ExponentialDave's July Portfolio Update

Hey Saul’s board, this will be a somewhat abbreviated update since many of my stocks have not reported yet. For (slightly) prettier formatting as well as some OT commentary on options and market timing, feel free to check out the post on my newish blog, https://exponentialdave.com/2021/08/03/july-2021-portfolio-a…

My portfolio is up 299% as of 7/30/2021 from when I started tracking my results in January of 2020. This means that, $100 invested in the ExponentialDave portfolio on January 1, 2020 would now be worth $399, almost a quadruple. Meanwhile my benchmark, WCLD, is “only” up 120% since January of 2020, and the S&P 500 is only up 36%. For the year 2021 through 7/30/2021, my portfolio is up 23%, meanwhile WCLD is up 9%, and the S&P 500 is up 17%.

Monthly YTD performance at the end of each month
Jan 2021: 6.5%
Feb 2021: 4.2%
Mar 2021: -9.8%
Apr 2021: -0.9%
May 2021: 3.0%
June 2021: 20%
July 2021: 23%

My old portfolio updates are here:

Current Allocation vs Allocation as of Last Portfolio Update on 6/17/2021. * indicates position includes options.

Symbol Now vs Last Update
CRWD* 20%, 21%
DDOG* 10%, 13%
UPST* 9%, 7%
SNOW* 9%, 8%
NET 9%, 12%
DOCU 8%, 5%
ZS 7%, 7%
FVRR* 6%, 4%
SHOP 6%, 6%
LSPD* 5%, 3%
TWLO 5%, 4%
ROKU 5%, 4%
NARI 2%, 3%
AFRM 0%, 2%
ASAN 0%, 3%
GAN 0%, 0%

Honorable mention goes to GAN, which I bought after my June monthly report and sold before my July monthly report. I provide details later in this report on why I sold it as well as why I sold Affirm. I also have a few comments at the end of this report on my watch list company, Zoom Info.

YoY revenue growth rates of my companies:
NARI 113%
SNOW 110%
FVRR 101%
UPST 89%
ROKU 79%
CRWD 70%
DOCU 58%
ZS 58%
SHOP 57%
TWLO 55%
NET 52%
DDOG 51%
LSPD 42%

YTD performance of the stocks through 7/30/2021 (regardless of when I bought them)
UPST 196%
NET 56%
DOCU 34%
FVRR 33%
SHOP 33%
ROKU 29%
LSPD 28%
CRWD 20%
ZS 18%
DDOG 13%
TWLO 10%
SNOW -6%

There are some interesting observations going on regarding growth rates versus stock performance. After Upstart, my best performing stock this year has been NET, which is up 56% YTD. This is despite its below average revenue growth. Meanwhile, two of the three highest performing revenue growers (SNOW and NARI), are among my worst performing stocks. Regarding Snowflake, this is because 7 months time is still rather short term, which means valuation has been able to play a big part in determining its stock price direction. Over the longer term, my expectation is that strong revenue growth will be the dominant factor on Snowflake’s stock price, either causing price appreciation or multiple compression. Of course we’d rather have price appreciation, but multiple compression would just delay eventual price appreciation, assuming growth rates stay in the same ball park.

Regarding Inari, perhaps its lacking performance is because the market is expecting a steep drop off in revenues soon. If this proves false, there could be substantial upside in Inari. It is a small position for me, so I am not overly concerned about it, or I may sell Inari to add more Upstart shares ahead of another possible blockbuster earnings report.

Shopify posted a good quarter on the whole, but uninformed Shopify commentators were probably upset about the headline growth numbers going from 110% YoY last quarter to 57% YoY this quarter. The company was pretty obviously headed for a return to normal this quarter, since its last 3 reported quarters were considered “normal” or “strong side of normal” rather than “gangbusters”. Q2 of 2020 was its only huge “covid quarter” (which was in every sense of the word a gangbusters quarter), which is now no longer within the past year’s results.

Non-GAAP net income was a bright spot, rising 12% sequentially and 121% YoY to $284.6mm. Although I prefer investing in companies with faster growth and lower profits, Shopify is simply past that part of its business life cycle where it can spend more money to earn higher revenues. I’m ok with this of course, so long as revenue growth stays healthy. Also worth mentioning, with quarterly profits growing like this, it seems highly likely that the next twelve months of non-GAAP net income will be over a billion dollars. This should mean a smaller need in the future to raise capital by diluting shares.

Subscription solutions growth was slow, coming in at 4% QoQ growth. On a YoY basis, it still looks quite healthy though, coming in at 71% YoY. The last 3 quarters, starting at Q3 2020, came in at 25% QoQ, 14% QoQ in Q4 2020, and 15% QoQ in Q1 2021. So 4% is clearly quite low for Shopify, and based on 2018 and 2019 subscription solutions growth numbers, I would expect this number to normalize a bit in coming quarters to maybe 6% or 7%.

Although subscription solutions growth is important for Shopify, the real exponential growth comes from merchant solutions revenue. A few years ago, merchant solutions growth accounted for about half of Shopify’s revenues. Now it accounts for 70%. It most recently grew at 18% QoQ!

GMV growth came in at 41% YoY. There has been some commentary that this might be what growth ‘really’ looks like once covid related growth goes away. I don’t think this tells the whole picture though. Quick reminder that GMV is gross merchandise volume, or basically the sum of all things sold on Shopify. The thing is, with each passing quarter, Shopify is becoming more than just a place where people sell stuff. It is also lending money through Shopify Capital, it has 7000 apps in its developer ecosystem (and developers who make over a million dollars on these apps pay Shopify 15% of their revenues), it does payment processing through Shop Pay (which still only has a 48% penetration rate of GMV), it has a fulfillment network, etc. My point is that there is a lot of optionality here beyond just selling stuff, so leaning too heavily on GMV would be a mistake.

Other important metrics which demonstrate the health of Shopify’s business include operating leverage dipping down to 35% (down from 37% last quarter, 39% last year, and 53% in 2019!) as well as non-GAAP gross margin coming in at 56%. 56% is very much in line with what this number is historically. This is in stark comparison to its smaller competitor, Lightspeed, which has seen margins dropping nearly every quarter.

QoQ Revenue Growth (most recent last): -7%, 52%, 7%, 27%, 1%, 13%
YoY Revenue Growth: 47%, 98%, 97%, 93%, 110%, 57%

Twilio posted revenues on the strong side of normal. QoQ organic growth came in at 55% YoY or 14% QoQ. If you look only at organic quarter over quarter revenue growth numbers, this quarter was Twilio’s best since Q2 of 2019.

DBNER, a very important metric both for TWLO as well as pretty much all stocks I own, came in at a healthy 135%.

The weak point from the report was sequential customer adds, coming in at 2% QoQ. Making matters somewhat worse, that 2% includes customer adds from Twilio’s acquisition of Segment. I think that, given Twilio’s over all success in adding customers, this is something minor worth watching in the future but not worth judging Twilio incredibly harshly for in the present.

Non-GAAP gross margins came in slightly lower than normal at 54%. In the last 5 quarters starting at Q2 2020, margins have been: 56%, 55%, 56%, 55%, 54%. I consider this sort of drop to be non-problematic, so long as it doesn’t happen repeatedly every quarter.

Guidance is weak, which is very normal for Twilio. They are guiding for 1.7% sequential growth, which is pretty much what they’ve guided for the past 6 quarters. Each time they have of course had large revenue beats.

It’s worth mentioning that, on a GAAP basis, the company is increasingly unprofitable, with losses that grew from about $100mm for Q2 2020 to $228mm in Q2 of 2021. The thing is, most of that loss comes from stock based compensation, which should not be viewed as a key element of Twilio’s business. The company does not provide non GAAP net income/loss, but it does provide non GAAP income from operations, which came in at $4mm and non-GAAP gross profit, which came in at $360mm.

QoQ Organic Rev Growth (most recent last): 10%, 10%, 12%, 12%, 9%, 14%
YoY Organic Rev Growth: 57%, 46%, 52%, 52%, 49%, 55%


I will have more to say about Lightspeed in my next update after Lightspeed’s earnings come out later this week, but it’s worth mentioning that Shopify’s earnings report provided some possible insights into what we can expect from Lightspeed. In particular these quotes:

“Retail point of sale GMV is nearly back to pre-COVID levels as a percentage of overall GMV”

“More locations adopted point of sale Pro in our second quarter for its modern omnichannel features like buy online, pickup in store, which was adopted by 63% of brick and mortar merchants in English speaking geographies at the end of June. This is up from just 2% in February last year.”

^^This is precisely the stuff that Shopify and Lightpseed compete on head to head. Since Shopify is doing well in this regard, I also expect that Lightspeed is doing well. If Lightspeed is not doing well, we will need to read particularly carefully to figure out why and act accordingly.

Selling Affirm
Plain and simple, they have an opaque agreement with Shopify that they squirrel away into sales and marketing expenses. You would expect Shopify to pay Affirm for each BNPL transaction Affirm facilitates. But actually, Affirm has agreed to pay Shopify for each transaction. We don’t know how much though. Because of the opaqueness, we can’t really know for sure, but it clearly sounds like Shopify is getting a great deal at Affirm’s expense.

When I heard that Affirm had an exclusive agreement with Shopify, I jumped at the chance to buy the shares. I assumed it would be a huge catalyst, but I didn’t know the details of the deal and just how bad it is for Affirm. Knowing what I know now, I don’t think Affirm is worth holding at this point.

I bought it for a couple reasons, namely:
–A substantial part of the business is SAAS based (about half), yet the stock is not valued like a SAAS company, with TTM P/S hovering around 9
–Made a solid acquisition of CoolBet, which is now accounting for about half their revenues (this is what I consider the non-SAAS part of the business). They call it their B2C segment. As per Q1 2021, CoolBet’s revenues grew 70% YoY.
–I played a lot of Texas Hold’em in my day and therefore easily take an interest in businesses in the gambling industry (yes, I do believe it’s important to be truly interested in the companies you invest in)

Why I sold GAN:
–Weak annual guidance AND a history of missing annual guidance
–Possible reliance on more “big bang” events like adding new states (such as Michigan earlier this year) for revenues to keep growing at high rates. Furthermore, GAN would then have to win clients in said new states.
–They brag about how they have the “burstable bandwidth” regarding engineering talent to bring new clients online quickly and stay compliant with different states’ laws. Although there is probably truth in that, this is quite apparently implying they are creating customized software implementations for each client. This is time consuming, expensive, and doesn’t scale well. It’s the opposite of what a company like Crowdstrike does, which creates new modules that any client can just “flip on” like a switch.
–In their most recent report, there’s no mention of DBNER or anything of a similar nature. You could look at the growth of gross operator revenues, but that doesn’t make the distinction between cohorts necessary to compute if last year’s clients are on average spending more this year or not.

So at a high level, we can’t be that confident they will even hit their weak yearly guidance, half their business is non-SAAS, they might become dependent on the chance that progressively bigger states will legalize online gambling (and that potential clients within said states will choose GAN), their products may become too customized to scale nicely, and we don’t know if existing clients spend progressively more and more each year.

Watch List: Doximity, Zoom Info

A few quick notes about my watch list company, Zoom Info. Probably the biggest reason I have stayed out thus far is because the revenue growth rate is rather average for companies in my portfolio, but what is considerably below average is the DBNER, which they report as being 108%. This makes them extra susceptible to the law of large numbers – they have to work a lot harder than say, Twilio, to acquire new customers. Otherwise revenue growth will drop off. Also, some people are getting excited about what they see as revenue growth acceleration from 50% YoY growth in Q1 2021 to the current rate, 57% YoY growth in Q2 2021. A minor problem with that is that it was inorganic growth. Organic revenue growth in Q2 2021 was 54%, not 57%. This is still technically an acceleration, albeit a smaller one, and it’s a little less than what growth rates were in Q4 2020. Additionally, the presence of acquisitions can also make next quarter’s guidance appear stronger than it really is. Although I am highlighting what I see as negatives here, the company for sure has a lot going for it, so it is definitely something I am considering adding to my portfolio.

As always, thanks for reading this far!


The company does not provide non GAAP net income/loss, but it does provide non GAAP income from operations, which came in at $4mm and non-GAAP gross profit, which came in at $360mm.

Hi Dave -

Good write up. Unless I’m missing something, TWLO does report non-GAAP Net Income. I pulled it from the bottom of the release: https://investors.twilio.com/news/news-details/2021/Twilio-A….

The trend for Op and Net, including next Q’s -$25M guide (everyone will have to live with MF’s crappy formatting):

non-GAAP Operating Income (20%+ long term)							% Revenues							% QoQ					
	Q1	Q2	Q3	Q4	YR			Q1	Q2	Q3	Q4	YR			Q1	Q2	Q3	Q4	YR
2016	-$3.21	-$5.74	-$3.36	$0.08	-$12.22		2016	-5.4%	-8.9%	-4.7%	0.1%	-4.4%		2016		79.1%	-41.6%	-102.4%	
2017	-$3.74	-$4.73	-$7.70	-$3.90	-$20.06		2017	-4.3%	-4.9%	-7.7%	-3.4%	-5.0%		2017	-4777.5%	26.3%	62.9%	-49.4%	
2018	-$4.69	$2.21	$4.25	$2.37	$4.14		2018	-3.6%	1.5%	2.5%	1.2%	0.6%		2018	20.5%	-147.1%	92.4%	-44.3%	
2019	$3.36	$1.51	-$3.62	-$3.01	-$1.76		2019	1.4%	0.5%	-1.2%	-0.9%	-0.2%		2019	42.0%	-55.1%	-339.7%	-16.8%	
2020	$6.08	$9.51	$7.29	$12.77	$35.65		2020	1.7%	2.4%	1.6%	2.3%	2.0%		2020	-301.8%	56.5%	-23.3%	75.1%	
2021	$17.31	$4.20	-$25.00				2021	2.9%	0.6%	-3.3%				2021	35.5%	-75.7%	-695.0%	-100.0%	
non-GAAP Net Income							% Revenues							% QoQ					
	Q1	Q2	Q3	Q4	YR			Q1	Q2	Q3	Q4	YR			Q1	Q2	Q3	Q4	YR
2016	-$3.31	-$5.88	-$3.33	$0.29	-$12.23		2016	-5.6%	-9.1%	-4.7%	0.4%	-4.4%		2016		77.8%	-43.3%	-108.8%	
2017	-$3.21	-$4.77	-$7.12	-$2.60	-$17.70		2017	-3.7%	-5.0%	-7.1%	-2.3%	-4.4%		2017	-1200.7%	48.3%	49.4%	-63.5%	
2018	-$4.17	$2.86	$7.91	$4.88	$11.48		2018	-3.2%	1.9%	4.7%	2.4%	1.8%		2018	60.4%	-168.6%	176.8%	-38.3%	
2019	$6.43	$4.85	$5.13	$5.78	$22.19		2019	2.8%	1.8%	1.7%	1.7%	2.0%		2019	31.8%	-24.5%	5.7%	12.6%	
2020	$8.35	$14.03	$7.03	$6.51	$35.91		2020	2.3%	3.5%	1.6%	1.2%	2.0%		2020	44.6%	67.9%	-49.9%	-7.5%	
2021	$9.65	-$18.35			-$8.70		2021	1.6%	-2.7%	0.0%				2021	48.3%	-290.2%	-100.0%		


StockNovice, thanks for catching that! I had been looking through their financials here: https://s21.q4cdn.com/963721274/files/doc_financials/2021/q2…

I saw on page 33 of the pdf above where they list their non-gaap financial metrics, but non-gaap net loss was not included! And they don’t mention non-gaap net loss anywhere in the whole report, but you are right that they include it in the press release.

Anyway, very odd, and thanks again for providing that info.

Hi Dave

Why I sold GAN:
–Weak annual guidance AND a history of missing annual guidance

I bought GAN because of the prelim Q2 resuls which surprised me on the upside.

Their guidance changed as follows for this year:

Initial: $100-105m
After Q1: $103-108m
Prelim Q2: $125-135m

I struggle to see why you view that as weak guidance?

Their revenue in q1 was $27.8m and q2 prelim $34-35m. That’s up 24% sequentially.

There are a couple of further things that I mention as reasons for buying in my monthly write-up so I think I came to a different conclusion on this one. Or did you perhaps not weigh the prelim results that heavily?


1 Like

Their guidance changed as follows for this year:

Initial: $100-105m
After Q1: $103-108m
Prelim Q2: $125-135m

I struggle to see why you view that as weak guidance?

Hey WSM, the long term guidance is still weak in my opinion. Here’s why, they are guiding for $125m-$135m for the full year, they already have revenues from Q1 at $27m and q2 preliminarily at $35mm. That means they have $62mm total revenues so far this year up to and including Q2, which means they are predicting at most $73mm from Q3 and Q4. We can approximate $73mm as $36.5mm revenues each in Q3 and Q4, which is pretty minimal growth in Q3 and zero growth in Q4.

With most companies, you can hand wave that worry away by saying, “well, it’s okay because they will definitely beat their guidance.” But in GAN’s case, they recently missed guidance. They had a decent excuse for it, but still, they missed. So I don’t think it’s reasonable to give GAN the same leeway I would give other companies.

All that said, I still think the other reasons I listed are more of a big deal than my gripes with their weak guidance (and their previous inability to hit guidance). Specifically, the reliance on big bang events. Surely, if they continue to get these in the right magnitude, the business should flourish. But I asked myself, why do I want to own something contingent on what-if’s and maybes when I could instead invest in businesses that are firing on all cylinders without relying on wishy-washy state government’s ability to make decisions in my favor.

Hope this helps!


A few quick notes about my watch list company, Zoom Info. Probably the biggest reason I have stayed out thus far is because the revenue growth rate is rather average for companies in my portfolio, but what is considerably below average is the DBNER, which they report as being 108%. This makes them extra susceptible to the law of large numbers – they have to work a lot harder than say, Twilio, to acquire new customers.

I think you are missing something on NRR, and that ZI’s NRR is actually currently higher, and perhaps much higher than the 108% you mention. Start with the number you mention itself. ZI only discloses NRR annually, and NRR is a historical number which shows how much a cohort of a prior year spent in the current year, taking into account churn, up and cross sells. So the 108% you mention is the number for the 2020 year. It reflects spend of 2019 customers in 2020, so really outdated information. It gives us insight into how the spend of the customer base of two years ago changed last year, the year of COVID. So it does not tell us much about what to expect for the remainder of this year, as their customer base and the base’s behaviour has changed dramatically. The fact that they don’t disclose NRR more often has been a bit of an issue I’ve had with their disclosure to date.

So where is NRR currently? Here are the pieces of the puzzle:

From the 2020 S-1, p 130:

“Our net annual retention rate was 102% and 109% in 2018 and 2019, respectively. We realized improved net annual retention across all customer types, with a net annual retention rate for enterprise customers, defined as having 1,000 or more employees, of 127% in 2019, an increase from 125% in 2018. While the trend in retention improved during the three months ended March 31, 2020, we expect our net annual retention rate to face headwinds in 2020 due to the impact of COVID-19 and associated challenges with increasing sales to existing customers as sales cycles lengthen for larger deals.

On page 130 of the S-1 they also have a graph entitled “Gradual Shift to Large contracts” which we should keep in the back of our minds.

Three things so far:

  1. their enterprise customers have much higher NRR than their overall customers
  2. overall NRR faced headwinds in 2020
  3. enterprise customers are becoming a bigger part o their ACV and smaller customers a smaller part.

So we have following disclosed numbers for NRR overall:
2018: 102%
2019: 109%
2020: 108% (Covid, headwinds)

And this for enterprises (1000+ employees) NRR:
2018: 125%
2019: 127%

Q2 2021 Q&A:

Question:?“As evidenced by the sequential increase, the enterprise traction you’re seeing across the $1 billion captive opportunity, Cameron, can you please break down for us the drivers for the revenue reacceleration?”

“So, the largest opportunity is that enterprise motion. And we’ve seen really good traction both in terms of those number of customers that are now over 100,000 in ACV. That’s now over 1,100. That’s helped drive upsells and retention as well. As Henry mentioned, we had our best quarter for retention activity that we’ve ever had. We continue to see new customers coming in from a variety of different industries and geographies.”

So enterprise customers are the #1 driver of revenue growth, and within that they just had the best retention ever, and enterprise is becoming a steadily bigger part of ACV. The number of customers with ACV>100k was 380 end 2018 and 580 end 2019 and has doubled since then.

>$100k ACV customers, last 7 Q’s, with most recent last:

Or qoq for the last 6:

Two things stand out for me: the COVID slowdown in Q2 of last year (bolded) and the acceleration thereafter.

In Q1 2019 $100k+ ACV customers contributed 30% of ACV; in Q1 2020 that was 34%. <$25k saw a corresponding drop, from 30% in Q1 2019 to 28% in Q1 2020. I have not found a split for more recent numbers but given the rest of the disclosure it’s a very safe bet that this trend continued.

Given that larger customers have much higher NRR, as larger customers become a bigger piece of their customer base, NRR should accelerate.

Putting it together

So, when thinking about all of this, where is NRR currently, and what is the trend? Certainly it’s not at 108% currently. That was the NRR of 2019’s customers in a COVID-impacted year and reflects a very different customer base to the base now. And before COVID, NRR seemed to be on an improving clip, going from 102% to 109% from 2018 to 2019 before falling back to 108% in 2020.

Hence I believe their NRR is significantly higher already, they just haven’t published the number yet. But they have told us as much in their commentary.

-WSM?(Long ZI, and thinking of buying more)