Crammarc’s August Portfolio Review

This is my first review. I have been following this board for several years and investing for many years prior. This board has a fantastic concentration of excellent investing insights, thank you! I tend to maneuver slower than many on this board, in and out quickly is only something I do in exceptional cases (i.e. Upsart’s inexplicable drop into the 80s in the days following their blowout Q1).

19.1% UPST
19.1% CRWD
15.4% DDOG
15.8% SNOW
6.1% NET
3.6% LSPD
3.0% ZM
1.2% ZI
15.9% EXAS

YTD returns
Jan +6.6%
Feb +12.8%
Mar +4.3%
Apr +5.5%
May +10.0%
Jun +17.5%
Jul +19.2%
Aug +41.6%

Upstart (UPST):
Obviously one of the favorites on this board. The positives are numerous and substantial. I did trim it back on the most recent run up (a couple % at $180 and $200) as I was not comfortable with it being more than 25% of my portfolio. The upsides have been covered thoroughly and I concur whole-heartedly (see my allocation). I therefore present the following thoughts as things I am keeping a watch for and things that I am ruminating on as I learn more about Upstart and their business.

Thought #1: Upstart has a chance in the future to deliver a quarterly revenue number significantly less than its previous quarter. This would seem inconceivable for CRWD/DDOG/SNOW/NET. There is steadiness, safety, and comfort in high Net Revenue Retention. From what I have seen unpleasant revenue surprises in companies with high NRR are slowing growth increases not decreasing revenue. Case in point would be the impact of Covid had on these two companies UPST vs DDOG. Both were impacted negatively by Covid but UPST revenue dropped -73% QoQ while DDOG decelerated to +7% QoQ.

Upstart: 20 | 33 | 49 | 63 | 64 || 17 covid || 65 | 87 | 121 | 194
Datadog: 83 | 96 | 114 | 131 || 140 covid || 154 | 178 | 199 | 234

I know it’s not a perfect comparison and Covid is an outlier event but it is possible that UPST is more susceptible to external macro events. I do not have a good feel for what (if anything) changes for UPST if things like inflation and/or interest rates go up or down significantly. Always, more for me to learn!

Thought #2: UPST came in and dominated personal lending where their individual risk model is proving to be significantly superior to the old risk scoring. Will Auto lending be the same way? A part of me is reminded of 1 hit wonder drug companies. It is incredibly hard to get 1 successful drug to market but there are companies that do it (lots fail too but we don’t see them as easily). Many of those companies use their same frameworks to develop additional drugs and often fail to strike gold a second time. Did Upstart develop the secret sauce to improve all lending or just personal loans? I think they will continue to have success and lending isn’t drug development, but its not a given that they dominate auto as fast as they did personal loans. If UPST continues to execute and confirms their superiority in a second lending field I expect to make UPST my largest holding.

Crowdstrike (CRWD):
This company is growing 70% year over year, 74% gross margins, dollar based retention rate >120%, subscription based model. Basically, this is the dream company I envision after reading the Knowledgebase. These numbers all compound off each other and Crowdstrike has it all. Seems like a sure bet to hit 70% YoY revenue growth when it reports this week. My prediction would be 345 million in revenue. UPDATE: revenue was 338 which is OK, guidance appears OK. A steady quarter my intial thoughts are to hold, but I will mull over the numbers as it looks like growth will be slowing into the 60s soon.

Datadog (DDOG):
Last year after COVID impacted this stock there was great discussion here about the revenue recovery for Datadog and how its consumption based model made the QoQ numbers a useful indicator. Since then I have been more closely watching QoQ numbers for consumption based models.

Last 8 QoQ rev growth: 15.3% | 18.5% | 15.5% | 6.7% | 10.5% | 14.7% | 11.8% | 17.6%
Last 8 QoQ revenue additions: 12.7 | 17.7 | 17.6 | 8.8 | 14.7 | 22.8 | 21 | 35!

Covid mildly reset the base that DDOG was growing off of. Last quarter DDOG had 35 million more in revenue than the previous quarter and that was EXACTLY what I was hoping to see. In fact DDOG added almost as much new revenue in the past quarter as SNOW did (43 mil), I am thus considering reducing SNOW to increase DDOG.

Snowflake (SNOW):
Another consumption based model.

Last 4 QoQ rev growth: 19.82% | 19.36% | 20.16% | 18.92%
Last 4 QoQ rev additions: 26.4 | 30.9 | 38.4 | 43.3

I quibble with the sentiment that this company is priced for perfection. Maybe it was priced for perfection about a year ago when everyone was still digesting the S1: 121% growth and 158% revenue retention number and the nosebleed “valuation”. Every quarter that this company continues to post these amazing numbers (most recently 104% YoY revenue Growth, 19% QoQ revenue growth, 169% NRR) the valuation concerns for me decrease rapidly. Now with the stock price settling ~$300 roughly in the middle of the $240 to $380 to $200 swings in the past year.

A thought exercise: I am thinking back about a year ago when shortly after the IPO SNOW shot way past $300 a share (note its revenue now is around double what it was then, growing 100% is magical!). I remember wondering if I had missed the train for this company. How much was I going to have to pay to own shares in this company? Back then I did feel like it was “Priced for perfection” and I imagine that sentiment was shared by many on this board. However, a year later the price is back around $300 and the ideas of extremely high valuation and priced for perfection remain. I argue that those lenses may be outdated. If Snow were to have gone public today (at $300) with all of its other current numbers how would I think about it? Personally, I would be eagerly building a sizeable position. This is just my take, note I had a somewhat different conception of Zoom and continue to hold some while many others have moved on with likely much more success than my wallowing Zoom shares.

The RPO numbers are an unknown to me I don’t know what to make of it and I guess that uncertainty is a small negative. However, it is also unknown how much revenue will come from the new Fortune 100/500 companies that they have been adding the past few quarters. In my head this is a wash right now, I may be incorrect. When my thinking diverges from others on this site, I dig deeper and re-assess, in this case I affirmed my decision to hold my shares after another 100%+ growth quarter despite the flagging of their RPO numbers by people here (thank you all for bringing that up, definitely worthwhile).

Cloudfare (NET)
Rock solid, super consistent revenue growth in low 50s. Always creating new modules, but so far it isn’t causing an acceleration. I reduced this position by 1/2 to add to DDOG (prior to earnings) because I saw more upside and faster growth there. I am patiently waiting for some acceleration before increasing this again.

Zoom (ZM):
Previously discussed extensively on this board with most members exiting as growth slowed and before we started lapping the incredible Covid quarters that ZM had. I cut ZM back substantially at that time as well, however I thought that ZM was paying a penalty for adding all the temporary small business and individuals in there <10 segment. I thought that the enterprise growth was going to be a sustained pull forward and acceleration of their business by years. I thought that as the <10 numbers churned and started to fall off (happening now) that the 130% revenue retention of ZMs >10 businesses would reemerge as the driving force. This does not appear to be the case, I expect to exit this position.

Zoom Info (ZI):
Good numbers, this company just happens to be the one I go to when I want to free up capital for another purchase.

Exact Sciences (EXAS):
This is a cancer diagnostic company and it is my last holdover from my drug and biotech investing days. It has had stretches of hypergrowth and has a type of recurring revenue through repeat testing. This company also competes in liquid biopsy with Gaurdant Health which is occasional discussed on this board. However, at this time, I don’t think it meets the growth criteria for this board. Maybe as doctors visits both for patients and sales reps return to pre-pandemic levels the growth will reaccelerate. Perhaps then it would make sense for me to lay out the case for EXAS to this board.

Hopefully, sharing these thoughts and reasonings was helpful to some. I have learned an incredible amount from the contributors to the board and hopefully I can return the favor someday.

Thank you,