My portfolio at the end of Jan 2021

Here’s the summary of my portfolio at the end of January.

January was bouncy, but in a relatively restricted range after our wild, otherworldly, and almost supernatural results of 2020. I hit a low on Jan 4th of down 3.6% and a high of up 7.9% a couple of times. Then came the last week of the month, with the short squeeze on GameStop and other highly shorted stocks like Fastly and Unity rose with GameStop (although much, much less), as the hedge funds had to reduce their exposures and buy back their shorts, and sell other stocks to cover the cash they were losing on their shorts.

On Tuesday evening hedge funds were having margin calls and were screaming, and having to sell their profitable positions to raise money to cover their losses on shorting (or they were being sold out involutarily by their brokers), so on Wednesday morning our stocks were way down after the opening (presumably from margin call selling, while Gamestop was way up) but improved as the day went on, my portfolio finally fell 4.4% on the day. It then rose 4.4% on Thursday, while GameStop was down 44%, and my portfolio was up a smidgen on Friday and finished the month up 2.5%, a little over half way between my high and low for the month.How was that for a yoyo. A wild and crazy week.


While we did better last year than our wildest dreams, many people were suffering, have been laid off, and don’t have enough to eat and to feed their families. Please consider sharing a piece of your gains with those in need. Wherever you live there are bound to be food banks and other charities that serve those who are out of work, and may not even have enough to eat, due to the pandemic. Thanks.

If you are wondering about the reasons for what happened last year, I suspect that it was because we understood the SaaS world one or two years before almost everyone else. This was when all the “smart” people were saying that our SaaS companies were too highly valued, because they were still applying conventional EV/S to them. We also had the huge advantage of crowd sourcing on our board. It would have been very, very hard for any of us to have the courage to invest as we did as a single individual, but we discussed at length, and shared our knowledge and opinions, and it gave us the courage, and the realization that we knew what we were doing. We realized and recognized that this was a breed of company that had never existed before in any numbers.

We understood that companies that are leasing software through the cloud, and thus can double capacity almost instantly, and are not selling physical things that require building factories and using capex to increase capacity, that are growing revenue at 50% to 90% per year, that have 70% to 92% gross margins, that have a subscription model with recurring revenue, that have 125% net retention rates, and that are selling products that all enterprises need in order to adapt to the cloud and the digital world, are going to have much higher valuations than conventional companies. Well, if you think about it, what else would you expect? But at the time few other investors understood it, and many don’t understand it now.

And during that very difficult year, when many conventional companies were struggling just to stay afloat, our companies were thriving, growing rapidly, and expanding their valuation, as more and more investors came to recognize them. It wasn’t a mystery. And thank goodness for this board, and all the people who contributed, and shared their knowledge, and helped us learn about these companies and understand them. I, for one, would not have had the technical knowledge to understand them without the contributions from all of you.

I have to say that I had never, in any previous year, been up over 230% in a year (that is, more than tripled my portfolio in a year), and it really and truly astonishes me. It’s almost embarrassing! Please don’t expect me to duplicate this, or anything like it, every year. It just aint gonna happen!


My portfolio closed this month up 2.5% (at 102.5% 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%** 

As I did the last three Januaries, I try to give some continuity, context, and perspective, instead of just giving one-month results. Therefore for January only, I will also give my results for 13 months (going back to Jan of 2020). At the end of February it will be back to just year-to-date results.

Here’s a table of the monthly progress of my portfolio since January of 2020 (the beginning of last year):

**End of Jan 		+  21.3%**
**End of Feb		+  22.9%**
**End of Mar 		+  13.4%** 
**End of Apr  		+  33.3%**
**End of May		+  73.6%**
**End of Jun 		+ 115.9%**
**End of Jul		+ 135.1%**
**End of Aug  	        + 132.9%**
**End of Sep		+ 184.3%**
**End of Oct  		+ 173.8%** 
**End of Nov  	        + 216.7%**
**End of Dec 		+ 233.3%** 
**End of Jan		+ 241.6%** 

Many others on the board had similar results, a little better or a little worse. We are not magicians. We just invested in great companies.

How often have we heard that no one can beat the indexes? That stock picking is a waste of time and effort? That we will all “return to the mean”? That “books have been written that prove it!” Well, guess what, Folks, the books are wrong!!! Obviously wrong!!! Just look around you!!! However, I still regularly read things like “A managed portfolio can never beat a passive portfolio or the averages” repeated as if it is a known truth. How ridiculous!

And if you look at the past years you will see that picking our “overvalued” stocks has done ENORMOUSLY better than investing in cheap, or “undervalued” stocks.

Again, my results are without using any leverage, no margin, no options, no penny stocks, no fancy stuff, just investing long in great individual companies. And I’ve told you each month what my positions are, and what proportion of the portfolio they are, so anyone who doubts it can check for themselves. And I’m no genius. Plenty of other people on the board have done about the same, and some even a lot better .

To simply state my goals, I’m merely trying to measure my performance against that of the average return for an investor in the stock market, and combining those five indexes should give a pretty good approximation.


Here are the results year to date:

The S&P 500 (Large Cap)
Closed down 1.1% YTD. (It started the year at 3756 and is now at 3714).

The Russell 2000 (Small and Mid Cap)
Closed up 5.0% YTD. (It started the year at 1975 and is now at 2074).

The IJS ETF (The S&P 600 of Small Cap Value stocks)
Closed up 6.3% YTD. (It started the year at 81.3 and is now at 86.4)

The Dow (Very Large Cap)
Closed down 2.0% YTD. (It started the year at 30606 and is now at 29983).

The Nasdaq (Tech)
Closed up 1.4% (It started the year at 12888 and is now at 13071).

These five indexes averaged up 1.9% YTD.


EV/S Has Nothing To Do With Our Companies – This is so basic and important for the purposes of our board that I will keep posting it, but I’m trying a short version.

I don’t have the answer to what is “overvalued,” but I know that traditional EV/S ratios have NOTHING TO DO with our companies! Our companies are profoundly different than the companies that EV/S was traditionally used for. Why? Here’s why!

This is an exaggerated example for clarity: Think of one of our companies with 80% gross margins and an old economy company with 20% gross margins. If both companies have $100 million in sales, the 80% gross margin company brings in $80 million to the company, while the 20% gross margin company brings in just $20 million. It’s ridiculous to put the same $100 million in the denominator for both, and think you are getting meaningful values.

And if the 80% GM company is also growing at 80%, and the 20% GM company is also growing at 20% it’s 10x more ridiculous. In year 5 the 20%/20% company will have $50 million in gross margin dollars and the 80%/80% company will have $1,512 million margin dollars ($1.5 billion)!!! That’s actually 30 times as much!

Yet the valuation people put the same current $100 million in revenue in the denominator for both, and bitch about our companies having so much higher valuations than their old economy companies. – Again, this is an exaggerated example for clarity.

Plus, our companies are leasing software through the cloud, not selling physical things that requires capex to expand, and their subscription model gives them recurring revenue, and they have an average of about 125% net retention rates, and lease software that almost all companies need, etc, etc.

My decision about my confidence in a company is based on gross margin, recurring revenue, growth rates, dollar-based net retention rates, necessity to their customers, dominance in their field, my confidence in management, and how all that looks to me for the future. Traditional EV/S simply doesn’t enter the equation.


October. In the first two weeks I took what is now an 11% position in Docusign, mostly using money I was trimming from Zoom (see below). In the second week when I was up 236%, I pulled a little bit more cash out of the market permanently and put it into my family emergency fund. This money will not be reinvested in the market. I got it by selling 4% of the number of shares in each of my positions to keep the relative sizes of the positions unchanged. In the third week of the month Fastly delivered an incredibly negative pre-announcement, at the same time Cloudflare was announcing two weeks worth of announcements of what seemed like dozens of stupendous new products. I exited Fastly and put most of the money into Cloudflare at about $56.50. This has been adequately discussed on the board already.

Luckily, and with no foreknowledge, I had sold about 15% of my Fastly at $129 to try to even out my Fastly and Cloudflare positions. This was before Fastly preannounced. I started selling the rest of Fastly in the aftermarket at $95, but sold most of it at about $89.50, for an average price of about $90.50. It finished the month at $63.50. I also added a little Crowdstrike during the month. I sold my Okta down from a 7.5% position at the end of last month, to a 5% position, due to the chorus of “It’s slowing down!” but I don’t expect to sell any more at all. I bought a tiny 0.7% Snowflake position, with tiny buys starting at $245 and ending at $268. Since then it’s been up to $297 and right back down to $250 where it is now. In August I trimmed Zoom twice when it got over 30%, but it ended September at 31% anyway. I said I’d trim it again and I trimmed it down this month to about a 23% position to bring it in line with my other highest confidence positions, Crowdstrike and Datadog.

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. For those who like to keep track of those things, Fastly is still 6.9% below where I, and others, sold it, while Cloudflare, where I immediately put the money, is up 32.3% since then. That means that I have 42.1% more than I would have had if I had just held the Fastly and hoped. (1.323/0.93.1 = 1.421). Netflare is setting new all-time highs, while Fastly will have to rise 62% to get back to its high. The message is clear: 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, which currently is about 3.6% of my portfolio. The shrinkage was mostly due to my reduing 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. I did write repeatedly trying to warn people that Zoom had already conquered the world and there wasn’t anything that would move the needle much next year.

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 they sell 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, by the way, I would have been better off in Peleton than most of the others.

January. 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. At the end of last month 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.

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 this last Monday morning. 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.


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.

**Zoom from 337.32 to 372.07	     	up	   10.3%** 
**Inari from 87.30 to 95.42		up          9.3%**
**Docu from 222.3 to 232.9		up          4.8%** 
**DataDog from 98.44 to 102.75		up	    4.4%** 
**Zscaler from 193.73 to 199.70		up          3.1%	bought in Jan**
**Crowdstrike from 211.82 to 215.80 	up   	    1.9%** 
**Okta from 254.26 to 259.01		up     	    1.9%** 
**Cloudflare from 75.99 to 76.66		up	    0.9%**

**Snowflake from 281.40 to 272.45       down	    3.2%**


I now have 9 positions (still more than I am really comfortable with), with an extremely large position in Crowdstrike, and very large positions in Cloudflare and Datadog, and the three of them make up 76% of my portfolio. Adding in Snow and we have four companies making up 87%, and six companies making up 97%, three smaller positions making up about 3.5%. Crowdstrike is MUCH larger than what I usually feel comfortable with, but I haven’t been trimming it. 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		34.7%**
**Cloudflare		22.5%**
**Datadog			19.5%**

**Snowflake		11.0%** 

**Inari			 5.3%**
**Okta			 5.0%**

**Zscaler 		 1.5%**
**Zoom			 1.3%**
**Docusign		 0.7%**

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 34% 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.

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 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.

Let’s look at their Oct quarter results: Here is what Annual Recurring Revenue (ARR) has looked like for the past four Oct quarters: $113 million, $254 million, $502 million, and $907 million! Just look at those numbers (an octuple in three years!). Their Total Revenue was up by 86% yoy, reaccelerating sequentially from 84% the quarter before. 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.

DataDog, is the third of my big three high confidence companies at 19% of my portfolio. Their most recent earnings quarter was their Sept quarter.

Revenue up 61% to $155 million

$100,000 ARR customers, were 1,107, up 52% from 727 a year ago. They make up 75% of revenue.

Total Customers were 13,100, up about 3600 or 38% from about 9,500 last year.

Dollar-based net retention rate continues to be over 130%.

Current customers always provide the majority of the growth in a quarter, with the new business adding to it.

Remaining performance obligations (RPO) was $316 million

Adj operating income was $14 million;
Adj operating margin was 9%.

Operating cash flow was positive $36 million,
Free cash flow was positive $29 million.
Cash, was $1.5 billion

Business highlights
• Announced 8 new products and features at our annual user conference.
• The introduction of the Datadog Marketplace, to enable technology partners to build applications on our platform, and allow our customers to browse, purchase and use these applications.
• The general availability of Continuous Profiler.
• Extending Synthetics, which enables customers to test the viability of new features earlier in the development process.
• Introducing Mobile Real User Monitoring (RUM), to enable full visibility into the performance of mobile.
• The general availability of Error Tracking, which enables engineering teams to aggregate, triage, and prioritize frontend application errors.
• The beta launch of Incident Management, which unifies documentation, data, and collaboration in a centralized pane of glass for DevOps and security teams when an incident occurs.
• The beta launch of Compliance Monitoring, which extends our security solutions to proactively notify DevSecOps teams of misconfigurations and compliance drift.
• The beta launch of Recommended Monitors, a suite of preconfigured, curated, and customizable alert queries for key infrastructure technologies.

• Announced a strategic partnership with Microsoft which will make Datadog available directly from the Azure console. Azure and Datadog sales teams will increase collaboration for co-selling to enterprise clients.
• Announced the extension of a strategic partnership with Google Cloud Platform (GCP), expanding the current partnership from EMEA to North America.
• Achieved “In Process” status on FedRAMP for Moderate-Impact SaaS. Datadog had earlier FedRAMP authorization for Low Impact SaaS workloads.
• Delivered additional product innovations and integrations, including Tracing without Limits to enable ingestion of all tracing with no sampling and live search, Deployment Tracking to identify when performance issues are caused by new code deploys, a suite of DNS monitoring features to troubleshoot internal and external DNS resolution issues, and the extension of Watchdog anomaly detection to Kubernetes clusters, as well as new or enhanced integrations with AWS Step Functions, Snowflake, Slack, etc
• Recognized as a 2020 Gartner Peer Insights Customers’ Choice for Application Performance Monitoring. Datadog scored a recommendation rating of 91% based on 132 verified IT customers.
• Achieved AWS Outposts Ready designation, which recognizes that Datadog has demonstrated successful integration with AWS Outposts, a fully managed service that extends AWS infrastructure, AWS services, APIs, and tools to virtually any datacenter, co-location space, or on-premises facility.

Conference Call
Throughout the quarter, usage growth of existing customers was robust which was a return to more normalized levels after slower usage expansion in Q2. To be more specific, the pace of usage growth in Q3 was broadly in line with pre-COVID historical levels. Strength was broad-based across customers of different sizes and within different industries. However, while Q3 usage growth was back to pre-COVID levels, the weakness experienced in Q2 will still be reflected in our year-over-year comparisons for a number of quarters.

In addition to that, new logo generation continued to be robust with customer additions in line with pre-COVID levels and churn remained consistent with historical rates. Taking all of this into account, total ARR at the end of the quarter was a new record for the company making this a very successful quarter.

71% of customers are using two or more products, which is up from 50% last year. Approximately 20% of customers are using four or more products which is up from only 7% a year ago. We had another quarter in which 75% of new logos landed with two or more products, and we continue to be pleased with the uptake of our newest products.

Synthetics has now been commercially available for about a year. And today, it is used by thousands of customers, has reached eight figures of ARR and continues to be in hypergrowth.

Frictionless adoption is a key value proposition of our platform, which we expect would benefit all of our products.

Our ability to both land and expand during a time of uncertainty shows our importance, as companies of all sizes and across all industries, even in the most challenged sectors, are turning to their digital operations as the most strategically important segment of their business.

We hosted DASH, our annual user conference. This was our first time hosting it in an wholly virtual format, and it enabled us to reach a broader audience of over 7,000 attendees, which was more than 5x last year’s count.

We continue to see a meaningful opportunity to innovate and expand and therefore plan to continue to make meaningful investments in R&D.

Saul – My Take, a very positive conference call. Here is more of what they said:

Q - I get you’re not going to give us guidance right now for next year, but how are you thinking about it, and the rate of investment against that opportunity? And along with that how would you characterize the ability to hire in this environment?

A - Right now we are SO EARLY in the opportunity that the way we think about growing our teams isn’t directly related to how we think about next year’s growth. We really think of it in terms of HOW FAST we CAN grow our teams (!) while optimizing for both short-term and long-term growth. So WE ARE GROWING THE TEAMS AS FAST AS WE CAN basically (!), and we think there’s enough opportunity to justify it. And that’s true both on the R&D side and on the S&M side, and WE ARE VERY CONVINCED THAT THE OPPORTUNITY IS THERE (!)….

Saul here: (Caps were mine of course) How could they have been more positive, and how could anyone have read that and sold it down to $80 at one point? I guess the bots don’t read conference calls which gives us a big advantage. However, remember that the yoy comparisons may not show it for the next two quarters. To clarify, they say they are growing almost as fast as before, however because of the slowdown in Q2, the year-over-year numbers are coming off a lower base than they would have been for yoy comparisons, until they get four quarters under their belt. (It’s the opposite in a smaller way, of what I described with Zoom above).

They are saying that because of Q2 dropping the baseline, you can’t look at yoy revenue growth for this just reported quarter, Q4 or next Q1, but should look at sequential dollars of revenue growth. Then in Q2, year over year revenue growth should return to normal. But that’s just the way I interpret it. And if they accelerate their sequential growth of revenue to $20 million in Q4, I won’t worry at all about the yoy percentages.

I guess I should have also included that they onboarded about 1000 new subscribers this quarter, which is up 59% SEQUENTIALLY!!! That means they onboarded 59% more subscribers this quarter than the roughly 630 that they onboarded in the June quarter, in case anyone has a doubt that their business has snapped back. And finally, all of the massive recent hacks will undoubtedly impel more customers to use Datadog.

Cloudflare (NET) has grown into a very substantial 22.5% position in 2nd place, as I put most of my Fastly money here several months ago, and I‘ve continued adding small amounts regularly, and also because the stock price has risen. As you have probably figured out from the size of my position, Cloudflare is becoming a high confidence company for me. I suggest you read muji’s deep dive from a month and a half ago. (

Here are some results from the September quarter, as announced in November. It was an amazing quarter !

Revenue up 54%, accerating from 48% both sequentially and year over year.

Remaining Performance Obligations or RPO, is $342 million, up 25% SEQUENTIALLY(!!!) and up 81% yoy. (This is subscription revenue backlog).

• Adj gross margin was 77.3% down slightly from 78.9% a year ago.

• Adj operating loss was 4% of total revenue, improved from a loss of 24.5% of revenue, a year ago.

• Operating expenses as a percent of revenue decreased 5% sequentially, and 22% year-over-year to 81%. (Good)

• Adj net loss was $5.7 million, less than a third of the loss of $18.5 million a year ago
• Adj EPS was -2 cents, improved from -16 cents
• Operating cash flow was $2 million, up from a LOSS of $18 million a year ago.
• Free cash flow was a loss of 16% of revenue), improved from a loss of 45% of revenue a year ago.
• Cash was $1.05 billion.

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:…

Conference Call

About half of our new revenue in the quarter came from new logos and about half from expanding relationships with our existing customers.

None of our customers account for more than 5% of revenue. And our top 20 customers remain well under 20% of total revenue.

We’ve been able to hire great people. In Q3, we had over 60,000 applications and extended offers only 0.4%. We believe whatever company is able to attract and retain the best people will win.

Seeing how many businesses were struggling with the shift to remote work, in the spring we had decided to make Teams free through September 1. We had thousands of companies ranging from small businesses to fortune 500 corporations take us up on our offer. Over the course of Q3, we began conversations with all of them to transition from the free offer to becoming paying customers. We are happy with how that went. 75% of customers transitioned from free to paid accounts. For some customers, who are still struggling to get through COVID, we allowed them to continue with the free offering until they can get their feet back under them.

It’s great to see more use cases every quarter, I think we’re just scratching the surface. Most use cases today have focused on performance. Over time, I expect those use cases will pale in comparison to a much bigger opportunity, helping customers manage the challenges of compliance. As governments around the world increasingly insist on data localization and data residency, sending all your users data back to AWS feeds for processing will become unacceptable.

They are partnering with Okta and other identity management companies and don’t expect to go into identitiy management and compete.

“Sometimes you hit on all cylinders. We had one of those quarters”.

They finished November at an all-time high, and continued to rise to new highs in December. In January they finished near those highs. They are obviously a high confidence position for me.

Okta is a 5% position in 6th place. A lot of people I respect have sold out because they feel it’s slowing down, but I feel that it still dominates its category with no effective competition, management is very confident, its numbers were very respectable, and it just keeps chugging along hitting new highs.

Guidance increased for fiscal 2021
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 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. We’re fortunate that the nature of our business allows us to operate successfully in this work environment.

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 80,000 plus 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 :grinning:), 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.

Snowflake. It’s now an 11% position and it continues in 4th place in my portfolio. Most of my purchases are currently underwater. It also announced Oct quarter results in December. Here’s a taste of what they were 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

Saul - You should especially look at RPO up 240%, revenue retention rate of 162%, and customers with revenue over $1 million, up 110%. And this was in the middle of the pandemic! And its growth should also be accelerated by all the breaches that we’ve just seen.

An important explanation:
Product Revenue is a key metric for us because we recognize revenue based on platform consumption, which is variable at our customers’ discretion, and not based on contract terms. Customers have the flexibility to consume more than their contracted capacity during the contract term and may have the ability to roll over unused capacity to future periods. Our consumption-based business model distinguishes us from subscription-based software companies that generally recognize revenue ratably over the contract term and may not permit rollover. Because customers have flexibility in the timing of their consumption, the amount of product revenue recognized in a given period is an important indicator of customer satisfaction and the value derived from our platform. Product revenue excludes professional services and other revenue.

Saul – Product Revenue seems roughly the equivalent of when a SaaS company gives subscription revenue (also excluding service and other revenue).

Inari is in 5th place at 5.3% of my portfolio. I took an initial position in late December at $86.50 and built it up in early January. It’s now at $95.42. I wrote it up on the board on January 19th.… 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.

Docusign is now in last place at 7.5% of my portfolio. I trimmed a little bit in December to buy other choices, and trimmed a lot in January for the same reasons. Docusign announced October quarter earnings in December. The way I think about it is that, like Zoom, it benefited greatly from work-from-home, but while there is some worry expressed about Zoom falling back some when the pandemic peters out, no business customer is going back to manual signing of ducuments, with Fedexing them back and forth over a period of days, when they can do it online. Just isn’t going to happen! On the other hand, its stock price hasn’t been rising like my other companies either. In fact, they’ve hardly budged in three or four months, while other companies’ stocks have been going straight up. Here are some figures from their earnings reports:

Before Covid, they averaged about 27,000 new customers per quarter plus or minus a couple of thousand or so. In the last three quarters they signed up 68,000, 88,000 and then 73,000! How’s that for acceleration!

They’ve added 38,000 enterprise customers, in the past three quarters, up about 51% in just 9 months from the 75,000 that they had in January, which was the end of the last fiscal year. This quarter, revenue growth accelerated to 53%, up from 40% the year before and up from 45% sequentially. Billings growth went to 63%, up from 36% a year ago.

It’s to be noted that their eSigning business is what is carrying the business right now because it is so easy to sign up someone without any need for Docusign service personnel. However, their platform has been MUCH slower to take off during Covid because it requires a set-up, and because it costs more.

As with Zoom, what do they do, now that they have pretty much conquered the world? While they may have considerable possible international growth before them, as well as exciting sounding platform modules, since they already have so much signing revenue, will any of that really be able to move the needle enough to keep the revenue growth percentage in the 50’s? I don’t know the answer. It’s also important to recognize that their Contract Lifecycle Management platform simply hasn’t “happened” yet, and investing based on it is investing on a hope rather than on what is actually happening. Management has said maybe in fiscal year 2023 or 2024.

Zoom, is currently my next to smallest position, greatly reduced in size at 1.3%. I continued to trim it in January. Zoom went from an obscure little company to a household word known by almost everyone 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% in July to just 17% in October. Their sequential free cash flow growth fell from 826% in April to 48% in July, and then to just 4% in October. After you have conquered the world, what can you do for an encore?

Yes, they grew revenue by 367% if you consider it yoy, but 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%. Zoom is still a terrific company but their video business can’t grow that fast any more. It’s already done it all. And it’s so big that new products will have trouble budging the needle. Which is why I cut my position way down (see the December monthly summary above), and cut it even more now. I did try to warn about it over and over again. Zoom lost about half its value from its high of the year to its December close, but it came back a little bit in January to finish at $xxx.

Zscaler. I re-took a small xx% position as Zscaler has been reaccelerating revenue growth again, which was up 52% last quarter. I only have a 1.5% position and it’s 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. I’m keeping my position small though.

Finally I took a little 1.5% position in Unity Software, which I see that muji wrote up last weekend. It’s a company that provides a 3-D platform for gaming companies, and lots more, like auto companies for designing cars, and clothing companies to see what clothes will look like on, etc. I sold out of it though after just a few days for the following reasons:

Pre-covid they were hardly growing at all. The first three quarters of 2019 were $123 million, $129 million, $131 million, and then as usual they got a boost in the fourth quarter when gamers are home more playing games. This year they got a big boost from Covid because gamers were home playing more games for most of the 2nd and 3rd quarters. What happens after Covid is gone?

It seems to not be a naturally hi-growth company. Had two big quarters in June and Sept, 2020, due to Covid, and people being home. It may have used up that growth already.

And they said in the CC that the way they figured it, usually the fourth quarter got a big boost because gamers were home playing games because of the holidays, but this year they were already home in the third quarter, and as they facetiously put it, they can’t expect the gamers to come home again when they are already home, so they don’t see the usual big fourth quarter jump happening this year.

Also they already HAVE all ten of the top ten auto manufacturers, and 94 of the top 100 game developers. Where is their room for growth?

Also this just doesn’t feel like unlimited room for growth forever, like I feel with Snowflake and Cloudflare, for instance.

And it’s too complicated.

And priced like a hi-growth company.

I sold out a couple of days after taking the look-see position.

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.



We understood that companies that are leasing software through the cloud, and thus can double capacity almost instantly, and are not selling physical things that require building factories

A small footnote … what you say here is true of most software companies and has been for many years. What has changed is two things:

  1. Selling the software on a subscription model so that instead of a big up front payment and hopefully some on-going maintenance revenue (15-20%?), the company gets the same total amount in 3-4 years and then continues to get additional revenue for many years to come.

  2. The cloud-based SaaS model tends to imply many customers using the same cloud-based resources meaning that the seller needs only to educate the customer on using those resources, not providing the machine, doing installs, training local staff in maintenance, etc., etc. So the cost to on-board a new customer is a small fraction of the prior cost and there is much more opportunity to use common, standard resources to reduce costs further.

I know you know this, Saul, but I thought it worth pointing out that it is not just the comparison with CAPEX-intensive manufacturing businesses, but a contrast even with traditional software sales.

A small footnote to the footnote is to observe that historically software companies would have their standard product and then the special requirements of individual customers would be provided by customer-specific customizations. This created a barrier to upgrading to new versions of the software since there were often large costs to bring all the customizations along to the new version. Someplace around 1990 I decided this was a real problem and shifted my own company over to a model where there was only a tiny amount of customer-specific code … like a particular invoice form … and all other customer-related modifications I would figure out the parameters of the underlying business problem and implement something in the core software which would handle the specific issues, but which could be turned off or adapted to other requirements by other customers. This led to a program of continuous update rather than releasing new versions. All of which was a pre-adaptation for the SaaS cloud-based model.


I was also intrigued by muji’s write up on Unity and got excited about it. I wanted to buy a small starter position but before that, I checked their Glassdoor ratings. At first look it seems to be awesome: 4.5 stars, 88% recommend to a friend, 92% like the CEO. But if you click on the star-rating you can see the trend of the ratings and there you see a huge increase right before the IPO… I checked the reviews and noticed that around the beginning of 2020 the reviews seemed to change. From then onwards, you can almost only see 5-star ratings. Before that, there were also plenty of 5-star ratings but it was a bit more “realistic” with lower ratings in between. I also noticed quite a bit of the ratings mentioning management’s focus on the IPO, bad culture, and also that a lot of higher management people are former Electronic Arts (EA) executives. Unity’s current CEO, John Riccitiello, has been the CEO of EA in the past. Now, if you don’t know it, EA is one if not the most hated company among gamers. This all made me pause.

What Saul brought up now are actual hard facts (which is what I wanted to check out next - thanks Saul for doing the work for us!), i.e. there is no real track record of high growth and they already captured a lot of their opportunity already. I also read somewhere that they are in a difficult relationship with the App Store and Google Play Store and quite dependent on them. Too many yellow flags so I decided to let this one pass.



What has changed is two things:… 1. Selling the software on a subscription model so that instead of a big up front payment and hopefully some on-going maintenance revenue (15-20%?), the company gets the same total amount in 3-4 years and then continues to get additional revenue for many years to come.

Hi Tamhas,

Yes, they used to sell a perpetual license to a software program (for a simplistic example, think of the old Microsoft Word), and then hope that in three or four years you would buy the next “version”, but many people were sufficiently happy with the old version that they would wait six or eight years for the third version, or never update at all. Now it’s leased through the cloud and paid on usually a monthly or quarterly basis, and is updated constantly (as needed) through the cloud.

This is great for the customer as he doesn’t have the upfront expense, the software is kept constantly updated through the cloud, and there is no need to send IT people out to install the next version in 1000 different computers.

It’s also great for the SaaS company. They no longer have this years sales as discrete items in the past, but have to go out and sell new perpetual licenses next year. They don’t need to sell their current customers again next year. Their revenue is recurrent forever, for all practical purposes, they have very low cost of revenue (high gross margins), and they can sell new bells and whistles to their existing customers (dollar-based net retention rate over 100%).

It’s a different world.




Yes, they used to sell a perpetual license to a software program (for a simplistic example, think of the old Microsoft Word), and then hope that in three or four years you would buy the next “version”, but many people were sufficiently happy with the old version that they would wait six or eight years for the third version, or never update at all.

This pattern was true for individual software like Office, but not true for enterprise software like ERP packages. Those one got perpetual licenses and typically paid maintenance which included right to upgrade as well as support. A very common problem was that a company would do its own modifications … in part because the vendor charged way too much for them … and then after a few years when a significant new version was available, they would find that the cost to re-implement all those modifications was prohibitive and so they would stick with the old version. And, of course, over time that version became non-competitive with industry standards and so they were likely to buy something else and start over again.

This is why with my ERP software, I created development technology which allowed us to provide modifications extremely cheaply, thus allowing me to design them in such a way as to incorporate them in core product 95+% of the time. Thus, every customer was running on the same software except for things like invoice format.

One of the problems with the new SaaS model for some software is exactly the issue you cite. I have been using Photoshop for well over 20 years. Most of that time my usage was casual enough that I would buy a version and then wait a couple of versions before upgrading. There was a several year period when I was photo editor for a local historical publication where I kept current. But, now I have the choice of continuing to stick with my now ancient version or paying much much more for the subscription. I wish there was still a choice as there is with Office.


Don’t forget the advantage of MUCH lower support costs, which helps with higher gross margins. This manifests in a couple ways.

  1. Under the traditional model, the software company would be supporting multiple versions of their software. So when for example, Microsoft would push out a new Windows Server version, the software company would have to make modifications to each of their supported versions in order to run on that. Another example, if a new security hack comes out, then the software company would have to make modifications in all the different versions of their software to cover that.

  2. Under the previous traditional model, the software would be installed in client environments. So if a client is having an issue with it, the much lower margin support agreements would cover the costs of troubleshooting in the client environment where most of the time the issue is something to do with what the client’s setup. Maybe they made some custom modifications to the wrong place in teh database? Maybe they set up some kind of networking rules that are hindering communication between the application and the database? Maybe they have a DNS issue…

Under the SaaS cloud model, there is ONE version to support in an environment that is FULLY controlled by the software company.

Spending less time on support and more time on building new features!!


Awesome writeup as always, Saul.

I do have a comment/question about your EV/S paragraph.

…but I know that traditional EV/S ratios have NOTHING TO DO with our companies! Our companies are profoundly different than the companies that EV/S was traditionally used for.

Agree, 100%!

Traditional EV/S simply doesn’t enter the equation.

Again, agree, traditional EV/S can’t be used as a metric to compare “traditional” businesses to our SaaS companies. Anyone saying that EV/S should be between 1-2, or at most 5, and never over 10, doesn’t understand our companies at all!

But… don’t you think it’s a valid metric to consider as a relative comparison between 2 of our SaaS companies to give an idea which is more highly valued? To look at a bit of an unrealistic argument, say you have 2 SaaS companies, that have the exact same metrics (gross margin, recurring revenue, growth rates, dollar-based net retention rates, necessity to their customers, dominance in their field, confidence in management, and how all that looks for the future) and the same market and business conditions, etc, (I realize this could never happen, but just consider it as an example), if everything were the same except the price of the shares, so one had an EV/S of 30, the other 60, which would you buy?

I’d buy the stock with the 30 EV/S, as all other things being equal, if the EV/S “should” be 60, then the company with 30 would have room to expand it’s multiple, and if the EV/S “should” be 30, then there’s not as much risk for multiple contraction. If you would, too, then there is a place for considering EV/S in your analysis, right? Not as a metric to compare against traditional companies, but as a relative metric between 2 similar SaaS companies. And not saying we konw what the EV/S valuation metric should be, but on a relative basis, if one is very much out of line (I’m still looking at you, SNOW), it may be a red flag for potential multiple contraction in a “market rotation” out of high growth SaaS stocks.

My thoughts, at least.


I’d buy the stock with the 30 EV/S, as all other things being equal,

Except the point is that they are never equal and one is going to base one’s buying decision on that inequality, not on some arbitrary metric like EV/S.


While I do agree that Unity probably doesn’t fit into the hyper growth model that this board seeks, I believe they deserve a little more credit. Sure, COVID brought huge tailwinds for the Operate Solutions segment which grew at 72% YoY this last quarter, but the Create Solutions segment experienced headwinds from COVID but still grew 24%, 38%, and 45% YoY in Q1, Q2, Q3 respectively. There is more going on with this company as they go into new verticals successfully.