Fooled by the Average

Looking at averages can lead you astray. Yes, averages can be useful to draw certain conclusions. But very often you need to look within the subsets of an overall population to really understand what’s going on.

I’m a trained molecular biology and have a tendency to think in terms of the scientific method. It’s been a very long time since I worked in the lab, but I’m still interested in following development in the life sciences field. In particular, I’m fascinated by advances in the genomics. So I’m going to give you some examples why averages are often not useful in drawing conclusions when the individuals within a population are not homogenous. One of the things that people study is gene expression defined as the degree to which individual genes are turned on (i.e. are activated) or not. With some rare exceptions, each cell within our body contains the same DNA sequence as every other cell. Differences in function, responses to external or internal stimuli, and structure are largely due to differences in the specific gene expression patterns in individual cells or groups of cells. Some genes are turn on, some are not; furthermore, this expression changes temporally and in degree. So if the genome is like a piano with a fixed set of keys then each cell has its own piano and has the capability to play its music by controlling the playing of specific keys in its own manner. The music you hear is dependent on which keys are played, how often, how hard, and in which combination with other keys.

There are many examples of why a scientist would study gene expression to draw conclusions about a molecular pathway, or some form of pathology, or some immune response, or some cancerous disease. In many such studies the scientist will extract some living cells from a subject. This could be a biopsy or a blood draw (a liquid biopsy). Now, in the past the scientist might extract RNA (the transcribed form of DNA that is present in the cells due to the DNA being turned on) of the entire sample (or even subset of the sample) that can contain millions of cells. This RNA, which is the totality of the RNA in all of the millions of cells, is homogenized and the RNA is extracted. You now have a bulk sample comprised of the RNA from millions of cells----this is an AVERAGE of the gene expression of millions of cells. This is analogous to combining the individual music from millions of pianos. The notes are all combined and unless all of the pianos are playing the same song then it is impossible to deconvolute which notes are being played by which piano. About a decade ago, single cell analysis and single cell genomics started taking off. Single cell genomics enables each cell’s gene expression to be measured in isolation so rather than looking at the average of Gene A, Gene B, and Gene C’s expression (from all the cells in a bulk sample) you are looking the individual gene expression measurements from each of hundreds, thousands , or even millions of cells. What is going on biologically is unmasked by looking at all the individuals within a heterogeneous population of cells rather than the average of millions.

Why am I writing this? It’s because as investors we can also be fooled by averages. Averages can be very misleading. People say all the time that the market is over- or undervalued. So what? Who cares when you are analyzing individual companies and investing in those firms that you have decide will do better. If you don’t believe that it is possible to pick stocks that can outperform then you should not be on this board as that’s what we do here.

Now, let’s drill down to an individual company. Again, we can be misled by using an average to draw our conclusions. Here’s a post by me from 2 years ago:

http://discussion.fool.com/they-were-growing-like-mad-until-the-…

Back then, UBNT growth had slowed and I argued that looking at overall growth would be misleading for trying to determine the company’s future prospects. The enterprise business was small but growing very rapidly while the larger service provider business was slowing. If you just looked at overall growth then you would have missed it.

I see something similar with NVDA today. They have 2 small but very rapidly expanding business lines: Datacenter and Automotive.

Now let’s get to the reason what prompted me to write this post. Yes, Twilio. People have said that revenue growth has slowed. First off, this was a reference to guidance so it hasn’t actually slowed yet. Now, I say that someone who says that revenue growth has slowed is being fooled by an average. So what’s the specific problem in this specific case? There are several.

  1. The figure used was y/y growth of total revenue. I would just use the recurring revenue and not total revenue. They call this Base Revenue and it is more indicative of what can be expected in future periods.
  2. An isolated population within the revenue number is declining while the rest of business is growing. This isolated declining business is the Uber business. Management has said that they are not seeing such declines in the other customer accounts. So if you include this declining revenue portion in projecting future growth, you will get a number that’s underestimating the longer term growth opportunity. This is particularly true when one considers that decline in Uber business will be complete in the next several quarters.
  3. Even within the Uber business, the revenue is not homogenous. You have lower value (to Uber) TWLO costs and you have higher value (to Uber) TWLO costs. From what I can gather is that Uber has been able to bring some of the easier communications functions in-house. It also appears that Uber has extracted some additional discounts from TWLO for other lower value communications. It was also reported that TWLO and Uber continue to work on other use cases. I would assume that this ongoing work is for higher value or more complex communications. So in 2-3 quarters the decline will be complete and you will be left with Uber once again growing its contribution to TWLO’s revenue.

So what do I think this all means? We will likely see a big overall decline in TWLO’s Uber revenue in Q3. We will continue to see decline in Q4. But remember that within this decline there is growth in higher value revenue and there is growth in overall usage as Uber’s communication messages are increasing as Uber grows its network of drivers. So we have TWLO’s largest customer temporary cutting back on its TWLO usage but once the cutting back is done then Uber’s overall business will grow again. In the end Uber will be a large customer but smaller in relation to the overall business. So I see it as a temporary drag on revenue growth because even the Uber business to TWLO will resume growth within a year.

If you think that Uber is a canary in the coalmine (other TWLO will do the same) then show me the evidence. You would see gross margin pressure. You would see decline Net Dollar-based Expansion. You would see TWLO management confirm that when asked on the conference calls; they were asked after Q1 and after Q2 and they denied that a) other customers are getting any non-standard price concessions, and b) other companies are moving business in-house. In the future if someone makes a claim then they should really back it up with evidence. And don’t be fooled by the average!

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<<<But remember that within this decline there is growth in higher value revenue and there is growth in overall usage as Uber’s communication messages are increasing as Uber grows its network of drivers. So we have TWLO’s largest customer temporary cutting back on its TWLO usage but once the cutting back is done then Uber’s overall business will grow again. In the end Uber will be a large customer but smaller in relation to the overall business. So I see it as a temporary drag on revenue growth because even the Uber business to TWLO will resume growth within a year.>>>

Perhaps this was not recognized by Twilio last quarter, but had Twilio specified that Uber will switch its spend with Twilio from low value to high value, even though this will result in a loss of revenue for the next few quarters, but growth will resume, then Twilio stock would not have crashed 26% after earnings last quarter.

If this is truly the case then this is tremendously positive. However, I don’t want to read too much into this until I see more information on the topic.

<<<If you think that Uber is a canary in the coalmine (other TWLO will do the same) then show me the evidence. You would see gross margin pressure. You would see decline Net Dollar-based Expansion. You would see TWLO management confirm that when asked on the conference calls; they were asked after Q1 and after Q2 and they denied that a) other customers are getting any non-standard price concessions, and b) other companies are moving business in-house. In the future if someone makes a claim then they should really back it up with evidence. And don’t be fooled by the average!>>>

Gaucho, you talk about averages, and then you toss more statistics (comprised of averages) back at us. I expressed qualitatively in my venting section regarding reasons not to trust Twilio management. I expressed reasons above why your interpretation of Uber should be evaluated as suspicious.

Uber is a canary in the mine. From a scientific basis examining what happens to this canary is very important. Does the canary live or die. Does Uber end up being a growing and long-term customer of higher valued services, or does Uber continue to whither as a long-term customer?

The reason for this has been expressed before and that is that there is a certain number that makes taking things in-house or going to competitors a better business decision than outsourcing it to Twilio. That puts a limit on the size of account that Twilio will have.

If Uber starts to grow again with higher valued services, with better margins, then this indicates the canary lives as Twilio can grow into a firm that is indispensable.

Until we see what happens to this canary, I am very suspicious that the canary is doing so well as the market has pronounced post earnings. TBD.

Tinker

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So I’m going to give you some examples why averages are often not useful in drawing conclusions when the individuals within a population are not homogenous.

The first example of this I ever learned was that the average human has one ovary and one testicle.

–Peter

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The first example of this I ever learned was that the average human has one ovary and one testicle.

So you might conclude that humans are hermaphrodites.

Chris

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Gaucho, you talk about averages, and then you toss more statistics (comprised of averages) back at us. I expressed qualitatively in my venting section regarding reasons not to trust Twilio management. I expressed reasons above why your interpretation of Uber should be evaluated as suspicious.

If you don’t trust management, it’s probably unwise to invest no matter what the business looks like. If that’s the case then you are wasting your time on analyzing this company and this whole discussion becomes moot from your perspective.

Averages and stats are useful in some case and not in others. It really depends on what question you are asking and you need to choose which average or stat is relevant or not for each question that you ask.

Gross margin is useful in seeing if there is pricing pressure. Pricing pressure could be due to competition and/or commoditization. If overall gross margin is not declining (assuming COGS didn’t drop) then that would point to no pricing pressure. Gross margins have not dropped which lines up with management’s comments on not seeing abnormal pricing pressure.

Net Dollar-based Expansion is also an average. However, when asking the question “Are other customers also slowing down their spending on TWLO?” this metric is a very good indicator. We already know that Uber’s y/y spend in Q2 was little changed ($8.6M versus $8.4M a year prior) so if the metric is 137% ex-Uber (it was) then we know that other customers in aggregate increased their business by a lot. Sure, this is an average but if we combine this info with management saying that other customers are not cutting back on their TWLO spend then we have an answer: no evidence of Uber-like behavior with other customers. The data certainly supports what management is saying.

Uber is a canary in the mine. From a scientific basis examining what happens to this canary is very important. Does the canary live or die. Does Uber end up being a growing and long-term customer of higher valued services, or does Uber continue to whither as a long-term customer?

I said IF Uber is a canary in a coalmine. I didn’t say it is one. You are asserting that it is one (i.e. to be a canary the other customers will need to behave like Uber is), and I say that I don’t have enough evidence to make that assertion. Management has said that Uber’s behavior has not been seen with other TWLO customers, and they expect Uber to be a unique case. So far they are correct. Until I see other customers making similar decisions, I cannot conclude that other customers are at risk, at least until we see evidence. You are saying that Uber is the evidence and I am saying Uber is unique. The future will reveal…

The reason for this has been expressed before and that is that there is a certain number that makes taking things in-house or going to competitors a better business decision than outsourcing it to Twilio. That puts a limit on the size of account that Twilio will have.

Tinker, you are making an assumption in your logic. The assumption is that the size of the account is necessary and sufficient to induce a customer to switch away from Uber. Maybe you are also assuming that given enough volume the cost savings of switching will make sense to the customers. So are you also assuming that cost will be the main driver for Uber and all customers? I think that size is necessary but I currently don’t believe that size is sufficient. I also believe that customers will consider other factors than cost and in many cases these other factors may well outweigh cost. I think there are other factors at play that will go into a customer’s decision. Such factors can include 1) reliability, 2) a willingness to build the technical expertise need to bring the capability in-house, 3) desire or not for control of business critical functionality (I would think that Uber does not want to be at the mercy of TWLO), 4) the complexity of the communications function to the operations, 5) the importance of the communication function to the customer. As I have said before, I believe that there is spectrum of value to customers with respect to the communications functions that TWLO offers.

If Uber starts to grow again with higher valued services, with better margins, then this indicates the canary lives as Twilio can grow into a firm that is indispensable.

We will probably find out sometime next year. I think that value of TWLO’s communication facilitation increases with increasing complexity. I think it also increases with increasing data available, increasing data diversity, increasing data analysis requirements, increasing distance between data sources, shorter decision making timeframe to respond to data inputs, increased diversity between communication modes (e.g. SMS, voicemail, FB post, email, etc.) and increasing number of communications nodes involved. The fact that TWLO has half of their employees involved in improving their product/ service tells me that complexity is increasing. Therefore, I conclude that there are use cases that are more complicated for competitors and customers to develop and that these use cases have higher value and will enable TWLO to maintain market share and margins. The above also implies, as Tinker as pointed out earlier, that there are communications that are simpler and these may see more competitive pressure and margin erosion.

Until we see what happens to this canary, I am very suspicious that the canary is doing so well as the market has pronounced post earnings. TBD.

I don’t believe that we can yet say that Uber is a canary. I say it’s for the most part not a valid canary.

Chris

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Chris:

One thing that all need to keep in mind is that there can be substantial confirmation bias in how we analyze companies and stocks. I think you have been very facile (and giving) in your numbers and analysis however in the case of TWLO, I do think you are doing a great deal of contortions to justify why you feel the run-up in TWLO stock was justified. This seems to be little more than the market expecting worse results related to Uber?

You just produced a great thread regarding how one might evaluate the investment for a high revenue growth business including scalability and operating margins.

You already suggested that a decelerating revenue growth was an alarm.

If we look at TWLO revenue growth rate the past few quarters:

27% estimated 3rd 2017
47% 2nd 2017
60% 1st 2017
60% 4th 2016

That is clear deceleration of revenue. If you are going to parse this out to divisions with the total revenue for sake of argument then you would need to do that for every company you assess. They say that this slower growth of revenue could persist through mid 2018?

After reading their earnings call, while they say they are developing new products, they are not presently making much revenue and not anticipating much from those efforts for a few years?:

Nick Altmann

Okay and then just a second if I may, can you help us understand where the bulk of the growth is coming from? Is it increased usage, is it customers adding new APIs, new used cases, really any color there would be much appreciated.

Lee Kirkpatrick

Sure, I mean the growth - the growth is being driven still from our most mature products Programmable Voice, Programmable Messaging and as you saw from the quarter we had significant customer additions. I think a lot of the customers that have come up that we benefit from the older cars and the new cars coming on board and attracting revenue. So it’s hard personally to break out into specifics, but it’s both strong growths from new customers and expansion within existing customers.

So while the checkerboard model is being pursued, they are further away of material revenue growth from these initiatives than meets the eye.

So IMO, this hasn’t played out with much more clarity than last quarter. There is much to like about TWLO as you have mentioned however, let’s also consider the risk premium here including items like:

  1. Loses its biggest customer - I still would like to know why, how and what alternatives Uber found and will find in the future. They confuse the call with how close they are working with Uber on new products…seems like a very strange relationship…did they or did they not lose Uber???
  2. Guides upward only by 4%…this just doesn’t seem like massive growth (see decelerating revenue above).
  3. If an UBER can find profitable work-arounds, what stops others including customers like Salesforce, Netflix, Lyft, and Weight Watchers or other larger companies from following the precedent in the future?
  4. The operating margins will likely come down with next 2 quarters of anticipated lower revenue growth.

Chris, for the record, you have done a great job stirring up conversation so hats off to you!

Hope your investments continue to do well and look forward to discourse in the future on various investment matters.

Peace!

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Duma,

Thanks for your message and your compliments. I do also want to address what you wrote:

I think you have been very facile (and giving) in your numbers and analysis however in the case of TWLO, I do think you are doing a great deal of contortions to justify why you feel the run-up in TWLO stock was justified. This seems to be little more than the market expecting worse results related to Uber?

I don’t recall ever making any mention of the TWLO stock price or whether the stock price changes are justified or not. I have spoken only about TWLO’s business results and metrics. I have tried to share my view of future growth and opportunity for the business. I have provided what I believe is the appropriate and valid evidence of that view. I do welcome other opinions and am always open to changing my view should I see evidence to support it. I have not commented what the market might be expecting, but I will now share my thoughts on the stock.

I think it ran up too much after the IPO. I currently suspect that TWLO as a company in its markets will continue to grow. I don’t think that growth will slow as much are you think it might. Because of my views expressed earlier, I believe that I can earn a good return from the stock. Personally, I purchased a 3.7% position all in the past couple of weeks or so. I added to the position before earnings and my position is currently at about 4% because the 3.7% grew to 4% after earnings. TWLO is currently my 9th largest position out of the 13 stocks that I currently own. I may add some TWLO in the future but I don’t think I will make greater than a 5% position without it growing there by stock price appreciation. The reason is that there are still doubts. Some of my views are hypotheses which will need continued supporting evidence for me to increase my conviction. On a relative basis, I like some of my other stock investment more than TWLO. While it may appear that I am super bullish on TWLO, I would say that TWLO is a bit more controversial and uncertain. I am trying to create more certainty (whether that is to the negative or positive doesn’t matter to me because I can respond by buying or selling) by getting more information and help with analysis. This is why I’ve been posting about TWLO.

Chris

3 Likes

Looking at the parts, I guess in a “reductionist” manner as it is known, vs. a holistic manner (which is a great philosophical debate in science), I wanted to go over the averages.

I do understand that Twilio uses a more complicated reporting mechanism in which it splits out contract revenues vs. variable revenue. But I am going to ignore this distinction and not go totally reductionist, but I think sufficiently enough for the point.

The high end estimate for next quarter is $92 million. Last year revenues were $71 million. If Twilio meets their high end they will have 30% growth.

Okay, so Uber is an outlier. Lets toss Uber out. Uber is expected to have $8.3 million in revenue next quarter. I haven’t take the time to calculate Uber last year, but I believe it was between $10-$12 million (please correct this if you know the figure).

Taking Uber out of the picture, next Qs revenue will be $84 million, and last year’s revenues would have been $61 million. That is a 37% growth rate adjusting for the outlier Uber. At $12 million you get 40% growth.

For a company in a hyper growth market, that is market leading by far (no question there), 37% growth is to not use big words, not good. Not good at this point in market development.

Either faster market growth is expected in the future (materially so), or this market is not the hyper growth opportunity that we want to see.

From a reductionist perspective, it is nice growth, it is healthy growth, but it is not hyper growth that would make the risk/reward scenario much more positive for us.

Now if Uber were $16 million last year (in Q3)then you get 63% growth for the rest of the business, which is a superior story to tell.

Okay, I checked. The number had to be calculated. The number is $10.725 million from Uber:

https://seekingalpha.com/article/4019353-twilios-twlo-ceo-je…

Total revenue for the third quarter of 2016 was $71.5 million up 62% year-over-year from Q3 of 2015, exceeding our original guidance of $63 million to $65 million. Overall base revenue accounted for 90% of the total in Q3.

We continue to see strong growth rates across customers of all sizes. In the quarter, our top 10 customers was 31% of total revenue consistent with recent quarters. Within the top 10 our largest customer, a base customer who uses several of our products for a variety of used cases around the globe contributed 15% of total revenue in the quarter.

WhatsApp came in at 7% of total revenue in customers 3 to 10 concluded 9% of revenue. We have a range of customers of all sizes as we go further down the list extending out to the long tail. As of September 30, 2016, active customer accounts was 34,457 up from 23,822 as of September 30, 2015. This figure includes eight variable customer accounts in both the third quarter of 2016 and 2015.

15% of $71.5 million is that before mentioned $10 million.

Therefore it can be calculated that the non-Uber growth, removing Uber from the numbers completely, shows that Twilio is guiding for 37% growth. See my comments above. Not good. Yes, there is data to support my supposition that growth has been cut in half. The numbers don’t lie. And here is to my back of the envelope calculation and memory! if I must say so myself ;).

Tinker

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I do understand that Twilio uses a more complicated reporting mechanism in which it splits out contract revenues vs. variable revenue. But I am going to ignore this distinction and not go totally reductionist, but I think sufficiently enough for the point.

I think it’s a mistake to ignore this distinction. We should be looking at base revenue. Besides I would wager that Uber’s contribution to revenue is almost all recurring. Here are the numbers for total revenue and base revenue including the percentage that recurring is of the total.


        TTL     Base    Base as % of total
3/15	33.4	25.9	78%
6/15	38.0	30.7	81%
9/15	44.3	36.7	83%
12/15	51.3	43.5	85%
3/16	59.3	49.8	84%
6/16	64.5	56.4	87%
9/16	71.5	64.1	90%
12/16	82.0	75.2	92%
3/17	87.4	80.6	92%
6/17	95.9	87.6	91%
9/17	92.0	87.0	95%  Guidance
12/17	97.8	94.3	96%  Guidance

Now we see that Base Revenue is tracking over 90% for a year now. Using a smaller denominator the ex-Uber growth will give a higher growth rate so by using total revenue rather than the base revenue which is more indicative of the future.

The high end estimate for next quarter is $92 million. Last year revenues were $71 million. If Twilio meets their high end they will have 30% growth.

BTW, $92M is not the high guidance, it is the midpoint but let’s use base revenue instead. You have $87M versus $64.1M giving a y/y growth rate of 35.7% which is already 20% higher than 30%.

Okay, so Uber is an outlier. Lets toss Uber out. Uber is expected to have $8.3 million in revenue next quarter. I haven’t take the time to calculate Uber last year, but I believe it was between $10-$12 million (please correct this if you know the figure).

Taking Uber out of the picture, next Qs revenue will be $84 million, and last year’s revenues would have been $61 million. That is a 37% growth rate adjusting for the outlier Uber. At $12 million you get 40% growth.

Ok. let’s toss Uber. You say Uber will be $8.3M in Q3. I think that’s way to optimistic. I will be lower I think. I get that from the discussion on the earnings call which stated that the impact from Uber was not really felt until the end of Q2 and the Uber decline will be more dramatic in Q3. I guess Uber revenue will be more like $6.5M in Q3. Plug that into Base Revenue and you get $53.4M in Q3 2016 and $81.5M in Q3 2017 for a recurring revenue growth rate of 52.6%.

We’re not quite done yet because TWLO management has a history of beating guidance. They admit that they are conservative and strive to beat so let’s play along with their game and increase the Q3 2017 estimate by the average beat. TWLO has been public for 5 quarters and have given guidance with a subsequent result for times (note these are base revenue beats versus guidance):


Q3'16   8.6% beat
Q4'16   9.8% beat
Q1'17   2.7% beat
Q2'17   6.8% beat

The average is 7% so let’s use that. This now changes the ex-Uber base revenue next quarter from $81.5M to $87.2M and when compared to the 53.4M you now have an ex-Uber recurring revenue growth rate of 63.3%. In Q2 the ex-Uber growth rate was 65% so this would be a slight slowing which I would call insignificant.

Sure the numbers can be massaged this way and that, but take this as GauchoChris’ predictions for Q3:

For Q3, Uber revenue declines to $6.5M.

Base revenue hits $87.2M (ex-UBER) which computes to $93.7M in base revenue versus midpoint guidance of $87M.

While I’m at it, I predict that Active Customers will grow 11% sequentially to about 48,200.

We’ll need to wait 3 months to see what they actually report.

Chris

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Chris appreciate your views and others on TWLO
But there are lots of other stocks out there that I understand better and that have steady accelerating revenue growth, so I will avoid it

I note you said you have 13 stocks. I have 14 but half of that is concentrated in 3 stocks.
I wonder how those numbers of 13 and 14 compare with other experienced investors on the board. Saul appears to have 14. I can spend several hours a day on stocks and find I can not really follow more than a handful closely. Especially if they are newsmakers like Tesla. True, 90% of the news is noise but I have to read it to filter out the rare pearls.

Since we can only buy a tiny part of the business the stock is usually more important than the business to me. Unless I can see long long runway for the business. IOW the few that I plan to hold 5 years or more. For instance I can be reasonably sure e commerce will be bigger 5 years from now than it is today.

3 Likes

http://www.barrons.com/articles/twilio-investors-need-to-get…

The earnings report, along with all the information that we discussed, comports with this analysts opinion. Twilio is not losing customers to competitors, and except for the Uber experience, there is no great run to in-house at all (if any).

From a market dominance perspective Twilio is, if anything, more dominant today in its sector than it was last year.

The market is also such that unless you are the market leader, there are not sufficient returns on capital to produce the necessary R&D to keep up with the leader.

The issue I have had is with the growth rate. Duma brought up the point of the company still mostly dependent on its legacy revenues. WhatsApp is probably the one that is most mundane. The only thing Twilio does for WhatsApp is to verify phone numbers to enable new customer registrations with the service. That is 5% of current revenues.

However, from a competitive advantage perspective, the first mover advantage here is utterly enormous. I do not know what the Chinese are doing in relation to similar technology. Twilio is clearly not so dominant around the world (at least as of yet). But outside some unknown copy cat that has its own runway of market dominance (such s might exist in China) I don’t see any track for a new firm to come in and catch up to Twilio as a serious competitive challenger.

This I like very much. This capacity, if the TAM is indeed what is expected, and if growth continues, gives Twilio the potential to be something very special.

This I say in the hypothetical. But in the end it is also the reason I invested in Twilio from the IPO to begin with. The post IPO shenanigans I could do without. Non insider shareholders clearly paid for it. But Lawson held on to most of his shares and even bought a few million dollars more on the open market in May. Smidgen for him, but a few million is a few million. I am sure he will assign it to some trust or something in the future.

The fact that Duma and I so cynically “attacked” Twilio is a good sign I think. As frankly, at this point, I think I am much better investing in what I have analytical issues with that nevertheless the market is telling us otherwise.

Tinker

1 Like

I note you said you have 13 stocks.
Mauser,

The top 5 make up >50% of my portfolio and are each at least 10% of my portfolio not including additional upside options positions (except for TLND which is at 9%). They are…

SHOP
SQ
NVDA
LGIH
TLND

These 5 are my highest conviction stocks and I think it’s possible for SHOP, SQ, and TLND to give 5-10x returns in the next 5-7 years; not saying that that will happen or that that’s my expectation…just it’s possible. NVDA could potentially change the world by providing chips for AI: picks and shovels for something that I think most companies will need to adopt to remain competitive. NVDA’s upper end opportunity is unpredictable in size, scale, and scope but there is potential downside too should another technology displace NVDA; that’s not currently in view but technology can change quickly and be very disruptive. Regarding LGIH, I think we have another 2 or maybe three years of good growth ahead but I’m not necessarily set on holding this one for the long term and I certainly don’t expect anything near a 5-10x return on this one. A sharp increase in the stock price might cause me to sell out.

Next 8 are

ANET
SPLK
HUBS
TWLO
CELG
WIX
KITE
AMZN

My conviction with these is a lot less than the first 5, and it would take less for me to let them go. I believe ANET’s (6.9% position) sales and growth may reaccelerate because they will win the CSCO lawsuit which I think may cause more customers to adopt their product solution (i.e trust that their products will continue to be supported and improved). SPLK is special situation which should play out in the coming year. HUBS has good growth and they are the experts in sales and marketing so they should be able to use this expertise to grow their own company; I like some of the new initiatives that they are beginning to employ to drive adoption and sales. My reasons for buying TWLO and WIX have been discussed extensively so I won’t repeat that here. CELG and KITE give me some exposure to biotech in an otherwise tech-heavy portfolio. The smallest is AMZN at 2.7% and it’s on the chopping block once I see an opportunity for investing those funds.

11 Likes
  1. Loses its biggest customer - I still would like to know why, how and what alternatives Uber found and will find in the future. They confuse the call with how close they are working with Uber on new products…seems like a very strange relationship…did they or did they not lose Uber???

From the call, they did not lose Uber, but the r/s HAS changed and I am not clear how–revenues are down, but Uber is expected to be a significant customer going forward. So they lost part of their business–anyone know which part?