While reading recent threads on WORK, I had a thought about tying performance metrics to management comments. I sold Slack last quarter because management gave us very specific examples of execution headwinds. That came to fruition this quarter, and the stock tanked. AYX did the same two quarters ago, and we all know how that turned out. Although not as many here own it, ROKU just put us on notice for the very same thing. I do not find it a coincidence all three seem to have turned into battleground stocks.
We have become accustomed to (spoiled by?) earnings calls in which management talks very positively about the business and then smiles and winks about “prudent” guidance when challenged by analysts. In each of the above cases, management has been much more specific on underlying challenges to future execution. We like to accuse every company of sandbagging. However, we now have examples where management was actually telling the truth. It might be time to start paying closer attention to the difference between the two rather than giving everyone the benefit of the doubt.
The market seems to have tightened its demands for premium multiples. I, for one, will be keeping this in mind going forward.
Scroll down to ROKU. Declining numbers with management seeing friction “well into 2021.” Given the current environment, I decided to take them at their word rather than think they are sandbagging for future beats.
Stocknovice, it’s great that u bring this point to the board. My question is about DDOG then. Most of us own it. They guide to 50s growth in Q3 and 30s growth in Q4. If we take the management words at face value we have a huge problem (for our portfolios). Decelerating growth from 80s to 30s within 12 months? That would be a huge hit to us.
My current feelings are exactly the same as outlined in my August write up. DDOG mentioned clients were a little conservative with regard to spend but I didn’t sense any underlying problems with the business itself. And given all the product releases post-earnings, it doesn’t appear they are slowing down at all. Others are free to chime in if they read it differently.
When I say management’s words, I mean comments on the business itself and not the guide. These companies have shown time and time again estimates 12 months out are basically worthless. It is much more important to judge the strength of the business each quarter on its own merit.
One risk I see is DDOG is currently priced for continued strong growth. It will have to follow through on it. Because of that I personally am unlikely to build it up from its current allocation. However, I won’t be selling any either.
