February wasn’t too bad for my portfolio. Actually, all four of my companies that announced earnings this month (TTD, MGNI, UPST, and TDOC), had positive stock reactions after earnings. Technically Teladoc was down the day after earnings, but after reviewing their results, I decided to fully sell out of TDOC early that next morning when the stock price was initially up about +5%, so I was gone by the time it turned lower.
That streak is likely to end tomorrow, as Pubmatic announced results after the close today and the stock is down about 10% in after hours. Their results were not as good as I was hoping for, but after listening to the earnings call, there is still a lot that makes me optimistic for the future for PUBM.
Year To Date Performance
-29.3% YTD Jan -21.2% YTD Feb
So my portfolio was up about 11.6% for the month of February. That was largely driven by the +23% increase in one of my biggest positions, The Trade Desk (TTD), and the post-earnings jump from Upstart.
February 28, 2022 Allocation
The Trade Desk (TTD) 28.8% MongoDB (MDB) 21.0% Nutanix (NTNX) 17.8% Magnite (MGNI) 14.6% Pubmatic (PUBM) 6.2% Upstart (UPST) 6.0% Docusign (DOCU) 3.4% SentinelOne (S) 2.2% Teladoc (TDOC) SOLD
MongoDB and The Trade Desk have been playing leap frog the past few months for the top spot in my portfolio. TTD took a big leap back into the top spot this month, given the 23%+ gains in February, while Mongo was down about -6%. I’m feeling good right now about my decision to add to TTD in late January in the mid $60’s (it closed above $85/share today) despite it already being one of my largest holdings.
So the biggest change to my portfolio was to finally cut ties with TDOC after earnings (more on the reasoning below). At the time, it was about 3.5%, and I put all of the proceeds into Nutanix, which is the primary reason that my NTNX stake increased from 14% last month to 17.8%. I continue to believe that NTNX’s performance will eventually reflect much higher valuation than the shares represent today. Two days until their next quarterly results come out, so I look forward to seeing how they’ve progressed in Q4.
The only other reallocation was after Upstart jumped 35% after earnings and then was up another 5% the next morning and I decided to sell about 40% of my total UPST shares (essentially the portion that they grew over those two days, bringing my Upstart allocation back into the 6-7% range it was at the beginning of February) and I spread the proceeds pretty equally among TTD, MDB, MGNI, PUBM, and DOCU.
Companies Reporting Earnings in February
The Trade Desk
I wrote up my TTD earnings summary here
Their CEO said for a long time that the deprecation of cookies would not hurt their business and would probably be a good thing in the long run. A couple years later and it’s looking like he was right. Even from their current $40 billion market cap, I just can’t see TTD not being a much bigger company five and ten years from now. I added some shares in January and again in February. It’s now 28% of my portfolio and I really have no thoughts of trimming them. It may bounce up and down a little, but these shares will be tough to pry away from me any time soon.
Magnite’s Q4 results definitely weren’t what I was hoping for. They’re still lapping the large SpotX acquisition from last year so the revenue growth number continues to look high but doesn’t really tell us a lot about how the underlying business has been performing. But the bad news is that the total business only grow 10%+ in Q4 on a pro forma basis (adjusting as of all acquired companies were already consolidated in the prior year’s Q4 2020 too). While there was some impact from having the bigger political spend during the 2020 elections that didn’t have the same advertising dollars this year, that certainly doesn’t make up the difference. With the fast growing CTV that makes up a very large percentage of their business today, Q4 just wasn’t as good as I, or the market, was expecting.
Despite that, the stock was up +18% the day after earnings, and is now up more than +28% since earnings were announced last week. Some of that is reflective of how low the valuation (and expectations) had gotten leading into earnings.
It feels like a lifetime ago that this stock was $60+ almost exactly a year ago. Although I did add a few shares when I lightened my UPST this month, I do have more caution flags in my mind on MGNI right now than I have had at any other time since I first bought it.
It’s still one of my larger positions and, at least right now, I don’t have any thoughts to reduce it. They’re still positioned really well in CTV which should grow a ton in coming years, not to mention that advertising will move more and more programmatically. They’ve shown that they can make deals with big players (Disney, Discovery, etc), so I still expect that they can be really successful. The big question will be whether their management can execute. They inherited some of the best CTV developers from their recent acquisitions. I would love to know if they’ve been able to hold on to most of them or not so far.
I didn’t get to listen to their earnings call so I need to go back and catch up on that. I did listen to today’s Pubmatic call (direct competitor with Magnite) and, although they didn’t have a particularly great quarter either, they claim their CTV business grew 6x year over year (probably from a very small base as I don’t believe they had any acquisitions that impacted that) and multiple times on the call, PUBM management referred to taking market share from competitors, saying something like that it was evident from prior competitors quarterly announcements (I suspect Magnite was one of the, if not the, competitor they were referring to, given that I’m not sure there are many, or any, other publicly traded SSP’s).
So I’m not as confident in MGNI as I am in some of my other holdings, but given the valuation today, the opportunity with CTV over the next few years, the size of their offering which probably is significantly better than most of the competition, if they can get it right, and I still think they can, Magnite could easily see its shares rise 3x-5x in the next 2-3 years. And while they have to get a lot right and it’s by no means a guarantee, I also don’t consider that a huge longshot or gamble. So I definitely plan to give them at least a couple more quarters to prove that they’re headed in the right direction.
Upstart’s results were covered really well here so I won’t add much. The results were solid. The guidance was good. And most importantly, the fraud issues seem to be under control (that was one of my biggest worries going into earnings). I would say Upstart’s business and company has the potential to grow by a bigger percent over the next few years than any company I follow. But there’s lots of different types of risks, and will certainly be more lumpy growth than any other company I own, and for that reason, I like keeping it in the 5-10% allocation range for now.
Teladoc Teladoc, this ride has not been a good one for me. It has probably been one of my worst performing investments ever. I sold out of my 3.5% stake the morning after earnings while the stock was up a little. It may very well be a really good investment from here. Their Alexa announcement with Amazon today is interesting although I don’t know that it will be very profitable in the short term. But with other companies that I have higher conviction in, also selling at what I consider to be bargain prices, it felt like the right time to cut Teladoc loose.
When I started buying, the stock was down from $280/share to $180/share. Although the pandemic tailwinds were already behind them, I figured the Livongo business would probably keep growing around 50% (it had been 80% the prior year when TDOC acquired them) and I thought the legacy business would still grow 25-30% for a while. Add on top of that, that the pandemic has dragged on a lot longer than any of us were hoping a year ago (which theoretically would be good for telehealth) and I would have thought they would have had a better year than they did. Although they don’t break out LVGO’s results now, it’s pretty clear that both the Livongo business and the legacy Teladoc business grew far slower than I was expecting over the past year.
The valuation is still really cheap, and they’re in a good space, and still have the synergies of rolling out their new interfaces this year combining the Livongo and other products. They are also collecting enormous amounts of data, which is going to be valuable to them in some way or other. I won’t be surprised if TDOC triples in value over the next year or two. But I also won’t be surprised if it grows slow for a while. I won’t rule out buying back into this one in the future if the stock price lingers below $100 for a couple of quarters while other companies I own expand their multiples, but for now I’m moving on and just keeping an eye on it.
Pubmatic’s earnings just came out today
Earnings were a bit of a disappointment as revenue only came in line with guidance (after they beat by 10%+ last quarter) . It’s also a big deceleration from the 50-60% they’ve been at for the past year, to +34% this quarter (they said it would have been +40% adjusting for the high political election spend last year in Q4 that wasn’t in Q4’21). Making matters worse is the guidance for Q1 is only 25%.
They explained the lack of a guidance beat in Q4 essentially by saying they were on track in Oct and Nov and then in December, when omicron hit right at the heart of the holiday shopping season, a lot of advertisers that have high exposure to trying to bring shoppers into live stores cut back on spending. If I understood right, there was some partial offset with an increase in online shopping ad spending, but overall it was a weak end to the year. They did say they gained 1% market share, going from about 2% a year ago to 3% now. I think they were referring to the portion of the ad market that is controlled by SSP’s. Given that Magnite only grew 10% pro forma, and Pubmatic was up 34%, that is consistent with what they were saying.
Pubmatic says they aspire to get to 20% of the market, which would imply growing at least 600%, not to mention being in a digital programmatic ad market that should be growing over all in coming years. They didn’t give any time frame for getting to 20% market share, I suspect it would be 10+ years even in their most aggressive hopes. Certainly I’m not putting much into that aspirational goal, but regardless, it’s not a bad thing that they’re aiming high.
I would bet that, given how Q4 ended weak, it may have led them to be especially conservative with guidance. They gave the same 25% guide for FY 2022 as they did for Q1, which I think leaves room for some significant beat and raises, especially given that there is going to be a big bump in Q4 (and maybe to a lesser extend in Q3) from the midterm election ad spending.
They did say on the call a couple times that they plan to hire a lot of new developers and my first thought is, are they going to be able to find that much talent, or convince/pay them to come over, given that it’s probably a very competitive market right now. It also makes me think if they are poaching some of the SpotX talent that Magnite acquired a year ago.
So there’s a lot going on in my head as I digest today’s earnings. The conference call left me feeling like these guys are going to execute and do really well in the future. The stock was initially down more than -20% when the press release came out, but it was more like -10% later on after the call. I won’t be surprised if it’s only down low single digits tomorrow. They’re still a young company, trading at a low valuation, in a digital programmatic ad industry that (if you’ve seen my portfolio allocation above) I have high expectations for, so I don’t plan to do anything too dramatic with my PUBM shares this week. I could see myself taking a small sliver off MGNI and PUBM and just adding a little more to MDB, NTNX, and DOCU or something like that, but we’ll see what Mr. Market is going to offer and play it by ear.
Nutanix – this Wednesday March 2nd
MongoDB – next Tuesday March 8th
Docusign – next Thursday March 10th
SentinelOne -two weeks away on Tuesday March 15th
Another month in the books. Stay safe and have a great March!