Bear's Friday Thoughts

[PaulWBryant]

Just some scattershot thoughts as I’ve been too busy with all the reports to really contribute to the board this week:

Lightspeed

2022 top end guidance
as of 5/20: 450m
as of 8/5: 530m (18% raise!)
as of 11/4: 535m (1% raise)

If you saw that coming, congrats. But that’s not what we wanted, as Ethan said. WSM’s post was perfect too. Here’s another way to say what he said:

Sequential Growth
Q4 2021: 43%
Q1 2022: 41%
Q2 2022: 15%

Not gonna cut it. Of course I sold out, like most of you.

Datadog
Absolutely crushed it. I was hoping for 265m and they put up 270+. Guide was very good too. We read the tea leaves perfectly on this one – Saul started doing so back in 2020 after the covid quarter! This dog has run fast, and I believe it can run far. I’m not selling a share and I’ll be considering adding more – I’m at 16%+ already, though.

Global-e
Whether it’s the global shipping issues or the share lockup expiring, this one has been hit hard. I’ve kept my 5% position (much of which I accumulated under $60/share) but haven’t added more…we’ll see if I get a crack at $50/share before Tuesday. I think this might be a sell the rumor, buy the news thing. As of now this seems like a quality business in high demand and hypergrowth. If I’m wrong we’ll find out next week. If they’re significantly short of 90% growth, the shares could get hit on Tuesday after hours. Whether I would be buying more or selling…well that depends what else they say.

Random
As valuations go higher and higher, I’ve thought a lot about why, especially this week. I think clearly the reason companies continue to get bid up is expected (revenue) growth sustainability. Think about it: Lightspeed grew 58% organically and got obliterated yesterday. That’s because no one believes they’ll keep doing that again and again (in fact, there’s real fear that growth will slow a LOT more). Cloudflare turned in a lower number, but the market believes it (~50% growth or thereabouts) will happen quarter after quarter, for years. And it’s gone to the moon.

That thinking led me to add today, even at these levels, to UPST, DDOG, AMPL, and MNDY. This is unlike me. I also took a position in Confluent – thanks so much to nitinkhanna for the post yesterday about their earnings result! Every single one of these companies looks very “expensive.” There’s a reason for that. I can’t convince myself to hold Cloudflare, but I can convince myself (at least for today), that the companies I believe are just as good as Cloudflare can hold their premiums for a long time, no matter how expensive they look. At some point everything will drop – maybe 50% or more – and it will be painful. But good luck figuring out when! Just look at Cloudflare.

Bear

[MovedOn]

I am also holding the 4.3% in GLBE. I don’t get the hysteria on GLBE based on price action. If supply chain is non issue for Shopify, Amazon, why is it any different for GLBE? If we look at ahead, unless there’s fundamental threat to GLBE business model(e.g. shopify, amazon offering service to threaten GLBE), it can grows for years. Most of the specialized service out competes jack-of-all trades.

Short term price decline is not a good way to predict earning. Just look at BILL.com, Sprout SOcial, both declined substantially before earning. Both bounced back higher after earning. I don’t see an obvious sign GLBE revenue growth will slow down substantially. I will only act if next week numbers are telling me to sell. I believe many people sold GBLE to capture outsized profit considering . Yes, market is right sometimes but most of time is wrong in predicting the short term.

I also took a 7% position in Confluent this morning by selling DLocal and Taskus. It’s up 10% already even I bought after earning pop. If there’s better alternative, why stuck with mediocre ones? Confluent had two good earnings in a row. Its cloud revenue is growing rapidly(more than 100% per year!) and it’s still in early stage of growth. Confluent Cloud revenue is similar to MongoDB Atlas revenue in terms of business model. Both are hosted on AWS, Google Cloud, Azure. By looking at MongoDB as an example, it gives me confidence in Confluent.

[anon3487758]

As valuations go higher and higher, I’ve thought a lot about why, especially this week. I think clearly the reason companies continue to get bid up is expected (revenue) growth sustainability. Think about it: Lightspeed grew 58% organically and got obliterated yesterday. That’s because no one believes they’ll keep doing that again and again (in fact, there’s real fear that growth will slow a LOT more). Cloudflare turned in a lower number, but the market believes it (~50% growth or thereabouts) will happen quarter after quarter, for years. And it’s gone to the moon.

Richard Chu posted a valuation scatterplot on Twitter few days ago (see https://twitter.com/richard_chu97/status/1454918370604814336…) with Cloudflare, Snowflake, and Upstart omitted due to their sky-high valuation. I think there is a reason why it is exactly these three companies which are off the charts.

The market is starting to learn that high revenue growth alone is not enough of a justification to pay premium price. The company must be something that can be thought as a market leader or a next-gen platform several years from now. If the market sees that a company’s revenue growth will hit the wall in a few Qs time and has no huge or expanding TAM, then such a company is definitely not to be valuated like Cloudflare or Snowflake.

I suspect Livongo and Zoom were lessons for many. And I think this explains why Inari never really took off and why we have seen relatively mild reaction to ZoomInfo’s numbers.

On the other hand Cloudflare (edge/network/platform), Snowflake (data/platform), and Upstart (AI/platform) are almost uncontested at the moment and are much easier to imagine being part of the next-gen megacaps instead of something like, say, ZoomInfo. The revenue growth must be there and this week we’ve seen once again what happens if not. But I think having this sort of long-term view and indication of sustainable revenue growth you mention might be one explanation why these three companies are off the charts.

If this is something that explains even partially market reactions and valuations and even I’ve managed to figure it out, then I certainly assume that Mr Market, Warren Buffet, and quite a few others have figured it out as well by now.

[MillennialFalcon]

Following the supply chain issues I came across a cloud-based SaaS company who works to track and optimize supply chain systems. This company isn’t the purpose of my reply, but some of their data I found interesting to supply chain constraints-- here is a link for an article where they outline the exact delays and in which directions they run (different from US to China versus China to US)

https://www.businesswire.com/news/home/20211103005161/en/E2o…

The literal bullet points from the article:

-Overall, lead times have steadily increased across all lanes during the last 12 months, requiring shippers to budget more time for transporting goods.

-In the third calendar quarter of 2021, the average global shipment took 12 more days, or 23% longer, than the same period last year.

-The two most significant factors were a rise in time between the booking to gate in at the port, up 43%; and the ocean transit time, up 36%.

-Overall lead times from North America to Asia took 17 days longer than from Asia to North America, or 25% longer.

Also I have found a few different numbers for the increase in shipping costs, but roughly quadruple from over-sea shipping from one year ago.

https://www.wsj.com/articles/container-ship-prices-skyrocket….

There seems to be a market sentiment in favor of SaaS companies with low hardware intensive requirements-- While hardware dependent companies seem to be understandably reacting to supply chain issues.
Obviously SaaS companies with higher hardware involvement have lower margins I think the “stickiness” of hardware is sometimes appealing to me to reduce churn, but I think systemic adoption of software systems by large organizations are also extremely sticky.

I’ll be looking closely at earnings for some of the SaaS / hardware combination companies I follow and plan to provide an in depth look at the filing for SMRT for the few members who have expressed interest particularly in relation to acceleration / deceleration of installs and supply chain mentions.

Millennial Falcon

[SaulR80683]

Hi Bear,

I also exited Lightspeed yesterday, even down 30% on the day (because it deserved to be down 30%). Never looked back. It just reminded me how much more reliable our SaaS companies are.

And in spite of selling Lightspeed at down 30%, my portfolio as a whole, WHICH IS WHAT MATTERS (think hard about that), was actually up on the week, closing at a new weekly high close today, at up 85.7% (up from last Friday’s up 82.8%). It’s a question of just picking up and moving on.

Thanks for everyone’s helpful discussions.

Saul