I’ve had a very busy stretch at work since the end of April so I am only getting to writing my monthly update now. It’s probably been a good thing as I haven’t had much time to follow the market’s gyrations too closely, tho it’s obvious that my portfolio hasn’t been spared lately.
Year To Date Performance
-29.3% YTD Jan
-21.2% YTD Feb
-29.8% YTD Mar
-43.3% YTD Apr
My April declines were driven by MongoDB which was -20% during the month, Magnite -27%, Trade Desk -15%, and Nutanix -7%.
MDB and TTD are each down another more than 15% during the first week of May. Magnite is the only stock I own that is up so far in May after it got a small bump after reporting earnings, but it is still way down from the highs not long ago.
April 30, 2022 Allocation
MongoDB (MDB) 30.3%
The Trade Desk (TTD) 27.0%
Nutanix (NTNX) 24.4%
Magnite (MGNI) 13.9%
Pubmatic (PUBM) 4.4%
SentinelOne (S) SOLD
So contrary to what I expected, my portfolio has gotten even more concentrated during April. I sold my small 1.9% stake in SentinelOne last month. It was just the company that I felt like I understood the least well, and when other, higher conviction companies got cheaper without any accompanying bad news, I felt those investing dollars would be better placed in more TTD, NTNX and MGNI. I also sold a little bit of Pubmatic too.
My top three holdings have been among my top holdings for most of the past three years and Magnite has been up there since the end of 2020. I still feel good about the top of my list although I’m starting to wonder about Magnite (more on that below) and Pubmatic is still a pretty new holding for me, but they fall into my high overall conviction around programmatic digital advertising in general, although the short term (next 6-12 months) could be volatile for the industry even with the expected bump coming from midterm election political spend this fall.
MongoDB
I’ve been super excited to see MDB getting more coverage on this board lately. I still believe they are going to be a much larger company in a few years than they are today.
The stock shot up from sub-$300, to over $450/share in March after earnings were announced, and today they find themselves all the way back at $299 again without any new news.
Now I will point out that, while I owned MDB throughout the worst of covid in 2020, and it did seem that they were a company that felt headwinds (not tailwinds) from the pandemic while there were uncertainties in the economy, which is why we’re seeing the type of growth acceleration as the world was getting back to normal, so some of the fears of recession etc more recently are probably a weight on the stock price right now.
My guess is that even if the macro environment gets bad for a while, MDB will fare better than most. Although they had stronger than expected profitability last quarter, management did caution investors to temper their expectations for the next few quarters as they aren’t anticipating to be quite so strong on the bottom line during most of 2022, but they are expecting to turn the corner going into 2023
The Trade Desk
CEO Jeff Green has said for years that all streaming services including Netflix would someday have an ad supported tier. Netflix has always said it’s never gonna happen. Well this is the quarter that Jeff was proven right.
On the Netflix earnings call, they spelled out some of their plans for the first time.
Here is some of the discussion from CEO Reed Hastings from the TMF transcript of the call
https://www.fool.com/earnings/call-transcripts/2022/04/20/ne…
Yeah. It’s not a short-term fix because once you start offering a lower-priced plan with ads as an option, some consumers take it. And we’ve got a big installed base that probably are quite happy where they are. So think of it as it would phase in over a couple of years in terms of being material volume.
And in terms of the profit potential, definitely, the online ad market has advanced. And now, you don’t have to incorporate all the information about people that you used to. So we can be a straight publisher and have other people do all of the fancy ad-matching and integrate all the data about people. So we can stay out of that and really be focused on our members creating that great experience and then again, getting monetized in a first-class way by a range of different companies who offer that service.
And then when asked if they were going to test it in a few small markets first, Reed responded:
no, I think it’s pretty clear that it’s working for Hulu. Disney is doing it. HBO did it. I don’t think we have a lot of doubt that it works, that all those companies have figured it out.
I’m sure we’ll just get in and figure it out as opposed to test it and maybe do it or not do it. So I think we’ll really get in. But again, it would be a plan layer, like it is at Hulu. So if you still want the ad-free option, you’ll be able to have that as a consumer.
And if you would rather pay a lower price and you’re ad-tolerant, that’s also – we’re going to cater to you also.
Just about every sentence of that exchange has me hearing cash register noises in my head for my programmatic digital advertising companies’ future growth and profitability in coming years. Disney+ too, announced recently that they will have a new ad supported tier toward the end of the year. I’m assuming Netflix won’t be launching theirs until 2023, but that’s just a guess. Either way, this is where the market is heading. Trade Desk on the demand side (working with companies buying the ads) is the clear leader and it’s just going to keep on growing. As supply chain pressures eventually ease and there are more products available that need advertising, as people travel more and the travel business advertises more, as microchip production catches up so auto production can ramp up the car companies will be advertising a lot more, and then of course there will be a political ad spend bump later this year for the midterm elections. All of those things are in addition to just the general shift from linear advertising to programmatic that will happen across the industry in general.
For me, it’s hard not to be really excited about The Trade Desk’s future. They report Q1 earnings on Tuesday and it will be interesting to see what kind of guidance they give, which will certainly drive the stock’s reaction. But this is one where the long term story feels really good to me, even if the economy stumbles and ad spend has pressures for a while. I personally think a TTD share price back in the $40’s today will look like a gift before long, but I’ve been wrong before so the one thing I’m sure of is that I can never really be sure about anything. Although I expect I’m pretty sure I’ll be a TTD owner for a very long time.
Magnite
Magnite released earnings last week, and I would consider the results just ok. I still think they’re positioned really well to ride some of the programmatic digital advertising wave that is churning. The valuation is really inexpensive right now. I just don’t come away from their earnings calls felling warm and fuzzy like I feel like I should. Of my large positions, this one is slipping in my confidence level a bit recently, but I have a hard time selling at these prices considering all of the trends I noted in the TTD section above, plus MGNI’s relationship with Disney/Hulu and the upcoming Disney+ ad supported launch expected late this year, right alongside the midterm election advertising bump, there’s just a lot of good things ahead that could show a sudden acceleration in growth a few quarters from now.
We still don’t know what, if any role Magnite will have with Disney+. During the earnings call, they were asked by an analyst:
https://www.fool.com/earnings/call-transcripts/2022/05/05/ma… (I updated a typo where I believe they referred to “Hulu XP” below)
just a follow-up for me, so any updates on the relationship with Disney, kind of looking at this two ways. Just first, any indications in your potential involvement within that supported Disney+? And then second, I know we’re starting to approach the term on that 18-month agreement from a year ago. So just curious, if you have any thoughts on where that engagement goes from here?
To which Magnite’s CFO replied:
Yes, Jason, the relationship remains incredibly strong. The renewal is coming up, as you pointed out, but we don’t perceive any material change there. And as for Disney+, I think it validates the model rate, the idea of having an ad-supported tier. And although, it’s obviously Disney’s decision and how they go to market with Disney+ and the other streaming assets, our understanding is it’s all going to be available through Hulu XP and obviously, we powered a nice chunk of that.
And so, therefore, we say there’s nothing but a positive opportunity.
On the surface this sounds good, but I don’t know. It feels like a “I want to see it to believe it” type of thing. The specific wording used to describe that they power “a nice chunk of” Hulu XP strikes me as odd because previously when it first launched, it was described as being powered by Magnite. So I’m left wondering what “chunk” do they power and what chunk do they not power. And what does it really mean that they “power” the Disney/Hulu XP platform at all.
So Magnite may be the first holding that I trim if I decide to put some money into a new company, but at the same time I still feel like there will be a bright future for them. When the stock was $50/share a little over a year ago, I still thought it was cheap. Now it’s below $10 and I wonder. The stock market can really make you second guess yourself sometimes.
My other companies haven’t released Q1 earnings yet and haven’t had any recent news, so I’ll leave it there for now. It’s a scary time to be a tech investor right now. But when I think back to the last times my portfolio dropped about 50% or more in a short period, in 2009, and 2020, it didn’t take long before it got back to new all time highs. This time might take longer, so feeling like I own strong companies that are moving in the right direction, in the right space considering where their industries are headed feels even more important right now.
As always, thanks for the great discussions and analysis. I’m looking forward to seeing how the rest of our companies do as we continue through earnings season.
-mekong