Mekong22 Aug 2023 portfolio update

My portfolio gave back a little bit of the 2023 gains in August. The good news is it wasn’t due to any bad news from the companies. They probably just got a little ahead of themselves earlier this year and were pressured by some of the macro uncertainty that doesn’t seem to be going away anytime soon.

The even better news is I’m not regretting pulling a decent amount of funds out of the portfolio during July last month at what, at least so far, were not far from the short term peaks. I noted in last month’s writeup that I had been selling off bits of my positions when they spiked and taking those funds permanently out of the portfolio to prepay down other obligations. In retrospect I wish I had done even more of that, but I can’t complain with how things have been going regardless.

So here is the latest YTD performance summary:

+11.3% YTD Jan
+16.2% YTD Feb
+23.5% YTD Mar
+29.1% YTD Apr
+61.4% YTD May
+87.4% YTD Jun
+118.9% YTD Jul
+94.6% YTD Aug

My portfolio is very concentrated, still only five positions currently, and all five moved lower during August, with my two biggest positions (TTD and MDB) both down -10% or more this month. AEHR and TSLA were only down a few percent. But my smallest and newest position in Teladoc (TDOC) which had spiked +25% right after earnings in July gave back all of that 25% in August on new significant new news (except potentially some competitive news about Amazon getting more into healthcare, which could be significant)

MongoDB came back a little bit yesterday, Sept 1st after their earnings on thursday afternoon, which reported a great Q2, but cautious Q3 revenue guidance (but great increased income guidance)

Here is my allocation at 8/31/23

39.3%  (TTD) The Trade Desk  
29.8%  (MDB) MongoDB   
12.4%  (TSLA) Tesla    
12.0%  (AEHR) Aehr Test Sys 
 6.4%  (TDOC) Teladoc 

I really didn’t have any transactions in August at all, so TSLA and AEHR inched up, percentage wise, simply because they dropped less during the month than TTD, MDB, and TDOC which came down a little bit each as a result.

Despite those top two positions being quite large, they are combined less than 70% for the first time in a while. Back in April, they combined for more than 87% of the total and have gradually come down, mostly due to my selling off pieces of them as I bought into the other companes and pulled some some funds permanently out of the portfolio.

Here is the year to date performance of each of my current holdings. Note that the companies that I didn’t own at the beginning of the year (TSLA, AEHR, TDOC), this only shows the performance since I purchased them:

December 31st^ August 31st YTD Gain
TTD 44.83 80.03 78.5%
MDB 196.84 381.3 93.7%
TSLA^ 161.3^ 258.08 60.0%
AEHR^ 32.04^ 51.01 59.2%
TDOC^ 24.33^ 22.64 -6.9%

My overall portfolio performance was driven by having so much concentrated in two stocks (which, again, I generally wouldn’t recommend) which have increased +78% and +93% so far this year.

I also had some compounding of different stock holdings that contributed to my overall gains this year. For example, I owned Cloudflare (NET) at the beginning of the year, which increased about 50% YTD when I sold a few months ago to buy into TSLA, which then gained 60%. So those funds have returned about +140% so far this year, even better than the shares of TTD and MDB that I own.

^ Because I didn’t own TSLA, AEHR, or TDOC until this month, the “December 31st” numbers above for Tesla, Aehr, and Teladoc are not their 12/31/22 prices, but the stock price of my initial, most significant purchases. For Tesla it was on May 4th. They had already reported their quarterly results in April, and I certainly didn’t expect they would rise 60%+ over the next few months, but I’m glad I bought as much as I did early on as I probably wouldn’t be as inclined to buy as much all at once right after its run.

And also note that most of the shares I hold in TTD and MDB were purchased in 2018 and 2019 at much lower costs. The largest portion of my Trade Desk shares were purchased in January 2019 for $11.39 and are up +603%, while most of my MongoDB shares were purchased in July 2018 for $57.39 and are up +564% now.

I’ll just add a few thoughts on MDB’s newly announced results given that the other companies I own (except TDOC which is largely off topic here) have been well covered on the board lately.

MongoDB (MDB) - MongoDB just reported Q2 on Thursday. The results for the second quarter were a big positive surprise, showing +40% growth, an acceleration from +36% and 29% in the previous two quarters. However this was at least somewhat driven by some larger than expected multi-year deals, which the U.S. accounting rules require that an outsized portion of the revenue for the term gets recognized upfront this quarter.

Atlas revenue is still doing well and grew +38%, even despite some of the macro headwinds which have impacted consumption recently.

Management’s guidance for Q3 only shows a +21% revenue increase next quarter and, while it’s likely they are being conservative, particularly around Atlas consumption expectations, it’s unlikely they grow at anything close to the +40% rate they turned in this year.

Gross margins also came in especially high at 78% this quarter, compared to 73% in Q2 of last year. The large upfront revenue noted above is especially high margin, so management tried to temper expectations on the analyst call that we should not expect margins to be as high as Q2 going forward.

But the big story that continues to play out and makes me comfortable with my large position in MongoDB is the trend toward profitability. MDB turned the corner toward non-GAAP operational income not long ago and it appears that they are staying on track and increasing expectations for converting their revenue growth into profit.

Non-GAAP income from operations for the Q2 quarter just ended was guided three months ago at $36 to $39 million, and came in at $76.7 million!

When they reported Q1 earnings back in May, the full year guidance for fiscal 2024 FY non-GAAP income from operations was for a range of $110 to $125 million three months ago, and just they increased it to $189 to $197 million. That’s a +58% increase on the top end to this year’s expected Non-GAAP income from operations. And I’m betting it rises further when Q3 and Q4 get reported.

MDB still has nearly $2 billion in cash and cash equivalents. They had a use of -$27m of cash in Q2 of fiscal 2024 (this year), which was an improvement of a use of -$48 million in Q2 of fiscal 2023 (last year).

Although still negative cash flow, this improvement is despite the company intentionally collecting less cash upfront on new deals, signing them for shorter terms, in order to incentivize customers to more quickly move more workloads onto MongoDB, which leads to fast growth of higher levels of recurring revenue that should keep coming in for years to come.

So I’m optimistic that we’ll start to see positive cash flows before long that should grow as the top line expands.

I wrote up a bit in another post about this de-incentivization of MDB’s salespeople to no longer try to lock in customers to longer terms, because the long term benefits to the business come from getting more workloads into Mongo, which customers are more comfortable doing more quickly when those long committments aren’t required…and most of them stay locked in and renew month after month and year after year anyway.

here is the post for further details and thoughts that I won’t re-hash here:

Thanks everyone for another great month of discussion and idea sharing. Those of you in the U.S. have a great labor day holiday!