Saul: A Comparison of Your Comparison

The contrast between these two earnings reports was so astounding that I felt that I HAD to say something! I just felt compelled.

They are about the same size. CRWD had revenue of $125 million, and MDB had $109 million.

CRWD had revenue growth of 88%. — MDB had revenue growth of 52%.

CRWD’s revenue rate fell by 6% sequentially. — Mongo’s fell by 22% sequentially (52 is 78% of 67… a fall of 22%).

CRWD had subscription revenue growth of 98%, — Mongo had subscription revenue growth of 56%.

CRWD’s subscription revenue rate was flat sequentially (It stayed at 98%). — Mongo’s fell by 21% sequentially (56 is 79% of 71… a fall of 21%).

CRWD’s Adj operating loss was $16.5 million, improved from $29 million a year ago. — Mongo’s was $14 million, worsening from $8 million a year ago.

Crowd’s Adj net loss was $13 million, less than half its loss from $29 million. — Mongo’s was $15 million, more than double its loss $7 million a year ago.

Crowd’s Operating Cash Flow was positive $39 million, improved from a loss of $3.6 million a year ago. — Mongo’s was a loss of $11.5 million.

Crowd’s Free cash flow was positive $7 million, improved from a loss of $13 million a year ago. — Mongo’s was minus $13 million, worsening from minus $11 million.

Saul:

I reread this post from a few days ago and must admit, you made some valid comparisons…though in unlike industries…but I get your point.

But I also noticed you own a large portion of another “security type” stock in OKTA…16% of your portfolio as I recall from your last portfolio update.

That would seem to be a rather interesting compare and contrast with CRWD as you did against MDB (unlike industry though it may be):

CRWD had revenue growth of 88%. — OKTA had revenue growth of 45% and rapidly falling from quarters past.

CRWD’s revenue rate fell by 6% sequentially. — OKTA fell by 10% sequentially.

CRWD had subscription revenue growth of 98%, — OKTA had subscription revenue growth of 46%.

CRWD’s subscription revenue rate was flat sequentially (It stayed at 98%). — OKTA’s fell by 10% sequentially.

Etc Etc.

Whether one looks at customer growth rates, Net retention rates, forward P/S, etc…CRWD seems to blow away OKTA…margins are very similar between the two companies.

Which of course leads me to ponder…with the comparison you made with MDB…why do you have 16% of your portfolios tied up in OKTA??

This seems rather inconsistent thought process so maybe you could explain?

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I’m not Saul but OKTA has been talking for a while now of new products that will reignite sakes growth second half of the year. RPO growtybwas 52% last quarter.

I think a better one would be ZS. ZS sales growth has been falling as we all know but so has their RPO, which now stands at 35% yoy kast quarter. Yet some people are holding on because of the story and Chaudhry’s comments about how “the customers are coming to us.”

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I think a better one would be ZS. ZS sales growth has been falling as we all know but so has their RPO, which now stands at 35% yoy kast quarter. Yet some people are holding on because of the story and Chaudhry’s comments about how “the customers are coming to us.”

The rationale for investing in ZS is more than a story or CEO comments.

ZS has significant advantages over its competitors, ranks at the very top of its sector and is taking market share.

Its market is expected to continue impressive growth for many years (and may be accelerating):

https://www.marketwatch.com/press-release/secure-web-gateway…

As for ZS growth, many clues suggest that it’s sandbagging guidance.

Dave

long ZS

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Dave, what clues suggest ZS is sandbagging guidance?

Last December, ZS guided to 36-38% growth and grew at, what 58%? Their history as a public company they have given super conservative guidance…

Best,
Matt

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Matt, Dave, what else do they have? Supposedly there are many clues" that ZS is sandbagging guidance. Yet at the same time I see. I thing in their numbers that their slowing revenue growth is temporary. Billings growth has slowed, revenue growth has, RPO growth has slowed, total customer count is “over 3900” for two quarters in a row after growing like 700 customers in 2018.

Again, take out the story, and by that I mean everything from Gartner reports to a disruptive technology. What suggests the company is on track.

Is it possible, for instance, Prisma, Fortigate, and all the other NGFW companies are selling into their existing companies SD-WAN security that has taken a bite out of ZS growth? Prisma alone now has over 900 customers and more revenue than ZS after being released in March. Meaning they grew customers faster than ZS did, which is to be expected when you’re up selling into a large customer base like PANW is. It’s business that ZS most likely would have gotten a taste of. If not this, I’m sure there are some other plausible theories as to why ZS revenue growth can slow.

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Leadership teams certainly matter as well and it should be interesting to see if/when the hire of new CRO Dali Rajic helps with the sales issues for ZS. It’s what he was hired for. I know it’s been discussed here before and it could take a couple or few quarters to find out. The product is solid. Hopefully his hire will prove positive for those holding shares.

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Matt, Dave, what else do they have? Supposedly there are many clues" that ZS is sandbagging guidance. Yet at the same time I see. I thing in their numbers that their slowing revenue growth is temporary. Billings growth has slowed, revenue growth has, RPO growth has slowed, total customer count is “over 3900” for two quarters in a row after growing like 700 customers in 2018.

They consistently beat guidance. They have made significant investments to expand their sales team - there was a big jump in the last quarter. Analysts believe they are “well positioned” to improve their sales execution. Then, there’s the larger picture for their sector where they are dominant and gaining market share.

Look, there are risks. Growth is slowing as it always does for every single company. There are always unknowns. That’s why ZS is just one stock in my diversified portfolio of 20-25 stocks. But ZS checks all the boxes for me - dominant company, significant competitive advantages, growing market share, large rapidly growing sector for many years into the future, great current company growth, consistently beats expectations.

Dave

Long ZS

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take out the story… What suggests the company is on track?
Very good point.

OTOH all the facts and figures from published data are about the past. Whereas the “story” is about the future.
Some "stories " are absurd, I remember the ones about how everybody was going to have their own 3D printer and that widespread use of nanotechnology was just around the corner. But others make more sense. Being wildly optimistic I once thought that maybe as much as 10% of us would own computers or mobile phones.
To get from now to tomorrow’s vision we have to pass through time, in this case composed of news and earnings reports. So we should always be ready to listen to one so we can change our mind about the other. Saul is particularly good at doing this.

How much revenue slowing is too much? Even 25% annual growth compounded grows fast. But for how long? Alas the Competitive Advantage Period of any company is a big unknown. Few can predict it with accuracy. High growth rates and high margins attract competitors. We do know from today’s company turnover that it does not last as long as it used to.

Personally I suspect the glory days of making big bucks in SaaS stocks are over, the big boy analysts have been able to overcome their monocultural training and get it now. But lacking any better ideas I own pretty much what most here own. One exception, the addition of PAYC , which shows that having a somewhat better mousetrap and a devotion to selling it can keep on throwing off growth and high stock prices for years

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The problem with thinking Zscaler is tanking it, is look at the billable and RPO growth from last year. They were 50, 60, evening excess of 70%, and yet their guidance was in the mid-30s.

This time they are guiding for about the same, which even analysts had a hard time taking seriously, but they are guiding like this as their billables and RPOs and deferred revenue growth are all way down. Very likely Zscaler is low balling because if the business only grows as they guided for it is a broken business. Nevertheless, all the current numbers are pointing downward. Perhaps future numbers will be raised as business growth accelerates. The problem they have is they have to start to accelerate customer gains and all evidence points to new customer growth slowing.

So the answer is we don’t know when/if they will accelerate growth. No one can point to anything other than pure faith in management and the product despite ALL, I mean ALL, of the forward looking figures materially declining. We are talking numbers that were 1/2 of those same numbers from last year.

Tinker

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Here is the reason why Zscaler “should” recover and prevail:https://www.thestreet.com/investing/earnings/zscaler-soars-o…

It is of course a difficult diffusion of information that has to happen. Your regular security guy (and there is a shortage of them, so they are overworked, and many just keep their heads in their books and notes and communications with their current vendors rather than miraculously looking outside their expertise to what a Zscaler, as an example, can do for them to make their lives easier and steal power from them) may have either no interest in finding cloud solutions, or simply not believe there are other solutions, and the firewall vendors will not dissuade them from this.

Such change has to come from the top down, and the CIO or CEO has to be involved to make it so. I work with CEOs and CIOs and VPs, and Ps, and the like, and frankly, most do not have the wide variety of information and interests that we do when it comes to their jobs. Often, they have the job (despite their qualifications) because they have great people skills and emotional intelligence. Thus, making the case for Zscaler is still an on-going process. Whereas, given how rapidly they have grown, and the success they had, we had thought Zscaler had reached a tipping point where this information was moving mainstream. Clearly that has not happened. So we are at the moment, often called the chasm, when Zscaler has to now win the more mainstream customer who will be less informed, less interested, and more difficult to sell to, while wrestling with their current vendors. The earlier adopters either were more more interested, more informed, or suffering through more pain, and thus were easier to sell transformation to.

Tinker

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At the top of this thread Duma asked a very good question, specifically to Saul. Not sure Saul is going to answer the question, but I’m still very curious in any thoughts or answered to the original question.

The thread has thoughts on ZS, but so far hasn’t addressed the original question.

If comparing CRWD to ZS and concluding that ZS is a sell, then how does one conclude that OKTA compared to CRWD is a buy or a hold? Why would OKTA be a top holding in a portfolio while ZS isn’t worth investing in?

I thought it was a good question.

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Whether one looks at customer growth rates, Net retention rates, forward P/S, etc…CRWD seems to blow away OKTA…margins are very similar between the two companies. Which of course leads me to ponder…with the comparison you made with MDB…why do you have 16% of your portfolios tied up in OKTA??

Hi Duma, I just can’t have everything tied up in Datadog and Crowdstrike. It just would be too volatile and too dangerous. And Okta isn’t just racing in the wrong directions the way Mongo was. For example, Okta’s free cash flow last quarter was $9.2 million up from $1.4 million a year ago while Mongo’s free cash flow loss just grew, and Okta’s adjusted EPS loss was 7 cents a share while Mongo’s was 26 cents per share). To me, Okta has a clear success pathway, while Mongo’s is less clear.

At any rate, my Crowdstrike position at 16.0% has now passed my Okta position at 14.4%.

Best,

Saul

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Saul, thanks for the clarification.

Another question for you.

So I’m assuming you are way up in OKTA, so that position grew into a 14% position for you over time, assuming you didn’t trim, but maybe you did along the way.

Building out a current position in CRWD of 16% would mean that your investment in CRWD is a much larger number then it was originally for OKTA as I can assume that you are currently not in the green on CRWD as the stock is very close to its post IPO lows.

So are you then willing to start and build a position up to as large and sometimes even larger then other companies you hold that you are up 200 or 300%?

I’ve never done that. I’ve always only been willing to put in a certain amount into most companies I buy, say 25,000 for example. For example if I wanted to buy DDOG I’d be willing to invest say 25k, not say 100k to match a company I’m up 300% or more in.

Maybe I’m investing my money incorrectly. What do others do?

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Draj,

This is OT, so please no more responses to Draj’s specific question. Saul talks about how/why he stays fully invested.

Basically, he keeps enough money not in his investment accounts to live off of for several years. That’s all we need to know. How we allocate is up to us and our comfort levels/unique situations.

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So are you then willing to start and build a position up to as large and sometimes even larger then other companies you hold that you are up 200 or 300%?

Hi trying, I don’t invest based on how much I started some current positions at. I consider my whole portfolio now, and decide what part of that current portfolio I want to be in each stock.

Maybe I’m investing my money incorrectly. What do others do?

There’s nothing incorrect about what you do. Each person should do what they are comfortable with.

Saul

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