Ben’s Portfolio update end of April 2023

Ben’s Portfolio update end of April 2023

Part 1: Returns and portfolio holdings

Part 2: Earnings expectations for companies that are still due to report

Part 3: Company comments regarding recent earnings

Part 1: Returns and portfolio holdings:

Portfolio Notes
2020 63.6% Since May 12, 2020, where I started this portfolio with over 40 companies, mostly holding large cap tech & FAANG, but also some high-growth SaaS.
2021 13.1% Discovered Saul’s board in February 2021 and started concentrating to 16 companies through December 2021.
2022 -60.7% Concentrated a bit more through July 2022 from which point I started posting my monthly updates on Saul’s board, holding about 12 or fewer positions.
2023 YTD Month
Jan 8.3% 8.3%
Feb 16.3% 7.3%
Mar 17.9% 1.4%
Apr 5.2% -10.8%

These are my current positions:

Apr 2023 Mar 2023 First buy*
Snowflake 20.1% 18.7% 2/8/2021
Datadog 15.1% 14.6% 5/13/2020
Cloudflare 13.3% 15.6% 11/2/2020
Crowdstrike 12.1% 12.3% 5/13/2020
Nvidia 11.7% 10.4% 5/13/2020
Zscaler 8.9% 10.3% 3/4/2021
SentinelOne 8.7% 7.9% 12/10/2021
Monday 5.7% 5.9% 9/13/2021
TradeDesk 2.6% 2.2% 5/13/2020
Enphase 2.0% 2.2% 5/15/2020

*held through today

Part 2: Expectations for upcoming earnings

In the following I summarize my expectations for the companies that are still due to report this earnings season. The goal of this exercise is to come up with reasonable earnings expectations. The goal here is not to be absolutely accurate, but to be able to identify when a company surprises in either a good or a bad way. That way it will be easier for me to identify if a change in conviction level is warranted. Also, just because a company exceeds or performs below my expectation with a single metric, that doesn’t necessarily mean my conviction has to change. Really, what this exercise does is it helps me to think about my companies holistically. Therefore, I think it is valuable to come up with these expectations before they report as it will help me to keep the companies (and myself) accountable and minimize any cognitive bias once the results are out.


  • Reporting Fiscal Q1 2024 around 5/25/23.
  • Product revenue expectation: $594M (7% QoQ, 51% YoY), assuming a 4% beat.
  • Q2 new product revenue guide: $624M (5% QoQ, 34% YoY) which I would interpret as $642M (8% QoQ, 38% YoY) and hoping for some modest QoQ re-acceleration.
  • I would like to see a slightly improved FY product revenue guide.
  • I would like to see positive Operating Income margin and positive Net Income margin.
  • Around 40% FCF margin would be great.
  • I would like to see >1M customer QoQ growth in the mid-teens.
  • Detailed thoughts: Ben’s Portfolio update end of March 2023


  • Reporting Fiscal Q1 2023 on 5/4/23 before the market opens.
  • Revenue expectation: $497M (6% QoQ, 37% YoY), assuming 1% higher beat than last Q’s 5% beat.
  • Q1 new revenue guide: $507M (2% QoQ, 25% YoY) which I would interpret as $537M (8% QoQ, 32% YoY) assuming a similar, although slower re-acceleration as post-covid.
  • I would like to see slightly improved profitability margins.
  • I would like to see no large customer QoQ deceleration.
  • I would like to see NRR stay above 130%.
  • I would like to see RPO QoQ growth greater or equal to 5%.
  • Detailed thoughts: Ben’s Portfolio update end of February 2023


  • Reporting Fiscal Q3 2023 around 5/26/23.
  • Revenue expectation: $417M (7.5% QoQ, 45% YoY), expectation from billings model and 4.9% beat.
  • Q3 new revenue guide: $430M (3% QoQ, 35% YoY) which I would interpret as $450M (8% QoQ, 42% YoY) as my expectation from billings model.
  • I would like to see ~$464M in billings.
  • I would like to see >~6% large customer growth.
  • I would like to see mid-teens % FCF margin.
  • I would like to see greater or equal to 14.5% Operating income margin ($60.5M), which would be very good and support my new profitability trend hypothesis.
  • Detailed thoughts: Ben’s Portfolio update end of March 2023


  • Reporting Fiscal Q1 2024 around 6/2/23.
  • Revenue expectation: $699M (9.7% QoQ, 43% YoY), hoping that beats start improving again with 3.3% beat this Q.
  • Q1 new revenue guide: $748M (7% QoQ, 40% YoY) which I would interpret as $776M (11% QoQ, 45% YoY), hoping for a modest QoQ re-acceleration.
  • I would like to see similar profit margins as last Q.
  • I would like to see QoQ customer growth around 9%.
  • Detailed thoughts: Ben’s Portfolio update end of March 2023


  • Reporting Fiscal Q1 2024 around 6/1/23.
  • Revenue expectation: $139M (10.3% QoQ, 78% YoY), hoping that beat will improve from 0.9% last Q to 2% this Q.
  • Q1 new revenue guide: $153M (10% QoQ, 49% YoY) which I would interpret as $156M (12% QoQ, 51% YoY), which is really just a guess.
  • I would like to see around -37% operating income margin.
  • I would like to see >9% QoQ large customer growth.
  • I would like to see NRR above 130%.
  • Detailed thoughts: Ben’s Portfolio update end of March 2023


  • Reporting Fiscal Q1 2023 on 5/15/23 before the market open.
  • Revenue expectation: $163M (8.6% QoQ, 51% YoY), assuming a 5% beat.
  • Q1 new revenue guide: $170M (4% QoQ, 37% YoY) which I would interpret as $179M (10% QoQ, 44% YoY), hoping for a modest QoQ re-acceleration.
  • I would like to see continued, good margins, but considering front loaded FY, an operating income margin around or above 10% would be great.
  • I would like to see large customer growth not decelerate QoQ.
  • I would like to see NRR not decrease.
  • Detailed thoughts: Ben’s Portfolio update end of February 2023

Part 3: Company comments:

Enphase Energy:

Enphase reported Q1 FY23 earnings on April 25. Revenue came in at $726M (0% QoQ, 65% YoY) and quite a bit below my expected $747M (3% QoQ, 69% YoY). US revenue decreased 9% sequentially “due to seasonality and macroeconomic conditions” and was down in comparison to +15% QoQ growth last Q. Accounting for seasonality, California revenue was also impacted positively by the NEM 2.0 rush. In Europe, revenue increased 25% sequentially, up from 21% last Q, where growth is a result of expanded shipping of IQ micro inverters into France, Netherlands, Spain and Portugal, as well as a start of battery shipments to Netherlands, France, Austria and Switzerland, following Germany and Belgium. Similar to US, Latin America, Australia and Brazil are quite bumpy: while Latin America revenue decreased 2% QoQ, Australia increased 6% QoQ and Brazil more than doubled sequentially.

While I had hoped that only Q4 and Q1 were negatively impacted by seasonality, their Q2 guide is again for flat QoQ revenue growth. Since the company doesn’t provide a full year guide I am worried that macro headwinds may stay beyond Q2, potentially leaving us without significant revenue growth in the near term.

Longer term, things look good with sustained tailwinds due to IRA in the US and the energy crisis in Europe. Continuing to execute very well, Enphase was able to further improve their Net Promoter Score to an amazing 75%, up from 71% last Q and the percentage of IQ8 micro inverter shipments went up to 65% from 55% last Q.

On the margin front, Enphase did great, further improving their gross margin to 46%, up from 43% last Q and 40% last Q1. Operating income margin stayed at 32% of revenue, same as last Q and net margin dropped to 26%, from 29% last Q and up from 25% last Q1. Finally, FCF margin stayed strong at 31%, down from 33% last Q and up from 20% last Q1, so well done here.


Cloudflare reported Q1 FY23 earnings on April 27. For this Q, I was really hoping to see revenue growth guide beats to go up again, together with moderate QoQ re-acceleration which I would have interpreted as a clear sign that macro has bottomed and things are going uphill from here on. Unfortunately that didn’t happen. Cloudflare reported revenue of $290.2M (5.6% QoQ, 37% YoY). Now just to be clear: this was not a miss since they had guided to a range from $290M to $291M in revenue for Q1. So, that, together with the outlook for next Q, which again doesn’t show signs of re-acceleration, tells me that there is still no end in sight when it will go up and to the right again for the company. Worse, Cloudflare’s management had to revise their FY revenue guide down from $1348M at the midpoint to $1282M, a 4.9% or $66M cut - ouch: “the quarter saw new challenges, macroeconomic uncertainty, which intensified over the course of Q1 with every sailing bank resulted in a material lengthening of sales cycles , a significant decline in close rates , even as win rates held strong, and an extreme back-end weighting to the quarter. To give you some sense, almost half of the new business closed in the last two weeks of the quarter, which is very nonlinear for us . All of these factors put pressure on growth.” I highlighted these parts to emphasize what changed in terms of management’s predictability of their business. Indeed, “the deteriorating environment surprised us . We saw sales cycles really elongate far beyond our forecast up to 27% on average and then the expansion business, as I said before, close to 50% . So, those were material differences in the assumptions we had at the beginning of this year. (…) We (…) adjusted guidance now carefully also assuming that the linearity deterioration we’ve seen in the first quarter would continue for the second quarter, specifically, we have assumed hardly any revenue recognition from in-quarter ACV generation.

Wow - 27% and 49% longer sales cycles than the average of the previous four quarters - that is a lot! And with regard to the already started Q2 there was “no indication that it gets materially better. But as I said, no indications that it’s deteriorating either”. Of course they had to revise the FY guide with such a change. But does that mean that the business is faltering? I don’t think so, because “Importantly, we did not see elevated churn across our broad customer base. Instead, we saw a slower expansion from existing customers. (…) most of the deals we expected to close did, just later than we expected.” So I believe what we see here is mainly macro at play (more on that later).

With that, at least in my mind, they have also put in question their $5B in 5 years goal, which implies a 38% CAGR of revenue. With the new numbers put out in this report I believe it is very likely Cloudflare will drop below 30% YoY revenue growth in Q3 or Q4; quite a gap to close to 38% YoY growth. A silver lining is that their new FY guide still implies QoQ revenue growth acceleration within the next 3 quarters: if they for example grow 6% in Q2, 7% in Q3 and 8% in Q4 they would just reach their new FY guide. Of course, macro could deteriorate further and they might have to again reduce their FY guide so I’ll take this example as anything but given. That said, on average, Cloudflare had about 1.6% higher revenue growth in the second half of the FY, looking back from 2018 to 2022 (1.2% if we exclude the 2020 COVID year), so just from a seasonality point of view I would expect them to re-accelerate in Q3 and Q4 as “the first and second quarters are more challenging than the later half of the year.

One other interesting quote was regarding the AI trend that could help with future growth acceleration: “We’ve seen the revenue that’s coming from AI companies just quarter over quarter have substantial growth north of 20% quarter-over-quarter growth from the large AI companies that use us. And it’s not just one or two, but from large to small.” So it’ll be interesting to follow how this pans out.

Stepping back a bit, I think it is important to evaluate our companies’ revenue growth rates and expectations thereof in relation to each other. Last earnings season, Cloudflare was one of the few companies that didn’t disappoint on the revenue growth outlook. For comparison: Datadog put out a super low guide. Snowflake also had to reduce their FY guide. While Crowdstrike seems to have stabilized for now they just went through a significant revenue growth deceleration. Zscaler is also seeing significant future revenue growth deceleration based on their billings and Sentinel sees a similar drop in future revenue growth and also missed goals recently. Monday also put out a relatively low FY guide of 33.5% YoY growth at the midpoint. Enphase had expected zero sequential growth as well and their current report sees this continuing further.

That was all known before Cloudflare reported. And Cloudflare? Up to this report their guidance still looked very strong. So now, in my mind, Cloudflare returned to the rest of the pack with regard to macro impact. My point here is that I don’t think the down-revised FY guide alone makes them necessarily a worse investment than any of those others. I also think the timing of these “disappointments” is interesting as for example Datadog and Snowflake are consumption based and therefore I would expect them to feel any macro impacts first. Then with some delay those impacts are felt with subscription businesses, such as Cloudflare - makes sense …

Zooming out even further, if I think about which of my current companies will be a Google or Salesforce in 10 years from now, I still think that Cloudflare is one of the more promising candidates, along with Snowflake as my top two. So what should I do now? Sell out? Trim? Use the share price drop as a buying opportunity? Do nothing? Well, I think it depends on whether we are really just talking about a temporary, although quite dragging macro decline or if there are underlying business weaknesses, and, in the latter case if I believe those can and will be mitigated successfully.

This brings me to an important issue that was raised (again!) in the conference call: “The macroeconomic environment has gotten harder, and we’re seeing that some on our team aren’t dressed for work. Digging in with Marc, we’ve identified more than 100 people on our sales team who have consistently missed expectations . Simply put, a significant percentage of our sales force has been repeatedly underperforming based on measurable performance targets and critical KPIs. That’s obviously a problem.” Now I really wanted to not only read the transcript here, but listen to the call, in order to get a better sense of what is going on here and how Cloudflare’s management is feeling about this situation.

First of all, from listening to the call I didn’t get the impression that Prince was “bashing” his sales org or pointing fingers in order to move responsibility away from himself. Instead, I heard a very balanced, honest, level-headed and rational assessment of the situation where he not only pointed out what didn’t work, but what did, while laying out his vision for the future: “I’m proud of our team’s ability to sail through the rough seas that characterize Q1. (…) This period of external uncertainty presents us with a perfect opportunity to be internally reflective, identifying areas of improvement within our business . (…) While I’ve talked about our team that’s underperforming, that’s only half the story. Our top salespeople are terrific. On average, the top 15% of our sellers have achieved 129% of quota over the last four quarters. They’re incredibly consistent at bringing in new logos, expanding current customers, and delivering results, and approximately 27% of them started within the last 18 months.

I also think it is important to see this discussion topic in context of last quarter’s conference call where Prince already raised the issue: “As our products to become more complicated and we are selling to larger and larger customers, it’s increasingly clear that we need to step up our game in marketing and sales. I introduced Marc Boroditsky who joined last quarter to lead our sales organization. Last week, we briefed me and Michelle on his first 100 days. My initial reaction, if I’m honest was embarrassment, over some of the basic things we should have been doing better, but my second reaction was excitement as there are so many opportunities for us to improve.” (This was a quote from the Q4-call!)

So, I think part of the intent here in the Q1 call was to give investors an update on this situation. And really, having read last Q’s CC I do not feel ambushed with this issue but I am glad that it is being addressed transparently. So, “Marc Boroditsky, our new president of revenue, has dug into retooling our go-to-market efforts and identified significant opportunities to improve efficiency and performance of our sales teams. (…) I think we and most other businesses got a bit soft during the COVID crisis around performance management. That was understandable at the time, but that time is over . The opportunity ahead of us is massive. We have amazing people on our team who are executing every day to realize that opportunity. (…) We are limited by our go-to-market performance. That’s something we can fix (…) I think Marc is bringing a focus and a discipline which is going to pay off.

Now large changes in organizations can take time and there is a cost that investors pay in form of potentially lower revenues while new sales people ramp up. However, what is comforting here is that those 100+ underperforming people only contributed 4% of annualized new business sold over the last year, “so, we think there is more upside in this transition than there is downside in terms of performance and positive impact on sales capacity moving forward.” And now, with all those layoffs in the tech world, and generally a difficult job-environment, I believe Cloudflare has a unique opportunity to hire the best of the best at a relatively low cost: “While team upgrades are always hard, this is a uniquely good time for us to do this. A year ago, the tech labor market was extremely tight. Today, there is an abundance of talent eager to work at Cloudflare. In Q1, we received more than 0.25 million applicants, approximately 40% of which were for sales positions. That’s more applications than we received in all of 2021. (…) And the thing that’s, I think, very encouraging is, as we look at the people that we can replace that – that they are contributing such a small percentage in terms of our capacity that we actually think that this will – any type of change like this obviously is something that we want to do very humanely, and we want to be very thoughtful about taking care of the team that we have. But we think that as we transition that team out, we’re going to not only increase the performance of our high performers but bring on new performers that give us much higher performing capacity , and Marc, I think, is doing an incredible job at not only identifying who asked to be moved out. But boy, when I talk to the people that we’re hiring to replace those people, I just get incredibly excited by what they are able to deliver to us. (…) I think that as we look out at the caliber and quality of the people who we can bring on board and how we can invest in our top performers today, just getting our sales performance to look much more like a normal distribution than what today is much more of a bimodal distribution is an extremely effective way for us to reaccelerate the growth that we have .

Looking under the hood of the top-line numbers and their sales-org issues, their weakened outlook is substantiated by further pressured land-and-expand: While total customer growth held steady at 3.7% QoQ, from 3.9% last Q, the “land” side saw large customers QoQ growth, which make up more than 60% of revenue, reduced to 5.6%, down from 7% last Q and 9.1% the Q before. On expand side we also see further pressure with NRR dropping to 117%, down from 122% last Q and 124% the Q before. Customer growth and NRR deceleration resulted in RPO growing only 5.7% this quarter. This number was never below 9%, looking back all the way to 2019 (at least cRPO QoQ growth stayed constant at 7.2% QoQ, vs. 7.7% last Q). So it really isn’t that surprising that they had to reduce their FY guide given these numbers. And I expect it to decrease further if those numbers don’t stabilize or improve going forward. But again, a pressured land and expand environment is nothing unique to Cloudflare, we see this across the board.

Finally, there is interesting stuff going on towards the bottom line: operating income margin improved from 6% to 7% and net margin improved from 8% to 9%, so well done here, especially since they kept their operating expenses in-line with last Q, at 71.2% of revenue and down from 76.4% last year. So nice operational leverage. Q1 has historically been their worst quarter for FCF margin, with -30% or worse in 3 of the last four years, so I was concerned that FCF will again turn negative this Q. Well that didn’t happen and they managed +5%, up from -30% last year - again, well done. Finally, and probably a cause for the positive FCF was that their purchases of property and equipment was a clear outlier this quarter as it came in at only $17.5M or 6% of revenue (network Capex was 5%), down from $40M last Q, but I don’t expect this to hold as their investor presentation guides for 11-13% network Capex for the year:

revenue vs property and equipment purchases

Not sure what caused the sudden drop in network Capex this Q, so I’d be curious if anybody can explain this. Was this a deliberate action to achieve positive FCF this Q? “we continue to anticipate being free cash flow positive for the full year 2023. For modeling purposes, we expect free cash flow to trend upward on an ongoing basis but anticipate near-term variability in our free cash flow generation with the second quarter anticipated to be lower than the first quarter due to the timing of capital expenditures and other payables.

So in summary, here is what I think happened with Cloudflare: Cloudflare used to be a company that was almost exclusively focussing on their tech (just think about their pace of new product placements). And just focussing on the tech was OK in 2020, 2021 as their products literally sold themselves. But now we are in a different economical environment where Cloudflare’s shortcomings became very obvious. The good news is that I think they are doing a really good job addressing these shortcomings. Just look how they shifted from 100% “let’s make the internet better” to becoming a profitable business in the last few quarters. So they have successfully addressed their bottom line and continue to do so. And now, after having discovered the issue with their sales org a quarter ago, they are actively and transparently fixing it. I believe that this, if successful, will set them up for future revenue growth re-acceleration, especially if combined with macro turning which will hopefully happen at some point. It all comes down to whether management can achieve their vision.

Wrapping it up

So there you have it. What a start to an earnings season! First we hear from Enphase that Q2 will also be weak. Then Azure and AWS first surprise positively only to pull the rug shortly after with AWS’s growth deceleration in April. Then Cloudflare followed some others who had to down-revise guidance in recent quarters. Hopefully things will turn for the better with what is still to come…

Thanks for reading and I wish everyone a great May!

Past recaps

July 2022: Ben’s Portfolio end of July 2022 - Saul’s Investing Discussions - Motley Fool Community

August 2022: Ben’s Portfolio end of August 2022 - Saul’s Investing Discussions - Motley Fool Community

September 2022: Ben’s Portfolio update end of September 2022

October 2022: Ben’s Portfolio update end of October 2022

November 2022: Ben’s Portfolio update end of November 2022

December 2022: Ben’s Portfolio update end of December 2022

January 2023: Ben’s Portfolio update end of January 2023

February 2023: Ben’s Portfolio update end of February 2023

March 2023: Ben’s Portfolio update end of March 2023


That was a great summary of Cloudflare’s earnings, Ben! You highlighted more nuances and in much better detail than I did. Also:

I agree with you. I didn’t get the impression that the CEO was bashing his team. Without sugar-coating it, he highlighted gaps they discovered in order to work on them. That’s how I see it.