“I guarantee nothing but hard work.” - Bear Bryant, Alabama Football Coach, 1958 - 1982
“exponential compounded growth does not fit the analytical backward looking skill sets of most Wall street analysts” - mauser96
“I presume the thing is to ride the momentum for the short squeeze and exit fast with enough money for a few months supply of whisky before everyone realises it’s a value trap.” - Strelna
Previous Month Summaries
Dec 2016 (contains links to all 2016 monthly posts): http://discussion.fool.com/bear39s-portfolio-at-the-end-of-2016-…
Jan 2017: http://discussion.fool.com/bear39s-portfolio-at-the-end-of-janua…
Feb 2017: http://discussion.fool.com/bear39s-portfolio-at-the-end-of-febru…
Mar 2017: http://discussion.fool.com/april-fools-suckers-here39s-the-real-…
Apr 2017: http://discussion.fool.com/bear39s-portfolio-at-the-end-of-april…
May 2017: http://discussion.fool.com/bear39s-portfolio-at-the-end-of-may-2…
June 2017: http://discussion.fool.com/bear39s-portfolio-at-the-end-of-june-…
Portfolio Performance
note that I use tickers .INX, .IXIC, and IWM to benchmark. These do not include dividends, I don’t think. If anyone can suggest tickers that do, I will switch over.
**This Month**
My Portfolio +3.52%
S&P +1.93%
Nasdaq +3.38%
Russell 2000 +0.42%
**YTD**
My Portfolio +36.41%
S&P +10.34%
Nasdaq +17.93%
Russell 2000 + 4.94%
I’m certainly starting to understand why Saul always says he never tries to time the market. If you had told me I could be up 25% for the whole year I’m sure I would have taken it, and yet here I am up more than 36% through 7 months. Saul is up considerably more, and many of you have probably done even better. It seems crazy to think this could continue…but as soon as I consider cashing out, I recall that Saul in the old days was up triple digits some years. Not saying that will happen this year or even that it will ever happen again, but the point is: who knows. Who knows which months the market will be up, and which months it will be down. You just have to ride it where it goes. If it does what it’s done in the past, that will be a very good ride in the long term – provided, of course, that you own companies which are growing fast.
My Current Allocations
Ticker Curr% Buy/S July Ch YTD Ch
SHOP 12.4% -23% 6.3% 115.5%
LGIH 10.4% NEW 10.3% 54.2%
HUBS 9.0% 12% 10.0% 53.9%
SQ 8.9% -10% 12.3% 93.3%
TWLO 8.7% 0% 0.2% 1.1%
SPLK 8.4% 0% 5.5% 17.3%
WIX 8.2% 27% -11.4% 37.3%
HDP 6.8% -27% 4.0% 61.3%
MULE 6.5% 14% -12.8% -7.1%
TLND 6.5% -22% 8.8% 70.4%
NEWR 5.0% 0% 9.2% 66.2%
TTD 3.8% -48% 6.4% 92.7%
MELI 3.2% -41% 15.0% 84.7%
FDN 2.1% NEW 4.4% 23.9%
cash 0.1%
New stocks
I added LGI Homes (again). See more below. I’ve also taken a small position in FDN which I see as a good place to park funds instead of holding cash – I won’t include it below, but you can see the percentage allocation above.
Stocks I sold
Nothing got the axe in July. I have reduced some things…for instance, I have decided to keep my TTD position smaller than average, and MELI too, at least for now.
Stocks I own
SHOPIFY (12.4%) - To slightly modify what they say about themselves, Shopify is “the only platform you need to build your [small or medium sized business] empire [online].” They provide a website, a way to take payments, SEO optimization, etc, etc, etc. They’re innovating and growing…and boy are they growing. They make money when businesses sign up with them, and then they make more when those business grow and sell more stuff.
I first bought SHOP in June of 2016. In Q4 2016, I accumulated shares until SHOP became a 25% position for me. When it started to spike in 2017, I took profits (maybe too quickly). In May, I started to add back to my Shopify position. In July I trimmed a bit to add to other things, but it’s still my top position.
Shopify will announce June quarter results tomorrow before markets open.
LGI HOMES (10.4%) - LGI is a home builder that has expanded from selling homes in Texas to selling them all over the country. I owned LGI Homes in 2016 and at least once since then. It’s not a stock that I feel very comfortable with just holding indefinitely, since housing is cyclical, and there’s a lot about it I don’t know. It’s lower margin, no revenue is recurring, and it’s hard to tell what LGI’s advantage is. All that said, it’s a pretty simple business, and they certainly seem to be killing it. They had a huge month in June with 623 closings, and after a solid April and May, they’re certain to have a banner Q2. Because I can see a lot of upside and little downside going into earnings, I loaded up with a 10% position. I don’t plan to hold this forever, and certainly not at this level, but for now I feel like it’s a low risk holding.
LGI will announce June quarter results before markets open on 8/8.
HUBSPOT (9.0%) - Hubspot helps companies manage their brand online. This is much more than just buying ads. This is SEO, website, blog, social media, etc, etc. Hubspot is such a powerful and value-adding tool for marketing departments (a CMO’s dream) that I can’t see why any company of a certain size wouldn’t want to use it, and use it increasingly. Of course with a product that’s this much of a value add, there are certainly competitors. It sure seems to me like Hubspot is becoming a leader, if not THE leader, in the space, and the results it continues to acheive seem to confirm this.
In the March quarter, they grew revenue 40% (and most of it is recurring), raised guidance mightily, and announced some other great trends. My favorites were that total customer count increased by 40% to 31,262 and that marketing customer count increased 28% to 24,775.
Hubspot was way down in June and I took the opportunity to increase my position by 50%. In July I added another 12%. Shares also appreciated about 10%, so Hubspot has become my #3 position.
Hubspot will announce June quarter results after markets close on 8/2.
SQUARE (8.9%) - You might know Square if you’ve ever paid with a credit card at a local vendor – there’s a good chance they used a Square device and Square’s service to take the payment. Square also provides analytics, offer overnight loans, and have many other services available to their customers.
I first bought Square in November at 12.24 per share. It’s been an incredible ride, and in July it turned into a double for me. You can read more about my evaluation of Square in my June portfolio review, but to celebrate Square’s amazing year so far, I submit Bert Hochfeld’s thoughts on Jack Dorsey’s beard, from his August 2016 article:
Perhaps the shares have been pressured by founder Jack Dorsey’s luxuriant beard - maybe if he shaved it off, the shares would appreciate. Many years ago, a young woman from upstate NY, Grace Bedell, who was but 11 years of age at the time, suggested that then candidate Lincoln grow a beard. While making no promises to his young correspondent, he chose to add whiskers to his face despite his concern that it might be viewed as a silly affectation.
Young Grace felt that Mr. Lincoln’s face was terribly thin and that a beard would commend him to all the ladies who would then tease their husbands into voting for him (women did not vote in 1860). Indeed, he took the suggestion to heart, grew a beard, and the rest as they say is history.
I do not know if Mr. Dorsey’s face is considered thin or otherwise and I have even less idea if merchants would respond to his being clean shaven by increasing their gross payment volume to $15 billion, but it is surely a sacrifice he ought to be willing to make for such a substantial return. Entrepreneurs have obligations to investors and sacrificing a beard is a small enough burden to get the shares of Square moving.
https://seekingalpha.com/article/3997809-square-hated-compan…
In July I trimmed just 10% to buy other things, and because Square is getting rather expensive (PS ~13 and revenue growth ~40%). I don’t plan to trim any more, though.
Square will announce June quarter results after markets close on 8/2.
TWILIO (8.7%) - Twilio makes web service APIs for phone calls and texting. Software developers who subscribe to Twilio’s platform can use these services in their products, and this works out great on both sides: from customers’ perspective they only have to pay when these services get used, and from Twilio’s perspective, the more the services get used, the more Twilio gets paid.
March quarter earnings were great, but they made the disappointing announcement that Uber, their biggest customer, was cutting back their spend. Uber is going to do a few things in-house, and also use other vendors. This makes a lot of sense to me. It’s such an integral part of Uber’s business, they don’t really need to be so dependent on any one company. We had a lot of discussion on the board about the Uber situation. I still feel this way, basically: http://discussion.fool.com/matt-if-uber-can-do-it-this-quarter-w…
I bought a good bit on the ~30% drop in May. I trimmed when it was up 20% in June, but I’m holding a decent-sized position going into June quarter earnings.
Twilio will report earnings on 8/7 after the market closes.
SPLUNK (8.4%) - Splunk captures and organizes data in real time, then identifies patterns. There are a lot of use cases: application management, security, big data analysis, etc. From my admittedly limited vantage point, it sure seems Splunk is really becoming a very big fish in the big data landscape.
In the April quarter, analysts weren’t impressed with 30% revenue growth and similar guidance (even though it was a raise), but I was very pleased that recurring revenue increased 48% YoY in the April quarter – that’s a fantastic pace and it’s not slowing down. I had added a lot in May, and I’ve just been holding it since.
Splunk has not yet announced when it will report July quarter earnings.
WIX (8.2%) - Wix is a company that helps users create websites, and then hosts them. It makes money by selling ads that are displayed on its free sites, and by charging subscription fees for premium content.
Wix reported an impressive quarter on July 27th. Revenue growth accelerated to 51%, FCF and collections were up…the only down spot was that Avg Coll per New Sub (which I lazily call ARPU) was flat. They had a reason (Easter discounts), so I’m not worried too much. Analysts were concerned growth is slowing, but management didn’t see any signs of that. I think it’s a lot of worry about nothing. Wix has dropped from mid-70’s to currently under $62/share. I added 27% this month, most of that today. At growth rates over 50% and a P/S ratio of currently 7.9, I’m loving Wix’s value right now.
HORTONWORKS (6.8%) - Hortonworks helps companies manage big data with Hadoop. Customers subscribe to the HDP software platform, and Hortonworks stores, processes, and analyzes their data.
On July 18th, Hortonworks announced that the COO was leaving the company. We’ve had lots of discussion on the board about what this might mean for their pipeline, even though they already said June quarter will be between $58M and $59M (consensus estimate was $57.14.) Because of the news, and because of the concern Saul and others voiced, and because I realized it really is a strange business model with TONS of SBC and tons of GAAP and non-GAAP losses, I’ve decreased my position a net of 27% in July. I actually decreased much more, because I had added during the month.
Hortonworks will announce June quarter results after markets close on 8/3.
MULESOFT (6.5%) - MuleSoft integrates applications. Wikipedia actually calls their directory of API’s a “social network for developers.” When Saul originally described MuleSoft, some thought it sounded a lot like Talend. It actually does a type of integration so different from what Talend is doing, that I think it has more in common with Twilio. It facilitates communications – not between apps and their user’s phones (like Twilio does), but rather between apps and other apps.
Saul pointed out in his introduction to the company that they’re not only growing by winning tons of contracts, but also by a drastically increased contract value. Another incredible revenue force multiplier like so many of today’s great young companies have (e.g. SHOP, WIX, SQ, TWLO, MELI, etc).
On 7/27, Mulesoft reported a solid quarter, but not one that exceeded my expectations. In fact, I was disappointed to see recurring revenue growth tick back a bit. Perhaps not a game changer for such a young company, and we’ll see how things play out over the next few quarters, but I’m definitely not adding, even after the 20% or so drop in share price (I had added 14% before earnings). Even after the drop, MULE’s PS ratio is still up near 12.
TALEND (6.5%) - Talend has carved out a niche within big data integrations by specializing in Hadoop, an expertise that will not be easily disrupted. Saul has called them a “category crusher,” a leader with no viable competition in its niche. I tend to agree, though others will not ignore this space forever. Hopefully Talend will continue to build up years of subscription revenues while they occupy the catbird seat.
I first invested in Talend in February, and added in March, April, and May. In June and July I’ve trimmed it, mostly just because it has not fallen like other things I wanted to add to.
Talend will announce June quarter results after markets close on 8/3.
NEW RELIC (5.0%) - New Relic is a company that monitors web and mobile applications in real time, detecting issues before they become problems, and helping companies figure out where the pain points may be before it costs them sales, or even customers. Along with CSCO’s recent acquisition, AppDynamics, and a private company called Dynatrace, New Relic is one of the main leaders in the APM space. They recently partnered with Splunk, which I think solidifies their position even more.
I took a position in May, added in June, and held tight in July.
New Relic will announce June quarter results after markets close on 8/3.
THE TRADE DESK (3.8%) - The Trade Desk plays in the somewhat crowded world of advertising tech, but it seems the way they’ve positioned themselves to work with ad agencies (instead of companies placing ads) has really made them a preferred tool for the buy side. They also don’t buy inventory but just facilitate, so that streamlines their process and enables them to serve their customers without conflict. Their growth is phenomenal: revenue grew by 78% for the year in 2016. And they’re profitable with a PE around 50, which given their growth, seems insanely low.
The Trade Desk was a new position for me in February. The shares have been very volatile this year, but have mostly stayed in the 50’s since March quarter (a blowout!) was reported. I still have jitters about the space, the competition, and whether or not they can maintain both their incredible growth and their profitability. I’ve decided to keep my position on the smaller side for now.
The Trade Desk will announce June quarter results after markets close on 8/10.
MERCADOLIBRE (3.2%) - Most Fools have heard of Mercado. It’s been called the South American Ebay/Amazon. They have been growing like a weed, expanding offerings, taking payments, etc, etc. Mad growth. Revenue growth accelerated to 74% (constant currency…79% locally) in the March quarter! I took a tiny position, and added to it on a couple dips during the month. In June, the stock was down, and I added 70% more. In July when the share price came back up, I trimmed it back. I’m still getting comfortable with this company, especially since South America can be a volatile place, and so I’m fine keeping my position small for now.
Mercadolibre will announce June quarter results after markets close on 8/3.
Random Thoughts and Conclusions
This week is earnings for a lot of my companies and probably yours. Kinda feels like the night before Christmas. Here’s hoping we don’t get lumps of coal!
My best to all,
Bear