Wow, what a month!! Some GREAT GREAT reports. I’ve got one more, CRWD next Thursday after the bell. I think what this round of reports did is prove, as we already knew, that these stocks are NOT just COVID stocks.
I was explaining to some friends the other day why investing in hypergrowth is so good. Its the compounding nature of it. Yes yes yes, we all know this but when you look at the actual numbers, its pretty mind-blowing.
Consider three companies. Company A growing at a great 15% annually, Company B at 30% and Company C at 70%. Now, assuming these maintain for 5 years, what is the revenue of the company?
Company A = a double (2x)
Company B = 3.4x
Company C = 14x
That’s not a typo. Its what Saul lays out in the KB. Now, what of our companies could compound at 70% over the next 5 years? Repeat after me, It will SNOW in the SE, it will SNOW in the SE, it will SNOW in the SE.
There are others we have that could grow over the next 5 years at least 50% growth, including some that I don’t own. Heck, I think all of my companies will at least be close to that. Add in NET that many here have as well. Anyway, focusing on the long-term.
May
2.95
S&P
0.62
YTD
4.86
S&P
12
Performance Allocation
Crowdstrike 8.9% 21%
Sea Limited 2.8% 21%
Roku 3.3% 20%
Data Dog 3.8% 14%
Snowflake 2.8% 12%
FuboTV 16.4% 10%
RBLX 23.0% 2%
Magnite SOLD
Transactions:
Opened a small 2% position in Roblox. Did this shortly before they reported. This is more of a watch & learn type position. I’m a bit confused as to why they had such a big revenue miss but went up quite a bit. Without that guidance miss, it was a great quarter. I noticed that they didn’t give guidance for Q2 and went back to check, the estimates weren’t from their guidance as they didn’t provide any. Not sure where those estimates came from but my thought is that since it wasn’t from the company, that’s why they weren’t punished for the ‘miss’. I encourage any information to help understand this.
In the middle of May, after their report, I sold out of Magnite. There are really two main reasons and a third secondary reason.
First, yes, they guided for a GREAT 130% YoY revenue for Q2. However, this includes 2/3 of SpotX for the first time. 2/3 of what SpotX reported for Q1 is around 30M. Magnite reported 60. The sum of these is 90. They guided for 96M. They barely beat guidance for Q1 but talked about how March was not a good month for them but April had picked up a lot. I do think they will right the ship but it might take a few Q’s. Add in there that around the time I hope they’ll have the ship righted, more questions on the Disney deal will be coming up since we’ll be within 6 months of that expiring. With the questions, seeming lack of organic growth & more difficulty to read and understand what’s really going on, I sold out. Still being big into CTV and Fubo having a great report and being beaten up so much, I moved most of this money into FuboTV. I put a small portion into Snowflake also as I am trying to find ways to build up that position more and couldn’t resist Snowflake around $200.
Positions
Crowdstrike
Reports next week. Excited for this report. ZScaler reported this past week and accelerated. This bodes well for for Crowdstrike.
Given their guidance for this Q being 291M and their usual beat being around 6%, that gives me an estimate of around 308M for the report. This would be in-line with the YoY growth from last quarter (73%) but the QoQ annualized would be 83%. The next quarter will be the COVID overlap so guidance should make the headline number appear to be an acceleration (but they’ve already re-accelerated). For reference, their QoQ annualized rates since Q1 2020, 88.06, 56.22, 84.73, 70.23. Q2 will replace that 56% with something likely in the 70-80 range. I am expecting guidance & Q2 to have a YoY ACCELERATION!!
At this point, I’m very happy to have this as my largest position!
Sea Limited
Reported on 5/18. What a great report. Just fascinating how they’ve been able to transform themselves from a gaming company with one HUUUUUGE hit into an ECommerce BEHEMOTH! I think they’re going to out-MELI MercadoLibre!! Overall revenue growth YoY of 146%. E-commerce was up 250%. 250%. They don’t provide guidance so the only estimates are analysts who are usually nowhere close to accurate. One AMAZING thing to point out here is that ECommerce is a cyclical business. Q1 is almost always slower than Q4. What did the Sea Limited ECommerce do? Well, their revenue was UP almost 10% SEQUENTIALLY!! What a great start to the year! Their ECommerce revenue has now eclipsed their gaming revenue, so expect these TRIPLE DIGIT COMPOUNDING numbers to continue for a long long time.
Roku
True story on Roku. In the first half of 2020, I kept looking at it thinking, “Its gotta go up because they’re doing so well”. I started seeing more and more people jump off them and in early June, sold out of it too for the WRONG reasons. I mostly sold out of it due to price action & group-think. When Bear sold out, that had an impact on me although it shouldn’t have. The next week, it started waking up and I fully bought back in. So glad I did! Lesson learned that I seemingly have to re-learn a lot…
- DON’T LET OTHERS INFLUENCE YOUR CONVICTION
- DON’T LET PRICE ACTION INFLUENCE YOUR CONVICTION
Anyway, on to the present. Roku reported on May 6. They ACCELERATED and had a HUGE beat. Beat estimates by almost 17%. YoY revenue increase of 79%. Platform growth is a MUCH MUCH bigger part of revenue so naturally, the gross margins are getting better.
I didn’t think too much of The Roku channel when it first came out, but its turning into a very big deal, especially now that it can be streamed on even non-roku devices. There is a lot of early-on Google and Apple in Roku. Google being the king of the search engine after Microsoft, Netscape, Yahoo and others failed. Google using that as their main catalyst for ADVERTISING!! Similarly, Apple with their phones then transforming into a services company but also big with the ads. Now Roku, being a much smaller animal, being the largest of the CTV streamers. Yes, there are other players, just like when Google came out with Android. Heck, iOS is not the ‘winner’ in terms of users, ANDROID is. Roku so far is the winner in the CTV but as long as they maintain a substantial position in it all, they don’t HAVE to be in order for Roku to make us all a lot of money!! The Roku Channel has just offered OPTIONALITY. They’re doing originals, they could be the Netflix of the free TV; using advertising!! Add on to this the advertising possibilities. Imagine watching a commercial for baby wipes. You think, “oh shoot, I’m getting low on those”. Click a button on the Roku remote and you PURCHASE the wipes in the advertisement. If that becomes a reality, imagine the premiums companies will pay to advertise on Roku!!
DataDog
Reported on May 6 as well. Similar to Crowdstrike, they were impacted by COVID quarters. Their QoQ annualized growth starting Q1 2020, 74, 30, 50, 73, 54. That 30 is really low. Also, their low-bar guidance was for 52%. The past couple quarters its been low 40s. All this and with a similar beat shows the Q2 revenue growth should top 60% and they might settle into the 60s for a little while.
I work in tech and understand more than most the importance and impact of Datadog. One thing touted giving them great revenue retention rates is adding modules. This certainly is a primary driver. However, what should not be discounted is that the IT footprint of companies is usually ever-growing. A small company might have 20 servers one year but 25 the next year. IMO, its not quite the Snowflake data explosion but it is not insignificant.
Another thing about DataDog that I find fascinating is where they live in regards to their competition. This past quarter, they passed Dynatrace in terms of revenue. Dynatrace is a better platform according to the magic quadrant. I haven’t used either of these specific platforms but in my anecdotal world where I’ve talked to individuals who have, Dynatrace seems to be the better overall product. From what I have gathered, one of the biggest reasons for DataDog growing twice as fast as Dynatrace is the sales team. Its either the mentality or the style. Whatever the reason, IMO, DataDog is a great example of the competitive advantage an effective sales staff and a competitive product (they aren’t far behind DT on the magic quadrant), over a superior product and average or below sales staff/strategy.
Snowflake
So… Snowflake! I am a HUUUUUUUGE fan of snowflake. I believe they can grow triple digits for a couple more years before sinking below that mark. The only question for me has always been valuation. Well, between the post-lockup & crash price drop and a couple more reports, I think we’re reaching the inflection point where valuation is reasonable. I was excited to add a bit more around 200 a share! What a bargain! Just wish I could have bought more but… what would I sell to get more Snowflake?? DOLLAR BASED NET RETENTION RATE AROUND 170!! I mean… without churn, this means sales just needs to add 30% a year to get TRIPLE digit growth!! How long can they maintain 170? If you know data and workloads and how easy it is to write poor performing queries, then you know that very elevated NRR is very reasonable. 170 though, I don’t know. Maybe. Even if they don’t though, Lets say they settle in at 150 and sales just adds 20% net new customers a year. Well, that’s 70% growth a year. As I pointed out above, in 5 years, the company will have 14x more dollars!! With this information, can you believe someone sold me some Snow for 200 dollars?
PAUSE:
Wow, this is getting longer than I anticipated.
Ok, on to the next one.
Fubo
Fubo started out as a speculative investment for me and I started it as a small part of my portfolio. It did well at first then the stock crashed. Applying my lesson learned from Roku last year, I didn’t let the price action sway my conviction and instead focused on earnings. During their crash, they reported 2 outstanding quarters. The most recent one was on May 5. Fubo is currently in EXPAND phase. Their overall profits will come from sports betting and advertising. Advertising is already growing at 200%; albeit off a small base. They doubled the number of customers. NEXT MONTH, June, they are releasing their FREE TO PLAY app. This is essentially a free ‘betting’ like game. It could be a way to engage more people during games. I know I’ll be more likely to watch games on Fubo instead of the MLB app because of this. Their goal for this is to get more subscribers. Another big catalyst for subscribers is the world’s most popular sport (not a favorite of mine), SOCCER. I’ve seen plenty of stadiums in South America make the BIG HOUSE or the Indianapolis Motor Speedway look like a chicken coop. The plan is to get more subscribers. Then when the sportsbook comes online, just a little betting here and there from subscribers will be a HUUUUUUGE money machine. With each passing month and quarterly report, they are becoming less of a speculative investment. At recent prices, I was also thinking a lot, HOW CAN I GET MORE FUBO!! I did add a more at around $20 per share.
Roblox
My last position is really more of a starter/get to know/understand this stock. Roblox is hugely popular and their model makes it easier to maintain than other games as its a platform for gamers instead of a game. However, it seems heavily geared for younger audiences, how much more can they grow? They already have a huuuuuge audience. Can they hypergrow for years? I dunno. In addition, I don’t fully understand how to read their numbers and reports. This might be a short-lived position due to all the questions. Also, it could be a great place to get some more money to add to SNOW & FUBO.
Watch list:
Cloudflare, ZoomInfo, Magnite, UIPath, DermTek
Wowsers! Well, that was a lot more than I bargained for. I learned a lot about my reasons and such though by writing this down. It takes quite a bit of time and gotta get some clear thought time but its well worth it. For anyone considering writing up their monthly summaries, I highly recommend it.