Whilst not an over-riding concern but a preponderance that occurs to me every so often is the runway our high growth stocks have.
Over the years we have seen Saul make pretty sharp exists when rocket ships begin to resemble mere jet craft and we know that the theoretical S curve is in part defined by the remaining TAM and the terminal growth rate of the market place.
Given that we are concentrated into our SaaS holdings which are experiencing hitherto unseen rates of growth it concerns me that we are in completely uncharted territory.
On the one hand we could just carry on switching when we see growth rates decline and the rocket ships to morph into jet planes yet on the other hand - we do get occasional head fakes (e.g. Twilio) and yet still we also see massive gains escape us when some of these declining growth rates shake us out of positions with potential Amazon scaling opportunities (Shopify and The Trade Desk).
Furthermore - occasionally we are left scratching our heads as to the potential room for growth with key positions (Zoom and Docusign) where we are wondering just how much more potential there is left in the market.
For all of these reasons I wanted to take a look at the discernible TAMs of our top positions as well as the penetration rates (TTM revenues) that our companies have achieved with respect to their market potential.
I also do wonder some times as to the relationship between the EV and some of the TAMs although this needs to also deserves consideration of other metrics like GM.
In any case I have looked at my top 20+ positions and calculated the TAM (either self declared or analysed) and the penetration rates according to the most recent TTM revenues.
I intend to track this and reflect on this further but in the meantime here’s where I have got to.
Overall Portfolio TAM & Penetration rates ranked by holding value
**# Holding Portfolio(%) TTM ($bn) TAM ($bn) Penetration (%) Comment** 1 Shopify 15.3% $2.46bn $250bn 1.0% Calculated as 5% take rate of $5trn eCommerce mkt 2 Crowdstrike 11.8% $0.761bn $32.4bn 2.3% 3 The Trade Desk 8.9% $0.732bn $725bn 0.1% 4 Zoom 5.7% $1.96bn $30bn 6.5% 5 DataDog 5.0% $0.539bn $24bn 2.2% Unified monitoring = $8bn 6 MungoDB 4.6% $0.542bn $63bn 0.9% 7 Square 3.8% $7.65bn $160bn 4.8% TTM includes Bitcoin revs 8 Elastic 3.5% $0.510bn $53bn 1.0% 9 Teladoc 3.4% $0.867bn $121bn 0.7% 10 Alteryx 3.3% $0.491bn $50bn 1.0% 11 Fastly 3.1% $0.267bn $35bn 0.8% 12 MercadoLibre 2.7% $3.32bn $35bn 9.5% Calculated as 5% take rate of 5% ecommerce pentration of a $5trn retail market plus consumer banking opportunity 13 Cloudflare 2.7% $0.389bn $35bn 1.1% 14 Palantir 2.6% $0.999bn $119bn 0.8% 15 Pure Storage 2.5% $1.67bn $50bn 3.3% 16 Nutanix 2.1% $1.31bn $90bn 1.5% 17 Micron 2.0% $22.06bn $200bn 11.0% 18 Sea 1.9% $3.59bn $150bn 2.4% PC download and mobile gaming $97bn SE Asia ecommerce & payments $30bn 19 Exp World 1.2% $1.46bn $15bn 9.7% 1% of US housing transaction market 20 Asana 1.1% $0.202bn $45bn 0.4% Productivity management software 21 Docusign 1.0% $1.3bn $25bn 5.2% 22 Snowflake 1.0% $0.489bn $84bn 0.6% 23 ZScaler 1.0% $0.480bn $72bn 0.7% (SAM)
- All these TAM numbers look pretty huge
- Most penetration rates are tiny ~<1% to 2%
- In particular penetration rates for Zoom and Docusign - the ones we are worried about appear higher than others but still are only ~5%
- The companies with the highest TAMs have defied expectations either of sky high EV/S or share price progression or both (Shopify, TTD, Square, Snowflake)
- Teladoc, Palantir and Sea appear surprisingly well cushioned with extremely high TAM values and low penetration rates
- Potentially eXp holdings and Micron look the most vulnerable with their penetration levels despite continued strong growth rates
(N.B. This ranking table was from 2020 year end. Since then I have sold down Micron and reinvested in Snowflake, Skillz and Lemonade.)