s them. If you look at the Covid period, and compare Datadog vs Cloudflare, there is at least historical evidence Cloudflare is more likely to keep delivering their revenue rates. Their price is now at sensible levels so I think now is the time to build out a sizeable position in Cloudflare.

MongoDB So I continue to make this a bigger position. Again management have been very cautious and open about future road bumps which I like. Looking at the likelihood of revenue acceleration or deceleration, with Atlas continuing at much higher growth rates, even with recessionary wobbles, I think we’re likely to see strong numbers so I like my chances of market cap growth from here.

SentinelOne I’ve flip flopped on these guys, but I am currently willing to let this be my young gun, my wildcard of the portfolio to see if they can keep up the hyper numbers. I want as much exposure to cyber security as possible so I think along with CRWD, I have got two key players who can keep serving up some big revenue growth.

CRWD Discussed above.

Watch List

Gitlab, Monday.com, bill.com, NVDA

Appreciation to those on the board who keep sharing their insight and wisdom despite these very tough times.

Andrew

Previous updates

tecmo · July 18, 2022, 4:14pm

Cloudflare Their incredible consistency continued with their May earnings. The product innovation is market leading, management are the best in the business and if anyone is likely to withstand recessionary growth pressures, it’s them. If you look at the Covid period, and compare Datadog vs Cloudflare, there is at least historical evidence Cloudflare is more likely to keep delivering their revenue rates. Their price is now at sensible levels so I think now is the time to build out a sizeable position in Cloudflare

Thanks for your contribution to the board. Curious to what your thesis is around valuation. ie: what is your forecast for the business and valuation going forward is.

tecmo
…

SoonerAJ · July 18, 2022, 8:45pm

Andrew - In my notes here’s what I have for the high end of MNDY’s guidance the past 3Q’s plus next Q.

76%…76%…73%…69%

Revenue should come in north of 70% so I don’t think the guidance was terrible. Are your fears more centered around what might happen in a greater recession?

-AJ

HorsePlayAndrew · July 19, 2022, 12:07am

For MNDY, its the continued slide, they didn’t seem to hold up the hyper growth for long so until we see some stability, I’m not willing to remain patient with them.

For Cloudflare, in very simple terms, I’m modelling that the share price will reflect the annual revenue growth for the next 12-24 months if they can keep it north of 50%.

SaulR80683 · July 19, 2022, 7:14am

For MNDY, its the continued slide, they didn’t seem to hold up the hyper growth for long…

Whoa Andrew, Monday grew revenue last quarter at 84% yoy. Do you not consider that to be hyper growth? Boy, are we spoiled! And they grew their number of enterprise customers spending over $50k per year by 187% yoy. That means nearly tripling them, from 335 to 960! That’s NOT 87% more than last year, it’s 187% more! Is that not hyper growth?

But you stayed with Cloudflare that grew by 54%??? You must have felt that that was more hyper growth?

I’m long both of them by the way.

Saul

HorsePlayAndrew · July 19, 2022, 9:44am

Hi Saul,

Fair comment, they currently are serving up hyper growth but its the trend change that has me worried. Coupled with the macro conditions not looking favorably at the likes of MNDY, it has scared me enough to depart for now. Having said that, at 4b market cap, there is a strong argument that they could be hitting 8b long before the DDOG hits 60b, SNOW hits 90b etc.

I’ll be watching closely as I like your confidence.

Andrew

SaulR80683 · July 19, 2022, 10:32am

Hi again Andrew,

It’s odd, but Monday’s revenue growth of 84% is exactly the same revenue growth as the 84% they had the same quarter a year ago.

And their -40% operating margin is exactly the same as the -40% that they had in the same quarter last year.

And they ended up last year with operating margin of -17% for the year after starting with -40%. And they ended up the year with 91% revenue growth for the year, after starting at 84%.

I wonder if it’s some seasonality thing about the first quarter. We really don’t have enough years to go on yet and I am not at all saying that they will turn those numbers around this year the way they did last year. I simply don’t know. Wish I did!

Best,

Saul

mfalso · July 20, 2022, 6:01pm

I’d like to add my two cents to the MNDY discussion.

I’m relatively new to the Board, have read Saul’s investing philosophy closely, and now largely following the Board’s recommendations, of course making my own decisions.

MNDY is clearly hypergrowth. However, it does not seem to follow several of our board’s investing principles:

Not a mission critical product.
A foreign company (basically).
Negative FCF

Additionally, the company has co-CEO’s. I’ve never seen that work in the past. It’s tough to have two heads at the top.

Also, I notice the stock is not as widely traded as our other stocks. MNDY regularly trades at under 1M shares per day. I have no idea what this might mean, but it caught my eye.

I joined the Board investing in MNDY, then followed Saul out, but have not yet gone back in.

Of course, I’m saying all of this on a day when the stock had a monstrous 16.30% gain. lol

Cheers,

Mike