I need some help and advice. What I’m looking for is some thoughts to help me evaluate some of my stocks.
I have currently ten tech stocks. I’m very content with the top six. It’s the bottom three that I’m not sure what to do with: Build them up? Sell out of them and re-deploy the cash? Sell some and put the money into one of the others, or into some of my top six, or into something else entirely?
Here’s the situation. My top six positions run from 21% positions to 7% positions. I have a lot of confidence in them. Here’s a capsule of my top six:
Twilio – Massive growth and a Category Crusher. Last quarter Base Revenue up 77% and accelerating. Up in the high 60%’s even without the acquisition. Retention rate of 147%, and also accelerating. It doesn’t get any better.
Zscaler – Massive growth and a Category Crusher to come. Last quarter Revenue up 65% and accelerating. Billings up 74% and accelerating. Retention rate of 118%, which they say is held back because they are now making very large sell’s off the bat. Again, it doesn’t get any better.
Alteryx – Massive growth and a Category Crusher. Last quarter Revenue up 57% and accelerating. (Switched to ASC 606 which will make Revenue growth and earnings look even better). Retention rate of 132%. Powerful performance.
The Trade Desk - Massive growth and a Category Crusher to come. Last quarter Revenue up 56% and accelerating. Earnings up 102% from 54 cents to $1.09. Again, powerful.
Okta - Massive growth and a Category Crusher to come. Last quarter Subscription Revenue up 53% but slowing a little. Retention rate of 120%, and stable, but cash flow, gross margins, operating margins, net margins, all improving.
Elastic - Massive growth and a Category Crusher to come. Last quarter Revenue up 70%. Calculated Billings up 68%. Deferred Revenue up 73%. Powerful.
I basically have no worries about these six, and they make up almost 85% of my portfolio.
There also is Gardant Health, a biotech which is pioneering liquid (blood drawing) biopsies for cancer, and which is a 4.3% position, and which I feel is now a very positive risk-reward situation. I’m neither adding more, nor selling any.
Now we come to my question stocks: Coupa, Docusign, and Zuora. Together they make up 6% of my portfolio. These are all SaaS companies with easy to understand businesses, but ones that are growing more slowly than the ones above, and with questions (to me) about where they are going. Let’s start with Docusign:
Docusign dominates the field of digital signatures on documents and is expanding into trying to manage the entire business of preparing, signing, filing, etc. It’s easy to understand, as I said. Customers love what they do. Last quarter Revenue was up 37%, but up only 34%, excluding its acquisition, Subscription Revenue was up 38% and Billings was up 40% (and rising). Their Retention Rate was only 114% but they guided to 118% to 119% going forward (perhaps because they are hoping to upsell their customers with the new technology they just acquired in the acquisition). The stock has gone straight up the last nine weeks since I bought it. My question is, where does this business go from here. It’s hard to compare it with my top six which are growing by an average of over 60%. And to what extent has Docusign already become a stable slowing business? How much can they realistically add on each quarter? I’d appreciate knowledgeable opinions on this.
Coupa dominates the field of simplifying a company’s disbursements (spending and buying things), organizing this and watching for fraud, etc. It’s much more complex than you imagine when a customer has hundreds of offices and divisions. Coupa’s business is easy to understand, as I said, and it’s easy to see its attraction. Customers love what they do. Their Total Revenue and Subscription Revenue are both growing at 42%. However their Retention Rate is only 112%, (and that is higher than it’s been), I presume it’s because they usually sign up the whole company at once. Where does this nice little company go in the future? Any informed thoughts?
Zuora dominates the field of helping companies who sell things on a subscription basis to handle billing, revenue recognition, etc. It’s apparently much more complicated than you’d expect. Their most recent Total Revenue quarter was up just 33%, but that was because they had a bulge of service revenue last year because of ASC 606. Their Subscription Revenue was up 43% which sounds a lot better. Fifty percent of their revenue comes from tech companies like our SaaS companies that sell software on subscription, but they are moving into other verticals. Their Retention Rate was only 115%. They talk as if the whole retail world will be selling subscriptions soon, but I’m skeptical and it’s hard for me to see that their business is as general as Zscaler’s for instance. I’d love to hear your thoughts.
Looking at the three of them, they all look like good companies, and ones which will be successful in the future, but they just look like weaker versions of my top six, in unfortunately a lower category, with lower Revenue growth, lower Retention Rate (internal growth), and less room to grow in the future. I couldn’t see taking money from any one of my big six to add to one of these, at this time. Do you agree?
I’d like to find another company that would be in the top category and I high confidence company? Any suggestions?
Thanks for your help.