CloudL November, 2021 Portfolio update

Sorry for the late monthly update. I was distracted and procrastinating. Doing consistent monthly updates is a huge commitment and it’s not easy to keep doing it every month, and every year especially during major sell off right now ! So thumbs up to Saul for years of updates.

I am still learning how to write a good monthly update so I’ll constantly adjust the format and reduce out of topic discussions.

I made lots of changes to my portfolio in November due to the fact that many companies reported disappointing earnings and my re-focusing on SaaS companies. I feel I ventured too far from SaaS focus. Currently, SaaS companies are the best investment choices as explained in Saul’s knowledge base. They have high profit margin, recurring revenue and little to no debt and no physical items to sell more and more every year. They have stable and predictable revenue growth. For example, just for fun. I plotted CRWD revenue growth rates on a spreadsheet and extrapolated their quarter revenue to be $377 and they reported $380. It’s pretty close. Some SaaS companies do have seasonality and are impossible to predict the next quarter revenue. Most SaaS companies are very predictable. So when they slow down, we have plenty of time to get out.

November ,2021 monthly result:
Portfolio: -8.76%
SP500 % -0.97%
WCLD % -10.82%

**2021 YTD result:** 
**Date	       Portfolio	SP500  	WCLD**
8/31/2021	19.99% 	         1.03% 	6.60% 
9/30/2021	14.91%    	-3.76%	-0.76%
10/29/2021	22.95% 	         2.99% 	7.82%
11/30/2021     12.18%            2.16%  -3.05%

(Note: 2021 YTD numbers are from Aug 13,2021 because I was out of growth stocks between March and August. Next year 2022, I’ll have a true YTD result. It’s important to keep invested and avoid selling out the market completely for the reasons of compound interest and continuous performance history)

Since November is the start of another big selloff in hyper growth stocks, I don’t expect my portfolio to outperform SP500 in the next little while because it’ll take time for my portfolio to recover to all time high again. I do expect I’ll outperform SP500 after it recovers from the sell off…
Finally, I am happy to say that I did not panic and sell out during November’s big sell off when I sold out early 2021. The difference: 1. I saved more cash. 2. I analyzed the companies more thoroughly and have stronger confidence.
I found it amusing to watch my stocks drop 5% to 10% in a day when there is nothing changed in the companies.

My conviction level:
I have two conviction levels: high or medium. I don’t have low conviction companies. If it’s low conviction, I don’t include it in my portfolio. I am wrong sometimes. That’s when I think a low conviction company is a medium/high conviction. I get out when I realize I made a mistake. Both high/medium convictions are high quality businesses. The difference is that a high conviction company offers potentially a higher return than a medium conviction company. As I mentioned, I allow companies with different growth rates in my portfolio ranging 40% to 100% growers or slow growers accelerating.

I tend to allocate more funds to high conviction companies but sometimes I allocate small percentages to high conviction companies due to many factors: 1. Out of cash and I don’t want to sell others. 2. High valuation. 3. Starter position

High conviction: MNDY, BILL
Medium conviction: NET, SPT, DOCN, MDB, DDOG, CFLT

November Changes:

When I bought back growth stocks in August, 2021, I wanted to buy in lump sum and didn’t want to wait too long. Many positions are not truly worth it.(e.g. non-SaaS, weak business model.) So I sold out many positions in November. Now, I am super appreciative of the predictability of the SaaS model. I’ll try to focus on SaaS companies now.

Sold out positions:

1.Why I sold out NUVEI.
The revenue growth has been declining for 2 quarters now. I also don’t like it has substantial revenue from gamblers. Now I have a reason to sell out. QoQ growth rate starts from the most recent: 3.20%, 18.88%, 29.36%,23.80%. As we can see, it slowed down 2 quarters in a row and the slowdown from 18.88% to 3.20% is most dramatic. While I believe the company will do well in the future, I have a better place to invest. It’s part of refocusing on SaaS.

2.Why I sold out Docebo:
Although its revenue has been accelerating in recent quarters, 17.97% to 5.86% QoQ is a big slowdown for a SaaS with no history of seasonality. Also, I noticed the customer growth rate has been declining steadily every quarter for 2 years excluding the few COVID quarters from 10.38% QoQ at the end of 2019 to 6.08% QoQ last quarter . Similarly, the average contract value per customer growth declined steadily from 8.33% QoQ at the end of 2019 to 4.54% QoQ last quarter. I accept some seasonality of up and down in growth but customer growth and ARPU growth are trending down every quarter. That’s not a good sign for long term growth. I also realized education is not a good place to invest for profit. Look at Coursera, Thinkific, they are going nowhere. For-profit education tends to have a short run of growth and then stagnate. Education should be non-profit. It just doesn’t provide consistent long term growth. It’s an investment for society, not individuals.

3.Why I sold out UPST:
I was one of the first to buy UPST early 2021. I had 20% allocation.I thought I was reckless. I bought it back later with 10% allocation. I thought the board’s high allocation to UPST was reckless too.(20% to 50%!) I am fine with UPST growing 30% to 50% QoQ but anywhere 10% to 20% QoQ is not worth it for me where I can get similar growth from SaaS companies. Credit contracted in 2020 so 2021 has a huge acceleration of growth for many lending related businesses. I don’t think we’ll see anywhere near 30% to 50% QoQ growth anytime soon except after another economic crisis but I can be wrong. Also note UPST has a big correction every 3 months where SaaS just once or twice per year. I also noticed people posted everything about UPST on the board. There’s over-analysis going on. Especially the reactions on the board after last earning was bizarre.I didn’t even read the few pages of complaining. That’s a sign of insecurity. I expected UPST to crash one day so I didn’t even blink for last quarter’s result. It’s part of refocusing on SaaS.

4. Why I sold out Global-E

I was tempted by the massive ecommerce market but Global-E is just starting out and in a massive market. I expect it to keep growing at high speed in spite of supply chain issues. I did not expect it to slow down like that: 3.2% from 24%. It’s part of refocusing on SaaS.

5.Why I sold out DLocal
I think most B2C payment processors are facing headwinds like Paypal and Nuvei.
Plus its Uruguay origin is just to exotic and there are issues with management. I was in for the fast revenue growth. It slowed down too much. I sold DLocal for similar reasons with Nuvei. It’s part of refocusing on SaaS.

6. Why I sold out Taskus
It was a value play to start with but I didn’t stick with my plan and sold and bought higher and ended making 0% after it crashed. Value play is not worth it. Too much hassle for one time gain. Holding high quality growth stocks for as long as possible is the way to go. It takes the least amount of effort for long term gain. Problems with Taskus: 1. Not SaaS. 2. Human resource intensive. To grow revenue 50% per year, they will have to hire 50% more people each year. It’s not much different than stores selling more and more physical products.It’s hard to keep scaling. It’s part of refocusing on SaaS.

New stocks in November:
Digital Ocean (DOCN)
MongoDB (MDB)
Confluent (CFLT)

Increased allocation:
Monday (MNDY): Increased from 6% to 20% (BILL): Increased slightly from 14% to 16%


Monday (MNDY):
November thought:
-Gross margin increased to 87.7% from 84.6% Dec 30, 2019.
-DBNR (10+ users) increased to 130% from the most recent three quarters of 125%, 121%, 119% respectively and from 116% on Dec 30, 2019.
-Revenue grew 17.5% QoQ. It’s within the historical average growth rate of 15% to 24%.
-Customers with 50k+ ARR increased 30.4% to 613. It’s maintaining the momentum from the past 2 years.
-For full year revenue, Monday raised the guidance to a range of $300 million to $301 million from total revenue of $280 million to $282 million of last quarter.

The earning report was excellent. There’s no reason for the stock to trade below a level in September, 2021 other than the combination of a self fulfilling prophecy of lockup expiration and the actual selling itself. Giving the increasing average daily trading volume, I expect the effect of lockup expiration should disappear in 1 to 2 months. Note MNDY stock is currently severely undervalued.

They are focused on growing the enterprise customer and expanding the existing customer base without neglecting small customers.

Roy said they have big plans next year to challenge the revenue growth. I am excited to see what they will do with the already fast growing revenue and enterprise customer count.

November thought:

? Q1 Core Revenue Increased 164% Year-Over-Year
? Q1 Organic Core Revenue Increased 78% Year-Over-Year
? Q1 Transaction Fees Increased 319% Year-Over-Year
? Q1 Organic Transaction Fees Increased 127% Year-Over-Year

Organic core revenue growth of 78% YoY is still impressive. Transaction fees continue to make up more of total revenue because it’s growing faster than SaaS revenue. Organic transaction fee has been growing at around 20% consistently QoQ before COVID and after COVID. It scales as customers scale. BILL doesn’t depend too much on customer number additions. The leverage comes from growth of its customer’s business.

The reason BILL acquired Divvy and Invoice2Go is it plans to become an all-in-one financial operations platform for SMBs. Those two acquisitions provide cross selling opportunities and increase the stickiness of the platform. Divvy stands out with stand-alone revenue growth of 187% YoY! Divvy Card spends increased 160% YoY! Note Divvy is free to use but it makes money from credit card transactions. It gets a cut from the merchant fee from banks and VISA.

Notable earning notes:
-We have developed a simplified version of our white label platform, which will be the default payment and invoicing solution for SMB customers of the top three U.S. banks.
-we are making great progress on building the all-in-one financial operations platform for SMBs of all sizes.
-The Invoice2go acquisition closed on September 1, and therefore, our reported fiscal first quarter results include one month of Invoice2go.
-Our strategy to enable Divvy to maintain their strong momentum in the near term, while at the same time, investing in product integration and cross-selling, is paying off as reflected by Divvy’s Q1 stand-alone revenue growth of 187% year-over-year.
-We continue to believe we are in the early innings of a global digital transformation that is disrupting the legacy methods of managing the financial back-office. These trends show no signs of slowing as small businesses are increasingly embracing the need to evolve from analog, paper-based processes to digital solutions that simplify and automate their operations.
-During the quarter, we also processed $1.5 billion in card spend from Divvy’s spending businesses, which is an increase of 160% from last year
-In addition, we experienced very strong card revenue growth from Divvy of 187% versus last year.
-Note that the majority of Invoice2go revenue is from subscription fees on a per month per user basis with minimal transaction fee revenue.
-The majority of revenue from our Divvy solution is transaction-based, with minimal subscription fee revenue.

Cloudflare (NET):
November thought:
I knew it was richly valued at $215 but I didn’t sell out. It’s tempting to sell out at what seems like an all time peak. Let’s say one sells at the peak perfectly and the stock declined 30%… If one sells out 15% position, it makes 4.5% difference to the whole portfolio.(30%X15%) If one sells half of the 15% position which is 7.5%, it makes a 2.25% difference to the whole portfolio.(30% x 7.5%). To make a difference, one has to sell a big portion of a position and time it perfectly. What if after selling, the stock doesn’t drop or even go up? One will miss the boat of a high quality business! I am okay with NET generating 50% per year return with likelihood of acceleration here and there. NET keeps expanding its TAM and its the ability to generate long term growth is attractive.

Sprout Social (SPT):
It’s growing at a steady 40% to 50%. Social media management is a boring but stable business. It piggybacks on the successes of social media such as Facebook, twitter and many others. Social media is a new norm and here’s to stay for a long time.
Sprout Social is quickly approaching profitability. It’s operating cash flow became less negative and went positive 2 quarters ago. I expect it to reach positive EPS in 1 to 2 years.

November thought:
It keeps the steady ~10% QoQ growth rate. That’s 45% to 50% per year growth.
Customers> $10k ARR is growing consistently at around 12% QoQ or 60% per year. Customers>$50k ARR is at 478 which is up 98% from last year. So there’s potential for revenue acceleration from large customers. I am fine to have some stable 50% growers in the portfolio.

Digital Ocean (DOCN):
New buy.
I did a writeup on why I bought it:…

Total customer base has a high churn rate so it doesn’t show the whole whole picture. The real growth comes from the small customers that grow bigger.

MongoDB (MDB)
New buy.
MongoDB is a general purpose enterprise grade database.
Its main revenue growth driver is: Atlas cloud
Data will keep growing so I think MongoDB can grow at high speed for a long time.

Datadog (DDOG)
New buy.
Datadog is a well known name on the board. No need for me to explain what it does.
After selling other positions, I need somewhere to park the cash and Datadog is a good choice.

Confluent (CFLT)
New buy.

Confluent vs MongoDB similarity

First of all, their products are different: MongoDB is a database where you store the data at rest. Confluent is a data stream where data is processed dynamically in real time. It’s Data In Motion.

The similarity lies in they are both based on an open source project. Both have naitive cloud hosting services based on the public cloud provider: AWS, Azure, Google cloud. And in each case, cloud revenue is the main revenue growth driver because cloud revenue is growing much faster than others.

As of last quarter: MongoDB Atlas revenue was 56% of total revenue.
As of last quarter: Confluent cloud revenue was at 26% of total revenue.
It seems to me Confluent is in an early stage of growth vs MongoDB (a few years) and can have years of growth ahead of it. If MongoDB stock did well, so will Confluent stock! It helps to compare similar business models of different companies.

Some will ask what about competitors for Confluent ? Well, there are many databases available. MongoDB is just one of them. MongoDB did well. Likewise, Confluent is one of the data stream products. I think the market is big enough for many players. I also read many times that Confluent(kafka) is one of the leaders in the data stream. Kafka is one of the top open source projects and Confluent employees are major contributors to the open source project.


just realized I forgot to include the allocations at the end of November.

Allocations as of November 30, 2021:

Ticker	Allocation	November price change
MNDY	20.19%	        -3.24%
BILL	17.50%	        -4.57%
NET	14.92%	        -3.33%
SPT	12.61%	        -12.53%
DOCN	9.96%	        3.30% 
MDB	8.77%	        -4.45%
DDOG	8.26%	        6.73% 
CFLT	7.74%	        14.82% 

Disclaimer: This portfolio update is not investment advice and you should do your own research.

I also share thoughts on hyper growth investing for those interested: