AMS PORTFOLIO REVIEW – AUGUST 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 below 50 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.
The top tier ~8-20% positions include: Shopify, Crowdstrike and The Trade Desk that represent my highest conviction holdings together with outstanding growth rates and market positioning and potential.
The second tier of 3-7% positions are high conviction strong growth plays including a mix of mature performers (Datadog, Cloudflare, Mercadolibre & Elastic) as well as younger rising stars (Upstart, Palantir and Snowflake).
The third tier of 1-3% positions is a mix of: early stage positions (Monday, ZScaler, Digital Turbine, Lightspeed, ZoomInfo and Exp World), deliberately lower exposure situations - either due to either lower conviction and/or lower growth levels (MongoDB, Zoom, Teladoc, Pure Storage, Alteryx and Nutanix) or sector over exposure and self enforced limits (e.g. eCommerce in the case of 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: Global-e Online, Digital Turbine, Acuity Ads, Futu, UP Fintech, Innovative Industrial Properties.
Roku, Fubo and a few gene sequencing players are also on my watchlist. Alkuri, Upstart 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: Monday & dLocal
Additions: Upstart, Snowflake, Lightspeed, Digital Turbine, Expi, ZoomInfo and Global-e Online
Sells: Zoom, MongoDB & Elastic
Exits: Square, Peloton, Docusign & Asana
This has been a very active trading month for me with 3 exits, several sells and several position increases and 2 new positions. I have been interested in pushing up my holdings in Upstart, Global-e Online and Digital Turbine pre and post earnings and am watching/ considering results from Teledoc, Skillz & Zoom carefully with the possibility of trimming or exiting on any failure to deliver. I took the opportunity to switch across my Asana stake (after a 215% gain) for Monday and used proceeds from Square (535% gain) and Zoom (a pre-earnings sale at a 270% gain) and Elastic (120% gain) to fund increased positions in Upstart, Digital Turbine, Lightspeed, Exp World, and Zoominfo and used proceeds from Peloton (10% gain) to initiate a position in dLocal.
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.
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 + 8.56% + 2.9 YTD + 20.45% + 20.4.0%
My portfolio ended +8.56% on the month, having previously reached an all time high in February (up ~20% for the year at that point), then down to a low of around -25%. I ended +20.45% for the year to date, (accounting for withdraws), having clawed back from a triple bottom low point and finished the month within a whisker of the high reached on 30th August.
Overall portfolio allocation rankings, theme & YTD returns
**# Holding Portfolio(%) Previous Mth (%) Mega-Theme YTD-SP-Change(%)** 1 Shopify 16.6% 17.7% eCommerce/Fintech/Cloud + 37% 2 Crowdstrike 12.2% 12.0% Cybersecurity/Cloud + 35% 3 The Trade Desk 8.1% 8.9% Digital + 1% 4 Datadog 6.3% 5.5% Big Data/Cloud + 39% 5 Upstart 4.7% 1.8% Digital/Fintech +429% 6 Snowflake 4.1% 3.6% Big Data/Cloud + 6% 7 Palantir 3.4% 3.0% Big Data/Cloud + 9% 8 Cloudflare 3.3% 3.5% Big Data/Cloud + 62% 9 MercadoLibre 3.1% 2.8% eCommerce/Fintech + 12% 10 Elastic 3.0% 3.3% Big Data/Cybersecurity + 9% 11 MongoDB 2.9% 3.5% Big Data/Cloud + 10% 12 Sea 2.4% 2.4% eCommerce/Fintech/Cloud + 67% 13 Pure Storage 2.4% 2.0% Big Data/Cloud + 13% 14 ZScaler 2.3% 2.1% Cybersecurity/Cloud + 39% 15 Monday 2.3% 0.0% Digital/Cloud + 73% 16 Zoom 2.1% 4.1% Cloud - 14% 17 Teladoc 2.1% 2.3% Cloud - 28% 18 Nutanix 2.1% 2.2% Big Data/Cloud + 15% 19 Digital Turbine 2.0% 1.3% Digital + 3% 20 Global-e Online 1.9% 1.2% eCommerce/Cloud +200%
NB 2021 YTD SP Change are share price changes not portfolio position gains
Total % gain rankings
**# Holding % Thesis Check Conviction** 1 Shopify 2323% On Track High 2 The Trade Desk 783% On Track High 3 Square 481% On Track High 4 MongoDB 328% On Track Medium 5 MercadoLibre 313% On Track High 6 Cloudflare 282% On Track High 7 Datadog 179% On Track High 8 Zoom 172% On Watch Medium 9 Elastic 121% On Track Medium 10 Teladoc 106% On Track Medium 11 Sea 88% On Track High 12 Palantir 69% On Track High 13 Upstart 66% On Track Medium 14 eXp World 63% On Watch Medium 15 Alteryx 58% On Watch Medium 16 Pure Storage 43% On Watch Medium 17 Global e Online 41% On Track Medium 18 Innovative Prop 40% On Track Medium 19 ZScaler 37% On Track High 20 Lightspeed 31% 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($bn) YOY Rev Growth(%) TTM($bn) P/S(TTM) TAM($bn)Penetration(%) Comment** 1 Shopify 191 57% $3.92 49 250 1.6% Calculated as 5% take rate of $5trn eCommerce mkt 2 Crowdstrike 64 70% $1.14 56 37 3.1% Humio log mgmt @ 4.1bn TAM + 32.5bn cloud cyber security 3 The Trade Desk 39 101% $1.04 37 725 0.1% 4 Datadog 42 67% $0.76 55 24 3.2% Unified monitoring = $8bn 5 Upstart 17 1018% $0.46 38 92 0.5% AI Fintech/Insuretech 6 Snowflake 88 104% $0.85 104 84 1.0% 7 Palantir 50 49% $1.33 38 119 1.1% 8 Cloudflare 39 53% $0.53 73 72 0.7% Application, Network & Zero Trust Services 9 MercadoLibre 93 94% $5.52 17 50 11.0% 5% take of 5% ecommerce of a $5trn retail market + banking 10 Elastic 14 50% $0.67 20 53 1.3% 11 MongoDB 26 39% $0.64 40 73 0.9% IDC market estimate 12 Sea 173 159% $6.82 25 150 4.5% PC/mob. gaming $97bn, SEA ecommerce $22bn & payments $30bn 13 Pure Storage 7 23% $1.82 4 50 3.6% 14 ZScaler 38 60% $0.60 62 72 0.8% SAM 15 Monday 16 94% $0.22 71 45 0.5% Productivity management software 16 Zoom 101 54% $3.63 28 86 4.2% Combining V/C & unified CAAS market & omni channel contact 17 Teladoc 23 109% $1.63 14 121 1.3% 18 Nutanix 8 8% $1.33 6 90 1.5% 19 Digital Turbine 5 260% $0.47 11 300 0.2% 20 Global-e Online 11 93% $0.19 55 40 0.5% TTM includes Bitcoin revs
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.
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 with 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 50%+. Revenue Growth declining
2) 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. Crowdstrike have 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
3) 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 programatic 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 accelerating
4) 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
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 accelerating
6) 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
7) 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 level
8) 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
9) 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
10) 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
11) 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
12) 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 accelerating
13) Pure Storage – storage market disruptor with strong underlying fundamentals having passed through a business model transition. Supported by strong tailwinds. Looking for product set expansion and growth re-acceleration. Revenue Growth accelerating
14) 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. Elite management calibre. Revenue Growth accelerating
15) 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
16) Zoom – a disruptor in the making with ultra high growth rates, looking for post pandemic new normal growth and laps with pandemic growth peak in 2020 and the emergence of Zoom phone which doubles its TAM, integration with its omni channel contact management acquisition and additional Zoom platform innovation Revenue Growth declining
17) Teladoc – leader in telehealth with the combined Teledoc and Livongo offerings with strong underlying growth with solid tailwinds irrespective of Covid. Looking for additional disease management solutions and geographic expansion together with more material wins such as HCSC as well as threats from changes within the US healthcare system as well as competition from Amazon et al Revenue Growth declining
18) 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
19) 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 accelerating.
20) Global-e Online – a Shopify investment and partner company offering cross border ecommerce transaction and service solutions, growing at almost 100% with 17.5% take rate on cross border eCommerce GMV and already profitable. Growth about to benefit from Shopify installing Global-e Online as a native cross border solution for its merchants. 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 $1.96bn in revenue excluding bitcoin – up 87%. Watching for continued Cash App expansion and adoption and continued explosion in gross profits (up 91%), net inc and adjusted EBITDA (up 268%). The impending Afterpay acquisition will prove a masterstroke in customer and revenue synergies across consumer and seller ecosystems and catapult international expansion. Revenue Growth accelerating