Splunk reported today, so that wraps up earnings season for companies I own. I would put Splunk’s report in the “solid” group. Nothing bad, but nothing that really blew me away. Growth ticked up from 30% to 32%, so that’s nice.
I also added Alarm.com since my last update, so I will rank it as well. I think it gets a perfect score, because not only did they deliver solid results all around, but revenue ticked up from 26% to 33%, and SaaS revenue ticked up to 40%. This may be due to an acquisition, but if so it appears to be going spectacularly, because EPS was also up big as their operating income more than doubled YoY, even on a GAAP basis.
Let me recap and share some thoughts on how earnings went overall.
-The Trade Desk (TTD)
I opened a small position in Arista.
-LGI Homes (LGIH)
-New Relic (NEWR)
THOUGHTS AND CONCLUSIONS
Every company on this list had a decent report, regardless of how some were interpreted. Even the ones I was disappointed with were not “bottom-fell-out, abandon ship” types of reports. Just things to watch, mostly. I even added to one of them (MELI), because it was down so much. Likewise, I didn’t universally add to the ones that killed it. I increased SHOP quite a bit, but I actually sold a little TWLO when it was up around $33. I bumped TTD ever so slightly, but it’s still just a 4% position based on conviction – I refuse to let myself get carried away with an Adtech company. And ANET and ALRM are new positions, so they’re still under 4%.
This month I have greatly reduced or eliminated several positions (NEWR, BL, HDP, TLND, MULE, LGIH) to more accurately match my level of conviction. It’s not that I feel any of these companies are going to fail…it’s simply that I’m less certain about the demand for their products, and their valuations, than I am of other companies with similar growth rates. Some of them, including HDP, TLND and LGIH, were top positions for me. That just didn’t seem right based on my conviction toward them (short and long term) vs something like Shopify or Hubspot. For them, the demand is clear and the price is inexpensive if your term is long enough. For NEWR or MULE (for example), it’s very difficult for me to feel like I know anything about what the demand will be.
I also feel like some opportunities have come up where I see bargains on things that are more traditionally valued. ALRM and ANET are actually profitable, but the premiums they sell at are nothing compared to the rates at which they are growing revenue and EPS. But mostly I’m still investing in the fastest growing companies I can find, and valuing them primarily by their PS ratios. I’m just trying to take a hard look at what my actual conviction is, and attempting to better size my positions.
For the most part (Wix and a few others notwithstanding), I feel like the market has adjusted fairly well to earnings season. In other words, fewer things look overvalued. A more positive spin would be that there are more bargains now than there were before.
It’s always fun to try to assimilate all the new information into my analysis, and see what the market is offering. If anyone has any thoughts/feedback to offer, I’m all ears.