okay, now that I got your attention, let’s rephrase that: preparing for an economic slowdown. I don’t pretend I can predict whether we’re heading for a recession - but we are definitely heading for a slowdown, because that’s exactly what the Fed is trying to engineer - reduce demand, slow down economic activity, cool down the ‘red hot’ labor market. At least that’s my understanding. A recession by definition is just a more pronounced slowdown. This is not black and white, but by now I think everyone agrees that the economy will cool down somewhat - which means less hiring overall, it means that more companies will struggle and consequently will look for savings, some won’t make it at all.
So what is that going to do to the stocks we are following here?
Zoominfo: I expect less hiring, so less demand for the core of Zoominfo: slowdown of growth
Bill.com: when more companies are struggling (and the smaller companies where BILL recruits its customers typically struggle more and quicker), the last thing they’ll entertain is a system integration that’s providing savings down the road. In that situation, you’re looking for sure, immediate savings, and your focus is on the survival of your business: find sales, cut cost. You don’t look for systems that promise to make your administration more efficient, you’re simply reducing personnel. That may not be the wisest decision, but it’s business reality: you KNOW it helps your P&L right now if you don’t spend or reduce headcount. Versus implementing Bill is an investment that will take attention you can’t afford right now, and the saving is just an assumption.
Monday: similar in my mind - they benefit from their high Net Dollar Retention Rate with existing customers, but I do believe one of the first things CFOs will look at is to stop discretionary spending, maybe take a harder look at the number of seats really in use (I know my company does, for Asana), and they certainly will reign in on the roll-out of new tools (i.e. new Monday customers)
Upstart: ok, let’s not even go there. Enough posted already
So what I would deem safe places are
- data security, monitoring etc. like SentinelOne, Crowdstrike, Zscaler, Datadog
- anything that helps companies to do more of their business (sales) or become more productive doing so, like Snowflake, Amplitude. And to a degree also Zoominfo as it’s branching out into Sales/marketing related activities.
Let’s make no mistake though - an economic slowdown affects the ENTIRE economy. These companies have incredibly strong business models, but regardless, they will grow faster in a growing economy than a slowing economy. So they also will be impacted somewhat, but hopefully not much.
Based on this reasoning, I decided to close my Monday and BILL positions today. I am convinced that the market in general has ways to go down further, and I expect these two companies’ growth rates to be materially affected by the economic slowdown. We know how the market responds to that, now worse than ever.
I’m not sure Monday will already report a slowdown next week, but in the current environment it’s hard to imagine an earnings report that WOULDN’T result in a sell-off.
I’m not usually trying to time the market, but I’m forced to de-risk my portfolio at this stage, and this appears the best approach for me. As always, draw your own conclusions and act accordingly.