Headwinds for CRWD, COUP, OKTA, ZM??

As I think about what we’ve seen so far from companies that have reported earnings, what have we learned and what are the common themes: lengthening sales cycles, smaller deals, customers budgets are tighter, customers going out of business, higher churn rates, more top down selling, customers scrutinizing every spend.

Regardless if you are either AYX or if you are DDOG, you are seeing some covid headwinds (of different magnitude). AYX is less critical to a company than say, DDOG, and DDOG is less critical than CRWD/Okta. Problem is, all of their products cost money. Even though it’s pretty clear to all of us and many companies that AYX saves companies money, companies are cutting existing spend and delaying new spend. Even though the monitoring capabilities that DDOG provides are priceless to software engineers, customers cut back. The cost saving and survival mode that a lot of companies are in now has showed up in the weaker revenue numbers for both DDOG and AYX.

I’m not trying to say everyone panic and sell all your shares of CRWD (I’ve been buying slightly more of it lately). But what I’m saying, is that we are receiving new data from other companies releasing earnings that support the hypothesis that CRWD, COUP, and OKTA are not going to report quarters that are as good as they have been in the past. Perhaps, this is the beginning of an argument that companies who are clearly and heavily benefitting from covid (such as ZM, TDOC, SHOP, FSLY, NET) are relatively better from a risk/reward perspective in the short term/medium term than companies more likely to hit headwinds, such as CRWD,OKTA, and COUP.

If I pick on CRWD, I could argue that even though end point security is considered mission critical, CRWD is a more expensive solution. Companies might be more inclined to choose a cheaper CRWD competitor. Or, companies may drag out decision processes in order to scrutinize spend better. I could make similar arguments for Okta and Coupa.

Maybe I am overthinking this – after all, all of these stocks have seen stock price decreases in recent days along with lots of other growth stocks. Maybe the earnings results of DDOG and AYX have already been baked into the prices of OKTA, CRWD, etc.

The greater point I’m trying to make is, is that a formerly bullet proof stock such as DDOG showed some signs of covid related weakness. Maybe these short term problems will also hurt our companies who have yet to report earnings.

My understanding is that Ping is Okta’s closest competitor, and rather inferior to okta. Regardless, there will probably be some correlation to how Okta’s numbers will be when they report later this month, so I will be watching tomorrow when they come out.

I know that we really try to be long term investors, so we should not let these thoughts cloud our vision too much. But sometimes, the short term can become the medium term (like with ayx), and can ultimately lead to me reducing my exposure, and perhaps you too. And even though I wouldn’t make an investment decision solely on these hunches, I do think it’s worth discussing and thinking about. Would love to hear others thoughts on this matter.

One final thought – another hunch I have, is that because SHOP and other companies have said covid related boosts started to wane in June/July, maybe ZM’s boosted numbers are also starting to wane. Maybe covid trends are cooling off. This might not hurt zm’s current quarter so much, but it might get reflected in weaker than expected guidance.

53 Likes

My decision to build out positions in several of the companies discussed here seems to have been the catalyst for the drops we are seeing. I suspect you’ve all seen this before, even if you didn’t realize it was me doing the buying at the time. That is my superpower.

It is worth noting the broader trend over the past couple of market sessions, which is that tech stocks seem out of favor and money seems to be flowing from them into less expensive parts of the market. Look at what the S&P or DOW have done vs. the NASDAQ to see what I mean. A lot of people are sitting on a lot of paper gains in our companies and it is not surprising that they are getting jittery, taking some profits, and redeploying their cash. We may also be seeing some nervousness about the uncertainties of the American election, which are only likely to grow between now and November.

So long as you believe the hypergrowth story remains intact for the businesses we own, the pullback in share prices we are seeing likely presents some great opportunities if you have new money to invest. But as always, be prudent about how much you have exposed to any particular company, and don’t invest what you cannot afford to lose. The crazy gains we have seen in our companies over the past several months can be very intoxicating. I encourage you to take a clear-eyed view about risk.

Regards,

Dorset.

28 Likes

Perhaps, this is the beginning of an argument that companies who are clearly and heavily benefitting from covid (such as ZM, TDOC, SHOP, FSLY, NET) are relatively better from a risk/reward perspective in the short term/medium term than companies more likely to hit headwinds, such as CRWD,OKTA, and COUP.

Well that didn’t save FSLY or NET from dropping after they reported last week. Even SHOP shares are back to where they were before its blowout. This is because market expectations were so high going in, that blowouts were expected.

Maybe I am overthinking this – after all, all of these stocks have seen stock price decreases in recent days along with lots of other growth stocks. Maybe the earnings results of DDOG and AYX have already been baked into the prices of OKTA, CRWD, etc.

Yep. Expectations are down now; I think it’s more likely CRWD exceeds them than that it disappoints. Given their confident guide (which they gave in June), I think they’ll grow faster than DDOG did, which I would expect to please the market. I don’t follow OKTA or COUP so I cant say much about them, and ZM is unique, as they’ll obviously blow the doors off. I think it will be so easy for them to raise the 1.8b full-year guidance, that they’re pretty safe even if things have slowed a bit.

Bear

34 Likes

The WisdomTree Cloud ETF has holdings in all of these companies. It’s only back to where it was a month ago in early July. Herd behavior going on… look at this chart and see a potential blowoff top.
https://www.google.com/search?q=quote+wcld&oq=quote+wcld…

In my opinion, only based on historical behavior around hot growth sectors (as SaaS/Cloud has clearly become), it’s only partially about any individual companies’ fundamentals, it’s just a hot hands / sector momentum play with big, big $ in money flows. They’re all going up and all going down together on a daily basis.

After the run the entire sector has had (WCLD up 80% TTM until last week), basic profit-taking by the players was anticipated and (should have been) expected at some point. Nothing to do with the fundamentals, but the valuations have gotten pretty excessive, most admit.

Herds of birds or packs… flit flit, bark bark bark.

1 Like