Ben’s Portfolio update end of December 2024
Returns and portfolio holdings:
Portfolio Notes 2020 63.6% Since May 12, 2020, when 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 77.8% First full year of Saul-style investing 2024 31.7% 2024 YTD Month Jan 5.9% 5.9% Feb 17.5% 10.9% Mar 13.6% -3.3% Apr 6.4% -6.4% May 6.8% 0.4% Jun 21.0% 13.3% Jul 7.0% -11.6% Aug 12.6% 5.3% Sep 13.0% 0.3% Oct 19.5% 5.7% Nov 39.3% 16.6% Dec 31.7% -5.5%
Time stamp: December 31, after market close
These are my current positions:
Dec 2024 Nov 2024 First buy* Nvidia 21.6% 21.9% 5/13/2020 Cloudflare 15.5% 13.7% 11/2/2020 Snowflake 12.0% 12.1% 2/8/2021 Datadog 11.8% 12.4% 5/13/2020 Crowdstrike 11.0% 10.5% 5/13/2020 Axon 9.4% 10.1% 4/2/2024 Samsara 6.3% 4.6% 1/8/2024 Monday 5.7% 6.8% 9/13/2021 Zscaler 3.5% 4.0% 3/4/2021 TradeDesk 3.4% 3.7% 5/13/2020 Cash 0.0% 0.2%
*held through today
Time stamp: December 31, after market close
Company comments
Axon:
Key insights:
- I found Q3 numbers a bit underwhelming, but Q4 will be more important due to customers closing FY. While numbers were rather weak, narrative is very strong, especially with new AI bundle offering.
- They restated several of their financial metrics, but impact on revenue numbers small.
- Taser revenue was a positive outlier this Q and shouldn’t be expected to continue as strong.
- NRR increased by to 123% from 122%.
- Profitability was excellent with continued, strong, margin expansion.
Axon reported fiscal Q3 2024 on 11/07/24. While some of the metrics I track came in below my expectations for this quarter, I think seeing how they change in Q4 will be more telling as many customers close their fiscal year in Q4 and we’ll also see management’s initial guides for FY25 to give us a longer view on what the future holds for Axon’s financials.
Revenue was $544M (8.0% QoQ, 31.7% YoY) versus my pre-earnings expectation of $549M (9.0% QoQ, 32.7% YoY). Note that they restated several of their financials, including revenue, but the effect on revenue was very minor. I am a bit unsure what to expect in terms of revenue for Q4, but have penciled in $573M (5.4% QoQ, 32.7% YoY) at the low end and $582M (6.9% QoQ, 34.7% YoY) at the high end, which would be fantastic. This range would imply a 1.5% to 3% beat of their Q4 guide which they just gave in this Q3 report. Note that they normally only give annual guides, besides the Q4 quarterly guide (which can be implied from the annual guide given in Q3). It is worth pointing out that it is quite rare for a company to beat a Q4 guide by that much, so maybe I’ll be disappointed come Q4, but at least historically they beat their implied Q4 guides by 3.3% in FY23 and 10.2% in FY22 (at the midpoint).
One note on segment revenue: Taser revenue really surprised me positively this quarter as it grew 36% YoY, up from 27% YoY in Q2 and 12% YoY last Q3. Management made it clear though that this was more of an outlier as they got more capacity online for the taser business in Q3.
Another metric that came in weaker than I had expected was net new ARR, which was only 35M, versus my expected 85M. At least total ARR grew 4.1% QoQ to $885M, or 35.7% YoY, which is faster than revenue grew. Again, my expectation is that we’ll see more strength in Q4 here.
The last forward looking metric I track is RPO (or future contracted revenue), which, at $7.7b was just slightly below my expectation of $7.9b, growing 4.9% QoQ and 32.5% YoY.
In terms of backward looking metrics, it was great to see their NRR increase to 123%, up from 122% in the previous 5 quarters, before which it was 121% and lower. So great progress here.
Last but not least, profitability was pretty amazing this quarter with adjusted EBITDA margin expanding to 26.7%, up from 25% in Q2 and 22.7% last Q3.
From a narrative point of view, I think it couldn’t get much better for Axon as we see great traction with their new products enabled by acquisitions of Fusus and Dedrone as well as their new Draft One product. It is always great to see when acquisitions and new products work out as well as they appear to do with Axon while widening their already very strong moat.
Zscaler:
Key insights:
- Q1 revenue was a bit disappointing, but within expected range from billings model.
- Q1 billings QoQ growth was relatively weak in comparison to previous Q1s, but as expected from Q4 earnings call commentary.
- Good news is that FY billings guide suggests that Q1 billings was as a negative outlier, probably due to timing of deals, and billings QoQ growth will catch up (be better than in Q2 - Q4 of last year) in the rest of the FY in order to meet FY guide.
- Using the billings model and billings expectations for the rest of the FY to predict future revenue growth we see YoY revenue growth will likely continue to drop from currently 26% towards 21% in Q4.
- RPO was better than I had expected, but cRPO growing 21.4% YoY and slowing, also points to revenue growth deceleration.
- Large customer growth was weak and NRR continued to drop.
- While all revenue growth metrics point towards moderate deceleration, the investment thesis hinges on profitability. Continued margin expansion is a must as long as revenue growth continues to slowly decelerate.
Zscaler reported fiscal Q1 2025 on 12/02/24. Zscaler’s quarterly revenue has historically correlated very well with the average quarterly billings of the preceding four quarters. This Q1, the sum of FY24 billings divided by four was 4.4% larger than Q1’s revenue, so was this a negative outlier? Well, let’s quickly consult statistics to determine that: The four-quarter average billings has been on average 0.6% larger then next quarter’s revenue. That’s the average over the last 30 quarters with a standard deviation of 3%. So this Q1’s 4.4% deviation was just a bit outside of one standard deviation. In the last 30 quarters this billings model was off by more than one standard deviation 12 times, as is expected from a normal distribution, and by up to 5.6%, so statistically speaking this quarter wasn’t an outlier. That said, I was a bit disappointed with this Q1’s revenue growth of $627M (5.9% QoQ, 26.4% YoY) versus my revenue expectation from billings of $635M (7.1% QoQ, 27.8% YoY).
Taking the average quarterly billings from 2Q24 through 1Q25, I now expect Q2 revenue growth around $656M (4.5% QoQ, 25% YoY), implying a guidance beat of 3.5%. They also raised their FY revenue guide by 0.9%.
Now let’s talk about billings itself. This Q1 billings came in at $517M, which was a QoQ drop of 43%. For comparison, the seasonal QoQ drop from Q4 to Q1 has been 37% in FY24, 34% in FY23 and in-between 25 and 32% in FY18 to FY22. So while a seasonal drop in billings was expected, it was significantly larger than in previous Q1’s. It is worth pointing out though that this was expected from their Q4 call where they said “Q1 to be approximately 16.2% of full year billings guide”, which was $3.135b. So 16.2% of that is $508M, and they beat that expectation by 1.7%. Of course, the next question is how much of a concern is that larger-than historical billings drop and does this mean we should expect the rest of the FY also to come in below historical Q2-Q4s? Well, the good news is that they actually raised their billings guide by 0.45% to $3.149b. Just as an example, assuming they’ll beat that by 1.8% I would expect the rest of the FY to be actually stronger in QoQ growth than what we saw in FY23 and FY24. A possible scenario would be to grow billings as in below picture, resulting in billings of $3.2b for FY25:
And even if they don’t beat their current guide at all, the next three quarters could look something like this, which sums up to $3.146b, versus their current guide of $3.149b:
So this would also be a significant improvement for Q2 to Q4 in comparison to the last two FY’s Q2 to Q4. Whether they’ll beat their billings guide or not, I think what we are seeing here in a nutshell, is simply the effect of timing of some billings that created a headwind in Q1 and that should be compensated for in the rest of FY25.
Coming back to the model where we take billings and model future revenue, we can take those two scenarios and see what’s in it for FY25 revenue growth going forward. If we do that, we find that YoY revenue growth would likely continue to drop to 24% in Q3 and 22% in Q4, even in the better billings scenario above. And in the scenario above where they don’t beat their current billings guide the model predicts YoY revenue growth to drop to 23.5% in Q3 and 21% in Q4.
Now let’s briefly review their secondary growth metrics. NRR was 114%, dropping now for a seventh consecutive quarter (125%+ → 125% → 121% → 120% → 117% → 116% → 115% → 114%).
RPO came in better than I had expected at $4.411b (versus my expectation of $4.3b), growing 26.4% YoY, an acceleration from 25.9% YoY growth in Q4. cRPO, however decelerated to 21.4% YoY, from 23.3% in Q4 and 29% in Q3, also pointing to decelerating revenue growth (as the billings model above).
Unfortunately, large customer growth was also relatively weak, adding only 65 new $100k+ ARR customers. This number is down from 99 in 1Q24 and 128 in 1Q23. Not a great look. At least there was some strength in very large customer growth, those who add more than $1M in ARR. Here they added 18, similar to 1Q24’s 19 and 1Q23’s 21 net adds.
So yeah, pretty much everything points to revenue growth deceleration. This isn’t necessarily a bad thing as this can be expected for a company with over $2b in annual revenues. A key question going forward though, will be how quickly will revenue growth decelerate and simultaneously, how quickly will free cash flows go up. At least for now, the latter seems to be what keeps investors happy as their FCF margin hit a new all-time record of an incredible 46.5%, up from 45.2% in 1Q24. (Note that Q1 is historically very strong here and FCF margins in the rest of the previous FY have been closer to 20%.)
Crowdstrike:
Key insights:
- Q3 was first full quarter after July 19th incident.
- Revenue was significantly higher than I had expected and consequently my Q4 projections went up as well. Despite that, I expect YoY revenue growth for Q4 to drop to a range of 24% - 25.6%, down from currently 28.5% and 32.6% last Q4.
- While ARR and NRR clearly showed incident impact, RPO was a highlight this Q growing 46% YoY, up from 38% and cRPO grew 30% YoY, faster than revenue growth and up from 27%.
- Despite NRR dropping, gross retention stayed above 97% and multi-product adoption was uncharacteristically strong.
- Won great accolades from Gartner and Forrester.
- Also shows incident impact on profitability, but less negative impact than I had expected.
Crowdstrike reported Fiscal Q3 2025 on 11/26/24. As a reminder, this was the first full quarter after their July 19th incident. Q2 had less than 2 weeks left when this happened, so I expected any real initial impact to start showing up in Q3.
Revenue came in at $1010M (4.8% QoQ, 28.5% YoY), significantly higher than my expected $992M (2.9% QoQ, 26.2% YoY), so we are off to a great start. Also, note that they beat their guide by 2.9%, the highest beat in 9 quarters, with an 8-quarter average beat of 1.5% from 3Q23 through 2Q25. So 2x higher beat than their previous 8-quarter average. Their Q4 guide was just as I had expected at $1032M at the midpoint. I see two scenarios for Q4 revenue: one in which their Q4 business is impacted relatively little due to the incident and one where it is impacted a bit more than in Q3. Based on that, I see Q4 revenue come in in-between $1048M (3.7% QoQ, 24% YoY), implying a 1.5% beat and $1062M (5.1% QoQ, 25.6% YoY), implying another 2.9% beat. Note, both scenarios reflect an up-revision of my previous expectation of $1042M for Q4. They also raised their FY guide by 0.9% on the low-side and 0.7% on the high-side, which is a decent raise with just one quarter to go in the FY.
Net new ARR was $153M, basically in-line with my expectation of $160M, corresponding to a total ARR growth of 4% QoQ and 27.4% YoY. This is clearly showing some incident impact as net new ARR dropped 30% QoQ, but keep in mind that net new ARR is a very lumpy metric.
RPO was another highlight of the report as it grew to $5.4b, 10.2% QoQ, up from 4.3% in Q2 and 2.2% in Q1. Also up from 4.1% QoQ last Q3. More importantly YoY RPO growth accelerated to 46%, up from 38% in Q2 and 32% last Q3. Similarly, cRPO also grew strong, to $3.08b, 6.5% QoQ, which is up from 2.5% in Q2 and 2.2% in Q1 and 4.1% last Q3. YoY cRPO growth was at 30%, also growing faster than revenue growth this Q3. RPO growth was mostly driven by a significant increase in backlog, to $2.2b, up from $1.8b in Q2, a 22% QoQ growth. Backlog also grew 90% YoY indicating a very healthy pipeline.
Another metric that showed incident impact was NRR, which dropped to 115%, from around 120%, but it is important to keep in mind that gross retention remained over 97% and was at the top-end range of what I had expected. Also, multi-product adoption continued very strong, with 5+ product customers making up 66% (up from 65% in Q2), 6+ customers making up 47% (up from 45%) and 7+ customers making up 31% (up from 29%). Also the 5+ and 6+ cohorts have historically grown only by 0-1% in the previous 7 quarters, so the +2% was a nice acceleration this Q3. So both gross retention and multi-product adoption paint a very positive picture for Crowdstrike’s “expand” motion.
Crowdstrike was also named a leader in both, the 2024 Gartner Magic Quadrant for Endpoint Protection Platforms and the Q3 2024 Forrester Wave Attack Surface Management Solutions, placed furthest to the right for completeness of vision of the fifth consecutive time and placed highest for ability to execute by Gartner, and ranked the highest in the Current Offering category and received the highest possible score in the market presence category by Forrester. Those a great accolades, adding to the narrative that is supported by the numbers outlined above.
The profitability side of things showed clear July 19th incident impacts as Operating Income dropped 14% QoQ, and as a result net income dropped 10% QoQ. FCF margin dropped 15% QoQ. So while profitability took a hit this quarter, as Crowdstrike is managing the incident fall-out, I view this as a temporary hit that will be just a blip on the overall trend when looking back in a few years. Also, their profitability was impacted less than I had expected as operating income was $195M, versus my expectation of $188M and net income was $234M, versus my expectation of $222M.
Samsara:
Key insights:
- Strong revenue growth with Q4 expectation of 35.7% adjusted YoY growth.
- Extra week in previous Q4 introduces several hard comps for various performance metrics for the upcoming Q4. Better look at QoQ or adjusted numbers instead of just YoY.
- NRR, RPO and cRPO strong, with cRPO growing 37.1% YoY, faster than 35.6% YoY revenue growth.
- Strong large customer additions from both new and expanding customers.
- Significant profitability margin expansion, especially OM, which expanded 2x YoY from 5.3% to 10.5% and FCF, which expanded almost 3x YoY from 3.6% to 9.7%.
Samsara reported fiscal Q3 2025 on 05/12/24. I must say I was pretty impressed by this print. Not only did they meet my revenue growth and NRR expectations, they slightly exceeded my Q4 guide expectations and significantly exceeded my large customer growth expectations, while delivering solid RPO growth and significantly expanded their profitability margins. So let’s have a closer look:
Revenue came in at $322M (7.3% QoQ, 35.6% YoY) exactly as I had expected. They also raised the FY guide by 1% and guided Q4 revenue to $335M (4% QoQ, 21.3% YoY), versus my expected $333M (3.4% QoQ, 20.5% YoY). Again, note that those YoY numbers need to be adjusted for the extra week they had in Q4, so I now expect Q4 to come in around $348M (8.1% QoQ, 35.7% aYoY). This is implying the same 3.9% beat they delivered the last two quarters. ARR was also strong growing 34.5% YoY, adding $85M net new ARR, up from $73M in 3Q24, $61M in 3Q23 and $56M in 3Q22 - so nice trend here.
Looking at secondary growth metrics, I was happy to see their core customer NRR and large customer NRR unchanged at 115% and 120% respectively.
RPO and cRPO growth was also strong at 37.7% YoY and 37.1% YoY, respectively. Both grew faster than YoY revenue growth. Just looking forward one quarter, I am not sure how much next quarter’s RPO and cRPO YoY growth will be affected by the extra week last Q4, so I’ll be careful reading too much into a sudden decline (if it happens in the coming Q4 report). And same goes for other metrics that might potentially impact YoY comps, like customer growth or profits. Better focus on QoQ when we get the next numbers.
Speaking of customer growth, they added 170 new large customers ($100k+ ARR), 78 of which where entirely new customers, a new quarterly record, while 92 where existing customer expansions. So total adds were in-line with Q2’s strong 169 adds and nicely above last Q3’s 148 adds. I didn’t see them report the $1M+ customer adds this quarter. Instead they just said they passed 100 $1M+ customers total, which wasn’t a surprise after Q2’s total number of 98.
Finally, coming to profitability, there was really great margin expansion on operating income, net income AND free cash flow: OM expanded to 10.5%, up from 5.8% in Q2 and 5.3% last Q3. NM expanded to 13.5%, up from 8.7% in Q2 and 9.2% last Q3. And FCF margin expanded to 9.7%, up from 4.4% in Q2 and 3.6% last Q3. How did they manage to expand their operating margin by almost 2x? They managed that by reducing their Non-GAAP R&D and S&M expenses (SBC-subtracted GAAP numbers) by 1.7% QoQ. Note they did the same thing in the previous Q3. Interestingly, they significantly increased their G&A expenses this quarter by 16%. Again, they have done this also on occasion in the last two years, but not in Q3. So despite G&A creating a headwind for OM expansion this quarter, they were able to expand their OM by almost 2x.
Regarding the upcoming Q4 and the Q4 guide they gave, I think it is important to keep in mind that while it is technically correct that YoY revenue growth will drop from the mid 30s to the low-to-mid 20s percent in the upcoming Q4, this ignores the aforementioned extra week last Q4. So my base assumption is that revenue growth will be again close to 35% YoY in Q1.
Wrap up
In case you missed it, here are my earnings recaps of Cloudflare, Datadog, Monday and Snowflake: Ben’s Portfolio update end of November 2024.
Despite all the ups and downs we saw this year, it has been a great year for our portfolio. I just want to say that I am incredibly grateful to Saul and having had the opportunity to learn so much about investing in the last couple of years. Especially Saul’s knowledge base has been and continues to be an extremely valuable resource. With all the noise and all the fear, greed and long list of psychological biases that we are exposed to on a daily basis, the knowledge base has been a true north star in this wild investing world. I really enjoy to periodically revisit its insights and teachings:
So let me end this investing year by saying THANK YOU to Saul and everyone here for all the valuable contributions.
I am wishing you all a great 2025!
Ben
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
April 2023: Ben’s Portfolio update end of April 2023
May 2023: Ben’s Portfolio update end of May 2023
June 2023: Ben’s Portfolio update end of June 2023
July 2023: Ben’s Portfolio update end of July 2023
August 2023: Ben’s Portfolio update end of August 2023
September 2023: Ben’s Portfolio update end of September 2023
October 2023: Ben’s Portfolio update end of October 2023
November 2023: Ben’s Portfolio update end of November 2023
December 2023: Ben’s Portfolio update end of December 2023
January 2024: Ben’s Portfolio update end of January 2024
February 2024: Ben’s Portfolio update end of February 2024
March 2024: Ben’s Portfolio update end of March 2024
April 2024: Ben’s Portfolio update end of April 2024
May 2024: Ben’s Portfolio update end of May 2024
June 2024: Ben’s Portfolio update end of June 2024
July 2024: Ben’s Portfolio update end of July 2024
August 2024: Ben’s Portfolio update end of August 2024
September 2024: Ben’s Portfolio update end of September 2024
October 2024: Ben’s Portfolio update end of October 2024
November 2024: Ben’s Portfolio update end of November 2024