My portfolio at the end of September 2018
Here’s the summary of my positions at the end of September, which was a fairly tough month for our stocks. This month ended on a Sunday, so you get a full month’s worth. Note that I almost always use adjusted figures when the company gives them.
I have stocks in a small group of remarkable companies, in which I have high confidence for the most part. I feel that they mostly dominate their markets or their niches, are category crushers or disruptors, and that they have long runways, and will have great futures. I wrote up their stories in August in my post called Category Crushers and my portfolio, post #45099, http://discussion.fool.com/category-crushers-and-my-portfolio-33… . As that’s a way back now, I’ll give you an updated version in this post.
I’m sure that you understand that my results are ridiculous and embarrassing and it’s very hard to discuss them without seeming to be bragging, in fact without actually bragging. That makes me uncomfortable but it is what it is, so I’ll go ahead and brag.
As you know, last year (2017) was an extraordinary year in which I finished up 84.2%. At the end of the year I begged everyone not to expect that this year would be anything like that. I’ve kept saying that each month this year, but our stocks keep going up in spite of my warnings, and in fact my portfolio is way, WAY ahead of the 65% that it was up at the end of September last year. In fact, it’s actually ahead of that 84% I finished last year with, and it’s only the end of September!!!
This month, September, my portfolio closed at the remarkable result of up 86.8% for the year so far, but up just 0.8% for the month. However, if you consider my results since the beginning 2017 to today, my whole portfolio has well more than tripled so far in a year and eight months! It’s actually at 344% of where it started 2017. That’s beyond remarkable, it’s ridiculous!
In words instead of percentages, it means my portfolio has grown to almost three and a half times where it started just over a year and a half ago. (You can check the calculation with a little hand calculator: 1.842 times 1.868 equals 3.44, or 344% of where it had started).
To quickly summarize:
So far this year my portfolio is up 87%%
For the trailing 12 months it is up 109%
Since January a year ago it is up 244%
Please keep in mind that those results were without leverage, just investing in ordinary stocks, no margin, no penny stocks, nothing oddball. Yep, stock picking doesn’t work. There are books written that prove it .
It wasn’t a straight line during the month. Far from it! Two and a half weeks ago I hit a top of up 96.2%, and six trading days later I had “fallen” to be up “only” 81.2%. Then, in the last week and a half, my portfolio worked its way back up to the current close of up 86.8%.
The three indexes that I’ve been tracking against closed Friday as follows. The results are given from Jan 1st to date. I’ll also tell you how they did during the month as my portfolio barely budged:
The S&P 500 (Large Cap)
Closed up 8.6% for the year. (It started the year at 2684 and is now at 2914). It was up 0.5% for the month.
The Russell 2000 (Small and Mid Cap)
Closed up 10.1% for the year. (It started the year at 1542 and is now at 1697). It was down 2.8% for the month.
The IJS Small Cap Value ETF
Closed up 8.7% for the year. (It started the year at 153.6 and is now at 172.8). It was down 3.8% for the month.
These three indexes
Averaged up 9.1% for the year so far. And if you throw in the Dow, which is up 7.0% and the Nasdaq, which is up 16.5%, you get up 10.2% for the five of them. That means my portfolio is not only beating the indexes but is up eight and a half times as much as the indexes.
Why do I use these three indexes? Well, they give me 500 large caps (the S&P), 2000 small and mid caps (the Russell), and 600 small cap value stocks (the IJS), which combined ought to give me a very representative set of standards to compare against. I’m sure some people will say “Why not drop this index and add that one?” but these are the three indexes I compare against currently, and I will probably continue to do so. I think they give me a pretty good approximation of how the market overall is doing. The last four months I’ve thrown in the Dow and the Nasdaq as well, so as to hit all the major indexes. I may continue to do that.
(The averages would be very slightly higher if you use the S&P with dividends added, but I’m continuing to use the straight values for consistency with past results. I consider the roughly 0.1% per month that the average of the three indexes would be changed by including S&P dividends to be irrelevant considering the magnitude of the differences between our results and the results of the indexes.)
The skeptics visiting our board have said, “Anyone can be a genius in a raging Bull Market!” Raging Bull Market??? The three indexes I follow are up an average of 9.1% so far this year. Last year they were up 14.4% on average. If we combine the two years together, the indexes are up all of 25% while many of us are up well over 200%. It’s hard to explain a 244% gain as being due to the market being up 25%, or my 87% gain this year as due to the markets being up 9%. Think of it this way: in the month of August alone my portfolio tacked on 31 points (from up 55% to up 86%), while the markets, as a whole, have tacked on just 10 points in nine months!
How can we explain the disparity between our results and the averages? I have to say again that we seem to have caught a secular wave, in which our companies are exploding in function and importance as well as in revenue, which is mostly recurrent. It’s the wave of big data, the cloud, artificial intelligence, and all the rest. I had some big winners outside of that area, but it’s been that big wave that has carried us. And, I just want to remind you all that in general, most of our companies are built for the cloud from the ground up, and they provide the picks and shovels for enterprise companies switching over to the cloud.
One or two chronic critics on the board have said I shouldn’t compare against the market, but should compare against indexes of Cloud and Internet-based stocks because they are closest to what ours are like. I think that that is fallacious and ridiculous. I compare against The Market, meaning all the companies out there that people invest in. I don’t compare against the stocks that are already in my portfolio … …or against stocks that are just like the stocks that are in my portfolio, which amounts to the same thing, and which is what these critics are saying I should do. What would be the sense of that? You can only know to compare against indexes of stocks like mine when you already know what I’ve already invested in, and know how well they have done, and then look backward to figure out some index close to my stocks. What nonsense.
I’ve been comparing against the S&P (“The Market”) since I started this board in Jan 2014, over four and a half years ago, years before I ever invested in a stable of SaaS related stocks. I’ve compared against The Market irrespective of what my stocks have been. They’ve included companies in fields as varied as banking (Bofi, Signature Bank, First Internet Bancorp, and others), biotech (Celgene, Kite and Nektar), real estate (LGIH), a gas station and general store chain (Casey’s General Stores), a 3-D printing company (Arcam), medical device firms (Abiomed, Intuitive Surgical), some solar companies (SolarEdge, Solar City), an electric car company (Tesla), etc, etc. My goal will always be to make money to support my family, and not to beat some index made up of a collection of stocks that’s almost the same as the ones I happen to be in at the moment. That is just so silly as to be laughable.
To simply restate my goals, I’m trying to measure my performance against that of the “average return for an investor in the stock market,” not the return of someone who is smart enough to invest in the same stocks I’m in, or the same “kind” of stocks I’m in. It’s as simple as that. I never guarantee to be in the best stocks in my category. I’ve always said there will always be stocks that will do better than mine (or yours). I just want to make a good rate of profit, and a better one than the market as a whole is producing. I never expected to triple my money in two years. It just happened.
Let me remind you that I’m no good on timing the market, and I don’t try. If I did, I would probably have exited all my positions at the end of April 2017, when I was up 26% in four months and was “aware” that “it couldn’t continue” like that. At that time, in just four months my results had already dwarfed those I had in the entire years of 2015 and 2016, so back then at the end of April 2017, up 26% seemed like a ridiculously enormous amount to be up in just four months, and my stocks seemed way “over-bought.”
I continue to believe that intelligent stock picking with a modified buy-and-hold strategy can beat any index or average? How could it not? When an “average” is just that: an average of good, mediocre, and poor companies?
Here’s a little table of the monthly progress of my results so far this year:
**End of Jan +16.9%** **End of Feb +21.4%** **End of Mar +29.1%** **End of Apr +25.8%** **End of May +38.3%** **End of Jun +44.3%** **End of Jul +55.3%** **End of Aug +86.0%** **End of Sep +86.8%**
The stocks I’m still in since the beginning of 2018 are Alteryx, Nutanix, and Square. They include two of my top three positions, they make up 42% of my current portfolio, and they are up an average of 111% year to date, despite Nutanix’s fall off.
Current positions added since the beginning of 2018 have been:
**Jan - Twilio, and Okta.** **May – MongoDB** **Jun - Zscalar** **Jul - New Relic** **Aug - Wix and PayCom** small positions
Sep - Arena Pharm
Here’s a last four months review:
June I sold out of the remainder of my Arista early in the month… I was reducing Nektar all month, but planning to keep a token position, but sold out of the last of it at the end of June to buy Zscalar… I took a small position in Wix early in June, but sold it back in the same month, to buy Zscalar… I reduced Pure Storage to buy Zscaler.
July I took a small position in New Relic… I continued to reduce my position in Pure Storage, and coincidently it was the only one of my stocks that was down in July… I also trimmed a little bit of Pivotal… I kept building my position in New Relic, and added to Zscaler as well… I have also segregated away a certain amount of cash.
August I had reduced my Shopify position gradually over a couple of months but it was still one of my major positions. However, in early August I sold out of it in shock when their rate of revenue growth, which had been falling every quarter, precipitously fell in a quarter when the economy was very strong and in which Square, in a market quite similar, had huge results, following on top of accelerating rates of growth in all the quarters where Shopify had decelerating rates of growth. My average sale price for Shopify was about $145, about 537% of my initial purchase price which was $27, two years before. If I look back to my End-of-July post, Shopify was at $160.15 and Square was at $69.85. Shopify is now at $164.80, up 3% for the nine weeks, and Square is at $99.01, up 42% for the nine weeks.
I also decided to sell my small position in Pure at about $22.50, and I trimmed Nutanix a little (it’s still a 8.7% position), and trimmed Pivotal a little. (it had never been a very large position). … I put the money from these various sales and trims mostly in Twilio, Square, Zscaler and New Relic, and a little in Alteryx and Okta, and started small positions in Wix and PayCom, inspired by Bear’s enthusiasm for them over the months…
September. This month I sold out of Pivotal when it had a disappointing and confusing conference call. Many others said they did the same independently. It’s been discussed at great length so I won’t go into it, except to say that I sold out at about $22.00 and it’s now at $19.58, down 11% further. Just because it had already fallen quite a bit to $22 didn’t mean that it was a bargain.
I tried out a little (under 1%) position in Nvidia again, but didn’t hold it for more than two days, I think it was. I bought a starter position in Arena Pharma, not knowing much about it, but relying on Bulwinkle who seems to know quite a bit about it.
And, as I wrote the last two months, I have segregated away a certain amount of cash. Why? You ask. Well, I’m getting not only older, but old, and there’s a limit to the amount of years I have left to live. I want to have enough set aside for my family. I can also cover our living expenses more easily as we live a reasonably simple life. And besides, it’s too much work for an old guy.
Here’s how my current stocks have done in the first eight months of the year. I’ve arranged them in order of percentage gain. 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.
**Twilio from 25.70 to 86.28 up 235.7%** **Square from 34.67 to 99.01 up 185.6%** **Okta from 29.95 to 70.36 up 134.9%** **Alteryx from 25.27 to 57.21 up 126.4%** **MongoDB from 43.48 to 81.55 up 87.6%** **PayCom from 120.20 to 155.41 up 29.3% (new in August)** **Wix from 96.3 to 119.7 up 24.3% (new in August)** **Nutanix from 35.28 to 40.78 up 21.1%** **Zscaler from 35.84 to 40.78, up 15.6%** **Arena from 41.60 to 46.02 up 10.6% (new in September)** **New Relic from 102.00 to 102.76 down 7.6%**
It’s hard to believe what some of these stocks are doing.My recent big stars have been:
Square, up 156% this year so far, and more than quintupling in price since I bought it at $17.50 just a year and six months ago, in March of last year.
Twilio and Okta, up 236% and 135% from when I bought them in January, just over eight months ago.
Alteryx, up 126% this year so far.
Exited positions this year showing my gain or loss from the beginning of this year, or from when I first bought if it was during the year, and my average exit price.
**Shopify from 101.0 to 145.0 up 43.6%** **Pure from 16.72 to 22.50 up 34.6%** **Nvidia from 193.5 to 248.0 up 28.2%** **Nektar from 59.7.0 to 76.0 up 27.3% 1st time** **Talend from 37.48 to 47.50 up 26.7%** **Hubspot from 88.4 to 108.0 up 22.2%** **Arista from 235.60 to 274.0, up 16.3%** **Pivotal from 19.18 to 22.00 up 14.7%** **MongoDB from 38.00 to 43.50 up 14.2% 1st time** **Wix from 102.5 to 98.1 down 4.3% 2nd time** **Mime from $32.34 to 30.85 down 4.6%** **LGIH from 75.0 to 71.0 down 5.3%** **MongoDB from 41.00 to 38.65 down 5.7% 2nd time** **Wix from 69.2 to 61.8 down 10.7% 1st time** **Nektar from 103.0 to 54.0 down 46.6% 2nd time**
Well-intentioned people have been warning us constantly that another bear market and/or recession is coming. “The bull market is too old.” or “The market is too high.” or “This technical indicator proves the market is in a bubble.” All of their charts and indicators proved it in 2010, 2011, 2012, 2013, 2014, 2015, 2016, and again last year in 2017. I’m hearing convincing stories about bond yields now foretelling a crash, and interest rates rising. The only trouble is that I’ve heard similar convincing stories about other technical indicators every year. Eventually they’ll be right, and they will say “See! I was right all along!” They may be right now! I certainly don’t know.
Of course a marked correction or bear market will come eventually.They always do. And rising interest rates, tariffs, and trade wars do eventually stop market rises. Look, the next Bear Market may have started two weeks ago for all I know! But we never really know when. And what a price those people have paid by “keeping their powder dry” and staying out of this market for the past nine years, waiting for the big correction that never came.
Picking good stocks makes much more sense than trying to pick good stocks AND trying to time the market too. Just my opinion.
Now let’s look at my position sizes. I’m still trying to keep my portfolio concentrated and streamlined. I’m now at 11 positions, 9 of which make up 95% of my portfolio, and the other two are small positions that I’m just getting comfortable with. By the way, keeping my number of stocks down really makes me focus my mind and decide which are really the best and highest confidence positions. Here are the 11 positions in order of position size. Note that Alteryx and Twilio positions are larger than I usually like, but they are very high conviction Category Crushers.
**Twilio 17.9%** **Alteryx 17.2%** **Square 16.8%** **Zscaler 10.3%** **MongoDB 9.0%** **Okta 8.3%** **Nutanix 7.6%** **New Relic 6.1%** **PayCom 3.1%** **Wix 2.7%** **Arena 1.0%**
My three top stocks are Alteryx, Twilio and Square. They are by far my largest positions. Alteryx and Twilio are each over 17% of my portfolio (mostly because they were already my first and second positions when they each announced great results and bounded ahead in price). They are both small companies but in my opinion they have each created their market categories and each dominate the market they are in with no credible competition (except do-it-yourself). I’d have to call both of them Category Crushers. I wouldn’t recommend to anyone to have 35% in two stocks, but that’s the way it is.
Square was a little further behind them last month, but even though Alteryx and Twilio increased their percentage of my portfolio this month, Square gained ground on them and now makes up 17% of the portfolio.
Let me take Alteryx first. What they do is to enable non-techies to quickly and easily analyze data. Their clients therefore love them. Their revenue percentage growth looks like this:
**2016: 57 67** **2017: 61 50 55 55** **2018: 50 54**
That looks solid as a rock to me. Their adjusted gross margin last quarter was 90%, up from 84% a year ago. 90% gross margins!
Their deferred revenue at the end of the year the last four years, in millions of dollars, has gone: 29, 44, 71, 114…. Take a good look at that!
Their dollar based net retention rate has been over 130% for the last seven quarters. Before that it was in the 120’s, so it’s improved with age and size.
Their number of customers, 3940 at their last report, is more than quadruple the number of customers that they had three years ago.
The number of shares grew only 4% from a year ago, which is remarkable for one of these super fast growing companies.
They feel they have no competition. Here’s from the conference call: We’re really the only general-purpose data science networks platform on the market today.
I have no new news on Alteryx this month. I still feel very justified in calling it a Category Crusher, with very high confidence level. I’d give it six confidence stars out of six.
Next Twilio. They provide communication services and they seem to have no viable competition in what they do besides do-it-yourself. One company, Uber, who had been a big customer, decided to do-it-themselves, which caused weak year-over-year revenue growth comparisons over the past year. That is, if you can call 40% revenue growth weak…that was the lowest yoy comparison, in the December quarter… Revenue growth is now back up to 54% and climbing. It always stayed above 60% year-over-year growth if you excluded Uber. They hit adjusted profit this last quarter unexpectedly, and will probably be profitable for the year. Their dollar-based net expansion rate was 137% including Uber, and 145% excluding the effect of Uber’s withdrawal.
They had a euphoric conference call:
… If you actually look at Base Revenue growth excluding Uber, that was in the mid 60% range, and that number has been in the low and mid 60% range over the last eight quarters, so as we scale this business we maintain consistently high revenue growth…
… I think that that means there’s a runway for us for many, many years to be replacing old legacy technology… I think there is going to be no shortage of opportunity for us to do that for years to come.
They are also euphoric about their new Flex call center product, for which the beta was oversubscribed.
…we’re targeting some of the most demanding contact centers that are out there, some of the largest with the most customer-issue requirements of the contact center market… and so as we work with customers we’re not trying to be the lowest cost transaction out there, we’re trying to provide very sophisticated solutions for some of the most demanding customers that are out there.
Clearly another Category Crusher and very high confidence. I’ll give it six stars as well. Actually I think of each of these two companies as juggernauts. They are each a one-of-a-kind company. Each controls its space and is growing like mad.
Square is next and makes up 16.8% of my portfolio, up from 15.0% a month ago. It has so many moving parts, in so many markets, that various pieces of it could be Category Crusher or Category Leader or Disruptor, or Rapidly Growing Company in… Well, you get the idea. It’s like the blind men with the elephant.
Square’s total revenue has grown year-over-year by 39%, 41%, 45%, 47%, 51%, and 60% in its last six quarters. Yes, you read that correctly! Instead of revenue growth returning to the mean (whatever that means) the rate of revenue growth has increased each quarter. Extraordinary.
How is that happening? It’s because its Subscription and Service Revenue which is its high margin revenue, the good stuff, is growing at about 100% (last six quarters it’s grown year-over-year by 104%, 97%, 86%, 98%, 98%, and finally 131% (!) last quarter.
They’ve been adjusted profitable in 2016 and 2017, and 2018 so far… and profits are growing. This month they’ve had a number of analyst upgrades, which are pretty meaningless, but one of them apparently said that Square should be added to the FANG group. We also learned that Square’s Cash App passed PayPal’s Venmo in total downloads (which was a big surprise for most of us. I almost thought it was a misprint at first, but for verification, this month PayPal fired their Venmo chief, for what I think is the second time in less than a year. Square also released Square Payroll App this last week.
I’ll call them a Rapidly Growing Company in a Rapidly Expanding Market, and I’ll rate them five confidence stars out of six. And by the way, I added small amounts to each of Alteryx, Twilio, and Square this month when I sold out of Pivotal. Good choice, overall.
Zscaler is next at 10.3% of my portfolio. It’s a lot smaller than the first three, but I’ve been building my position gradually. This company has an interesting, innovative and revolutionary idea in Internet security (and insecurity). They feel that putting a hardware firewall around a company doesn’t work anymore, now that the enterprise company is partly in the cloud and people can sign in from anywhere, and sign on to other outside programs from within the enterprise. Zscaler provides native cloud-based security, and as far as I can tell they are far and way the leader in this, if not the only player. They have 100-plus data centers all around the world, which would be almost impossible for a competitor to replicate. Zscaler has been building them out and operating them for ten years. It is growing revenue at 50% and growing billings at higher than that. Their adjusted net loss is 5% of revenue. (Compare that with Mongo’s loss of 45% of revenue, a little further down the page!) Zscaler sounded pretty euphoric too, in their conference call:
Zscaler delivers advanced security and policy enforcements, no matter where the users are, connecting users to the nearest Zscaler data center, hence taking the shortest path to the application…
…We believe we are the solution to secure the cloud-first, mobile-first, world. We have 10 years of operational experience running our security cloud at scale. We process in excess of 45 billion internet requests per day during our peak periods. Each day, we detect and block over 100 million threats and perform more than 120,000 unique security updates. This cloud effect delivers far superior security than traditional appliances for all of our customers… We feel the world is coming towards us!
In my opinion they are a Disruptor and a Category Crusher, and a juggernaut like Twilio and Alteryx. The traditional security providers can’t compete with Zscaler because their businesses are built around high-priced hardware and firewalls, and they don’t have the data centers all over the world that Zscaler has. I’ve been building my position gradually. I also added a small amount to Zscaler this month, and I give it a five out of six confidence rating.
MongoDB has pretty much invented its solution and category, although it does have competition. It’s the leader in NoSQL data storage and it this last quarter its revenue growth accelerated to 61% from 51% the year before. It has chosen to put almost all its money into growing, and thus its adjusted loss was about 37% of revenue, which is why I only gave it a 4 out of 6 confidence rating, although that loss is down from a loss of 65% of revenue the year before. Mongo is about a 9% position.
I know that Bert likes it, and the MF likes it, and that Mongo has come out with Atlas which gives it a fully managed cloud solution, and that Steppenwulf said MongoDB is the story of 30 year old technology (SQL) being replaced by more modern technology. This story is only tangentially about the cloud - with or without the cloud, the amount of data is exploding and old technology can’t handle it….
Bert wrote: MongoDB reported a simply monster quarter… if I owned it, I would just leave it alone… Investors in high-growth IT names are ultimately going to have to own MDB, unless it gets bought by a legacy rival. It is just a question of when and how much.
I’ll call Mongo a Disrupter, a Category Leader, and a Big Data New Market Stock.
Okta is next and is an 8.3% position. I had rated it at the three star level in my Category Crusher post because I felt at the time that I didn’t know enough about the tech to tell whether they could be replaced by someone like Zscaler. I’ve since learned, through Puddinhead’s and Brittlerock’s great posts https://discussion.fool.com/more-importantly-i-just-can39t-wrap-… and https://discussion.fool.com/bear-you39ve-asked-a-simple-question… and others, that they are complementary and not really competing companies. I would suggest that if you are invested in Okta or Zscaler you read those enlightening posts. What Okta does is control individual sign-on to all the apps you use using a native cloud SaaS platform. It’s called identity and access management. It is loved by the people who use it, because they no longer need a million passwords for each program they sign on to. It only has one real competitor, Sailpoint, who it turns out can only really compete for on-premises projects.
Okta is growing revenue at 60% and its net loss is down to 11% of revenue. It seems to be in command of its own future.
This is a Disruptor and Category Leader, and a Cloud-based New Market Stock. I’d give it four confidence stars (and rising). I added a trivial amount during the month.
What does Nutanix do? Damned if I know. To quote from the MF: “Nutanix’s Enterprise Operating System enables a data center filled with hardware, storage, and networking, to behave as if it were a public cloud like AWS.” Doesn’t really clarify it enough for me, but it sounds impressive though, I have to admit. There has been a lot of discussion on the board of what they do, and I have nuggets copied to my notes, which make it clear when I read them, but I forget five minutes afterwards. It’s the numbers that I understand:
Nutanix is phasing out the zero-margin pass-through hardware that they had been counting in revenue in the past. This makes revenue comparisons a bit complicated and obscure. At any rate their deferred revenue in millions of dollars, at the end of the June quarter these last three years was: $172, $332, $540 million. You read that right! Subscription revenue this last quarter was up 55%, and Subscription billing was up 67%. Those are some pretty impressive percentages.
I know that they are part of a duopoly in the space they are in, with VMWare (a piece of Dell, like Pivotal) being the other player. As I understand it, VM mostly converts prior Dell customers and Nutanix goes out and finds new ones. I also believe that Dell is a partner with Nutanix, as is Google and Microsoft. I could safely put Nutanix down as a Rapidly Growing, Big Data, New Market Stock. They are at 7.6% of my portfolio. Oh, and in June they won a $30 million contract with the US Air Force, the largest contract in their history.
My thoughts about Nutanix’s results are the same as those of Bert and others: the results were misunderstood by robo-analyzers. They were great results! Let’s look at some more figures:
Gross revenue was just up 20% from last year, but that’s only because they weren’t counting $95 million of hardware that would have been counted in the same quarter last year. Put that back in for an apples-to-apples comparison, and revenue was up 58%!
Subscription revenue was up 49% as reported, which is the future of the company.
Deferred revenue is huge (more than twice as large as the quarter’s entire revenue) and was up 71% yoy!!! Yes, up 71%. And up 17% sequentially.
Subscription billings were up 66%.
Free cash flow was positive $6.5 million, up from negative $6.5 million a year ago.
For the fiscal year ending this quarter, Free Cash Flow was positive $30 million up from negative $36 million a year ago!!!
Operating cash flow was $23 million up from $6 million yoy.
For the fiscal year ending this quarter, Operating Cash Flow was $93 million up from $14 million a year ago!!!
Is there anyone left who doesn’t think that this was a blow-out quarter?
Adjusted Net Loss was 6% of revenue, improved from 10% of revenue a year ago.
Customers were 10,600, adding 1000 new customers in the quarter. Note that’s not in the year, that’s in the quarter.
I’ll give Nutanix three confidence stars, only because of its complicated situation. I added a fair amount to my position during the month but a week ago I decided that I have enough and will wait and see what happens. I would have bought more but I had no available cash and I didn’t have any larger positions I wanted to trim, and I didn’t want to trim my smaller positions as I wanted to let them grow.
New Relic is a relatively new position, and only 6.1%. It has four stars of confidence because I don’t have much experience with it, and because it’s growing a little slower than the others, but confidence and position size are growing.
What does it do? To quote Bear, New Relic monitors web and mobile applications in real time, detecting issues before they become problems, and helping companies figure out where the pain points may be before it costs them sales, or even customers.
This is called the APM space (or the Application Performance Monitoring space). They are adding NPM (or Network Performance Monitoring), and they have developed a realtime Dashboard. APM didn’t use to be very sexy, but with the rise of the cloud, people in your enterprise may be using all kinds of applications, including ones that are on the web and in the cloud. APM is becoming much more important for enterprise companies. To quote the MF:
New Relic makes software that ensures that everything behaves the way it should whether applications are in the cloud, on premises, or part of a hybrid system. As a pioneer of what it calls Application Performance Management (APM), it allows companies to see what’s working, what isn’t, and why. That’s important for making sure your back-office systems function the way they should, and it’s critical for understanding your customers’ experience… New Relic is a “land and expand” business. While older APM software tends to be expensive and difficult to use, New Relic’s platform works entirely in the cloud, making it easy to add new applications. It’s also cheap.
How are they doing? They grew revenue at 35% last fiscal year (ending in March). That was amazing by old standards, but it’s lower than most of my other companies. However, earnings per share are something else again:
At the end of June 2016 their TTM earnings were minus 84 cents.
At the end of June 2017 their TTM earnings were minus 38 cents.
At the end of June 2018 their TTM earnings were plus 23 cents.
Read that again! APM may not be sexy, but that sequence is!
Their adjusted gross margin is 85% which isn’t bad either.
Their TTM adjusted Free Cash Flow margin has gone from minus 56% to plus 11% in five quarters.
Their adjusted Op Margin percent has gone from minus 44% to plus 8% in the same five quarters.
I’d call them a Category Leader and a company that took an old space that was going nowhere and turned it into a cloud based New Market space.
Paycom and Wix which I started just last month are still small at 3.1% and 2.7% positions, and I’d consider them three confidence star positions, but they are growing. They were two stars last month.
Here’s an interesting news item from Paycom: Named the 5th fastest-growing company on Fortune’s 100 Fastest Growing Companies List. Now in its second year on the list, Paycom landed above notable technology companies such as Facebook, Amazon and Netflix. It placed 2nd a year ago.
Each company’s overall rank was determined based on three areas of performance over a three-year period, ending June, 2018:
average annual revenue growth; average increase in earnings per share; total stock return.
Their revenue was up 31% last quarter and Adjusted EBITDA was up 46% and made up 41.5% of total revenue. As opposed to some of our other stocks, they’ve already reported $1.54 in adj earnings for the first six months of the year.
Wix is growing revenue in the mid-40% range. Their Free Cash Flow is 16% of revenue. In the trailing four quarters their adjusted earnings were positive 51 cents, up from a loss of 15 cents the year before. Bear has them as his largest position as I remember it, and feels they are turning into a cash machine.
I have a tiny 1.0% position in Arena Pharma, as I mentioned above.
I feel that most of 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 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.
Finishing up. 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 just try to follow what I’m doing without making up your own mind about a stock. In these monthly summaries I’m giving you a static picture of where I am currently, but I may change my mind about a position during the month. In fact, I not infrequently do, and I make changes in the position. I usually don’t announce these changes until the end of the month, and if I’m busy or have some personal emergency I might not announce them even then. And besides, I sometimes make mistakes, even big ones! Don’t just follow me blindly! I’m an old guy and won’t be around forever. The key is to learn how to do this for yourself.
Since I began in 1989, my entire portfolio has grown enormously. If you are new to the board and want to find out how I did it, and how you can try to do it yourself, I’d suggest you read the Knowledgebase that Neil keeps for us, which is a compilation of words of wisdom, and definitely worth reading (a couple of times) if you haven’t yet.
I hope this has been helpful.
For Knowledgebase for this board,
please go to Posts #17774, 17775 and 17776.
We had to post it in three parts this time.
A link to the Knowledgebase is also at the top of the Announcements column that is on the right side of every page on this board.