Poleeko,
Nice post. MDB, SHOP, OKTA, TWLO. They all fall into the category of companies that meet three criteria:
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Very dominant position in their respective markets. In fact, they are the clear leaders, by far.
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Benefiting from the digital transformation and using a subscription model to capitalize on this mega trend.
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Deceleration in revenue growth from 80-90% to the 40-50% range.
Yet, despite the deceleration of revenue growth, each of their stock prices have continued to go up and up and up. What gives? Why? Is the stock price rise a temporary anomaly that will eventually reverse or is the dominant market position enough to keep outsized gains in stock price appreciation?
I don’t know the answer for sure, and, Poleeko, your post was timely as I have been pondering these questions these past few weeks and months. Yes, I had previous sold out of SHOP, then TWLO, then MDB. And I am now in the process of also selling out of OKTA (over the past months I have reduced OKTA from about 11% to a 2.5% allocation currently). I have recently wondered if these sales were/are a mistake and if I am missing something. It makes sense to me that selling a company with decelerating growth and moving the funds into a company that is still growing faster will lead me to greater portfolio returns. For example, I moved most of the proceeds from my OKTA share sales to ZM and FSLY.
Time will tell if my portfolio tinkering in favor of the fastest growers was a better decision than holding on to the likes of SHOP, TWLO, MBD, and OKTA. I guess the market (i.e. collectively the other market investors) is willing to pay up for the certainty of market dominance that SHOP, TWLO, MDB, and OKTA have established. The question is how dominant are CRWD, FSLY, LVGO, DDOG by comparison. Undoubtedly, the second group of companies is growing almost twice as fast but will they maintain their market position and will they continue to grow fast. I suppose if members of the second group start to falter then we can quickly change horses again. I will be watching closely to see how this all plays out.
Chris