MY PORTFOLIO AT THE END OF Jan 2022
Here’s the summary of my portfolio at the end of January 2022. As usual, for my own convenience, I calculate it at the last weekend of the month.
It was another terrible month, with a sharp continuation of the indiscrimminate sell-off of the companies that are doing well, especially rapidly growing software companies, and a movement into junk, “value,” low-growth companies.
We seem to have one or two of these sell-offs every year, but this has been the worst I can remember since The Great Recession of 2008. That was a real economic recession, not just a stock sell-off (by the way, the stock sell-off was much worse than the present one, and for good reason). Unemployment hit 10%, GDP dropped by 4.3%, which was the worst decine in over 60 years, banks were going bankrupt, and it felt like we could be heading into a real depression.
Let’s compare with the present. Our economy is booming! Our GDP increased an astounding 6.9% last quarter (one of the best in 40 years), and was up 5.3% for the year. Companies aren’t laying off workers, the big complaint is that they can’t find enough to hire. The current unemployment rate is 3.9%, and is about as low as it goes. And interest rates are at record lows. And the Fed says that they will raise interest rates three times this year. Whoopdee doo! Interest rates will still be at near record lows! This isn’t the end of the world. It’s just a sector rotation and retreat from our rather preposterous highs.
Every time one of these sector rotations happens, all the people who have been jealously looking at our results, and envying us, come out of the woodwork and start telling us that we should sell out and that our “overvalued” stocks will never bounce back.
Let’s take a look. The most recent previous sector rotation hit bottom in mid-May of last year (2021) when my portfolio actually was down 18.5% ytd after having been as high as up 15.9% ytd in February. That had been a 30% drop.
However, my portfolio’s high for that year, on Nov 9th, was up 93.1%. That meant that it had risen an astounding 137% in six months from that scary May bottom to the top. [193.1/81.5 = 2.37 = up 137%]. That’s why I don’t try to time the market and why I don’t get scared and sell out at the bottom when it feels like the world is coming to an end.
Staying invested has been a winning plan for me. It’s enough work to find and choose great companies without also having to guess getting out and getting back in, trying to time the market. (You have to be right on both decisions!) You have to learn to live with these variations. Trying to guess what the market is going to do is crazy-making, no matter what the market timers tell you.
For further discussion of what happened in my portfolio during the month, and how I handled all this, see “January” in the section called “LAST THREE MONTHS REVIEW” below.
ABOUT OUR COMPANIES
As JonWayne wrote about the Microsoft Conference Call, our companies have a huge tailwind. Here’s what he wrote, paraphrased somewhat:
“It was great to see the reinforcement of what we all already knew.
The couple of months since last earnings reports, the business climate didn’t come to a screeching halt. The sector trends don’t hit a wall just because stock prices fell. In MSFT’s conference call, they told us that:
The shift to cloud is not stopping.
Cloud usage growth is accelerating.
Growth is sustained and not just pulled forward from COVID.
IT spending is only going to keep growing for years to come.
Supply shocks and supply chain issues haven’t caused any problems to cloud. And,
Notably, neither omicron nor inflation was ever mentioned as an issue for the cloud or for cloud stocks.”
Saul here now:
In other words
First of all, the economy is booming,
Secondly, cloud companies have a huge secular tailwind for years to come, and
Thirdly on top of that our companies don’t only feed off that tailwind, but they are SaaS companies, which means that:
They are growing revenue regularly at rates never seen before in my memory,
They have very high gross margins.
They are leasing software which is embedded in their customers’ businesses.
They have dollar-based net retention rates over 120%.
They are very capital light, (which means that they can grow revenue at 100% with little or no capital expense. No factories to build, equip and staff.)
Almost none of them have any debt, rather they tend to have large amounts of cash on hand.
And their software either saves money for their customers or increases their profits, which in essence means that even in an economic downturn, when other companies can see a big drop in revenue, it’s very unlikely (to almost impossible), for our companies to see an actual drop in revenue (maybe a drop in revenue growth rate, but no drop in revenue).
Again, in other words, our companies are not going to “fall to zero” as some idiot troll wrote on the board, but they have huge tailwinds due to both their crowd sector and due to their business design. This sector rotation will stop and reverse. I can’t promise it for tomorrow or next week, but it will happen.
MY RESULTS MONTH BY MONTH FOR 2022
My portfolio closed this month down 28.9% (at 71.1% of where it started the year)! Here’s a table of the monthly year-to-date progress of my portfolio for 2022.
**End of Jan - 28.9%**
MY 13 MONTH RESULTS
As I’ve done at the end of January for the last couple of years, here are my 13 month results for context. As you can see, this month’s losses eliminated my gains for 2021 almost exactly, but all the 330% gain from 2020 has just about not been touched.
**End of Jan + 2.5%**
**End of Feb + 0.3%**
**End of Mar - 13.0%**
**End of Apr - 0.2%**
**End of May + 4.1%**
**End of Jun + 16.5%**
**End of Jul + 21.9%**
**End of Aug + 50.9%**
**End of Sep + 71.3%**
**End of Oct + 82.8%**
**End of Nov + 62.1%**
**End of Dec + 39.6%**
**End of Jan - 0.7%**
If you think about it, since many of us were up more than 200% in 2000 (more than tripling our entire portfolios), it seeemed logical to assume that our stocks (and way of investing) had overshot by a lot, and would fall back substantially in the following year. But here we are, 13 months later, at the bottom of a very heavy sector rotation (probably ready to start up again), and we are down less than one percent from that tripling, in spite of that wild overshooting in 2020.
TWO YEAR AND ONE MONTH RESULTS
If you take my portfolio’s results from 2020 of up 233.3% (or 3.333 times what it started with), and multiply those results by 2021’s results of up 39.6%, you will see that the portfolio was 465% of what it had started at, it had between quadrupled and quintupled in two years. (3.333 x 1.396 = 4.65 times what it started with on Jan 1, 2020). Now that was a preposterous result, which I kept saying over and over, but I wasn’t going to guess where it would stop. Well figuring in this months results [4.65 x 0.711] it’s at 330.6% of where it started two years and a month ago, a nice tripling and a third. I’ll take it!
And wait, here come the five year results:
FIVE YEAR AND ONE MONTH 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 books have been written to prove it, and that we will all return to the mean, so I thought that I’d give you some facts about it.
Guess what folks! The books are wrong. Here are my last five 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%**
**2018: + 71.4%**
**2019 + 28.4%**
**2020 + 233.3%**
**2021 + 39.6%**
In five years, those numbers compounded to 1886% of what I started with. That’s not up 88% or even 188%! It’s about nineteen TIMES what I started with in January of 2017, in five years, which is really, really, crazy numbers, (and shows the power of compounding!)
During that time the S&P was up 112% in five years, even with 2021’s large gain (large for the S&P). That’s up 112% compared to up 1786%!!! 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 that , here is what GauchoRico posted for his four year results: He was up 1,135% while I was up 1,251%. https://discussion.fool.com/gauchorico-portfolio-update-1312021-… Pretty much the same thing! It’s not a fluke.
Now let’s add in January’s result. With January’s loss of 28.9%, the five year and one month results compound to 1341% of what I started with. That’s between thirteen and fourteen TIMES what I started with five years and a month ago.
Adding in this month the S&P was up 104% in five years and a month. That’s up 104% compared to up 1341%!!! You can add a few percent by adding in dividends, but that doesn’t change the picture at all.
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.
Remember that this was done with no leverage, no options, no margin, no penny stocks, no fancy stuff, just a concentrated portfolio of high growth companies.
I am no good at timing the market and I haven’t tried, but have just stuck with strong, rapidly growing, high-confidence companies. I can’t tell you what the market will do Monday, or next month, or the next three months, or six months, but I can tell you that these companies are very successful, and that I can sleep well with them in my portfolio.
ON MY PORTFOLIO VALUE VERSUS MY INVESTING RESULTS
I explain clearly in the Knowledgebase how I calculate my investing returns so that adding or subtracting money from the investing accounts won’t affect my investing percentages.
In other words, if I start with $100,000 and gain $40,000 in six months investing I was “up 40% ytd.” If I then added $20,000 from another source, and had $160,000 in the account, my investing is NOT suddenly up 60% ytd. My investing was still up 40%.
Or if, instead, I pull out $30,000 for living expenses, and only have $110,000 left in my investing account, that DOESN’T mean my investing only gained 10% ytd. It still gained 40% and I am still up 40% ytd. I recalculate to make what I report a true value of my investing percentage gains or losses, as described in the Knowledgebase.
Okay that’s my investing results. Now let’s look at my portfolio value. I retired in mid 1996. That is 25½ years ago. For 25½ years my family has been living off what I make in the stock market. I have no other source of revenue besides the neglible amount from Social Security. No job, no pensions, nothing.
So what did I have to pull money out of the stock market for? Everything! Groceries, gasoline, electricity bills, water bills, telephone bills, buying new automobiles over 25 years, theatre tickets, eating at restaurants, charitable donations, tips to delivery guys, buying a condo, buying a couple of houses over the years, apartment rentals before that, furniture, computers, kindles, iphones, telephone service, appliances (new dishwasher, oven, etc), clothes for all of us (my daughter was only 8 years old when I retired), sending our daughter to college and for a master’s degree, helping her and my older son with gifts over the years, new eye glasses, bicycles, airline tickets, ski trips, doctor and dentist bills, etc, etc, etc.
So what does that mean? It means the amount left in my portfolio is a lot less than it would be if I was working and didn’t have to withdraw from the investing account.
Here’s an easy way to think about it: Every thousand dollars that I had to withdraw to cover expenses in the second half of 1996 didn’t get to compound for the next 25 years. That means for every thousand withdrawn there were many tens of thousands that aren’t in the investing portfolio now. And for every thousand dollars that I had to withdraw for living expenses in 1997, those thousands of dollars didn’t get to compound for the next 24 years either, meaning many more tens of thousands of dollars that didn’t make it to the investing portfolio, and on and on. What I’m trying to say, and haven’t said clearly enough, is that my investing portfolio (dollar-wise), isn’t up nearly as much, anything like as much, as my investing results are up over the years, (percentage-wise)! It simply can’t be if you are living off your investment income!
What does this mean for you? It means that if you are planning on retiring early, make sure you have enough money that your yearly expenses will be covered by your gains even on a slow year and there’s a little more at the end of the year than there was at the beginning. If your investing nest egg starts shrinking you will need even better results the next year, or it can disappear rapidly. You want the balance in your investing account to keep rising (after living expenses are taken out) every year, until, hopefully you can live through a mild to moderate down year and still have considerably more than you started with when you retired.
HOW DID THE INDEXES DO?
Here are the results year to date:
The S&P 500 (Large Cap)
Closed down 7.0% YTD. (It started the year at 4766 and is now at 4432).
The Russell 2000 (Small and Mid Cap)
Closed down 12.3% YTD. (It started the year at 2245 and is now at 1969).
The IJS ETF (The S&P 600 of Small Cap Value stocks)
Closed down 6.0% YTD. (It started the year at 104.5 and is now at 98.2)
The Dow (Very Large Cap)
Closed down 4.4% YTD. (It started the year at 36338 and is now at 34725).
The Nasdaq (Tech)
Closed up 12.0% (It started the year at 15645 and is now at 13771).
These five indexes averaged down 8.34% ytd.
EARNINGS SEASON
Many of our companies will report in February, including Cloudflare and Datadog on the 10th, Upstart and ZoomInfo on the 15th, and Amplitude on the 16th. Lightspeed, which most of us are long out of, will also report on the 10th.
LAST THREE MONTHS REVIEW
November had lots of crises. They started when Lightspeed announced a real slowdown that they seemed puzzled about and couldn’t really explain, the price plummeted, and I, among others, sold out in disappointment. The price was already depressed from the short attack in October (which had been mostly nonsense based on mis-statements or typos by the company back in 2018 or 2019), and the share price was further depressed by the sell-off after earnings before I could get out.
Then we got hit again with Upstart not living up to everyone’s wild expectations, and it sold off mightily. As I wrote on the board in my post called “What I did about Upstart”, I had sold down from a once 31.5% position (which was way too high), to a 23% position prior to earnings, but I took a big hit on what was left. With a little more trimming and the fall in stock price, my position size was now down to a more sane 15.6% position.
In spite of that double whammy “catastrophe”, in a very concentrated portfolio which so many people worry about, I finished November still up 62% year-to-date, which is way above what I could have had with a more diversified portfolio.
The reason that my portfolio was still doing so well, in spite of the massacres in Upstart and Lightspeed, is that four other stocks in my portfolio just kept going up and up and up, and hitting new highs regularly. These were (in alphabetical order), Cloudflare, DataDog, ZoomInfo, and Zscaler.
The money from my sales of Lightspeed and Upstart went mostly into Monday and Amplitude, and some to ZoomInfo. (Amplitude was the little tryout position I talked about last month and is now up to a 6.8% position). I also again have a little 1% position in Snowflake (this must be the 4th time).
Since my last monthly summary, in addition to those from Upstart and Lightspeed, we also had earnings reports from Datadog, ZoomInfo, Monday, Cloudflare and Amplitude.
Datadog, ZoomInfo and Monday blew it away. Cloudflare continued on its merry way of 50% plus revenue growth, but made it clear with new products that it’s trying to become the fourth internet cloud (with AWS, Google and Microsoft). Amplitude had excellent growth but worried some people by not guiding high enough (which was well explained in the conference call). Leading up to earnings Monday rose $90 in a day, but then sold down $80 the next day when they announced that this earnings report satisfied requirements so that their IPO lock-up period was ending. (They have low daily volume so an attempt to sell a substantial number of shares moves the price irrationally).
December. Since my November report we had earnings from Zscaler, Snowflake, SentinelOne, and Crowdstrike. Zscaler had great results. Snowflake and Sentinel just blew it away. Crowdstrike had good “solid” results, but their revenue growth rate fell from 70% to 63% sequentially in spite of all the tailwinds of breaches all over the place, while Sentinel was growing revenue at 127%, just over exactly twice as fast
You mean I was unhappy with 63% growth??? Well Zscaler, Sentinel, and Cloudflare, all of whom also have their oars in cybersecurity, were all accelerating revenue growth (Cloudflare only accelerating a tiny bit, I’ll admit), but Crowd’s growth rate dropped from 70% to 63% in a single quarter, and it has been steadily descending.
I had continued to trim my Upstart position between $220 and $165, but when it got to $140 and below, I decided that this was getting silly, the price was just 35% of its high of a month or two before, and all the news (what there was of it) was good, and I held on to what had gotten down to a 7% position.
To get money to buy my Sentinel position, and build my Snowflake after results, I sold out of my new Amplitude position, which I had been trying to build up, and heavily trimmed Crowdstrike. I have also lightly trimmed DataDog whenever it got over 20% of my portfolio, as I said I would do. I added a tiny bit to Monday, even though it was over a 16% position at the time, because I just can’t resist. ZoomInfo has been a star of my portfolio, down much less off its recent highs in this sell-off than most of my other companies, and has moved up to 3rd place in my portfolio.
Why did I sell out of Amplitude when I needed cash? Well, I felt Amplitude was my least sure company as far as results going forward. They guided so weakly, that we had to hope that they were HUGELY sandbagging, but what if they weren’t? I didn’t have to hope for the results of Snowflake and SentinelOne, where I was putting the money. Simple as that!
But then later in December, I used some money that I was trimming from others (Datadog because it was over 20% of my portfolio, and even some of my favorites like Monday and ZoomInfo, etc), to buy back a position in Amplitude. I’m not always consistent.
January continued the sell-off of the most successful companies in the market. My portfolio was relatively quiet. I continued to taper my smallest position (in Crowdstrike), and then finally sold out of it , and I sold out of my smallish position in Upstart, and a week later bought back a little position. I wrote up these decisions on the board so I won’t elaborate further.
Please remember that I could change my mind about any one or more of my positions tomorrow, depending on new information or other factors, and I may not do another update until the end of next month. Make your own decisions. Don’t just follow mine. I make mistakes at times! Guaranteed!
HOW THE INDIVIDUAL STOCKS HAVE DONE YTD
Here’s how my current positions have done so far in 2022. I’ve arranged them in order of percentage gain. As always, I’ve used the start of the year price for stocks I’ve been in all year, and my initial buy price for stocks I’ve added during the year. I tend to keep buying as the price rises, so my average price is almost always higher than my starting price.
Please remember that these starting prices are from the beginning of 2022, and not from when I originally bought them if I bought them in earlier years.
**Upstart from 87.69 to 95.00 up 8.3% buy in Jan**
**Sentinel from 50.49 to 40.54 down 19.7%**
**DataDog from 178.11 to 136.96 down 23.1%**
**ZoomInfo from 64.20 to 48.84 down 23.9%**
**Snowflake from 338.75 to 253.52 down 25.2%**
**Zscaler from 321.33 to 238.70 down 25.7%**
**Amplitude from 52.94 to 35.46 down 33.0%**
**Cloudflare from 131.50 to 84.18 down 36.0%**
**Monday from 308.72 to 188.48 down 38.9%**
Please note that the reason that Upstart is up and all the rest are down is that new purchases get figured from when I buy them, and I bought it earlier this week, while the rest were from January 1st.
A BRIEF THOUGHT ABOUT THE VALUATION OF MY COMPANIES
The companies currently in my portfolio are growing their revenue at rates from about 50% to well over 200%. (That was Cloudflare at the low end and Upstart at the high, but in between Snowflake was up 110%, Sentinel more than that, and Monday was 95%). Let’s be conservative and say they averaged about 75% to 80% revenue growth. I’m not giving an exact calculation as this is just illustrative.
My portfolio grew at “only” 40% in 2021 with some shrinkage of valuation, and if it compounds another 40% in 2022, let me tell you that I’ll be very happy with that. Remember that I averaged “just” 32% growth for all those years, and I remember also how 32% compounded insanely!
POSITION SIZES
I now have nine positions which is in the middle of my comfort range. Here they are in order of position size, and bunched by size groups.
**.**
**Datadog 20.7%**
**Monday 16.0%**
**Snowflake 13.5%**
**ZoomInfo 12.6%**
**Zscaler 12.6%**
**Sentinel 12.2%**
**Cloudflare 8.6%**
**Amplitude 5.9%**
**Upstart 3.7%**
Those among you with curiosity may have discovered that the total adds up to 105.8%. I explained in previous months that I was using about 2% in “margin.” Well I also put in some cash that didn’t belong in my investment category to buy the Upstart earlier this week, Thursday morning for most of it, in fact.
I’ll give you a little capsule of the positions before moving on to the extensive company reviews:
DataDog is in first place and a 20.7% position, and is high confidence. In fact it’s been in first place for quite a while. I trimmed a little in November when it went over 20% of my portfolio because my experience with large positions well over 20% has been terrible. I will trim as necessary to keep it under 21% at most.
Monday is a 16.0% position in 2nd place. It fell a large percent from its high during the pullback, apparently due to lock-up expiration coinciding with the sell-off. It announced extraordinary results, and it’s very high confidence, but I have enough at 17%. If I add here it might soon be over 20% with a price rise and then I’d be trimming it.
Snowflake. I took my current position in November and December. It’s now a 13.5% position in 3rd place. It had great results and it’s pretty high confidence, but still quite highly valued, though not as much as a year ago.
ZoomInfo, Zscaler, and SentinelOne are pretty much tied for 4th, 5th, and 6th places, at about 12.2% to 12.6% of my portfolio,.
ZoomInfo is a fairly high confidence position, and a company that I feel is somewhat undervalued because of some mistaken ideas about what they do.
Zscaler had extraordinarily good results with accelerating growth in its most recent results.
SentinelOne is a new position that I took in December after it announced its extraordinary Oct quarter results.
Cloudflare has been weak, falling more than 60% from its all time high with no bad news except its high valuation (which was really very high). It’s in 7th place with a 8.6% position. It keeps bouncing along at a very consistent 50% to 53% yoy revenue growth, and churns out new products like mad.
Amplitude has been very weak and has fallen at least 40% from its high with no bad news. We only had had one earnings report that came 10 days after the IPO, and while revenue growth accelerated to up 72%, they guided very, VERY, cautiously. I don’t, as of yet, have much history to give me high confidence. It’s now at 5.9% and in 8th place.
Upstart has been very weak, falling, at its bottom, an incredible 78% down from its $402 high. It’s fallen like this because of inflation and interest rate worries, as well as sequential growth disappointing. I sold this month when an increase in delinquencies was reported, but took back a baby position when it was explained. It’s very cheap at this point (with forward EV/S well under 10), but since it’s not a SaaS company, and has a complicated story, it is hard to have confidence in future earnings. It’s my smallest position, but up 8.3% in a day and a half since I bought it. However, take into account that my whole portfolio was up 4.5% on Friday, not just my tiny position in Upstart.
COMPANY REVIEWS
Please note that when I discuss company results, I almost always use the adjusted values that the companies give. I’m going to discuss them in mostly alphabetical order.
Amplitude was a little try-out in October but it grew into a real position in November. Then in early December I sold out of it to raise cash to buy SentinelOne, but in the last two weeks of December I took a new position in it again. Yes, I changed my mind twice.
Investor Mookie brought Amplitude to the board on Sept 28, the day of its Direct Listing. A lot of the below comes from Mookie’s write-up.
Amplitude provides data analytics software that allows firms to better understand their customers’ behavior.
Customers incude giants such as Ford, Walmart, BurgerKing, Canal+, UnderArmor, Le Monde, and newer firms such as Square, Hubspot, Smartsheet, instacart and Atlassian.
Datadog doesn’t compete with them because it is focused on logging and observability inside of systems and infrastructure. How is my system performing? Where are potential anomalies and where are potential cyber attack points?
Amplitude, on the other hand is ‘customer telemetry’ and customer upsell – Where are my customers clicking? What ‘user journey’ do they go on? Where are my opportunities to sell/upsell?
Thus Amplitude helps companies understand customers, and what they are doing, and to convert that understanding into increased sales. This seems to be something that practically any company would be interested in. But I certainly could be wrong.
This is a small company with plenty of room to run. Quarterly revenue was only $45.5 million, accelerating to 72% yoy growth. RPO was $152 million, up 66%. Adj Op Loss was only $2 million (not counting the one-time Direct Listing costs). Adjusted EPS was a loss of 5 cents. Paying Customers were 1417, up 54%. NRR was 121%, up from 119% yoy. And they just appointed someone who was formerly President of IBM and CEO of Red Hat, to their Board of Directors, which gives me the feeling that they are considered a reputable and solid company, or he wouldn’t have accepted.
They also announced an integration with Snowflake so that “anyone who uses Snowflake can be an Amplitude customer in just a few clicks”. This means every member of an organization can use Amplitude to run lightning queries of Snowflake data on the Amplitude platform. This integration speeds up time to insight from days to minutes, expands data accessibility, and maximizes its return on data cloud investments.
As a reminder, they did not sell shares or raise any capital during their direct listing.
They also opened a new data center in Frankfort, in conjunction with AWS, to support customer growth in the EU.
**Cloudflare (NET)**had been a star of my portfolio, almost sextupling, at one point, since I first bought it in 2020. I had been saying that I didn’t understand why it was going up like that. It’s growing revenue steadily at 50% or so, which is certainly a great rate of revenue growth, but it is slower growth than my other positions.
So what was pushing the price up? I suspect that there were two issues.
First was that they were putting out new products and enhancements to older products at a rate that has rarely been seen before, and the thesis is that this will enable high growth to continue for many more years than currently expected.
The second issue was a perception that this company is on its way to both become a fourth cloud (along with AWS, Azure, and Google). 
. The people pushing the stock up, with what must have been massive buys, obviously believed it.
Well in December the price rise finally ended, in conjunction with the pull back in all the high growth software companies, and the stock price fell even considerably more than the rest of my portfolio (except Upstart). It remains a great company and I have no plans to exit it.
DataDog is in first place currently in my portfolio at 20.7%. They posted outstanding September quarter results. Revenue growth was up 75% yoy, and had accelerated from up 67% yoy in the June quarter, which in turn had accelerated from up 51% in the March quarter. Operating Cash Flow was $67 million, up from $52 million sequentially. Free Cash Flow was $57 million, up from $42 million sequentially. They are doing just fine.
They announced near the end of January that they had received FedRamp Authorization at the Moderate Impact level.
Monday AGAIN had one of those quarters that just seemed perfect! In their second quarter as a public company they reported revenue up 95% (up from 94% sequentially). They help people work together and cooperate, and yes, I know that there are lots of other companies in that field, but none that I know of growing revenue at 95%. Monday continues in second place, behind Datadog, at 16.0%.
The number of enterprise customers over $50,000 was 613, up 231% from 185 a year ago. That’s not a misprint! … 613 up from 185 are the real numbers. I personally have never seen any company grow enterprise customers at more than 200 percent yoy! NRR was 130%, up from 125% in June and 121% in March. Adjusted gross margins topped 90%. They seem to be rapidly moving towards profitabilty with Adj Operating Margins coming in at minus 11%, greatly improved from minus 72% a year ago, and there’s lots more good stuff, but I’ll let you research the rest. Pay attention and be careful of the buying process if you decide to buy any as it is a high price/low volume stock, with often a wide spread between bid and asked.
SentinelOne Well there have been so many posts on Sentinel that I won’t go into great detail, but merely say that they had an absolute blowout. I overcame my hesitation and now have a 12.2% position, tied for 4th, 5th, and 6th. Here are some of the numbers that made me change my mind:
• Revenue was $56.0 million, up 128% from $24.6 million yoy
• Revenue growth progress for the last six quarters has been yoy growth of 96%, 103%, 97%, 108%, 121%, and now 127%, so accelerating every quarter except the previous Jan quarter
• Revenue growth sequentially was up 22.3%, from last quarter’s $45.8 million. That’s a run rate of up 124%.
• Annualized recurring revenue (ARR) was up 131% to $237 million from $103 million a year ago.
• Total customer count grew more than 75% yoy from 3350 to over 6,000 customers, adding 600 this quarter.
• Customers with ARR over $100K grew 140% year-over-year to 416 from 173 a year ago.
• Dollar-based net revenue retention rate hit a new high of 130%, up from 115% a year ago.
• Adj gross margin was 67%, up from 58% a year ago
• Adj operating margin was minus 69% of revenue, improved from minus 102% a year ago. Not only that but the last three quarters the Adj op margin has been -127%, -98%, and -69%. Clearly improving.
• Cash was $1.7 billion so they are clearly not going to run out of money
They had three significant announcements this month:
First, they increased their integration and partnership with AWS (Amazon Web Services).
Second, they announced that KPMG utilizes SentinelOne for cyber incident response services. “KPMG’s Cyber Response Services team, which has been involved in many of the most high-profile breaches worldwide, will use Sentinel’s Singularity XDR platform to accelerate investigations and response to cyberattacks”.
Thirdly, Barracuda Networks, who protects over 200,000 global customers, “selected Sentinel’s Singularity XDR platform to help MSPs prevent, detect, and autonomously respond to threats at machine speed with AI-powered XDR”.
Snowflake. As with Sentinel just above, Snowflake also blew it away in their October results, and I built my 1% position to a 13.5% position in 3rd place. Why? Here are some of the results:
Total revenue of $334 million, up 110%, and up 23% sequentially.
Product revenue of $312.5 million, up 110%
Adj Prod Rev Gross Margin was 75%
RPO of $1.8 billion, up 94% yoy
Total customers were 5,416
Customers over $1 million were 148, up 128% from 65, and up 28% sequentially from 116.
Net revenue retention rate of 173% !
Op Margin was 2.5%, hitting positive territory long before they had guided
Op Cash Flow was $15.5 million
Op Cash Flow Margin was 4.6%
Adj Free Cash Flow was $21.5 million or 6.4% of Revenue
Adj EPS was 4 cents, up from a loss of 28 cents a year ago
Continued international expansion resulted in product revenue from the EMEA and APJ regions up 174% and up 219% yoy.
Guidance for product revenue next quarter was up 96%, which probably means it will be over 100% again.
Conference Call – Just about every analyst said something like “amazing” or “fantastic” or “terrific” or “unbelievable results”.
This month they announced support for ITAR (Gov’t) Compliance on Microsoft Azure Government and on AWS GovCloud. I’m not sure what it means but it has to be good news.
Upstart. In late Sept or early Oct I had over 31.5% of my portfolio in Upstart. I decided I wasn’t comfortable with such a huge position in any one company and I gradually trimmed it, so that it was down to 26% at the end of Oct. By the time we were going into earnings in Nov I had reduced it to about a 23.4% position, still too large.
At first I didn’t buy or sell any… But the more I thought about it over the next days, the more the fact that it was consumer facing, macro economics influenced, and a non-SaaS company without recurring revenue, weighed on my mind, and with a combination of a little further sell off, and a little more trimming, it was down to a 15.6% position at the end of Nov.
In Dec I had continued to trim my position at prices from $220 down to $165, but when it got to $140 and below, I decided that this was getting silly, the price had fallen 67% from its high of a month or two before, and all the news (what there was of it) was good, and I decided to hold my 7.5% position.
Why didn’t I sell out, the way some others did? Let’s look at some numbers:
Revenue was up 250% yoy, more than tripling. Sure some of us were hoping for even more, but REALLY!
Fee revenue was up 235% yoy, again more than tripling.
Transaction volume of loans originated on the platform also more than tripling.
Operating income was $28.6 million, up 134%.
Net Income was more than quadrupling and almost quintupling,.
Adj EBITDA was $59 million, almost quadrupling from $15.5 million
The Adj EBITDA margin was 26% of revenue.
So why in the world should I have sold out of this company???
Let’s look at sequential:
Revenue “only” rose by 17.5% sequentially. That was below expectations, but that’s not a trivial gain by any means. Up 17.5% per quarter is a run rate of up 91% per year.
If they beat guidance for next quarter by 6% (which I would consider the absolute floor), it would be a 23% sequential gain, or a run rate of up 129% (more than doubling). And, if they just beat by 8%, they will be up 25.5% sequentially, or a run rate of up 148%. Etc…
I’d like to make a suggestion. Is it possible that the actual outlier was the insane 60% sequential growth the quarter before? A lot of growth coming on all at once, being crammed into that quarter, leaving less in every metric for last quarter? Putting the two quarters together you get 88% growth, which compounds to 37% sequential growth per quarter, and a run rate of up 252% per year.
Going back one more quarter, we had revenue growing by 39%. So they have been growing revenue by 38% compounded for the last three quarters. And it was 34% the quarter before that, so we have them establishing a sequential growth rate of 37% compounded for the last four quarters.
Is it possible that our worry is overblown? Heck, if revenue growth falls to 25% sequential growth per quarter next year, it would still be growing at 144% annualized, or even at 20% per quarter it would be growing at 107%
Should we run away from this company??? It isn’t at 30 or 50 times revenue, but is under 10 times forward revenue while growing at over 200% yoy. It’s not at the end of its TAM but just starting out up the S shaped curve.
So that’s why I kept Upstart. I got scared out of my small position earlier this month because of the complicated picture which is impossible for an outsider like me to entirely grasp, but I got back in because I couldn’t resist at almost 80% off its high with the metrics I quoted you above.
ZoomInfo. My position has grown to 12.6% which puts it in a three way tie for 4th to 6th place.
To quote the Morgan Stanley analyst in the March quarter Conference Call:
…all the growth metrics are accelerating up and to the right. Is it fair to say that there’s a fundamental shift that’s happening right now, and that shift is actually accelerating in its pace?
What was the analyst referring to? Well their yoy revenue growth, which had been going along at a pedestrian 42%, 40%, 41%, all of a sudden, in the December 2020 quarter, accelerated to 45%, followed by 48% in the March quarter of this year, 57% in the June quarter and now 60% in the Sept quarter. These are rates it had never seen before. International revenue is growing at 80%. Operating cash flow was $46.5 million, and Free Cash Flow was $73 million.
Here is some of the business development news:
Our Intent products, which find consumption patterns to help go to market teams identify and gauge prospects, experienced significant growth with active users growing more than 5x yoy.
Acquired RingLead, a leading provider of data orchestration and revenue operations automation.
After the acquisition in July, we announced our first integrations with Chorus.ai platform in September, allowing customers to transcribe and analyze calls taken in ZoomInfo Engage, access Chorus’ Momentum Insights within our platform, and unlock our business-to-business data and insights for the Chorus offering.
Our board of directors unanimously approved the move to a single class of common stock, with one vote per share.
Closed the quarter with more than 25,000 customers, and more than 1,250 customers over $100,000, who now represent more than 40% of our overall ACV with the ACV from that cohort growing by more than 85% yoy.
International continues to be a success story. We had international revenue growth greater than 80% yoy, with international representing more than 11% of our overall business or over $80 million on an annualized basis. We now cover nearly all businesses with more than 100 employees in Europe.
In ZoomInfo Recruiter, we added a number of new features to improve the user experience and open up the platform for more integrations. While still early and small, we more than doubled the number of recruiter customers… sequentially!!!.
We’re again raising our financial guidance for the year. We now expect to deliver revenue growth of 54% in 2021 with organic growth of 50% at the midpoint.
In January they announced a partnership with Google Cloud, and also, separately, increased international expansion, setting up offices in England,and starting with a great hire to ensure compliance with privacy rules
Saul: Well, I feel that this is one of my only companies that is clearly undervalued.
Zscaleris also in the three-way tie of 4th to 6th place with a 12.6% position. It had excellent October quarter results, announced a month ago.
• Revenue: $230.5 million, up 62%, accelerating from 52% last year, and 57% last quarter
• Revenue growth sequentially was up 17%, accelerating from up 12% last quarter and up 13% a year ago.
• Billings were up 71% from $145 million to $248 million yoy. A year ago they were only up 64%.
• Gross Margin was 81%.
• Op Cash flow was $93 million, up from $54 million last year
• Free cash flow was $83 million, up from $42 million last year !!!.
• Free cash flow margin was 36% of revenue.
And lots more like that, accelerating but not in the same class as SentinelOne (which does have the advantage of being considerably smaller, I’ll admit.
Then in December they announced that they were extending Zero Trust protection to workloads in multicloud environments.
SOME THOUGHTS ABOUT THE GROWTH OF OUR BOARD
We started our current investing spurt in the beginning of 2017, about five years ago.
When you sign on to the board you’ll see in the middle of the screen a little icon that says “<< 7 days >>” click on it down to where it says “365 days”, and go back 5 years (5 clicks). Back then our board was a twentieth of the size it is now, at most. The first page I came to had a total of 45 recs on an entire page of 20 posts, or an average of a little over two recs per post. A post with 25 recs was unusual, 50 was uncommon, and 100 was really rare. We also had many fewer posts each day.
As an example, until just a few months ago we had NEVER, EVER, had a post with more recs than the high 300’s. Yet earlier this month I had a ordinary post, just a post about what I had done about a stock, that had over 660 recs. That is crazy!
Our success has flooded us with new posters and readers (that’s you, most likely), so you can see we have to limit our posts to meaningful ones to avoid flooding the board and destroying it. I may at times seem arbitrary in deleting posts but that’s why it’s necessary.
Thanks for your cooperation
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. First of all, you may have a completely different financial picture than I have. Different income, different assets, different debts, different expenses, different financial responsibilities, etc. Besides, 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 my “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