It's not all dollars and cents

As we were moving into 2023 earnings, I was expecting to start seeing the top leaders moving ahead. But, to my surprise, things got more complicated instead.

As if interest rates, supply constraints, sticky inflation, and an ongoing war weren’t enough. We got several (3 to be exact as of this writing) banks collapsing in a matter of days.

And this is why, when it comes to investing, it’s easy to get caught up in the numbers. But as the latest earnings reports show, there’s a lot more to investing than just dollars and cents.

So, I guess just like other investors, I have many questions including:

  • Are CEOs just blaming macro or are they really slowing down significantly?
  • Are they being prudent or is this just the new reality?
  • Should we be expecting a significant turnaround any time soon (if ever)?
  • Are multiples fair at current levels or are we gonna see rerating if inflation remains sticky and hence all the headwinds remain for the next few quarters?

These are some of the questions I’ll try to answer today while also providing:

  • General thoughts on the market
  • My take on the latest earnings reports
  • Current portfolio allocation

[Btw this is a condensed version of my original blog article. If you have the time feel free to read the full article here.]

1. General thoughts on the market


Inflation concerns are still valid (still growing 0.4% MoM).

This annualizes to 6% which is what the Fed is reporting. However, truflation shows 4.56% instead as they use several data sources instead of annualizing the latest MoM one.

The Fed is not trying to achieve deflation (revert inflation). But disinflation instead (slow the pace at which inflation is increasing).

Almost every company (no matter how big or small — from hyperscalers down to small players) has felt the impact.

Clients try to optimize (cut expenses). They scale slower. And try to become more efficient in their spend. Also, they don’t go all in on their new contracts. But take their time to ramp up instead.


Hiring stopped (for some). Others reduced staff (ZS). While others are still hiring (SNOW).

Everyone says that cutting staff is smart in this environment. Now I don’t know whether that’s smart or not. But if they overhired during covid where demand was strong, then yes. If you no longer need the extra help then it makes sense.

But if you have plans and strong demand, then now is the time to steal top talent.


Because options (for applicants) are limited. People get fired left and right. What this means is that top talent is out there. Available. Waiting for forward-thinking companies to reach out.

And this is why I understand that it makes sense to cut staff. But I also understand why Snowflake keeps hiring (1000 new adds for this year).


When it comes to Stock-Based Compensation (SBC), everybody seems to hate this lately. In previous years very few (if anyone) ever bothered with it. I understand it dilutes shareholders. I also understand that it’s a necessary evil in an attempt to attract and retain top talent.

As long as companies keep it under control. Either through buybacks (more on this in a sec). Or keeping it under a certain level per year (2-3%). Then it makes sense. I wish I had the chance to be part of a company that offered SBC (but what do I know?).


Buybacks. Another word that raises brows lately. I wish I was smarter than all these CEOs and CFOs who make these decisions. And I could tell you how wrong they are. But I’m not. And I don’t pretend to know what’s best for these companies when it comes to buybacks.

Yes, ideally you would want every growth company to be able to utilize the extra cash to grow even further, innovate, come up with new products (invest in research and development), and try to sell more (through sales and marketing).

But what if at these times none of it will help push the needle?

Would you rather have these companies spend the extra cash on S&M or R&D anyway?

Would that make investors happier?

But what if they are just being prudent? And try to use cash as they see fit. And when the time is right they’ll push for growth. And similarly, when it makes sense, they do buybacks (or whatever they think is good).

Consumption vs subscription

Few Qs back we saw that consumption was superior (with no major slowdown because of macro). Now we see the exact opposite. I’m not worried about consumption models because these companies had strong customer adds nonetheless.

This means that when they start ramping up in the next Qs (or even years) the growth will still be significant. It’s not like they stopped adding new customers. But it’s just that customers decide to go slower than before.

And try to stretch their dollars’ worth by not signing up for multiple years upfront or larger deals in advance. But instead, they prefer to start smaller and scale as they see fit. This is them being prudent in their spend while trying to find the right size of deal for their specific needs.


2. My take on the latest reports


Expected: $565m (product)

Results: Not that great (lower numbers and lower FY guidance)


  • Is the lower guidance just the prudent thing to do or there’s a great impact on consumption?
  • Can they really achieve the $10b target or do they just reiterate that to keep investors somewhat happy?

Decision: Added to my position after the drop as I see this as an opportunity for those with a time horizon of longer than a day or two.

Notes from the call:

  • 3% beat

  • No major slowdown during Xmas holidays

  • No major AI growth as of now

  • Customers more cautious (hence lower bookings)

  • NRR 158% (and slowing down)

  • Controlling cost clients still grow

  • Financial services biggest sector (then media & technology)

  • 2000 clients grow meaningfully

  • Billings not important (focus on revenue)

  • Operating margin expands rapidly from FCF (lower number operating margin)

  • 6% OM and 26% adjusted FCF margin

  • Clients still ramping but at a slower pace (cost control)

  • Macro and migration

  • CFOs trying to cut costs (either through headcount or other things)

  • Recent adopters grow but ramp slower (because of macro, trying to be efficient)

  • No reduction in use cases

  • Migrations and on-prem (data warehouse – redshift)

  • Plan to hire 1000 more people this year (vs 1900 last year)

  • Focused on efficient growth vs growth at all costs

  • Don’t focus on total number of customers (focus on quality/big ones or small with potential)

  • Revenue per customer growing


Expected: $380m

Results: Very good numbers, lower billings


  • Will lower billings affect revenue as much even though management says don’t look at billings for the time being?
  • When will delays in large deals ameliorate?

Decision: Added after the drop as I believe the market is mispricing the effect of billings into the future prospects of the company

Notes from the call:

  • Customers more cautious with billings in advance (can be irrelevant looking at billings for now)

  • Delays in large deals (not gone away)

  • Ramp up slower (in the second year)

  • Cybersecurity remains top priority

  • Better multi-tenant architecture over smaller vendors

  • Balance growth and profitability

  • Additional approvals needed (because of trying to save costs)

  • Customers like consolidation with clean architecture (give strong ROI to clients)

  • Almost all new business replaces something else

  • Billings would be different (couple of percentage points higher)

  • Help clients start and then ramp up (in year )

About guidance:

  • Environment assumed it will continue

  • Elongation of sales cycle (slightly worse than Q2)

  • Macro impacts high-end deals

  • Lower-end deals remain unchanged (contrary to Snowflake which sees the opposite)

  • Money comes from: 60% upsell, 40% new deals

  • Increased scrutiny from CISOs

  • Aren’t seeing pressure on discounting (some clients do it)

  • One of the most critical solutions for clients

  • Q4 billings need to be higher as Q3 billings will take a hit (-9% as per management)

  • Not incentive for new logos

  • Want expansion (upsell) easier than new logos (for now)

  • Customers rave about them (best service, architecture, security)

  • Opportunity to upsell data protection

  • Revenue is a lagging indicator


Expected: $255m

Results: Solid numbers, bad next Q guidance


  • Is the negative QoQ guidance because of usual seasonality (and being prudent) or are we going into negative numbers moving forward?

Decision: Added after the SVIB collapse once the IR confirmed that all depositors will be backed

Notes from the call:

  • 6000 accounting firms/partners

  • Gross margin expansion and profitability

  • 86.7% highest GM on record

  • $48m in FCF

  • Float revenue higher because of rising rates

  • SMBs on stand-by mode, try to manage their spend (hence TPV lower)

  • Balancing NG profitability

  • Spending pattern changes

  • Core net customer adds ticked lower than 5000 (excluding FI channel

  • Macro and seasonality affecting TPV guidance for Q3

  • Balance growth and profitability

  • Increased NG profit by 10%

  • Even with float removed, gross margin very healthy

  • FI channel contributing over half of net new adds

  • Long-term opportunity ahead

  • Guide impacted by TPV


Expected: $465m

Results: Good numbers, slowing growth


  • Is the company really slowing that much or are they just being prudent like everyone else?

Decision: Added when the price started dropping below $70

Notes from the call:

  • Guiding 25% of growth next year
  • 21% FCF margin
  • DBNRR still above 130% (22nd time)
  • Slower usage growth from big customers
  • Larger spending customers seasonal annual slowdown as previous years

New logos:

  • Insurance company

  • Federal agency

  • Japanese hardware

  • Clients more cautious short term but long term stays intact

  • Balancing long-term investments while macro remains uncertain

  • Discipline growth over 2023

  • Typical slowdown more pronounced than previous years

  • Ecommerce and food delivery bigger slowdown

  • Slower duration billing YoY

  • 81% GM up from 80%

  • Lower growth trajectory for Q1

  • 20% growth of headcount (vs 50% previous year)

  • No change in long-term opportunities

  • Similar trend like hyperscalers (not 1:1 though)

  • Cloud migration/digital transformation headwind over next Q but tailwind again in the future but can’t tell when exactly (hyperscalers can’t say when either)

  • Focus on future success

  • Several products still in early lifecycle (can be main driver of growth in the foreseeable future)

  • Small clients not much of a slowdown (vs big clients)

  • Guidance assumes optimization continues

  • Not directly related to layoffs in tech but in optimization in cost from clients


Expected: $365

Results: Great numbers and guidance


  • Did they take talent from S because they feel the pressure or was it just because S decided to eliminate the role?

Decision: Added to my position at around $118

Notes from the call:

  • Exceeded management’s expectations (mine too)

  • Rule of 81 on a FCF basis

  • Record numbers (net new ARR 12% QoQ, net new customers, FCF, operating income)

  • Reiterating ending ARR to $5b by FY26 end

  • Reach target operating model in FY25

  • Strong market demand (albeit elongated sales cycle)

  • Revenue through channel partners (now 83% of revenue)

  • Massive SMB opportunity (Daniel Bernard as Chief Business Officer leading this from SentinelOne)

  • Raj Rajamani joins from S too as Chief Product Officer for data, identity, cloud, and endpoint (taking staff from S means they are doing something good too, right?)

  • Magic number 1.1 (indicating efficient and sustainable sales and marketing efficiency)

  • Record Q1 pipeline

  • IDC’s modern endpoint security market share — 17.7% (massive amount of legacy technology that’s out there), up by 3.8 percentage points (more share gain than any other vendor, including outpacing Microso)

  • GM going down to 75% from 76% (mostly because of cost of data centers, Humio acquisition) next Q to be up by 1% but long term intact to reach 82%+

  • Balance growth and profitability (even at scale)

  • Moderating the pace of hiring for this year


Expected: $128

Results: Very good

Decision: Added to my position


  • Can they achieve profitability as planned by FY25?
  • How much can they beat the 51% YoY guide?

Notes from the call:

  • Non-GAAP profit margin improvement (currently 75% vs 66% a year ago vs 71% last quarter)

  • Macro remains consistent (longer sales cycles and deal rightsizing)

  • Crossed half billion ARR

  • ARR up 12% sequentially vs 11% for the prior Q (Q4 $548.7m vs Q3 $487.4m vs Q2 $438.6m)

  • Record net new ARR ($61.3m vs $48.8m for the prior Q)

  • Major industry valuations (MITRE, Gartner Magic Quadrant, and top-ranking in each Gartner critical capabilities for endpoint protection)

  • Rule of 50

  • NG operating margin keeps improving (currently at -35% vs -43% prior Q vs -66% last year)

  • 100K customers up 74%

  • Several multi-million wins in the quarter

  • Net expansion (DBNRR) still above 130%

  • Cloud security 15% of quarterly ACV and doubled sequentially

  • Replaced a competitor for a global internet platform in a multimillion deal (because of architectural shortcomins in the competition)

  • Partnership with Wiz (allow customers to get more comprehensive cloud protection)

  • Microsoft win (broader coverage from single platform)

Road map focused on:

  • Advancing leadership in endpoint security

  • Strengthening cloud security advantage

  • Expanding platform capabilities and market opportunity

  • 51% next year guide and 8.6% QoQ

  • Achieve profitability by 2025

  • Continue to improve operating margin in FY24 (between -29% and -25%)

  • Decided 2 Qs ago to consolidate CPO and CTO under Rick Smith (is this why CPO went to CrowdStrike? Or is this just a cheap explanation?)

  • Glassdoor score 4.9/5

  • Healthy mix of new customers and existing customer expansion

  • S&M up 93% in 2023 while total revenue up 106%

  • S&M 73% of total revenue (vs 78% for prior year) — still too high compared to peers

  • $1.2 billion in cash and no debt

  • Positive FCF by end of year (subject to global economic conditions)

  • Prudent guidance (like so many others)

  • High SBC

  • New CMO will come but CPO role eliminated

  • Enterprise sales (shifting messaging to target high-end market)

  • More and more focus on EMEA

  • Pipeline doubled


Expected: $277

Results: Decent numbers, great guidance


  • Will they achieve the FY guidance or are they trying to please investors?
  • Do they really need to call their products based on others (R2, Descaler), why can’t they just show results and be done with it?

Decision: Sold some shares when price got over $70 as I felt that guidance might be an exaggeration and at that levels the stock is priced for perfection.

3. Portfolio allocation

SNOW 18%
ZS 17%
S 16%
BILL 15%
DDOG 15%
CRWD 14%
NET 5%

Cash 0%

Final thoughts

My take is that 2024 won’t be the year of reacceleration. But the year in which investors pay a premium for companies that can maintain growth for longer. Since growth might be hindered now and pushed out even further.

Cloud migration and digital transformation might have headwinds over the next Qs. But there’ll be tailwinds again in the future. The risk is that companies can’t say when at the moment.

And instead of reaccelerating from 30% to 50%, maybe they’ll just grow at 25%-30% for longer. And the end result will still be the same. And this is why long-term goals are still reiterated by several companies (NET, SNOW).

I still believe in the long-term prospects of these companies. Yes, we left the early days of SaaS and cloud. But I believe there’s still significant growth down the line.

And I believe the market is making the assumption that these companies will become 10-20% growers next year and then just flat out. I’m not saying that 10-20% might never happen for some of these even for the foreseeable future. But I believe that companies are super prudent in their guide.

But in the end, everybody makes what helps them sleep at night. It’s your money. So act accordingly.

That’s all folks. Enjoy your day.

And remember: investing (or trading) is just a part of our life. Not our entire life.

Time is more important than money. Ask anyone with a boatload amount of money (but running out of time). They’ll tell you.



Awesome, useful, post Pavlos. Thanks!


When did you sell Cloudflare at $70+?


I did, too. It busted through $70 on Feb 16. And Pavlos…GREAT POST!!


GM Pavlos

Thanks for raising some very interesting questions in your post above. Questions that I think are pertinent to any growth portfolio…any SaaS portfolio right now.

After receiving four quarterly earnings reports since the US Feds started raising interest rates (Dec 2021), we know with more certainty that macro conditions are impacting growth companies and tech companies. Some of them are realizing this later than others. Through multiple earnings calls we have learned that deal closures are taking longer due to more scrutiny higher up the chain of command. CIOs and CFOs are sharpening their pencils on all their tech spend.

So macro impacts are real and CEOs are waking up to this reality and adjusting their forward looking forecasts accordingly. What is interesting is that some of the younger mgmt teams of our companies have never seen a recession in their adult lives and are learning on the job. So we, investors, listen carefully, take every thing with a pinch of salt, do our own analysis and make our own decisions.

CPI (retail price index) and PPI (wholesale price index) have both been trending lower since the highs of June 2022. Last week’s PPI came in much cooler than expected. And PPI is a forward looking indicator for CPI…meaning retail inflation should continue dropping. Additionally, last week’s drop in oil prices should be hitting the gas pumps soon and April’s yoy rent data (which is lower) will also lower the April CPI print. Things are moving in the right direction…a bit slower than desired due to the stronger labor market…but yes trending lower.

While there will be competition for good talent, there will be a re-rating of compensation offered to those hired in tech in 2023 and 2024. Free massages and snacks are likely gone. Salaries and stock incentives will be lower. Total compensation packages offered will be lower.
All this will result in lower expenses and expanding margins for our growth companies.

US companies are expected to spend about $1T buying back shares in 2023. They spent over $1.2T in share repurchases in 2022.
I agree with you that for our favorite companies sometimes it makes sense and sometimes it does not - I cringe when I hear about an unprofitable, growth company announcing a share buyback program. Ideally I would like them to use the funds for more growth - new products, new markets, strategic M&A etc. Often, it seems like the “wrong” use of precious cash given where they are in their lifecycle.

I think this is most important comment/question in your post.

What is going to happen in 2023 and 2024?

I believe that 2023 is the year of immense opportunity for the strongest cloud, SaaS and tech companies. Many of these stocks are getting re-rated. Some with less cash on hand and lower cash flows are stuck between a rock and a hard place. Those with better balance sheets will start deploying their cash to grab marketshare, via M&A, more aggressive sales efforts, more R&D etc. This will place them in a better spot to recover faster and higher in 2024.

While economic recessions can last 6-12 months or longer, markets usually bottom 3-6 months into a recession (depending on how long the recession is) and tech is usually the first sector to recover and rise.

Markets are always investing 6-9 months in advance. So as we get clarity on which growth companies will pivot to higher growth by late 2023 and early 2024, we should start seeing those stocks get bought up sooner…perhaps even as soon as Q2 2023.


I wonder what database you are using. My way of looking into this real time is via Redfin and Redfin has March 2022 as the peak in YoY numbers. Separately, I have read analysis of the lag of the two rental components of the CPI and the lag for the smaller one is 9 months but for the larger one is a full 12 months.

I would like to see you proven right but the above leads me to expect that the rental component may actually peak in the next month report and I don’t expect it to begin its significant decline until the July report for June.

The official CPI data is still climbing every month on YoY while the last time this actually happened was March 2022. So if next report the BLS number does retreat from 8.1, then we have peaked in that regard.

In terms of real rent increases, they have been going through the floor ever since September 2022 and when that finally shows in the BLS data, it will crater the overall CPI inflation numbers late in 2023 due to its large weight. Nov 2022 was the only month with positive MoM reading, Sep, Oct, Dec, Jan, Feb all came negative on MoM basis and the Feb 2023 YoY reading is 1.7 vs peak of 16.7 in March 2022. Meanwhile, the official and laggy numbers keep showing incremental YoY increases.


I am looking at the Zillow rent index (ZORI).

This is a good write up on the index, why it lags in the official CPI report and when it is expected to turn.

I think your Redfin data also lines up with the ZORI data. The yoy% turn lower is expected to show up in the March 2023 data which will be released in the April report.


Sorry guys, this is interesting but it is all macro speculation and off topic for our board where we are supposed to be analyzing individual high growth companies. I’ll give it another 24 hours and then we will close it .