Here’s the summary of my portfolio at the end of June.
As usual, for my own convenience, I am figuring from the last weekend of the month. If you prefer, you can think of it as a four week summary. Monday through Wednesday, the 28th through 30th, will carry over into July, which will thus be a five-week month.
I wrote a month ago that ” the “Sell growth, buy junk!” rotation that we saw for the first 4½ months of the year may finally be over”. It looks like I was correct.
My portfolio finished June at up 16.5% YTD (or at 116.5% from where I started the year. My low in mid-May was 81.5%, so this was a rise of 43% (116.5/81.5 = 1.43) of my entire portfolio in six weeks. It also topped my portfolio’s previous all time high which I had hit on Feb 9th.
Almost every one of our companies has reported excellent growth. In fact, if I look at the nine positions which currently make up my portfolio, their revenue growth rates average up 66% !!! (And if I had counted Lightspeed at its actual “reported” revenue growth, which included revenue from acquisitions, these companies would be averaging 76% year-over-year revenue growth).
With revenue growth averaging 66% or 76%, it’s clear that these companies are doing just fine, irrespective of transient fluctuations in their stock prices.
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. But don’t be surprised at ups and downs along the way.
MY RESULTS YEAR TO DATE
My portfolio closed this month up 16.5% (at 116.5% of where it started the year)! Here’s a table of the monthly year-to-date progress of my portfolio for 2021.
**End of Jan + 2.5%**
**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%**
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, half way through the year, and my portfolio is up 16.5%, compounded on top of last year’s up 233%. That compounds to up 288%, or almost a quadruple since the beginning of last year. (1.165 x 3.333 = 3.883)
HOW DID THE INDEXES DO?
Here are the results year to date:
The S&P 500 (Large Cap)
Closed up 14.0% YTD. (It started the year at 3756 and is now at 4280, up 1.8% for the month).
The Russell 2000 (Small and Mid Cap)
Closed up 18.2% YTD. (It started the year at 1975 and is now at 2334, up 2.9% for the month).
The IJS ETF (The S&P 600 of Small Cap Value stocks)
Closed up 31.7% YTD. (It started the year at 81.3 and is now at 107.1, up 0.7% for the month)
The Dow (Very Large Cap)
Closed up 12.5% YTD. (It started the year at 30606 and is now at 34529, down 0.3% for the month).
The Nasdaq (Tech)
Closed up 11.4% (It started the year at 12888 and is now at 14360, up 4.4% for the month).
These five indexes averaged up 17.6% YTD. At the end of May they were up 15.4%, so they gained 1.9% in June (117.6/115.4 = 1.019), while my portfolio gained 11.9% in June, playing catch-up. In fact, in the last two months the “markets” gained 0.9% and 1.9%, while my portfolio went from down 0.2% to up 16.5%.
So far this year it was the world turned upside down, The IJS (made up of value stocks), which went nowhere in all of the recent years and held the averages back, is still way out ahead, and the Nasdaq (tech stocks) which led the market by far in past years, is now in last place. But this last month the Nas did a little better and the IJS did a little worse, so maybe things are starting to normalize. However, I don’t try to guess the market like that. I just invest in great companies and they take care of themselves.
LAST FOUR MONTHS REVIEW
March was a wild month for me. At one point I was up to an unmanageable 12 positions, having added positions in Etsy and Peloton. However during the month I sold back out of Etsy, Peloton, and the last of my Zoom.
Why? I again decided I’d rather invest in the growth of Data, and the Cloud, which can increase forever, than in the growth of people’s subscriptions which are inherently finite and limited. I’m back down to 9 positions. Here’s how it went this month:
As I developed more confidence in some of my smaller positions, I decided that it made no sense to carry 30% in Cloudstrike, (although it remains my highest confidence position), and to have 22% of my portfolio in Cloudflare, while I had other strong companies in my portfolio with much, MUCH, smaller positions. I cut Croudstrike to a 27% position and Cloudflare to an 18% position.
Their sizes had been 5 to 6 times as large as many of my smaller positions which were also great opportunities, and that big a gap didn’t seem to make sense.
I also cut my Snowflake position in half, down to 3.5%, as it seemed that its huge growth was at war with its huge price, and I could see other places I’d like to put my money. Then after they annouced earnings, I was simply awed and I decided I had to be in a company with results like that, and I added some back at $215, and then continued to add more up to a 9.4% position.
I continued to slowly trim Okta. Then Okta made a large acquisition and at first I worried that it made the story more complicated and uncertain. After spending time studying it and reading the conference call, I decided it could turn out to be a really terrific acquisition that would energize and transform Okta. I stopped trimming and added some back, and Okta became about 5% of my portfolio.
And finally, I gradually completely tapered out of Zoom. I was long ambivalent about Zoom. I think that noone currently using Zoom for video is going to quit it post-pandemic, but I don’t think that even Zoom phone will budge the needle. So I had better places for my money and exited.
So what did I do with the money? Well I decided that I had a great group of smaller contenders.
My favorite was Inari, which had grown to a 10.3% position, in 4th place, but well behind my big three. It announced rather spectacular results in March. Its revenue was up 144%, it had gross margins of 92%, it is quite profitable, it just paid off all its longterm debt. It is low capex, and has a form of recurring revenue.
Inari was followed by Snowflake and Okta, at 9.4% and 5.0%, which I have already mentioned.
The remaining three were tightly packed between 4.5% and 4.8% positions. They include Zscaler which just announced results and accelerated revenue growth, again, this time to 55%! Billings were up 71%, RPO was up 68% to $1.025 billion. That’s enormous for a company whose revenue last quarter was just $157 million.
And Twilio which is again reaccelerating, and has been well discussed on the board. Remember though to consider their organic revenue growth (without the acquisition), as they are also digesting a large acquisition.
Finally Lightspeed, which is a cross between an ecommerce play and a recovery from the pandemic play, as it serves a lot of restaurants and hospitality companies as well as regular retail. It announced another acquisition this quarter, which gives it an entry into Australia and New Zealand.
So it was a very busy month for me. To summarize what I did: I took little positions in Etsy and Peloton, and then exited them. I also exited Zoom, all three being companies with huge yoy revenue growth rates during Covid, but with a reasonable likelihood of enormously slower growth rates a year from now.
I reduced my Cloudflare position from 22% to 18%, and my Crowdstrike from about 30% to 27%. I increased my Inari position by almost 50%. I first reduced my Snow position but then built it back to 9.4% which was larger than it started the month. I increased my postions in Okta, Twilio, Zscaler and Lightspeed to where they are all roughly between 4.5% and 5.1% positions. I didn’t make any significant changes in Datadog.
April Back in February, to explain why I had so many positions (eleven), I wrote:
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 siup 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 at that time. (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!!! 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 extraordinaily 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.
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.
**Lightspeed from 58.15 to 84.19 up 44.8% buy in May this time**
**Cloudflare from 75.99 to 104.84 up 38.0%**
**Upstart from 92.20 to 122.20 up 32.5% buy in Apr**
**Crowdstrike from 211.82 to 253.70 up 19.8%**
**Zscaler from 186.70 to 218.84 up 17.2% buy in May this time**
**Docusign from 240.05 to 279.20 up 16.3% buy in June**
**ZoomInfo from 47.34 to 53.85 up 13.8% buy in Apr**
**DataDog from 98.44 to 106.06 up 7.7%**
**Snowflake from 281.40 to 247.09 down 12.2%**
Great buys:
Lightspeed is up 45% just since I bought it in May,
Upstart is up 32.5% since my first buy in April,
Docusign is up 16% just since I bought it in June, this month.
Not so good:
Snowflake is down 12% ytd, and somewhat holding back my portfolio, which is up 16.5% so far this year.
A positive surprise:
Cloudflare is up 38% year to date, although it’s just “plugging along” at “just” 51% growth .
All-time highs this week
Cloudflare
Crowdstrike
Docusign
Lightspeed
POSITION SIZES
I now have nine positions and that’s about the upper limit of what I can deal with. I have very large (16-20%) positions in Crowdstrike, Cloudflare, and Datadog, then good sized (10-12%) positions in Upstart, Snowflake, and Lightspeed, and the six of them make up 88% of my portfolio. Then 4-7% positions in Zscaler and Docusign, and a tiny 1% position in ZoomInfo.
Here are my positions in order of position size, and bunched by size groups.
**.**
**Crowdstrike 19.7%**
**Cloudflare 17.9%**
**Datadog 16.3%**
**Upstart 12.2%**
**Snowflake 11.7%**
**Lightspeed 10.1%**
**Zscaler 6.8%**
**Docusign 4.5%**
**ZoomInfo 1.1%**
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 what I’ve done during the month about the stocks, and why, you may want to look in the LAST FOUR MONTHS REVIEW (above)
Crowdstrike was the only one to report results this month.
Crowdstrike is still my largest and highest confidence position at 19.7% of my portfolio. It is a security company built entirely on the cloud which started out securing endpoints, but now is expanding into many other aspects of security, and seems to be heading towards being one of the world’s dominant security companies. A key advantage it has is its AI. When it detects an attempt at an intrusion in one of its customer clients it instantly flags and stops that intrusion in that customer, but at the same time stops that intrusion from occuring in each and every one of its customers, pretty much instantly. It has a record of everything that has ever been tried on any of its customers so it keeps increasing its knowledge base. That’s a Wow! Feature, and no on-premises firewall company can come even close to what it does.
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.
• 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.
• 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 in 2nd place in my portfolio at 17.9%. 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.
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, or ARPU, 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 in 3rd place. It’s a 16.3% 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. 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 12%, even though I sold a quarter of my position 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.
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 came from 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**
**64 17 65 87**
**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 57% (from 2020’s $233 million), and they certainly expect to raise that several times as well.
What’s new? They just 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. 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 now a 11.7% position and in 5th place in my portfolio. Many 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. 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.
For the last fiscal year, free cash flow was -12% of revenue, up from -75% last year, 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 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 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 it’s currently a 10.1% position in 6th place.
Zscaler was a position that I took back in May. It is in 7th place and a 7% position. I will try to write more about it in my write-up next month, but there has been a lot written about it on the board.
Docusign was a new position again in June. It is in 8th place with a 4.5% position which I took after earnings. I wish I had taken a bigger one before earnings.
ZoomInfo. is in last place at a 1.1% position. I just don’t know what to make of this company. 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 (or from me, apparently).
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.
The trouble I have is that almost every time I want to add to another company I sell some Zoom nfo to raise money.
Here are the results of the March quarter reported in May. ZoomInfo reported another spectacular quarter:
It’s 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.
The ZoomInfo 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. We’ll have to see what happens.
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