ExponentialDave's March 2021 Portfolio Updat

I want to give an especially big thanks to Saul and the moderators who keep this board on topic! They collectively do lots of work that we are aware of and even more work that we are NOT aware of.

I considered holding off on this post since I have been posting a lot lately, but I don’t think my write up will change much between now and the end of the month (since earnings are done), so hopefully people don’t mind.

Also, this is my 100th post since creating a Motley fool account in 2005, but I have been coming around the Fool since probably the year 2000. The Motley Fool taught me a lot over the years, but by far my best learning has occurred since I discovered this board two-ish years ago. Thanks Saul!

Last year was my first year doing portfolio updates, so I am accustomed to having grand results to show you guys. But as we all know all too well, that’s just not how the market works. It’s an illogical little thing that doesn’t just take a straight line upward. It zigs and zags and, well, sometimes seems to destroy our portfolios.

But I am confident, even more so than last year, that this is a temporary setback. In fact, earlier in March, I started selling a small quantity of shares and using the proceeds to buy LEAP options. This is off topic so I won’t say much else about it in this portfolio review.

Worth mentioning though, because I am sure lots of us went through this, this month I experienced my biggest dollar loss in absolute terms of all time. My portfolio, from its new all time high in February to the trough in March, was down maybe 31 or 32 percent, a truly enormous amount of money to lose. But we must remind ourselves that it is actually not that strange for drops like this (or worse) to happen a few times a year, and we must see it as an opportunity. Although I admit, opportunties like that are hard to stomach.

At times like this, psychology is more important than ever, and you just have to remind yourself that, although I just lost the biggest dollar amount I’ve ever lost, I am still 3x better off than I was at the beginning of January 2020. As in, even with this enormous loss, I am still up 200% over the longer term. I know it is what they call “humble bragging” to talk like that, but I just want to drive home the point that most of us here are significantly better off due to high growth investing and not worse off, even if it may feel that way in the short term.

Regarding my monthly results year (ytd perf by month):
Jan 2021: 6.5%
Feb 2021: 4.2%
Mar 2021: -7.6% as of writing on 3/19/2021

2020 % Gain: 224.5%
Cumulative % Gain Since Jan 2020: 200%

WCLD is my benchmark of choice which is comprised of a lot of my top holdings, such as ZM, SHOP, DDOG, CRWD, etc. WCLD ended February at $53.15, and it began the year at $52.64, a gain of roughly 1% YTD. As of 3/19/2021, it stands at 48.83, -7.2% for the year. Meanwhile, the S&P 500 is up 4% YTD and the Nasdaq is up about 1% YTD.

In a past life I went by Vinegar101 around here, and these are my old portfolio updates:

Highest Conviction: CRWD
Second Tier Convictions: DDOG, NET, ZS
Experimental: ETSY, PINS, FVRR, UPST
Sold out of: FSLY, AFRM, TDOC, SKLZ
You can see in my post history I made separate posts about why I sold out of all of these except FSLY. Basically I found FSLY’s latest quarter underwhelming when compared to NET, which is how I’ve felt for the last few quarters.

Allocations (now vs last update)
CRWD 27%, 27%
DDOG 14%, 13%
NET 13%, 12%
ZM 8%, 8%
SHOP 7%, 8%
DOCU 6%, 10%
ZS 6%, 3%
SNOW 6%, 3%
TWLO 4%, –
ROKU 3%, –
FVRR 2%, –
PINS 1%, –
ETSY 1%, –
UPST 1%, –

The above percents include some LEAP options on CRWD, DDOG, NET, and ZS, which in totality account for less than 9% of my portfolio.

I had an off the board conversation with one of the board leaders about how, it seems we have lots of good companies in the second/third tier. And it’s hard to figure out which ones are truly better. My approach to this, and, only time will tell if it’s the correct approach, is to buy small pieces of lots of them. We know that, to an extreme this doesn’t work so well, like if you let your portfolio grow to 60 positions (like mine used to be).

But in my limited time here, the opposite doesn’t seem to work so well either. Like, if hypothetically you only invest in your very best company and own nothing else. Well, at the beginning of 2020 I thought my best company was Alteryx, which ended up being among the worst of companies I owned. Meanwhile my two best investments of 2020, ZM and LVGO , were maybe not even in my top 5 convictions. LVGO definitely wasn’t. But because I owned roughly 6% positions in both of them, they were able to deliver significant returns for my portfolio.

Company Specific Analysis

I previously wrote that I was hoping for a seasonally normal quarter, where SHOP benefits heavily from holiday shopping and posts a QoQ revenue boost of 29%. Well, we got 27% QoQ! Not 29%, but I’ll take it.

This is the second quarter in a row of “seasonally normal” numbers, and because SHOP doesn’t provide guidance anymore, we now just have to guess that all future numbers will be normal. As in, they will be not much better or worse than SHOP usually does in a given quarter for a given season. So for Q1 2021, we can probably expect a six percent contraction of revenues QoQ, which would be 96% YoY growth.

I think a lot of people focus on Shopify as a SAAS company, which it is, but it is actually more of a consumption business. 71% of its revenues come from “Merchant Solutions”, and only 29% of revenues come from subscription solutions. Merchant solutions consists of payment processing fees from Shopify Payments, transaction fees, Shopify shipping, Shopify Capital, referral fees from partners, and sales of point of sale hardware.

Only a few years ago, Merchant solutions comprised about half of all revenues and has steadily risen over time to become the dominant part of the revenues. Merchant solutions revenue tends to correlate very nicely with GMV (gross merchandise volume), aka the sum total of things bought on shopify.

What I’m getting at here, is that although subscription revenues rise whenever a new business signs on to Shopify, merchant solutions revenue can grow much faster. It’s a better business model than other companies such as ZM or Cloudflare that charge per user. What I don’t like about Shopify when compared to ZM and Cloudflare is the seasonality. Shopify is harder to analyze for that reason alone.

Lastly, the enterprise customer count (shopify plus) breached 10,000, which included additions of > 3000 in 2020 alone. In my earnings summary, I was dismayed to learn that “enterprise” at Shopify just means that you buy a $2k/month Shopify plus subscription, in contrast to the $100k/year spend minimum it takes to be considered “enterprise” at cloudflare, fsly, ZM, etc. However, that is not really the right way to think about Shopify plus customers. The point is, these customers are locked in to spend a minimum of 2k/month, which does not include merchant solutions revenues, which I explained earlier are the bigger money maker anyway.

Quarterly YoY rev growth rate looks like this (most recent quarter first) 93%, 97%, 47%, 47%, 44%, 47%, 49%, 54%, 57%, 61%, 68%, 70%
QoQ rev growth rate: 27%, 7%, 52%, -6%, 29%, 8%, 13%, -7%, 27%
Gross Profit Margin: 52%, 53%, 53.5%, 54%, 52%, 55%, 56%, 56%, 54%, 55%, 55%
Merchant Solutions Revenue YoY by quarter: 117%, 132%, 147%, 57%, 53%, 50%, 56%, 58%, 63%

Snowflake is the best company I own. Yes, even better than CRWD. Problem is, Snowflake may not be the best stock I own! Great company. Possibly over valued stock? I am still undecided. At some price point, Snowflake is a bargain, but I have no idea what that price is.

If DDOG and NET and CRWD can have multiples over 60 (and they all did not that long ago), and SNOW has better fundamentals than all of them, shouldn’t SNOW command a much higher valuation? Yes, but then how much? This is truly anyone’s guess and is the reason why SNOW is not a 30% position for me.

Snowflake advertises itself to shareholders as “not a SAAS company” because their revenue is consumption based. This consumption model is for sure superior to the SAAS model so long as customers are willing to pay up. They are, and this is because, as per CEO Frank Slootman, Snowflake enables “10x the work at half the price”, compared to legacy competitors.

And unlike many of our other companies which benefitted greatly from the pandemic, it is hard to say that Snowflake’s growth is attributed to the pandemic at all.

A few key pieces to Snowflake’s success are, firstly that it supports and is indifferent between the major cloud providers AWS, GCP, and Azure. Second, they have separated data storage resources and compute resources. And lastly, Snowflake increases Data Access, making it simpler than ever for organizations to share data internally at organizations or externally to other organizations, which is “increasingly critical for data science, artificial intelligence and machine learning workloads”.

The snowflake data marketplace is gaining traction, “with consumption attributable to data from marketplace providers up 48% quarter-over-quarter and new listings growing 10x year- on-year to a total of 380 as of the end of the fiscal year.” My thoughts here is that this will have a viral networking effect - the more data that goes to snowflake the more people will want to join Snowflake, thereby increasing its value in a virtuous cycle beneficial to both snowflake and its customers.

They also had a major customer win this past quarter - BlackRock, an 800 lb gorilla in the financial world with many clients, and " all of those Aladdin customers that want data through [Blackrock’s] Aladdin, if they want to get their data the most efficient way are going to have to be Snowflake customers."

In Q4 the number of customers with greater than $1 million in trailing 12 months product revenue increased to 77, up from 65 last quarter, with 12 customers are now consuming over $5 million on a trailing 12 month basis.

The business is scaling nicely - annual cash burn was cut by 64% or $128mm.

Product revenue guidance for Q1 2021 is for $200mm, which would be a 12% QoQ increase.

Below ordering is always most recent to least recent:
YoY Rev Increase: 116%, 119%, 121%, 147%, 137%, 151%
QoQ Rev Increase, 19%, 20%, 22%, 24%, 21%, 22%, 36%, 19%, 28%
Net Rev Retention Rate: 168%, 162%, 158%
^^This is a key part of my investment thesis on Snowflake. With net retention this high, revenue numbers are sure to stay elevated for a long time. And, CEO Frank Slootman was willing to say it will stay over 160% for the entirety of 2021, a very bold statement that speaks to SNOW’s potential.
Adjusted GM: 67%
RPO growth QoQ: 44%, 35%, 47%, 10%, 56%
Enterprise Customers (>1mm in rev) by quarter: 77, 65, 56, 48, 41, 31, 22
In the prior twelve months that ended on July 31, 2020, these customers represented 46% of all revenues.
Total Customers by quarter: 4139, 3554, 3117, 2720, 2392, 1934
Total Customers Increase % QoQ: 16%, 14%, 15%, 14%, 24%
Non Gaap gross margin: 67%
Non gaap product gross margin: 70%

Building a secure, fast, and reliable internet. I think I can oversimplify the investing thesis for the non techies here into a few key points: accelerating revenue growth, steadily increasing customer count, high margins, and improving profitability.

Cloudflare is guiding revenues to 131mm for Q1 2020, represents 4% sequential growth Quarter over Quarter.
This is the exact same amount (4%) guidance as last quarter. I guess we should expect 10% roughly again?

Business model: They generally charge per person. As much as 5% of revenue may be somewhat usage based.

Similar to Zscaler, there should be Solarwinds/Sunburst tailwinds coming as more potential customers seek out modern Zero Trust solutions. Zscaler, Cloudflare, and CRWD have all indicated it’s too soon to tell if Solarwinds/Sunburst is already boosting revenues.

From their latest conference call:
The U.S. represented 53% of revenue and increased 54% year-over-year. EMEA represented 26% of revenue and increased 60% year-over-year. The Asia-Pacific represented 16% of revenue and increased 33%

Regarding why Cloudflare was able to onboard so many new customers this past quarter, management highlighted “Automatic Platform Optimization or APO that had real appeal for a lot of our existing free customers where they could with one click of a button and a payment to us get substantial improvement on especially Wordpress driven sites”

Regarding why DBNER has been ticking upward: “What I think is important to know is that it’s a real indication of how our R&D’s ability to deliver new products, really supplements the ability for our sales team to be able to sell more to our customers over time”

On future innovation in 2021: We have no intention of slowing down our rate of innovation and so I think that you will see a series of product weeks that will be very similar to what you saw in 2020 with really great launches across that. That will include both taking products that we have announced and are currently in beta and moving them into GA and so we’re excited about some of the extensions to our workers platform being generally available things like durable objects and making that something that people can sink their teeth into and really work on and the early feedback from the beta users has been terrific.

Cloudflare yearly revenues (2020 first), $431, $287, 193, 135, 85
Revs (Q4, Q3, Q2, Q1): $126, $114.2mm, $99.72mm, $91mm
Rev growth trends (quarterly yoy, most recent first): 50%, 54%, 48%, 47%, 51%.
QoQ Rev growth: 10%, 14%, 10%, 8%, 14%, 10%, 8%, 12%, 11%

N-gaap Gross margin (Most recent first): 78% 77%, 78%, 79%
Non gaap net loss (most recent quarter first): -7.4mm or $.02/share, , -5.7mm or $0.02/share, -10mm or $.03, -12mm or $.04. , -18mm or $.06
DBNER by most recent quarter first: 119%, 116%, 115%, 117%
Ended q4 2020 with $1bb in cash

Total paying customers: 111k, 101k, 90k, 89k
customers spending >100k: 828, 736, 636, 536, 526
ExponentialDave : Look at the weak enterprise customer adds that occurred in Q1 2020. I wonder if there is seasonality there and if we can expect weak enterprise customer adds in Q1 2021.
Large customers accounted for 49% of spend, up from 47% at end of Q3.
Total customers: 3.5mm at end of 2020, 2.6mm at end of 2019 (includes non paying). 38
49% of customers are from outside of the U.S.

They are guiding for revenue growth of $187mm, which would be 5% sequentially or 43% YoY. Sound familiar? That’s because they guided for 5% last time, so I’m expecting a business as usual quarter where we see QoQ growth north of 10%.

They are coming off a strong quarter where they grew revenues at 15% QoQ! If you exclude seasonal companies that get a holiday boost such as SHOP and ROKU, only SNOW is growing faster than 15% QoQ.

New products are resonating with customers: “As of the end of Q4, 72% of customers are using two or more products, which is up from 58% last year. Additionally 22% of customers are using four or more products, which is up from only 10% a year ago, and we have another quarter in which approximately 75% of new logos landed with two or more products.”

A key driver of DataDog’s growth: they have strategic partnerships with all the major cloud vendors. That said, the integration with Microsoft/Azure is not even live yet but I suspect will be a nice boost to revenue when it does go live.

Another thing I like about Datadog, and the reason I own more of it than say, Cloudflare, is because Datadog’s revenue model is usage based, while Cloudflare charges per user.

–30% of revenues are spent on R&D and 30% of revenues are spent on sales and marketing. What a healthy usage of revenues! This stuck out to me in particular after reading the over zealous spending of Skillz (SKLZ).

–In Q4, delivered more than 60 other new capabilities and features across our products including new and enhanced integrations such as Snowflake oracle Cloud or vulnerability analysis marrying Snyk with our brand-new Continuous Profiler.

exiting 2020 with nine generally available products. To put this in context, just four years ago, we had only one product.

Quarterly Revenue growth YoY(most recent first): 56%, 61%, 69%, 87%, 84%, 88%
Quarterly Revenue growth QoQ: 15%, 10%, 7%, 15%, 19%, 16%, 19%
Cust > $1m: 2020: 97, 2019: 50, 2018: 29
Cust > $100k: 2020: 1253, 2019: 858
customers: 14200, 13100, 10500
N gaap gross margin: 79% vs 78% a year ago
DBNRR: > 130%, they do not say exactly what though.

I think the worst thing I can say about Zoom is that revenue growth is technically still decelerating, but here’s why I don’t think this is so bad.

After Zoom published Q3 earnings we saw that revenue growth was trending sharply downward, but now that we have seen Q4 the growth deceleration is much lower now. Going from 102% QoQ growth in Q2 to 17% in Q3 is very alarming, but going from 17% in Q3 to 13.6% in Q4 seems normal. To put this in perspective, do you know who else went from 17% growth in Q3 to 13.9% growth in Q4? Crowdstrike! And we would never say that Crowdstrike is in trouble because of this.

ZM’s 13.6% QoQ growth is only a hair below what DDOG did in the last quarter, and ZM’s revenue growth was better than both Cloudflare and Zscaler. DDOG grew at 15.1% QoQ, Cloudflare grew 10% QoQ, and Zscaler was 9.7%. I am pointing to quarter over quarter growth in particular here, since we know that ZM’s YoY revenue growth numbers benefit from the other worldly growth seen in Q1 and Q2.

The fact that the pandemic has been wearing on for about a year at this point, and ZM is still able to grow revenues 13.6% QoQ tells me that this company still has more low hanging fruit to capture. We also saw that their net expansion rate stayed over 130% (they don’t ever say the exact number) for customers with 10 or more employees. Worth noting though, that this “customers with 10 or more employees segment” is only 63% of ZM’s revenue. So 37% of ZM’s revenue may not be expanding at a greater than 130% rate, which could be a drag on revenue.

Although guidance is just for 2.5% QoQ growth, they just beat guidance by 9% and have a great history of topping guidance. I would not be surprised to see growth stay north of 10% QoQ here.

Conference Call highlights:
–The Zoom Phone was the fastest-growing product line quarter over quarter in Q4. We closed FY '21 with approximately 10,700 Zoom Phone customers with more than 10 employees, up 269% year over year.

Free cash flow grew by over 12 times to $1.4 billion for the full year 2020.

–We continue to see expansion in the up-market as we ended the quarter with 1,644 customers generating more than $100,000 in trailing 12-months revenue, up 156% year over year and 28% quarter over quarter. This is an increase of 355 customers sequentially, the highest number of quarterly net adds for this segment.

–We exited the quarter with approximately 467,000 customers with more than 10 employees, adding approximately 33,000 customers during the quarter and 385,000 customers during the year. In Q4, customers with more than 10 employees represented approximately 63% of revenue.

–Even though ZM grew the number of Global 2000 customers generating 100k in ARR by more than 100%, that still only accounts for 14% of the total population of global 2000 customers.

Customer Growth (QoQ)(10+) starting with Q4 2020: 7.7%, 17%, 39%, 224%, 11%, 12%, 13%
Customer Growth (QoQ)($100k) 27%, 30%, 28%, 20%, 17%, 17%, 15%
ExponentialDave: We see that customer growth of 10+ employees was the lowest it’s ever been, while enterprise growth stays on the high end. Important to note that cust growth 10+ and enterprise customer growth cannot be compared apples to apples here, since enterprise customers spending 100k over the last 12 month is inherently a trailing metric, while cust growth 10+ employees specifically looks at what happened in the quarter alone.

Revenue growth rate yoy (most recent quarter first): 365%, 354%, 169%, 77%, 85%, 94%
Revenue growth rate quarter to quarter (most recent first): 13.6%, 17.1%, 102%, 84%, 14%, 17%, 22%, 17%, 21%, 25%
Adjusted Gross Margin: 71%, 68%, 69.4% (falling from 84.2% last year because ZM gave away a lot of free usage)
N Gaap operating income (Q4): $361mm

CRWD notched another solid quarter. YoY growth came in at 74% and QoQ growth came in at 14%. Going back to Q3 2019, CRWD has averaged 15% growth QoQ, so I would say this was very much a Business As Usual quarter for them, and a for a company like CRWD, business as usual is superb.

As previously mentioned, CRWD joins NET and ZS as companies who provided assurance they will be benefitting from the Sunburst data breach, which could be a long term tail wind even bigger than the Target breach a number of years ago.

CRWD only reports DBNER when they report Q4, and during this time they reveal Q3, Q2, and Q1. For the year, DBNER came in at 125%. They are not Snowflake (or even Twilio for that matter), but 125% is for sure good.

CEO/Founder George Kurtz aggressively bashed his competition, but I think it was done in a tactful way. He talked about the inferiority of Sentinel One as well as all the problems Microsoft has created, and how it creates business opportunities for CRWD. From my own personal experience, there is saying in the IT world, which is that “You don’t get fired for choosing Microsoft.” I think MSFT has leaned on this saying as a crutch and gotten weaker in its age. Seems like George Kurtz agrees.

–Their threat graph processes 5 Trillion security events per week

Partnerships were key for CRWD’s growth - including EY and also AWS. In fiscal 2021, ending ARR transacted through the AWS Marketplace grew 650% over the last year, and transaction volume grew over 300%

–ARR surprassed $1bb, Free cash flow surpassed $97mm, and Total non-GAAP operating expenses in the fourth quarter were $170.3 million or 64% of revenue versus $118.4 million last year or 78% of revenue.

–Non-GAAP net income in Q4 was $31.2 million

–accelerated growth seen in net new logos was driven by the mid-market and SMB space.

–greenfield opportunity with respect to protecting cloud workloads (services, servers, containers, VM’s, etc).

They are guiding for 64% revenue growth for 2021, and since we know CRWD is extremely confident 64% is a number that will be beaten, we can bet on CRWD probably growing in the upper 60’s or 70’s for all of 2021.

Rev Growth QoQ: 14%, 17%, 12%, 17%, 22%, 16%, 13%, 20%
Rev Growth YoY: 74%, 86%, 84%, 85%, 90%
Most recent N Gaap GM: 78%
Most recent N Gaap net income: 18.6mm
Customers: 9896, 8416, 7230, 6261, 5431, 4561

4 modules: 63%, 61%, 55%, 50%, 47%
5 modules: 47%, 44%, 35%, 33%
DBNER: 125%, 128%, 131%, 126%, 124%, 131%, 133%, 142%

The Zscaler come back continues! They recently reported YoY growth of 55%, and QoQ growth came in at 10%. This is the 4th quarter in a row that YoY growth has risen, and margins remain high at 80%.

They are guiding for a 4.5% revenue increase on the high end for Q1 2021. So if you factor in an average beat of 5% (which they have done over the last 8 quarters), we could see a QoQ increase of 9%-10%.

Zscaler, like Cloudflare, generally charges on a per user basis. However, Zscaler’s new product, ZCP, protects workloads (services, servers, containers, VM’s, etc) and therefore would not charge per user but rather per workload. I suspect this increases Zscaler’s TAM, although not immediately as it will take time for ZCP to become a key revenue contributor. Workload protection is for sure a Crowdstrike area (CRWD and ZS are partners by the way), and on the CRWD call it was alluded to that this workload protection area is largely greenfield. So I wouldn’t worry too much about partners ZS and CRWD butting heads in the near future, but down the line anything is possible.

DBNER rose from 122% in Q3 2020 to 127% in Q4 2020. This is the fourth quarter in a row that DBNER has risen. It was 119% in the comparable Q4 2019. A few things could be causing this - a) covid b) sunburst c) strength of Zscaler’s products or d) all the above

It was mentioned during the call that Zscaler estimates they have a 6x upsell opportunity within their customer base, which makes me think that DBNER can continue to stay at elevated levels for the long term. I don’t know if 6x is an exact number or how correct it is, but the point here is that the upsell opportunity is big.

I thought the product wins announced in the quarter were impressive, I won’t go heavily into the details here since I only recently did the ZS Q4 transcript summary, but one that stood out to me was the customer with 125,000 employees.

There also was an interesting question and answer on covid and its impacts:

Analyst: Do you feel, or do you have any data to think that some of the growth this year was related to COVID an increase in license take rate because of COVID. And if that’s the case, we might have an issue second half 2021 with the comps. I know that this is on investors’ mind, and I’m wondering if you have any data to support the view one way or another?

CEO/Founder Jay Chaudhry: COVID became a catalyst to shake off inertia. It actually changed the mindset and it really not just gave momentum, but also brought to light the limitations of legacy network and security.

ExponentialDave: When he says inertia, he is talking about the deceleration that Zscaler was experiencing before covid. Covid helped them “shake it off” and start to accelerate, and they have accelerated YoY revenues every quarter since. Covid and especially sunburst has made customers realize how much they need zero trust and just how bad the old “castle and moat” model is. The last part of Jay’s answer to the question is here:

Jay Chaudhry: So, we are seeing our customers saying we are implementing zero trust, which means any ZIA ZPA top on deployments even after everything gets back to normal. If that was not the case, they would be doing short term ZPA deal and saying, I’m going back to the office, I no longer need to renewal of ZPA, beyond seeing that.
So, we think the world is changing. So, going back to the office should not be impacting our momentum of the business. That’s how I look at it overall.

YoY growth: 55%, 52%, 47%, 41%, 36%, 49%, 53%, 61%, 64%
QoQ growth: 10%, 13%, 14%, 10%, 7%, 9%, 9%, 7%, 17%, 13%
N Gaap Gross Margin (Q4): 81%
Net income (Q4): $14m
Dollar based net retention rate: 127%, 122%, 120%, 119%
Customers (as of Q4): 5,000, including 500 of the global 2000

DOCU had another strong quarter - what I found most exciting was the continued strong revenue growth in combination with DBNER rising again to 123%. Although 123% is not nearly as high as other high growth names in my portfolio, an accelerating DBNER is worth watching. However, when asked, management was not confident that it would keep rising past 123% and instead conservatively estimated it would fall back to more normal historcial ranges (such as 119%).

Revenue growth for q4 2020 clocked in at 13% QoQ and 57% YoY. This was a 6% beat over the high end of guidance. DOCU guides for Q1 2021 growth of 1% QoQ or 47% YoY. 1% sequential growth is the lowest guide they’ve given since at least Q1 2019 (which is as far back as my data goes), and during this time frame they have always beaten by at least 2%, while the average beat is closer to 5%. Given that, I would like to say rev growth QoQ will be at least 6% QoQ.

The other thing about DOCU that is worth watching is international revenue growth, which came in at 83% YoY and accounted for 21% of total revenue.

YoY Rev Growth (most recent quarter first): 57%, 53%, 45%, 39%, 38%, 40%, 41%
QoQ Rev Growth:13%, 12%, 15%, 8%, 10%, 6%, 10%, 7%, 12%
N Gaap Gross margin: 80%
Customers (in thousands): 892, 822
N Gaap net income: $77m vs $22m a year ago

Twilio’s Q4 showed an acceleration of 22.3% QoQ or 66% YoY to $548mm! That was huge for them. BUT, they were transparent that $23m was political spend and $23mm comes from their Segment acquisition. So if we back that out, revenue growth is a much more normal 12% QoQ or 52% YoY. Like all the companies I own, business as usual is a good thing, and that’s what this quarter was - plus some one time political/acquisition revenue.

They have 221,000 active customers and over 10 million developer accounts. Of those two numbers, both of which are impressive, I think the 10 million developers is the bigger deal. Getting developers on board with Twilio is a key part of the sales process. As a software engineer, I’ve personally taken part in the Twilio sales process (they hosted a hackathon for my company), and I came away impressed with their team as well as their product.

Other takeaways from their conference call:
–according to IDC, investments in digital transformation will nearly double by 2023 to $2.3 trillion. This is terrific news not just for TWLO but for pretty much all of my holdings.

–Revenue from the Top-10 active customer accounts represented 13% of revenue in Q4 compared to 14% in both last quarter and Q4 of last year.

–They will only be providing quarterly guidance going forward.

Of note, they are guiding to $536mm, which technically is $12mm fewer than they got this quarter. But again, you have to take out the political revenue for a fair compare. So 548 - 23 = 525. Going from 525 to 536 is organic growth of 2%, which is nothing to get excited about as guidance. They are also getting an additional month of segment growth in Q1 2021 that they did not get in Q4 2020 (they only got 2 months of Segment in Q4 2020). This is suddenly starting to remind me of TDOC lol. At least though, Segment is not nearly as much of Twilio’s revenues as Livongo was of TDOC.

QoQ Rev growth: 22% (12% organic), 12%, 10%, 10%, 12%, 7%
YoY Rev Growth: 65% (52% organic), 52%, 46%, 57%, 62%, 75%
DBNER for Q4 2020: 139%
DBNER for full year 2020: 137%
N Gaap Gross margin: 56%

Roku had a solid quarter, but compared to historic Q4’s, it was not among their best. It grew revenues 44% QoQ, whereas its historical QoQ growth in Q4 was 58% in 2019, 59% in 2018, and 52% in 2017. That said, the comparison is for sure not totally fair, since it was coming off an enormous Q3, where it accerated 27% QoQ.

Since there is so much seasonality in Roku’s business, it’s probably better to focus on YoY growth, which came in at 58% in Q4, the second highest it’s ever been since Roku has been public. And, a reminder that Roku’s key business revenues are its platform revenues. We don’t care very much about the loss leading player revenues. Platform revenues grew 82% YoY! So from these lenses, it actually was quite a terrific quarter.

Other key metrics are also steadily marching in the right direction, including ARPU, streaming hours, and active accounts. ARPU grew 24% YoY, even though they continue to expand internationally, which carries a much lower ARPU and therefore drags down the average. Streaming hours rose to 17 billion, up 56% YoY, which tells us Roku’s usage continues to go up. Active accounts rose 39% YoY to 51.2mm.

Basically, Roku appears to be firing on all cylinders, which is why I’m happy to welcome it back into my portfolio.

Platform Rev Growth YoY (Most recent quarter first):82%, 78%, 46%, 73%
Platform Rev Growth QoQ: 48%, 30%, 6%, -10%, 45%, 7%, 25%

Companies I’m watching: Asana, Roblox, Bandwidth, Inari, Lightspeed

Thanks for reading everyone – as always, thanks again for this incredible board.


Thank you for putting all of the work to go over each company and breakdown on the QoQ vs beat was very helpful! I would be curious to hear your feedback on Etsy, PINS if you upgrade their conviction in the future.

One thing about the SM which as you pointed out is concerning for Skillz, I’ve noticed that Snowflake last twelve month salss/marketing as % of revenue is 81%

On the other side Datadog has one of the best SM % and good RD %, I am using the info provided at


Not sure how to interpret that yet for Snowflake, but they do stand out as “spenders”


Thanks for reading everyone – as always, thanks again for this incredible board.

And thank YOU David for a thoughtful, thorough and cogent exposition of your analysis and market perspective.

Your reflections on the amounts recently gained and lost are a welcome perspective for me as I review the events of the past 15 months having had much the same kind of experience. Moreover, even though I had reviewed all of the company materials and conference calls I still find your insights most helpful because you mange to focus on key points that I elided.

Personally since I hold many of the same issues as you do as well as some you are watching I would be most interested in any further analyses you plan to share.

Thanks again.



Awesome write-up ExponentialDave! Thanks so much for sharing it with us! We really appreciate it, as you can see from all those recs you have gotten.