Azure earnings and our companies

Investment Analysis Clubs Saul’s Investing Discussions
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Microsoft knocked it out of the park today, reporting that Azure revenues grew 50% YoY (analysts were expecting 41%). CEO Nadella said that “What we are witnessing is the dawn of a second wave of digital transformation sweeping every company and every industry.” They don’t break out Azure revenues specifically, but it’s a significant share of their “Intelligent Cloud” segment which raked in almost $15 billion last quarter. Azure, by itself, must have grown in the billions of dollars when compared to the quarter last year. So much for the law of large numbers :slight_smile:

I think this bodes well for some of our companies. When an enterprise starts using Azure, they need services like security and performance monitoring, and they’ll find DataDog and Crowdstrike right on the platform.

DataDog
Last September, DataDog said “We are excited to announce a new partnership with Microsoft Azure, which has enabled us to build streamlined experiences for purchasing, configuring, and managing Datadog directly inside the Azure portal. This first-of-its-kind integration of a third-party service into a public cloud provider reduces the learning curve for using Datadog to monitor the health and performance of your applications in Azure.” https://www.datadoghq.com/blog/azure-datadog-partnership

You may recall that DDOG shares jumped 12% on the day following that announcement.

Crowdstrike
Crowdstrike offers their Falcon for Azure security service, which they say “simply and effectively protects all Microsoft Azure workloads, including containers”. In addition to this, they launched a free tool to protect MS Active Directory last month. It’s very likely that many of the droves of customers who migrated to Azure last quarter signed up for Falcon, especially after the Solar Winds attack last month. https://www.crowdstrike.com/cloud-security-products/falcon-f…

Cloudflare
Cloudflare’s Content Delivery Network (CDN) works well with Azure, and they promote the integration pretty heavily. Compared to Azure’s own CDN, Cloudflare scores higher with customers for security features like DDOS protection, geo-blocking, and SSL cert management, as well as its ease of use. https://www.cloudflare.com/multi-cloud/azure/

Snowflake
Snowflake offers its cloud data warehouse on Azure. Many customers prefer Snowflake to MSFT’s native DW, because Snowflake was built from the ground up as a cloud-first platform. https://www.snowflake.com/creating-azure-data-warehouse-snow…

MongoDB
MongoDB’s wildly popular Atlas database service launched on Azure back in Sep 2019. On that day, Microsoft said that “Today’s announcement will make it even easier for customers to consume Atlas on Azure through the Azure Marketplace. We are committed to working alongside partners like MongoDB to give our joint customers best of breed choice in technology that meets their unique business demands.” https://www.prnewswire.com/news-releases/mongodb-atlas-launc…

So, we’ll see what happens, but I liked the numbers that MSFT reported today, and I think it’s a good sign of things to come in the cloud sector.

-Ron

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Another company to put on your radar related to Microsoft is

ZScaler (NASDAQ: ZS) Tim Beyers on the January 27th Morning Show called out Microsoft’s move towards zero trust environment as a result of Solarwinds hack. ZScaler can be added to Microsoft Azure with the touch of a button.

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Thanks Ron, I hope you’re right…this past week has me considering selling 1/2 my shares and putting them in to cash reserves before it drops any further. I’m looking for any optimism to hold, but haven’t seen very many reasons the past few weeks.

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nreid,

This is speculation… But it seems like winners are getting sold hard by some funds (maybe forced selling) to pay for losses from shorting GME/BB/others. GME market cap passed Cloudflare’s today. Which is insanity, but this is the state of the current market. The situation here has injected alot of volatility to all stocks.

Why did you invest? Did the story or outlook change in any of these companies? The answer is no, or even the story got better after seeing these Microsoft cloud numbers. Most of the stocks here lease software that is made to run in the cloud. Microsoft just showed the $15 Billion per Q cloud business is accelerating (48%->50%)… Think about this- the law of large numbers isn’t strong enough to stop the tailwinds at a annual revenue rate of $60bil/yr. Don’t overextend your positions to put you at risk of getting scared and doing stupid stuff when the market gets volatile.

Saul has taught me many valuable lessons. One of them is perspective. Has CRWD/DDOG/NET/etc. had a few tough weeks? Sure but they are all above where they were a few weeks ago.

Bnh

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Great reply! No doubt in any of our companies. Not to be political, but to explain why I was having hesitation was the thought of the change of leadership for the country and the moves being made are different than what they were in December. Maybe unrelated, but now seeing our stocks sputter I wondered if there was a correlation, and if this was a blip or if this is the new normal. As you mentioned other volatile things are happening on Wall Street, so there are multiple things that could be going on, and our companies remain the same, so why make any changes.

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I’m looking for any optimism to hold, but haven’t seen very many reasons the past few weeks.

What kind of optimism are you looking for? How are our companies any different than they were a few months ago?

Let’s look at what’s changed over the past few weeks. From an earnings standpoint, Microsoft and ServiceNow reported this week. While these companies are out of scope for this board, there were some compelling insights revealed during the calls that may serve as leading indicators into our companies’ results.

From Microsoft’s call:
-What we are witnessing is the dawn of a second wave of digital transformation sweeping every company and every industry.
-Azure revenue grew 50% and 48% in constant currency driven by strong growth in our consumption-based business that benefited from improvement across industries and customer segments noted earlier
-We had a good quarter in bookings, which is far more reflective of future commitment. In quarter, what we saw is really fundamental consumption growth and some reacceleration of growth curves, particularly in maybe industries that had been more hard hit in Q4 and Q1

From ServiceNow’s call:
-The secular tailwinds of digital transformation, cloud computing and business model innovation have all intersected at a perfect moment in time. A paradigm shift is happening worldwide. In 2020, for the first time in history, we saw digital transformation spending accelerate despite GDP declining globally

  • Digital investments are in an all-time high and are expected to continue growing. According to IDC, worldwide digital transformation investments will total more than $7.4 trillion by 2024. The digital economy is firing on all cylinders
    -Significant net new ACV upside for the quarter as well as $80 million of billings pulled forward from 2021 due to early customer payments. We believe the high levels of early payments were one-time in nature and the result of customers having excess cash at the end of the year, given the incremental cost savings enterprises saw from COVID

And aside from continuing to relentlessly execute, what have our companies been up to?
-Crowdstrike continues to protect enterprises from sophisticated malware attacks using its signature-less ML models (https://www.crowdstrike.com/blog/stellar-performances-how-cr…)
-Cloudfare is building automation tooling to improve operational productivity (https://blog.cloudflare.com/automating-data-center-expansion…)
-Snowflake increased its data market place by over 300% in only 9 months (https://www.snowflake.com/news/snowflake-data-marketplace-ex…)
-Clients are testing and succeeding with Datadog’s IoT agent (https://www.trek10.com/case-studies/automotus-case-study)
-Oh, and while visiting our companies sites on the links above, I got pinged numerous times (possibly through Twilio)

Look, it is likely that 2020 was the best year in history for our companies from a “share price appreciation” lens. But if we can’t stomach seeing our portfolio decline by low double-digits; do we deserve to finish the year with high double-digits (or even triple digits)?

We don’t know how what the future holds in how the market will perceive our companies. The share prices could continue thriving as the market digests the continued execution as the economy begins to recover with enterprise budgets prioritizing digital. Or, they could decline as the market adjusts their valuations to their previous normality. The point is that none of us know how the market will perceive our companies.

What we do know, is that our companies are continuing to observe tailwinds. They’re also continuing to execute. And they’re also supporting the shift of commerce accelerating its digitization in one of the greatest generational shifts we’ll witness in our lifetimes.

And so we have a choice - do we want to allocate our capital into these companies? Or do we want to allocate it elsewhere? There is no right or wrong or wrong answer - this is a personal choice. And the answer is not binary either - there is nothing wrong with taking some capital off the table. But Saul and other leaders of this board have taught us to focus on what matters, and what we can control over. So let’s not lose sight of that!

-RMTZP
Protect the identity of this board and maximize your learning by reading https://discussion.fool.com/monday-morning-rules-of-the-board-34… before participating.

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