Crammarc January 2022 Portfolio Update

January allocations

UPST	42.9%
DDOG	21.3%
MNDY  18.7%
CRWD	10.8%
NET 	6.3%
ZI	0%

Jan 2022 Return -25.5%

Past 13 Month Returns

1/2/2021	1
2/1/2021	7.5%
3/1/2021	14.6%
4/1/2021	4.6%
5/3/2021	8.9%
6/2/2021	15.7%
7/1/2021	24.5%
8/1/2021	26.7%
9/1/2021	54.9%
10/1/2021	55.7%
11/1/2021	82.2%
12/2/2021	43.1%
1/1/2022	38.8%
1/31/2022	3.4%

Due to time constraints (I blame the children) I haven’t posted a monthly summary since August.

January Update

As every growth stock I owned lurched down on most days in January I kept checking Investor Relations for each company only to find very little news. Without much actionable news like quarterly reports and press releases I usually try not to make moves based on macro news (i.e. interest rates/omicron) and price movement. However, when I saw UPST drop all the way under $80 I decided to sell my 3-5% positions each in SNOW and ZI and buy more UPST. I love all three companies, but I just can’t believe there is as much downside risk left for UPST at that price and there is a much higher upside. Now that UPST price has rebounded off that low I may need to trim it as the percentage of the portfolio in UPST has already ballooned to over 40% (my original intent was to hold at least through Feb 15th earnings).

Upstart (UPST) (apologies for adding more thoughts to this worn out topic, but I hold it as an outsized top holding and it consumes an outsized amount of my investment thinking)

Currently the last big data point from their management team, that I am acting on, is the guidance to topline revenue for Q4 of $265mill which factoring in a modest beat of ~5% will take you to ~$280mil. That is 23% QoQ growth! I do not know what next year will hold but I don’t have any indication that it won’t continue to be great. The next earnings call and forecast will be pivotal. I’ve done more digging on this company than any other I hold and I have not been able to find any information that I feel can reliably give insight to predict next years revenue. The range of outcomes for this upcoming year is massive and the data doesn’t tell me if they are likely to have revenue of 1.1Bil or 1.4Bil or are they going to double again and do 1.6Bil+. If they keep growing at 20% QoQ for another year then they will do ~1.8Bil. This lack of clarity and predictability adds significant uncertainty and has caused many on this board to cut their UPST (understandably) for much more predictable companies that are also growing rapidly.

However, it appears that Upstart is already priced like a company that is done with hypergrowth. I am not confident that I can predict what kind of revenue growth they will have next year. But I do think it is very likely that a company growing this fast in the past will continue to grow significantly going forward without any indicators directly contradicting that.

	20Q4	21Q1	21Q2	21Q3	21Q4
Revenue	87	121	194	228	281
YoY%	38.1%	89.1%	1041.2%	250.8%	223.0%
QoQ%	33.8%	39.1%	60.3%	17.5%	23.2%

To me the story hasn’t changed for upstart. The story of Upstart growing 30% or more every quarter is gone but that isn’t why I invested in this company. I see a company that is growing triple digits and dominating personal unsecured lending and rapidly expanding into broader lending with top tier tools and management.

Some other Upstart thoughts that don’t weigh much on my investing decision: There are other secondary indicators or measurements for Upstarts that will change as Upstart evolves. For instance, as Upstart swims up the ladder to more prime borrowers this may increase average loan size while decreasing take rate. As Upstart moves to secured lending it might be the case again that it drags average loan size up and take rate down. As Upstart moves to micro loans maybe the loan volume jumps up while lowering average size. Upstart may even be adding new velocity to personal loans by dramatically streamlining the process for qualified borrowers. I imagine it could be like the evolution to single click online purchasing. Remove enough steps/barriers and the market naturally expands.

Datadog (DDOG)
Very consistent grower. One covid blip quarter caused the share price to be depressed for 3 quarters until DDOG lapped it. However, as was discussed on this board one could see past this using QoQ numbers which were argued to better represent DDOGs usage-based model. This thesis played out perfectly and provided me with ample time to build my position as the market lagged recognizing the superior growth of DDOG. Now DDOGs price commands a deserved premium including dropping far less than many of our other companies during the recent drop. Below are the revenue numbers, the QoQ percent, and also the QoQ revenue additions which help me visualize just how overwhelming the cumulative growth at these rates can be.

Revenue	131.2	140	154.7	177.5	198.5	233.5	270.5	314
YoY	87.2%	68.3%	61.3%	56.3%	51.3%	66.8%	74.9%	76.9%
QoQ 	15.5%	6.7%	10.5%	14.7%	11.8%	17.6%	15.8%	16.1%
Yearly ext	78.0%	29.6%	49.1%	73.3%	56.4%	91.5%	80.1%	81.6%
New rev	17.6	8.8	14.7	22.8	21	35	37	43.5

As one can see the YoY revenue growth is accelerating. The Row “Yearly ext” is just an extrapolation of that quarters QoQ growth applied for 4 quarter. This informs me that I can expect the YoY growth rates to go over 80% if the quarterly growth continue at 16%. Hard to ask for more! (MNDY)
Some of the biggest growth numbers around with 94% and 95% YoY delivered for the past 2 quarters. I do not know how long they can sustain this but even a couple more quarters at 90% + YoY and 20+% QoQ growth and their revenue will double in the blink of an eye. Possibly due to the competitiveness in the area the market doesn’t appear to agree that this is one of the best fastest growing companies out there (yet).

CrowdStrike (CRWD)
Very solid grower with a long track record. A long track record of high growth slowly and steadily slowing, the reason many have sold out. For me I think that their growth is/will stabilize in the mid/low 60% YoY given their dominant cloud IT position, their additions of new product lines for zero trust, their approvals for FedRamp and with government move to cloud. I doubt that there will be significant re-acceleration but I see a significant runway to maintain 60% YoY growth. That is why I maintain my position. They also appear to be maintaining their pricing power while Sentinel One is using price cuts to build customers and revenue (not a bad method if you have a very sticky product). I imagine that if CRWD did feel the need to juice revenue they could (maybe will/should) start to compete more on price to get companies in the door. Just saying that this is a tool that they still have at their disposal to bring out while Sentinel One already has it out.

	Q4 21	Q1	Q2	Q3	Q4 est
Revenue	264.9	302.8	337.7	380	429
YoY	74.2%	70.0%	69.7%	63.4%	61.9%
QoQ	13.9%	14.3%	11.5%	12.5%	12.9%
YoY ext	68.5%	70.7%	54.7%	60.3%	62.4%
Add.rev	32.4	37.9	34.9	42.3	49

Looking ahead for Q4 and adding a 4% beat of the top end of their Q4 guide (412mil x 1.04 = 429mil) their YoY revenue growth drops to 62% but their QoQ growth is moving up to ~13% which would keep them above 60% going forward. Also the amount of new revenue that they are adding is solidly going up which is another trend that points to sustained 60%+ YoY growth. Consistent 60% growth, large market, recurring revenue its exactly what I want to see to keep my money in CRWD.

Cloudfare (NET)
Very solid grower in the low 50%, always feels like it has the potential to accelerate. Very generative company with many new products, tackling a giant market that is also expanding. Appears to have one of the longest runway’s available in their quest to become the 4th major cloud option.

ZoomInfo (ZI)
Sold to buy more UPST when it dropped below 80. I just see more potential for UPST to 2x/3x from where it is. Still love the company.
Broadly thinking, ZI appears to be a critical tool for any company that wants to hyper grow revenue B2B. From what I can see all Business-to-Business SaaS companies that want to maximize revenue growth have a need for exactly the service ZI supplies. As the broader investing world eventually realizes the power of SaaS and hypergrowth I think the value of ZI will become more obvious as well.

Snowflake (SNOW)
Sold to buy more UPST when it dropped below 80. I just see more potential for UPST to 2x/3x from where it is. Still love the company.

Other thoughts
Despite having been through sharp declines before that had real reasons behind them (.com, 2008, Covid) I still feel anxiety when my entire portfolio drops 8% in a day. But this 40% decline in the past few months is in some ways silly. Of my companies the worst directly related news was UPSTs “disappointing” Q3 where they grew 250% YoY and 17.5% QoQ while guiding to a likely acceleration to +20% QoQ in Q4. Or the worst news for CRWD is that S is growing at a faster rate off a smaller base. These companies are all receiving more and more money from their customers every quarter. Every quarter these companies bring in more money. So, if the market rotates or reprices categories of companies lower for arbitrary or transient reasons I am content to hold superb fast growing companies and wait for the inevitable results.

Thanks to all the contributors to this board and a big thanks to the moderators for cleaning up the clutter and working to keep this board focused.