Mid-month update. What I've done and why

Mid month update. What I’ve done and why.

Well it’s the 18th of the month and I’m almost up 18% year-to-date (16.7%, actually). This does NOT mean that after 365 days I’ll be up close to 365%, I promise! :grinning:

I read all the positive opinions on Mongo which seemed very convincing, and all the negative opinions on Mongo, which also seemed very convincing, and decided, since I have zero technical knowledge to help me decide which is right, or if the truth is somewhere inbetween, that Mongo was just too much of a battleground stock for me, and I sold most of my position. There are much less controversial and complicated stocks for me to be in, and where I can sleep better at night. I may have been completely wrong but that’s what I did.

I also sold out of one of my three little biotechs, VCEL, feeling that it was the one which seemed to me to be in the smallest niche.

With the cash, I added the most to Nutanix (where I’ve gotten a lot more confidence back), also smaller amounts to Okta, Elastic, and less to Square (adding a tiny bit but still worried about the flakey CEO), and added tiny bits to the other two little biotechs, Guardant and Abiomed. I also took truly tiny positions in three little tech try-outs (Zuora, Anaplan, and DocuSign).

Best,

Saul

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I wanted to revisit ZUO also. Something that happened at work actually around sending a client a quote and because it was a SaaS product our core system wasn’t able to handle it.

Their CEO has a strong background but also had a really strange/odd CC the Q before last. I am willing to write it off that nerds don’t have to have a strong grasp of what is socially smooth in a CC if they are smart and strong leaders in their core business.

The part I hesitate a bit on is their competition.
Chargify and Cloudbee…both are private so harder to gauge what is going on there.
https://www.vccircle.com/insight-venture-partners-leads-seri…
https://news.crunchbase.com/news/zuora-skyrockets-prices-ran…

Gartner Nov report mention that Zuora website had:
https://www.zuora.com/2018/12/09/gartner-recognizes-the-end-…

They were up a bit since Bert talked about them again. But still well off highs, so may be time to catch them on the upswing. I don’t think they are going to be 50-60% y/y type growth numbers, but hard to find a company more about SaaS than Zuora, so they should be steady for years to come.

IMO, need to spin out the SaaS revenue completely, and ignore contribution from Services, to properly gauge growth here.

Dreamer

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January- IMO
MDB dropped 12% on news Amazon had created DocumentDB. I began to see the competitive environment in the open source movement differently (more competition than I thought) and started thinking of Moat differently. I sold 30% of my 12% position in MDB waiting for the market to see this unwarranted FUD (despite the relative competition for the SaaS portion of MDB, Winner will take most. 2.8B market Cap-is it the winner yet?). —— But more importantly I believe I started to see why Saul sold most of his SQ (perhaps competition, despite their improving metrics. At the same time realizing maybe why he has Zs and OKTA as five stars (their Moat being no competition and both massively integrated into the infrastructures of their customers businesses). So I sold half my 12% position in SQ and bought 20% more Zs and 125% more OKTA (OKTA was 4% position) despite having missed Zs post Q4 ‘18 correction run up near now near all time high at 45$ and missing much of OKTA’s bounce off Off Sept to Dec fall- I didn’t price anchor. —- Unrelated, I began to see how Guardant Health might be like an SaaS similar to Illumina as this portion of healthcare is software driven. Despite my past failures with Pharma and thanks to the posts of so many on this Board I bought a 2% position of GH. — Bear wrote a post about why a company might trade in a range due to elevated PS and despite not wanting to try and time the market, I sold 30% of ETSC and repurchased NEWR just before it ran up 10% in five days - thinking the reason I sold NEWR and bought ESTC was due to their both being after APM and ESTC with roots in DB management more generally enabling them to as Saul says ‘take over the world’.

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Sorry submitte with appropriate thanks to Saul for keeping me aspirational.

Thank you Saul.

I’m hoping my reasoning is not just because you did it; but, maybe I’m actually learning to fish, thanks to you this Board.

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Thanks Willo, for explaining not only what you did but why you did it.
Saul

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It’s reassuring to find my reaction to MDB was exactly the same as Saul’s - but with a small pang of guilt at not knowing enough to decide! Other attractions with fewer worries elsewhere; exactly.

My first choice was hardware however, last tranche for a full normal position in Arista which keeps coming through my screens and after DD looks promising even after I had averaged out some of the historical figures. Not one of your moon-rockets, but I am hoping it will be no slouch either.

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Why I disagree with Saul on Mongo at NPI:

Mongo is not going to implode overnight, I don’t think, because it is best of breed – path dependence. A look at Mongo’s chart shows that it is a great stock to trade, all that volatility can be put to good use.

https://discussion.fool.com/i-don39t-know-how-much-mongo-depends…

Denny Schlesinger

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With the cash, I added the most to Nutanix (where I’ve gotten a lot more confidence back), also smaller amounts to…

I should have made clear that my highest conviction companies are still Twilio and Alteryx, but as they were both 20% positions I was reluctant to add (I couldn’t help myself and did add a tiny bit to Twilio though a week ago).

Saul

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I also took truly tiny positions in three little tech try-outs…

And please don’t take a position in any of my little try-out positions because I did! These are truly tryout, get to know them, type positions, and if you’ve followed me for a while you know that many, if not most, of my try out positions don’t make the cut and are gone in a couple of weeks (witness Vericel, which I just dropped). It’s often not because there is something blatantly wrong with the company, but because I like my others better.

Best,

Saul

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Why I disagree with Saul on Mongo at NPI:

Mongo is not going to implode overnight, I don’t think, because it is best of breed – path dependence. A look at Mongo’s chart shows that it is a great stock to trade, all that volatility can be put to good use.

No need to explain Denny, you are not disagreeing with me. I have nothing against Mongo. I just don’t know enough to figure it out, so picking a different stock was a better choice for me.

Saul

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No need to explain Denny,

I know that. I just though people might like to know why I prefer buying/trading Mongo.

Denny Schlesinger

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As for MDB, I thought this post was interesting via the NP board that might be missed over here.

Like Saul I jumped out at 81 only because what MDB does is not in my wheel house of knowledge, but with helpful info from the board I jumped back in at 72, so a lucky trade that I certainly don’t want to try too often.

I’m more confident that this threat from AMZN won’t add up to that much, but again what do I know. :wink:

“Here is Mongo’s response to Amazon Document DB.

Amazon DocumentDB is an imitation of MongoDB built on a dated version of the MongoDB API — it fails up to 65% of compatibility tests and has a feature set that’s comparable to MongoDB seven years ago.”

Chris

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Thanks for update Saul.
Good to note you are gaining more confidence in NTNX.

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I think MongoDB is a closed book. They are the present day Oracle.

If you look back at relational database growth and competition, Oracle by no means stood alone. They had a ton of competition including IBM. And in the late 70s and early 80s IBM was a formidable competitor. But, Oracle had a blistering development schedule, even though the product tended to be buggy, it still improved faster than other offerings. Oracle was the database manager that everything else was compared to.

Although “open source” was not really a thing at the time, I doubt it would have made much difference. Most enterprises are just not going to scrimp on a DBMS. A DBMS is known as middleware, no end user directly interacts with a database, software talking to software is the way a database is communicated with. Companies hate problems with middleware because they can do nothing but report it to the vendor and wait for the fix.

So DocumentDB or MongoDB? Put yourself in the position of the IT manager who has to make that decision. I can get this product that only runs on AWS which emulates about a third of the functionality of the premier product from about a year ago. Or, for not much cost difference I can get the premier product which will run in my shop as well as any other cloud and which I know will continue to be enhanced and supported, and actually is the only offering robust enough to meet our requirements.

I could be wrong, but IMO MongoDB is a very high confidence investment. But then, so is Nutanix.

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But then, so is Nutanix.

Care to elaborate? I agree with you on MDB. It’s so much FUD. But with NTNX the reports (numbers) are complicated. The hardware extrication was one thing, but now the conversion to SaaS is really muddying the waters. Could be a good thing, of course, but it’s very unclear. Non-SaaS software revenue was significantly down from last quarter…it wouldn’t surprise me at all to see them abandon their $3b 2021 goal. You must feel differently?

Bear

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but now the conversion to SaaS is really muddying the waters. Could be a good thing, of course, but it’s very unclear. Non-SaaS software revenue was significantly down from last quarter

Nutanix OS is not SaaS, there is no conversion to SaaS. They are offering the OS under subscription terms. But Core OS is 100% on premises, not SaaS. Nutanix SaaS offerings are newer products mostly released in last few weeks. They are hosted add in products that greatly enhance the OS and solve many problems that IT deal with in managing public and private clouds.

Not sure what you mean by non-SaaS revenue was down from last quarter. Subscription revenue, which includes a small amount of new SaaS revenue as well as subscription and term based software was up q to q. And non-portable software was exactly flat. No aspect of their business was down from last quarter, except $4M less in recognized hardware. They still sold more hardware, just eliminated even more from revenue. I would expect as time goes on for subscription terms to be the way most future Nutanix sales go, and being that subscription Billings was about $100 year ago and now are almost $200M as the previous billings get recognized into subscription revenue when contracts lap, those subscription revenues will move way past non-portable. Higher software revenue gets easier and easier before even making new sales. Non-portable will linger, it will probably continue to be fairly flat or maybe even decrease over time. It’s still a product some companies want, but way more will want portable and subscription based terms. It’s just easier to budget and doesn’t have device lock in.

Darth

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I would expect as time goes on for subscription terms to be the way most future Nutanix sales go, and being that subscription Billings was about $100 year ago and now are almost $200M as the previous billings get recognized into subscription revenue when contracts lap, those subscription revenues will move way past non-portable. Higher software revenue gets easier and easier before even making new sales. Non-portable will linger, it will probably continue to be fairly flat or maybe even decrease over time. It’s still a product some companies want, but way more will want portable and subscription based terms. It’s just easier to budget and doesn’t have device lock in.

Unfortunately, Darth, that’s all just theory at this point. And that’s exactly why I called it unclear.

Bear

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Bear,

That is not theory. $702M in deferred revenue backs that up. $300+M of that will be recognized over next 12 months. That $300+M number gets bigger every quarter.

All $147M of non-portable revenue occurred as sales during the quarter. This isn’t just going to vanish. Non-portable is the same as windows on a laptop. It is sold with the device and can’t be transferred to another device. Part of that sale will be a service contract which gets recognized on the subscription side.

Nutanix recognized $79M in deferred revenue in Q1 that was on the books when the quarter started. Assuming the majority of that was from subscription Billings(some might be pro services but not a lot) that’s about 62% of revenue occurring prior to quarter. That’s from when Billings were half of what current Billings were.

That’s my theory backed up with facts from the actual balance sheet. $159M in deferred revenue additions during quarter resulting in a net of $71M after subtractions. From 10-Q.

Darth

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Nutanix OS is not SaaS, there is no conversion to SaaS. They are offering the OS under subscription terms. But Core OS is 100% on premises, not SaaS.

Actually, this is a common misunderstanding. SaaS is a licensing model in which one pays for software on an as used basis, a subscription where the cost per time period depends on the amount of the service one uses. It is associated with cloud delivery since that is a common way that companies centralize resources and dynamically respond to the usage level, but there is nothing about the licensing model which requires the use of the cloud. There are many vendors who sell products in an on-prem SaaS licensing model or a mixture of on-prem and cloud.

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Tam,

I understand that. The way that Nutanix’s Enterprise license is, is not SaaS though.

We should maybe start a thread on SaaS verses Subscription software. The second S in SaaS stands for service. The key difference between the two is that with SaaS the customer does not take “possession” of the software. Like you say it is consumed as used. Whereas with a subscription license a constumer takes possession of the software and has to use it in accordance with the terms.

Nutanix Enterprise Cloud is not SaaS. The customer takes possession of the software under license. Other products like the Xi lineup are consumed as a Service. Most are hosted as far as I know.

AYX has no SaaS product. It is entirely a license where the customer consumes it via a license. There is a way to do it that is SaaS like on AWS where you “rent” access to the software by the hour along with AWS infrastructure.

Mongo Enterprise is not SaaS but Atlas is.

TWLO is almost entirely SaaS as far as I know.

Typically SaaS is hosted and as you mentioned sometimes it is consumed differently, but to be SaaS the key is it’s Software as a Service in which the customer pays to have access to the software without taking possession of it. Sometimes with subscription sometimes without.

Typically, SaaS has somewhat lower margins than Subscription software because of the cost to host.

Darth

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