Then I have a new half-sized position: Hortonworks (HDP)
Saul,
I couldn’t help notice your new position Hortonworks. I actually looked at this company a couple months ago when it came up on one of my custom screeners not long after its drop. I made note of it as a company worth looking into. When I started going through some initial numbers I came across something that worried me and decided to throw it out entirely. This item is the stock based compensation over the last nine months. I just checked again to refresh my memory on the numbers from the most recent release.
The numbers listed from the linked above Q3 press release show 9 months sales at $132 million. Then later the SBC is listed at $75 million for the same 9 month period. This SBC number is up from $23 million the previous 9 month period. That puts SBC at about 56% of 9 month sales. I guess that seems awfully high to me.
Admittedly I have not looked into anymore detail regarding these numbers. I also don’t know if this is the result of a one off expense this year that will not be repeating. I would like to hear your thoughts on this and if it is something you considered in buying the company. Have you heard anything in your research as to when it will start dropping? This just seems like a lot of ownership to be giving up year after year. Even the previous years $23 million seems pretty high to me.
“That puts SBC [stock-based compensation] at about 56% of 9 month sales. I guess that seems awfully high to me.” - maraj (emphasis added by DB Bob)
“They, of course, have mostly recurrent revenue, and have a lot of deferred revenue that they can’t count yet towards earnings. What counts is what they call their “Operating Billings” rather than revenue, which includes growth in Deferred Revenue. It was up 65.5% last quarter, and up 16.6% sequentially. That’s moving.” - Saul (emphasis added by DB Bob)
Hopefully Saul will chime in too, but I think his write-up - especially the part I emphasized - suggests that he would spread SBC across a very different denominator than the one you’re using. I think that market participants’ use of revenue-based valuation metrics is something that makes it difficult for cloud-based subscription-providers to shine.
On a side note, I really should speak up for just a moment with my “database engineer” hat on. As HADOOP was becoming increasingly important in the database world, I was aware that my career was entering its “dusk days”, and that my then-current career trajectory would allow me to retire without undertaking the effort to learn this new technology. Had I been ten or fifteen years younger (or five years younger and more ambitious about my career than about retiring and moving on to the next phase of my life), I most certainly would have made it a point to learn HADOOP and add it to my toolset. It’s an important data-based technology.
That said, I am not certain that HADOOP is so disruptive that it obsoletes other data-based paradigms, although it certainly augments them. In like vein, I have no opinion whether Hortonworks has advantages over Cloudera, who was the more important name when I retired, and still seems the bigger market participant (if still privately-held). I feel as if I am simultaneously too close (perhaps too focused on data without a broader applications perspective) and too distant (several years retired without ever having learned HADOOP) to have a very meaningful opinion.
In sum, all that was written in those last two paragraphs is worth almost exactly the dollars you shelled out for them. Hopefully it was worth the time.
Why not start one year earlier than 2014, in 2013, when I was up 51%?
Good point. The best way to settle this is to provide all stats for the duration of the time window. Mutual funds usually report average annual gains for the last 1Y, 3Y, 5Y, 10Y and since inception of the fund.
Saul’s knowledge base article provides all his numbers going back to 1993. I actually crunched the numbers in a spreadsheet.
Saul’s historical annualized returns are as follows:
Not being critical of Saul but this seems like a worthy discussion as many here seem to be going all in on this strategy.
I agree. As for myself, I’ve done a lot of soul-searching recently, as pertains to my investing, and agree with those who have posted on this board that having some funds in index funds is a good idea. As at least one person has said, I’m not in this to beat any particular index; I"m in it to make money.
I’ve learned this year that when I’ve followed my instincts (as nebulous as that may sound), I’ve done better than when I’ve not followed my instincts. But I have not yet fine-tuned my discipline when it comes to following my instincts. Hence, going forward, I will be investing various percentages of my money in a large cap, a mid cap, and a small cap index fund, while leaving myself a sizable sum of money to continue trying to identify and profit from individual stocks.
I will be investing various percentages of my money in a large cap, a mid cap, and a small cap index fund, while leaving myself a sizable sum of money to continue trying to identify and profit from individual stocks.
Index investing is boring but is good for your wealth. Picking individual stocks is exciting but tends to produce sub-par results. I think that your plan strikes a nice balance between the two.
Over the last 150 years, we have learned some general principles:
Small (caps) beat large (caps)
Value beats growth
Patient investors beat day-traders
If you are going to go indexing, tilt towards the Small and Value side of the house.
Last weekend, when I posted my portfolio at the end of the year, I wrote:
I also have taken two tiny positions that I don’t want to talk about yet, because I’m not sure I’ll stay in them and I don’t want anyone to buy them because I’m looking at them. They add up to just 1.3% of my portfolio, taken together.
Well, one was Impinj (PI) and the other was Square (SQ). I had mentioned earlier that I couldn’t resist when Bert and a MF newsletter both recommended Impinj on the same day. I thought about it on the long weekend and sold out of PI on Tues morning (the first trading day) at roughly $36.30. On the other hand, I have added to Square and also to my other new position Hortonworks (HDP).
I don’t usually post changes during the month, but as it was so close to the beginning of the month I thought I should tell you.