My top 4 stocks - by growth and market

Hi all - I also posted this to NPI, but then they started talking immigration and I threw up in my mouth a bit. :slight_smile: Figured I might as well post it here, too.


My opinion only: TTD, AYX, MDB, and ZS for the win.
Basically these are the 4 I think offer most likely high-growth high-upside.

I think AMZN, GOOGL, NOC, DIS, ILMN, SQ are great companies and expect them to grow, but these are not little small caps that I expect can provide 3-5x returns the next 5 years (I hope they do - but doubt it). Same with TSLA and NVDA, although I am not currently invested in them.

Stocks somewhere in between, meaning I like them but they are not quite my top-4: PFPT, VRNS, PAYC, ANET, BIDU, CGNX. Except for Varonis, these are all a bit more mature than my 4 selected small caps. Varonis isn’t growing quite as fast and forecast was modest. Will watch their ER’s next couple of Q’s to see how much they are sand-bagging and reevaluate whether they make sense for long-term. They don’t seem overpriced (since growth rate is lower) so hanging on for now.

My big 4 are based on current market cap + P/S, TAM, and current and forecasted growth rates:

TTD - The Trade desk. $308m in revenues was 50% growth y/y. Forecasting 31% growth of $403m with expectation based on history that they are sandbagging. 2.5b market cap. TAM is harder to gauge, but essentially they are targeting their piece of the $700b global ad market, which is expected to grow to $1T. Currently programmatic is low-single-digits as a percent of this market and expected to grow to be majority (per CEO and in general that is sense of articles online not penned by TTD CEO too). Love this company. Google/Facebook not a threat and only provide upside if they dropped their “walled gardens” and play ball in the future. The reason is TTD is targeting Connected TV (CTV), International/China (no walled gardens), and Mobile. They have half of top 200 advertisers using their platform and client retention is 95% for multiple Q’s running. Of the 4 companies listed here, they have the most revenue, and are already profitable, with the lowest P/S of the bunch at approx 8.

AYX - Alteryx. $132m in revenues was 53% growth y/y. Forecasting $179m or 35% growth. Market cap of 2.2b, P/S is the highest of this group at 16. I like Alteryx better than Hortonworks or Talend, because the more I read on Hadoop, the more it appears that the real need in the marketplace is to make sense of the data and make it “actionable”. A few articles note the slowing, or potentially slowing, growth of Hadoop…or the unrecognized hype it brought with it. For that reason I like the noSQL space and MongoDB (MDB). This article kind of summarizes some of these thoughts: https://www.datamation.com/big-data/wheres-the-big-money-in-…
Hard to put a TAM on benefits of utilizing big data and making sense of your data. Pretty much every company producing sales/traffic/store/customer/b2b/financial data would benefit. Just a matter of whether Alteryx continues to be the sought-after solution or gets displaced by the next new thing. One can imagine AI-infused programs taking huge amounts of data and coming up with solutions across biotech, finance, tech, forensic science, etc etc… I think the players in this space will evolve incredibly fast, but willing to watch AYX on an ER-to-ER basis for now.

MDB - MongoDB. $154m in revenues for 52% growth y/y. Forecasting $215m on 39% growth at high end. Market cap at 2b, with P/S of 13. Mile long threads here and at Sauls board, so I won’t repeat it here, but relational and nonrelational db TAM seems significant.

ZS - Zscaler*. $125m revenue fro 56% y/y growth. Not public yet so no forecast, but there is data on 2 more Q’s of revenue since then, and the pace is 50% above the 6-month period in the previous year. So if I use 50% growth, my forecast for them will be $188m. Market cap is unknown, but IP expected to have them start at somewhere between $1.2 and $1.5b. Assuming $1.5b, it would have a P/S of approx 10.
*Brought to you by the only poster on TMF who seems to give a crap about this company. :slight_smile: If it has doubled in a year, I will come back and gloat. If it implodes and they are sued into oblivion by Symantec I will do the walk (post?) of shame. Security is huge, of course, and it is hard to find cloud-native security providers at this valuation and with this growth. A lot of competitors are legacy security vendors that are attempting to transition to cloud (some more successfully than others). Going to be a few winners in this space, but I posted a link to Cisco-OpenDNS founder giving props to Zscaler and calling it a 2-1/2 horse race between Cisco, Zscaler, and Symantec (who bought competitor Blue Coat for $4.5b).

I have a spidey sense telling me the market could really crap on us any minute, from a combo of strong run up recently, to Trump being so unpredictable, to potentially rising interest rates, etc… I am invested, but in 2 ports I am about 20-30% in cash just in case. I also temporarily gave up on OKTA, TLND, and HDP. All good companies, but wanted more cash handy and for investment in MDB, potentially ZS, and just adding more to positions I was more comfortable with. For what it’s worth, my spidey sense has been worthless since 1999. I thought things were a bit crazy in early 2000, but I didn’t do enough about it. (taking fast gains vs catching falling knife later)

Can you beat my 4 picks for growth?

-Dreamer

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My opinion only: TTD, AYX, MDB, and ZS for the win.
Basically these are the 4 I think offer most likely high-growth high-upside.

The above is from more than 2 years ago. Those 4 were all in neighborhood of $2b mkt cap and in case of ZS still had not IPOd. Multiples were a lot lower then of course.

In thinking about stocks with slightly lower mkt caps than many commonly followed here, and that perhaps haven’t had the same multiple expansion (yet), I now like these:

FSLY
Bear had some mentions here, and I was late because I just wasn’t following them closely and missed the fuss about their guidance. Once I read it, I couldn’t buy it fast enough. Essentially, in middle of a pandemic, they saw trends fast-tracked and went from around 40% growth to forecasting 50%+ for coming Q and FY. Having done near $200m in prev FY, their forecast of $290m reminds me of the pace that TTD was on 2 years back. Fastly should beat their own guidance, of course.
Recent buzz came about with them powering the background of Facebook Shops and now as part of Walmart/Shopify partnership…recent Fool article: https://www.fool.com/investing/2020/06/16/fastly-could-be-th…

PD
IPOd at height of SaaS madness last year, and stock is still 50% off that high in 2019, despite being well off March 2020 covid lows. Similar to Fastly, their time is coming, with the proliferation. Cloud-native and DevOps-focused. As data explodes, Enterprises must react more and more to understand their environments. PD is considered superior tech with more uses cases than something like EVBG. Splunk bought a competitor in VictorOps. Integrations exist with over 350 key solutions or platforms, such as Microsoft Teams. Who uses them? TWLO, DOCU, OKTA, Salesforce, Cisco, DDOG, Shopify, etc etc. The areas of Event Intelligence, predictive analytics, incident mgmt will all only grow as data grows, and covid certainly fast-tracked the digital innovation for most enterprises. At only a $2b mkt cap, I feel this is one that will start getting Fastly-like attention in coming Qs. Has room for stock appreciation due to both growth and multiple expansion.

ESTC
Finished last FY above 50% growth (again). Put stake in ground that they need no more cash, and that they expect to be cash flow positive in next 12 months or so. Guidance was overly conservative, so it has kept the stock from running hard post-ER, although it has more than doubled since March low. Use cases are APM, SIEM, Search, and more.

OCFT
https://www.barrons.com/articles/wheres-the-next-bull-market…
Essentially this is a unicorn in my opinion, in that I have been wondering why I could never find a Chinese enterprise software company ala NOW or CRM or SAP or even like a COUP. OCFT is OneConnect and is financial software or Tech as a Service (TaaS) platform.
They are number 1 in blockchain patent strength in China, ahead of Alibaba:
https://bitcoinist.com/alibaba-oneconnect-leads-chinas-block…

Wanted to at least get these out here for consumption. Plenty on this board know of ESTC, many are ramping on FSLY, and PD has had some mentions here and there. Not sure OCFT was mentioned before or not.

good luck all,
Dreamer

33 Likes

FSLY
Bear had some mentions here, and I was late because I just wasn’t following them closely and missed the fuss about their guidance. Once I read it, I couldn’t buy it fast enough. Essentially, in middle of a pandemic, they saw trends fast-tracked and went from around 40% growth to forecasting 50%+ for coming Q and FY. Having done near $200m in prev FY, their forecast of $290m reminds me of the pace that TTD was on 2 years back. Fastly should beat their own guidance, of course.
Recent buzz came about with them powering the background of Facebook Shops and now as part of Walmart/Shopify partnership…recent Fool article: https://www.fool.com/investing/2020/06/16/fastly-could-be-th…

I know FSLY has been talked about a lot here and I haven’t bought yet, hoping for another dip before possibly buying. I own its competitor, Cloudflare (NET), which is still a little more expensive by P/S but has significantly better margins and has had better revenue growth recently - although projections for next quarter suggest weaker growth than FSLY. But NET also typically beats guidance. I am still not sure which one is better for the long run in this space. The numbers suggest NET is the higher quality pick. It has more comprehensive offerings but FSLY apparently has the advantage in purely edge offerings and might be gaining steam. I’m wondering if there is any consensus here on which might be the better pick.

Dave

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**Ticker 03/14/18  06/15/20     CAGR**
AYX       36.81    142.94   82.38%
MDB       40.67    201.74  103.28%
TTD       58.57    372.61  126.96%
ZS        33.00    102.91   65.50% <- March 16, 2018

Not bad! :wink:

Denny Schlesinger

5 Likes

Dave, I own both with similar allocation 5-6% each. Yes, Net has higher margins, but also higher valuation. Fsly is accelerating growth from 40s to 50s and Net is more or less stable at around 50%. But don‘t forget about big difference in NER - Fsly 130+ and Net around 112 or so.

Main difference from business perspective - Net services are kind of most suitable for smaller companies as they often couple CDN with different security and similar products, so for smaller companies without own bigger IT staff is better to buy all this from Net. Fsly is more focusing on mid to high market (mid to bigger companies). This is probably why NER is higher as Fsly has about 90% of revenues from enterprise customers.

Biggest unknown for Net is their security product which is for free till September or so. They said that they have thousand+ clients using it for free and they will start charging in the fall. Product is a direct competitor to Zs and muji did write up on it.

Biggest unknown for Fsly is their compute@edge product - now in beta and to go life in 2021. They r targeting developers and want to create a platform for superior content delivery network.

All-in-all, I thought that both companies worth my money to be put on, so invested in both. Conviction is not on the level of ZM, DDOG or CRWD, hence, smaller allocation.

Best,
V

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All-in-all, I thought that both companies worth my money to be put on, so invested in both. Conviction is not on the level of ZM, DDOG or CRWD, hence, smaller allocation.

Best,
V

Thanks for the feedback!

I think I will stick with just NET for now. It’s a smaller position. I also have higher conviction positions (including DDOG and CRWD) although they have become pricey. I am basically fully invested and don’t see a need to add more to edge computing at this time.

Dave

I have 10% in FSLY and 5% in NET.to get to that confidence level I’ve been reading Bert at Tickertarget.com (behind paywalls) and Peter Proffringa at Softwarestackinvesting.com (not behind paywalls and Muji and Bears posts here. One link given by a poster here, I need to give thanks to but can’t forget the name, brought me to this bit I’ve saved from a much more detailed report From Mobile Edge Computing, Mindshare

5G, IoT, and Edge Computing Data Services

MEC supported 5G networks will generate massive amounts of data. Data may be passed as a real-time stream to enterprise organizations for real-time decision making. In addition to conventional data analytics software, systems may be augmented with artificial intelligence to provide further data management efficiencies as well as improved decision making effectiveness.

In many cases, the data itself, and actionable information will be the product, often delivered in a Data as a Service (DaaS) market model. As the industrial IoT market in particular evolves, there will an increasingly large amount of unstructured machine data. This rapidly growing amount of machine generated industrial data will drive substantial opportunities for AI support of unstructured data analytics solutions.

Service providers must balance the need to determine what data may be processed at the edge (with potential real-time business implications) versus data that may be simply transmitted to a centralized cloud for storage and post-processing. The use of Artificial Intelligence (AI) for decision making in data analytics will be crucial for efficient and effective decision making, especially in the area of streaming data and real-time analytics associated with MEC.

Data by itself is useless. Data needs to be managed and presented in a manner that is useful as information. DaaS represents a service model in which data is transformed into useful information.

A surprising number of enterprises entities, both current and prospective DaaS customers, do not realize they have options for combinations of data including (1) their own data, (2) other companies’ data, (3) public data, or a combination of all three. Accordingly, it was not surprising to find confusion even for many of those already considering Data as a Service, or already with DaaS in place.

Managed Edge Computing Data Services an Emerging Opportunity for MEC Infrastructure and Services Providers

One of the key opportunities for DaaS is enterprise data syndication, which is the opportunity for companies of various sizes to syndicate (e.g. share and monetize) their data. This is one of the biggest opportunities for MEC infrastructure and service providers and the DaaS market as whole.

However, there remain challenges above and beyond the core adoption barriers, which include specific security, privacy, and care of custody concerns.

Taking the aforementioned into account, Mind Commerce sees edge compute managed apps and services as an important area for edge computing infrastructure and services providers, which will include the following:

  • Managing app provisioning, administration, and operational control
  • Managing edge compute data including security/privacy and related access control
  • Managing syndication of enterprise and industrial customer data in a DaaS model

I hope you’ve found this as helpful as I did.

Jason

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Anyone interested in NET, they have a new live TV similar to Fool TV. There is a good interview with Chris Young former CEO of McAfee discussing security current, past, and future. I am not sure of the platform for video maybe Zoom? I wanted to learn more about the security products they are offering and stumbled across Cloudflare TV.
Just interesting to see the new TV direct from the website popping up and how that fits into content delivery without the use of YouTube or other services.

Long NET.

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