Here’s the summary of my portfolio at the end of July.
I wrote at the end of May that ” the “Sell growth, buy junk!” rotation that we saw for the first 4½ months of the year may finally be over”. And at the end of June I said, “It looks like I was correct”. Well we are at the end of July and it still looks that way.
My portfolio finished July at up 21.9% YTD (or at 121.9% of where I started the year). My low for the year in mid-May was 81.5%, so this was a rise of roughly 50% for my entire portfolio in eleven weeks. My high for the year was Wednesday at up 24.1%.
My portfolio has also topped its previous all time high, reached in 2020, which we had been assured was just a product of an investing “bubble” and we were doubly assured that we would never see those 2020 highs again.
In fact, if you take my portfolio’s results from last year of up 233% (or 3.33 times what it started with), and multiply those results by this year’s 22% gain, you will see that the portfolio has more than quadrupled in a year and seven months. 3.33 x 1.22 = 4.06 times what it started with on Jan 1, 2020. That is such a perposterous result that it’s hard for even me to digest it. Humans aren’t supposed to get results like that.
The move even preceded any earnings reports as there were none in July, but we will see ZoomInfo, Alteryx, Datadog, Lightspeed, Cloudflare, and Upstart in the next ten days.
I am no good at timing the market and I haven’t tried, but have just stuck with strong, rapidly growing, high-confidence companies. I can’t tell you what the market will do Monday, or next month, or the next three months, or six months, but I can tell you that these companies are very successful, and that I can sleep well with them in my portfolio.
This year we are more likely to grow at a more normal rate, more related to the rate of growth of our companies’ revenue growths, or a little less (which is my current guess, anyway), which won’t be bad 
, but it certainly won’t be like last year. And don’t be surprised at ups and downs along the way.
MY RESULTS YEAR TO DATE
My portfolio closed this month up 21.9% (at 121.9% of where it started the year)! Here’s a table of the monthly year-to-date progress of my portfolio for 2021.
**End of Jan + 2.5%**
**End of Feb + 0.3%**
**End of Mar - 13.0%**
**End of Apr - 0.2%**
**End of May + 4.1%**
**End of Jun + 16.5%**
**End of Jul + 21.9%**
A thought about this: Since many of us were up more than 200% last year (more than tripling our entire portfolios), it seeemed logical to assume that our stocks (and way of investing) had overshot by a lot, were way overvalued, and would fall back this year. But here we are, seven months into the year, and we are actually up again, in spite of wildly overshooting last year, and living through some large pullbacks.
HOW DID THE INDEXES DO?
Here are the results year to date:
The S&P 500 (Large Cap)
Closed up 17.0% YTD. (It started the year at 3756 and is now at 4395, up 2.7% for the month).
The Russell 2000 (Small and Mid Cap)
Closed up 12.7% YTD. (It started the year at 1975 and is now at 2226, DOWN 4.6% for the month).
The IJS ETF (The S&P 600 of Small Cap Value stocks)
Closed up 24.0% YTD. (It started the year at 81.3 and is now at 100.8, DOWN 5.9% for the month)
The Dow (Very Large Cap)
Closed up 23.9% YTD. (It started the year at 30606 and is now at 37935, up 9.9% for the month).
The Nasdaq (Tech)
Closed up 13.9% (It started the year at 12888 and is now at 14673, up 2.2% for the month).
These five indexes averaged up 18.3% YTD. At the end of June they were up 17.6%, so they gained 0.7 precentage points in June and my portfolio finally caught up and passed them. In fact, in the last three months the “markets” gained 0.9%, 1.9%, and 0.7%, while my portfolio went from down 0.2% to up 21.9%.
This month it was the Dow with its huge mega-companies that saved the day for the market averages, while while the Russell 2000 with its small and mid-caps was actually down about 6%. I never try to guess these things in advance.
LAST FOUR MONTHS REVIEW
April Back in February, to explain why I had so many positions (eleven), I had written:
I have 72% of my portfolio in three positions: Crowdstrike, Cloudflare, and Datadog, and if I could find two or three more companies in which I had similar confidence, I would be happy to have a five or six stock portfolio. I do have 7% in Snowflake, and about 6.4% in Inari, but then I have a six stock diminishing tail in Okta, Zscaler, Lightspeed, Twilio, Zoom, and Etsy for 11 positions total
Well, all the positions in that long tail are now gone, and I have taken 9.6% and 6.9% positions in Upstart and ZoomInfo, two somewhat atypical positions for me, small SaaS companies that are first movers in modernizing old ways of doing business.
As I wrote that, I thought you might be wondering about why I sold all of those six companies in the tail. First of all because I liked my new picks better, but to be more specific: Okta because it continued to guide to 30% to 31% for the April quarter, and reiterated it with only three weeks to go in the quarter, so no one would be surprised. Etsy because I see it as a niche company that flourished during Covid, but whose growth rate will plummet post-Covid, Lightspeed because most of its growth comes from acquisitions, Zoom because it already conquered the world and its sequential growth is plummeting, Zscaler because it’s a slow marketing cycle and a slow install compared to Crowdstrike and Cloudflare, and Twilio because it’s just too complcated a picture, and has low gross margins. I expect that all six of those will keep growing, and some could even do better than either of the two I added, but I was looking for companies that could at least triple in price over the next few years, and I didn’t see that happening for any of those six.
May, I hope, was the turning point for our stocks as it looks like the rotation away from successful growth companies and into cyclical things like airlines, cruise ships, and retail, has ended and is starting to reverse. We hit bottom on Thursday, May 13th and my portfolio rose 28% in the two weeks up to the end of the month. I was lucky enough to be able to tell everyone with a lot of confidence that May 13 was the bottom for our stocks when it was happening. (See my board post for the reason I went out of my comfort zone to post that).
Upstart was an interesting story. On May 11, a Tuesday, after the close it announced absolutely great results and guidance (for instance, guiding for revenue up 157% for the year!!! (That’s not a misprint. They actually guided to up 157%.) They raised annual revenue guidance from $500 million to $600 million in one quarter! And of course they intend to raise guidance further each quarter), and moved on Wednesday all the way from Tuesday’s close of $89 to a high of $115, but were met by a short attack which knocked them back to $92 on Wednesday, and to the low $80’s on Thursday.
I bought all I could at the lower prices. I couldn’t believe it and bought all I could raise money for on both Weds and Thurs. On Thursday I bought some at $84, $83, and the lowest was $81.4. I told the board during the trading session what I was doing each of those days. On Friday, Upstart rose 23% to $103, and rose each of the next five days too, to close the next Friday at $154, up 89% from that $81.40 that I bought at just six trading days before!!! I think it was a short squeeze tacked on to the great results.
Due to that 89% rise in a week Upstart became my second largest position at 17.3%, zipping past Snowflake, Datadog and Cloudflare. I decided I wasn’t comfortable with such a complicated company, without guaranteed recurring revenue, and whose business was originating loans, as my second largest position at 17% of my portfolio, especially since it made part of its rise on a short-squeeze which could retrace part way, and early last Monday I trimmed it by 26%, trimming most of it at $154.40, and I put almost all that money into Lightspeed. Upstart is now at $148.22 and at 12% of my portfolio, which feels a bit less dangerous.
Inari also announced great results, but their conference call and guidance for the rest of the year had an air of extreme caution, hesitation, and worry, so I reduced my position size from 11% at the end of April to 6%, and since then even reduced it further to currently a negligible position.
I re-bought a 5.5% position in Lightspeed before results were announced this month, figuring that they would really be helped by all the re-openings I was seeing, as Hospitality was one of their two verticals. They grew their recurring revenue (which is 91% of total revenue), by 48% organically and by 137% counting acquisitions. I added to my position after earnings, using the money I got from trimming Upstart (see above). It’s now a 9.1% position.
After Zscaler announced results this week, and after reading their rather euphoric conference call, I bought back in a moderate sized position. I sold part of my remaining Inari to buy Zscaler, feeling that Zscaler was seeming more like a long term hold to me. Although I wished that I had had the sense to buy before earnings were announced instead of after .
June was a quieter month. Let’s see. I finally exited the last of my already greatly reduced Inari.
Why did I get out of Inari? And what did I mean when I referred to Inari’s extreme caution, hesitation, negativity, and worry? Well, they had previously been talking about about how Covid had been a headwind for them, as their people couldn’t get into the hospital to sell to new physicians, and everyone was too busy with Covid patients to deal with them.
Now that Covid seemed over, instead of being elated, they were warning that the hospitals are now full with people who had been putting off tests and procedures during Covid. In other words they weren’t seeing the big tailwind they had been expecting. They wouldn’t even give guidance for the June quarter that they were already in, although they were half way through it in mid-May, and they gave full year guidance that was just a little over four times the March quarter’s revenue. I also heard from doctor friends that many hospitals are in a bad financial situation now due to Covid. This may lead to hospital administrators being unwilling to pay for Inari products which are four or five times more expensive, even if they do work better. All in all it seemed too complicated for me. It may all turn out to be a false alarm. They may be just super-duper cautious. That’s very possible. But I certainly wasn’t the only one who read it the way I did. The price dropped about 35% and almost $40 in the next nine trading days. It looks a if my decision was correct, as in the last four weeks Inari hardly bounced back at all from that precipitous decline, while my portfolio as a whole was up substantially, and hitting all-time highs.
Another thing I did was take a smallish position again in Docusign, after an extraordinarily good earnings report that has been thoroughly discussed on the board.
Upstart was down from a brief high of about $185 to touch $115 due to the expiration of the lockup and a block sale of 1.7 million shares, and I added back at about $117.60. (You will remember that when it rose 89% in six trading days and grew into a 17.5% position, I decided that 17.5% in such a labile stock was too much and trimmed down to about 12.5% or 13.0%, with the largest chunk selling at about $156).
I added more later this month when the National Assn of Federally Insured Credit Unions gave it rave reviews, a place on its own website, and a strong recommendation to its member credit unions (whose CEO’s had actually voted to choose it).
And then, a week later, Upstart announced that they had partnered with NXTsoft, “the leader in secure API connectivity”, to enable Upstart to deliver its lending platform to banks and credit unions more easily, efficiently and more securely. NXTsoft has over 1,000 such financial institutions that currently utilize its secure API solution. It seems that Upstart is announcing something impressive weekly, and finally, its lock-up expiration is no longer in the future, but in the past.
To pay for the added Upstart I sold some of my smallest position, ZoomInfo, which, despite all the good press and great customers, I just couldn’t see growing forever as I can with most of my other companies. (I may be wrong, of course). I also trimmed some other positions to raise the cash.
July There were no earnings reports this month but there was news on several of our stocks that affected some of my decisions.
Upstart was helped by a recommendation by Goldman Sachs which also gave an excellent description of Upstart’s business, and how it works. Upstart also announced a new credit union had signed up for their program. Excellent discussion on our board looking at monthly statistics gave further reason to expect rapid growth. The stock price stayed between $115 and $125 most of the month, which was very calm for Upstart, and I added multiple times to my position, bringing it up to its current 14.5%.
Lightspeed didn’t have much company specific news, but the world changed in the last five weeks with a scary resurgence of Type D Covid, and since a lot of its customers were in restaurants and hospitality, I reduced my position to 7%, but then, after taking a sober look at how fast they were likely to be growing, I built my position size back up to 8%.
Crowdstrike announced that Falcon for GovCloud was now FedRAMP authorized for endpoint protection.
Then they announced that Falcon Complete, their total all-in-one solution, provides cloud-native managed detection and response, protecting endpoints through AI, comprehensive threat intelligence, and 24/7/365 support from defenders who manage, monitor, and remedy threats that plague government agencies.
Saul here: I feel that with all the security breaches we’ve been having, this will surely add significant government business for them.
Then they announced Falcon X Recon+, a new managed solution where Falcon X Recon+ threat experts manage digital risk protection efforts by monitoring, triaging, assessing and responding to threats, enabling the customer to focus solely on their business.
“Earlier this year, we delivered Falcon X Recon to expose activity on the cybercriminal underground. The new Falcon X Recon+ combines the effectiveness of the Falcon X Recon technology with the skills and experience of our Intelligence team. By offloading the effort of dealing with external threats to us, Falcon X Recon+ increases the effectiveness of the security team, while reducing the time, skills and effort required to battle sophisticated adversaries.”
Saul here: Both of these announcements show a new movement into providing managed security, and not just the software, in response to more, and more sophisticated, criminal activity, so that the customer doesn’t have to have a world class security team to deal with the threat.
In addition, their partnership with Zscaler seems to be flourishing. The two companies seem to be working together in order to provide a full security ensemble solution.
Cloudflare announced that it is now “listed” in the FedRAMP marketplace, and that reaching this “final step before full FedRAMP authorization” will allow more federal agencies to adopt Cloudflare’s performance, security and Zero Trust solutions.
I (Saul) don’t fully understand what being FedRAMP “listed” means, but it’s clearly better than not being listed, and Cloudflare implies that federal agencies will be allowed to adopt their solutions.
Datadog joined the party achieving AWS Government Competancy Partner status. What the heck does that mean? Here’s how Datadog defines it:
“Datadog for Government enables government agencies to successfully migrate to the cloud, troubleshoot performance issues, and improve the speed and reliability of their services at scale, while remaining in compliance.”
ZoomInfo had an acquisition, Chorus, that they feel is a game changer. Here’s what the CEO said about it in a blog:
“We’ve had some big moments over the years. In just the last 12 months, we:
Launched Engage to automate sales outreach.
Acquired Clickagy and Launched Streaming and Custom Intent.
Acquired Everstring, a leader in Data-as-a-Service for the enterprise.
Launched Workflows to activate market insights, buyer intent, and website activity.
Acquired Insent last month (now called ZoomInfo Chat) .
And just a few weeks ago, we launched ZoomInfo Recruiter, which is rapidly gaining traction.
But there are only a few milestones in our history that have had a game-changing impact on our trajectory and transformed how businesses everywhere go to market. Today is one of those moments. I couldn’t be any more excited to announce that we have acquired Chorus a leading provider of Conversation Intelligence solutions.”
(Saul here) You can read a lot more about it on the website. After selling way, way down, I built back up to a 4% position.
Please remember that I could change my mind about any one or more of my positions tomorrow, depending on new information or other factors, and I won’t do another update until the end of the month. Make your own decisions. Don’t just follow mine. I make mistakes at times! Guaranteed!
HOW THE INDIVIDUAL STOCKS HAVE DONE YTD
Here’s how my current positions have done this year. I’ve arranged them in order of percentage gain. As always I’ve used the start of the year price for stocks I’ve been in all year, and my initial buy price for stocks I’ve added during the year. I tend to keep buying as the price rises, so my average price is often higher for stocks I’ve bought during the year.
Please remember that these starting prices are from the beginning of 2021, and not from when I originally bought them if I bought them in earlier years.
**Cloudflare from 75.99 to 118.63 up 56.1%**
**Lightspeed from 58.15 to 85.53 up 47.1% buy in May this time**
**Upstart from 92.20 to 120.76 up 31.0% buy in Apr**
**Zscaler from 186.70 to 235.91 up 26.4% buy in May this time**
**Docusign from 240.05 to 298.04 up 24.2% buy in June**
**Crowdstrike from 211.82 to 253.61 up 19.7%**
**ZoomInfo from 47.34 to 53.75 up 13.5% buy in Apr**
**DataDog from 98.44 to 110.70 up 12.5%**
**Snowflake from 281.40 to 265.72 down 5.6%**
Great buys:
Lightspeed is up 47% just since I bought it in May,
Upstart is up 31% since my first buy in April,
Docusign is up 24% just since I bought it in June, a month ago.
Not so good:
Snowflake is still down 6% ytd, and somewhat holding back the rest my portfolio, which is up 22% so far this year.
The Star:
Cloudflare has been the star of my portfolio and is up 56% year to date, going pretty much straight up, although its revenue growth is just “plugging along” at a “mere” 51% growth . I don’t understand it either, but I’m riding along with it
NEW: HOW THE INDIVIDUAL STOCKS HAVE DONE SINCE I BOUGHT THEM (Updated from my post several weeks ago)
Usually, in my end of month summaries, I show you how my current positions have done this year, year-to-date. I thought however it might be interesting for you to see how they’ve done since I first bought them, even if I bought them in previous years. I’ll arrange them in order of length of time held instead of in order of percent gain.
**Crowdstrike from 73.06 to 253.61 up 247.1% buy in Jul 2019 (24 mo)**
**DataDog from 31.50 to 106.06 up 251.4% buy in Oct 2019 (21 mo)**
**Cloudflare from 34.97 to 118.63 up 239.2% buy in Jul 2020 (12 mo)**
**Snowflake from 302.40 to 265.72 down 12.1% buy in Dec 2020 (7 mo)**
**Upstart from 92.20 to 120.76 up 31.0% buy in Apr 2021 (3 mo)**
**ZoomInfo from 47.34 to 53.75 up 13.5% buy in Apr 2021 (3 mo) Lightspeed from 58.15 to 85.53 up 47.1% buy in May 2021 (2 mo)**
**Zscaler from 186.70 to 235.91 up 26.4% buy in May 2021 (2 mo)**
**Docusign from 240.05 to 298.04 up 24.2% buy in Jun 2021 (1 mo)**
There’s an important lesson in this! Crowdstrike has tripled and a half in two years, Datadog has done the same in a year and nine months, and Cloudflare has almost done the same in one year.
Now how often have you seen people say (even on our board), “ABC has gone up 40% in two months (or 50% or 60%), so it’s valued too high now and I’m selling out to wait for a 20% or 30% pullback.” Note that they didn’t say that the picture for ABC had changed, or that there was anything wrong with ABC’s business, or that there was any bad news, etc, it was just that it had moved up 40% or 50% so they were selling out. Let me point out that if you make a practice out of selling out after a 40% move, you will never get the six times 40% (240%) moves that you see above in Crowdstrike, Datadog, and Cloudflare.
Yes, I have reduced my Crowdstrike position, but not because it had gone up too much, but because it had grown to be too large a part of my total portfolio (over 33% at one point), where I was uncomfortable in having any one position. Crowdstrike is still the largest position in my portfolio. In fact, Crowdstrike, Cloudflare, and Datadog are the largest three positions in my portfolio. So much for selling out because they have gone up.
A little side comment
You probably remember the sell-off or market rotation from our stocks in the last five months of 2019 on no bad news at all. My portfolio fell from a high of up 77% near the end of July to a low of up 10% near the end of October, and then bounced to finished the year up 28%. At the lowpoint it had dropped 38% from the high.
Well down there in October, November, and December of 2019, Crowdstrike was way down in price, and I at least quadrupled the number of shares I had, buying at an average price of about $49.00. That large aliquot of shares that I bought at $49 has more than quintupled in less than two years (21 months). Here’s what that would look like:
**Crowdstrike from 49.00 to 253.61 up 417.6% buy in Nov 2019 (21 mo)**
**….**
Now let’s look at a couple of other recent long holds.
Alteryx. I bought in in December 2017 at $27.72. Several weeks after I bought it, it had risen $19 to a price of $47, or up 70%, where the “smart guys” would have sold out and taken profits. I added more.
I held Alteryx for roughly two and a half years (30 mo), selling out in May, June and July of 2020 at an average price of about $148.00, when it became apparent in their conference call that they couldn’t deal with the Covid year. But that was up 434%, or more than a quintuple of what I started with in two and a half years. Imagine if I had gotten all excited by that $47 price (up 70%), and accepted a $19 gain instead of a gain of $120 per share!
However, I did sell out a year ago. If you have any doubt about the wisdom of selling out when the facts call for it, or feel you are being “disloyal”, Alteryx’s current price is just $77. What a good decision it was selling at $148 a year ago and reallocating the money into stocks that are going up! Obviously some of the money from those June and July 2020 sales went into Cloudflare (bought that July), which is now up 250% in a year, while Alteryx is down 48%.
Some people are still holding Alteryx, and a few years from now, when it regains that $148 price where they could have sold, they will feel justified, “See! I was right. It came back!” However $100 in Alteryx last July, and left in it, is now worth $52, while the same amount taken out and moved into Cloudflare is now worth $340. It’s worth more than SIX TIMES as much. That’s the definition of the “Opportunity Cost” of sitting on losers and hoping they will get their act together.
And do you remember Fastly? Nine months ago, last October, it had hit a new high of about $136, but then the really bad news came out, and it plummeted. I sold in the aftermarket and the next morning premarket, and got out of my entire position at about $90, and transferred all that cash into Cloudflare, a competitor, which I already had a position in since July (see above), at a price of $56.50. Many others on the board did the same thing, but there were some who stayed in. They felt we acted too precipitously, that Fastly was already down a lot, that it had great tech, and it would bounce back in time, etc etc etc.
Well here we are nine months later and Fastly is at $48.07 at Friday’s close, down 65% from its high and down 47% from where I sold it. For someone who had a $100 position on Oct 15 and held it, now, after 9 months, it is only worth $53. On the other hand, if they had moved the money into a stock going up, it would be an entirely different picture. That same money into Cloudflare is now worth $210, four times as much. NO! It’s NOT 40% more! It’s FOUR TIMES as much. That’s again the definition of the “Opportunity Cost” of sitting on losers and hoping they will get their act together.
Some people are still holding Nutanix, waiting for it to come back. It’s still down 43% from its high of June 2018. That’s three years and a month ago!!! Think of THAT Opportunity Cost!!!
Sure, sometimes you will be wrong! And some companies you sold out of will keep going up. A lot. But you will avoid having a large part of your portfolio sitting fallow, just waiting, and avoid accumulating positions in which you are waiting for a return to the good old days. It’s easy to look at the one or two that did turn around, but most turnarounds don’t turn around, unfortunately.
Two lessons here.
First, don’t sell out because the stock has gone up, unless your position has gotten too big, and then just trim it. You will make your big money on the stocks that keep going up.
Second, you should sell at bad news, if the picture has changed.
I have occasionally been accused of buying and selling too easily, but that is usually me trying to find the right company to hold for the longer term. As you can see above, I make my big money on the rapidly growing companies that I buy, add to, and hold on to for several years. [Zoom was an exception where extraordinary circumstances (Covid), compressed three or four years of gains into one].
I hope that this has been clear and useful.
POSITION SIZES
I now have nine positions and that’s near the top of my comfort range. I have large (14-18%) positions in Crowdstrike, Cloudflare, Datadog, and Upstart, then good sized (8-10%) positions in Snowflake, Lightspeed, and Zscaler, and the six of them make up 88% of my portfolio. Then 4% to 5% positions in, Docusign, and ZoomInfo.
Here are my positions in order of position size, and bunched by size groups.
**.**
**Crowdstrike 18.4%**
**Cloudflare 16.5%**
**Datadog 16.5%**
**Upstart 14.5%**
**Snowflake 10.0%**
**Lightspeed 7.8%**
**Zscaler 7.8%**
**Docusign 5.1%**
**ZoomInfo 3.8%**
COMPANY REVIEWS Please note that when I discuss company results, I almost always use the adjusted values that the companies give.
Also, PLEASE NOTE that these company reviews are mostly about my thoughts and feelings about how the companies are doing. If you are looking for more of recent news, or what I’ve done during the month about the stocks, and why, you may want to look in the LAST FOUR MONTHS REVIEW (above)
None of my companies reported results this month.
Crowdstrike is still my largest and highest confidence position at 18.4% of my portfolio. It didn’t rise this month as much as the rest of my portfolio so its percentage of my portfolio is a little less.
Crowd is a security company built entirely on the cloud which started out securing endpoints, but now is expanding into many other aspects of security, and seems to be heading towards being one of the world’s dominant security companies. A key advantage it has is its AI. When it detects an attempt at an intrusion in one of its customer clients it instantly flags and stops that intrusion in that customer, but at the same time stops that intrusion from occuring in each and every one of its customers, pretty much instantly. It has a record of everything that has ever been tried on any of its customers so it keeps increasing its knowledge base. That’s a Wow Feature! No on-premises firewall company can come even close to what it does.
They had another outstanding earnings report in June, for their quarter ending in Apr. It included the number of subscription customers up 82% yoy, up 69% organically, and subscription revenue up 73%.
• Record op cash flow and free cash flow
• Total revenue was $303 million, up 70%.
• Subscription revenue was $281 million, up 73%, and was 93% of total revenue.
• Annual Recurring Revenue (ARR) was up 74% to $1.19 billion, up $144 million sequentially.
• Adj subscription gross margin was 79%, up from 78% a year ago.
• Adj op income was $30 million, up from $1 million a year ago. Take another look at that!
• Adj net income was $23.3 million, up from $4.5 million
• Adj EPS was 10 cents up from 2 cents.
• Op cash flow was a record $148 million, up from $99 million.
• Op cash flow margin was an amazing 49% of revenue
• Free cash flow was a record $117 million, up from $87 million.
• Cash was $1.68 billion.
And there was lots more. It’s easy to see why Crowdstrike is a very high confidence position. I watched the Investor Day Presentation in April and they seemed almost euphoric. This company will keep doing well.
Cloudflare (NET) is also a high confidence company for me, and is tied for 2nd place in my portfolio at 16.5% of my portfolio. I trimmed a small amount this month simply because I couldn’t understand why it kept going straight up, but it continued to do so. They’ve been the star of my portfolio, up more than tripling in 12 months.
They announced results in May for the March quarter and there hasn’t been any earth-shattering news since, although they are constantly announcing new updates and new products. Earnings next week!
Here are some results from the March quarter. I would have preferred even higher revenue growth, but I’ll “settle” for 51% growth (Boy am I spoiled!).
“We had a record-setting start to the year. Revenue was up 51%, and dollar net retention increased to 123%. We crossed 4 million total customers, and our large customer count was up 70% yoy, accounting for more than half of our total revenue. We delivered terrific financial results while also investing in innovation. Firing on all cylinders, we’ve already announced or delivered more than 100 products and capabilities this year. There’s no slowing down as we continue to deliver business-critical offerings and displace point solutions with Cloudflare’s robust global network.”
Revenue of $138 million, up 51%.
Adj gross profit was $107 million, and gross margin was 77.6%, compared to 78.3%, a year ago.
Record dollar-based net retention of 123%, up 6 points yoy, and up 4 points sequentially, showing our success selling our broad platform to our customers.
Strong large customer growth, with a record addition of 117 large customers sequentially and up 389 yoy to 945 total. This means large customers were up 70% yoy, and now representing over 50% of revenue.
Our million dollar large customer cohort continues to be the fastest-growing of the large customer cohorts. In response to the underlying strength we are seeing in the business, we plan to continue to ramp large enterprise sales capacity and expand our global footprint
We have about 119,200 paying customers, up 34% yoy, and up 8000 this quarter.
88% of our contracted customers now use four or more Cloudflare products. Four is a significant number for us because once someone is using that many products, customers consider us a core platform that is very sticky and difficult for any competitor to match.
Adj Op Loss was $7.5 million, or 5.4% of revenue, improved from 15.8%, a year ago.
Adj Net Loss was $9.3 million, compared to $12.3 million in the first quarter of 2020.
Adj EPS was a loss of 3 cents, up from a loss of 4 cents a year ago.
Op Cash Flow was $23.5 million, up from a LOSS of $14.3 million
Free Cash Flow was a LOSS of $2.2 million, or 2% of total revenue, improved from a LOSS of $30.6 million, or 34% of total revenue!!!
Cash was $1,035 million.
Remaining performance obligations remained strong at $439 million, up 14% sequentially and 88% yoy. Current RPO was 76% of total RPO.
All in all, a very solid quarter.
DataDog, is tied for 2nd place. It’s a 16.5% position. Datadog also announced their March quarter in May and had excellent and encouraging results, although we are still waiting for them to lap last year’s Covid second quarter with their June results to be able to see what they are really doing year-over-year. Those results will be announced next week too. However for the March quarter:
• Revenue was $199 million, up 51%, and up about 12% and $21 million sequentially
• Adj Op Income was $19.6 million;
• Adj operating margin was 10%.
• Adj EPS was 6 cents
• Operating Cash Flow was $52 million, more than 25% of revenue
• Free Cash Flow was $45 million.
• Cash was $1.6 billion
• We had 1,437 customers with ARR of $100,000, up 50% from 960 yoy
Gaucho Rico posted the following: The guidance for next quarter is for 52% growth, and for the past three quarters DDOG has beaten the top of revenue guidance by an average of 7%; a similar beat in Q2 would produce 63% revenue growth and a very strong re-acceleration of growth. The third quarter will also provide an easy comparison so we can probably expect a couple of great quarters coming. It also raised its full year guidance from $835M to $890M (an increase of 6.6% with two more quarters available to further increase guidance).
Offringer posted in May: Because I would be quite happy with a 50% gain (or even 30-40%) for DDOG stock from here, I have increased the allocation to DDOG in my personal portfolio. It is now my largest position, roughly on par with NET and CRWD. I like the potential of all three stocks, and feel like DDOG has a very favorable set-up for 2021 at this point.
Upstart. Being that I bought every share I could on May 13th when it was briefly in the low 80’s, it has become my 4th largest position at 14.5%, even though I sold a quarter of my position a week later when it shot up 89% in a week to $155/$160, feeling that a 17.5% position was too much for such an atypical company. I added a number of times in July
What does it do? Upstart has developed a cloud-based platform that evaluates applicants for unsecured personal loans based on a multitude of factors that are not taken into account by traditional FICO scores. It is based on AI and deep learning so that the more loans it writes, and the more payments that are made on those loans, the smarter it gets. It’s a bit like the way Crowdstrike benefits and learns from every attempt at a breach that it analyzes, and its subsequent skill and enhanced knowledge gives it a moat, as a potential competitor would have to start from scratch. It’s the first mover advantage, and Upstart figures it has an eight year headstart on any competitors, as far as collecting the data.
What are the advantages of using it? It benefits everyone. The bank gets to approve more loans, with a considerably lower loss ratio, the customer has his or her loan more likely to be approved, and at a lower interest rate, and Upstart collects a fee. It’s a combination of lower interest rates, higher approval rates, and higher net yields.
How about management? The three who co-founded it (two men and a woman) in 2012, are very impressive, and two came from senior management positions at Google, and are all still at Upstart. Sounds good to me.
How’s business? Revenue from 2017 to 2020 went (in millions) $57, $99, $164, $233 (quadrupling in three years, inspite of revenue getting killed in the “Covid quarter,” Q2 of 2020). For 2020 they were adjusted profitable (23 cents per share, up from 5 cents the year before), and adjusted EBITDA profitable (13.5% of revenue, up from 3.4% the year before.
Quarterly revenue really took off in 2019, and the last nine quarters look like this. (You can spot that Covid quarter a mile away):
**20 33 49 63 = 166**
**64 17 65 87 = 233**
**121**
As you can see, quarterly revenue last quarter was six times what it was just two years ago! Guidance for next quarter is $155 million, which will be up from the $17 million Covid quarter, and up 28% sequentially, and they certainly expect to beat guidance.
Annual guidance for 2021 was $500 million just a quarter ago, and last quarter they raised it by $100 million to $600 million!!! That raises guidance from up 115% to up 157% (from 2020’s $233 million), and they certainly expect to raise that several times as well.
What’s new? They recently acquired Prodigy Software, a facilitator of auto loans, which will multiply their TAM about six times, as auto loans are a market about six times as big as unsecured personal loans. They are already helping to originate auto loans with one or two banks.
How could I not invest in a company that is a first mover, making its own market with a highly automated cloud-based new technology which uses AI and deep learning? A company that is already profitable, and is growing so fast that it is guiding to 157% revenue growth for the 2021 year, which it is obvious that it will handily beat! At a minimum I would expect them to move that 157% guidance to 200% growth by the end of the year (in other words, a tripling of 2020’s revenue). And it is moving into a new market (auto loans) that is six times as large, and just got recommended by the credit unions’ national association! Holy mackerel!!! (to coin a phrase).
However, keep in mind that this is a complicated company, which has to deal with all kinds of financial/banking rules, and which doesn’t have guaranteed recurring revenue like, for example, Crowdstrike or Cloudflare.
Upstart also may be cyclical and effected by the economy (look how it dropped revenue about 74% sequentially in the Covid panic quarter, which obviously could happen again in a sharp recession or equivalent). That’s why I trimmed my position by 25% when it ran up and got too large (as I described in my Last Four Months Review above), and that’s why you should be careful too.
In mid-June they had the expiration of their lock-up period. The price sank to $115 after a block sale of 1.7 million shares, but closed at $119, and since the block sale was out of the way they closed the next day at $126. It has stayed roughly between $115 and $125 ever since, waiting for earnings.
The National Assm of Federally Insured Credit Unions also had a press release strongly extolling them on the day of the block sale. I added to my position at $117.60, and a little more after it partnered with NXTsoft a week later, which will facilitate the adoption of its system by banks and credit unions.
Snowflake. It’s a 10.0% position and in 5th place in my portfolio. A number of my purchases are still currently underwater. I had been ambivalent about whether I should have such a large position, but finally I decided that this company is a real powerhouse, and one I want to keep a major position in. Last earnings they announced:
Revenue up 110% and up 20% sequentially.
RPO up 206%, and was 6.5 times quarterly revenue, up from 4.3 times a year ago
Free cash flow was positive 10% of revenue for the quarter.
Free cash flow for the last fiscal year, was -12% of revenue, up from -75% the year before, and from -152% the year before that. That’s the kind of sequence I like to see.
Net retention rate was 168%, which is enormous.
For the last fiscal year product gross margin was 69%, up from 63% a yr ago and 59% two yrs ago. This quarter it was 72%. That’s another sequence I like to see.
They have 104 customers with TTM product revenue over $1 million!!! Up from 48 customers a year ago and from 77 sequentially. Wow, talking about sequences!
Cash was more than $5 billion
Net Promoter score was 71, and Dessmer Customer Satisfaction rated them 100%.
How could I not invest in a company with results like that?
Bear also pointed out in a great post that since they only charge when contracted usage is actually used, new customers don’t usually count in their revenue until six months later, so even their huge revenue growth, as shown, is an undercount in a way.
By the way, when they talk of Product Revenue, it seems roughly the equivalent of when a SaaS company gives Subscription Revenue, in that it excludes Service Revenue and other revenue like Interest Revenue, etc.
This is a VERY high confidence company, but it is its stock price that I’m not as confident about. However a company with huge fundamental growth like that will grow into and past its stock price.
Lightspeed. I’ve done a lot of wavering on Lightspeed. I re-bought a position before results were announced, figuring that they would be really helped by all the re-openings I was seeing, as Hospitality (restaurants, etc) was one of their two main verticals. They grew their recurring revenue by 48% organically and by 137% counting acquisitions. I added to my position after earnings, and I built it up to 9% in June, but this month Covid seemed to be coming back strong, and it seemed prudent to trim it back to 7%, and it’s currently a 7.8% position, and tied for 6th place.
Zscaler was a position that I took back in May. It’s now tied for 6th place and a 7.8% position. Here are my notes from the last conference call:
Our results exceeded our expectations, and we are again increasing our guidance for fiscal ‘21. Our business is firing on all cylinders. Our superior architecture and optimized go-to-market engine is elevating us above the competitive noise… fundamentally different from firewall-based castle-and-moat security. Our platform prevents lateral threat movement and eliminates the attack surface by making applications invisible from the Internet, hence reducing business risk…. we closed a record number of seven-figure deals across a broad range of industries. Most of these wins are 3-year commitments to provide our customers the foundation for application, network and security transformation…. broader platform purchases by new and existing customers. Strong platform upsells drove our 126% dollar-based net retention rate in the quarter. Our newer solutions are increasingly contributing to our wins… our strategic decision last year to increase our investments in go-to-market is yielding fantastic results. I am very pleased with our performance and momentum across all geos, all market segments and all products. Earlier this year, we expanded our investment in the Enterprise segment, which consists of organizations with 2,000 to 6,000 employees…. As we look forward to the next few years, we are focused on driving broader adoption of our four platform pillars, which together maximize the success of digital transformation. Our core ZIA and ZPA business has never been stronger. And we’re excited about the early traction of ZDX and ZCP, the next growth engines for the company.
Moving to our partners… we continue to grow our go-to-market partnership with CrowdStrike, who also became a customer this quarter. I am proud that Zscaler was named the Zero Trust Champion at Microsoft’s Partner Awards… we also recently partnered with IBM to add Zscaler services to their zero trust security offerings.
Most of our field sales reps are still ramping. We are aggressively hiring. And we had a good quarter of hiring in Q3. We’re expecting to have a very good quarter in Q4. The market is really strong. It’s moving to us. All indications are that we’re in a great position. So we’re going to continue to aggressively hire and really go after growth going forward.
Saul – It seems very positive and almost euphoric!
Docusign was a new position again in June. It is in 8th place with a 5.1% position which I took after earnings. I wish I had taken a bigger one before earnings.
ZoomInfo. is in last place at a 3.8% position. It seems to be doing everything right. Its customers seem to love it and it has accumulated very smart customers like Okta, Toyota, SAP, Shopify, Docusign, Zoom, Uber, Forbes, AmazonBusiness, etc, but it just doesn’t get much love at all from the stock market). It reports earnings next week.
There have been several threads on the board with posts pro and con. This company is using AI to try to automate Sales and Marketing, which is every B2B company’s largest, or close to largest, expense, by leasing their SaaS platform to their customers so that said customers of ZoomInfo can find the right customer companies for their own products, and the right person at each of those customer companies to contact. This will cut costs for ZoomInfo’s customer company, or give it more revenue for the same cost, which ought to be a compelling reason, and ROI, to use this software.
Here are the results of the March quarter reported in May. ZoomInfo reported another spectacular quarter:
Revenue of $153 million, was up 50%, and up 12% sequentially adjusted for the number of days in the quarter.
Adj Op Income of $66 million was 43% of revenue.
Operating Cash Flow of $93 million or 61% of revenue. Yes, you read that right, 61% of revenue!!! Operating cash flow that was 61% of revenue!!!
Adj Free Cash Flow of $97.5 million was 63% of revenue!!!
Deferred revenue was up $39 million compared to $14 million the prior year. Bert says that that indicates that calculated billings were up 66% yoy
New and Expansion Logo Customers: Last quarter they listed Okta, SAP, Toyota, and Marathon Oil.
This quarter they listed Zoom, Docusign, Shopify, Uber, Forbes, and AmazonBusiness (part of Amazon). What a list of customers!!!
Just reread that list briefly! We are talking about Zoom, Shopify, Okta, Docusign, SAP, Amazon, Uber, etc, etc. These are not lightweights! ZoomInfo is getting some serious recognition.
Their platform has been named a Leader by The Forrester Wave: B2B Marketing Data Providers, Q2 2021. The report evaluated 11 providers based on 24 criteria across three categories: current offering, strategy, and market presence. ZoomInfo received the highest possible scores in 18 criteria, such as data acquisition and processing; data security and privacy; integrations, APIs, and applications; sales support; go-to-market (within the strategy category); solution packaging and pricing; and product roadmap and vision.
Significantly expanded the integration points between their Engage and ZoomInfo platforms, enhancing the ability to search and import contacts from ZoomInfo and Salesforce into Engage for improved efficiency, and configuring target market personas to receive recommended contacts to target.
Earned TrustRadius top-rated award for sales intelligence software for the fourth consecutive year. ZoomInfo has more than 800 verified ratings and reviews on TrustRadius and is also a certified recipient of the 2021 TrustRadius TRUE Badge, which recognizes vendors who are Transparent, Responsive, Unbiased and Ethical in sourcing and managing their consumer reviews.
Attained 2021 TrustArc GDPR and CCPA Practices Validations, confirming ZoomInfo’s status as a privacy-forward organization. The GDPR and CCPA Practices Validations confirm that ZoomInfo’s privacy policies and practices meet or exceed the TrustArc Privacy and Data Governance Frameworks, including: establishing, maintaining, and continually improving GDPR- and CCPA-compliant privacy practices aligned with the ISO 27001 International Standard for Information Security Management Systems.
Successfully lowered interest expense by paying back part of their debt, refinancing the rest at a lower rate, and taking out an unsecured loan and credit line…
More than 950 customers with $100,000 or greater in annual contract value (was 850 last report).
Had an eight figure contract this quarter (That’s $10,000,000 or more, just count the zeros!)
In the Conference Call, the analysts were throwing compliments and were asking in wonderment how they did it.
So to conclude: This is a company that is a first mover, making its own market with a cloud-based new technology that is changing an old way of doing things, attacking S&M expense, the largest expense item for many B2B companies, a company that is already very profitable, is using its data to move into a second market (recruiting), has very impressive clients (Zoom, Shopify, Docusign, Forbes, etc) and last quarter had 50% revenue growth and 63% free cash flow margins. But the market doesn’t seem to love it. I think it’s partly because its goal is to help marketing, and we all have developed negative feelings about advertising and marketing, thinking of obtrusive calls, or ads on websites, etc so we automatically feel negative about it. But this is a good company.
FINISHING UP
Let me remind you first, that I have NO IDEA what our stocks will do next month. I’m terrible on predictions. But I know that the businesses of our companies will do just fine for the most part.
I feel that my portfolio is made up of a bunch of great companies. But that’s just my opinion, and I can’t say often enough that I’m not a techie and I don’t really understand what most of them actually do at all ! I just know what great results look like. I figure that if their customers clearly like them and keep buying their products in hugely increasing amounts, they must have something going for them and, as I’ve often said, I follow the money, the results. And I listen to smart people about the prospects of these companies.
When I take a regular position in a stock, it’s always with the idea of holding it indefinitely, or as long as circumstances
seem appropriate, and never with a price goal or with the idea of trying to make a few points and selling. I do, of course, eventually exit. Sometimes it’s after months, and sometimes after years, but I’m talking about what my intention is when I buy.
I do sometimes take a tiny position in a company to put it on my radar and get me to learn more about it. I’m not trying to trade it and make money on it, I’m just trying to decide if I want to keep it long term. If I do try out a stock in a small position and later decide that it’s not what I want, I sell it without hesitation, and I really don’t care whether I gain a dollar or lose one. I just sell out to put the money somewhere better. If I decide to keep it, I add to my position and build it into a regular position.
You should never try to just follow what I’m doing without making up your own mind about a stock. In these monthly summaries I’m giving you a static picture of where I am currently, but I may change my mind about a position during the month. In fact, I not infrequently do, and I make changes in the position. I usually don’t announce these changes until the end of the month, and if I’m busy or have some personal emergency I might not announce them even then. And besides, I sometimes make mistakes, even big ones! Don’t just follow me blindly! I’m an old guy and won’t be around forever. The key is to learn how to do this for yourself.
THE KNOWLEDGEBASE
Since I began in 1989, my entire portfolio has grown enormously. If you are new to the board and want to find out how I did it, and how you can try to do it yourself, I’d suggest you read the Knowledgebase, which is a compilation of words of wisdom, and definitely worth reading (a couple of times) if you haven’t yet.
A link to the Knowledgebase is at the top of the Announcements panel that is on the right side of every page on this board.
For some additions to the Knowledgebase, bringing it up to date, I’d advise reading several other posts linked to on the panel, especially:
How I Pick a Company to Invest In,
Why My Investing Criteria Have Changed,
Why It Really is Different.
Illogical Investing Fallacies
I hope this has been helpful.
Saul