Like some others, I don’t track my performance as closely as I should, due to a busy work schedule. This is now compounded by the fact that my broker was TDAmeritrade, which merged with Schwab at the end of May, erasing my performance history in the process.
But I will begin by reposting the results from my Jan. 12 summary, then show the same for today, and then discuss a couple of the companies that don’t get much attention.
FROM JANUARY 12, 2023
Companies by % of portfolio
A tiny position in AI, which I hold for my brother makes up the difference.
Companies by total gain/loss since inception
(Hint: It’s all loss, although better today than at year’s end.)
BACK TO TODAY
Before posting the same data as of today, I want to emphasize the second list above. Every single company I owned on Jan. 12, 2023 was in the red, in terms of my total gain. And it had been worse a couple weeks earlier. I got into investing at the absolute worst time: early 2021. I bought high. Very high. Too high. But I didn’t know that then.
As a result, at the nadir in December 2022/January 2023, I reached a point where not a single share of a single company in my portfolio was worth more than I had paid for it. There was no bazillion % increase from 2020 to cushion the fall. It. Was. All. Loss.
I also had several big, unexpected personal expenses in the first half of this year, and am still catching up there, which means no new money coming in for now. The changes I made in the first half of 2023 were few, but the ones I made were selling something to buy something else.
I made just two significant adjustments in 1H 2023, I gradually sold out of DDOG, and I trimmed CRWD, to add to several of the others. The last tranche of DDOG I sold went to start a new position in Braze (BRZE), which I’ll talk about below.
Here’s the updated set of lists to match what I posted in January:
Companies by % of portfolio
BRZE 9.4 (Opened position 5/10/23)
A tiny position in AI, which I hold for my brother makes up the difference. I will note here that his C3.ai position is now slightly negative, but was finally worth more than its cost basis, for the first time in years, last month.
The above order changes week to week, since I have similar-sized positions in a number of companies. They change places according to the stock price action in a given week. Braze is the outlier here, since I only was able to get a half position there. Which is a shame, given that it’s up 46% since I bought in May.
Companies by total gain/loss since inception
Notice that I went from every single company in the red by double digits in January of this year (except Braze, which I didn’t own until May, 2023) to three of those earlier companies being in the green by double digits, two by a lot. And the others all made significant improvements.
GLBE 49.21% (-13.00% in Jan.)
PCT 35.89% (-11.26% in Jan.)
TTD 14.07% (-31.83% in Jan.)
NET -13.96% (-44.36% in Jan.)
CRWD -18.46% (-47.77% in Jan.)
UPST -74.51% (-89.83% in Jan.)
Overall, my portfolio is back to what it was somewhere between the end of March and the end of May 2022.
TTD, NET, CRWD, and UPST are discussed heavily here already. They are LTBH for me, and I still have confidence that they will have significant (if not hyper) growth from here.
Global-e has also been discussed a fair amount. It facilitates cross-border e-commerce by handling all the hassles those transactions entail: Currency exchanges, language barriers, cultural differences, logistics, and more.
My thesis for holding them is that they do what merchants either don’t want to do (if they’re large and otherwise could) or can’t do (if they’re small). That they do it well is evidenced in their relationship with Shopify and others. They bought out their only competitor a little over a year ago.
Owning Global-e also gives me exposure to the secular tailwinds for e-commerce without having to pick a winner among merchants, or even groups of merchants, like Shopify.
The biggest drawback for them has been their gross margins, largely due to their logistics operations. But at 41.4% in Q1 of 2023, it’s headed in the right direction–up 230 basis points over the prior year. Their Q1 results are here.
They don’t put out a lot of news, they just keep growing. And their Shopify partnership is only beginning to really take hold this year.
But I want to spend more time on those with little to no discussion here.
I only have half a position here because I only had the proceeds from selling my last DDOG tranche to get it and haven’t wanted to trim anything else. My confidence level is higher than that.
What do they do?
From their IR page:
Braze is a leading comprehensive customer engagement platform that powers customer-centric interactions between consumers and brands. Our platform empowers brands to listen to their customers better, understand them more deeply and act on that understanding in a way that is human and personal. Using our platform, brands ingest and process customer data in real time, orchestrate and optimize contextually relevant, cross-channel marketing campaigns and continuously evolve their customer engagement strategies. 1,866 customers around the world trust Braze with their most valuable assets: their customer relationships.
What are the numbers?
Here are a couple slides from their latest deck:
Their growth rate has been slowing over the past year, but the market seems to believe (as do I) that this is temporary and that their strongest growth is still ahead of them. Their Co-founder CEO, Bill Magnuson, says they are on a path to be non-GAAP and FCF profitable by the end of next year, while still making major investments in growth.
Braze is used by over 1,700 brands in 70 countries, had 4.8 billion MAU’s last year, has 11 global offices, and over 1,500 employees. They were founded in 2011 and went public in 2021.
What about management?
Magnuson gets a 96% approval rate on Glassdoor and 80% would recommend working there. The company has lots of awards among best places to work, that are current. This is hugely important for me. If you don’t inspire confidence in your employees and/or discriminate or beat them like a rented mule (you should never beat rented mules, by the way), you might get work out of them for a time. But employee abuse means you’ll lose your best workers; and lack of diversity means you will be blind to perspectives and experiences that could sink your business.
Bill Magnuson’s co-founder is CTO.
Competition and news?
Braze has a good amount of competition in the customer engagement space, including big legacy players like Adobe, Oracle, and SalesForce. Braze will tell you that their special sauce is that they have been leveraging AI for a long time–built with that in mind, making them ripe for this moment, which seems to be bearing out in their press releases.
There has been a good amount of positive news across the first half of this year. They joined the Russell 3000 index on June 23, and then on June 27 they had two major announcements.
The first was their new AI product, Sage AI, which appears to be a consolidation of several pre-existing AI capabilities.
I like to see phrases like “uniquely positioned.”
From the release:
Sage AI by Braze is uniquely positioned to help marketers achieve better business outcomes with:
- Comprehensive cross-channel data flows that power extensive first-party inputs into AI decisioning while unlocking optimization and personalization across many channels.
- Real-time ingestion and execution of customer behavior, preference, and attribute data that powers AI to make faster, more accurate decisions.
- Easily accessible and flexible experimentation that opens up more opportunities for AI optimization and personalization at every step of the customers journey.
The second announcement on June 27 was the beta launch of Braze Instant Insights, a suite of Snowflake-Native apps. It was announced at the Snowflake conference, where Braze also got the Powered By Snowflake Award.
“The Snowflake Native App Framework enables Braze to build in the Data Cloud and bring its app directly to customer’s data to drive value,” said Chris Child, Senior Director of Product Management, Snowflake. “By building Snowflake Native Apps, Braze is helping customers mobilize their data securely.”
To really build confidence in Braze, you need to listen to CEO Bill Magnuson–with the caveat that you will need to be heavily caffeinated to keep up. (Those of you investing in Celsius, here’s your reason to toss back a couple!)
Those of you who understand the intricacies of data analytics, warehousing, and management (a distinguished group that does not include me), will be especially interested. But even I can tell that the man knows not just the business but his business at Braze through and through. He can articulate why it is special.
This YouTube interview is just under 12 minutes and was posted just four days ago, when the Snowflake partnership hit the wire.
If you only have three minutes, this interview was after strong Q3 results last year.
If you search on “Bill Magnuson Braze” on YouTube, you can turn up a number of longer presentations, where he clearly also knows his stuff and what differentiates Braze from the competition. You will need more caffeine the longer the presentation runs.
PURECYCLE TECHNOLOGIES (PCT)
The January 12 portfolio update I referenced at the top of this post also has a bit about this pre-revenue plastics recycling company based in Ohio.
PCT came across my radar because of this CNBC article from July 10, 2022. The article is about a new way that some companies are being taken public–as nurtured spinoffs from R&D departments of larger companies. In the case of PCT, that larger company was Procter & Gamble.
To quote from the article about the process:
The goal is not just about a financial return on investment, but maintaining access to technology innovation, said Valarie Sheppard, former P&G treasurer and company transition leader who had responsibility for the global business development for several years before retiring in March 2021. Startups, meanwhile, can leverage large, resource-rich, well-capitalized corporations to gain market access, customers, facilities, and industry expertise.
The departure from the conventional model of corporate innovation was championed by Tom Cripe, a retired P&G executive who was a gatekeeper of its leading edge research and today heads up business development at Innventure.
Cripe says he realized it made sense to reverse a long-held R&D process at P&G. Instead of startups and outside investors pitching P&G on scaling up new tech, the company would create the inventions, then turn them over to investment experts to nurture.
The next section of the article then dives into PureCycle Technologies as one of the P&G innovations that they chose to nurture and eventually launch as a new public company, which could then leverage P&G for all the things the article mentions.
Of course other companies do plastics recycling, but PCT claims the tech developed at P&G will allow them to recycle lower grades of plastic that currently just end up in landfills or giant trash heaps in the oceans.
Long-lasting, rigid polypropylene such as waste carpet is the most common type of plastic worldwide, but less than 1% of it gets recycled. By contrast, about 30% of other more common plastics like those used for bottles and consumer goods is reused. PureCycle Technologies is aiming to eventually recycle 10% to 20% of the tougher plastics.
TL;DR - My thesis in PCT is a speculative bet that P&G has the tech they say they do and will do what it takes to help PCT succeed. The goal, again from the CNBC article, is:
By 2030, PureCycle aims to have 80 recycling operations worldwide, Otworth said, including one in Japan where it has an agreement with Mitsui & Co. to develop a plant. PureCycle has been gearing up for $800 million in annual revenue by 2024 and $2.3 billion in 2027.
As I write this now, the Ironton plant just completed its first run of pellets late last month, which sent the share price to it’s 52-week high. They have deals at various stages in Augusta, GA; Antwerp, Netherlands; South Korea, and Japan.
The longer story of the past year at PCT:
As of the time of that CNBC article, their first plant in Ironton, OH was two years behind schedule, but planned to open at the end of 2022. As a result of those delays, shares were cheap. I trust P&G to not set money on fire, and I wanted a climate play, so I bought some. Then the company changed CEOs and the price dropped like a stone.
But from that CNBC article, I knew that a change in CEOs was actually part of the process. For want of a better term, the initial CEO was the nanny from P&G to get the company up on its feet and into the public markets. The new CEO would be the expert in the field who came in once the baby was weaned and ready to go. So I bought more.
The share price increased as the company reported they were on track to have the Ironton plant operational by the end of 2022. And they were, until they hit one lone supply chain problem. A single extruder was stuck in Germany. They had everything else, but they needed the extruder to finish. So it didn’t open in 2022.
The share price took a hit again at the delay, but the extruder arrived earlier than expected and they projected a Q1 start. Shares rose. However, that one piece of equipment delaying the opening across the boundary of a year put them in violation of covenants with bondholders financing the plant.
Once the financing was in question, everyone’s hair was on fire. The stock was trashed; lawsuits were filed. The company delayed their Q1 reporting date as they scrambled to re-secure the financing. One glance at the chart shows you exactly when that happened.
But it made no sense to me that a plant that was almost entirely built, in a city that needed and wanted the jobs, with the reputation of the P&G tech on the line, would not be able to re-negotiate those covenants to everyone’s satisfaction. No one would win if the bondholders just walked away. Overseas deals and the plant in Augusta, GA were still moving ahead.
And so I bought more shares with some of the money from trimming CRWD. The bondholders (of course) did not walk away, the financing was re-negotiated, the first pellets finally rolled off the line on June 20, and there was much rejoicing, including at my house as the stock price soared. They report Q2 on August 9 in pre-market.
Of course a manufacturing plant is not SaaS, although one could argue that a recycling plant is, by definition, recurring revenue. In their deals with sports stadiums, it’s a complete loop. Teams make plastic swag for fans, PCT takes what those fans put in the trash and turns it back into virgin pellets that the team then buys to make the same stuff all over again.
The expansion plans of PCT are large and, in my view, necessary given the enormity of the problem. But that means lots of construction with its inevitable setbacks and debt. With the first plant now operational, once commercial production begins and they scale, I see tremendous upside. It’s a high-risk, high reward play; and part of the reward for me is doing some good not just in the world, but for the world.
Your mileage may vary.