Your slow down gets us to more than $1.1 billion in revenue 2 years from now. At a PS of 20 that would give us a $22 billion company vs $11 billion today, so roughly a double in 2 years.
Do you really think TTD and MDB can do better?
Yes, I do.
If so maybe I need to see your math.
As luck would have it, I am a numbers guy, so let’s take a look:
I agree with your math, and we’re looking at $1.1 billion in revenue 2 years from now.
I will make the assumption that their gross margin percentage stays about the same as it has been over the past twelve months, 69%, so that would mean that they keep $770 million of GM dollars in year 2.
Now before I even get into comparisons to the other companies, I should reiterate that this would be very good performance and shareholders will probably beat the market averages holding CRWD with this type of growth.
Over the past 12 months (last four quarters reported, 10/1/18 to 9/30/19) TTD had $605 million of revenue and grew at 44% compared to the previous 12 months (10/1/17 to 9/30/18)
If I assume that they will grow at 38% and 32% over the next two years, that puts them at $837 million revenue during the next 12 months, and $1.1 billion in year 2.
Because TTD receives a fixed percentage fee from their customers, they record revenues net (e.g. only count their commissions, not the gross amount they collect from customers (which is much higher, probably a multiple of 3x or 4x, than their reported revenue). So their gross “reported” revenue is also the same as their gross margin. There are no cost of sales to deduct since they are already netted out of their revenues.
So in year 2 TTD will keep $1.1 billion of margin compared to $770 million for CRWD, about 43% higher.
and TTD is valued today at only $10.8 billion, so their shares will cost you less than the $11.5 billion market cap for CRWD, which will probably be closer to $12 billion tomorrow if today’s after-hours action holds.
And that doesn’t factor in any spike in TTD’s business in 2020 due to the election year which should be a boost to advertising sales. and TTD is already profitable today, which CRWD is not. and TTD generated more than $88 million in operating cash flows in the first nine months of this year compared to $33 million for CRWD.
The counterpoint, of course is that two years from now I am showing CRWD still growing at 55% compared to only 32% for TTD (granted I think that is pretty conservative for TTD), so yes, CRWD should have a higher multiple two years from now assuming their opex or dilution don’t get out of hand.
So given that you would pay less for TTD today, and I believe they will be making significantly more money than CRWD two (and three) years from now, I would put more of my eggs in TTD. If CRWD keeps their growth in the 70%+ range for the next couple of years then CRWD probably looks as good, if not better, from here (again, I think it’s possible and I own CRWD because I am hoping they do), but I think the risk to get there is a lot higher with CRWD.
MDB doesn’t report the 10/31 quarter until next week, so since we already have that quarter for CRWD, to keep it apples to apples, for now I am going to pencil in the top end of the guidance that MDB gave three months ago, $100m, although they are likely to beat this, but let’s just use the $100 million to be conservative. With this, the past 12 months through 10/31/19, MDB would have $605 million of revenue and would have grown at 73% compared to the previous 12 months (ending 10/31/18)
If I assume that their growth will decelerate to 65% and 55% over the next two years, that puts them at $957 million revenue in year 2. Assuming their margin stays at 69%, that would be $665 million GM dollars they keep in year 2.
So in year 2 MDB will keep $665 million of margin compared to $770 million for CRWD.
But MDB is only valued at $7.4 billion today, compared to $12 billion for CRWD, and these projections put both MDB and CRWD at 55% in year 2 so the multiples shouldn’t vary too greatly 24 months from now.
I would rather pay $7.4b for $665m of GM in two years than $12b for $770 million two years from now.
So that’s how I look at it. I acknowledge that there are lot of other ways to compare them and some of the assumptions I have made above could turn out to be way off, but this is what my calculations anticipate today. My gut also tells me that where TTD is positioned, with the elections next year and connected TV becoming more and more mainstream, and where MDB is positioned, with more and more of the world’s databases moving to NOSQL, gives them really high likelihood of continued success and growth over the next five years and beyond. Crowdstrike may do even better, but I just can’t visualize their business quite as clearly as I feel I can TTD and MDB which also causes me to hold back a little on CRWD.
It’s a good thing we’ve had this discussion on CRWD today. Who would have guessed that OKTA and ZM both reported today and not a single post on this board on either of them?