Here’s the summary of my portfolio at the end of February.
After January’s craziness with short squeezes, etc, February was another exceedingly strange month, at least for my portfolio. After being up 2.5% at the end of January, my portfolio hit a peak in mid-February of up 15.9%, then plunged to a low of minus 1.8% by Thursday, dropping 15.3% on absolutely no bad news for any of the companies in my portfolio, and rose a little on Friday to finish the month at up 0.3%. That’s the way it goes sometimes.
If you have fantasies that because many of us were up over 200% last year, that you can expect the same this year, I suggest you put those fantasies aside. It isn’t going to happen! This will be a tougher year! Guaranteed!
We discovered the SaaS companies a couple of years before everyone else, and last year, 2020, was the year that a lot of other investors caught on (although there are still value investors who think we are crazy). This was combined with the fact that our companies, getting their revenue from software subscriptions through the cloud, were largely resistant to the effects of the pandemic that crushed many consumer-facing industries. This made our companies stand out last year as a safe port in a storm to a large part of the investing public.
This year will be more normal, with more ups and downs, and we are more likely to grow at roughly the rate of growth of our companies’ revenue growth, or a little less (my current guess, anyway), which won’t be bad 
, but certainly won’t be like last year.
I suspect that most of the people who just hopped on SaaS companies without really understanding much about them, will now rush off to invest in cyclicals as the Covid threat wanes.
I have to say that until last year I had never been up over 230% in a year (that is, more than tripled my portfolio in a year), and it really and truly astonished me. Please don’t expect me to duplicate that, or anything like it, every year. It just ain’t gonna happen!
WHY DID OUR STOCKS DROP?
Don’t know, but it’s happened many times before. I suspect some investors, some bots, and some hedge fund managers said to each other: “Hey, people are finally getting vaccinated. Let’s move into cyclicals.”
There has been no bad news for the companies in my portfolio. In fact it’s all good news. Companies are moving to the cloud at an accelerating rate. Companies are finally taking security seriously after those massive breaches. Our companies results have been good, and are likely to remain good in the future. In fact, if I look at the rates of growth of my largest seven companies making up over 90% of my portfolio, here’s what they look like:
**Crowdstrike 86%**
**Cloudflare 50%**
**Datadog 56%**
**Snowflake 119%**
**Inari 144%**
**Okta 42%**
**Zscaler 55%**
They average out to 79% revenue growth (and I purposely didn’t include Zoom, with its 367% yoy revenue growth which would have tilted the table). 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.
MY RESULTS YEAR TO DATE
My portfolio closed this month up 0.3% (at 100.3% 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%**
FOUR YEAR RESULTS
You will hear an incessant chatter from know-nothings telling you that no one can beat the averages and that stock picking doesn’t work, and that we will all return to the mean, so I thought that I’d give you a little bit of facts about that. Here are my last four years of results compounded, which you can compare against the S&P. Remember that I’m not just picking my results off the wall. I posted my positions and their sizes every month of those four years so any one who wanted to check me out could have done so. It’s real, and others on the board have done approximately the same, some a little better and some a little worse, but in the same range. It can be done, although I strongly doubt that we will ever have another year like 2020.
**2017: + 84.2% $100 becomes $184.20**
**2018: + 71.4% $100 becomes $171.40**
**2019 + 28.4% $100 becomes $128.40**
**2020 + 233.3% $100 becomes $333.30**
In four years that multiplies out to 1, 351% of what I started with, that’s thirteen and a half TIMES what I started with, or up 1,251% in four years.
During that time the S&P was up 67% in four years. You can add a few percent by adding in dividends, but that doesn’t change the comparison at all.
If you are thinking that that’s impossible and that noone could do what I did, here is what GauchoRico posted for his four year results: He was up 1,135% in those same four years. https://discussion.fool.com/gauchorico-portfolio-update-1312021-… Pretty much the same thing! It’s not a fluke.
Tell me again that active intelligent stock picking doesn’t work! The only ones who say that are the people who don’t know how to do it.
Read the Knowledgebase several times. And the other articles on the side panel. And the posts with lots of recs by people you trust, and you may learn how to do it too.
HOW DID THE INDEXES DO?
Here are the results year to date:
The S&P 500 (Large Cap)
Closed up 1.5% YTD. (It started the year at 3756 and is now at 3811).
The Russell 2000 (Small and Mid Cap)
Closed up 11.4% YTD. (It started the year at 1975 and is now at 22.01).
The IJS ETF (The S&P 600 of Small Cap Value stocks)
Closed up 17.7% YTD. (It started the year at 81.3 and is now at 95.7)
The Dow (Very Large Cap)
Closed up 1.1% YTD. (It started the year at 30606 and is now at 30932).
The Nasdaq (Tech)
Closed up 2.4% (It started the year at 12888 and is now at 13192).
These five indexes
Averaged up 6.8% YTD. The IJS was a surprise at up 17.7%. Last year they held down the average of the indexes, up only 1% for the whole year. But it makes sense as they are the value stocks that got beaten down last year. The Nasdaq is a surprise on the low side this year, as last year it was a positive outlier, closing up 43%, which was 33 points above the average of the other four. But that just means that this month the movement has from tech to cyclicals so far. I never try to time the market like that but just invest in great companies and they take care of themselves.
EV/S and our stocks
I’ve written in the past explaining that EV/S has nothing to do with our companies! This is basic and important to understand if you intend to invest in the stocks discussed here. Here is a link to my end of 2020 post where I explain it at length, and another link to my end of January post where I give a shorter version: https://discussion.fool.com/my-portfolio-at-the-end-of-2020-3470…
https://discussion.fool.com/my-portfolio-at-the-end-of-jan-2021-…
LAST FOUR MONTHS REVIEW
November. Our stocks sold off near the beginning of this month with what was called a “market rotation,” which means “for no discernable reason.” It seemed to be buying cyclicals and airlines, and hotel stocks and cruise ship companies, and selling the companies that are doing well, and was stimulated by reports of effective vaccines. That’s not investing, it’s just speculating on hope for a turnaround. Most of our companies are now back from that sell off and up to, or close to, their alltime highs, by the way.
I added to Cloudflare a couple of times during the month, but not a huge amount, having added so much in October when I sold out of Fastly. Cloudflare is now in 3rd place in my portfolio with a 19.5% position, and up 32% from that large October purchase at $56.50, and is at new highs.
Crowdstrike has also been very strong and is at a couple of percent of its all-time high. Datadog got hit after a very strong quarter, and I actually bought a little as low as $82! I’ll discuss Datadog at length below. I got a chance to add a little to my Docusign at $195 to $210, which I was surprised to see as Docusign fell with all the rest of my stocks, although for no discernable reason.
I’m still out of Fastly. My feelings are that when there is an apparent disaster, give thought to getting out and putting your money to work in a higher confidence company, instead of hanging on and hoping that the company will get it figured out.
Okta also is back to within a few percent of its all time highs. I sold out of my tiny, less than 1% position in Snowflake, wanting to put my money elsewhere (it wasn’t much money of course). And finally, I didn’t buy or sell any Zoom this month, but as its price has ended up almost unchanged while the price of my other companies have generally risen, its percent of the portfolio has falled.
December. After Zoom announced I decided that I didn’t want as large a position as I had. I sold one-fifth of my total shares in the pre-market the next day, luckily getting about $446.40 (down $32 from the previous close). Unfortunately for the other 80% of my position, Zoom closed that day at $406.30, or down $40 more. I continued to gradually reduce my position size, which shrank mostly due to my reducing my position but also due to its stock price falling relative to the others. My sales were from $508 to about $384 (with a single sale at $351), and my average sale price was about $440. It closed the year at $337.
Since I had cash from my Zoom sales I reinvested the money in Cloudflare ($72.75), Docusign ($214.24), a little more Crowdstrike ($147.00). I have continued to add to Cloudflare all month. I also added back to Datadog earlier in the month
I also again took a little 2% position in Snowflake (at $302.02). It was strange to take a position on a Tues morning and have the stock finish up 28% by the end of the week. I added some more at the higher prices. But then Snowflake fell from over $400 back down to about $300 when part of the lock-up was being released. The fall represented no fundamental change in the company’s business so I added about 40% additional shares in three purchases at $315, $312, and $307. I continued adding small amounts subsequently. It finished December at $281.
Early in the month I took a little position in JFrog ($68.80) when Bert Hochfeld recommended it. However I sold out at a small loss (4%) when I had that chance to add to my Snowflake. I sold out because what JFrog sells is a tool for developers to use, and it is thus obviously not infinitely scalable like the others I have high confidence in.
I almost started a position in Peleton too. They were down because they couldn’t keep up with orders, but I thought that that was a positive more than a negative. However, when I compared them to Crowdstrike and Cloudflare and Snowflake, that could grow forever, I decided I preferred my money in the expansion of data which will go on forever, rather than the number of people who could or would buy and keep a Peleton bike and subscription, which number was inherently limited. That’s just my bias. PS – I now learn that they are doing an acquisition (Precor) so that they can start manufacturing their own equipment themselves. So with this they are becoming even more of a hardware company. Boy, this is not my kind of company to invest in! Sorry if that hurts anyone’s feelings. For the month of December, by the way, I would have been better off in Peleton than most of the others.
January. At the end of December I mentioned that I had taken a tiny position that I wasn’t ready to discuss as it was just to put it on my radar. That was Inari, and I decided to keep it and I built it up to a 4% position, where I thought I’d stop, but I added a little more.
Looking at my big three positions, Crowdstrike, Cloudflare, and Datadog, they are still in just about the same percentages of my portfolio as a month ago. I added small amounts to Cloudflare, but not enough to really budge the needle. I also added to my fourth position, Snowflake, and to Inari which is now in fifth place.
I continued to trim Docusign and Zoom, and didn’t change Okta. I also took small (under 2% positions in Zscaler and Unity Software. This brought me to 10 positions, which was more than I am really comfortable with, but it wasn’t as spread out as it sounds as my top three make up 76% of my portfolio, and the top four make up 87%, with the rest making up a tail of the remaining 13% of the portfolio.
However I sold out of Unity after a few days. More on my reasons below. So I’m now at nine positions. I also cut my position in Docusign further this last week for cash to buy more Snowflake in the $270 to $275 range… My Zscaler, Zoom, and Docusign postions are now really small and make up only 3.5% of my portfloio between the three of them, so I really have six positions and three little fleas. There were no earnings reports in January so nothing to report on that scene.
February I’m up to ten positions in spite of my attempts to reduce the number, because I am happier with fewer. I sold out of what was left of my Docusign position. Early in the month I reduced my Crowdstrike from 33% to 30%, just being uncomfortable with a full third of my assets, and growing, in one company. I decided I’d be happy with just 30%. I used the money from the little bit of Docusign, and from the Crowdstrike, to add to my positions in Zoom, Zscaler, and a little more to my Inari position. These are away from the top three which so dominate my portfolio. I then trimmed my position in Snowflake to take a starter position in LightSpeed, and finally, as Crowdstrike was again up to 31.6%, I trimmed it back again towards 30% to take a starter position in Twilio. I guess what the issue is, is that I had 72% of my portfolio in three positions: Crowdstrike, Cloudflare, and Datadog, and if I could have found two or three other companies in which I had similar confidence, I would be happy to have a five or six stock portfolio. I do have 7% in Snowflake, and about 6.4% in Inari, but then I have a five stock diminishing tail in Okta, Zscaler, Lightspeed, Twilio and Zoom, and (and a tiny less than 1% tryout position in another company which I won’t mention at this time, or count as a position). I added a few percent to my Zscaler position Friday after they announced great earnings on Thursday.
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. 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.
**Inari from 87.30 to 104.60 up 19.8%**
**Zoom from 337.32 to 373.61 up 10.8%**
**Zscaler from 193.73 to 205.03 up 5.8% bought in Jan**
**Okta from 254.26 to 261.45 up 2.8%**
**Crowdstrike from 211.82 to 216.00 up 2.5%**
**LightSpeed from 70.29 to 68.42 down 2.7% bought in Feb**
**Cloudflare from 75.99 to 73.97 down 2.7%**
**DataDog from 98.44 to 95.41 down 3.1%**
**Twilio from 422.10 to 406.19 down 3.8% bought in Feb**
**Snowflake from 281.40 to 259.54 down 7.8%**
You will notice that Inari is the big winner for these two months at least.
POSITION SIZES
I thus now have 10 positions (more than I am really comfortable with, but none that I want to sell out of), with an extremely large position in Crowdstrike, and very large positions in Cloudflare and Datadog, and the three of them make up 71% of my portfolio. Adding in Snowflake and Inari and we have five companies making up 84%, and a long tail of five smaller positions making up the rest. Crowdstrike is MUCH larger than what I usually feel comfortable with, and I twice trimmed it back towards 30% this month. It has, for the most part, grown into its size.
Here are my positions in order of position size, and bunched by size groups.
**.**
**Crowdstrike 30.2%**
**Cloudflare 22.3%**
**Datadog 18.2%**
**Snowflake 6.9%**
**Inari 6.4%**
**Okta 4.6%**
**Zscaler 4.0%**
**LightSpeed 2.9%**
**Twilio 2.6%**
**Zoom 2.2%**
STOCK REVIEWS Please note that when I discuss company results, I almost always use the adjusted values that the companies give.
Crowdstrike is currently my largest position at an enormous 30% of my portfolio. It 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, and no on-premises firewall company can come even close to what it does.
When I read about FireEye’s security breach a couple of months ago, I looked at a five year graph and saw that FireEye’s stock price was almost exactly still where it was five years ago. It’s never gone much above and never much below. Same market cap. And I wonder why any responsible company would still rely on a static old-line security company like FireEye, when there are companies like Crowdstrike (and Cloudflare and Zscaler) around. Then this week it was a breach in all the Federal government computers. What was the government security thinking? How could they have not been using Crowdstrike? All of this has to be extraordinarily good for Crowdstrike! However, they didn’t really need it, reaccelerating revenue growth sequentially from 84% the quarter before to 86% last quarter. Free cash flow grew from $7 million to $76 million, subscription customers grew 85% from 4561 to 8416, and they added almost 1200 subscription customers sequentially. They are my highest confidence position. They report their January quarter in March (coming up).
DataDog, is the third of my big three high confidence companies at 18% of my portfolio. They announced their Dec quarter in February and had excellent and encouraging results, although we are still waiting for them to lap their Covid second quarter with their June results to be able to see what they are really doing yoy. For this quarter:
• Revenue was $177.5 million, up 56%, and up about $23 million sequentially
• Gross margin was 78%.
• Adj operating margin was 10%.
• Adj EPS was 6 cents
• Operating cash flow was $24 million
• Free cash flow was $17 million
• Net retention rate was over 130% for 14th consecutive Q.
• Remaining performance obligations or RPO was $434 million, up 78% yoy
• Cash was $1.5 billion.
For the full year, Free Cash Flow was $83 million, or 14% of revenue.
• We had 97 million dollar customers, up 94% from 50 a year ago, and more than triple the 29 we had two years ago
• We had 1,253 hundred thousand dollar customers, up 46% from 858. They generate more than 75% of ARR.
• We have about 14,200 total customers up from about 10,500 last year. We added about 1,100 customers in the quarter making it another strong quarter after the 1,000 we added in Q3.
Acquiring Sqreen, a SaaS based security platform that enables enterprises to detect, block and respond to application level attacks. Adding Sqreen will provide development, security and operations teams a unified platform to deliver and manage and secure applications.
Acquiring Timber Technologies, the developers of Vector, a vendor-agnostic and high-performance observability data pipeline. We expect this technology to further empower our customers to control their observability data, while providing broader points of entry to our platform.
• Launched the general availability of Incident Management, which allows users to declare incidents, investigate root cause and dependencies, collaborate around a shared view of the incident, follow to resolution, and auto-generate post-mortem documentations, all within the Datadog platform.
• Enhanced our security solutions with the beta introductions of Runtime Security and Threat Intelligence.
• Introduced Log Rehydration, part of our Logging Without Limits feature set. This feature allows customers to efficiently archive all logs, and later easily pull archived logs back into the Datadog platform to analyze and investigate old events.
• Delivered additional product innovations and integrations, including enhanced Live Containers functionality to provide a multidimensional look into Kubernetes workloads, expansion of Network Performance Monitoring (NPM), ability to share Datadog dashboards securely outside the organization, as well as new or enhanced integrations with AWS Network Firewall, Azure Monitor, Azure Stack HCI, etc, etc.
• Announced support for a bunch of Amazon programs.
Cloudflare (NET) has grown into a very substantial 22.3% position in 2nd place, As you have probably figured out from the size of my position, Cloudflare has become a high confidence company for me. I suggest you read muji’s deep dive here (https://hhhypergrowth.com/flare-ups/)
Here are some results from the December quarter, just announced in February. I would have preferred even higher revenue growth, but I’ll settle for 50% growth (Boy am I spoiled!), as they have a huge number of new customers to digest and expand, and RPO was up 75% as well.
• Revenue) of $126 million, up 50%
• Remaining performance obligation (RPO) ) was $384 million, up 12% sequentially and up 75% yoy.
• Current RPO) was 75% of total RPO.
• Adj gross margin) was 78.1%.
• Adj operating loss) was 4% of revenue, improved from 22% of revenue, a year ago.
• Adj net loss) was 4% of revenue, improved from 18% of revenue a year ago.
• Adj EPS) was minus 2 cents, improved from minus 6 cents yoy.
• Op cash flow) was minus $8.8 million, compared to minus $8.6 million a year ago.
• Free cash flow) was negative $23.5 million, or 19% of revenue, compared to negative $23.5 million, or 28% of revenue, a year ago
• Cash) was $1,032 million.
In four weeks during October, November and December, Cloudflare announced a staggering number of exciting new products. For more on this, see Stocknovice’s post: https://discussion.fool.com/cloudflare39s-crushing-it-34646557.a…
Conference Call
Our paying customer accounts grew to over 111,000 up 10% quarter-over-quarter and our strongest quarterly growth in several years. [This means they grew paying customers by 10,000 sequentially! ) By comparison, last quarter they grew by “only” 4800. That’s amazing!]
Companies over $100,000) continues to be our strongest growth area adding 92 new customers in Q4 and bringing our total large customer account to 828. Revenue from these large customers increased sequentially to 49% of total revenue, up from 47% sequentially as our sales team continues to close larger and larger enterprise accounts.
As you look across customer segments by side, our large customer segment is growing the fastest. This is because of new logo wins and also because our land and expand motion is picking up steam. We saw initial evidence of this earlier in the year but are now seeing it reflected in lagging indicators like dollar-based net retention) which increased sequentially from 116% to 119% in Q4.
In particular we’re seeing more of our existing customers adopt Teams, our zero trust network security solution, as well as Magic Transit.
Snowflake. It’s now a 7% position and it continues in 4th place in my portfolio. Most of my purchases are currently underwater. I have been ambivalent about whether I should have such a large position, and have trimmed it for cash to invest in some of my new small positions. Its huge growth and huge stock price seem to be warring with each other, as well as a large unlocking of shares in March. It will announce Jan quarter results in March… Here’s what the Oct quarter looked like:
Total revenue was $160 million, up 119%
Product revenue was $148.5 million, up 115%
Adj Product Gross Margin was 70%
Remaining performance obligations were $928 million, up 240%.
Net revenue retention rate was 162%. That’s about the highest I’ve ever seen.
Total customers were 3,554
Customers with TTM product revenue over $1 million were 65, up 110% from 31
Cash was $5.1 billion
Product Revenue seems roughly the equivalent of when a SaaS company gives subscription revenue. It excludes Service Revenue and Other Revenue, which is probably Interest Revenue since they have $5.1 billion in cash.
What especially impressed me was RPO up 240%, the revenue retention rate of 162%, and customers with revenue over $1 million, up 110%. And this was in the middle of the pandemic!
Inari is in 5th place at 6.4% of my portfolio. I took an initial position in late December at $86.50 and built it up in early January, and added a little in February too. It’s now at $104.60. I wrote it up on the board on January 19th. https://discussion.fool.com/inari-nari-a-new-position-for-me-347… You should read the whole thread though as a number of people were very skeptical (as I usually am about any little biotech or biopharma), and you should definitely make your own decision about this company. Don’t buy it because I did! At any rate this is a company that is growing revenue over 150% per year (and up 20 times in two years), has 92% gross margins, is profitable, turned cash flow positive, and has plenty of cash.
Okta is a 4.6% position in 6th place. A lot of people I respect have sold out because they feel it’s slowing down, but it still dominates its absolutely essential category with no effective competition, management is very confident, its numbers were very respectable, and it just keeps chugging along hitting new highs. It will report its January quarter in March. Here were the results of the October quarter
• Record operating cash flow and free cash flows.
• Total revenue was up 42% yoy.
• Subscription revenue was up 43% yoy, and was 95% of total revenue.
• Remaining Performance Obligations (RPO), or subscription revenue backlog, was $1.6 billion, up 53% yoy.
• Current RPO, backlog to be recognized over the next 12 months, was $753 million, up 46%.
• Adj gross margin 78.3%, up 0.5%
• Adj operating expenses grew 30%, while revenue grew 42%, showing positive leverage.
• Adj operating income was 2.5% of total revenue, up from a LOSS of 5.3% a year ago.
• Adj net income was $5.7 million, up from a LOSS of $3.8 million a year ago.
• EPS was 4 cents, up from a loss of 3 cents a year ago
• Op cash flow was $43 million, up from $11 million a year ago.
• Free cash flow was $42 million, up from $9 million a year ago.
• Cash was $2.50 billion
• TTM Dollar-Based Retention Rate was 123%, up from 121% sequentially
Announced the availability of the Okta Identity Cloud in AWS Marketplace. Global Okta prospects are now able to quickly and seamlessly purchase both Customer Identity and Workforce Identity products in AWS Marketplace, while also benefiting from new integrations.
Conference Call
Okta has remained 100% remote since mid-March, and we continue to execute at a high level. The three mega trends that have been driving our business for the past several years, the adoption of Cloud IT, Digital Transformation and Zero Trust security, are all being accelerated.
We added nearly 100 customers greater than $100,000, and once again over half were new customers. Large enterprise customers now contribute 80% of our total annual contract value. The total number of $100,000 plus customers now stands at 1780, up 34% yoy. And we’re seeing our base of customers with bigger ACV grow even faster. For example, our customers with an ACV greater than $500,000 grew over 50% to 320 customers.
The top 25 contracts we booked this quarter by total contract value, were all over $1 million, and 6 were over $5 million. What’s more, the average contract size of our top 10 new customers was up over 60% from the same quarter a year ago.
Expanding our footprint internationally is a long term priority. We opened our new office in Tokyo, and hired our first country manager in Japan.
We win because we have the most modern and extensive cloud based platform. Our customers value our independence and neutrality. And our Integration Network is unmatched in the industry. We’re also in the enviable position of being in a market that’s coming toward us. We’re confident in our ability to maintain this high level of execution, because we are just scratching the surface of the massive market opportunity.
We have a great four way partnership with Netskope, CrowdStrike, and Proofpoint. Its going very well. And this is a deep product integration, we’re actually using the products together, they talk to each other, there’s API translation, and you can actually enhance the performance of each of the products with the partnership.
When you have organizations like FedEx talking about going live with over 80,000 employees on hundreds of applications over a weekend, that’s a stronger advertising message than anything that we could say as a management team, because other customers will look at that and say, “Wow, that’s the kind of result I want!”
The competitive landscape - it’s something we look at a lot. And we think about it a lot. And there is no change.
Saul – My Take) – They are strong, and doing remarkably well, and not fading away at all. The biggest number for me was RPO or Remaining Performance Obligations, which was $1.58 billion!!! And up 53% yoy. This is subscription revenue backlog, and that’s an enormous number, more than seven times this quarter’s alltime-high subscription revenue! I’ve never seen a company with that much Remaining Portfolio Obligation! It comes because their customers have made a decision to stay with them long term and have set up long-term multiyear contracts.
Another thing I like about Okta is that, while it may not have gained as much as some of the others ytd (“just” 120% last year ), it just keeps a slow grind upwards and never seems to have signs of weakness or big drops like the other companies. That seems to say that the market has confidence in it. It also should be accelerated by all these breaches we’ve just seen, raising awareness for the need for security.
Zscaler. I re-took a small position last month as Zscaler has been reaccelerating revenue growth again, which was up 52% last quarter. I added to it this month, and more on Friday after what I thought were great quarterly results and it’s now a 4% position in 7th place. My take is that they are much slower in implementation than companies like Cloudflare and Crowdstrike, but that their new hot-shot CRO has decided to focus on old economy companies whose C-team doesn’t know anything anything about tech or the cloud, so they are happy with going slow, and they trust Zscaler because it’s been around for a while, and because their CRO is part of the old-boys network. That works for me if it works for them, and it seems to be working.
Zscaler just announced results after the market close on Thursday, and I was quite happy with them. Revenue accelerated, calculated billings and deferred revenue were up nicely, RPO was enormous, and they were profitable and cash flow positive.
Revenue up 55% to $157 million, accelerating from 52% sequentially
Calculated billings up 71% to $232 million
Deferred revenue up 60% to $447 million
RPO was an enormous $1,025 million ($1.025 billion). This for a company with quarterly revenue of just $157 million. It was up 68% yoy.
Adj operating income was $14.8 million, or 9% of revenue, compared to $12.4 million, or 12% a year ago. They made it clear that they were going to continue to invest to take advantage of their growth opportunity.
Adj net income of $14.0 million up slightly from $13.5 million
Adj EPS was 10 cents, flat with a year ago.
Op Cash flow was $30 million, or 19% of revenue,
Free cash flow was $18 million, or 11% of revenue
Net retention rate was 127%, up from 122% sequentially, and from 116% a year ago.
LightSpeed This is a new position for me this month. It’s still small at 2.9%. It’s a company that is aiming to provide an all in one platform for small-to-medium sized business, which means it’s combining parts of what Square and Coupa and Shopify are doing, and a bit more into a single platform. Ethan wrote it up about a month ago, and Chris also talked about it in his end of the month. Here is Ethan’s writeup:
https://discussion.fool.com/lspd-a-new-position-34744143.aspx?so…
Twilio has retaken a position in February in my portfolio after being out for a long time, as it has come back to life and apparently has become more honest in how it reports revenues when acquisiitions play a part. It’s a 2.6% position at present.
Zoom I partly changed my mind on Zoom. In January Zoom was my next to smallest position, greatly reduced in size at 1.3%. Here’s what I was thinking: My feelings were that Zoom went from an obscure little company to a household word in a couple of months. Their April and July quarters were two of the most amazing quarters ever seen by man, with revenue up 169% yoy, and then up 355% yoy. Those revenues were up 74%, and then up 102%, SEQUENTIALLY! Their Adjusted Net Income in their July quarter went from $24 million to $275 million, and it was all like that. For example, Free Cash Flow went from $17 million to $373 million, and Customers with over 10 employees grew by 458%.
However, then came the October quarter 
and their sequential revenue growth fell from 102% to just 17%. Their sequential free cash flow growth fell from 826%, to 48%, and then to just 4%. After you have conquered the world, what can you do for an encore?
I felt that while they grew revenue by 367% if you consider it yoy, they didn’t actually GROW revenue by 367% in the quarter. As I posted on the board, that was “a dead man walking”. They grew revenue 17% during the quarter. The rest of that revenue represents what their recurring revenue grew to during the April and July quarters. You have to understand that revenue being up 367% year-over-year sounds very impressive, but it was basically their steady state recurring revenue now, plus 17%. Remember that that recurring revenue just keeps coming in, and almost all of that 367% was people they signed up in the April and July quarters.
I felt that Zoom is still a terrific company, and I really don’t believe anyone will cancel their Zoom subscriptions after Covid? Would you? But their video business can’t grow that fast any more. It’s already done the big growth. And it’s so big that new products will have trouble budging the needle. Which is why I cut my position way down.
Zoom lost about half its value from its high of the year to its December close, but then it started back. I reflected on its new products like Zoom Phone and Rooms, and others, that are already moving ahead, and add to that international expansion and instead of selling out completely I decided to grow my position back a little. It’s currently a 2.2% position, but I have zero intention of making it a large position again.
FINISHING UP
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.
THE KNOWLEDGEBASE
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.
Saul