Saul's portfolio at the end of 2022 - Part 2

Saul’s Portfolio at the end of Oct 2022 — Part 2


Please note that when I discuss company results, I almost always use the adjusted values that the companies give.

I sometimes mention what I might do about each position, but DON’T just follow me. Make your own decisions. I may change my mind tomorrow and probably not mention it for a month. And what I invest in may not be right for you. And besides, I don’t understand anything about the tech. Agreements or disagreements with what I think about the companies, are of course welcome on the board if you include some reasons and it’s not just a one-liner.


Bill announced Sept quarter results on Nov 2nd. It is a high confidence position for me, in 2nd place in my portfolio, at 21%.

They had what I considered to be great results and I added to my position.

They had a record number of net customer adds.

Total revenue was up 94%.

Core revenue was up 83%.

Transaction fees were 2/3 of total revenue and grew at 94%.

Adj gross profit was $197 million up from $99 million yoy

Adj gross margin was 85.8%, up from 83.6% a year ago. [huge gross margin]

Adj operating income was positive $9.1 million, up from a LOSS of $9.2 million a year ago.

Adj net income was positive $17 million up from a LOSS of $12 million.

Adj EPS was 14 cents, up from a LOSS of 13 cents, a year ago.

Op Cash Flow was $18 million

Free Cash Flow was $12 million

While other companies seemed worried, Bill said that looking ahead, they expect to deliver strong revenue growth and adj profitability in fiscal year 2023, while continuing to invest in their platform to create more value for SMBs.

Alliances with (a subsidiary of the American Institute of CPAs), and with Bank of America, and a bunch of other big banks, and also with 85% of top 100 CPA firms, seems a considerable moat.

Jason posted in August that he had had dinner with an ex-VP of Bill who told him, “No one that doesn’t work at Bill understands how deeply integrated Bill becomes in the internal processes of each enterprise customer… No one is ever going to change out of Bill for another option, even if there was a better one*.”***

Still up 21% from its sell-off low of $89.90

Bill seems to me to be a very strong company, with a strong future and I am happy with my position.


Cloudflare also announced Sept quarter results on Nov 2nd.

Here’s my quick summary: This company has been delivering revenue growth in the high 40% to mid 50% range for many quarters sequentially. In addition they innovate and come out with new products and improvements at a pace that neither I, nor anyone else, has ever seen before.

However, they disappointed this quarter. Revenue growth was only 47%, which was still in that high 40% to mid 50% range, but was a disappointment after a number of quarters that were sequentially all over 50% (so it looked like this: 48, 48, 54, 50, 51, 53, 51, 54, 54, 54, and then 47).

To overcome the disappointment they said : “Now, we’re focused on the path to organically achieve $5 billion in annualized revenue in 5 years, and we’re confident we have the products already in-market to get us there.”

Adj gross margin was 78.1%, down a little from 79.2% a year ago.

Adj op income was $15 million, or 6% of total revenue, up from $2 million, or 1% of total revenue, a year ago

Adj net income was $19.1 million, up from $1.4 million a year ago.

Adj EPS was 6 cents, up from 0 cents a year ago

Operating cash flow was positive $43 million, up from a LOSS of $7 million a year ago.

Operating cash flow margin was 17%

Free cash flow was minus $5 million, improved from minus $40 million a year ago.

Free cash flow margin was minus 2%, improved from minus 23% a year ago

Cash was $1,636 million

Paying customers were up just 3% sequentially [disappointing] and up 18% yoy. (Sentinel, for instance, grew total customers by over 60% yoy)

$100k customers were up 51% yoy, and only 9% sequentially (Sentinel’s $100k customers were up 28% sequentially, or 3x as much)… $100k customers now make up 61% of revenue though.

$500k customers were up 88% yoy

$1m customers were up 63% yoy

Net Retention Rate (NRR), was 126%, down a little from last quarter’s record.

Higher capex than our other companies because it has to build and service all its world-wide endpoints, etc

They are moving rapidly into security and competing with Zscaler and PaloAlto in Zero Trust. They announced that they also equipped their partners to deliver the Zero Trust solution.

Also moving rapidly into data storage, processing, and distribution. Here’s a little quote from Software Stack Investing (which I advise subscribing to):

the progress in data services has been a welcome surprise. A year ago, I wouldn’t have considered Cloudflare to be a data company. Yet, if we fast forward 5 years, it could become one of the larger providers of data services…

Jason pointed out in a post on our board:

*I can’t help thinking about the fact that Cloudflare’s Zero Trust services are already being used across the Federal government, including the FBI, State Dept, and Library of Congress. That’s even without FedRAMP certification…. *

And now they finally did get FedRamp moderate approval in December which is a big deal for them in getting more Federal Business…

Here’s another interesting story:

They have 40 venture capital firms funding startups to build out their businesses on Cloudflare’s Workers program. Cost to Cloudflare, zero. Benefit to Cloudflare, huge.

They started out trying to find FIVE Venture Capital fims to do this for a total of $250 million. They got FORTY firms so far, for a total of over $2.0 billion. That’s 40 venture capital firms investing $50 million each. That’s 50 million dollars each!

They are very enthusiastic, and doing what they do very well, but still assuring us that they’re not trying to be profitableand will stay around break even while they build out the business, which is not what I really want to hear. I reduced my position from over 19% at one point to 15.2%, and in 4th place.


They reported October quarter results at the end of November and I was disappointed about a lot of things, and here are just a few of them. Revenue growth dropped from 63% a year ago and 58.5% a quarter ago to 52.8%. And they guided to 44.5% growth next quarter.Sequential gain dropped from 12.4% a year ago and 9.6% a quarter ago, to 8.6%, the lowest it’s ever been. They added only 1460 new customers in the quarter, which is a decrease from last quarter, and up only 44% yoy, even though they are supposedly moving downstream into smaller customers where they should be signing up more of them. ARR missed company’s guidance and came in rising at just 9.3% sequentially, and dollar-wise it was up less than the quarter before sequentially for the first time ever, and they forecasted another 10% decline this quarter. The good news was rising cash flow and profit margins, but the overall tone was all about macro. I didn’t know what was wrong but felt something was and greatly reduced my position.


They also announced Sept quarter results on Nov 2nd. I thought that their results were good allowing for being usage-based with some expected slowing of growth considering the macro environment. Datadog is truly dominant in its field, but they may struggle for a couple of quarters. Longer term they will do just fine.

Revenue was up 61%, and up 7.4% qoq. That was really a slowdown, coming down from 75% and 16% a year ago, and down from 74% and 12% a quarter ago. However, does a company really have to apologize for “only” growing revenue at 61%???

Adj gross margin was 80%, up from 78% a year ago

Adj operating income was positive $75 million;

Adj op margin was 17%.

Adj EPS was 23 cents

Op cash flow was positive $84 million, with

Free cash flow was positive $67 million.

Cash , was $1.8 billion

Total Customers 22,200, up from 17,500 yoy, up 27%.

$100k customers up to 2,600 up 44% from 1,800 yoy. They provide 85% of Revenue

Every quarter more of their customers are using more of their modules.

They are moving into security in a big way and succesfully.

In October, at their DASH conference, they announced 30 or so new products and new features, looking like another Cloudflare for innovation. Datadog is shifting further left, giving developers observability and security earlier in their product development

A big problem for many people was their conservative guidance but here’s what they actually said (paraphrased):

Q4 has quite a bit more seasonality than other quarters. It had the DASH conference with all its expenses. In addition, December tends to be a little bit weaker as a lot of our customers take time off and rest their development environment and things in it. It’s also been a little bit harder to forecast in recent years with the pandemic and the vacation behavior that changed after the pandemic. So we are a little bit careful with that, and that’s all incorporated in our guidance.

What they seem to be saying (the way I read it, anyway), is that you shouldn’t pay too much attention to our ridiculously low guidance, but we are giving it to cover ourselves in case of unforeseen disaster.

A 17.1% position, I added this month at what I considered ridiculous prices.


Monday reported results in November too. Another mixed picture, improving some metrics but others were plummeting.

Revenue up 65% (68% FX-adjusted), down from 95% a year ago. That’s a BIG drop! But they are twice as big as they were a year ago.

Gross margin was 89%

Customers over $50k up 116% yoy… BUT they were up 231% a year ago and this quarter it only grew 14% sequentially, which was also way down from 30% a year ago.

Now some good stuff. Paying accounts from their new Work OS products have already surpassed 3,000.

*Our sales CRM, consists of over half of the new Work OS product signups. It is already rated as one of the best CRM’s in the market, according to G2, and we continue to focus on making it even better through advancements such as new layouts and new reporting widget types.

As a reminder, these new Work OS products have only been made available to new customers and we will be excited to roll them out to our existing customer base in the near future.

With CRM we tapped into a new market , we see new customers of a new kind and we also see them comparing us to other companies that we were not compared to before. So the type of customers that are joining us is completely new. It’s like it’s not existing customers. And so obviously, they start off at a different scale, they want different things, and this is very encouraging for us because it proves for us that Monday is a true platform that has completely different products on it.*

Adj operating margin was -2% improved from -11% a year ago

Adj EPS was positive 5 cents, up from a LOSS of 26 cents a year ago

Op cash flow was $20.0 million, up from $3.8 million a year ago

Adj free cash flow was $14.0 million, up from $2.9 million yoy.

NRR was over 120%.

NRR for customers with over 10 users was over 135%.

NRR for customers over $50,000 was over 145%.

Guidance for the next quarter was ridiculously low

Total revenue of $142 million, up 49% (which probably means below 60%

Adj operating loss of $20 million and negative operating margin of 14%.

They expect FX to negatively impact their full year revenue growth by about 3 points.

Here’s what is troubling me: This is still a small company that is barely profitable (if at all). They blew $7 or $8 million on a Super Bowl ad a year ago (which wasn’t even a good ad). And then they are spending nine million dollars PER YEAR on prestige Park Ave offices, as well as other offices in London, Chicago, Miami, Tokyo, Tel Aviv, and who knows where else. They are probably seeing few, if any, actual customers in these offices. They are spending all that money not so much to get new revenue, but to pamper their employees. And then add on that they will be planting 265,000 trees for the good of the planet…

The company obviously has great products that its customers love. That’s not the problem. Its stock has done better than any of my other companies since the spring lows, for reasons about which I haven’t a clue. I have no real problem with their business. After all, growing revenue at 65% with a 89% gross margin! The problem seems to be management not knowing (or not caring) about how to manage the money after it comes in so as to make a profit instead of showing off. Stockholders seem to come last, after employees, fancy offices, trees, and the Super Bowl.

And I believe that this was complicated by the apparent euphoria they had when they were growing over 100%, and which probably was when they contracted for all these extravagances, and now the financial crisis has hit and revenue growth is tumbling, and they still have all these contracted offices and other expenses. Oh well! That’s why, even after adding this month, I have kept it to just a 3.4% position.

Snowflake reported October quarter results at the beginning of December. I’m not going to discuss them further as they’ve been well discussed on the board. (I’d recommend JonWayne’s great post when he started the thread: SNOW December 8 Barclays Investor Conference.) I will say that I have lots of confidence in Snowflake and I ,feel that its future is very bright. It’s grown to a huge percent of my portfolio, but then again, it’s a very concentrated portfolio. Sure, being usage based, it will be affected by the current macro, but its long term outlook seems outstanding. It’s my #1 position.