FoolishJeff August Portfolio Update

YTD return - 45.1%

Portfolio Breakdown

UPST - 20.2%
DDOG - 15.6%
CRWD - 13.0%
SE - 10.4%
LSPD - 8.0%
NET - 7.2%
MNDY - 6.1% (NEW)
ZS - 6.0%
ZI - 5.5%
DOCU - 5.1%
ROKU - 3.0%

YTD Returns

UPST - 416%
DDOG - 34%
CRWD - 35%
SE - 74%
NET - 70%
LSPD - 70%
ZS - 41%
ZI - 43%
DOCU - 34%
MNDY - 127%
ROKU - 16%

Summary: It was a nice month, led by Upstart, as my Portfolio hit new all-time highs. After a rough spring it makes it all worth it to come out ahead by 45% so far this year. I sold out on Snowflake after it showed slowing RPO growth. I made a 50% return on my first lot shares bought in May but always kept my position smallish, around 4%, due the valuation in the PS 90-100 range. I didn’t hesitate to get out on a stock that was priced for perfection when the story started to get a little hazy. Every stock is an opportunity to get better. Snowflake’s usage based model as well as the revenue delay by new customers makes it a hard stock to follow. Last year we had similar problems with Fastly’s usage based model. The ship was sinking on Fastly but it took some work by the board to figure it out. Snowflake’s excuse for the slowing RPO amounted to “we had tough comps.” That doesn’t cut it when you are trying to only own the best.

UPST (Upstart) - Wow! This is the best stock to come along in while. It’s growing at triple digits, it’s profitable, and it’s TAM is in the trillions as it expands into Auto Lending and eventually Home Loans! And it’s still only a mid-Cap with a wide Moat- namely a 5+ year head start in AI.

-Revenue was $194 million, up 1,018% (in part due to the Covid slow down a year ago). This was 60% increase YoY
-Bank partners originated 286,864 loans, totaling $2.80 billion, up 1,605% from the same quarter of the prior year. Conversion on rate requests was 24% in the second quarter of 2021, up from 9% in the same quarter of the prior year.
-Income from operations was $36.3 million, from ($11.4) million the prior year.
Net Income and EPS. GAAP net income was $37.3 million, up from ($6.2) million in the same quarter of the prior year. Adjusted net income was $58.5 million, up from ($3.7) million in the same quarter of the prior year.
-Contribution profit was $96.7 million, up 2,171% from in the second quarter of 2020, with a contribution margin of 52% compared to a 32% contribution margin in the second quarter of 2020.
-Adjusted EBITDA was $59.5 million, up from ($3.1) million in the same quarter prior year. The second quarter 2021 adjusted EBITDA margin was 31% of total revenue, from (18)% in the second quarter of 2020.

Financial Outlook

For the third quarter of 2021, Upstart expects:

Revenue of $205 to $215 million
Contribution Margin of approximately 45%
Net Income of $18 to $22 million
Adjusted Net Income of $28 to $32 million
Adjusted EBITDA of $30 to $34 million
Basic Weighted-Average Share Count of approximately 78.0 million shares
Diluted Weighted-Average Share Count of approximately 94.9 million shares
For the 2021 fiscal year, Upstart now expects:

Revenue of approximately $750 million (vs prior guidance of $600 million)
Contribution Margin of approximately 45% (vs prior guidance of 42%)
Adjusted EBITDA Margin of approximately 17% (vs prior guidance of 10%)

Our second quarter results continue to show why Upstart has the potential to be among the world’s largest and most impactful FinTechs,” said Dave Girouard, CEO of Upstart. “Lending is the center beam of revenue and profits in financial services and artificial intelligence may be the most transformational change to come to this industry in its 5,000 year history.”

I’m not planning on selling a single share, unless it starts to go over 25% of my Portfolio and then I’ll consider a bit of trimming. It’s not SaaS, so the revenue is less reliable, but the numbers are too outstanding not to go big on this one.

CRWD (CrowdStrike) - I did a bit of trimming to this position, as it held steady in my opinion, but it underwhelmed a bit considering the great reports of competitors such as Palo Alto Networks and all the headlines about Cybersecurity.

Second Quarter Fiscal 2022 Financial Highlights

  • $337.7 M in revenue, 69.7% YoY, 11.5% QoQ
  • $315.8 M in subscription revenue, 71.4% YoY, 12.3% QoQ
  • Improving operating margins to 10.5% vs. 3.9% LY
  • FCF margin 21.8% vs. 16.3% LY
  • Added 1,660 net new subscription customers in the quarter for a total of 13,080 subscription customers, representing 81% growth YoY, 4.5% sequentially
  • ARR up to $1.34 B, 69.4% YoY, 12.6% sequentially
    -NRR 120%+
    -CrowdStrike’s subscription customers that have adopted four or more modules, five or more modules and six or more modules increased to 66%, 53%, and 29%

Raised Guidance:

Q3 2022 Outlook: Total revenue $358.0 - $365.3 million vs. consensus of $351.72M; Non-GAAP EPS $0.08 - $0.10 vs. consensus of $0.09. - If they have an average beat, looks like they will about 66% in Q3.

2022 Outlook: Total revenue $1,391.2 - $1,409.4 million vs. consensus of $1,360M; Non-GAAP EPS $0.43 - $0.49 vs. consensus of $0.39.

DDOG (Datadog)- Datadog announced a great quarter on August 5th and I was happy to keep it as a top conviction position. Revenue has accelerated from 51%, 66%, and 73% over the last 3 quarters.

-Revenue was up 67% year-over-year to $233.5M, topping analyst estimates by $21M. Adjusted earnings of $0.09 per share beat consensus by six cents.
-Customers with annual recurring revenue over $100,000 grew to 1,610 from 1,015 in last year’s quarter.
-For the third quarter, Datadog (DDOG) forecasted revenue of $246M to $248M, above the $226.4M consensus, and adjusted EPS of $0.05-0.06 versus the $0.03 estimate.
-The full-year forecast includes sales of $938-944M, up from the prior $880-890M guidance and above the $889.2M consensus. The EPS estimate raises from $0.13-0.16 to $0.26-0.28, above the $0.16 consensus.

-Both NA and International sequential growth was up 18% and YoY for International stood out at 92.7%

-RPO was $583.3 million, which was up 25.6% seq

-Pipeline looks strong. YoY growth on RPO is 53%, 78%, 81% and 103%

Strong Forecast

With an average beat it should come in around $267 million for Q3 revenues, which would be 73% growth

NET (Cloudflare) - The quarter was solid but I don’t think it justified a PS in the 70ish range. Revenue growth has been stuck around 50% and the company continues to burn a lot of cash. I cut my position to a mid-sized one. Lots of healthy and interesting discussion on the board about NET as some sold out completely and others stayed put or did some trimming.

-Revenue up 53% on $152 million
-GP was 77%

  • GAAP loss from operations was $28.9 million, or 18.9% of total revenue, compared to $24.7 million, or 24.8% of total revenue, in the second quarter of 2020.
    -Net cash flow from operating activities was $7.5 million, compared to $4.0 million for the second quarter of 2020. Free cash flow was negative $9.8 million, or 6% of total revenue, compared to negative $20.2 million, or 20% of total revenue, in the second quarter of 2020.
    -DBNRR was 124%
    -Strong large customer growth, with a record addition of roughly 140 large customers in the quarter, bringing the total number of large customers to 1,088


Next quarter’s guide is 45% revenue growth, implying another 50%+ quarter with the normal beat.

DOCU (Docusign) - Quiet month. I did cut my allocation from 10% to 5% to fund purchases of and top off Zscaler and Zoominfo. The market figured out last quarter that this isn’t just a Covid stock but it still gets no respect. It has a PS of 35 vs NET with a PS of 70. Riddle me that. I’ll keep holding as long as the report is solid and I am hoping there is some hint that CLM will move the needle in the not too distant future.

SE (Sea Limited) - It’s not SaaS and the law of large numbers will kick in at some point but it’s growing around 150% a year and the lockdowns continue all over Asia so I’m not cutting anytime soon. Also, Free Fire continues to dominate and only looks to be getting stronger. I’m up 450% since I first purchased in May of 2021, so no complaints here.

Second Quarter 2021 Highlights

Total GAAP revenue was US$2.3 billion, up 158.6% year-on-year.
Total gross profit was US$930.9 million, up 363.5% year-on-year.
Total adjusted EBITDA1 was US$(24.1) million compared to US$7.7 million for the second quarter of 2020.

Digital Entertainment
Bookings2 were US$1.2 billion, up 64.8% year-on-year.
Adjusted EBITDA1 was US$740.9 million, up 69.8% year-on-year.
Adjusted EBITDA represented 62.8% of bookings for the second quarter of 2021, compared to 60.9% for the second quarter of 2020.
GAAP revenue was US$1.0 billion, up 166.8% year-on-year.

GAAP revenue was US$1.2 billion, up 160.7% year-on-year.
GAAP revenue included US$904.6 million of GAAP marketplace revenue4, up 190.7% year-on-year, and US$250.6 million of GAAP product revenue5, up 90.0% year-on-year.
Gross orders totaled 1.4 billion, an increase of 127.4% year-on-year.
Gross merchandise value (“GMV”) was US$15.0 billion, an increase of 87.5% year-on-year.
Adjusted EBITDA1 was US$(579.8) million compared to US$(313.7) million for the second quarter of 2020. Adjusted EBITDA loss per order decreased by 19.6% year-on-year to US$0.41, compared to US$0.51 for the second quarter of 2020.

Digital Financial Services Update
We continued to see strong growth in the adoption of SeaMoney’s offerings. Our mobile wallet total payment volume exceeded US$4.1 billion for the second quarter of 2021, an increase of close to 150% year-on-year. Moreover, quarterly paying users for our mobile wallet services increased to 32.7 million in the second quarter.

“We are raising the guidance for both digital entertainment and e-commerce for the full year of 2021. We expect bookings for digital entertainment to be between US$4.5 billion and US$4.7 billion, representing 44.4% growth from 2020 at the midpoint of the revised guidance. We also expect GAAP revenue for e-commerce to be between US$4.7 billion and US$4.9 billion, representing 121.5% growth from 2020 at the midpoint of the revised guidance.”

Free Fire continues to dominate and expand, setting multiple new records

-Building on its strong performance across global markets, the game recently exceeded 1 billion cumulative downloads on Google Play. Free Fire is the first ever mobile battle royale game to achieve this milestone.
-It was ranked third globally by average monthly active users on Google Play in the second quarter, according to App Annie. Furthermore, Free Fire’s peak daily active users hit more than 150 million during the quarter.
-“We believe that few online games globally have ever reached this scale. Meanwhile, Free Fire continued to be the highest grossing mobile game in Southeast Asia, Latin America and India in the second quarter, according to App Annie. The game has now retained its leadership in Southeast Asia and Latin America for eight straight quarters, and in India for three straight quarters.”
-“We have also gained traction in certain developed markets like the U.S. where the game was ranked the highest grossing mobile battle royale game for the past two quarters based on App Annie. Free Fire was the second highest grossing mobile game in the U.S. on Google Play across all game categories in the second quarter as well.”
-“The exceptional global scale of its user base and ecosystem has solidified Free Fire as one of the largest and most popular online game platforms worldwide. We also believe Free Fire is increasingly established as a long-lasting global platform with its massive and growing user base and deepening user engagement”

ROKU - I didn’t like the report and immediately cut my position from 10% to 5%, then eventually to 3%.

Key Results
• Total net revenue grew 81% year-over-year (YoY) to $645 million
• Platform revenue increased 117% YoY to $532 million
• Gross profit was up 130% YoY to $338 million
• Active Accounts reached 55.1 million, an increase of 1.5 million active accounts from Q1 2021
• Streaming hours were 17.4 billion hours, a decrease of 1.0 billion hours from Q1 2021
• Average Revenue Per User (ARPU) grew to $36.46 (trailing 12-month basis), up 46% YoY

There were a few yellow flags for me.

  1. Management repeated for the 2nd quarter in a row that it would run into tough comps in the 2nd half of the year. This is pretty direct talk that is warning of a slow down and I tend to listen to the direct talk of management.

  2. Streaming hours were 17.4 billion hours, a decrease of 1.0 billion hours from Q1 2021. This is concerning.

  3. Active Accounts reached 55.1 million, an increase of 1.5 million active accounts from Q1 2021. The expectation was that active accounts would hit 55.8M so this was disappointing and I’m worried that this could be a trend.

  4. Increasing Expenses that will squeeze the margins. “We anticipate quarterly sequential increases in operating expenses in the second half of 2021 from our investments in headcount, product development, and sales & marketing.”

  5. Supply Chain Issues have caused a slowdown in smart TV sales and increased hardware costs for the Roku player.

On the flip side, accelerating ARPU and the impressive growth of ad impressions and spending through OneView ad tool were impressive enough that I’m holding on, hoping for a better quarter next time around. Then again, we’ll see. The fickle ad industry, the problems with hardware, and the better B2B SaaS options make me question whether I should hold on to this volatile beast that is ROKU.

LSPD (Lightspeed) - I took a small position in July after reading about it on the board. The recent report looked great on all accounts and I added to make it a mid-sized player. It’s a lower margin business at 51% and it has Covid/acquisition risk so I don’t think I’ll ever make it a large position but I can’t argue with its overall numbers.

Total revenue of $115.9 million, an increase of 220%, organic growth was 81%

Recurring subscription revenue of $49.9 million, an increase of 115%

Transaction-based revenue of $56.5 million, an increase of 453%

Net Loss of ($49.3) million as compared to a net loss of ($20.1) million. After adjusting for certain non-cash and non-recurring items such as acquisition-related costs and stock based compensation, Adjusted Net Loss1 was ($6.9) million, or ($0.05) per share1, an improvement to (6.0%) of revenue from (7.5%).

Adjusted EBITDA loss of ($6.0) million, an improvement to (5.2)% of revenue1 from (6.1)%

Raised Guidance

LSPD raised full year revenue growth from 103% to 139%.

ZS (Zscaler)- Not much news but I added to my position considering all the positive news and numbers around cybersecurity.

ZI (ZoomInfo) - Great earnings call in late July. I added a few % to my position. The numbers are too good not go go along for the ride.

-$174M rev (+57% YoY), this was a 7% beat ($11.6 M)
-GM: 83%
-Cash Flow from Operations of $88.6 million and Unlevered Free Cash Flow of $91.8 million
-uFCF margin: 53%
-1,100 $100k+ ACV customers, +69% YoY
-Q3’21 guide of $184M (+49% YoY)
-FY’21 guide of $707M (+48% YoY), 4.6% raise including $9M contribution from Chorus acquisition)


CloudL brought this to the board a few weeks ago and I initiated a position on 8/30. I posted a summary of some of my research.

  1. Amazing Numbers - Q2 was the companies first report as a public company and the results very impressive.

-Revenue up 94% YoY ($70.6 million), up from 85% in Q1 ($59 million)

-The gross margin came in at 89.7% up from 88.3% in the year-ago quarter. Wow, that is the highest I can remember since Alteryx!

-This company is a major cash burner but it did show progress on its path to profitability. non-GAAP operating margin improved from -41% to -14%

-Sales and marketing expenses were $55.5 million or 79% of revenue compared to 101% in the year-ago quarter.

-Its adjusted net loss per share, in turn, narrowed to $0.26 from $0.39 in the year-ago quarter.

-Cash, cash equivalents, short-term deposits and restricted cash was $878.0 million and no debt

-NDRR was 125% for customers with 10 users or more

-The number of paid enterprise customers with more than $50,000 in annual recurring revenue was 470, up 226% from 144, in the second quarter of 2020.

“While we have made tremendous progress in the last few years, we believe that we are still in the very early stages of our growth as a company, and our guidance for the balance of 2021 suggests a strong second half of the year as we continue to drive fundamental improvements to the future of work and collaboration for companies of all sizes globally.” said CFO Eliran Glazer.

Strong Outlook

3rd quarter Financial Outlook:

Total revenue of $74 to $75 million, representing year-over-year growth of 74% to 76%.
Non-GAAP operating loss of $26 million to $25 million.

For the full year 2021, currently expects:

Total revenue of $280 million to $282 million, representing year-over-year growth of 74% to 75%.
Non-GAAP operating loss of $93 million to $91 million and negative operating margin of between 33% and 32%.

-I am just getting to know this company but I’m really excited. Asana also looks like a pretty good company and posted some very nice results recently as well.


Previous Posts……

No update in March (I had the COVID)……

No update in June (I was moving)…