Gimme Just One Reason

[Champico33]

Given the ebbing (somewhat) of the wholesale and unbridled passion and enthusiasm for formerly/currently held SaaS companies (In some critically important quarters) I took precaution with the following actions today:

Moved MNDY to the Bench.

Traded DDOG and NET to the Market for cash and players to be named later

Maintained rock solid (unless that changes) Bench positions for CRWD and Bill

Sheepishly, re-added MELI back to the portfolio. I am nothing at all if not hardheaded. The position was added at $1,247 and some change which just so happens to be several dollars below my last entry.

Started a new relatively minor position in TSLA - albeit with not a little self disdain and skepticism. The impetus for adding the car company was actually an article about some town/subdivision outside Orlando in which every home being built will have TSLA Solar Roof stuff. Seems reasonable. Note: one of the super duper services I subscribe to says that if a certain price breaks - forgot that actual certain price, then it could be a long, long way down for TSLA. If that were to happen I would consider myself irredeemably cursed and snake-bit. So theres that.

Now all this shift in sentiment for SaaS companies is actually a day late and a dollar short. Would have been much, much better to have come up with this idea about a year or so ago. That said - ain’t no one - even the best of us, got a sure fire crystal ball. (Although admittedly - the Never Wrong Stock Swami comes remarkably close - alas, was out of batteries at the time.). But - in my heart of hearts I do not believe that SaaS companies are having their Dinosaur End Times moment. Sure… they may not be as elite and uppity as they once were - but some recent ER performances proves semi-assuredly that their relative futures aren’t entirely behind them. So - just let them give me another reason - another single solitary reason, and I’ll turn my portfolio back around:

https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=&ved=2ahUKEwjCobWgiOn-AhWcnWoFHXKiB3YQyCl6BAggEAM&url=https%3A%2F%2Fwww.youtube.com%2Fwatch%3Fv%3DV6hQ9HSKlIE&usg=AOvVaw3lgp0xPDkedWKkZ8czg2ye

Ain’t it the Truth!

All the Best,

[Raylight]

@Champico33

So - just let them give me another reason - another single solitary reason

Well… Cloudflare will have a Developer Week with focus on developer productivity and AI next week. I expect a couple of interesting announcements, but since AI is totally not a thing right now, it’s probably nothing to rave about.

[Champico33]

Hi Raylight:

There is no doubt that Cloudflare and AI might be a thing. But when and to what degree? But even if so - do you think NET is the only company that might benefit from AI? If not, who are the others and to what degree might they benefit? More - or Less, than say…NET.

I saw a series once called ZULU and one scene has always seemed like wise advice to me.

In the scene the ZULU King explains how to catch a monkey:

“You hollow out a long neck gourd and then put something shiny in the bottom. The monkey comes along - spots the shiny sparkly thing, reaches in and grabs it. Even when being chased it refuses to let go and with his arm in the gourd can’t climb or get away and he is easily caught.”

Now I’m not saying that AI is NET’s shiny thing in its hollowed out long necked gourd -not at all. But timing in life is critical and so for me the question is when is this plethora of vast AI wealth scheduled to roll in? Even Warren - along with Elon, have mentioned that AI will change the world but it didn’t seem to help NET all that much this past Qtr.

I read the discussion on Saul’s board a couple of times to make sure I had the gist of the argument from both viewpoints. And I found it to be a tough decision to sell out of a company I had been in for several years. But in the end, it boiled down to the debacle with the 100 or so underperforming sales people combined with the comment that up till now the product was sooooo good it sold itself. I just couldn’t get that reconciled with how well oiled companies work. I say that from experience turning around underperforming companies and building several of my own.

So what now? Well…at least in my mind, NET’s next Qtr will tell the tale - maybe the next two - and, I will try to wait patiently until I decide not to. Other than that - thats all I got; However, this article from SA lays out the low points/high points and potential future for the company much better than I can:

Cloudflare Stock: Bull Case Busted? (NYSE:NET)

Thanks to your comment and the article noted above there appear to be many good reasons to be a NET owner - but perhaps not just yet.

All the Best,

[mostlylong]

@Champico33

And I found it to be a tough decision to sell out of a company I had been in for several years.

This is a good one to see how people react. I stayed in.

Why?
NET has delivered last few years on their financials,
No expert here, but I like their pace of innovation - this creates ongoing opportunities to grow TAM.
I like the concept of an edge cloud that they are putting together with storage, compute, security, and networking (as best I understand it).

All/many software company financials slipped through this slowdown. I don’t see NET’s slide as any different than the others.

They did misjudge their guide, but again, this is a very uncertain environment.

As far as the sales realignment, we have to trust in management, unless we have more details. And at the end of the day, investing in any of these companies is putting tremendous trust in management.

If they can improve their sales machine, then this means some upside. If it goes the other way, then we’ve got a pile of discards in a heap that we can add this one too.

[Champico33]

Hi ML:

Well said. I think the logic works well for either side of NET conversation one chooses to take. And thats exactly how the market is supposed to work. Thanks for your comments and I will certainly keep them in mind.

As an alternative thought, discussion of NET is not a zero sum game. The money from NET will - at least temporarily, go into other investments. Will they do as well as NET? Thats the real dilemma here: whether NET will produce a better investment going forward than an alternative.

Good luck with NET and I might soon return to the fold - it all depends on performance.

All the Best,

[Raylight]

Doh! My original post was a bit more elaborate, but I cut the bulk of it and failed saving what was cut. Here goes an attempt at recreating the rest, and to add a bit more.

@Champico33

I read the discussion on Saul’s board a couple of times to make sure I had the gist of the argument from both viewpoints. And I found it to be a tough decision to sell out of a company I had been in for several years. But in the end, it boiled down to the debacle with the 100 or so underperforming sales people combined with the comment that up till now the product was sooooo good it sold itself. I just couldn’t get that reconciled with how well oiled companies work. I say that from experience turning around underperforming companies and building several of my own.

IMO, there was a lot of detracting noise after earnings. For my part, I gave up on presenting a viewpoint (not that mine should matter^[1]), and turned my attention to buying shares on fear, doubt and skepticism.

Rapid shift in macro caused significant elongation in sales cycle, and with NET’s rapid sales cycles, effect and uncertainty shows up quickly. Improving their GTM is a positive (i.e. room for upside) and a project that began more than a year ago, i.e. there’s nothing incremental on that front. Presenting these things together wasn’t the brightest idea, so they used part of Investor Day to bring clarity on this and a whole lot of other things.

I strongly encourage anyone interested in NET to watch the Investor Day webcast(s):

https://cloudflare.net/events-and-presentations/events-calendar/event-details/2023/Cloudflare-Investor-Day-2023/default.aspx

Especially the the investor session (https://customer-eq7kiuol0tk9chox.cloudflarestream.com/ade31ae2b5d9ddbea4b47c667cdaea05/watch). It’s a loooooooong ^[2] webcast, so to save some time:

• ~1:04:00: Marc Boroditsky - Go-to-Market
• ~1:26:00: Thomas Seifert - Macro, guidance, metrics, unit economics, and more
• ~1:48:00: Q&A session

I’m not going to transcribe the whole thing, so just a part where Marc starts off:

Before we get started, I want to take a moment and address a misunderstanding that took place on earnings call last week. You may have heard that fish are jumping in our boats and we discovered that
some of our team members don’t know how to fish.

We also adjusted our guidance last week. That was due to the fact that we were seeing softening in the market, showing up in form of elongated sales cycles. Specifically in Q1. And we took the step to adjust our plans for the year. Assuming that this is going to continue for the rest of the year.

I want to be clear. Our guidance and our announced go-to-market talent changes are two separate issues.

They’re laying it out in full and then some. The Q&A provides their reasoning behind wanting to announce “talent changes” on their earnings call along with acknowledging that they should have been more clear.

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Ultimately, decisions made depends on sources of information, and one thing about this whole debacle that I find useful is that you have prior information (heated debate and various claims) that can be matched against subsequent information from another source (Cloudflare’s own statements).

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@Champico33

There is no doubt that Cloudflare and AI might be a thing. But when and to what degree? But even if so - do you think NET is the only company that might benefit from AI? If not, who are the others and to what degree might they benefit? More - or Less, than say…NET.

Well, obviously not the only company that will benefit. The question for me on that front boils down to finding companies that satisfies other conditions as well. Market cap being one of them, certainty/uncertainty another, track record of staying at the forefront yet another. I also believe that a lot of promising companies are currently to be found in the private equity market.

Regarding NET, they’re already capitalizing on AI. But there’s one important thing to note, that pretty much goes for everything related to their developer platform (…and other areas, but especially there). They’re being strategic. Disruption, adoption, and positioning comes first. Revenue follows. In general, they want to remove every possible excuse not to plug into their network.

What I would speculate being viewed by many investors as the holy grail (and certainly so when it comes to developers), would be “Workers AI”, i.e. being able to run AI models directly on their servers. It’s been more than two years since Cloudflare announced a partnership with NVIDIA, to bring AI to the edge. Been pretty quiet on that front since then. The most recent official word on that I’ve been able to find is “Working on it.” (source)

So this is something that will happen sooner or later. I’m hesitant to speculate on sooner vs. later. On one hand, they’re working on their Gen12 server architecture, and along with other tidbits of information one could arrive at “later”. On the other hand, I’m really not going to bet against NET pulling a rabbit out of it’s hat, especially when there are breadcrumbs that could point to “sooner”.

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Anyway, the company is one thing, stock performance another. What the stock will do is anyone’s guess. For some it made sense to buy on weakness, for others to sell.

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1. Although perhaps a point of view that’s of some use, since I don’t subscribe to newsletters etc and instead rely on (literally) hundreds of hours on my own independent research on this company. ↩︎

2. loooooooooooooooooooooooooooooooooooooong ↩︎

[Champico33]

Hi RayLight:

Well reasoned and of course your viewpoint matters. I personally have found your posts well done and food for thought. Thank you for that.

No matter which side of the debate you are on - this is funny stuff:

“Before we get started, I want to take a moment and address a misunderstanding that took place on earnings call last week. You may have heard that fish are jumping in our boats and we discovered that
some of our team members don’t know how to fish”.

And this is just plain puzzling:

“I want to be clear. Our guidance and our announced go-to-market talent changes are two separate issues.”

These may in fact be separate issues to NET execs but for me they are problems - ingredients as it were - in the same pot of boiling soup. How can one ignore that the company had a 100 sales folks - which is 20 more than an entire Roman Century, and evidently they just somehow stumbled across stats proving that those people didn’t know how to “fish”?

Still - I see your side of things and perhaps as I think on it enough your argument may sway me - however, for now I remain on the sidelines.

And while I am here - let me mention one more time, your viewpoint matters and contributes to the body of thought and knowledge when it is expressed. The vast majority of folks who are Fools do so in a Lurking capacity which is certainly their right - however, many could contribute greatly if they would so choose.

All the Best,

All the Best

[Raylight]

@Champico33

Well reasoned and of course your viewpoint matters. I personally have found your posts well done and food for thought. Thank you for that.

Thanks. Let me rephrase. I meant that I’m keenly aware of that whatever gets written might influence other people’s investment decisions. So in the context of e.g. a heated debate I put myself in the shoes of a random stranger somewhere on the internet who might blindly follow what’s said and (claimed to be) done. That’s the “should not matter”. It was kinda a disclaimer, or an extremely condensed version of this thought process.

@Champico33

“I want to be clear. Our guidance and our announced go-to-market talent changes are two separate issues.”

What’s meant is that go-to-market talent changes isn’t anything new, i.e. it was already factored in when giving guidance back in February. From their Q4 call: “In our guidance, we have not factored in any improvement in the macroeconomic environment or from our go-to-market initiatives.”

Their Q1 call made for a confusing mess, and Marc’s remarks are a small part of wanting to clear up that mess. There’s a lot more detail in the Q&A session. I haven’t been able to find a transcript, so unless you can find one I’ll have to refer to the webcast.

[Raylight]

@Raylight

So this is something that will happen sooner or later. I’m hesitant to speculate on sooner vs. later. On one hand, they’re working on their Gen12 server architecture, and along with other tidbits of information one could arrive at “later”. On the other hand, I’m really not going to bet against NET pulling a rabbit out of it’s hat, especially when there are breadcrumbs that could point to “sooner”.

@All the best

Strike that. Found enough information to speculate, and as a token of appreciation for all your excellent (and funny) posts, I’ll make this board my initial target for said speculation.

I’m gonna go with sooner. Looks like Cloudflare will announce something called Constellation, which translates to the product name for running machine learning models with Cloudflare Workers. It will allow you to run low-latency inference tasks on pre-trained machine learning models natively on Worker scripts. Cloudflare will provide a set of ready-made models for common tasks, and you’ll also have the ability to upload and run your own models.

Actually, this is not really much of a speculation. Their developer platform is mostly open source. I’ve recently noticed this thing called “constellation” showing up in their code base, and could see that it allowed you to list and upload AI models, to do… something. Yesterday, the missing piece for 100% certainty about “something” showed up.

So, since I promised speculation, here goes: I find it highly likely that they’ll announce this next week, possibly as open beta.

Bringing hardware accelerated machine learning to their edge network is pretty big deal imo. Apart from the obvious, it’s also a perfect fit for other services, e.g. zero trust.

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Let The Big Dog Eat!

[Champico33]

Good Morning RayLight:

Speculate away my friend but could you maybe do the deeper dive speculation on a sort of mid-afternoon speculation schedule in lieu of early morning speculation? Personally, and I’m not just speculating on your speculation, I don’t think all that well before noon or so. It’s the wine you see. So… I’ve read the sentence noted below several times now and while it appears to be clearly written and plainly, but only through inference that you took the time to write it, important in some applicable way or the other - if its not to much of an annoyance - could you write it all out again but perhaps a little slower? What does this mean - why is it important - and is it something that all the other various and aspiring AI related companies that want to do the same thing but simply haven’t thunk it all up just yet - are simply to stupid, dull or incapable of doing it to begin with?

“It will allow you to run low-latency inference tasks on pre-trained machine leaning models natively on Worker scripts.”

In other words - could you break this to me a little slower - you know - exactly like you’re explaining things to a six year old. Consider this as potential script:

There are Two middle aged brothers - one is a lifelong bachelor and a professor at a major university whose sole living companion is his much loved cat - while the other is happily married with two wonderful children.

Bachelor Brother calls Married Brother: Steve - how are you, Mary Lou and the kids? Look - I hate to be a bother, but I’ve been offered a six month visiting professor opportunity at Oxford in England.

Married Brother: Wow thats great Bob - when do you leave?

Bachelor Brother: Next week - but I’ve got a problem that I was hoping you and Mary Lou could help me with.

Married Brother: Sure Steve - how can we help.

Bachelor Brother: Well its little Coyote Bait… my cat. I can’t take her and I need someone I can trust to take care of her.

Married Brother: Thats not a problem we’ll be happy to take care of little Coyote Bait for you.

Bachelor Brother: Aw thanks Bob - I just can’t trust anyone else and I know you and Mary Lou will take care of her for me.

Now Bachelor Brother loves his cat dearly - it’s his friend, companion and beloved pet and he calls his Married Brother weekly from England just to see how Coyote Bait is doing. Everything goes well until the third month when Married Brother calls him early on a Sunday morning:

Married Brother: Hi Bob - Hope this isn’t too awfully early but I have something important to talk to you about - its about Mom.

Bachelor Brother: Hi Steve - ok I have some time but first how is Coyote Bait doing - is she eating well and are the kids having fun pampering and playing with her.

Married Brother: Bob - something has come up and we need to talk about Mom.

Bachelor Brother: OK…OK but how is Coyote Bait?

Married Brother: (Exasperated). Well…last week one of the kids left the door open and Coyote Bait ran out into the street and a Firetruck ran over her. But we really need to talk about mom.

Bachelor Brother: (In a sobbing and halting voice). Coyote Bait is dead? My cat is dead?

Married Brother: Yes - we are so sorry - it was an accident.

Bachelor Brother: Well…you could have broken that to me a little better you know instead of just coming out and telling me my cat was dead.

Married Brother: What? What do you mean and look we really need to talk about Mom.

Bachelor Brother: Well…you could…I dunno, perhaps could’ve asked me if I was sitting down and prepared me better. Then you could have told me that today Coyote Bait got out of the house and climbed up on the roof. You know - sort of prepared me better. Then I would have called the next day and you could have said that the fire department was called and was trying to get my cat safely down. Then when I called on the third day you could have explained it all and told me my cat had died. See how much better that would have been to break such horrible news to me a little at a time?

Married Brother: Yeah - I guess.

Bachelor Brother: Ok…sigh…now what do you want to discuss about Mom

Long Silence…

Married Brother: Well…Are you sitting down? Mom got out and is on the Roof.
…

Now that is the old Mom’s on the Roof joke. But what I’m getting at here is that you obviously know about tech stuff - and to be completely plain spoken, I am a complete tech moron. So…while I read and re-read your post - especially the line I quoted above - I have absolutely now idea whatsoever that it actually mean or why other companies can’t do the same thing or - and this is the important part: how any of that might translate into vast profit and wealth cascading into the stock accounts of joyous NET shareholders.

Speculate greatly and often - but please keep it simple for us Tech clueless types.

All the Best,

[mostlylong]

@Raylight

Constellation, which translates to the product name for running machine learning models with Cloudflare Workers. It will allow you to run low-latency inference tasks on pre-trained machine leaning models natively on Worker scripts.

Appreciate the news update.
I’m interested to see how useful these kinds of out-of-the-box models will be, as everyone will be trying to make them useful. What functionality can live up to at least some of the hype (and be monetized in a material way)? And what cannot.

[Raylight]

@Champico33

Speculate away my friend but could you maybe do the deeper dive speculation on a sort of mid-afternoon speculation schedule in lieu of early morning speculation?

It was more like a noon speculation… …where I live.

@Champico33

“It will allow you to run low-latency inference tasks on pre-trained machine leaning models natively on Worker scripts.”

Yeah, that one is a taaad bit technical. I paraphrased from not-yet-official developer documentation. Ok, so you have two basic elements in “AI”:

1. Training - Learning to do stuff
2. Inference/“running” - Do stuff

In the middle of all this you have “model”, which you can think of as a tiny brain that’s been trained to be good at something. It’s basically a huge file. Training takes quite a lot of resources, and Cloudflare’s architecture isn’t designed for that part of the equation. Where Cloudflare would fit in, is running models. For example, you might have a model that takes speech and produces transcripts, i.e. speech to text.

@Champico33

What does this mean - why is it important - and is it something that all the other various and aspiring AI related companies that want to do the same thing but simply haven’t thunk it all up just yet - are simply to stupid, dull or incapable of doing it to begin with?

Every aspiring company that wants do AI have to run those models somewhere. You could build your own expensive infrastructure, use the hyperscalers’ infrastructure, etc. That’s the thing here. Building such an infrastructure ain’t no easy feat, and once you have it, you can say “Look! You can run your models here!”.

A bit tired today, so that’s the best I got.

@mostlylong:

Well, remains to be seen. I kinda don’t want to quote documentation that changes by the hour.

[Champico33]

Raylight:

Thanks - got it now…I think.

This was the dagger in the perplexing “Saay Whaaat” portion of my admittedly confused mind:

"Every aspiring company that wants do AI have to run those models somewhere . You could build your own expensive infrastructure, use the hyperscalers’ infrastructure, etc. That’s the thing here. Building such an infrastructure ain’t no easy feat, and once you have it, you can say “Look! You can run your models here!”.

Simple clarification and to the point! Well summarized and easy for even a tech simpleton like me to understand.

Get some rest and then take a look at a post I made on AI - see if any of the many and varied ETF folks are on to anything - or - are they just barking in the wind?

All the Best,