This is my first end of month update-- I want to be diligent about tracking next year so I figured finding my footing the last two months of 2021 would be a good place to start and begin to fine tune my structure a bit.
My enlistment into Saul’s methodology is recent and I am still finding my way to proper execution. I’m not old, but I learn the old-fashioned way-- by falling on my face-- I’ve been learning a lot since jumping into the “Saul Stocks” (as they are now listed in my portfolio tracker). I Jumped in-- not tapered mind you-- in August after following the board for a few months. I was pleased by the rapid growth of UPST, CRWD, LSPD, and the likes, until-- yup-- earnings season erased not only my gains for the growth stocks, but my gains from some successful REIT nad energy investing going back to the last quarter of last year (SPG, PW, IIPR, RWT, ET, FANG). I also have a separate account primarily for options trading (off topic)-- that account had returns of over 100% YTD eviscerated down to under 3% YTD. I’m not sharing any of this in anger, or even disappointment-- quite the opposite-- I was trading very successfully before trying something new, and though I have been battered brutally in the process, I have not failed, and the amount of wisdom and understanding I have gained is well worth the money I have lost. Wisdom more precious than rubies, as it is said. As much as it’s off topic, I also wanted to mention this to illustrate the risk in options trading for anyone who hasn’t done it and sees the sometimes enviable options returns posted in updates. I still remain a very active options (FUBO, SMRT) trader but in the future I won’t report any of the results from that account, but feel free to message me off board and I’m happy to discuss.
I’ve spent the past six months following the board, creating my own spreadsheets and tracking tools, and doing my best to make some deep dives into some of the companies that I think may be hypergrowth and investable… My first stab at this on board was Kaleyra (KLR) which was remarkable enough to receive a mention from Saul himself as a “This does NOT belong here!!” – if that gives you a peak into how close I was to hitting the mark (not close).
I don’t plan to stop learning, and I especially enjoy following many of the off board blogs for Muji, Gaucho, CloudL to name a few. I’m not currently invested in a few of the big dogs (NET, DDOG), primarily because I couldn’t understand the business relevance for quite some time, and now I am holding off my exposure based on the market caps, as I’m not sure how long they will remain in a hypergrowth state, but I am probably wrong and I do think they have very large TAMs–
Some of the things I have learned:
Being a great company alone doesn’t earn a spot in the hypergrowth portfolio. The idea to track and own great companies during their hypergrowth period is the key to this investment thesis-
Gross margins matter-- a lot. As I previously illustrated in my comparison between BILL and FOUR, FOUR has more than three times the revenue but is less profitable due to gross margin disparity–
P/S doesn’t matter so much-- see above example – BILL p/s is 66x while FOUR’s is 3x-- though from a profitability standpoint, BILL is actually the cheaper stock-- I do think “valuation” and high P/S, PE will come into play during market corrections-- essentially a market psychology move rather than an actual fundamental response causing market corrections, however this doesn’t change the general thesis.
QoQ growth is probably a lot more important to track in real-time than YoY growth. We can much more effectively follow a company’s hypergrowth journey by tracking QoQ metrics rather than YoY-- but the story matters perhaps even more than the growth-- If a company is growing only through acquisitions and organic growth is limited, or decelerating, this may be cause for alarm, or at least more research into the company and thesis.
“Corrections”, “Sector Rotations”, and “Crashes” are part of the game. They will sometimes cause headache, heartache, or heartburn, but they should be expected– we know they are coming-- we just don’t know when. I’m fairly certain there is a colonoscopy in my future, I just don’t know when. It would be pretty silly for me to run around the house pulling my hair out and shouting it on the mountain while drowning pepto-bismol in whiskey when the colonoscopy appointment rears its ugly head. It’s just part of the system we are choosing to play in.
Understand your companies-- for yourself. I have always firmly believed each person needs to invest in such a way that makes sense to them. Which is why I really avoided tech and software for a very long time-- I didn’t make sense to me-- the valuation and predictability was not something I could understand. So I stuck to companies I did understand. Primarily REITs and Energy companies. I suppose it was seeing a lot of panic posts after LSPD and UPST that reinforced the idea to me that we should all understand what we are doing and why–
A little research isn’t enough. If you’re going to look into a company to invest money in-- and certainly if you are going to present it to others to potentially invest their money in-- do the work. Don’t just pull numbers from yahoo finance-- listen to the earnings calls, read the transcripts, watch interviews, get into investor relations and the sec.gov page, follow the news, and scour through the data. It will make you a better investor, save you a lot of grief (and the occasional dishonorable mention), and may actually benefit someone else.
Okay, I’ve learned a lot-- and this doesn’t even begin to do it justice, but here’s where I’m at with my portfolio-- it isn’t perfect, never will be, but I’m willing to accept that in my search for more hypergrowth companies. I still probably lean a little too heavily into what I believe the company will do, rather than what the numbers are doing-- which is probably important for you to understand about what makes sense to me as I continue to learn. I’m also interested to track where marketcaps play a role in the deceleration of growth-- I haven’t done the leg work yet–and I know it’s different for every company-- but I’m curious to see where the trends show companies slowing down.
My current allocations— With nothing to compare them to as of yet.
Initial thoughts on Holdings:
“MONDAY.COM DEMOCRATIZES THE POWER OF SOFTWARE SO ORGANIZATIONS CAN EASILY BUILD SOFTWARE APPLICATIONS AND WORK MANAGEMENT TOOLS THAT FIT THEIR NEEDS. OUR PLATFORM, A WORK OS, IS PIONEERING A NEW CATEGORY OF SOFTWARE THAT WILL CHANGE THE WAY PEOPLE WORK AND BUSINESSES OPERATE. OUR PLATFORM’S BUILDING BLOCKS ARE SIMPLE ENOUGH FOR ANYONE TO USE BUT ARE POWERFUL ENOUGH TO DRIVE THE CORE FUNCTIONALITY WITHIN ANY ORGANIZATION. MONDAY.COM INTEGRATES WITH OTHER SYSTEMS AND APPLICATIONS, CREATING A NEW CONNECTIVE LAYER FOR ORGANIZATIONS. WITH MONDAY.COM, OUR CUSTOMERS CAN ACCELERATE THEIR DIGITAL TRANSFORMATION, ENHANCE ORGANIZATIONAL AGILITY, CREATE A UNIFYING WORKSPACE ACROSS DEPARTMENTS, AND INCREASE OPERATIONAL EFFICIENCY AND PRODUCTIVITY.”
I liked ASAN a lot more than MNDY initially but ASAN has continued to run up while MNDY pulled back and MNDY-- as Saul recently mentioned-- beats ASAN on every metric. MNDY has put together two incredible earnings sessions and has a market cap that can support hypergrowth. I think MNDY could compete with ZI as the highest market capped company in Israel over the next 12 months. We’ll see.
Q3 Revenue Growth Margin DBNRR ASAN $83M 94%YoY 88% 125% MNDY $90M 72%YoY 89% 118%
“Our mission is to make it simple to connect and do business. We are champions of small and midsize businesses (SMBs). We are a leading provider of cloud-based software that simplifies, digitizes, and automates complex back-office financial operations for SMBs. By transforming how SMBs manage their cash inflows and outflows, we create efficiencies and free our customers to run their businesses.”
I think CLOUDL’s blog introduced me to BILL so I started following them and I was really impressed to see the gross margins actually improving with its recent acquisitions and organic growth still impressing. The share price has run up quite a bit to say the least, but they seem to be firing on all cylinders and executing really well. In a sometimes crowded space I think BILL has done a good job executing in the B2B market and has a large advantage. They have continued to accelerate-- I’ll be watching profitability and sequential growth as well as customer growth going forward. Overall I like the sector and I believe they still have room to run quite a bit. I also appreciate when a company puts their organic growth front and center separate from acquisition growth as listed in their latest earnings report:
? Q1 Core Revenue Increased 164% Year-Over-Year ? Q1 Organic Core Revenue Increased 78% Year-Over-Year ? Q1 Transaction Fees Increased 319% Year-Over-Year ? Q1 Organic Transaction Fees Increased 127% Year-Over-Year
I don’t have much here to share except that I still really believe in this company and the sector. It may not have ARR in the traditional sense—but I consider customer acquisitions and partnerships as a form of currency or recurring revenue. Essentially 1 customer = “1 recurring revenue stream”—when they add 2 more customers in a quarter their “ARR” =3. Of course actual loan volume isn’t guaranteed, and it will be cyclical to some extent—but their expansion into automotive and eventually mortgage will diversify them enough to have more stability—coupled with their industry FICO threatening potential and superior gross margins, I see UPST reaching a market cap easily over $100B.
Lending Volumes Q4 ’20 Q1’21 Q2’21 Q3’21 123,396 169,750 286,864 362,780
PATH: Market Cap $25.5B Revenue Growth 40%YoY Gross margins 83% DBNRR 144%
UiPath is the leading RPA provider in the world—What is RPA? I’m glad you asked—
“Robotic process automation (RPA) is a software technology that makes it easy to build, deploy, and manage software robots that emulate humans actions interacting with digital systems and software. Just like people, software robots can do things like understand what’s on a screen, complete the right keystrokes, navigate systems, identify and extract data, and perform a wide range of defined actions. But software robots can do it faster and more consistently than people, without the need to get up and stretch or take a coffee break.”
When I think of this sector I can picture Thanos snapping his fingers “I am inevitable.” Yeah—Thanos.
PATH has been working hard pushing out new products and consistently ranks number one in this sector and I believe they will only continue to boom. Their current DBNRR is 144%, and ARR has increased 60% YoY. High Gross margins at 83% and I don’t believe they are valued representative of their growth and TAM ($60B). I haven’t seen any chatter about PATH and I don’t expect them to be popular on the board, but they’re one of my holdings so there it is.
VERI: Founder led Market cap $900M YoY Rev Growth 44% Gross Margins 82%
“VERITONE IS A LEADING PROVIDER OF ARTIFICIAL INTELLIGENCE (AI) TECHNOLOGY AND SOLUTIONS. THE COMPANY’S PROPRIETARY OPERATING SYSTEM, AIWARETM, ORCHESTRATES AN EXPANDING ECOSYSTEM OF MACHINE LEARNING MODELS TO TRANSFORM AUDIO, VIDEO AND OTHER DATA SOURCES INTO ACTIONABLE INTELLIGENCE. AIWARE CAN BE DEPLOYED IN A NUMBER OF ENVIRONMENTS AND CONFIGURATIONS TO MEET CUSTOMERS’ NEEDS. ITS OPEN ARCHITECTURE ENABLES CUSTOMERS IN THE MEDIA AND ENTERTAINMENT, LEGAL AND COMPLIANCE, AND GOVERNMENT SECTORS TO EASILY DEPLOY APPLICATIONS THAT LEVERAGE THE POWER OF AI TO DRAMATICALLY IMPROVE OPERATIONAL EFFICIENCY AND EFFECTIVENESS.”
VERI HAS BEEN AN ACQUISITION MACHINE – WHICH MAY BE A RED FLAG AND TURN OUT POORLY—HOWEVER, I BELIEVE VERI HAS A STRONG LEADERSHIP TEAM IN CHAD AND RYAN STEELBERG, CO-FOUNDERS WITH A TRACK RECORD OF SUCCESSFUL ENTREPRENEURSHIP INCLUDING—I BELIEVE VERI’S ACQUISITIONS ARE POSITIONING THEM FOR SIGNIFICANT RELEVANCE IN THE METAVERSE AND AI WORLD. AGAIN, I DON’T EXPECT THIS TO BE POPULAR ON THE BOARD UNTIL/UNLESS THEY CAN PROVE THEIR HYPERGROWTH CAN BE ORGANICALLY MAINTAINED.
Q1’20 Q2’20 Q3’20 Q4’20 Q1’21 Q2’21 Q3’21 REV. $M 11.9 13.27 15.72 16.82 18.3 19.21 22.6 QOQ -4.2% 11.51% 18.46% 7.0% 8.8% 4.97% 17.96% YOY -1.82% 8.13% 22.75% 35.11% 53.96% 44.75% 44.13%
SMAR: MARKETCAP $8B REVENUE GROWTH 44% GROSS MARGIN 79% DBNRR 128%
“Smartsheet (NYSE:SMAR) is the leading cloud-based platform for dynamic work, enabling teams and organizations to plan, capture, manage, automate, and report on work at scale, resulting in more efficient processes and better business outcomes. Over 80% of the companies in the Fortune 500 rely on Smartsheet to implement, manage, and automate processes across a broad array of departments and use cases.”
I believe Smartsheet’s sector is another one with inevitable rapid expansion in the post-covid world (if there is such a thing). I have already seen these platforms manifest and rapidly expand within my workspace—I believe adoption and expansion is represented by the high DBNRR and I believe SMAR is poised for continued high growth for the next several years at least. I purposefully used the word “high” rather than “hyper”. I expect SMAR to grow in the 30-40% range as they have been—a “steady eddy” if you will—but I also believe there is an unrealized potential in SMAR that could see short term hypergrowth as I believe it is “cheap” at it’s current price based on revenue growth, gross margins, and SaaS nature.
Revenue Q2 Q3 Q4 Q1 Q2’22 QoQ 7% 8% 11% 7% 13% YoY 41% 38% 40% 37% 44%
b>DOCN: marketcap $11B Rev. Growth 36% YoY Gross Margin 69% DBNRR 116%
“DigitalOcean simplifies cloud computing so developers and businesses can spend more time building software that changes the world. With its mission-critical infrastructure and fully managed offerings, DigitalOcean helps developers, startups and small and medium-sized businesses (SMBs) rapidly build, deploy and scale applications to accelerate innovation and increase productivity and agility. DigitalOcean combines the power of simplicity, community, open source, and customer support so customers can spend less time managing their infrastructure and more time building innovative applications that drive business growth.”
DOCN is demonstrating acceleration in growth and improved DBNRR. Customer growth is a little slower than I would like to see (7%YoY), and so are the gross margins, below 70%-- But again, revenue is accelerating and existing customers are spending more money.
NVEI: Market Cap $17B Rev. Growth 95% YoY Gross Margin 80%
“We are Nuvei (Nasdaq: NVEI) (TSX: NVEI), the global payment technology partner of thriving brands. We provide the intelligence and technology businesses need to succeed locally and globally, through one integration – propelling them further, faster. Uniting payment technology and consulting, we help businesses remove payment barriers, optimize operating costs and increase acceptance rates. Our proprietary platform provides seamless pay-in and payout capabilities, connecting merchants with their customers in over 200 markets worldwide, with local acquiring in 45 markets. With support for over 500 local and alternative payment methods, nearly 150 currencies and 40 cryptocurrencies, merchants can capture every payment opportunity that comes their way. Our purpose is to make our world a local marketplace.”
I recently posted on NVEI—Which can be viewed at the link below:
“Nuvei is a $17-billion market cap company in the mobile commerce and e-commerce solutions business globally with payments products, analytics and risk management capabilities on its platform. The company is in over 200 markets worldwide and supports over 500 local and alternative payment methods and over 200 currencies including cryptocurrencies and its payments business has recently been expanding in the online gaming and sports betting markets in the United States.”
-JAYSON MACLEAN – CANTECHLETTER NOVEMBER 26, 2021
Overall I like the diverse exposure, the fact that NVEI is already profitable with high gross margins, and I believe a very large TAM–I like the additional exposure into some sectors with tailwinds like sports wagering and online gaming, as well as the agnostic exposure to cryptocurrency, as I currently no longer trade in crypto. I also appreciate the culture the company communicates with its employees and creating company buy-in and community through incentives employee incentives.
Well, turns out writing these takes even longer than reading them-- Thanks if you made it this far, I’m excited for the journey ahead-- for the gleaning of wisdom along the way, and… hopefully less and less “old-fashioned” learning as I go.
Thanks to Saul & Company and this community of group-think investors.
Feel free to message me off board anytime for anything.
WHY WAS THE FOOTBALL COACH SHAKING THE VENDING MACHINE?
TO GET HIS QUARTER BACK!