MajorFool's Q4 Earnings Thoughts

Seeing as today is a dead day with the market closed and about half of my portfolio/watch list has reported earnings, I thought I would share my thoughts on the latest earning reports. I shared my thoughts for many companies last quarter so this will serve as a follow up to that post (…). Again, they are listed in the order in which they reported.

Bill - Unfortunately, I did not own Bill going into their earnings released earlier this month but after digging into the company, I realized I needed to correct that mistake. Bill reported an absolute blow out with revenue increasing 190% YoY beating their own guidance by 19%. Much of this growth was due to the two recent acquisitions however I think the organic growth was the most impressive part of the ER. Organic core revenue exploded up 25% QoQ which was more than 5% higher than any quarter previously! While other companies seem to have struggled with their acquisitions (cough cough Lightspeed, Coupa, etc.), both Divvy and Invoice2go have been very accreditive. Not only are they helping boost revenue (organic and overall), but also are lifting adjusted gross margins to new heights of 85%. Cross selling seems to be working as well - Bill customers increased by 8,200 this quarter, well above their previous record of 7,100. I could go on and on sharing more impressive statistics as it truly was a superb quarter. I took the proceeds from my Affirm sell (more on that below) and initiated a position in Bill.

Datadog - Datadog kicked things off with a bang! I posted my initial thoughts here (…). Upon reading through the CC, I only found more reason to walk away bullish. At a $50B valuation, I have been thinking through their growth durability and where they can go from here. What gives me comfort is knowing that Datadog is one of the most innovative companies I am aware of. This quarter they nearly plowed as much $$ into R&D as S&M and G&A expenses combined!! This is unheard of in the software world where most companies spend hand over fist in S&M. Additionally, Datadog has continued to add customers at an extremely consistent rate and these customers are continuing to adopt more modules on the platform. They have added at least 1,000+ customers for six straight quarters! And this likely would have been a longer streak if not for Covid. A business who can consistently add more customers that tend to spend more money as they go seems like a great recipe to me. As I wrote last week, Datadog is proving to be worthy of the #1 spot in the portfolio. I would have added if it wasn’t already my largest position.

Affirm - What a rollercoaster this was. The afternoon of their earnings report was a disaster. Affirm accidently tweeted out their headline financials two hours before the market closed and the stock went bananas. It rocketed up 10%+ to over $80 a share and then proceeded to come crashing down and closed near $50 all within a couple hours as company proceeded to announce the full financials during market hours. I am sure lawyers will have a field day with this one. The headline numbers looked pretty good, the additional figures, not so much. I was impressed with the revenue, GMV and customer count, however was not so impressed with the reduced take rate, growing losses and weak guidance. It was clear the market felt the same as the shares continued their spiral downwards and sit at $37 today, down over 50% from its intraday high on 2/10!! After mulling this one over and working through the CC, I thought to myself, ‘What am I doing here? This company is too difficult for me to understand, competition is fierce, losses are expected to continue, and the forecasted guidance shows a massive slow down.’ It was an easy decision to sell. I sold the entire position at $53 the day after earnings and took my 53% loss as a valuable lesson learned. Thankfully, the position never got above a 5% allocation for me.

Cloudflare - It was business as usual for Cloudflare. They just continue to hum along growing between 10-14% sequentially as they have done for six straight quarters. The beauty is they are starting to come in closer to the 12-13% range versus the 10% sequential growth from a year ago. Accelerating revenue at a larger scale while steadily improving profitability? Where do I sign up! Cloudflare’s consistency is something to behold and clearly something the market appreciates given its higher multiple. Take a look at the way they accelerated almost every single quarter when comparing their QoQ growth from 2020 to 2021.

2020 - 8.8% 
2021 - 9.7% 
*2022 - 11.7% (assuming a typical 5% beat)* 

2020 - 9.3% 
2021 - 10.4%  

2020 - 14.5% (the one outlier due to an acceleration from Covid) 
2021 - 13.1% 

2020 - 10.2% 
2021 - 12.3% 

Overall, I thought this was another strong report. Not a blow out by any means, but it looks like they are positioned to continue their trend of accelerating growth. It was nice to see them report their first FCF positive quarter as well as a record DBNRR of 125%. I recently added to my position at $105.

Upstart - Given the current quiet period we are in for Upstart, I won’t share much here other than to say I thought it was a terrific quarter and reinspired my confidence in the company. I expect the stock to do well in 2022 and added to my position at $147. Please no additional replies to this thread relating to Upstart.

Zoominfo - I thought Zoominfo reported an okay Q4, leaving me a feeling very ‘meh’. I expected at least $222m in revenue and they hit this on the mark, however the Q1 guidance was a bit disappointing. It is obvious there is some seasonality at play in Q1, however the $227m guidance was certainly below what I was expecting. However, I thought the the FY guidance of $1,015m made up for this. You might think I am nuts to be happy with a 36% FY guide when they are currently growing at nearly 60%, however, their $650m guide last Q4 equated to exactly 36% growth as well. Of course, Zoominfo grew at 57% in 2021, well above their 36% guidance. In other words, I see Zoominfo telling us they expect to grow at about the same pace in 2022, somewhere in the upper 50%'s. The CFO said as much on the CC, “When we set our guidance, we do look at a wide range of potential outcomes and certainly set it at a level that we feel comfortable that we can exceed.” Management actually said nearly the exact same sentence three times on the call! The biggest highlight for me was the continued expansion of the NARR (net annual retention rate) up from 108% to 116% in 2021. Additionally, they added 202 customers with > $100k ACV which was by far their biggest gain yet. I continue to believe this is one of the best bargains in the SaaS world given their 50%+ growth and insane profitability. I added a small amount to my position at $55 but have this on a shorter leash.

The Trade Desk - TTD reported 24% revenue growth YoY this quarter which was disappointing but they were up against the difficult comps of the political spend from Q4 last year. Excluding the political spend, growth was 36% YoY. The Q1 guidance of $303m indicates they expect to accelerate and get back to higher growth as a typical beat would result in YoY growth of 40%+. I was happy to see total gross spend increased by 48% in 2021 to $6.2B. Pretty impressive to go from zero to $6B+ in just ten years. Solimar also seems to be off to a hot start and the mid-terms should provide a boost later this year. While it may not be the most sexy stock, I am happy to own this business as they continue to chug along growing at 40% with 50% adjusted EBITDA margins and a killer CEO at the helm.

Roku - It is for good reason that no one has posted about Roku’s earnings as there was not much worth writing about. Right off the bat, Roku failed to meet their own revenue guidance which is probably the biggest no-no in the high growth stock world. Revenue growth dropped from 51% to 33% in a single quarter! Gross margins nosedived from 54% to 44% as Roku decided to eat the inflation + supply chain related cost of their hardware. Active account growth continued to taper due to supply chain related issues. And the forecast + management’s comments indicate the slow down will only continue in 2022. What a mess! Thankfully, I had cut my position almost in half leading up to earnings and it was only a ~3.5% allocation. I sold the remainder of my position the day after earnings at $112. I will keep it on the watch list as I think there is a decent shot it reaccelerates in late 2022 or 2023 once supply chain issues subside.

A quick note on portfolio management - this is now the third stock I have had a similar experience with. First Zoom, then Peloton and now Roku. All three showed signs of slowing growth long after I decided to part ways. I sold all three of them slowly, initially only selling a portion of the position before finally exiting at a price well below my initial sell. I remember Stocknovice writing about this exact experience months ago, describing how once he sells part of the position it generally means his conviction is reduced and a harbinger of things to come. It has certainly proved the same for me. In other words, when in doubt, get out! Maybe I will learn the fourth time around :slight_smile: