Here’s the summary of my portfolio at the end of August.
As I usually do, for my own convenience I figure my end of the month summary from the last weekend of the month.
I bet that now it is difficult to even remember that “Sell growth, buy junk!” rotation that scared us so much during the the first 4½ months of the year.
My portfolio finished August at up 50.9% YTD (or at roughly 151% of where I started the year). August was a very good month as at the end of July I was only up 21.9%. My low for the year in mid-May was 81.5%, so this is a rise of roughly 85% for my entire portfolio in less than four months. (150.9/81.5 = 1.85 which is a rise of 85%)
My portfolio has also long since topped its all time high from 2020, which the critics of our investing style had assured us was just a product of an investing “bubble,” and we were doubly assured that we would “never see those 2020 highs again”.
In fact, if you take my portfolio’s results from last year (2020) of up 233% (or 3.33 times what it started with), and multiply those results by this year’s 51% gain, you will see that the portfolio has quintupled in a year and eight months. 3.33 x 1.51 = 5.02 times what it started with on Jan 1, 2020.
That is such a preposterous and ridiculous result that it’s hard for even me to digest it. Humans aren’t supposed to get results like that, but our companies keep on turning out extraordinary results, a number of which results were announced this month.
I am no good at timing the market and I haven’t tried, but have just stuck with strong, rapidly growing, high-confidence companies. I can’t tell you what the market will do Monday, or next month, or the next three months, or six months, but I can tell you that these companies are very successful, and that I can sleep well with them in my portfolio.
This year we are more likely to grow at a more normal rate, more related to the rate of growth of our companies’ revenue growths, or a little less, which won’t be bad , but it certainly won’t be like last year. And don’t be surprised at ups and downs along the way.
MY RESULTS YEAR TO DATE
My portfolio closed this month up 50.9% (at 150.9% of where it started the year)! Here’s a table of the monthly year-to-date progress of my portfolio for 2021.
**End of Jan + 2.5%** **End of Feb + 0.3%** **End of Mar - 13.0%** **End of Apr - 0.2%** **End of May + 4.1%** **End of Jun + 16.5%** **End of Jul + 21.9%** **End of Aug + 50.9%**
A thought about this: Since many of us were up more than 200% last year (more than tripling our entire portfolios), it seeemed logical to assume that our stocks (and way of investing) had overshot by a lot, were way overvalued, and would fall back this year. But here we are, eight months into the year, and we are actually up ridiculous amounts again, in spite of wildly overshooting last year, and living through some large pullbacks.
I AM CONSIDERING CHANGING MY END OF THE MONTH SUMMARIES
After rereading what I’ve written above several times I’m considering the idea of no longer posting my personal monthly percentage portfolio results. I would continue to post the same information I have been posting about my positions, and my analysis of the stocks I’m in, and how the stocks are doing, and what I’m doing about them, but as for my portfolio results I’d just say I was up “moderately” this month, or down “a little”, or whatever was appropriate.
Why am I considering this? As I wrote above, these results are preposterous. Up five TIMES in a year and eight months! Not talking about one lucky stock but the entire portfolio!
And since 2017, up 20.4 TIMES in four years and eight months! Again, not just one lucky stock but the entire portfolio! Twenty TIMES!!! That’s just so silly it’s ridiculous.
I figure we’ve proved our point. Using the investing methodology of this board, as summarized in the Knowledgebase and some of the other information on the side panel, and using the daily crowdsourcing of information by a bunch of great people on the board, we have beaten any index by miles and miles. But not only that, we have easily beaten any hedge fund manager, mutual fund manager, professional investor, advisory service, whatever, at least that I’ve ever heard of. We’ve taken many, many, people with little or no investing experience, or investing success, and shown them how to change their lives for the better by investing. (Many have written to thank me and the board for that very thing. So many have used those words: that the board has changed their lives for the better, which makes me feel that we are REALLY doing some good in the world ).
So I asked myself what’s the point of posting just more and more preposterous portfolio results each month. Posting the stock information, what I’m doing about my positions, the allocation of the stocks in my portfolio, and the analysis of the companies, all of that is useful information, but my own percentage portfolio results don’t give you any useful or actionable information. I’d be glad to hear commentary on this, as to whether you seriously think there is enough value in my percentage results to make it worthwhile to continue. Off board would probably be better, depending on what issues you are covering, but post on the board if you feel you must.
HOW DID THE INDEXES DO?
Here are the results year to date:
The S&P 500 (Large Cap)
Closed up 20.0% YTD. (It started the year at 3756 and is now at 4509, advancing 3.0% for the month).
The Russell 2000 (Small and Mid Cap)
Closed up 15.3% YTD. (It started the year at 1975 and is now at 2226, advancing 2.6% for the month).
The IJS ETF (The S&P 600 of Small Cap Value stocks)
Closed up 27.4% YTD. (It started the year at 81.3 and is now at 103.6, advancing 3.4% for the month)
The Dow (Very Large Cap)
Closed up 15.8% YTD. (It started the year at 30606 and is now at 35456, declining 8.1% for the month).
The Nasdaq (Tech)
Closed up 17.4% (It started the year at 12888 and is now at 15130, advancing 3.5% for the month).
These five indexes averaged up 19.2% YTD. At the end of July they were up 18.3%, so they gained 0.9 precentage points in Aug while my portfolio was gaining 29.0 points. In fact, in the last four months the “markets” gained 0.9%, 1.9%, 0.7% and 0.9%, while my portfolio went from down 0.2% to up 50.9%, gaining 51.1 percentage points.
LAST THREE MONTHS REVIEW
June was a quieter month. Let’s see. I finally exited the last of my already greatly reduced Inari.
Why did I get out of Inari? And what did I mean when I referred to Inari’s extreme caution, hesitation, negativity, and worry? Well, they had previously been talking about about how Covid had been a headwind for them, as their people couldn’t get into the hospital to sell to new physicians, and everyone was too busy with Covid patients to deal with them.
Now that Covid seemed over, instead of being elated, they were warning that the hospitals are now full with people who had been putting off tests and procedures during Covid. In other words they weren’t seeing the big tailwind they had been expecting. They wouldn’t even give guidance for the June quarter that they were already in, although they were half way through it in mid-May, and they gave full year guidance that was just a little over four times the March quarter’s revenue. I also heard from doctor friends that many hospitals are in a bad financial situation now due to Covid. This may lead to hospital administrators being unwilling to pay for Inari products which are four or five times more expensive, even if they do work better. All in all it seemed too complicated for me. It may all turn out to be a false alarm. They may be just super-duper cautious. That’s very possible. But I certainly wasn’t the only one who read it the way I did. The price dropped about 35% and almost $40 in the next nine trading days. It looks a if my decision was correct, as in the last four weeks Inari hardly bounced back at all from that precipitous decline, while my portfolio as a whole was up substantially, and hitting all-time highs.
Another thing I did was take a smallish position again in Docusign, after an extraordinarily good earnings report that has been thoroughly discussed on the board.
Upstart was down from a brief high of about $185 to touch $115 due to the expiration of the lockup and a block sale of 1.7 million shares, and I added back at about $117.60. (You will remember that when it rose 89% in six trading days and grew into a 17.5% position, I decided that 17.5% in such a labile stock was too much and trimmed down to about 12.5% or 13.0%, with the largest chunk selling at about $156).
I added more later this month when the National Assn of Federally Insured Credit Unions gave it rave reviews, a place on its own website, and a strong recommendation to its member credit unions (whose CEO’s had actually voted to choose it).
And then, a week later, Upstart announced that they had partnered with NXTsoft, “the leader in secure API connectivity”, to enable Upstart to deliver its lending platform to banks and credit unions more easily, efficiently and more securely. NXTsoft has over 1,000 such financial institutions that currently utilize its secure API solution. It seems that Upstart is announcing something impressive weekly, and finally, its lock-up expiration is no longer in the future, but in the past.
To pay for the added Upstart I sold some of my smallest position, ZoomInfo, which, despite all the good press and great customers, I just couldn’t see growing forever as I can with most of my other companies. (I may be wrong, of course). I also trimmed some other positions to raise the cash.
July There were no earnings reports in July but there was news on several of our stocks that affected some of my decisions.
Upstart was helped by a recommendation by Goldman Sachs which also gave an excellent description of Upstart’s business, and how it works. Upstart also announced a new credit union had signed up for their program. Excellent discussion on our board looking at monthly statistics gave further reason to expect rapid growth. The stock price stayed between $115 and $125 most of the month, which was very calm for Upstart, and I added multiple times to my position, bringing it up to 14.5%.
Lightspeed didn’t have much company specific news, but the world changed in the last five weeks with a scary resurgence of Type D Covid, and since a lot of its customers were in restaurants and hospitality, I reduced my position to 7%, but then, after taking a sober look at how fast they were likely to be growing, I built my position size back up to 8%.
Crowdstrike announced that Falcon for GovCloud was now FedRAMP authorized for endpoint protection.
Then they announced that Falcon Complete, their total all-in-one solution, provides cloud-native managed detection and response, protecting endpoints through AI, comprehensive threat intelligence, and 24/7/365 support from defenders who manage, monitor, and remedy threats that plague government agencies.
Saul here: I feel that with all the security breaches we’ve been having, this will surely add significant government business for them.
Then they announced Falcon X Recon+, a new managed solution where Falcon X Recon+ threat experts manage digital risk protection efforts by monitoring, triaging, assessing and responding to threats, enabling the customer to focus solely on their business.
“Earlier this year, we delivered Falcon X Recon to expose activity on the cybercriminal underground. The new Falcon X Recon+ combines the effectiveness of the Falcon X Recon technology with the skills and experience of our Intelligence team. By offloading the effort of dealing with external threats to us, Falcon X Recon+ increases the effectiveness of the security team, while reducing the time, skills and effort required to battle sophisticated adversaries.”
Saul here: Both of these announcements show a new movement into providing managed security, and not just the software, in response to more, and more sophisticated, criminal activity, so that the customer doesn’t have to have a world class security team to deal with the threat.
In addition, their partnership with Zscaler seems to be flourishing. The two companies seem to be working together in order to provide a full security ensemble solution.
Cloudflare announced that it is now “listed” in the FedRAMP marketplace, and that reaching this “final step before full FedRAMP authorization” will allow more federal agencies to adopt Cloudflare’s performance, security and Zero Trust solutions.
I (Saul) don’t fully understand what being FedRAMP “listed” means, but it’s clearly better than not being listed, and Cloudflare implies that federal agencies will be allowed to adopt their solutions.
Datadog joined the party achieving AWS Government Competancy Partner status. What the heck does that mean? Here’s how Datadog defines it:
“Datadog for Government enables government agencies to successfully migrate to the cloud, troubleshoot performance issues, and improve the speed and reliability of their services at scale, while remaining in compliance.”
Zoom Info had an acquisition, Chorus, that they feel is a game changer. Here’s what the CEO said about it in a blog:
“We’ve had some big moments over the years. In just the last 12 months, we
__Launched **Engage** to automate sales outreach.__ __Acquired **Clickagy** and Launched **Streaming** and **Custom Intent**.__ __Acquired **Everstring**, a leader in Data-as-a-Service for the enterprise.__ __Launched **Workflows** to activate market insights, buyer intent, and website activity.__ __Acquired **Insent** last month (now called **ZoomInfo Chat)** .__ __And just a few weeks ago, we launched **ZoomInfo Recruiter**, which is rapidly gaining traction.__
But there are only a few milestones in our history that have had a game-changing impact on our trajectory and transformed how businesses everywhere go to market. Today is one of those moments. I couldn’t be any more excited to announce that we have acquired Chorus a leading provider of Conversation Intelligence solutions.”
(Saul here) You can read a lot more about it on the website. After selling way, way down, I built back up to a 4% position.
August was an excellent month for my companies. ZoomInfo, Datadog, Lightspeed, Cloudflare, and Upstart all reported excellent quarterly results, and Snowflake posted good enough results that I could exit without pain. I’ll tell you about them below individually, but I should mention that Upstart just blew it away and is now a huge 23% position. Since it is taking up so much space, it has to some extent crowded out and reduced the percentages of my other leaders so don’t be surprised.
I exited Docusign again, and probably will stay out, just because I liked the other companies better. I also exited Snowflake after earnings, because the story was just too complicated for me, with their slowing customer acquisition and slowing RPO (which they had previously told us was the most important metric to watch), and the company’s convoluted explanations and excuses, and our attempts to explain this, like maybe increased usage is using up the RPO, but then they emphasize that customers don’t use much in the first year, and if they actually did have more usage eating up the RPO, why is revenue growth coming down. It’s all just a mess to figure out. Let me be very clear about this. I think both of these companies will continue going up. These are not Fastly stories. It’s just that I can’t invest in all the good companies in the world. I keep a concentrated portfolio, and there are other companies that I’d rather be invested in.
What did I do with the money? My ZoomInfo is now up to a normal size position, double where it was at the end of July, and I’ve taken a new position in Monday.com which CloudL wrote up on the board a couple of weeks ago. In addition I added to my Lightspeed and Zscaler positions. I also had added a lot to my Upstart before earnings.
Please remember that I could change my mind about any one or more of my positions tomorrow, depending on new information or other factors, and I won’t do another update until the end of the month. Make your own decisions. Don’t just follow mine. I make mistakes at times! Guaranteed!
HOW THE INDIVIDUAL STOCKS HAVE DONE YTD
Here’s how my current positions have done this year. I’ve arranged them in order of percentage gain. As always I’ve used the start of the year price for stocks I’ve been in all year, and my initial buy price for stocks I’ve added during the year. I tend to keep buying as the price rises, so my average price is often higher for stocks I’ve bought during the year.
Please remember that these starting prices are from the beginning of 2021, and not from when I originally bought them if I bought them in earlier years.
**Upstart from 92.20 to 223.18 up 142.1% buy in Apr** **Lightspeed from 58.15 to 104.58 up 79.8% buy in May** **Cloudflare from 75.99 to 123.57 up 62.6%** **Zscaler from 186.70 to 273.73 up 46.6% buy in May** **DataDog from 98.44 to 134.84 up 37.0%** **ZoomInfo from 47.34 to 63.19 up 33.5% buy in Apr** **Crowdstrike from 211.82 to 282.31 up 33.3%** **Monday from 360.51 to 357.19 down 0.9% buy this last week**
Lightspeed is up 80%, just since I bought it in May,
Upstart is up 142% since my first buy in April.
At all time high Friday closes:
Datadog (less than 1% away)
ZoomInfo closed at an all time monthly high close, but one Friday during this month it had closed higher.
It’s rather extraordinary to have all of my seven companies at all-time highs. My new company, Monday, that I just bought in the last few days, hasn’t really had a chance yet.
NEW: HOW THE INDIVIDUAL STOCKS HAVE DONE SINCE I BOUGHT THEM
Usually, in my end of month summaries, I have shown you how my current positions have done this year, year-to-date. I thought however it might be interesting for you to see how they’ve done since I first bought them, even if I bought them in previous years. I’ll arrange them in order of length of time held instead of in order of percent gain.
**Crowdstrike from 73.06 to 282.31 up 286.4% buy in Jul 2019 (25 mo)** **DataDog from 31.50 to 134.84 up 328.1% buy in Oct 2019 (22 mo)** **Cloudflare from 34.97 to 123.57 up 253.4% buy in Jul 2020 (13 mo)** **Upstart from 92.20 to 223.18 up 142.1% buy in Apr 2021 (4 mo)** **ZoomInfo from 47.34 to 63.19 up 33.5% buy in Apr 2021 (4 mo)** **Lightspeed from 58.15 to 104.58 up 79.8% buy in May 2021 (3 mo)** **Zscaler from 186.70 to 273.73 up 46.6% buy in May 2021 (3 mo)** **Monday from 360.51 to 357.19 down 0.9% buy in Aug 2021 (0 mo)**
There’s an important lesson in this! Crowdstrike has almost quadrupled in two years and a month, Datadog HAS quadrupled in one year and ten months, and Cloudflare has tripled and a half in a year and a month, Upstart has doubled and a half in four months.
Now how often have you seen people say (even on our board), “ABC has gone up 40% in two months (or 50% or 60%), so it’s valued too high now and I’m selling out to wait for a 20% or 30% pullback.” Note that they didn’t say that the picture for ABC had changed, or that there was anything wrong with ABC’s business, or that there was any bad news, etc, it was just that it had moved up 40% or 50% so they were selling out. Let me point out that if you make a practice out of selling out after a 40% move, you will never get the eight times 40% (320%) gains that you see above in Datadog, and close to that in others.
A little side comment
In the last five months of 2019 there was a rotation away from our growth stocks on no bad news at all. Well Crowdstrike was way down in price at the time, and I at least quadrupled the number of shares I had, buying at an average price of about $49.00. That large aliquot of shares that I bought at $49 has more than quintupled in less than two years (22 months), in fact close to sextupled. Here’s what that would look like:
**Crowdstrike from 49.00 to 282.31 up 476.1% buy in Nov 2019 (22 mo)** **….**
Now let’s look at a couple of other recent long holds.
Alteryx. I bought in in December 2017 at $27.72. Several weeks after I bought it, it had risen $19 to a price of $47, or up 70%, where the “smart guys” would have sold out and taken profits. I added more!!!
I held Alteryx for roughly two and a half years (30 mo), selling out in May, June and July of 2020 at an average price of about $148.00, when it became apparent in their conference call that they couldn’t deal with the Covid year. But that was up 434%, or more than a quintuple of what I started with in two and a half years. Imagine if I had gotten all excited by that $47 price (up 70%), and accepted a $19 gain instead of a gain of $120 per share!
However, I did sell out a year ago. If you have any doubt about the wisdom of selling out when the facts call for it, or feel you are being “disloyal”, Alteryx’s current price is just $74. It was $77 when I wrote this in July, thus dropping $3 more in a month when our companies stocks were rising like mad. What a good decision it was selling at $148 a year ago and reallocating the money into stocks that are going up! Obviously some of the money from those June and July 2020 sales went into Cloudflare (bought that July), which is now up 250% in a year, while Alteryx is down 50%.
Some people are still holding Alteryx, and a few years from now, when it regains that $148 price where they could have sold, they will feel justified, “See! I was right. It came back!” However $100 in Alteryx last July, and left in it, is now worth $50, while the same amount taken out and moved into Cloudflare is now worth $354. It’s worth SEVEN TIMES as much. That’s the definition of the “Opportunity Cost” of sitting on losers and hoping they will get their act together.
And do you remember Fastly? Ten months ago, last October, it had hit a new high of about $136, but then the really bad news came out, and it plummeted. I sold in the aftermarket and the next morning premarket, and got out of my entire position at about $90, and transferred all that cash into Cloudflare, a competitor, which I already had a position in since July (see above), at a price of $56.50. Many others on the board did the same thing, but there were some who stayed in. They felt we acted too precipitously, that Fastly was already down a lot, that it had great tech, and it would bounce back in time, etc etc etc.
Well here we are ten months later and Fastly is at $43.75 at Friday’s close, at 32% of its high and down 51% from where I sold it, and unbelievably down another $4 from July’s close. For someone who had a $100 position on Oct 15 and held it, now, after 9 months, it is only worth $49. On the other hand, if they had moved the money into a stock going up, it would be an entirely different picture. That same money into Cloudflare is now worth $219, which is 4.47 times as much. NO! It’s NOT 45% more! It’s FOUR AND A HALF TIMES as much. That’s again the definition of the “Opportunity Cost” of sitting on losers and hoping they will get their act together. Look, you may be thinking, “Well I held it so long, I might as well keep holding it. However, even from July’s close a month ago, Fastly is down another XX%, and my portfolio is up xx%. Again, that’s Opportunity Cost!!!
Some people are still holding Nutanix, waiting for it to come back. It’s still down 43% from its high of June 2018. That’s three years and two months ago!!! Think of THAT Opportunity Cost!!!
Sure, sometimes you will be wrong! And some companies you sold out of will keep going up. A lot. But you will avoid having a large part of your portfolio sitting fallow, just waiting, and avoid accumulating positions in which you are waiting for a return to the good old days. It’s easy to look at the one or two that did turn around, but most turnarounds don’t turn around, unfortunately.
Two lessons here.
First, don’t sell out because the stock has gone up, unless your position has gotten too big, and then just trim it. You will make your big money on the stocks that keep going up.
Second, you should sell at bad news, if the picture has changed.
I have occasionally been accused of buying and selling too easily, but that is usually me trying to find the right company to hold for the longer term. As you can see above, I make my big money on the rapidly growing companies that I buy, add to, and hold on to for several years. [Zoom was an exception where extraordinary circumstances (Covid), compressed three or four years of gains into one].
I hope that this has been clear and useful.
I now have seven positions and am starting a new one and eight is near the top of my comfort range. I have a huge (23%) position that Upstart has grown into. Then the former leaders Datadog and Crowdstrike at about 16%, and Cloudflare, which I’ve been trimming (see below) at 11.4%, followed by Zscaler, Lightspeed, ZoomInfo, and the new position, Monday, all at 7.5% to 9.0%.
Here are my positions in order of position size, and bunched by size groups.
**.** **Upstart 23.1%** **Datadog 16.2%** **Crowdstrike 16.0%** **Cloudflare 11.4%** **Zscaler 9.0%** **Lightspeed 8.7%** **ZoomInfo 8.0%** **Monday 7.5%**
COMPANY REVIEWS Please note that when I discuss company results, I almost always use the adjusted values that the companies give.
I’m going to discuss them in alphabetical order this month but I just have to tell you about Upstart first: I could tell you that their last earnings report was a complete blow-out and that they knocked it out of the park, but that would be a complete understatement!
What does Upstart actually do? Right off the bat, I have to tell you that this is a very different company from my usual. Upstart has developed a cloud-based platform that evaluates applicants for unsecured personal loans based on a multitude of factors that are not taken into account by traditional FICO scores. It is based on AI and deep learning so that the more loans it writes, and the more payments that are made on those loans, the smarter it gets. It’s a bit like the way Crowdstrike benefits and learns from every attempt at a breach that it analyzes, and its subsequent skill and enhanced knowledge gives it a moat, as a potential competitor would have to start from scratch. It’s the first mover advantage, and Upstart figures it has an eight year headstart on any competitors, as far as collecting the data.
What are the advantages of using it? It benefits everyone. The bank gets to approve more loans, with a considerably lower loss ratio, the customer has his or her loan more likely to be approved, and at a lower interest rate, and Upstart collects a fee. It’s a combination of lower interest rates, higher approval rates, and higher net yields.
How about management? The three who co-founded it (two men and a woman) in 2012, are very impressive, and two came from senior management positions at Google, the third is a young genius, and are all still at Upstart. Sounds good to me.
How’s business? Revenue from 2017 to 2020 went (in millions) $57, $99, $164, $233 (quadrupling in three years, inspite of revenue getting killed in the “Covid quarter,” Q2 of 2020). For 2020 they were adjusted profitable (23 cents per share, up from 5 cents the year before), and adjusted EBITDA profitable (13.5% of revenue, up from 3.4% the year before.
Quarterly revenue really took off in 2019, and the last ten quarters look like this. (You can spot that Covid quarter a mile away):
**20 33 49 63 = 166** **64 17 65 87 = 233** **121 194**
As you can see, quarterly revenue for the last two quarters was about six times what it was just two years ago! Revenue was up 60% SEQUENTIALLY this quarter!!!
Annual guidance for 2021 was $500 million two quarters ago. In May they raised it by $100 million to $600 million!!! In August they raised it by $150 million from $600 million to $750 million. That puts annual revenue guidance to up 222% (from 2020’s $233 million), more than tripling, and they certainly expect to beat and raise again after the third quarter.
What’s new? They’ve acquired Prodigy Software, a facilitator of auto loans, which will multiply their TAM about six times, as auto loans are a market about six times as big as unsecured personal loans. They are already helping to originate auto loans with one or two banks.
How could I not invest in a company that is a first mover, making its own market with a highly automated cloud-based new technology which uses AI and deep learning? A company that is already profitable, and is growing so fast that it is guiding to 222% revenue growth for the 2021 year, which it is obvious that it will handily beat! At a minimum I would expect them to move that 222% guidance to 260% growth by the end of the year. And it is moving into a new market (auto loans) that is six times as large, and just got recommended by the credit unions’ national association! Holy mackerel!!! (to coin a phrase).
However, keep in mind that this is a complicated company, which has to deal with all kinds of financial/banking rules, and which doesn’t have guaranteed recurring revenue like, for example, Crowdstrike or Cloudflare. Upstart also may be cyclical and effected by the economy (look how it dropped revenue about 74% sequentially in the Covid panic quarter, which obviously could happen again in a sharp recession or equivalent).
In mid-June they had the expiration of their lock-up period. The price sank to $115 after a block sale of 1.7 million shares. It’s now at $223. If you ever needed proof that the “professionals” are not always right, in fact not USUALLY right, just think of those professionals who sold 1.7 million shares at about $115 just two and a half months ago, and left $184 million sitting on the table.
The National Assn of Federally Insured Credit Unions also had a press release strongly extolling them on the day of the block sale. I added to my position at $117.60, and a little more after it partnered with NXTsoft a week later, which will facilitate the adoption of its system by banks and credit unions.
Upstart has grown to a 23% position for me. Am I comfortable with such a large position in such an atypical company for me? Yes, so far. I have no plans to make major cuts in my position although I could see myself making tiny trims, to match those in other companies, to raise cash for a new position for example. There have been many threads about Upstart and if you are interested I recommend reading and getting up to date. In fact if you just start reading all of jonwayne’s posts you can’t go wrong. He knows the company better than anyone, as far as I can tell. There’s a lot of good reading before you.
Cloudflare (NET) has been a star of my portfolio, almost quadrupling in the 13 months since I bought it, but I keep feeling vaguely dissatisfied with the company. How can I be dissatisfied with a company whose stock has closed at new all time high closes almost every Friday for weeks and weeks. Well… I don’t understand why it’s going up like that.
The good news is that they are growing at over 50%, growing at 54%, 50%, 51% and 53% the last four quarters, their gross margins are a strong 78%, their operating loss was $7.3 million, improved from $9.5 million a year ago, their free cash flow was minus $10 million, improved from minus $20 million, their net retention rate was 124%, a record for them, and they are pivoting from free and small/medium customers to large customers and gathering them rapidly. They are putting out new products like mad, and their CEO says they have so much opportunity that they are not worried about profitability right now, just growth as fast as they can. Sounds great, doesn’t it?
The bad news is that they are growing at over 50%. With all this opportunity, acquisition of large new customers, and new products, why aren’t they growing faster like so many of my companies? Why do they still have an operating loss, minus 2 cent EPS, and negative free cash flow when most of my other companies are positive now in spite of growing faster? The other bad news is that the CEO says that they are not worried about profitability right now, just growth as fast as they can. I have other companies that are growing revenue considerably faster, but yet manage to be profitable and free cash flow positive.
Look at Datadog’s results for the same quarter: Datadog’s revenue was up 67%, up from 51% in the March quarter. Adjusted net income was positive 11% of revenue, up from a LOSS of 5% last year. Operating Cash Flow was $52 million, up from $25 million last year. Free Cash Flow was $42 million, up from $19 million last year. (Why can’t Cloudflare do any of that??? )
So why the heck is this company growing its stock price faster than any of my other companies (except perhaps Upstart)? What is the market seeing that I’m not? I wonder if there is a perception that this company is on its way to take over the cloud world . Well, maybe there is, but I’ve made small trims to my position multiple times, and it’s now down to an 11.4% position. (Part of that percent reduction, of course, wasn’t trims, but getting crowded out by Upstart’s price growth). I’d love to hear commentary on this subject if you think you have answers. On board would be fine!
Crowdstrike will announce earnings next week… This is a security company built entirely on the cloud which started out securing endpoints, but now is expanding into many other aspects of security, and seems to be heading towards being one of the world’s dominant security companies. A key advantage it has is its AI. When it detects an attempt at an intrusion in one of its customer clients it instantly flags and stops that intrusion in that customer, but at the same time stops that intrusion from occuring in each and every one of its customers, pretty much instantly. It has a record of everything that has ever been tried on any of its customers so it keeps increasing its knowledge base. That’s a Wow Feature! No on-premises firewall company can come even close to what it does.
They had an outstanding earnings report in June, for their quarter ending in April, with revenue up 70%.
DataDog is in second place currently in my portfolio. They posted
great June quarter results this month, as we predicted, having finally lapped that Covid quarter in 2020. Revenue was up 67%, accelerating from 51% in the March quarter. Adjusted net income was 11% of revenue, up from a LOSS of 5% last year. Operating Cash Flow was $52 million, up from $25 million last year. Free Cash Flow was $42 million, up from $19 million last year. (Why can’t Cloudflare do any of that???)
Lightspeed. This company also had blow-out earnings announced in August. Revenue was up 220%, and 41% sequentially, but that was counting acquisitions. Organic revenue was up 81%, which is nothing to sneeze at either, and accelerating from 48% in March. ARPU, or Annualized Revenue Per User, was 230 up from 160, which is pretty great too. Gross Merchandise Volume was roughly triple a year ago. Their Transaction Based Revenue (Payments) was up 453%. They sounded pretty euphoric, all in all. I have a 8.7% position.
Monday. CloudL brought this little gem to the board a few weeks ago. They are a recent IPO and just reported revenue up 94% in their first quarter as a public company. They help people work together and cooperate, and yes, I know that there are lots of other companies in that field, but none that I know of growing revenue at 94%. Enterprise customers over $50,000 was 470, up 226% from 144, yoy. They seem to be rapidly moving towards profitabilty, and there’s lots more good stuff, but I’ll let you research the rest. I acquired them mostly this week and now have a 7.5% position. Pay attention if you decide to buy any as it is a high price/low volume stock, with a wide spread between bid and asked.
ZoomInfo. I doubled my position size this month to xx% after the Conference Call. Why? Well here a comment from the Morgan Stanley analyst in the Conference Call:
…all the growth metrics are accelerating up and to the right. Is it fair to say that there’s a fundamental shift that’s happening right now, and that shift is actually accelerating in its pace, and you guys are really seeing the benefit flow through your growth
What was the analyst referring to? Well their yoy revenue growth, which had been going along at a pedestrian 42%, 40%, 41%, all of a sudden, in the December quarter, accelerated to 45%, followed by 48% in the March quarter, and 57% in the June quarter. These are rates it had never seen before. International revenue is growing at 75%. Operating cash flow was $89 million, which is more than 50% of revenue, and Free Cash Flow was $92 million, even more.
From the Conference Call:
Our Intent products, which find consumption patterns to help go to market teams identify and gauge prospects, experienced significant growth with active users growing more than 5x yoy.
Streaming Intent and custom Intent bookings, which became available after we acquired Clickagy, have nearly doubled sequentially in each of the last two quarters.
And ZoomInfo Recruiter, while still small, saw the number of seats grow over 10x sequentially in the quarter.
In order to ingest and process the 250 million plus changes that we make to contacts in our platform every month, we need a talented team of people driving the high levels of accuracy. We’ve continued to build out this team, and we now have 400 global engineers, analysts, data scientists, and researchers focussed on maintaining our high standards of data accuracy.
They raised annual revenue growth guidance seven points, from 41% to 48%.
Saul: Well, as I said, I doubled my position size, and it’s now an 8% position.
Zscaler was a position that I took back in May. They will announce results on Sept 9th. Here are my notes from the previous conference call:
Our results exceeded our expectations, and we are again increasing our guidance for fiscal ‘21. Our business is firing on all cylinders. Our superior architecture and optimized go-to-market engine is elevating us above the competitive noise… fundamentally different from firewall-based castle-and-moat security. Our platform prevents lateral threat movement and eliminates the attack surface by making applications invisible from the Internet, hence reducing business risk…. we closed a record number of seven-figure deals across a broad range of industries. Most of these wins are 3-year commitments to provide our customers the foundation for application, network and security transformation…. broader platform purchases by new and existing customers. Strong platform upsells drove our 126% dollar-based net retention rate in the quarter. Our newer solutions are increasingly contributing to our wins… our strategic decision last year to increase our investments in go-to-market is yielding fantastic results. I am very pleased with our performance and momentum across all geos, all market segments and all products. Earlier this year, we expanded our investment in the Enterprise segment, which consists of organizations with 2,000 to 6,000 employees…. As we look forward to the next few years, we are focused on driving broader adoption of our four platform pillars, which together maximize the success of digital transformation. Our core ZIA and ZPA business has never been stronger. And we’re excited about the early traction of ZDX and ZCP, the next growth engines for the company.
Moving to our partners… we continue to grow our go-to-market partnership with CrowdStrike, who also became a customer this quarter. I am proud that Zscaler was named the Zero Trust Champion at Microsoft’s Partner Awards… we also recently partnered with IBM to add Zscaler services to their zero trust security offerings.
Most of our field sales reps are still ramping. We are aggressively hiring. And we had a good quarter of hiring in Q3. We’re expecting to have a very good quarter in Q4. The market is really strong. It’s moving to us. All indications are that we’re in a great position. So we’re going to continue to aggressively hire and really go after growth going forward.
Saul – It seems very, very, VERY, positive and, again, almost euphoric!
Let me remind you first, that I have NO IDEA what our stocks will do next month. I’m terrible on predictions. But I know that the businesses of our companies will do just fine for the most part.
I feel that my portfolio is made up of a bunch of great companies. But that’s just my opinion, and I can’t say often enough that I’m not a techie and I don’t really understand what most of them actually do at all ! I just know what great results look like. I figure that if their customers clearly like them and keep buying their products in hugely increasing amounts, they must have something going for them and, as I’ve often said, I follow the money, the results. And I listen to smart people about the prospects of these companies.
When I take a regular position in a stock, it’s always with the idea of holding it indefinitely, or as long as circumstances
seem appropriate, and never with a price goal or with the idea of trying to make a few points and selling. I do, of course, eventually exit. Sometimes it’s after months, and sometimes after years, but I’m talking about what my intention is when I buy.
I do sometimes take a tiny position in a company to put it on my radar and get me to learn more about it. I’m not trying to trade it and make money on it, I’m just trying to decide if I want to keep it long term. If I do try out a stock in a small position and later decide that it’s not what I want, I sell it without hesitation, and I really don’t care whether I gain a dollar or lose one. I just sell out to put the money somewhere better. If I decide to keep it, I add to my position and build it into a regular position.
You should never try to just follow what I’m doing without making up your own mind about a stock. In these monthly summaries I’m giving you a static picture of where I am currently, but I may change my mind about a position during the month. In fact, I not infrequently do, and I make changes in the position. I usually don’t announce these changes until the end of the month, and if I’m busy or have some personal emergency I might not announce them even then. And besides, I sometimes make mistakes, even big ones! Don’t just follow me blindly! I’m an old guy and won’t be around forever. The key is to learn how to do this for yourself.
Since I began in 1989, my entire portfolio has grown enormously. If you are new to the board and want to find out how I did it, and how you can try to do it yourself, I’d suggest you read the Knowledgebase, which is a compilation of words of wisdom, and definitely worth reading (a couple of times) if you haven’t yet.
A link to the Knowledgebase is at the top of the Announcements panel that is on the right side of every page on this board.
For some additions to the Knowledgebase, bringing it up to date, I’d advise reading several other posts linked to on the panel, especially:
How I Pick a Company to Invest In,
Why My Investing Criteria Have Changed,
Why It Really is Different.
Illogical Investing Fallacies
I hope this has been helpful.