bulwnkl's EOY Portfolio Review

Hi Everyone,
Here’s my end of the year review. This has been my best investing year; my 2020 return was 178%.

Allocations

	Jun	Dec
CRWD	19.8	27.1
MELI	19.5	22.6
NET	0.0	20.8
Docu	0.0	16.3
ZM	4.8	9.3
DDOG	22.2	6.7
AYX	12.9	0.0
COUP	8.8	0.0
LVGO	8.9	0.0
OKTA	4.9	0.0
TCDA	2.8	0.0

I like to see the following boxes checked in the companies that I own:

1.Revenues trending up (though their can be seasonality or explainable lumps).
2.Non-GAAP earnings accelerating faster or losses decreasing faster than earnings.
3.Business has a defendable moat.
4.Business supported by long-term trends.
5.Glassdoor ratings indicate a decent business culture.
6.CEO’s comments match business results. #6 was chosen for obvious reasons. ;o)
7.Revenue is a small fraction of total addressable market.
8.A review the company website for general business understanding reinforces a solid business proposition.
9.News stories/press releases of the company and primary competitors indicates a solid, growing business.

Sales during the Last 6 Months:

Alteryx Alteryx sells data management software for business, and enables the people with lower skill levels or “the citizen scientist” to work with large quantities of data. I held Alteryx for 1.5 years, but after decelerating revenue growth, I sold it at a 288% profit. Clearly the pandemic had an effect on their business. I will keep an eye on it. If it returns to its former glory and builds a SaaS growing business, I might hop back in.

Coupa Software Coupa software sells procurement and expense management software. I held Coupa for about 5 months, but had buyer’s remorse after I reflected on all of the acquisitions. I don’t like serial acquirers, and COUP continues to make an acquisition about every other quarter. They couldn’t have timed their travel expense management tool acquisition at a worse time. I earned 57% over that time, so it worked out fine. I really like the network effect of identifying companies with payment issues, but revenue growth continues to drop, with the last four quarters delivering 49%, 47%, 34%, and 31%. Also, after a company reaches non-GAAP profitability, I like to see outsized gains in earnings compared to revenue growth, but the last 4 quarters of earnings were 0.21, 0.20,0.21, and 0.18 per share, which is underwhelming.

Livongo Livongo uses connected devices like blood sugar monitors, blood pressure cuffs, and scales to manage diabetes and other chronic conditions. They claim to help insurers save 10% on medical claims. Barring a technological breakthrough in diabetic care, I thought this technology would be unstoppable, but was proven wrong when Teledoc picked up Livongo for a 10% premium. That small premium indicated to me, that the total addressable market for Livongo wasn’t all that large, and their cost savings claim was probably exaggerated. Although my thesis was off base, I earned 137% in 16 weeks.

Okta I didn’t invest in OKTA initially, because I didn’t want to invest too much in the security sector. Going forward, I will stick with the best investing ideas win regardless of the sector. I held OKTA for 10 weeks, earned 36%, but deployed the money to a faster growing company.

Tricida This pharmaceutical developed a drug that appeared to be safe, improves the quality of life of chronic kidney disease patients, and failed FDA approval due to the small sample size of the phase 3 clinical trial (which begs the question, how did the phase 3 get approved in the first place). Based on the available information when I invested, I’d invest in that again. I lost 32% in 10 weeks. I hope the FDA gets its act together.

Fastly This company seems to have the fastest content delivery technology and is developing edge computing technology, but Cloudflare has better security and is growing much faster than Fastly, so I redeployed this money with them. I ended up with a 3% loss while holding for about 3 months.

Current Holdings

Crowdstrike This is my largest holding at 27.1% mostly because it grew to that point. I have held it for a little over a year, and got a 330% return on it. With PS at 65, Crowdstrike is super expensive. My guess is that it is worth it due to the Solar Wind hacking incident, which should provide further acceleration in earnings. I’m not an IT guy, so it’s best to listen to someone like Muji on this. 88% revenue growth, 81% growth in subscribers (YOY) is hard to beat.

Mercadolibre These guys have returned 669% over 3.7 years while dealing with difficult economies and currency headwinds. I think more growth is on the way. If you’re interested, take a look at my deep dive:

https://discussion.fool.com/meli-deep-dive-34666784.aspx

Cloudflare This is a play on content delivery, internet security, and edge computing that should grow with 5G networks. Revenue is growing at 54%, losses dropped from 0.16/share to .02/share, free cash flow has gone from -45% of revenue to -16%. The business is scaling well and they expect their total addressable market to $47.1B by 2022. If you annualize this quarter, then Cloudflare has about a 10% market penetration. It looks like there’s a long way for them to go.

Docusign Docusign provides electronic signatures and contract analysis tools. I like that the pandemic accelerated adoption, but I don’t see people who use it going back to paper. I think that contract management will be a strong growth driver in the future. Revenue growth accelerated to 54%, margins stable at 74%. Positive free cash flow of $38M. I think business should boom as our economy drags its self out the recession.

Datadog is in the doghouse with me. Their revenue has gone from 87% to 68% to 61%, and I am concerned. I have trimmed this business, but intend to hold for two or three quarters to see if business strengthens as we come out of the pandemic.

Zoom Video I was excited when Zoom had it’s IPO. I planned to buy it that day, but I felt it was just too expensive. Huge mistake on my part, and that’s why I held off for a long, long time as it rose spectacularly. I still expect it to grow, albeit much more slowly than this year, and continue to be an integral part of business, but I don’t think that it can support its current valuations, so I am planning to sell.

Stocks Under Investigation:

Lemonade: I really like their artificial intelligence system, their ability to make customers and the company partners, their low costs, and their rapid adoption of young customers (over 1,000,000).

Snowflake: I like their ability to mix and match cloud network providers. I wonder if this will lead to commoditization of cloud networks, and great savings for their customers.

TheTradeDesk: As online viewing grows and the economy returns to some semblance of normal, I will take a hard look at this.

Finally, I agree with Saul. I hope those of us that have had a great year will be generous with food banks or other charities that serve those in need.

Best Wishes for 2021.

bulwnkl

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I held OKTA for 10 weeks, earned 36%, but deployed the money to a faster growing company.

Hi bulwnkl!

Thanks for the post. Your description of each of your holdings crystalized in my mind my reasons for holding pretty much many of the same positions. But if any comment summarized how crazy 2020 was it was your quote that I highlighted. 36% in ten weeks? Sure wasn’t good enough for us Saul devotees!

NRZ

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