Mekong22 Oct 2022 portfolio update

Today was quite literally my first day off work so far this month, so I am finally getting a chance to look at my portfolio’s performance through October.

It’s still hard to look at these numbers and not be frustrated with how the market has treated our companies, but at the same time, it’s easy to look at the companies themselves and feel great about the potential ahead for them and know that, although it may continue to be bumpy for at least the next several months, there is likely to be a day when our patience and commitment to owning the best companies out there is rewarded.

YTD performance through October

-29.3% YTD Jan
-21.2% YTD Feb
-29.8% YTD Mar 
-43.3% YTD Apr
-60.4% YTD May
-65.6% YTD Jun
-62.2% YTD Jul
-54.4% YTD Aug
-64.5% YTD Sep
-65.8% YTD Oct

And my breakdown at October 31st:

TTD    43.2%
MDB    28.5%
SNOW   11.7%
DDOG    8.0%
NET     3.0%
CRWD    2.4%
MGNI    2.0%
PUBM    1.2%

Thoughts on the companies

The Trade Desk (TTD)

Looking at the YoY growth rates by quarter over the last few years:

       Q1    Q2   Q3   Q4
2020   33%  -13%  32%  48%
2021   37%  101%  39%  24%
2022   43%   35%  31%  24% (q4 guide)

And sequential growth (note that Q1 is typically going to be negative sequential growth given the seasonally strong holiday quarter in Q4)

       Q1    Q2   Q3   Q4
2020  -26%  -13%  55%  48%
2021  -31%   27%   8%  31%
2022  -20%   20%   5%  24% (q4 guide)

The Q3 ’22 +31% growth (+5% sequential) and +24% guidance for Q4 was definitely better than I expected after hearing pretty negative ad industry news from Google, Facebook, and other ad tech companies before Trade Desk announced.

I was anticipating the possibility, with all the talk about possible recession and macro economic headwinds coming, that TTD could see another dip to the negative YoY growth they saw in Q2 2020 when the COVID pandemic first hit. However, if they are still as strong as their latest results and guidance indicates (and CEO Jeff Green was his usual optimistic self on their earnings call), then I really think TTD is showing that they are taking more and more market share, and a macro slowdown may just accelerate that further.

They definitely may slow more than some other companies given their customers’ ability to temporarily freeze spending any time they want. But I also would bet that some of retailers have had supply chain type difficulties over the past couple of years which reduced the need to advertise because some products were selling as soon as they hit the shelves, but now that we might have a tighter consumer environment, it may have the opposite effect on advertising and require retailers to advertise more and more, given higher inventory levels, and more competition for sales, translating to more advertising.

Not to mention the bigger picture trend of companies wanting their advertising dollars to go further, meaning they need better targeted ads to get the most bang for their buck and potentially reduce spending while not reducing the effectiveness of their marketing budget as much…and that of course is exactly what ad tech and programmatic digital advertising like the Trade Desk offers.

MongoDB (MDB)

Mongo hasn’t reported yet, we’ll hear from them Dec 6th.

MDB YoY growth

       Q1    Q2   Q3   Q4
2020   46%   39%  38%  38%
2021   39%   44%  50%  56%
2022   57%   53%  34%(q3 guide)

And MDB sequential growth

        Q1      Q2   Q3     Q4
2020    6%      6%    9%    13%
2021    6%      9%   14%    17%
2022    7%      6%    0%(q3 guide)

Mongo has a tendency to be conservative so I expect that 0% sequential guidance will tick up a bit when they announce earnings. The big thing for me will be more about when they announce Q4 and we see their 2023 initial guidance. They’ve been saying for a long time that ’23 is going to be the first year we can expect some profitability, although it’s not something they update every quarter, so hopefully we’ll find that they are still on track, which will be an important milestone for investors to see that they can achieve some bottom line profitability going forward.

Snowflake (SNOW)

SNOW also hasn’t announced earnings yet, November 30th we should hear from them

SNOW YoY growth

       Q1    Q2    Q3    Q4
2020  149%  121%  119%  117%
2021  110%  104%  110%  101%
2022   85%   83%   62%(q3 product rev guide)

Snowflake only provided guidance for product revenue, but product revenue accounts for 94% of total revenue, and both product revenue and total revenue grew at +83% last quarter so I think it’s safe to pencil their +62% product revenue guide for Q3 into the above chart as an estimate of total revenue growth.

And SNOW sequential growth

       Q1     Q2    Q3   Q4
2020   24%    22%   20%  19%
2021   20%    19%   23%  15%
2022   10%    18%    9%(q3 est. guide)

It took me a long time to buy my first SNOW shares this year, and to be honest, SNOW still scares me a bit, even with the price where it is today. I have no doubt they will grow at a higher rate than most any other company I own for the next couple of years, but a lot of that does look, to me, like it’s baked into their valuation already.

That being said, I have 10% of my portfolio in Snowflake. I may admittedly have some fear of missing out at least partially behind this holding.

When I apply some pretty solid growth rates to SNOW

+70% Year 1
+60% Year 2
+50% Year 3
+40% Year 4
+40% Year 5

With those revenue growth rates, I show SNOW getting to $8.5 billion revenue five years from now, and they are at a $47 billion market cap today. I think about that in comparison to NET’s goal of reaching $5 billion revenue five years from now, and they are only at about a $15 billion market cap today. Then if I factor in that NET has a 77% gross margin rate, while SNOW is only 65%, that puts Net at $3.8 billion of GM and SNOW at $5.5 billion GM five years from now, that’s 60% more gross margin dollars being generated by SNOW five years from now compared to NET, while it sells for more than 200% higher valuation today.

And of course NET’s $5 billion goal is aggressive and they need to executed extraordinarily well to get there in five years. But SNOW also needs to executed pretty incredibly to hit the growth rates laid out above. So that’s where I struggle with SNOW. Do I really expect that I am going to be better off holding it for several years compared to the other companies we follow? I’m not so sure.

A lot of much smarter tech people than myself hold SNOW in really high regard and I’m betting they’re right. But I’m keeping my eye on them closely. If their growth rate can’t stay significantly higher than the other companies I follow for at least the next couple of years, I can see my Snowflake investment unperforming, not necessarily losing money, but potentially not doing as well as other stock holdings.

Datadog (DDOG)

DDOG YoY growth

       Q1    Q2   Q3   Q4
2020   87%   68%  61%  56%
2021   51%   67%  75%  84%
2022   83%   74%  61%  38%(q4 guide)

And DDOG sequential growth

       Q1     Q2    Q3    Q4
2020   15%     7%   10%   15%
2021   12%    18%   16%   21%
2022   11%    12%    7%    3%(q4 guide)

Datadog is another one that I’m particularly interested in seeing what their 2023 full year guidance looks like, although it will still be a few months until we get it when they report Q4. The soft Q4 guidance could be a combination of conservative estimates given the macro uncertainty right now, but hopefully isn’t going to be a sign of things to come. It’s a great company with great products that I feel will navigate whatever comes in the near term.

Cloudflare (NET)

NET YoY growth

       Q1    Q2    Q3   Q4
2020   48%   48%   54%  50%
2021   51%   53%   51%  54%
2022   54%   54%   47%  42%(q4 guide)

And NET sequential growth

       Q1     Q2    Q3     Q4
2020    9%     9%   14%   10%
2021   10%    10%   13%   12%
2022   10%    11%    8%    8%(q4 guide)

I was also late to buy in to Cloudflare. I like what I see here. I like the long term IT security growing needs for products like the ones NET offers. I think the post-earnings stock reaction was way overdone.

They don’t have to hit the lofty $5 billion in five years revenue goal to make this a really good investment. I could see myself wanting to reallocate a bit more into Cloudflare.

Crowdstrike (CRWD)

Crowdstrike is another one that hasn’t reported yet, we’ll hear from them on November 29th

CRWD YoY growth

       Q1    Q2    Q3   Q4
2020   85%   84%   86%  74%
2021   70%   70%   63%  63%
2022   61%   58%   52%(q3 guide)

And CRWD sequential growth

       Q1     Q2    Q3   Q4
2020   17%    12%   17%  14%
2021   14%    12%   13%  13%
2022   13%    10%    8%(q3 guide)

Crowdstrike’s full year guidance also implies +47% YoY growth for Q4’22 which is +10% sequential growth. This is probably another one that I should have more invested in, but we haven’t heard from them in a couple months since last quarter, so I’ll wait at least until we hear from them next week and see what we hear from them then.

Another month in the books. We only have a few more weeks of 2022, and at least from an investing standpoint, I’ll be pretty happy to put this one behind us. This year has been a good reminder of just how much is out of our control sometimes, at least in the short term, but over the long term, a good disciplined approach to analyzing and owning the best companies in the right trending industries should still be highly rewarding.

Thanks as always for such a great discussion on so many companies here

-mekong

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Well, duh. @dividends20, this doesn’t seem to add anything to the discourse and very much feels like you’re kicking all of us (perhaps including yourself) while we’re down.

In general when you post, please try to add more to the discussion – be thoughtful, and try to explain thoroughly what you’re thinking and why. We can all just hit reply and say whatever comes into our heads, but it doesn’t really help the board.

Bear

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Dividends20,
I deleted your last post which expressed your disdain for the way we invest even though Bear, who is an Assistant Mgr of the board posted to you about the inappropriateness of your previous post.

Dividends, if you are unhappy about the way we invest there are plenty of other boards you can post on where you will be more comfortable. This is just a warning, but if you continue with this line of posting your posting privileges will be lifted.
Saul

46 Likes