GolfCaddy4PLynch Portfolio Summary August 2021

Golf Caddy for Peter Lynch, Portfolio Summary August 2021

YTD by Month:
Jan: +20%
Feb: +28%
Mar: +1.6%
Apr: +11%
May +13%
Jun +33%
Jul +34%
Aug +66

NASDAQ YTD +19%
S&P YTD +22%

Well, it looks like Affirm turned out to be a good pick. Shopify, Walmart and now Amazon are all part of the Affirm network and it’s up today over 40%. Boom!

As Saul has pointed out a few times here, the opportunity cost of holding onto a weak position is big and many times you’re better off reallocating the funds to better picks. That is exactly what I did this month, dropping both Fiverr and Roku and reallocating those funds. I thought both of their earnings reports were weak and there were better opportunities out there. Being able to get out of a position easily is perhaps your number one advantage as a small retail investor. I take full advantage of it. If I sense any weakness at all, I am out.

About Me
I have worked in internet media and technology on the business side my entire career. I live in the SF Bay Area and focus on investing in what I know, high-tech growth companies.

Investing Style
I like to buy small positions, this gets me focused to learn about a company. Then I sell, or I add to it over time in small increments depending on a variety of factors. Some positions I hold for years, others for only a few months. My goal is CAGR. Not 10-baggers and I try hard not to fall in love with a stock. My aim is to maximize my returns and I have no allegiance to any particular method or style of approach.

Current Portfolio:

Upstart (UPST) 25%
Crowdstrike (CRWD) 18%
Sea (SE) 17%
Asana (ASAN) 16%
Affirm (AFRM) 11%
DataDog (DDOG) 9%
Cash 3%

Sold

Fiverr (FVRR)
Sold all my shares of Fiverr after they guided for growth to slow to 30%. I really like what they are doing but 30% YoY growth is just too low for my portfolio. It also would seem to indicate that management doesn’t have a good handle on their business as this came somewhat as a surprise and it proves that the business growth was mostly pandemic driven.

Roku (ROKU)
Sold Roku after the TCL/Google announcement. The introduction of another line of TVs that offers only Google TV is not bullish for Roku. I still think it’s a great company and love the increasing ARPU, but if there is a slow down in adding users that’s a huge problem and it may change my thesis for them.

Zoom Info (ZI)
I like this company but just can’t seem to hold on to it. I sold my small position so I could add to my other higher confidence positions.

Companies I am Excited About

Affirm (AFRM) Updated
I had no idea that they would sign a deal with Amazon or that Afterpay would get acquired creating a clear valuation benchmark to compare them to. Lucky? Like Napoleon, I will take luck over skill any day.

This move solidifies Affirm’s market leadership as the top BNPL platform. There is a lot of speculation as to why Amazon would partner with them instead of creating their own offering. My guess is that this is defensive. Amazon didn’t want to get left behind after both the Apple BNPL announcement and the Square/Afterpay merger. It would take too long for Amazon to roll out their own BNPL feature and they would lose ground to competitors. This left them with the next best option of partnering with Affirm. It’s a masterful strategic play by Affirm and exactly why I bet on a well-connected founder/CEO like Max Levchin.

Here is what I posted about Affirm in my last update. The SOFI part caught a lot of people’s attention and after what we saw last month, Affirm is clearly the better pick. SOFI has proven to be exactly what I thought it was, a slow growth bank with a hip logo.

Overview
Started by Founder/CEO Max Levhcin of PayPal, Affirm is the leader in BNPL (Buy No Pay Later) space where it offers loans at the point of purchase to consumers. Most notably Peloton used Affirm to help facilitate sales and was its largest merchant, but with the reopening in full swing that is no longer the case. Affirm inked an exclusive deal with Shopify to provide BNPL tech to all its merchants, and its merchant ecosystem that makes them unique from other players in the space. It’s similar to American Express in that it enables cross-selling between merchants in the network. Also notable, Affirm bought a company called Returnly that offers ecommerce services increasing their ability to provide value to independent merchants and helping them better compete with Amazon.

High Growth
In the previous quarter growth revenue grew at 66% YoY but the more important growth metric to monitor is Gross Merchandise Volume (GMV). The measure of the value of goods and services being sold through the platform. In the last quarter it reached $2.3 billion, an increase of 83%, or 100% excluding Peloton, compared to the third quarter of fiscal 2020. It’s not profitable and does carry some debt, but that’s not unusual for a Fintech company at this stage of growth.

Here are some more stats from the last ER.
-Active merchants more than doubled to nearly 12,000 from March 31, 2020 to March 31, 2021
-Active consumers grew 60% to 5.4 million from March 31, 2020 to March 31, 2021
-Transactions per active consumer were approximately 2.3 as of March 31, 2021, an increase of 10% when compared to March 31, 2020

My Take
There are a number of long-tail players who have tried to enter this space, but I believe the network effect of having more merchants on the platform is real and that Affirm is aiming to increase the value of that network by adding more services, I like to think of it as culminating in an Amazon Prime style offering for independent merchants who can tap into Affirm network to attract more customers and give them an even higher level of service than they would get from a competitor.

The Apple announcement I don’t think has any legs. Apple Pay is mostly used for small purchases in a retail environment. I don’t see engaging in a BNPL service being worth the effort for any purchase under $100. Apple is still trying to get more ecommerce sites to adopt Apple Pay, but they will struggle as it’s limited to Apple users and the ecommerce site still will need to support alternatives for people that can’t access Apple Pay.

Why Affirm Over SOFI?
Those that have followed my portfolio know that I was in SOFI at one point, but I finally sold all my shares and ultimately decided that Affirm was the better buy. They both have similar market caps, but after much thought, I decided that SOFI was really just a slow growth bank, dressed up as a cool fintech company. Affirm on the other is doing something new that I think is unique. They are founder-led with a CEO that has experience in fintech (PayPal!) and the Shopify partnership, if successful, could secure their position as the market leader.

Updates Quick Takes

Sea (SE)
One of my highest conviction positions and I believe the pandemic in Asia will continue to accelerate their business this year. They just made an announcement regarding ecommerce expansion into India.

Crowdstrike (CRWD)
I will continue to hold as they appear to be taking the lead in the cyber security space and I think the spending in this category will accelerate as businesses reallocate funds here away from real estate due to a reduction in office space requirements with more WFH.

Upstart (UPST)
Another board favorite. There has been so much discussion on this company that I can’t possibly add anything other than reiterating that this is my largest position.

DataDog (DDOG)
The ER was great and will continue to hold. It’s clear at some point all these different cloud platforms will start to overlap and consolidation is inevitable. But it’s not clear when that is.

Watch list
Semrush (SEMR)
Robinhood (HOOD)
LightSpeed (LSPD)
Confluent (CFLT)
Coinbase (COIN)
Bill.com (BILL)

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