GauchoRico portfolio update 12/4/2020

For 13 years, I was known as GauchoChris on TMF. Today I changed my username to GauchoRico. The significance of Rico is that I was born in Puerto Rico, and my father wanted to name me Rico. My parents are German immigrants so there was no way my horrified mother was going to allow it.

There are only 17 ½ more trading days left in 2020. What a year. The dichotomy between the portfolio returns and the hardships experienced by tens of millions of people around the world seems almost unbelievable and it makes me feel very grateful and fortunate. I always try to look at things in a positive light, and, although I have never in one year spent more time in physical isolation, I have made several new friendships with fellow investors and learned some very valuable investing/trading skills. In 2021, I am very much looking forward to getting vaccinated and taking the many trips that I had planned and were canceled in 2020. I am also looking forward to seeing as many of my friends (including new online friends) and loved ones as possible for in person visits. Looking back on this pandemic from my own investing perspective as it was happening can be done by reading my 2020 portfolio updates in order, particularly the three updates in March and the two after that (see next section for links). For me it was interesting to read them again in order. This will be my second to last update of 2020.













YTD Performance
	**GC port	S&P500TR**
Jan     +25.7%	  0.0%
Feb     +27.7%	 -8.3%
Mar      -2.9%	-19.6%
Apr     +16.7%	 -9.3%
May     +64.7%	 -5.0%
Jun    +110.3%	 -3.1%
Jul    +144.7%	 +2.4%
Aug    +144.3%	 +9.7%
Sep    +187.0%	 +5.6%
Oct    +172.6%	 +2.8%
**Nov    +231.7%	 +14.0%**
**4Dec   +229.4%	 +16.5%**

Overall, the portfolio was up 34.2% in the month of November, but no new all-time highs were attained in November. The peak was on October 13th with a YTD return of +250.3%. From this peak, the portfolio reached a max decline of -27.2% on November 10th. Looking back at previous portfolio declines, we can see that declines happen occasionally:

Sep18 - Dec18: -37% decline
Jul19 – Oct19: -37% decline
Feb20 – Mar20: -45% decline
13Oct20 – 10Nov20: -27.2% decline

The most recent decline was swift and short-lived. I am always prepared for a 50% portfolio decline, and I do expect to experience one of those at some point (although that hasn’t happened since 2015/2016).

This portfolio update includes the first 4 trading days of December, and the movement during these days was influenced by the earnings results of ZM (11/30), CRM (12/1), CRWD (12/2), and DOCU (12/3). Going into earnings of these companies, my portfolio had a combined allocation of about 62% in ZM, CRWD, and DOCU (plus some significant short-term options bets on the earnings results of these companies). It was a whipsaw week with the portfolio down 11% on Tuesday, but by the end of the week the portfolio ended just about at the same level where it ended the previous week. It just shows how a concentrated portfolio can swing around earnings results.

Below I’ve appended new portfolio highs onto the table that I posted in my last update. The entries from 02/18/20 through 10/13/20 are reposted and the entries after 10/13/20 (bolded) are new.

02/18/20	 +40.7% <<< YTD high prior to lockdowns
03/06/20	 +21.9% <<< portfolio down 10% on the day
03/09/20	  +3.6% <<< portfolio down 15% on the day; Fear index=3
03/11/20	  +0.6% <<< portfolio down 8.8% on the day; Fear index=4 
03/12/20	 -11.0% <<< portfolio down 11.4% on the day; Fear index=2 (1 intraday)
03/16/20	 -22.8% <<< portfolio down 18.9% on the day; Fear index=3
05/22/20	 +61.0% <<< new all-time high (ATH)
05/27/20	 +47.5% <<< portfolio dropped 15% (intraday 5/27) in 3 trading days
05/29/20	 +64.7% <<< new ATH (end of May 2020)
06/03/20	 +78.8% <<< another ATH; day after CRWD and ZM earnings
06/10/20	 +79.4% <<< another ATH
06/15/20	 +84.6% <<< another ATH
06/16/20	 +89.4% <<< another ATH
06/17/20	 +92.1% <<< another ATH
06/18/20	+101.7% <<< another ATH
06/19/20	+103.3% <<< another ATH
06/22/20	+111.4% <<< another ATH
06/25/20	+114.6% <<< another ATH
07/01/20	+119.7% <<< another ATH
07/02/20	+121.4% <<< another ATH
07/07/20	+125.7% <<< another ATH
07/08/20	+139.9% <<< another ATH
07/09/20	+147.0% <<< another ATH
07/13/20	+118.6% <<< portfolio down 10.5% on the day (biggest $ drop ever)
07/16/20	+113.1% <<< July trough
08/03/20	+156.9% <<< another ATH
08/04/20	+158.7% <<< another ATH
08/05/20	+158.8% <<< another ATH
08/07/20	+108.3% <<< OUCH! Biggest dollar drop ever (and -19.5% in 2 days!)
08/11/20	 +94.6% <<< August trough
09/01/20	+177.9% <<< another ATH (day after ZM reported)
09/22/20	+187.1% <<< another ATH
09/24/20	+169.5% <<< trough
10/01/20	+196.6% <<< another ATH
10/05/20	+200.7% <<< another ATH
10/07/20	+209.3% <<< another ATH
10/09/20	+223.0% <<< another ATH
10/12/20	+234.8% <<< another ATH
10/13/20	+250.3% <<< another ATH (portfolio peak)
**11/09/20	+173.8% <<< -14.75% in one day and largest $ drop ever (ouch!)**
**11/10/20	+155.1% <<< -6.8% on the day and -20.6% in 2 days; November trough**
**11/30/20	+231.7% <<< end of November**
**12/01/20	+195.2% <<< day after ZM reported (-11% on the day)**
**12/03/20	+212.3% <<< day after CRWD reported (+7.3% on the day)**
**12/04/20	+229.4% <<< current portfolio reading**

Below is the weekly portfolio YTD performance.

                   **GC          S&P    Delta**
01/03/20	    4.5%	  0.1%	  4.4%
01/10/20	   14.8%	  1.1%	 13.7%
01/17/20	   19.6%	  3.1%	 16.5%
01/24/20	   22.1%	  2.1%	 20.0%
01/31/20	   25.7%	  0.0%	 25.8%
02/07/20	   28.1%	  3.2%	 25.0%
02/14/20	   39.8%	  4.9%	 34.9%
02/21/20	   29.1%	  3.6%	 25.5%
02/28/20	   27.7%	 -8.3%	 35.9%
03/06/20	   21.9%	 -7.7%	 29.5%
03/13/20	   -4.8%	-15.7%	 10.9%
03/20/20	   -6.8%	-28.3%	 21.6%
03/27/20	   -2.4%	-21.0%	 18.5%
04/03/20	  -12.5%	-22.6%	 10.0%
04/10/20	    3.1%	-13.2%	 16.2%
04/17/20	   18.7%	-10.5%	 29.2%
04/24/20	   20.5%	-11.7%	 32.1%
05/01/20	   13.8%	-11.8%	 25.6%
05/08/20	   37.7%	 -8.7%	 46.4%
05/15/20	   47.8%	-10.7%	 58.5%
05/22/20	   61.0%	 -7.8%	 68.8%
05/29/20	   64.7%	 -5.0%	 69.7%
06/05/20	   67.4%	 -0.3%	 67.7%
06/12/20	   74.8%	 -5.0%	 79.8%
06/19/20	  103.3%	 -3.2%	106.5%
06/26/20	  107.8%	 -6.0%	113.7%
07/02/20	  121.4%	 -2.1%	123.5%
07/10/20	  144.2%	 -0.4%	144.6%
07/17/20	  115.4%	  0.9%	114.5%
07/24/20	  113.2%	  0.6%	113.5%
07/31/20	  144.7%	  2.4%	142.3%
08/07/20	  108.3%          4.9%	103.3%
08/14/20	  102.9%          5.7%	 97.3%
08/21/20	  124.4%         6.5%	118.0%
08/28/20	  135.5%        10.0%	125.6%
09/04/20	  142.9%         7.5%	135.4%
09/11/20	  143.6%         4.8%	138.8%
09/18/20	  161.7%         4.2%	157.5%
09/25/20	  181.0%         3.5%	177.4%
10/02/20	  192.0%         5.1%	186.9%
10/09/20	  223.0%         9.2%	213.8%
10/16/20	  230.7%         9.4%	221.3%
10/23/20	  204.8%         8.9%	195.9%
10/30/20	  172.6%         2.8%	169.8%
11/06/20	  221.2%        10.3%	210.8%
11/13/20	  173.1%        12.8%	188.0%
11/20/20	  199.9%        12.0%	169.8%
11/27/20	  224.9%        14.5%	210.4%
12/04/20	  229.4%        16.5%	212.9%


     **12/04/20    11/30/20**     10/31/20
CRWD	**25.3%    22.3%**	      20.4%
DOCU	**19.4%     9.5%**	       9.6%
NET	**19.1%    18.3%**	      14.6%
ZM	**14.8%    28.2%**	      23.0%
DDOG	**11.2%    10.8%**	      12.6%	
PTON	 **3.3%     3.3%**	      11.6%	
GOLD	 **3.2%     3.1%**	       4.4%
BPRMF	 **1.3%     1.2%**	       1.5%
NEM	 **1.1%     1.1%**	       2.7%	
Cash	 **3.3%     4.6%**	       6.1%

The above allocations include leaps on CRWD, DOCU, and NET. I won’t get into the details of the breakdown of options versus shares, but these options amplify the upside and the downside of the positions. Also, 2.8% of the 4.6% cash on November 30 are reserved to make tax payments on Jan. 15, 2020.


Changes during the month of November 2020

In November I had built up my PTON position to more than 12%. After the earnings report/call, I sold about ¾ of my position. The reason was not because I do not believe in PTON’s future prospects but rather because the upside is being partially capped due to supply constraints. With a strong belief in ZM’s and DOCU’s future prospects combined with ZM’s and DOCU’s share price dropping, I decided to add to DOCU and temporarily and opportunistically add to ZM.

I sold all of my high cost basis shares of DDOG just ahead of the DDOG earnings date. This only dropped my allocation a little as I had previously sold all of my DDOG in my tax deferred account and most of my remaining shares were low cost basis shares in my taxable accounts.

I sold half my NEM shares to add to my fast growers which had declined.

The funds from selling PTON, DDOG, and NEM shares were redeployed into ZM and DOCU.

In addition to adding to ZM and DOCU, I converted some of my shares in these 2 companies to 2023 call options (leaps) to add leverage to these positions. I have previously described this tactic here:…

On November 27th and 30th, I sold some of the temporary ZM shares (added in mid-November) before the earnings. Some of these funds were held in cash while 0.5% was added to DOCU shares.

Changes during the first 4 days of December 2020

On December 1st, I sold all the ZM leaps and a few more shares to bring the allocation down to about 16% (was 30% the week prior). I will explain the reasoning behind this allocation change. The ZM proceeds were left in cash while I decide where to reallocate. I intend to sell 20% of my remaining ZM shares (hopefully for a better price) to bring the allocation down to about 12-13% of the portfolio.

On December 4th, I further added funds to DOCU based on a stellar report and increased confidence in their future.


PTON (11/5): Top of guidance was 220.2% revenue growth

DDOG (11/10): Top of guidance was 51.3% revenue growth

ZM (11/30): Top of guidance was 314.2% revenue growth

CRWD (12/2): Top of guidance was 71.8% revenue growth

DOCU (12/3): Top of guidance was 45.1% revenue growth

The earnings reports of our portfolio companies always give us new information that must be absorbed, processed, considered, and then, if appropriate, acted upon. This was very true for me this past quarter. Other posters on Saul’s board have given good summaries of the companies and the results. Instead, in this section of my portfolio write-up, I will focus on (for each company listed above) the following:
a) my preconceptions going into earnings,
b) the most relevant information (IMO) from the earnings results and management’s commentary,
c) my conclusions and subsequent actions.

Let’s go in order of when the companies reported starting with Peloton on 11/5:

PTON (11/5): I first bought PTON in October, and, as the earnings date approached, I substantially increased my position to about 12% of my portfolio. I wrote about PTON in my last portfolio update (10/31/2020 see link above). To briefly summarize what I liked about the company: spectacular growth, tremendous user and engagement and ecosystem (Apple-like), and an aspect of recurring revenue. I also liked that I believe many other people view PTON as a WFH pandemic play that would reverse after COVID. PTON was gaining traction before the pandemic, and my view is that Peloton will continue rapid growth after the pandemic. My one concern going into earnings was PTON’s ability to meet demand with enough supply. There were stories of delays at the Los Angeles port where the Bike shipments must go through to the get to the large US market from PTON’s factories in Taiwan. The long supply chain was a concern here going into the very crucial holiday selling season. I also ordered a Bike in late August and then ordered a Bike+ in late September. I also knew of several friends who were also buying the bikes so I knew first hand how long their fulfillment delays were.
PTON’s results were great. They exceeded revenue guidance and raised full year guidance (note the FY ends in September so they just reported Q1 FY21). Everything was good except for the delays which also led to subpar customer service. They said on the call that demand was very strong but supply would be an issue for the foreseeable future. While my view of their story, the demand for the product, and what will happen to demand after the pandemic were all unchanged, I decided that the supply issues were going to be a problem for 1-2 more quarters. I also weighed that PTON has about 8% churn so their “DBNER” (if you can call it that for PTON….I say that more because my alternative investments are mostly SaaS companies which have DBNERs) is around 92% compared to 120+% for my other investments. Thus, I decided to cut my PTON allocation from about 12% to about 3.5% after getting this new information. I decided to buy DOCU and temporarily park some of the PTON proceeds in ZM because ZM shares were down about 35% from the high (and I thought this drop was undeserved and likely to reverse).

DDOG (11/10): DDOG had run up to $120 and was looking expensive when compared to the other positions in the portfolio. I was concerned about the revenue deceleration and possible further revenue deceleration going into Q3 earnings. I decided to lighten my position by selling all my shares in my tax deferred accounts and all my high cost basis shares. The allocation cut was only about 2% in terms of allocation. At first glance, the DDOG report looked not all that good to me, and this result was a bit more complex to decipher. But some good discussion by members of Saul’s board ensued. Also, the numbers, IMO, were good enough considering all the partnerships and FedRamp approval that could boost growth going forward. Thus, I decided to make no further adjustments after the earnings results were released.

ZM (11/30): I knew the ZM results would be the hardest of all the companies to predict. The range of possible outcomes was VERY wide. I thought on the low side they might come in at $750M revenue and on the high side over $900M revenue. I was very optimistic with a 30% allocation (temporarily and opportunistically boosted from 23%) on the Friday prior to earnings. I also had placed some options bets totalling about 1% of my portfolio to capture tremendous upside should ZM report an absolute blowout; the risk reward on this bet was too good to pass up. But, at the same time, I did lighten my allocation from about 30% to about 28% by selling some shares on the day of earnings but before the result became public. The results were within the range of my very wide prediction but on the lower side. The guidance was very strong. I lost my options bets, but the size of the loss was tolerable. My disappointment in the report related to three main things. First, I was expecting massive adoption by enterprise customers. In the prepared remarks, CEOs of SaaS companies typically highlight notable customer wins. Eric Yuan highlighted three, only 2 of which were enterprises. I was very disappointed that ZM could not highlight any impressive customer wins. This disappointed me because it left me wondering if they had any great enterprises adopt ZM in Q3. It’s now a concern for me: is ZM getting enough new Fortune 500 logos to adopt Zoom for video conferencing? Now I don’t know. The second disappointment was an almost lack of information on Zoom Phone. Prior to the Q3 report, I was expecting ZM to show some real sales traction on Zoom Phone. We hardly got any evidence of that and I think it’s important because Zoom Phone should be a very important driver to sustain future growth. Now I’m left wondering about the growth in calendar 2021. The third disappointment was the information on OnZoom: they said on the call that they expect no meaningful revenue contribution from OnZoom until 2022. Ouch. I was expecting to see meaningful revenue from this in 2021. Another growth driver for 2021 gone. Add to this the uncertainty of churn when the pandemic ends (note that 38% of revenue comes from customers with less than 10 employees and these customers are not included in their 130+% DBNER calculation). All this new information together changed my view of how much growth may slow post-COVID: I was hoping for 50-60% growth after COVID and now I’m thinking 35-40% seems more realistic. Long-term I think Zoom is still a Google-like company, but now it doesn’t deserve a 20+% position in my portfolio. On the day after earnings, I cut my ZM position to 16% (I sold my leaps first followed by a few shares). I plan on cutting another 20% of my remaining ZM shares over the next few weeks which will leave me with a 13-14% allocation. But cutting down the ZM allocation left me with a larger cash position than I normally like.

CRWD (12/2): CRWD has been one of my top 2 positions for a long time now. When you consider that most of my CRWD position is in the form of LEAPs ($50 and $60 strike prices), it is clearly my largest position. It has been growing consistently in the mid-80%s for a long time and it has clear tailwinds from COVID. It is not a work from home stock, but that’s what most people think it is. It is actually a work from anywhere which is an important distinction because work for anywhere is the new normal. Security is one of the first if not the very first step in a digital transformation. CRWD is cloud based security and they are the leader. They have the advantage of getting more effective the more devices are connected to their network. They punch WAY above their weight class in terms of valuation, probably because security companies have a history of getting disrupted. I think that anyone who thinks that CRWD is likely to get disrupted is going to turn out to be wrong (good for me because it made buying the shares for less possible). CRWD has many drivers to sustain its growth: international, more and more modules that can be cross-sold, a growing market (i.e. increasing TAM) with a large portion yet to be captured, a long way to go in the world’s collective journeys to the cloud and digital transformation. CRWD also seems to have excellent marketing and a world class executive team. I can’t really find much wrong with CRWD, and, unlike Zoom, CRWD, IMO, has clear sailing after the pandemic is over. So going into earnings, CRWD was my highest conviction position. I placed some options bets on CRWD but not as many as I had placed on ZM. Going into earnings, I predicted CRWD had a 5% chance to show a small revenue growth deceleration, an 85% chance to maintain its mid-80%s growth rate, and a 10% chance to show a nice acceleration in revenue growth. They maintained the mid-80%s growth rate, provided solid guidance, and provided a quite rosy and upbeat commentary on the earnings call. Absolutely nothing wrong that I could find. After results, I collected my winnings from my options bets (which offset a large portion of my ZM options losses from the day before) and maintained CRWD number one and highest allocation position.

DOCU (12/3): I want to provide a shoutout to stocknovice for getting me interested in DOCU. DOCU is my newest position (first bought on 10/12/20) and if not for stocknovice’s excellent write-up and analysis I would have not looked at it more closely. After I sold ¾ of PTON, DOCU was a clear choice for me to increase. IMO there’s a lot to like about DOCU: accelerating growth in revenue and in customer adoption, a relatively (compared to other SaaS companies) reasonable valuation, a rock solid market dominating position, a very large TAM with many years of growth available, and some new initiatives/products (AI-based solution and notary), if successful, can really add another leg to its growth (and double its TAM). I had high hopes going into earnings and I increased my position from 9.5% to 15% in the days before the Q3 earnings announcement. I also placed some options bets on the earnings results. DOCU reported the Q3 result yesterday. Growth continued to accelerate and everything is playing out as well as I could have (and did) hoped. My own thoughts about DOCU post-COVID were shared and explicitly stated by the CEO on the earnings call: that is that the customers who have shifted to DocuSign are not going back to paper. I increased my position on DOCU further today. For me it feels really great when I gain clarity on how I should allocate the positions in my portfolio. Much of my ZM proceeds have found a home in DOCU.

The clarity I feel can be summed up like this: My highest 3 conviction stocks are CRWD followed by DOCU and NET. I have confidence that their growth trajectories have all be enhanced by COVID in three ways: a) growth accelerated but not pulled forward at the expense of future revenue (it’s pull forward in adoption which does not take away from future revenue but adds to it), b) new products that fit the new post-COVID world and provide new growth opportunities, and c) increased market dominance provided by the appropriate product-market fit at the right time and the scale required to reinforce that dominance. It is clear to me that all three companies possess these attributes and they deserve to be top tier companies in the portfolio. ZM was there until recently but the concerns that I mentioned above and the risk of their second acts not being blockbusters has knocked ZM down a notch in my portfolio. DDOG is still expensive and their future dominance is not as clear to me; the winner in their market is not yet set in stone as it appears to be with CRWD and DOCU (and probably ZM and NET); but DDOG is making great progress and the partnerships with all the Cloud titans is a great step to establishing dominance. While PTON has great potential, its success in post-pandemic times is not assured to the same degree as it is for the others. In addition, PTON’s reliance on non-digital goods (i.e. exercise equipment) makes scaling the business slower and more challenging as we are witnessing with their protection ramp and supply chain issues. Thus, despite PTON’s high growth rate, it can’t have as high an allocation.


If you watch the financial news you will hear a lot about WFH stocks, reopening stocks, cloud software stocks (which have gotten a lot of attention due to the run up in stock price in 2020). IMO many of these talking heads don’t have the time and have not put in the effort to research and really study in a deep dive kind of way many, if any, individual companies (stocks). You will hear some talk about 1999 and the internet bubble and warn that the software stocks are great now but they will get crushed. Many talk about a barbell approach which is having some growth stocks and some that will (as if they know) do well when COVID is over. The problem with what they are saying is that they are generalizations. We look at EACH company on its own. We don’t lump everything together as in the market or a sector. Sure, sectors will rise and fall (in terms of stock price) together often, but it is each individual company, its financials, its dominance in its space, etc that will determine in the long run how well its stock will perform. We are trying to pick the fastest growing companies that are and will continue to dominate; these things are required for longer periods of sustained revenue growth (and EBITDA growth) that will be necessary to earn market-crushing returns. We want to select the companies that will be the winners and our analysis of the companies, their markets, their competitors, and many other factors are needed to have a chance of success at picking winners. It is this long, sustained high growth over many years that protects the stocks should we see valuations compress. If needed, the companies can grow into their valuations if valuations compress (assuming the high growth continues on).

When I compared my portfolio today to my portfolio from a year ago, I noticed that the market cap of the companies in the portfolio is much higher today than a year ago. Most of my companies a year ago were less than $10B in market cap. Today, they are mostly much higher; here are the approximate market caps of the growth companies in my portfolio:

ZM: $117B
DOCU: $45B
CRWD: $37B
PTON: $33B
DDOG: $31B
NET: $24B

Yes, their stock prices have risen (which contributes to market cap increase). But each company’s market dominance is much greater now than it was a year ago. That’s what we want. We want dominance so their futures will be more certain. We want dominance together with hypergrowth. When I look at the top 6 positions in my portfolio which make up 90% of the portfolio, I see a group of companies that are dominating AND hyper growing. And that gives me comfort when others say my companies are overvalued and due for a crash. When I see dominance fading or growth slowing too much I usually move on to a different horse.

GauchoRico (aka GauchoChris)


Hi Gaucho Rio, and thank you for a great monthly write-up.
I’m wondering what you use to track your daily progress as was shown in your write-up.
Personally, I use an excel spreadsheet that requires me to manually input my aggregate %’s of each company to determine my overall % for each company. I have several accounts that I track for my wife in two discount brokerage companies. It works, but it is a bit of a pain rather than if I had something that auto-populated each day.
Do you use a subscription service of some sort?
Thank you for your help.
Tony aka sjo

My apology, as my attempt to send it to Gaucho Rio via email was obviously not successful. I’ll understand if my post is deleted.

Hi Chris thank you for posting your portfolio review on Saul’s Board. I have a question about your decreased confidence, as observed in decreased allocation, in Zoom. I’m sure you have taken much into consideration is arriving at your decision. I’m posting my reasoning for my level of confidence here because I wrote it in response to your reasoning.

My post-Q3 Zm analysis:
TLDWR: Salesforce utilizing Slack for orchestration, and Zoom fully integrated with Slack, will allow a toe hold for Zoom into these largest of Enterprises.

Well sales were 777M so accelerated from huge base with 17% over last Q; but, not the $909M I and the market was hoping for. They crushed the 635M expectation; but, dropped after hours. Share price has been steady around a $405 price. I believe Zoom will grow well as a company; but, will the share price zoom again?

I agree with GouchoRico that in order to do so they will have to move into large Enterprises in a big way. One of Saul’s posts emphasized how amazing 30.4% sequential growth in >$100k customers is. In order to believe Zoom will maintain high levels of Revenue Growth going forward, I need to believe that Microsoft Teams, being in most large enterprises, is going to be further displaced by Zoom.

I do see reason, among the prior posts here, to question GouchoRico’s reasons for decreasing his confidence in Zoom’s future here. The over arching fact that Zoom’s land and expand journey includes moving from an Active Host to a Named Host raises my confidence. This was explained well here…… and here…

I listened to a pod caste on AkemsRazor (looking for the link) where the point was made that every new start up is using Google Docs and Slack to build out their businesses because when Slack is used for orchestration they can use all the best Saas tools (CRM kit etc.) rather than ‘just settle for’ Microsofts bundle of second rate competitors.

To my point today. MS Teams is positioned in most of the largest Enterprises and Zoom now, thinking post COVID, has to compete with Teams to enter those largest of enterprises. My understanding of how large a role Salesforce, now combined with Slack for orchestration, could have in moving Zoom into larger Enterprises is limited. I do understand Salesforce is the fastest growing software company in history and Salesforce also has a history of making large mergers work extremely well. I believe that with Zoom being integrated into Slack and now Salesforce/Slack bringing Zoom into these largest of Enterprises will afford Zoom at least a bottom up sales motion that could move the needle in the direction of greater than the 18% of Zoom sales coming from >$100k customers presently.

Admittedly my insight in the Slack/Salesforce significance seem thin in and of itself; but, in combination with the reasoning of Nilvest (linked above) and what was in the CC regarding Active Host vs Named Host designation, I maintain a 20% position. I’m wondering if the above has given you any greater or lesser confidence in Zoom as a portion of your portfolio.

If you’ve read this far or not thanks for years of help,




Thanks for posting that. You presented some interesting ideas on how ZM could move more into the enterprise market. The one thing that we are agreed upon is that ZM must have success in the enterprise market to make our investment worthwhile compared to other alternative investments. Your question for me at the end of your post was…

I’m wondering if the above has given you any greater or lesser confidence in Zoom as a portion of your portfolio.

The short answer is no. But I need to explain, but first let me put how I read your question into context…

I have received some private messages in response to my portfolio update with respect to my changed view of ZM as an investment. Some people viewed my reasoning as a bashing of ZM. That is not the case at all. I currently hold a 14.8% position in ZM which is quite large. ZM remains one of my top 5 companies which collectively make up about 90% of my entire portfolio. Thus, ZM is still a large holding that I don’t intend on abandoning. I only hold one position over 20% allocation. Yes, ZM has dropped down in confidence and is currently lower in confidence (IMO) than CRWD, DOCU and NET. Why?

Yes, ZM reported excellent top line growth and excellent top line revenue. I also have very high confidence that ZM will report a great Q4 (and probably also a great Q1 FY22 (April quarter)). Jason, you said it throughout your argument: to succeed ZM has to steal enterprise business from MSFT. Can they do it? You think so. I say maybe. Even if I think it’s probably, I will say show me the money. Show me the evidence that they are succeeding NOW (as in the quarter that they just reported). I didn’t see enough of it. When I compare ZM to DOCU and to CRWD, I see an important difference. I see VERY compelling data and evidence that CRWD and DOCU are ALREADY winning where they need to win for the investment thesis to play out how I need it to play out. I would go as far to say that DOCU and CRWD have essentially already won. All the metrics and all the rhetoric from management support my belief that CRWD and DOCU are winning so much that they have essentially won already. Won already with a lot of room to grow and new products to build on their success. The difference is the ZM has gone (for me) to already won to probably/maybe will win. For me, I will allocate money based on evidence and the rhetoric lining up with the hard evidence/facts. So in my portfolio, this is the reason when ZM gets cut from 20%+ allocation to probably 12-13%.

To expand on the evidence that I saw in the ZM result to support my lesser confidence (move from almost sure thing to a probably/maybe):

  1. not enough evidence of important new enterprise customers which was shown by the customer win examples that they decided to highlight in the earnings call (did they not get more important enterprise customers or did they not have any) and a lack of saying that enterprise customers are flocking to ZM. I wanted to hear those things. By comparison, CRWD highlight TGT as a new customer. Massive win implemented in 10 days! >300,000 employees! Holy smokes! ZM got, er, Peloton.

  2. Zoom Phone will probably be success. But management would show me enough evidence by not sharing metrics on it. Thus, this is still a maybe/probably as opposed to “we’re winning here and now”.

  3. OnZoom revenue not coming in a meaningful way in calendar 2021. It’s still far away so not a winning now thing but still a maybe in a year. We need to wait a year to find out if they start winning.

  4. Note that ZM reported their DBNER at >130%. But (and this is very important) that metric only applies to customers with 10+ employees which is currently 68% of their total revenue. This means that 68% percent of their revenue grew (grew as in the past 12 months) by >130%. BTW, the growth in customers >$100K in revenue is also backward looking. There are three things here that leave me wondering how fast they will grow when the pandemic is over. First, DBNER is backward looking and we likely got a lot of growth because of the pandemic. When the pandemic ends, what will happen to the growth rate? Will it continue to be high. For me, that’s another big maybe. Second, how much faster that 130% was it for the 68% of revenue? Was it 130% exactly or was it 169% or something else? This is important because of the third thing (next). Third, how fast was the other 32% of ZM’s revenue growing? These are the small customers which must include individuals like me who have a Zoom subscription. These are the customers that ZM is trying now to lock in with annual contracts because they know these people might cancel their subscriptions post-COVID. How much of this 32% of revenue be there when COVID-19 is over? Will they lose half? I would think that they will have negative growth for 32% of their current revenue.

So, in conclusion on this point, I really don’t know what their growth rate would be like when the pandemic ends. Before the Q3 earnings report, I figured it would drop from 300%+ growth to around 50-60% growth. But now, I think it might be more like 35-40%. Really don’t know. It’s hard to gauge. I don’t feel that way about DOCU or CRWD. But I’m just guessing. Overall, my confidence is lower and ZM as an investment is less of a sure thing (yes, I know there is no such thing as a sure thing) than it was before I got the Q3 update. On the other hand, DOCU became more of a sure thing and CRWD maintained its super status of companies/stocks in my universe.

I hope this clarifies my thinking on ZM and on ZM relative to my alternatives. After all, when we manage our portfolios we want to allocate to the companies that we think are growing the fastest but also in the companies that we think are most likely to deliver what we think they need to deliver.


PS: I also jumped on the Twitter bandwagon today…started an account under the same username as the one that I use here.


ZM phone is likely a mistake. Amazon and Microsoft tried very hard and failed.


Hi GR, just wanted to say that this post is a model of clarity on thinking. Really appreciate it the level of detail you went into here.




Zoom Phone is a cloud phone service for businesses, not a hand-held smartphone. The biggest players in this space right now are companies like Vonage and Ring Central. This size of the hosted PBX market is currently estimated at $7.5B annually, and growing at about 15% per year.



Hi Jason / WillO208,

You mentioned my post on ZM on another thread.
FWIW, my conclusion is same as GR’s.

GR’s portfolio review says his thoughts on why he reduced his position (from his top one or two level)… I said why I am still holding my position…

The difference is, my position in ZM is already 4th in my portfolio after CRWD, ROKU and SQ.

So, I do believe ZM has growth ahead and will be patient, it is of lower conviction for me compared to my top 3… which is what GR is saying as well (as I read it).

hope that helps.