Hi All,
Welcome to my second attempt at a monthly portfolio review. Version II if you will. After digging out here in the snowy NY area I figure it is calmer time to post after the terrific series of earnings reports this week, (minus Nutanix of course) more on that below.
Let’s move on to the review and holdings:
Jan 2019 **20%**
Feb 2019 **32%**
It’s been quite the spectacular January and excellent February with some minor turbulence during our first two months of the year, with the majority of companies reporting the last few weeks. Only Okta, MongoDB, DocuSign, and Guardant Health left to report.
Buys in January:
1 - a very small try out position in Docusign. I’ve been following this one since nearly its IPO and almost opened a position many times during the October - December market mayhem but somehow, my attention was really centered on my current holdings.
Sells: no sales in January.
Buys in February:
1 - After digesting another quarter of Pluralsight’s earnings, my confidence has grown and I have added to my position. More below.
2 - Added a trivial amount of TWLO after the company reported earnings around $110.
Sells:
Two sales this month - however both were sold in order to cover some higher tax expense. Ugh. I sold AbioMed, which I believe is a very fine company and will continue to well. It had to be the odd man out since they are the slowest growing out of all my holdings. I had half in a taxable account, and half in my IRA. I deemed it pointless to hold a tiny position, so I used those funds to add to PS. Hard to believe a company growing 30% is the odd man out! Not even 10 years ago, I would super excited to find a company growing that fast.
I also sold my remaining stake in NKTR as I needed the cash. It may also be several years away from an eventual approval in 214. I figure 181 will get approval, but I am thinking that is already factored into the current market cap and price.
My holdings and position sizes:
Holdings %
**twlo 17.00**
**ayx 13.60**
**ttd 10.70**
**zs 10.60**
__ntnx 9.20***__
**mdb 8.50**
**okta 7.60**
**sq 4.10**
**estc 4.03**
**ps 4.00**
**gh 3.00**
**arna 1.10**
**docu 1.00**
Presently, I am at 13 holdings. (12 as of 3/1/19). My top 10 positions represent the bulk of my
holdings at around 90%. I’ll wait until Docusign reports (approx 2 weeks) to make a decision about whether or not to add, or get rid of it, as this tiny try out position won’t have any meaningful effect on my portfolio results.
These top 4 holdings I have the highest confidence in and will continue to let them run, and even add opportunistically . I have no intention of selling these unless they grow above 20% or some unforeseen event happens along the way. No need to rehash growth rates, retention rates, customer growth, etc as they have been widely discussed.
Twilio
I still marvel at the progress of Twilio, who numbers I do not need to rehash here. It’s near impossible to grasp how big they can become, as developers keep inventing new app and uses for apps that nobody had thought of before. Throw in the early success of Flex and the absurd potential it may have and I remain quite happy to enjoy the ride. I added a tiny bit after earnings around $110. Personally speaking, I think TWLO is in the correct spot in my portfolio, at #1.
Alteryx
Still strong at #2, is AYX. The numbers are pretty widely known to all, so I do not know how much I can add to the discussion here. 2018 was a remarkable year for the company, with all the key metrics ablaze - revenue growth, customer growth, retention rate, and gross margins. Their customers seem to love them, and marvel at how simply they can use an implement AYX tools.
The company mentioned on the recent call how they plan to move into both the healthcare sector and government sector. Seems to me they have plenty of expansion left. With a market cap still under $5 billion, I would have to think they can grow into a much bigger size.
Trade Desk A newer position in the fall of 2018, in which I built up a position fast during the market meltdown. It has much discussed here on the boards so there isn’t much I can add other than that the company is growing very rapidly and has a huge runway of growth, a great CEO, and is disrupting a massive industry and acts more as a technology company than a Madison avenue ad company. I’m comfortable with the position size currently.
*** The Trade Desk has leaped up to the #3 spot thanks to strong price appreciation (near 80% since November) on fantastic results. It’s hard to find anything to fault with this company - even after the big run up, and at the rate they are growing the shares still are not as dearly valued as a Zscaler or Elastic, and with “just” a $7bln or so market cap, sure seems like there is plenty of room to keep on growing. They really seem like a true Rule Breaker/Disrupter, or as Saul would say “Juggernaut” / “Category Crusher”. In fact, it probably checks off all the boxes and then some.
Zscaler
Yet another company disrupting a legacy industry and growing like wildfire, and a potential category crusher in the making. Even as “overvalued” as the shares have been for nearly a year, the shares skyrocketed another 20% on Friday. I may in fact be adding more this week, and prefer adding to my winners. After all, we have no idea how big they can really get.
Nutanix
Update - as of 2/28/19, last day of the month NTNX was 9.2% position. On Friday, I closed out my entire position. In my mind, there is no need to hold for another 6-9 months and “hope” the company can resolve its sales team issues. The time it takes to hire the right people, train them thoroughly, and only then begin what is probably lengthy sales cycle, is no guarantee. Their only saving grace, is perhaps at buyout - and they would be lucky to get $55 a share. It’s too bad those rumors of an acquisition at $65 never materialized back the fall of 2018! Anyway, I’ll sleep better at night knowing these funds will be put into growing companies with no issues. In hindsight, I don’t believe anyone was wrong in buying shares, and nobody save management would have any idea of this mismanagement of sales/marketing. In fact, I think I was overly patient, with most of my shares held for a year to 15 months.
MongoDB
I have not sold a single share of Mongo since the Amazon and Redhat news came out. I’m not particularly concerned that an outdated version of Mongo will now be used by Amazon. After all, arent most of their enterprise customers ones who enjoy the benefits of having no vendor lock-in, as well as all the bells and whistles the newer version has, in addition to Atlas? I don’t usually sell on the rumor, so I am content to hold, and watch, and let the numbers speak for themselves. The stock, as I am writing this review up is just about back to where it was before all the panic selling began and nearing all time highs again. Everyone will be paying close attention to the next earnings report as well as any future guidance the company gives. With a sub $5 billion market cap, Mongo is still relatively small and hopefully has many years of strong growth ahead of it.
*** Panic sell number two seemed to occur this week, as it was reported that Lyft was leaving to use Amazon’s product. The stock dropped 10% on the news, but as I am writing this review, it has recovered back to near $103. As I noted on the boards, MDB does not have any customers that exceed 10% of revenue, so one customer out of 7,000 or so is a non-event for me. As Tinker aptly noted, Lyft was an Mlab customer previously and not a MDB one, so their contribution to revenue was minimal at best!
I continue to hold all my shares, and will wait until the company reports on March 13th.
Okta
Very richly priced Okta just continues to grow like wildfire (both revenue and customer growth) as it disrupts the single access sign in market. I think we all know the numbers as it has been well discussed here. It’s hard to figure/envision just how big this company can get, but I do not think we have got there just yet. I’m happy to let Okta alone and let it continue to grow. And boy I could have used their technology at my previous job at Moody’s. I think I had somewhere around 10-12 different sign in to various applications and databases!
*No news of interest since the last report, so we will wait until the Company reports earnings on March 7th.
Elastic
I’ve written on Elastic before and think this is a great company and probably should be in any growth investors portfolio at one time or another. It’s very very richly valued, but as Saul says, any company growing north of 70% will be. Duh.
Elastic reported results after the close Wednesday evening. The results were fantastic, but I suppose nothing short of 100%+ revenue growth would have been enough to drive the price even higher. With the recent run up to near $100 I’m well aware of how richly priced they are, but when you are growing at 70% it won’t take very long for the valuation to come down. I’d like to get my weighing up to 7-8%, and let the stock do the heavy lifting for me into a bigger position. We may, in fact get continued pressure on the shares as I caught this bit in the earnings release:
Pursuant to the lock-up agreements executed in connection with the Company’s initial public offering, provided the closing price of Elastic’s ordinary shares on March 4, 2019 is at least 33% greater than the IPO price of Elastic’s ordinary shares, 25% of the shares subject to the lock-up agreements will be released from lock-up, and such shares will become eligible for immediate sale in the public market, at the open of trading on March 6, 2019, subject to trading limitations on shares held by affiliates of Elastic and applicable securities laws, restrictions under Elastic’s insider trading policy and continued vesting of any unvested equity awards as of such date.
The lock-up restrictions with respect to all remaining shares are scheduled to expire after the close of the market on April 2, 2019. However, since the Company will be in its standard quarterly trading blackout period on that date, insiders will be restricted from selling shares until the start of the third trading day following the end of this blackout period. The Company expects to announce its earnings results for its fiscal year ending April 30, 2019 in early June 2019.
No guarantee of course, that the shares will sell off - but it may provide an opportunity to add some shares. I’ll be watching.
https://discussion.fool.com/elastic-estc-upcoming-ipo-34001301.a…
Square
Square I’m leaving at its current % weight for now. I had trimmed a little bit in the fall of 2018 reducing from 7% or so when the price was between $85-$95 and the market cap was well over $33 billion. It just seemed a little out of hand to me with only a little over $1 billion in revenue. As we all know, the stock has bounced back in a big way since December.
*** Square just reported very nice numbers this past Wednesday evening - growth remains robust, and I’m sure they will continue to handily beat their guidance. I find myself having a difficult time convincing myself to make Square a bigger piece of the portfolio pie. The $30 billion market cap gives me pause. Do I think they ultimately can get to $90 billion? $100bln+ and surpass PayPal? I think that they do get there - but the question remains - how long will it take? Not so sure I can see them tripling over the next 2-3 years. Anybody with a long term time horizon (5 years +) I believe will do just fine.
Guardant Health
Guardant is another small med tech/Diagnostic company who’s liquid biopsies could transform the way tumors are detected, and potentially detect cancers much much earlier. As we know, survival rates are much higher the earlier it can be detected. Guardants’ liquid biopsies are cost effective versus traditional surgery and non invasive. Insurers and Medicare are already on board, and we all eagerly await FDA approval in the first half of 2019. The position size seems appropriate to me as things could still go wrong, but the company could be a homerun in the making,
** In midst of Wednesdays earnings bonanza, Guardant announced that the NILE study was completed successfully, matching biopsy testing in non small cell lung cancer. Good news!
https://seekingalpha.com/pr/17427293-guardant360-performance……
excerpt:
Investigators found that Guardant360 identified guideline recommended-biomarkers in 77 patients; tissue testing identified them in 60. Importantly, for each patient in whom Guardant360 identified a target of an FDA-approved drug (EGFR, ALK, BRAF, ROS1), tissue also detected the same alteration. Additionally, the median time to results for Guardant360 was much shorter than for tissue testing. Guardant360 results were reported in an average of 9 days, versus 15 days for tissue. The NILE study met its primary endpoint of demonstrating comparable performance of Guardant360 to tissue.
The stock reacted strongly the next day, gaining nearly 20%. Next up, and hopefully before the end of June - FDA approval for Pan-cancer screening. Stay tuned.
Pluralsight
Pluralsight was a new addition in October and the stock has already returned over 30% in 3 months, most of that coming in the last 5 weeks. There’s been no news that I can find since the company last reported earnings. Pluralsight has all the metrics we look for here - low market cap, 40%+ revenue growth, recurring revenue, high margins, huge market opportunity, and strong growth in enterprise customer growth. The company next reports on Feb 13th, and I will decide from there whether to increase PS to healthier weight (3-4%) or to move on, as a sub 2% holding wont move the needle on my overall portfolio results.
*** PS announced earnings back on Feb 13th - and it was largely the same beat and raise quarter. Jimb05 was kind enough to give us the summary here:
https://discussion.fool.com/pluralsight-ps-4q18-34136114.aspx
I’ve added to my position during February twice as my confidence has grown. A few additional nuggets I found valuable during the conference call:
The new partnership deal with AWS already has 90 deals in place.
Billings from their top 25 customers increased 20x!
The company receives approximately 1,000 new author applications per quarter, and they hire only 5% of them.
Pluralsight’s top author earned more than $2.5 million! (jeez)
84 authors exceed $100,000 per year.
Net Retention Rate is rising from 109% in 2016, to 117% in 2017, to 128% in 2018. They also expect it to grow to or over 130%.
Sounds good to me!
Arena
I bought Arena based on bulwinkles great write ups. The stock has largely bounced around, and remains well below its 52 week high. It continues to move it 2 best drugs candidates through Phase II and III respectively. Interestingly, the company just received a fat $800 million dollar check from United Therapeutics, and the market had a rather muted reaction. At last check, the company should now have a little over $1.3 billion in cash on hand, and sporting a $2.25 billion market cap.
So they have plenty of cash to fund all the trials and even production. In any event, I think a 1% and change position is about right, and a buyout of Arena, or good trial news could move this into 4-6% position.
*** No news to update on Arena this month. The company reported earnings, and confirmed what I had thought about the cash balance, and continues to progress through trials.
Docusign
I have a tiny try out position in Docusign. I’ve been following it since last spring, and Bert likes it, it’s a Fool Rec, and plenty of smart folks here like it. We’ll see how long it lasts, as they are not growing as fast as my other holdings, but I understand that the company is far more than just e-scribble sign technology with a very large TAM.
I still need to finalize my decision to add to Docusign or to sell it, as the 1% or so position won’t be moving the portfolio needle anytime soon. The company is due to report on 3/14/19 after the market close.
Thanks for reading if you’ve made it this far. I hope you have found this useful. Saul is right, these write up’s take some time, and I have a newfound appreciation for all the hard work he puts into these reviews. In the end, I think they are worth it!
Best,
Matt