I’ve been pounding the table so hard on Crowdstrike, and for so long, that my hand is all sore.
I hope that most of you guys got on before today’s 10% rise (and 12% rise in the two and a half trading days so far since the beginning of the year).
Best,
Saul
Today’s rise is certainly a very welcome change! 
I hope with all new shares that flooded the market, that there is now enough liquidity for some serious institutional buying.
Onward and upward,
Matt
I’ve been pounding the table so hard on Crowdstrike, and for so long, that my hand is all sore.
I’m in - thanks for the encouragement - I owe you a lot of beer for all the stock you’ve convinced me to buy. I’m still cautious on DataDog though - hope that one won’t get away from me, if it isn’t too high already…
Also a good day for ZM, OKTA, and DDOG!
Up almost 4% ZM, and almost 7% DDOG!
GO TEAM!
Foolingyou1
Sorry, forgot to thank you Saul for pounding the CRWD table…it is my 3rd largest holding behind AYX and DDOG…I believe that both DDOG and CRWD will have a better stock performance year than AYX as they are “less overvalued”.
CRWD ,AYX,Coup DDOG and other issues were up strongly today. I’ve been buying for the past 6 weeks and just about filled my quotas early this AM. May I express my appreciation to all key players
whose constant drumbeat of facts and logic helped me overcome some basic apprehensiveness.
Todays market, as far as I can assess it was bizarre.The averages were up. OK, but out of 39 TMF stocks in my TMF holdings 37 were up strongly starting at the opening bell. The laggards were AAXN and CWBHF.Probably for good reasons.
What is the source of this upward bias which strikes me as very unusual?. About 40% of the items in my list relate to software, and cybersecurity and related subjects… Why the strength in the others?
This degree of behavior in unison can’t be coincidence.
Thank you. Our next question comes from Gur Talpaz with Stifel. Your line is now open.
GurThat’s helpful. And then Burt for you; when you think about the forthcoming margin improvement and targeting margin positive in Q4 of next year, how important is the frictionless sales motion in getting them? Maybe you can give us some colors on conversion of a trial before you buy customers and what you’re sort of thinking about when you move into next year?
Burt
Yes. Thanks, Gur. So few things in there. So one, when we put – when we put together the outlook for next year on the operating margin, we think about the continued momentum we’ve seen in the business as we enter Q4. We’ve got the biggest pipeline that we’ve ever seen, giving us the confidence, indicate the positive free cash flow and non-GAAP operating income breakeven in Q4 of next year. And when you think about – with a frictionless system, I think, George has talked about it many times that the tech is as important as the go-to-market and we’re as focused and we invest in equally both of those aspects of the business, to be able to ensure that we are able to continue with a frictionless motion, whether it’s in-app trials or whether it’s trial-pay. Both have been accelerating in our business. We don’t necessarily give out percentages on the uptake, but both have been driving up into the right.
Just a Fool Here
Bottoms up pipeline acceleration and conversion rate, coupled with the color behind the strong outlook in guidance, in face of a recent drop in price due to competition concerns made this an opportunity.
This board constantly highlights the advantages of being an individual investor and the process and discipline to review and place your bets. I’m finally down to enough positions to simplify my investment strategy
AYX
CRWD
TTD
ZS
ESTC
MDB
ROKU
OKTA
DDOG
Just a Fool
I believe that both DDOG and CRWD will have a better stock performance year than AYX as they are “less overvalued”.
Foolingyou1, I’m curious why you believe AYX is more overvalued than DDOG, since superficially, that doesn’t seem to be true to me. AYX has a 20 P/S ratio, is growing at 65% YOY with no slowdown in growth yet, and is profitable. DDOG has a 38 P/S ratio, is growing at 88% YOY with slowing growth, and is unprofitable.
I’m not saying Datadog is a bad investment, but I’m curious about your reasoning that it is a better value than AYX. Is it because you think DDOG’s higher growth rate is sustainable for years so that even at almost twice the P/S, DDOG is the better value? Or do you have some other reasoning for believing Datadog is cheaper?
Thanks!
Thanks for pointing those numbers out, I mispoke as the “value” is with AYX which is what I meant to say. We’ll see about the growth slowdown for DDOG, it certainly has been a momentum stock based upon the excellent growth, albeit slowing growth by %.
I heard you from here (NH) Saul, thankful my ears were that good as that’s a long way away 
Saul,
In your year end review you posted:
I had said that I would never exit Mongo again because of FUD, only if their results warranted it. Well their last results warranted it as I saw it. Their rate of revenue growth dropped sequentially from 67% to 52% (since 52 is 78% of 67, that means their rate of revenue growth fell by 22% in one quarter). From two quarters ago sequentially it fell from 78% growth to 52%. That means it dropped by a third, 33%, in just two quarters. Their subscription revenue rate of growth also fell by 21% sequentially. Their operating loss worsened to $14 million from $8 million a year ago. Their adjusted net loss of $15 million was more than double their loss of $7 million a year ago. Their free cash flow loss of $13 million worsened from a loss of $10 million. And those were adjusted: Their GAAP net loss was $42 million! And worsening from $22 million! Everything was worse and going in the wrong direction.
It’s no secret that I have been one of the folks who has repeatedly voiced a strong favorable opinion of Mongo. But, not that long ago I did voice a little doubt as the numbers they have turned in are just not very encouraging.
One of the most important lessons I’ve learned from Saul is to have the guts to eat some crow when it turns out you’re thesis was wrong, no matter how strongly you may have supported an investment position. It is a bit humiliating to admit that you’ve just been wrong, but maintaining a position based on pride is simply folly.
So, I’ve been reconsidering my investment in Mongo. Some time ago I decided that in most cases it does not make sense to sell if you don’t have a target for the proceeds of the sale. Of course, if a company is tanking or something drastic has happened, get out and worry about reinvestment later, but if it’s more or less business as usual, figure out how you will complete the action before initiating it.
So, on the second trading day of the year, I sold half my position in Mongo which had been my second largest position not far behind Alteryx. I turned around and reinvested half the proceeds in Crowdstrike and the other half in Datadog. I won’t take credit for the good timing, that was pure luck.
The point I’m trying to make is not that I made a very good, timely decision. I won’t wax on exactly why I settled on adding to my CRWD and DDOG positions. Actually it should be quite obvious to anyone who reads this board regularly.
No, the point of this post is don’t ever be reluctant to contradict yourself if the facts take you in that direction. I still think Mongo will rule the DBMS world in the future, but I don’t know when the future will arrive. For the here and now, there were better choices. It’s a little difficult to climb down from a strongly supported position (note, I still hold a significant position in MDB), but that’s one of the things that makes a good investor. I think a great deal of Saul’s success can be attributed to his decisions on selling. More than once I’ve seen Saul reverse himself and sell a position in an investment that he not long ago expressed a lot of support for.
You can teach an old dog new tricks if the dog is willing to learn.
It is a bit humiliating to admit that you’ve just been wrong, There is no reason to be humiliated. I have been an active investor for 50 years, and one of the things that has finally sunk in along the way is that you are going to be wrong about equities fairly often. Because in essence you are trying to look into multiple futures, none of which have happened yet. Some of which you could hardly imagine in advance. Even if you figured everything out correctly, markets are sometimes random dice throws. If the future has branched into another path rather than the one you guessed at, time to change with it. This is easier said than done since humans tend to select viewpoints on the basis of emotion then selectively filter information to fit that view.
My biggest holding by far is AYX. It seems that lots of people here like it a lot too. Which worries me, groupthink being probably the biggest danger to boards like this one. I have been cutting position size in MDB and ZS because any breakout good news seems unlikely over the short run. Though with ZS I really believe in the story, cybersecurity becomes more difficult as whole nations devote billions to crack their way into US companies. It makes sense that the best security would be overlapping layers, meaning no single monopoly winner. OTOH is cybersecurity core or context? Some companies seem very careless ,which might mean they really don’t care much.
You can teach an old dog new tricks…
I have come to like the phrase “Strong opinions, lightly held.” Meaning, have a position based on solid data and facts; but when the facts and the data change, that position absolutely should be re-considered objectively.
I’ve held MDB since March 2018 and I see no reason to sell them now, because I don’t see any indication that 1) MDB is losing it’s position in NoSQL or 2) NoSQL is destined to remain a niche.
I see way, way too many people get excited on rising revenue growth rates and pile into a stock just in time for the revenue growth rate to reverse back down. Right now people are piling into AYX because of the rising growth rates. MDB, ZS, and TWLO all had rising growth rates last year only to see their growth rates reverse back lower. I just haven’t seen enough ample evidence that just because a company went from 50% growth to 80% growth, that it’s going to keep that 80% growth, let alone continue on to 100% growth or something. I have however seen companies hold 30% growth rates for a long, long time.
Here are Microsoft’s growth rates by year:
1991 55.70%
1992 49.70%
1993 36.00%
1994 23.90%
1995 52.00%
1996 28.10%
1997 31.90%
1998 27.90%
1999 29.40%
2000 16.30%
It would have been very easy in 1994 to say growth has slowed dramatically from 55.7% to 23% an sell out in 1994 at $3.82 a share and miss out on the ride to $27 in 1998. This doesn’t even account for the variance in growth rates quarter to quarter, which surely would have been higher. The stock went on to $58 in 1999, went back down to 27 in 2000, and stayed around that level aside from a brief drop in 2008, before going back up to 27 where it stayed until 2013. At which point it just started going back up again.
During all this time, Microsoft continued to grow revenues relentlessly. The only thing that really changed about the company was investor’s perception of the company’s future outlook.
During all this time, Microsoft continued to grow revenues relentlessly. The only thing that really changed about the company was investor’s perception of the company’s future outlook.
Hey 12X:
Nice post and one that I have pondered as well.
The main quibble with your conclusion might be putting that growth rate in the context of the very high P/S that exists for MDB. Other than the 2000 stock bubble…MSFT has typically been 1/2 to 1/3 of what MDB has been of late (usually far less than that).
That is a massive slowdown in revenue growth projected for this quarter even with the usual revenue beat.
It is that slowdown ALONG with the high P/S that is bothersome.
But as you also suggest…long term…may not make a difference over 10 years…but short term…there is heightened risk IMO.
On top of MDB’s valuation, one also needs to consider their lack of profitability.
We generally discuss non-GAAP numbers here because that is a better indicator of a company’s performance. But one needs to consider GAAP when one is considering valuation. MDB is proposing a convertible debt offering. These offerings, as well as stock options, dilute current holder’s equity. Paycom, on the other hand, is profitable, and buying back stock. This has the opposite effect.
If two company’s are both selling at a p/s of X, and one is GAAP profitable and the other is not, you are going to end up with more equity by purchasing the profitable company.
We look at so many unprofitable companies here, and since I started learning about stocks on this board, I actually have no idea how to analyze what a company is doing with the money that ends up flowing to their bottom line! I looked at TTD’s earning statement a little while ago and could not figure out where their profits were going.
Also, SaaS company’s revenue should be less lumpy due to the subscription based nature of the business. Therefore, a drop in revenue growth is in theory more likely to be due to a slowdown, although that is not a foregone conclusion.
Lastly, while revenue growth rates do fluctuate, it is worth looking at growth rates as companies pass certain thresholds. I remember reading a study that claimed companies that can sustain >40% revenue growth after they have achieved a 1b run rate are very likely to go one to become giants. This is why MercadoLibre is in my top three positions.
My number one position is Alteryx. I’ve loved the recent action, but I don’t think people are piling into it due to accelerating growth. When that acceleration became evident the stock sold off. I bought in at that point, increasing my position to 1/3 of my portfolio. It is only now starting to recover. There is still a long way to go before it hits its previous high, and I believe Alteryx will make new highs this year. I read a research report that included a list of Alteryx’s competitors the other day, and the biggest one has only 36m in annual revenue, according to Owler (competitors are all private). Alteryx is off to a huge head start I think it is destined to dominate its space.
I would buy into MDB again at the right price, but I don’t think the financials match the valuation, and I don’t know enough to have complete confidence that NoSQL is not destined to be a niche database format. I am not a database person, and I would appreciate hearing again the argument on how NoSQL is going to become dominant.
MDB is proposing a convertible debt offering. These offerings, as well as stock options, dilute current holder’s equity.
You may be correct, although I am not certain that MDB’s new offering is actually dilutive. The stock being up 6%+ today after the announcement might reflect this as well.
The following is a repost of what I posted last night on another MDB board, I am certainly open to anyone that can better interpret their possible motives, but it almost sounds to me like they are using the funds to try to take out future dilutive/convertible instruments (somewhat akin to a buyback), essentially suggesting that management expects even better things than the market anticipates right now:
Here’s the link to the press release from MDB themselves:
https://investors.mongodb.com/file/Index?KeyFile=402156815
Although it is “convertible” debt, the conversion seems to be “at MongoDB’s election”, so maybe it’s not dilutive unless they want it to be
Also, the way some of this is described, makes it sound more like the planned use of the proceeds will be anti-dilutive, rather than dilutive.
“The repurchases of the 2024 notes and the potential related market activities by selling holders of the 2024 notes (such as purchases of shares of MongoDB’s Class A common stock that MongoDB expects to occur in connection with the repurchase of the 2024 notes) could increase (or reduce the size of any decrease in) the market price of MongoDB’s Class A common stock or the trading price of the notes at that time.”
Anyone that understands these offerings better, please do chime in and share your thoughts. It looks like the stock is up more than 1% after hours, so this doesn’t seem to be spooking the markets.
-mekong
We generally discuss non-GAAP numbers here because that is a better indicator of a company’s performance. But one needs to consider GAAP when one is considering valuation.
Why? I dislike GAAP intensely which is the reason I read the rest of your post looking for support for your pro GAAP stance but could find none.
I would buy into MDB again at the right price, but I don’t think the financials match the valuation, and I don’t know enough to have complete confidence that NoSQL is not destined to be a niche database format. I am not a database person, and I would appreciate hearing again the argument on how NoSQL is going to become dominant.
sql vs. nosql
https://www.google.com/search?client=safari&rls=en&q…
How can you tell when the price is right when you don’t know if NoSQL is niche or big time?
I’ve done quite a bit of database work and I do believe that NoSQL will be big time which is no assurance that MongoDB will be profitable. I base the second part of the above on the huge popularity of MySQL (the “M” in “LAMP” – Linux, Apache, MySQL, PHP). MySQL’s weakness was the Freemium revenue of an open source product and the reason why I initially did not invest in MDB. This changed with Atlas, a SaaS business model. Atlas revenue is growing much faster than the other MongDB revenue streams.
MDB is proposing a convertible debt offering. These offerings, as well as stock options, dilute current holder’s equity. Paycom, on the other hand, is profitable, and buying back stock. This has the opposite effect.
Dilution is a short term issue, survival is a long term issue. There are some investments that should be valued based on earnings, typically value stocks, while others should be valued based on cashflow, in our case the SaaS business model. The ideal situation is, of course, positive free cashflow. The central issue of the SaaS business model is having CAC < LTV which means that first you must invest cash in getting customers (land and expand) in the expectation that they will produce positive free cashflow in the future. The convertible debt offering should be evaluated based on the use of the cash, in this case, will it create enough LTV to be worth the dilution? Comparing MongoDB to Paycom is comparing apples to aardvarks.
I started investing in MDB in March 2018 after I saw the initial Atlas returns and have a decent return – see chart.
https://softwaretimes.com/pics/mdb-01-09-2020.gif
After the June 2019 high MDB corrected sharply closing the $110 gap and it’s now back in a sharp uptrend. Mr. Market seems to like the convertible debt offering, up over 6% today.
Denny Schlesinger
Why? I dislike GAAP intensely which is the reason I read the rest of your post looking for support for your pro GAAP stance but could find none.
When you factor out stock based compensation, you are factoring out dilution and future dilution. If the company is showing negative GAAP earnings, you can expect dilution. If the company is GAAP profitable, you can expect buybacks or dividends (that can be reinvested), leading to an increase in your percentage ownership of the company. All else being equal, the non GAAP profitable company is less expensive from a valuation standpoint because you end up with more equity. If you buy one share today, it could be 1.05 shares next year. In an unprofitable company, your single share may be worth .95 of today’s shares next year. Nothing to do with the company’s performance. Just something to figure into when thinking of what you are getting for the price you pay. Now that I look at what MongoDB is using the offering for, I am sorry I used the convertible debt as an example. But I still think my point stands. If a company is burning through cash, you are going to be diluted, and that factors into the price you should be willing to pay for shares. This is not to say that the stock price appreciation from the company’s long term growth will not outweigh the dilution, just that it should be considered.
How can you tell when the price is right when you don’t know if NoSQL is niche or big time?
Factoring it into my risk/reward framework. Less confidence in the future of NoSQL increases the risk in my mind, therefore requiring a lower price before I feel comfortable buying. If I were more confident in the technology, I would be more confident buying in at a higher price.
Thanks for the discussion on NoSQL.
Anyone that understands these offerings better, please do chime in and share your thoughts. It looks like the stock is up more than 1% after hours, so this doesn’t seem to be spooking the markets.
I wouldn’t dare to explain the capped call options beyond linking to Investopedia
What Is a Capped Option?
A capped option limits, or caps, the maximum possible profit for its holder. When the underlying asset closes at or beyond a specified price, the option automatically exercises. For capped call options, the option exercises if and when the underlying closes at or above the predetermined level. Similarly, capped put options exercise if and when the underlying closes at or below the predetermined level.
https://www.investopedia.com/terms/c/cappedoption.asp
As I understand it, these capped calls protect MongoDB in case the stock rises like crazy. We don’t know how high the cap will be but it will be high enough for the buyers of the convertible debt offering yet low enough to protect MongoDB.
One thing is perfectly clear, although the offering is for $750 million, since one third will be used to buy back old debt, the effective offering is for only $500 million.
Denny Schlesinger
