My portfolio at the end of Sept 2019 Part 2

STOCK REVIEWS

As I said above, my largest positions are Zscaler, and Alteryx. They are both small companies but in my opinion they each dominate the market they are in with little credible competition (except do-it-yourself). I’d have to call the two of them Category Crushers, and juggernauts.

Alteryx is now at 22.0% of my portfolio, and in first place. What they do is to enable non-techies to quickly and easily analyze data. Their clients therefore love them. They changed accountants near the end of 2018 because their accountant, Price Waterhouse, was reselling so much Alteryx software to their other clients, that they could no longer consider it non-material, and wanted to avoid any appearance of conflict of interest. They were happier having Alteryx as a valued technology partner than keeping it as just one more accounting client.

When Alteryx announced December quarter results, they prepared us for their forthcoming change from ASC 605 to the new standard 606. First I’ll give you the 605 results for comparability to previous quarters. their revenue percentage growth looked like this:


**2016:          57  67**
**2017:  61  50  55  55**
**2018:  50  54  59  57**

That looked solid as a rock to me. However the change to the new accounting system confused things as it involved more revenue being recognized upfront, and therefore less in subsequent months.

Going on to the next two quarters it looks like this:


**2016:          57  67**
**2017:  61  50  55  55**
**2018:  50  54  59  57**
**2019:  51  59**

As you can see, it still looks solid as a rock. Revenue not only is growing, but the rate of growth is growing.

Their adjusted gross margins were 90% and 91% for the last two quarters!

Their dollar based net retention rates were 134 and 133.

Their number of customers, which is almost triple the number of customers that they had three years ago, was up 35% and 34% yoy.

They feel they have no competition. From one of their earlier conference calls: “We are in a space where there’s little to no competition and a much larger TAM.”

We’ve had some discussion on the board about whether Alteryx is really a SaaS company, since it’s not on the cloud, and whether or not it really matters as its revenue is recurring and its net expansion rate is 134%.

Here’s a paraphrase of Ethan’s post from the Analyst Day in June.

AYX has a Net Expansion Ratio of 134% overall, but 143% with global 2000 customers which is pretty crazy.

Customers with over $500,000 annual recurring revenue (ARR) have a 70% increase per year!!! That is an insane number. Customers with over $1,000,000 have a 50% increase.

They list their growth drivers as.

Land and expand
International
Channel and partner ecosystem
Community expansion and extension
Innovation

They really harped how Alteryx simplifies and automates complex processes They identify their ease of use as the number one reason people choose Alteryx. If you look at the Gartner peer review website you will see similar things in the reviews.

Long term goals are:

Gross margin 90-92%
Operating Margin 35-40%
FCF Margin 30-35%

….Zero concerns here about their business model, operating leverage, and execution at this stage.

The stock finished 2018 year up 135% for the year, but they’ve gone straight up this year as well until this month. I feel very justified in calling Alteryx a Category Crusher, with very high confidence level. I’d give it six confidence stars out of six.

Actually I think of both Zscaler, and Alteryx as juggernauts. They are each a one-of-a-kind company. Each seems to control its space and is growing like mad.

Zscaler is my second largest position at 18.8% of my portfolio. Here’s my take on that earnings report which added to their big sell-off.

“We are excited to welcome Dali Rajic as our new President of Go-to-Market and Chief Revenue Officer. (Saul: the guy they hired is apparently a real superstar in what he does! A great hire!)

• Revenue up 53% $86 million

• Billings up 32% to $126 million (Weak, but they warned of a tough comparison)

• Deferred revenue up 53% to $251 million

• Adj net income of $9.1 million up from a LOSS of $1.4 million

• Adj Op Income was $7.9 million, or 9% of revenue, up from a LOSS of $2.4 million, or 4% of revenue, a yr ago.

• Adj EPS was 7 cents, up from a LOSS of 1 cent a year ago.

• Op Cash Flow was 21% of revenue, down from 26% a year ago. Free cash flow was 9% of revenue, down from 21% a year ago. [They fell back on Cash Flow but remained positive]

• Cash of $365 million , up $66 million yoy.

Full Year Fiscal 2019

• Revenue: $303 million, up 59%.

• Op Income was positive 8% of revenue, up from a LOSS of 8% of revenue, last year.

• Adj net income was $30 million, improved from a LOSS of $14 million a year ago.

• Adj EPS was +22 cents, up from a LOSS of 13 cents.

• Op cash flow was 19% of revenue, up from 9% of revenue a year ago.

• Free cash flow was 10% of revenue, up from 1% of revenue a year ago.

Saul: My Take: The numbers were great except for the quarterly billings, but people were really worried about guidance and the stock sold off a lot.

Austin pointed out that they guided low a year ago too:

I was a bit worried about the 32% guidance for FY 2020… this is really no different than what they did in a year ago. They just guided for revenue up 32% for the fiscal year, BUT a year ago they guided for this year’s revenue up 34%, and they finished up 59% !!! I think ZS’ future is very bright with a lot of disrupting of legacy providers ahead. It seems like PANW is very scared and worst-case scenario, I think someone like MSFT would acquire ZS in a heartbeat (hope that doesn’t happen)

I (Saul) responded :
Austin, The numbers aren’t different but the talk is. They sound like they have a problem. They are clear that the problem is not competition, and I believe it, but the legacy players have now become aware of them and are fighting back as best as they can (poorly). But ZS is talking about an execution problem: They say that to scale up they need an expanded, better, and revised, sales and marketing system. They hired a bunch of people in the quarter… I think they do have all the tailwinds and inevitability they talk about, but they still have to go out and do it!

Now, after studying this year’s results (which I admit is looking backward instead of forward), I see that they had a beyond-great year! I see that the last four year’s revenue increases were 50%, 57%, 51%, and now 59%, so this was their highest revenue growth of all of them.

Operating income was $25 million, up from a LOSS of $15 million.

Adj net income was $30 million, up from a LOSS of $14 million a year ago.

Adj EPS was +22 cents, up from a LOSS of 13 cents.

Op cash flow was $58 million, up from $17 million a year ago.

Free cash flow was $29 million, up from $2 million a year ago.

And with results like that they are down 50% from their highs???

Granted, they guided low, same as last year, and quarterly billings growth came in low at up 32%, but quarterly billings weren’t low! At $126 million they were the highest billings they’ve ever had by $11 million, and were up by $41 million, and by 48%, sequentially!!! …The problem is that they were compared to the extraordinary $95 million that they had in the quarter a year ago, so it looked like they were weak at 32% growth. But that $95 million a year ago really was extraordinary! It was surrounded by billings of $55 million and $65 million in the quarters before and after! I think that this is an unstoppable company and I added a bunch once I figured it out, but that’s just me. Make your own decisions.

Okta is in third place and is a 14.8% position, and is at a five star confidence level. 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. I almost backed it down from 5 stars to 4.5 stars because the rate of revenue growth “fell” from 58% to 50% sequentially. That’s the bad news. The good news is that it became evident from the conference call, and their recent acquisitions, that they do a lot more than smart sign in, more than I can understand, for sure, and it seems likely their revenue growth will take off again. I only sell out if the story has changed for the worse. I don’t see that the story has changed. This is a Disruptor and Category Leader, and a Cloud-based New Market Stock.

MongoDB is now in 4th place at 12.6% of my portfolio. I’ve been in and out a couple of times, being scared out by Amazon, Red Hat and a lot of other FUD, each time having to buy back at a significantly higher price than the one I had sold at. That’s life! I can’t think of anything that will make me sell again except bad operational results, which I don’t think will happen.

Mongo has pretty much invented its solution and category, although it does have competition. It’s the leader in NoSQL data storage. It has chosen to put almost all its money into growing, and thus is still running an adjusted loss, which was 28% of revenue for 2018, down from a loss of 49% of revenue in 2017. (Under the new standard, ASC 606, the loss was only 19.5% of revenue for 2018).

What has changed Mongo is Atlas, which gives it a fully managed cloud solution, and Atlas is growing at about 240%, although off a small base.

They announced July earnings in Sept. Here are some highlights:

• Total revenue was $99 million, up 67%.
• Subscription revenue was $94 million, up 71%.
• Adj gross profit was $71 million, for a 72% adj gross margin.
• Adj op loss was $15 million, improved from $18 million
• Adj op margin was minus 15% up from minus 30% a year ago.
• Adj net loss was $15 million or 26 cents per share, improved from $17.5 million or 34 cents a year ago.
• Cash was $437 million
• Op cash flow was minus $13 million
• Free cash flow of minus $14 million, improved from minus $18 million a year ago.
We adopted the new revenue recognition accounting standard ASC 606 effective January 31, 2019 and applied on a full retrospective basis.

Business Highlights

• Made significant product announcements in June that further our mission to provide the best way to work with data. MongoDB 4.2 added… extended its expertise beyond the database to a data platform with Atlas Data Lake and Atlas Full-Text Search, and Charts. We also unveiled our vision for Realm, the mobile database acquired in May.

• Saw growing momentum with all three major cloud providers.

Conference Call

Atlas revenue grew more than 240% year-over-year and now represents 30% of revenue. Another strong quarter of customer growth ending the quarter with over 15,000 customers.

Our investments in expanding and extending our go-to-market capabilities that are paying off. Given the size of the market in front of us, we have built an increasingly sophisticated three-pronged go-to-market strategy that allows us to pursue the entire database market.

First is our field sales organization.

Second, our inside sales channel focuses on the mid-market, where deals are smaller with shorter sales cycles. These customers, who prefer a low touch sales model with a high degree of automation, have less interest in managing their own infrastructure and therefore see compelling value in Atlas.

Third is our self-serve channel which has grown significantly as a percentage of revenue over the past year. Starting last year, we significantly increased our investment in this channel to build a world class developer-focused product-led marketing organization.

We also increasingly see synergy across these go-to-market motions. For example, we have observed developers and large enterprises frequently start evaluating and using Atlas via our self-serve channel, which can lead to large opportunities for our direct sales force.

One of the key competitive differentiators is the freedom to run anywhere, and our cloud partnerships enable customers that choose MongoDB Atlas to take advantage of the benefits of each major cloud provider as they see it fit.

We continue to see rapid adoption of Atlas, which grew over 240% and now represents 37% of total revenue compared to 18% a year ago and 35% last quarter. Atlas has now reached a nearly $150 million annualized revenue run rate only three years since its launch.

During the second quarter, we grew our customer base by over 800 customers sequentially, bringing our total customer count to over 15,000, up from over 7,400 a year ago, or up over 100%. The growth in our total customer count is being driven in large part by Atlas, which had over 13,200 customers at the end of the quarter, compared to over 5,300 a year ago.

We also continue to see healthy expansion from existing customers, which is a key component of our growth strategy. Our net ARR expansion rate in the quarter remained above 120% for the 18th consecutive quarter. We ended the quarter with 622 customers, with at least 100,000 in ARR and annualized MRR, which is up from 438 in the year-ago period.

We continue to expect that we will see some modest reduction in overall gross margin, as Atlas continues to be a bigger portion of our revenue.

Given our strong first half revenue and profitability performance and the numerous growth opportunities we are targeting, our intention is to make incremental investments in sales and marketing and R&D in the second half of fiscal 2020.

We expect to burn cash in the third and fourth quarter of fiscal 2020, as we continue to make significant investments in the business.

As a reminder, the continuing growth of Atlas as a percent of our overall business impacts our reported financials in several ways. First, Atlas revenues are recorded on a consumption basis, whereas Enterprise Advanced includes a term license component that is recognized upfront. Second, Atlas has a lower overall gross margin than Enterprise Advanced because of its infrastructure component. That said, Atlas is accretive to dollars of gross profit. Finally, self-service Atlas customers, and a growing portion of our direct sales Atlas customers, pay us monthly in arrears versus annually upfront for Enterprise Advanced.

In other words, a growing percentage of Atlas which is an increasing portion of our overall business, does not involve an upfront cash payment nor does it impact our deferred revenue balances. We believe that offering customers the ability to pay as they go is a key benefit of the cloud model. More broadly, we believe that continuing to find ways to facilitate the ease of consumption will ultimately maximize long-term revenues and cash flow.

I would say that we’re seeing actually strong demand for Atlas in the enterprise. And in some cases, they’ll actually commit upfront for a certain amount of spend in a particular year over a multiyear period and that’s driven by either new workloads that they’re building and they want to just run in the cloud because of a particular use case reasons or they’re migrating, say, a community workload on-premise to the cloud because the cost benefit of Atlas is that much more compelling.

And so we’re seeing a lot of interest from very, very large organizations. I think previously we talked about banks, insurance companies, tech companies and so on so forth, all very, very interested in Atlas. And we’re really, really excited about the interest level. And one of the other things that really surfaces in our discussions with these large enterprises is our ability to run Atlas on multiple clouds.
We don’t see any headwinds in terms of competition. It is a big market. There’s a lots of people out there. But we feel really good about a competitive differentiation, as evidenced by our growth rates, as evidenced by some of the most sophisticated customers in the world are choosing MongoDB for some very, very mission critical workloads.

And in terms of our net expansion rates, our net expansion rates are really strong, because once we get into an account, we have a land and expand business. And so once we get into an account, database software is very sticky and they see value in it. They typically find other reasons to use our software for other use cases.

And so if you think about very simplistically, we talked about this in the context of the IPO, the Fortune 100, which obviously we’re addressing a much larger universe than that. But just illustratively it’s helpful to understand, we had just over half of the Fortune 100 customers.

So the best we could do in terms of land count is double within that universe of customers, BUT we had less than 1% of their spend! So the upside on the expand part was quite significant given what a small wallet share we have relative to the very large TAM. So that puts it somewhat in context.

we think that the Atlas Data Lake is awesome solution for people who have contemplated using HADOOP because there’s not a huge upfront investment required. There’s no need to hire specialized skills. And the time to value is not very long. In fact you can get up and running very, very quickly because you can just very easily query and parse the data that you’ve stored and so we think the opportunity there is incredibly high.

I’ll call Mongo a Disrupter, a Category Leader, and a Big Data New Market Stock, and I’ll give it four and a half confidence stars for now.

Twilio is down to an 8.6% position, down from 17.5% position two months ago, and has dropped to fifth place. I explained in my four-month summary above why I halved my position size.

Twilio provides communication services and it seems to have no viable competition in what it does besides “do-it-yourself”. For the March and June quarters its base revenue growth accelerated from 46% a year ago to 88%, and from 54% to 90%. The last seven quarters’ growth rates have been:

40%
46%
54%
68%
77%
88%
90%

However the 88% jump was partly due to one big customer, and partly due to the acquisition of Sendgrid, and the 90% jump was from combining the revenue from two companies for the entire quarter. The organic growth increased from 54% a year ago to 56% now which is quite good, but much less exciting. And what happens to the growth rate three quarters from now when they start comparing to quarters when they already had acquired Sendgrid, which is inherently slower growing.

Now the dollar based net retention rate: The last four quarters have all been above 140%, but that’s not including Sendgrid either.

They hit adjusted profit in the June quarter last year unexpectedly, and have stayed profitable since.

They had 162,000 Active Customer Accounts, a little less than triple the number they had a year ago. This was driven partly by customer acquisition but mostly by their SendGrid acquisition. It doesn’t take much imagination to think about the cross-selling that can come both ways from that!!!

They continue to have euphoric conference calls:

And the average revenue per customer continues to grow at a 25% to 30% rate.

… 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.

…It’s still day one of this journey.

There was a lot of obsessing on our board and elsewhere about “weak” guidance. For the life of me I don’t understand why anyone even looks at the guidance figures for these companies. Have you ever seen even one of our SaaS companies that doesn’t simply destroy their guidance at least 95% of the time? Why waste your time unless reduced guidance is due to an actual problem with the business (ie Nutanix). Follow the actual results! There has also been concern that Twilio is too big, that the Sendgrid acquisition caused dilution, or that it would slow down growth. Some of that is valid. We’ll have to see what happens.

In July Twilio announced the first roll-out of its Narrowband IoT collaboration with T-Mobile. Not one that moves the needle by itself, but just another reminder that Twilio isn’t sitting still, and that IoT could become another large market for them. They then announced a half dozen more new products at their conference a week after earnings. I’ll give Twilio four and a half confidence stars now, down from six. It’s just that the way they were enthusiastically talking about Flex 18 months ago (an oversubscribed beta, etc), I expected it would be doing somethng significantly by now, and four months after the acquisition of Sendgrid there was nothing to show for it (which may be just impatience on my part, again.) No further plans to taper my position. I have already cut it by a third, but it remains good sized.

In 6th place at 8.0% of my portfolio is Zoom, which at first I said was multiples too high. What happened? Well, I thought about the reasons for the high valuations of our SaaS stocks, and that changed my mind.

There were a couple of long write-ups on Zoom a couple of months ago, around the time of their IPO, which you might want to look at. Here are some financials, which include their April quarter results, and which will probably amaze you.


**Fiscal	Q1	 Q2	  Q3	   Q4	          YR**

**Revenues**
**2017: 	xx	 xx	  xx       xx	      61**
**2018	27	 33	  41       51        151**
**2019	60       75       90      106        331**
**2020   122	146**

**% Increase**
**2018						   149%**
**2019		122	 127	  120    108       119%**
**2020		103	  96**

**GAAP Gross Margins %**
**2017: 			                             80%**
**2018		79	 79	  81      79         80%**
**2019		81	 83	  81      82         82%**
**2020		80	 81**

**Adj Gross Margins %**
**2018		81	 82	   82       80          81%**
**2019		82	 84	   84       86          84%**
**2020 		81	 82**

**Gross margins look great.**

**Op Cash Flow (millions of dollars)	Yr Total ($)**
**2017:  						 9** 
**2018:  						19** 
**2019:  	03	 14				51**
**2020:   22	 31** 

**TTM Op Cash Flow is thus currently $70 million**

**Free Cash Flow (millions of dollars)	Yr Total**
**2018:	   					xx**
**2019:  -01	 08				30**
**2020:	15	 17** 

**TTM Free Cash Flow is thus $46 million.**
**Note that those cash flow numbers are positive numbers!**
**I don’t think that any of our SaaS companies have cash flow**
**numbers like those**

**Cust with ARR over $100,000	At year end**
**2017						 54**
**2018		                                143** 
**2019		184				344**
**2020:		405	 466**

**% Increase !!!!!!!!**
**2018						165%**
**2019			                      	141%**
**2020		120%  104%**

**These figures don’t need any explanation and show how well the business is doing.**

**Customers with over 10 employees	 (in thousands)**
**2017: 					        11**
**2018						26**
**2019		32	37			51**
**2020		59	66**

**% Increase**
**2018			   			137%**
**2019						 97%**
**2020		86%   78%**

**Dollar based net retention rate**
**2019			138	 139	  140** 
**2020	       >130    >130** 

• Adj Operating Income was $20.7 million, up from $4.5 million a year ago.
• Adj Operating Margin was 14.2% up from 6.7% sequentially.
• Adj net income was $24 million up from $5 million, and up from $9 million sequentially
• Adj EPS was 8 cents, up from 2 cents
• Cash was $755 million
• Op Cash Flow was $31 million up from $14 million a year ago.
• Free cash flow was $17 million, up from $8 million.

For a word on customer wins:
HSBC is one of the largest financial services organizations in the world with over 3,900 offices in 67 countries. It will standardize on Zoom’s platform by deploying to 290,000 hosts and to 5,500 conference rooms. HSBC will consolidate onto Zoom’s video-first unified communications platform for both internal and external meetings.

By standardizing on Zoom, HSBC will consolidate costs and create an enhanced, frictionless experience for end users. This enterprise-wide deployment represents one of the largest customer commitments to Zoom in our history and reflects our growing momentum with global customers. (Awesome)
In the financial sector Moody’s and Morgan Stanley also became Zoom customers in Q2

One example of Land and Expand was with a large luxury brand. This customer began their relationship with us last year and quickly deployed Zoom meetings to approximately 3,800 users to replace their legacy video conferencing provider. Because of their trust in Zoom, they then invited us to provide a modern solution for the phone service in their corporate offices and stores. After a full evaluation, they selected Zoom Phone in Q2. They cited call quality, ease of use, cost savings, and the unified Zoom platform of meetings, chat and phone as important benefits to their organization. They have already begun the rollout of 4,700 Zoom Phone licenses within their organization. They also plan to roll out Zoom Phone to their 750 domestic retail stores starting in early 2020, and in the rest of the world soon thereafter. (Also awesome)

I’ve doubled the size of my Zoom position this month from 4.0% to 8.0%. I was very impressed with the HSBC win. “290,000 hosts and 5,500 conference rooms” is enormous in a single sale. I’m also impressed that this company is so profitable at such an early stage.

Crowdstrike is in 7th place at a 7.2% position, up from 4.7% in August. It’s a recent IPO and there were a couple of extended threads on Crowd in July on the board, so I’ll just give you my take on their earnings report (which caused them to sell off).

Let’s start off with revenue. It was $108 million, up up 94% from $56 million yoy, and up from $96 million sequentially. If you just look at those numbers in isolation they look fantastic, but I have to admit I was expecting considerably more. The last four quarters they had grown by $9, $10, $14, and $16 million sequentially, so growing by only $12 million sequentially was a disappointment.

Then we’ll look at subscription revenue. That was up 98% yoy made up roughly 91% of total revenue. Can’t complain about that.

And their ARR (Annual Recurring Revenue) is $424 million, up from $208 million a year ago, and from $90 million two years ago. That’s zowie!

But how to reconcile the “paltry” $12 million in sequential total revenue growth with the huge, accelerating customer growth? I’m not kidding about huge. January fiscal year-end customers in 2016 thru 2019 were


 **165**
 **450**
 **1242**
 **2516**

Just look at that stack for a minute. Well in the last two quarters they grew by a little more than they grew all last year), and they now have 3789. And they say that they are focusing on larger customers, and those customers are asking for longer contracts.

Let’s see if that makes sense. Longer contracts mean more dollars that they have signed up but can’t recognize yet, so that helps us to understand. Also, they have a land and expand sales plan so those new customers will increase their spend in the future.

Okay, Gross margin! Was 36%, 54%, and 65% of total revenue for the past three years. This quarter it was 71%, and subscription gross margin was 74%, up from 70% yoy.

Adjusted net profit margin was -173%, -114%, and -56% the last three fiscal years, and this quarter it was -21%. That gives an idea where it is going.

Dollar based net retention rate was “over 120%” for the umpteenth consecutive quarter.

Op Cash Flow was neg $6 million, improved from neg $29 million a year ago.

Free cash flow was neg $29 million, improved from neg $36 a yr ago.

Cash was $827 million.

That gives you a thumbnail sketch.

They introduced CrowdScore, which leverages cloud-based AI to enable executives to instantly see the real-time threat level their organizations are facing.

Now here are some quotes and paraphrases from the conference call:

Year-over-year we achieved 104% ARR growth, 98% subscription revenue growth and 94% total revenue growth which was above the high end of our guidance. We also continued to expand our subscription gross margin and operating leverage.

CrowdStrike stops breaches, and we are transforming endpoint security. Our clear technology differentiation is driving our growth which continues to significantly outpace the industry. In addition to stopping breaches, we help customers simplify their security stack with our single agent architecture and cloud modules. This sets us apart from others in the security industry.

To measure our success executing on our platform strategy, we look at the percentage of all subscription customers that have adopted four or more cloud modules. I’m pleased to announce that we reached a new milestone with 50% of our subscription customers having adopted four or more cloud modules. The strength of CrowdStrike’s Falcon platform is also rapidly gaining industry recognition.

Gartner also cited our extensible platform and the CrowdStrike Store, the first and only unified security cloud ecosystem of trusted third-party applications. To help foster innovation within the CrowdStrike store ecosystem, we have established the Falcon Fund. Our cloud-native open architecture was built to provide a shared security ecosystem where developers and partners could dramatically shape the future of security in IT operations.

Through the Store, third-party applications can be developed utilizing the massive amounts of endpoint data that our lightweight agent already collects. The Falcon Fund will invest in the next generation of innovators, leveraging the Falcon platform to solve the most pressing security and IT challenges.

We have seen three of the larger NexGen endpoint players and the largest legacy endpoint security company decide to sell their business. These companies either originated as on-premise solutions or had an on-premise version and were unable to successfully transition to a true cloud-native architecture without an on-premise version.

CrowdStrike was cloud native from day one and we enjoy first mover advantage in cloud delivered endpoint protection. We have the architecture that others strive to emulate and we possess unique technology that allows us to operate effectively at scale. We are putting growing distance between ourselves and competitors. This is reflected in our position in the Gartner Magic Quadrant versus all other fossilized and NexGen players.

Our rapidly growing international business highlights the global nature of the security industry, the massive market opportunity in front of us, and our continued success penetrating these markets

As you know, we entered into a partnership with Dell and SecureWorks earlier this year. We were chosen by Dell and SecureWorks over the competition in order to advance the industry’s most secure commercial PC by offering our leading endpoint protection technology.

We’re seeing strong demand and a great partnership from AWS…. we’re seeing a tremendous amount of momentum as customers are looking to protect those cloud workloads.

Considering our core module Spotlight, I can tell you, Windows OS vulnerabilities are a huge pain point for customers that are out there. There’s compliance issues, there are hygiene issues, and we’ve seen a tremendous increase in Spotlight. And why are we seeing that? Well, it just works. Companies don’t want other agents on their system if they have a scalable agent, which is going to deliver real time vulnerability information. That’s what they’re looking for. And the ability to actually have a customer try it with their own data, with our frictionless in-app trial, I think has been a big boon to us. So we’re seeing a lot of activity there.

If you look at our threat intelligence modules, our Falcon X, the ability to automate a triage process and take something that would normally take eight hours and reduce that time to five minutes with our Sandbox technology, and our malware search capabilities and our integrated intelligence, these have been very, very well received. And again a tremendous - we’ve seen tremendous adoption in those areas.

So the feedback has universally been customers actually accelerating moving to CrowdStrike from our competitors as they try to transition from an on-premise solution which has been slow and cumbersome. We met with one customer that had almost 40 different controllers and one person just to manage their on-premise implementation.

And as other competitors try to accelerate their move to the cloud it actually just creates another opportunity for us. If they are going to look at a cloud vendor they might as well look at the best out there. So we like that dynamic. We view all these acquisitions as a net positive for us and we’re excited. So that’s a little bit about your first part of the question.

Q - But it would be really great to hear from you guys in terms of where and when you actually do see Palo Alto and how they stack up?

A - Well, we don’t see much of them to be candid, and if you look at the Gartner Magic Quadrant rather than me saying where they stack up, you can tell where the analysts think they stack up. Right? And it’s not even close to us. So I’ll the reader be the judge of that.

Saul here: Okay, so what did I do? I roughly doubled my Crowd position too on the way down. But please don’t just follow me. Decide for yourself. I make mistakes I can assure you.

The Trade Desk is in 8th place at 5.8% of my portfolio.
They had incredibly strong earnings report and conference call in August, which was extensively discussed on the board.
Revenue was $160 million, up 42%
Adj EBITDA was $58 million, up 57% from $37 million yoy, and was 36% of revenue.
Adj Net income was $46 million, up 68%, and was 28.5% of revenue.
Adj EPS was 95 cents, up 58% from 60 cents a year ago.

I’d rate it four confidence stars now, because of my mistrust of a complicated advertising milieu, but I feel that this is a very unique innovative and creative company. The Trade Desk seems to be a Leader in a Rapidly Growing niche Market within the larger field of advertising, which up to now is controlled by the behemoths.

Finally, I took a little 1.9% position in Elastic again, due to all the praise it’s been getting. We’ll have to see. I also took a 1.0% position in DataDog yesterday at just under $32.

FINISHING UP
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 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

144 Likes

Thank you Saul for all your hard work and taking the time to selflessly outline your thoughts in such a simple and elegant way.

Like any great master the genius is not only what he decided to include in his month end summary but also what he decides to exclude and avoid. Specifically:

• The US-China trade war which the financial media and stock market experts are obsessing about

• The inverted yield curve another factor being obsessed over

• Talk about trimming his winners, raising cash and waiting for a market correction and “better” entry points

• Obsessing over valuations and P/S, P/E ratios and using them as a basis for his decision making like endless stock reports from “reputable” sources like to focus on

• Avoiding adding to companies he deems as great investments like Crowdstrike because of a potential “over-concentration” in the cloud security sector.

Although some may disagree with his approach, avoiding these often debated topics is what gives him an edge. By staying consistent in his unconventional approach is one of the biggest things i’ve learned and profited greatly from in many ways.

Thank you,

Rick N


Long Saul

13 Likes