Q1 Earnings are in for all of my companies and I thought it was overall a very strong set of reports. Since my last review in early March, I had a general pull back from mid-March to late April, but earnings helped things rebound in a huge way towards the end of April, and I briefly touched a YTD high on May 28th before pulling back again. Here’s how it’s been this year:
JAN: +11.38%
FEB: +19.98%
MAR: +3.37%
APR: -7.07%
MAY: +15.18%
JUN: +1.80% Through Yesterday
YTD: +52.25%
Here is how my portfolio has evolved over the year:
I now have 14 positions which is more than usual, but 3 of those are pure tryout positions, as I’ve made a decision in the last week that I want to dedicate a small percentage of the portfolio to hitting something that’s flown under the radar. I’ll write a bit about those companies in the summaries below but I’m not a very good analyst so I won’t attempt to write an introductory post like many do on this board. It’d be embarrassing.
OVERALL MUSINGS:
As ever, I am fascinated by the discussions on this board and while I don’t feel educated enough to participate consistently, I’ll share some of my thoughts now on discussions regarding SMCI & NVDA (my top two holdings throughout this year), on the SaaS stocks I used to own, and valuation. Apologies if this is long and I realize I am not an expert in any of this, so please correct me where I’m wrong.
While the details are a bit different, the fear that some board members have around NVDA and SMCI seems to be grounded in a philosophy that everything needs to be a long-term hold. I certainly HOPE everything I own will be a long term hold, but if there’s one thing I’ve learned from the best on this board it’s that you need to be really decisive, especially about exiting. So, I don’t really care if NVDA’s valuation will become too high at some point, or if there are threats to their domination many quarters or years down the road. Or if SMCI doesn’t have a moat which means some day it will get beaten. If you’re ignoring companies that are growing over 200% at huge revenue numbers, with constant good news, just in case it gets interrupted at some point…it seems a little nonsensical. Why miss out on the party because at some point it will end? But the warnings have helped me keep an eye out for when it’s time to leave.
Which brings me to SaaS. When I joined this board in 2021, it was more or less a SaaS board and everyone was rightly excited. I personally had never heard the term SaaS (I’m a pretty new investor), but I immediately recognized why it was ideal from a financial perspective and I realized that I had engaged with many SaaS companies before at my job. I quickly transitioned almost my entire portfolio into SaaS before it all began to tank. Many of the companies back then were growing at 60%-100% YoY and the board was talking about how all of these technological moats and data moats and there were a lot of subject matter experts talking about this and that with security and data and the dozens of new products a quarter that were coming out. And many of them were deemed “mission critical” offerings. It was exciting, before it started to fall apart.
I always felt amazed by the growth numbers, though. See, I had a lot of experience in “selling” SaaS products internally to a very conservative C suite, and a LOT of experience hitting a brick wall. No matter what business case I made, it rarely worked - perhaps this was a personal problem, but others in my company had it as well. My experience since has only reiterated this point: “mission critical” is a VERY relative term. While TAMs might be massive for these companies, there are real people who need to be sold on these investments. The more progressive ones are easy to convince, but the boatloads of old school stubborn ones are not so easy.
So as we are in year 2 of what I am calling the “era of efficiency” (stolen from Zuckerberg’s year of efficiency), I am very worried about many of the SaaS industries. The growth rates have fallen for most companies for 10+ quarters and many are now around 25-35%. Maybe interest rates will turn things around but I fear that the chaos of the last few years will create more of a lasting effect where B2B expenditures stay tight as the definition of “mission critical” becomes much more precise.
For instance: When there is a data breach, do the companies lose droves of customers? I haven’t seen anything to suggest that they do. So if I’m a CEO, how mission critical is it to have the shiniest new cybersecurity offering? In fact, why not look to optimize that spend towards something that generates more revenue, like some sort of fancy AI that helps accelerate product development?
I could be very wrong here, it’s pure speculation. I want to see the numbers prove me wrong so I can get back in. Many companies are supposed to be receiving tailwinds from AI and an easing macro outlook, but so far all I see are continuously declining, or flat results vs. the bounce back we were all expecting. So I’m staying out for the most part.
I’ll bring this full circle with my review of SMCI below.
The last interesting topic that I’ve never been able to wrap my head around is valuation. It seems like complete guesswork - sure, numbers and math are involved but I haven’t seen anyone post any general rules, ranges or averages that govern the subject. If these exist please point me to them so I can have a reference point. But it does seem important for evaluating where to optimize within the stocks I love. I have started to look at the relative EV/Sales (NTM) of my positions to help guide allocations when I’m trimming (see below), but not as a reason to invest or sell out.
Company Overviews & Decisions:
NVDA - 25.2% Allocation, 262% Rev Growth
There’s not much to say about NVDA that hasn’t already been said and my views on any concerns are above. The last time I bought was in Feb and the rest of the growth has been organic. I take care of valuation concerns by setting a 25% ceiling and trimming to fund my other positions. I will keep it at 25% until the growth numbers change but I have total confidence that it won’t be soon.
Decisions: Trimmed over the last two weeks to add to positions below.
SMCI - 18.3% Allocation, 201% Rev Growth
I thought SMCI had a great report and the market gave us an absolute gift with an AH drop, and continues to provide one in the runup to the next report. They saw 200% growth but missed estimates by a tiny margin, due to a timing of supply and therefore revenue, which left their next Q guide to be massive, and…I guess the market didn’t realize it? It seemed so obvious I was almost giddy, because I trimmed before earnings at $861 (mostly due to some of the warnings here) and got to then buy it all back and then some at $730ish. Since the massive raise for next Q, and FY raise, it’s been reported that they will be supplied with 25% of all Blackwell supply, and they are building out a massive data center in Japan with liquid cooling racks…and yet the market has barely blinked an eye compared to the runup in Q1. I don’t want to be overconfident, but I am excited for next earnings. In terms of EV/Sales, it’s one of the cheapest stocks in my portfolio, 2.0x.
One thing I don’t understand is how people can be so focused on things like moats and granular industry-specific details, to stay out of a company growing at this scale with these sorts of tailwinds. And yet, it seems like our other companies are applauded when they are flat from a rate acceleration standpoint. I’m not just talking about SaaS, I’m also talking about CELH, TTD, and others who…also don’t have true moats. I believe that there is more to a business than just having an insurmountable advantage, which is execution. There is also value to intangible things like company culture. And it might be relationships, and relationship building, too. Sure, most of the very best companies of all time have crazy big moats. But not all. And despite the theory that Dell or HP or whoever can just simply copy SMCI, I call BS. These are massive companies with embedded corporate cultures and personnel who don’t just pivot on a dime. In any case, I will take a 200% grower with a “commodity product” who can’t even fulfill the demand, over a 30% grower who seems to have such a great product but growth has been slowing consistently for multiple quarters.
I know nothing about servers and maybe I’ll put my foot in my mouth next quarter. As with all my holdings, I’ll come into earnings with an open mind. Eventually, SMCI will slow down like all others, I know that.
Decisions: I have trimmed it several times to keep it under 20%, and then added when it gets in the 700s to keep it about 17% of the portfolio at minimum.
TMDX - 17.4% Allocation - 133% Rev Growth
Another great report with topline revenue growing at 133% YoY, Net Income tripling, and Service Revenue growing a 367% YoY. And the market finally noticed! It had a big runup and I trimmed a bit to add to AXON. That turned out to be at the high point, and it’s fallen back a little bit. I’m confident going into next earnings and comfortable with it as my #3 position.
Decisions: Trimmed after the runup to add to AXON, see reasoning below.
PGY - 8.5% Allocation - 31% Rev. Growth
This has been a weird ride to say the least. I’ve felt this company could break through after the US Bank partnership and with the macro eventually easing. That’s somewhat played out. They had a really strong rise after their guide during their Q4 report. And then they reverse-split their stock and had a really boneheaded, confusing capital raise and completely tanked. And the positive growth story seemed to get completely washed away. Because Q1 came around and they put up 245M in revenue, their highest ever I believe, at 31% growth which feels incredible in this interest rate environment. Yet their guide was for 240M next quarter and they only reiterated FY guidance. This seems conservative, which, at the time of their report, may have been prudent because the macro was looking sketchy.
In any case, this is my 2nd cheapest stock on an EV/Sales basis at 1.4x. It has been pummeled due to the capital raise and had almost no reaction to positive numbers. So I’m really hoping this is one of the positions that fuels a big 2nd half for me, which feels like a good bet if we get a rate cut.
Decisions: I’ve been adding, adding, adding from some of my trims above. Mostly at between 10&11/share. It’s now at $12.12.
AXON - 7.3% Allocation - 34% Rev. Growth
What a great report and what a strange reaction since. They accelerated revenue growth from 29 to 34%, accelerated cloud revenue and a ton on ARR (58% from 47%), announced a new AI product that I think is super compelling, and they’ve dropped from $327 to $279 since. An opportunity I think, although it’s not the cheapest stock in my portfolio.
Decisions: I added after earnings from the TMDX sale.
UPST - 5.3% Allocation - 24% Rev. Growth
I won’t discuss Upstart because it’s clearly a rebound stock/rate cut play only. But at least we see a positive YoY on revenue for the first time in a long time
Decision: I trimmed quite a bit before their report because I fully expected it to be not great, which was the right move.
IOT - 4.2% Allocation - 37% Rev. Growth
They just reported and I’m still reflecting, but I was hoping for more. Revenue growth stayed flat at 37% YoYt, most other metrics dropped slightly, the raises were smaller than average. I mentioned this last quarter, that I don’t understand why they aren’t able to accelerate growth with a growing TAM and what seems to be tailwinds around optimizing operations. Maybe AI is actually disrupting them. It seems disappointing, and yet 37% growth isn’t bad and this quarter stopped the trend of declining YoY growth. But this is up on my chopping block. I think there are better opportunities within my smaller holdings.
Decisions: I trimmed ⅓ to start a position in NU after their earnings, as this was one of my less confident positions.
ELF - 3.6% Allocation - 71% Rev. Growth
I thought it was a strong report but we already have discussed on the board that the guide threw them off from even a bigger post-earnings move. It’s still down 11% on the 3 month, which is right after I bought, but I’m confident in the numbers. It’s in the middle of the board for EV/Sales at 8.1x, but is certainly a candidate to add to.
Decisions: No movements this period
TSLA - 3.5% Allocation - -9% Rev. Growth
I chose to restart a position in TSLA after it was sold off quite a bit before and after earnings. This latest earnings call mentioned moving up the new Model rollout, the potential licensing agreements for FSD and the news on Robotics. When I had sold out of TSLA last year, I was waiting for a new catalyst in order to buy in, and I thought the last call was enough to get back in. Frankly, I’m just not willing to miss the boat. Besides that, the earnings obviously were disappointing, which was expected. Thank you to the board members that continue to cover TSLA as it’s hard to follow, for me.
Decisions: I’ve been using various trims from NVDA & SMCI to build this up over the last couple months and am looking to add more but there are lots of candidates to add to.
SNOW - 3.4% Allocation - 34% Rev. Growth
I put this in the IOT camp. I thought after Q1 that with the big increase in RPO, they’d have a big quarter. Not so, it was…fine. Revenue growth flat, ARR, large customer growth metrics all continued to slow. RPO up on YoY but down sequentially. I just don’t understand how they aren’t accelerating, and the market seems to agree. It’s my worst performing stock this year. Someone compared it to NET - which I sold out of after earnings - and I have to agree. Something is not adding up. 34% isn’t terrible, and I am still thinking there’s a catalyst somewhere in the future but I’m not sure I’m willing to wait around
Decisions: No movements this period.
NU - 2.8% Allocation - 69% Rev. Growth
Great earnings. 4th straight quarter of revenue growth acceleration. Net Income is up and they are making moves in new markets. I’m kicking myself as I was in Nu for about twice the weight when they were at $7 a year ago, but I sold out simply because the stock takes so long to move. Lessons are continuously being learned. I’ve been trying to build this up with my trims and as I’m currently typing this I’m thinking some of the above positions might need to be consolidated here.
Decisions: Started and added to this multiple times with the trims from NVDA & SMCI
Tryout Stocks:
I have decided to start using some of my trimmings to buy really small positions in a handful of companies with the intention of making much larger allocations based on their next earnings…or maybe I’ll feel compelled beforehand. Thank you to @ryshab for the Koyfin pointers, as this is all coming from doing much deeper exploration with that platform than I had ever done before.
PinDuoDuo operates a Chinese eCommerce marketplace and also probably more famously, owns Temu, the global bargain eCommerce site that bought 5 Super Bowl spots. WPR wrote a bit about them as well. They are doing $12B in revenue quarterly, up 131% YoY. Generally speaking, revenue growth has been accelerating since Q4 2021 and Temu is consistently in the top 10 of the app store and Google Play in the US, for multiple years running. Last 4 quarters YoY CAGR looks like: 66%, 94%, 121%, 131%. Gross Margin 62%, and 3.9B in GAAP Net Income. I know many don’t invest in Chinese companies as a rule but these are staggering numbers. EV/Sales is 2.6, 4th lowest in my portfolio.
Natera does prenatal testing for abnormalities in fetuses. Perhaps this is due to my 20 month old daughter and my next daughter who is due in October, but I have to think this is a booming market even if birth rates are slowing. Rev growth rates have been increasing, 32%, 27%, 43%, 52% in the last 4 quarters. 57% GM has been increasing steadily and they are moving towards profitability. It looks like this company has been mentioned in the past but not for a long while.
GigaCloud was previously brought to the board by WPR and I found them again on my own through Koyfin. They provide B2B ecommerce solutions for large products to be shipped overseas. It seems interesting in an increasingly global eCommerce marketplace (see PinDuoDuo). They are growing at 90%+ the last two quarters which has accelerated from 14%, 23%, 39%. GM is lower at 25%, but they are already profitable. Apparently there have been some recent acquisitions that may be driving the big growth numbers so I’ll need to see the story play out, but their EV/sales is only 1.3x. So perhaps there’s opportunity here regardless.
What I Offloaded:
NET - I just can’t sit through another quarter of tepid results and unrealized hype. I got suckered in after Q4 earnings, and had to sell after Q1 earnings.
BEEM - the whole “moving earnings multiple times” thing just made me think there was time to get back into this at another time if they kept growing, but that time is not now.
If you’ve gotten this far, thank you for staying with me and I hope there was something of value in here. Please feel free to share your thoughts. Best of luck to all!