Saul's Portfolio at the End of October 2022

MY PORTFOLIO AT THE END OF OCTOBER 2022

I’m not completely used to this platform yet so please excuse any errors in formatting, etc. As usual, I’m posting on the last weekend of the month.

October was a particularly tough month for me as my wife and I both had Covid in the middle of the month at the same time. We are old people, but fortunately we had received our vaccinations and all three boosters, and thus our period of being desperately sick, with high fever, prostration, racking cough, and other respiratory symptoms, was significantly shorter than everyone else’s that we spoke to who had also had covid. (I’m talking about people 20 to 40 years younger than us.

But let me tell you, shorter and lighter Covid is still a nightmare. We’re still recuperating. You wouldn’t want worse than what we had, I promise you. So make sure your vaccinations are up to date. I’ve been through Covid and I can tell you, the vaccinations are worth the trouble, and don’t believe anyone who tells you otherwise. They are the ones who are still dying from this stuff.



This sell-off has been going since mid-November, more than 11 months now. However, all my main companies keep reporting good to excellent results, which softens some of the pain :grinning:. But what is even better is that our companies have taken to rising the day after earnings, instead of falling after announcing good results. That says to me that weak results are being priced in, and when those expectations don’t come through, the stock goes up.

The last 25 weeks (or half a year) seems to have leveled out, and started back up. In spite of their weakness this month, most of our stocks are still substantially up from their lows.

Bill, Crowdstrike, and Sentinel, haven’t hit a new low in almost SIX MONTHS! For Cloudflare, and Snowflake it’s four and a half months. For Monday it’s been almost 3 months. It’s only Datadog that hit a new low this month. But does that sound as if we are still in free-fall? Granted, the stocks all have a long, long way to go to get back to their all-time highs.

It’s now been four and a half months(!) since my portfolio’s last low of down to a horrendous 33.1% of what I started the year with, That occurred back on June 16, and my portfolio has also had NO new lows since then!

Since then there has been plenty of anticipated bad news like interest rate hikes , inflation, fuel shortages, etc, but it hasn’t killed our companies. I feel lots of the bad news is already expected and priced in.

Sure, I could be wrong! I know literally nothing about technical analysis. It could be a false bottom. So don’t follow what I am doing. Make your own decisions.

I have learned long ago that sticking with great companies wins out in the end , and beats market timing (looking at a long term chart of the S&P you will see that the horrendous declines of the past look like tiny dips on an ever-rising graph), but living through this decline was awful.

I can’t be sure that it has ended, but I know that our companies have secure recurring revenue, and that they are growing very rapidly, at rates almost never before seen for companies at their scale, and considering these facts really makes our companies seem way oversold to me. But that’s just my opinion.



MY RESULTS MONTH BY MONTH FOR 2022

Here’s a table of the monthly year-to-date progress of my portfolio for 2022.


End of Jan 71.1%        of what I started with

End of Feb 73.4%        of what I started with

End of Mar 71.0%        of what I started with

End of Apr 56.4%        of what I started with

End of May 40.3%        of what I started with

End of Jun 42.9%        of what I started with

End of Jul 41.7%        of what I started with

End of Aug 49.2%        of what I started with

End of Sep 41.3%       of what I started with

End of Oct 39.7%       of what I started with

My portfolio is down a little more than 60% of what I started the year with. It’s up 20% from its June 16 low [39.7/33.1 = 1.20], but down 60% ytd is still just awful! If you are wondering how I can be so calm about it, look at the next section (Cumulative Results).



CUMULATIVE RESULTS

For those wondering about the long term results of investing this way.


2017 – up 84.2%

2018 – up 71.4%

2019 – up 28.4%

2020 – up 233.3%

2021 – up 39.6%

2022 – down 60.3% year-to-date

**Cumulative – up 649.0%**



Okay, in spite of the worst sell off you could imagine in our stocks, my portfolio now has 749% of what I started with five years and ten months ago. That’s seven and a half TIMES what I started with. In the same time the S&P 500 has risen 73.6%. **That’s up 73.6% compared to up 649.0%!**Figure out for yourself which method gets you the best results?




HOW DID THE INDEXES DO?

Here are the results year to date:

The S&P 500 (Large Cap), Closed down 18.1% YTD. (It started the year at 4766 and is now at 3901).

The Russell 2000 (Small and Mid Cap), Closed down 17.7% YTD. (It started the year at 2245 and is now at 1847).

The IJS ETF ,The S&P 600 of Small Cap Value stocks), Closed down 9.9% YTD. (It started the year at 104.5 and is now at 94.2)

The Dow (Very Large Cap), Closed down 9.6% YTD. (It started the year at 36338 and is now at 32862).

The Nasdaq (Tech), Closed down 29.0% ytd. (It started the year at 15645 and is now at 11102).

These five indexes averaged down 16.9% ytd.

This was a good month for the averages and they gained back a large part of what they had lost in September when they were making all those new lows.




EARNINGS SEASON

Cloudflare, Bill and Datadog will all report next week on November 2nd.




LAST THREE MONTHS REVIEW



August. While the indexes were down in August my portfolio rose 18%. I finished with 49.2% of what I started the year with (or down 50.8%). It was up almost 50% from my June low of 33.1% of what I started with.

That may not sound like a lot of improvement, but at 33.1% I needed to rise roughly 200% to get back to where I started the year, but at 49.2% all I needed was a roughly 100% gain. To me, that was a big improvement.

I didn’t add any positions in the month or sell out of any. Almost all of my stocks rose by about 15% to 25% the day after their quarterly results were announced, which was a nice change. More on the individual companies below.



September. I sold out of Mongo, mostly at $269, in the pre-market the day after results were released. I wish I had sold in the aftermarket the day before as I could have sold at about $315 or so, but I was going out to eat, I glanced at the aftermarket and it was up $3 or so, so I didn’t pay attention. Expensive mistake!


Mongo finished Sept at $198.60, after having hit a new low close of this pullback at $190 . (Its previous low from this pullback was $213).

And, yes “Curious minds want to know. What about October?”


In October Mongo hit a new low close of this pullback at $171. This was:


Down about $100 from where I sold out in September,

Down about $145 from where I should have sold out in the aftermarket, and

Down about $180!!! from where it had closed the week before earnings were announced.

Mongo finished October at $186.60, down another $12 from September’s close.

I know some people I respect have held on to Mongo all the way down, but sometimes selling when you get the news is the best thing you can do. Just my opinion.



October, I sold out of my 3% position in Zscaler (again), and reduced my position in Monday from 6% to 3%, and put all the money into Cloudflare, Bill, and Datadog, with small amounts also into Sentinel and Snowflake (in spite of Snow’s already large position), so as you can see, I am captivated by Snowflake’s story and not following my own advice about position maximum size, although with six positions making up almost all of my portfolio, their average size will be about 16% and it is thus unlikely that the largest would be under 20%. Yes that’s just my excuse, although it makes sense too :grinning:.

What I seem to be doing is pulling out of, or shrinking, positions in good but lower confidence companies like Mongo, Zscaler, Trade Desk, and even Monday, and concentrating on what I see as the best of the best (Snowflake, Cloudflare, Bill, Sentinel, Crowdstrike, and Datadog). Please don’t copy what I’m doing though because I could be way wrong. Make your own decisions.



Please remember that I could change my mind about any one or more of my positions tomorrow, depending on new information or other factors, and I may not do another update until the end of next month. Make your own decisions. Don’t just follow mine. I make mistakes at times! Guaranteed!




DON’T MISS THIS TABLE!

Let’s look at how much each stock is up from its sell-off low, from its Apr/May/Jun low.


BILL from $89.9 to $134.0    up 49.1% !!!

SNOW from $110.3 to $159.7   up 44.8% !!!

NET from $38.96 to $55.35    up 42.1% !!!

CRWD from $130.0 to $163.65  up 25.9%

S from $18.64 to $23.42      up 25.6%

MNDY from $87.05 to $107.38  up 23.4%

---

DDOG from $81.1 to $81.1     up  0.0% from its Apr/May/Jun low close

DDOG from $75.7 to $81.1     up  7.1% from its Oct 14 low close



Datadog, who I have pointed out every month as my weakest stock that was closest to its Apr/May/June low of $81.10, fell through this month to close at a new low of $75.70 on Oct 14th. It finished the month flat with its Apr/May/June low of $81.10. None of my other stocks made a new low and the rest of my stocks are up an average of 35.2% from their lows!!!

I remember the trolls telling us back at the mid-May to mid-June bottom that SaaS was finished, and that our stocks were going to keep falling pretty much forever? Well they’ve gone up and down from month to month, but always staying safely well above those lows, even though the S&P hit one low after another in Sept. It’s amazing that the “Sell! Sell! Sell!” people always seem to show up at our very bottoms, and never at our tops, when it would make sense.

Granted, the stocks have only gone back up a small part of what they have fallen, and they still have a long way to go, but with all the talk of “It’s going down! It’s going down!” it is easy to lose sight of “Wait a minute, it’s quit going downmonths ago.”

Considering that for most of us, Datadog was our top position in both size and conviction several months ago, but it shows once again why I no longer keep any 30% or 35% positions, no matter how confident I am in the company. Whenever I have had such a large position, it has done worse than my portfolio as a whole, probably because when I have been super confident in a stock, everyone else has been too, and the stock gets bid up too high. I now limit myself to 20% positions (well, Snowflake is just over $20).

Perhaps it’s starting to sink in that if there is a recession, the business our SaaS companies won’t get killed to the same extent as the business of a traditional company. In fact it very, very, probably will still be growing its revenue every quarter, even if not quite as fast as before, while the traditional company will see negative revenue growth, revenue actually fall yoy.

But who knows? I could be totally wrong and everything could crash again next week. I’m sure the Market Bear will make further attempts to push our stocks down. We’ll just have to see what happens.




POSITION SIZES

I currently have seven positions, and seven is a comfortable number for me, although a bit concentrated. Here they are in order of position size, and bunched by size groups.



Snowflake           20.2%

Cloudflare          19.2%

Bill                16.6%

Sentinel            14.1%

Crowdstrike         13.8%

Datadog             12.8%

Monday               3.2%


139 Likes

Part 2

COMPANY REVIEWS

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

Bill will announce Sept quarter results on Nov 2nd. It is a high confidence position for me, at 16.6%. It announced results of the June quarter in August, and bounced up 15% the next day.


Stocknovice’s remarks about the June quarter:

All things considered this was a great quarter… We got a bigger beat, continued customer growth, strong guides, and the stated expectation FY23 will be the company’s first-ever profitable year. As a shareholder, I’m not sure what more you can ask for…and best of all, the market seems to wholeheartedly agree. Congratulations to everyone holding it.


My thoughts: Growing like mad and made great acquisitions which have been jet propelling it. Total revenue was up 156% for instance, and organic core revenue was up 71%. I’ll take it.


84.2% gross margins, up from 79.7% a year ago!!

Not profitable but just below break-even and spending more to get more customers.

NRR was 131% for this fiscal year up from 125% a year ago !!!

Strong guidance and very enthusiastic.


Alliances with CPA.com (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 going to ever change out of Bill for another option, even if there was a better one".


Stocknovice let us know that Brex , a business card competitor of Bill, announced that it would stop serving traditional small business customers to focus on its startup segment instead. It will be droppingtens of thousands” of traditional brick-and-mortar companies which had two months to migrate to another service. Undoubtedly, Bill will get some of these.


Back in 2020 Bert Hochfeld said, “BILL’s software is already integrated with BofA, Chase, American Express and Wells Fargo. The banks use the BILL software on a white-label basis as part of their own platform… These are very early days for this kind of offering which I believe is likely to become a major revenue tailwind.”


Down 62% from its high of approx $350, but up 49% from its sell-off low of $89.90

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



Cloudflare

Cloudflare will also announce 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 14 or 15 quarters in a row (I’ve lost count). Talk about reliability! In addition they innovate and come out with new products and improvements at a pace that neither I, nor anyone else, have ever seen before.


At the end of the March quarter they indicated that the incipient recession would cause a lot of caution by customers. This caused a lot of worry among investors, but by the end of the June quarter they said they got it all worked out and grew by 54% again, and reiterated that thay would be cash flow positive in the second half of the year, and for the year as a whole. Their stock rose 27% the day after June quarter results were announced, but it has settled back down with the rest of the market. They have one of the most charismatic CEO’s you could want, and they move into new fields regularly and with success. Here’s what their June results looked like:

Gross margins of 79%

Not really profitable, nor is it desiring to be so right now, because it is plowing it all back in to growth, but is right above break-even. Idealistic about saving the cloud.

Adj Op Loss was just 0.4% of Revenue.

FCF was -30% for the March quarter because of a special accounting effect, but it scared everyone, but this quarter it was back to -2%

They added a record number of $100k customers this quarter (“What recession?”)

Net Retention Rate (NRR), was 126%.

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

Very innovative and putting out new products like mad, certainly faster than any other company I know. In addition, several months ago, they made a big acquisition for email security.


Moving rapidly into security and competing with Zscaler and PaloAlto in Zero Trust. This is from their announcement:

Cloudflare One provides a comprehensive Zero Trust SASE solution that is built natively into Cloudflare’s global network, spanning more than 270 cities in over 100 countries. This deeply integrated approach ensures a simple deployment in just a few clicks, lightning fast performance wherever users are, and robust security across endpoints, networks, and email .

They announced that they also equipped their partners to deliver the Zero Trust solution.

Also moving rapidly into data storage, processing, and distribution. I can’t resist including a little quote from Software Stack Investing (which I advise subscribing to): https://softwarestackinvesting.com

…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. Granted, it won’t replace large, centralized database solutions that run heavy analytics and ML workloads, but there is a growing demand with similar potential for facilitating the transmission, in-flight processing, and distribution, of data across the globe… [which] would benefit from Cloudflare’s global network of data centers, distributed compute and localized storage…It puts compute and data storage within 50ms transit to 95% of the world’s population…They are already landing deals for these capabilities with customers like Meta and Atlassian.

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 was done even without FedRAMP certification. That’s not to say Cloudflare won’t get FedRAMP, Moderate, soon. But, even without FedRAMP, Cloudflare won these high profile wins. *

And Muji wrote:

Cloudflare has added extensible policies in Access, which can tie Cloudflare One into any API to make Zero Trust decisions. This greatly opens the door to how organizations can manage their Zero Trust. This makes Zero Trust programmable, and it feels like a disruptive change over other Zero Trust providers.

In July introduced Cloudforce One, an internal team to track and disrupt online threats, led by a guy who has worked at CrowdStrike and at the National Security Agency.

In Sept they announced (and I certainly may have missed 10 or 20 more):

Launching their Data Localization Suite in Australia, India, and Japan.

Making R2 Storage generally available and with no egress fees for all users.

Developing a Zero Trust SIM Card for mobile devices.

A $1.25 billion Workers Launchpad Funding Program for startups building applications on Workers. All funded by Venture Capital Firms, at $50 million per firm.

This was an interesting story: They started out trying to find FIVE Venture Capital fims for a total of $250 million. They got TWENTY-SIX so far, for a total of over $1.25 billion. So what does this mean? They have 26 venture capital firms funding startups to build out their businesses on Cloudflare’s Workers program. Cost to Cloudflare, zero. Benefit to Cloudflare, huge.

Announced Turnstile, a user friendly alternative to CAPTCHA’s.

In October they had Birthday Week where they introduced over 30 new products or upgrades. I recommend that you read Software Stack Investing’s amazingly good summary https://softwarestackinvesting.com/cloudflare-birthday-week-recap/#more-6449

Very enthusiastic, and doing what it does very, very, well

So its picture is definitely improving: still growing revenue slower than others but growing it very steadily. Very innovative, high valuation, higher capex than others, no desire to be very profitable any time soon (plowing profits back into increasing revenue), negative FCF, Net Retention Rate steadily rising, it is rapidly and strongly moving into new fields with new products, especially Zero Trust security, and data services, etc, etc.

Down an enormous 75% from its high of approx $222, but up 42% from its sell-off low of $38.96, it’s now a 19.2% position, and my 2nd largest.



Crowdstrike

They reported July results at the end of August.

I think of Crowdstrike as the big gorilla of its security space, while I see SentinelOne as the new kid on the block who is growing a lot faster, but is not yet profitable. They are both nimble, both adding new functions all the time. Crowd’s emphasis seems to be more on teams of people solving problems, while Sentinel’s seems more on having AI instantly solving the problems, but I’m sure that they overlap a lot. I also think that there is plenty of room for both of them.

Crowdstrike slowed down quite a bit a year ago because of the law of big numbers, but it has leveled off now, growing last quarter still at 58% with its growth rate descending much more slowly, turning out lots of cash in both FCF and net income, and is also nimble and innovating as a bonus for investors.


It’s back to being a high confidence position for me, at a 13.8% position, and I thought that they reported an excellent July quarter.

Growing subscription revenue at 60% and slowly slowing, but dominant in its field and quite profitable.

Total subscription customers were up 51% yoy

Subscription gross margin was 78%

Op cash flow margin was 39% of revenue, and a lot of money, $210 million dollars.

Free cash flow margin was 25% of revenue and $136 million

Net profit margin was 16%

They are thus very profitable, and pouring out cash as well as growing rapidly.

Got Impact Level 4 Authorization from the US Defense Information Systems Agency and received German Federal Office for Information Security Approval, which is important for E.U. sales. In June it announced general availability of Falcon Identity Threat Protection for U.S. Public Sector Organizations requiring FedRAMP Moderate or IL-4 authorization

A strategic partnership with Mandiant to benefit joint customers, and expanded the partnership with Cloudflare with technology integrations.

They also announced Crowd Asset Graph, Humio for Falcon, Graph Visualization, new Partners, and most recently their AI powered Indicator of Attacks, and a host of minor products and updates.


Crowd has started to innovate almost like Cloudflare. It came out with all these press releases below within 24 hours in mid-Sept. Please take into consideration that not being a techie, I have no idea about their significance, but still… here they are:


CrowdStrike introduces Falcon Discover for IoT to help organizations gain visibility and reduce risk across IoT and OT environments

CrowdStrike expands CNAPP capabilities with introduction of CIEM to monitor, discover and secure identities across multi-cloud environments

CrowdStrike and Coalition join forces to transform cyber insurance readiness

CrowdStrike unlocks XDR for all EDR customers and expands third-party integrations across all key security domains

CrowdStrike drives the convergence of security and observability with introduction of Falcon LogScale and Falcon Complete LogScale

CrowdStrike to acquire Reposify to bolster visibility and reduce risk exposure of external assets

They just expanded their alliance with Ernst & Young.

They have very enthusiastic management.

Down only 46% from its high of approx $301, but that’s partly because it didn’t go up as high as the others in 2021. It is, however, up 26% from its sell-off low of $130.



Datadog

They will also announce Sept quarter results on Nov 2nd. Datadog is truly dominant in its field, but is less hi-confidence in this recession as its revenue is largely based on usage.

As for their June results: Grew revenue at 74%, which was up from 67% a year ago, but down fron 83% the quarter before.

Gross margins 81%, up from 76% a year ago, and from 80% sequentially

Quite profitable :

Trailing EPS is 81 cents, with 24 cents last quarter, which was up from just 9 cents a year ago, and flat with 24 cents sequentially.

Adj Operating margin was 21%!

Op Cash Flow was $73 million ! and

FCF was $60 million ! Believe it or not, those were both considerably down sequentially, although way up from a year ago.

NRR continues “over 130%.”

Moving into security in a big way and succesfully.


In June they announced monitoring and security for Kubernetes and Open Telemetry Protocol Support

They also announced Observability Pipelines.

They also launched Audit Trail and Service Catalog

They acquired Seekret for improved API observability

Every quarter more companies are using more of their modules.

And then, in October, at their DASH conference, they announced 30 or so new products and new features, looking like another Cloudflare for innovation. These included:

The general availability of Datadog Continuous Testing, a new product that helps developers and quality engineers quickly create, manage and run end-to-end tests for their web applications.

Also Cloud Cost Management , which shows cloud spend in the context of

observability data. This allows engineering and FinOps teams to automatically attribute spend to applications, services and teams, track any changes in spend, understand why those changes occurred, and include costs as a key performance indicator of application health.

And Cloud Security Management, which enables DevOps and Security teams to identify misconfigurations, detect threats, and secure cloud-native applications.


The big problem for many people was their conservative guidance (well what did they expect in a recession? Companies are cautious about guidance!) The concern was because they had a substantial decrease in growth in the Covid quarter, because they are somewhat usage based, and people were afraid it will happen again. Here’s what they said about their guidance (It may be paraphrased, as I’m taking it from my notes).


…in July, we did see an improvement on those trends, but we still remain conservative in our outlook for the short termbecause of the noisiness of the data we’re seeing there. We have always been conservative in our guidance by using lower organic growth and other metrics than we’ve seen historically, and we continue to maintain that philosophy. So I would say there was some incremental conservatism put into this guidance.


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


Datadog is down 59% from its Nov high of approx $200, and flat from its previous sell-off low of $81.

A 12.8% position, I have no current plans to reduce it.



Monday

I really like Monday’s growth and its growth of $50k customers, but it has a lot of competition, it’s not considered mission critical in the way that some other of our companies are, and companies in this field have a tough time becoming profitable, so I’ve kept my position a lot smaller than the others. Thus another mixed picture, but certainly improving.

I wrote last month that it is my smallest position and my lowest confidence position, but that the market’s expectations are very low, and if they beat them significantly I’d expect a strong response. Well, this quarter they rose 18% the day after announcing earnings, and have gradually given it all back, and more since then. Expectations are apparently still very low. The below is from a post I placed on the board after earnings:


Here’s what I see in Monday:

We have a company growing revenue at 75% per year . That’s basics, not details. Yes it’s down from over 100% growth at one point, but how many companies are growing at 75%? They are being very conservative in guidance because a lot of their business is in Europe which is in a certain amount of economic chaos at present due to Russia’s invasion of Ukraine, and the cut off of oil and natual gas to Europe, but all of that doesn’t mean that there is anything wrong with Monday, the company, or its business model. The invasion was in March, and they just grew at 75% in their April to June quarter, for gosh sakes!

On the other hand they just opened expanded, expensive offices in New York, then new offices in Chicago and Japan. (They actually tripled the size of their North American Headquarters in NYC.) This comes shortly after hugely expanding their European headquarters in London in May after opening it just six months before in November. Then opened a large Chicago office in October. This does sound like a company that is doing well, business-wise. You have to assume from this that they see themselves as moving up into the ranks of the major players and that they are no longer a second rank player. All good,

BUT , they seem to care more about happy employees in fancy offices, and and showing off (as with their Super Bowl ad last year, than they do about the company making money, and it sounds as if this office space, as with the NY City space, was prime, very expensive, space, and a lot of it. I just don’t know how to think about this. Should I be happy that management, who has the best view of the company’s business, has the confidence in the future to keep building out like this, or should I be seriously worried that all these rents are adding to their operating expenses, and that management doesn’t seem to care?

Then we have their enterprise customers, customers spending over $50k per year, which are growing at 147% this quarter, and with a record number of new $50k customers (200 this quarter).

Now, it can be a little bit difficult to grasp what growing enterprise customers at 147% means. It doesn’t mean they have 47% more of these customers than they had a year ago. It means that they now have roughly two and a half times as many $50k customers as they had a year ago. I’ve never before seen ANY company grow enterprise customers that quickly, or anywhere close to that quickly, and I doubt you have either.

Then there is their net retention rate . For the whole company it is over 125%. For companies with more than 10 employees it’s over 135%. (That means excluding the tiny 3 or 4 employee companies). And for their enterprise customers (over $50k), the NRR is over 150%.

They are also pivoting to making their Work OS into a platform, not just for collaboration but for doing just about anything.

They announced it a quarter ago and released four new products during this quarter:

Monday Sales CRM,

Monday Developers,

Monday Projects, and

Monday Marketer ,

They all work through Work OS. Customers can switch between them within Work OS. Although these products were released so recently, they already had over 1000 paying users. That’s pretty remarkable in itself.

Monday has a consistent gross margin around 89% (!) That’s a high, high, gross margin, which shows clearly that they do not need to give major discounts to get customers.

In the first quarter they had high operating expenses and an operating margin of -40%, very possibly due to the cost of producing and preparing to introduce all those new products. This quarter op margin had improved back to -12%.

After the first quarter they guided to 54% revenue growth for the year, and everyone who took it seriously was shocked. This quarter they raised that guidance by 9 points (!) to 63%. To me that says at least 70% by the end of the year. Talk about conservative, it’s basically impossible to average as low as 63% for four quarters with the first two quarters at 84% and 75%. (Figure it out for yourself).

So that’s how I see Monday . After all that good stuff, I cut my position size in half this month. Why? Well, I had companies like Bill and Cloudflare. And then Datadog (who was hitting what seem to be very pessimistic lows). And also Snowflake and Sentinel. In all of these cases I could put the money in what seemed like even safer bets. You can read why I was ambivalent above.



Sentinel

As I wrote above, Sentinel is the young blood in its security space while Crowdstrike is the big gorilla. They are both nimble, both adding new functions all the time. Crowd’s emphasis seems to be more on well trained teams of people solving the problems, while Sentinel’s seems more on having AI instantly finding the breach and stopping it without needing human intervention, but I’m sure that they overlap a lot. I think that there is plenty of room for both of them.


Sentinel announced results on August 31st. They were excellent.

ARR was up 122%. Sure they are including Ativa, but still…up 122%!

Revenue was up 124%. Six or seven years ago, I would have been elated with a company growing revenue at 28%, and here I have a company growing at A Hundred and 28%!!!

Gross margin was up 4 points sequentially and up 10 points yoy to 72%.

Op margins were minus 57% of revenue, improved from minus 98% a year ago.

Total customers grew more than 60% yoy to over 8600 customers.

Customers with ARR over $100K grew 117% yoy to 755. Up 117% means that they have more than twice as many as they had a year ago.

NRR hit a record of 137%, up from 129% a year ago.

Operating Cash Flow and FCF margins are still terribly negative, but improved from a year ago.

Cloud security is their new field and has grown to 20% of their business from practically nothing a year ago. Endpoint security had been their main business and they are adding one market after another (like Cloud Security and Identity, etc), but Endpoint is still growing like mad too, as is everything else. This company is growing incredibly fast.


They increased annual guidance, bringing it over 100% again (with three more quarters to raise in), but it’s hard to evaluate as they will be including Attivo from now on. All in all you can say that they will be reporting annual revenue growth probably over 110%, which is enormous, but organic growth about 95% or 100%, as a piece of revenue will be from the acquisition.


Unveiled a new product in August … XDR Ingest , a disruptive step in democratizing XDR, it provides our customers with a limitless data platform to ingest, retain, correlate, search, and act on all enterprise security datareal time and historical, from any source. Cybersecurity is a data problem.

SIEM has been the technology for retaining security data and applying security analytics to uncover and respond to threats. But the data ingestion process is arduous and retention costs are high. It requires too many operators and too much manual interaction to be effective at scale. XDR Ingest solves the people, process, and technology challenges, and we’re excited for our customers to thrive in the XDR era.


Sounds awesome to me! but remember that I’m not a techie and don’t understand the tech at all, but people who are techies that I talked to also felt that it was “awesome”. We’ll have to see.

New alliances and acquisitions including an integration with Okta just announced in the Sept quarter. Crowdstrike had announced a strategic partnership with Mandiant. Now, in October, SentinelOne announced an integration with Mandiant.

As with all our security companies they have a great tailwind of worries about hostile breaches with the Ukraine war, as well as new exciting products, and the acquisition of Attivo.

In Sept they launched a venture fund for startups that already bring interesting new uses to the Singularity Marketplace.


In Sept they also announced the first annual SentinelOne LABScon Security Research Conference. Just look at this partial list of speakers!!!

 Mark Russinovich, Microsoft Azure CTO

 Dmitri Alperovitch, CrowdStrike’s Co-Founder and former CTO

 Morgan Adamski, Director of NSA’s Cyber Collaboration Center

 Chris Krebs, the first director of the Dept of Homeland Security’s Cybersecurity and Infrastructure Security Agency (CISA)

etc

And just think! Sentinel was able to round up all these ultra-big names! Even a Crowdstrike co-founder. To me it sounds like it’s SentinelOne announcing: We’re in the big-time now!!! We’re no longer a little catch up company.


And they described their mission as follows (the emoji is mine):


Our Mission. Cybersecurity is constantly changing. Time favors the adversary. Today’s challenges are nothing like tomorrow’s. Threats are becoming more and more advanced leveraging the power of automation… Some wait and react. At SentinelOne, we innovate. Our mission is to defeat every attack, every second, of every day. Our Singularity Platform instantly defends against cyberattacks – performing at a faster speed, greater scale, and higher accuracy than possible from any single human or even a crowd. [:grinning:]. So, if our tech seems like something from the future, good — that’s exactly what it is.

The stock is down 68% from its high of approx $79, but up 37% from its sell-off bottom of $18.64. Not being currently profitable is definitely out of favor in the current market, which makes it hard for the small very rapidly growing companies like Sentinel, but this is a very impressive company and I’m sticking with it. It’s now a 14% in 4th place.



Snowflake

My take on their July quarter was that it was an excellent quarter, and one which should relax everyone.

Revenue growth was up 18% sequentially. That’s a lot, and it was up from 10% in the April quarter and from 15% in the Jan quarter (two quarters back).

Dollars of revenue added sequentially were $75 million, up from just $38 million added in the Apr quarter.

YoY revenue growth only gradually descended from 85% to 83% sequentially, and part of that is from their increased computing speed without increasing price…

Million-dollar customers exploded to 246, up by 40 or up 19.4% sequentially, That number, 246 of the million-dollar customers, is up 112% from just 116 a year ago.

Adj FCF was “only” $59 million with a 12% margin, but they are guiding to 17% for the year, so they will undoubtedly finish with over 17% for the year. They are churning out money.

NRR is staying at nosebleed levels at 171%, although two quarters ago they told us it wouldn’t be able to stay in the 170’s.

Gross margin is 75%.

Dominant in its field but potential competitors arising.

Very rapid revenue growth. It had been over 100%, but last quarter the growth rate was cut to 85% by allowing faster computing by customers without raising prices, and this quarter it fell slightly to 83%. Also some minor usage cut back by consumer facing companies.

Share price and valuation are both way down from their heights.

New partnerships with AWS, Dell, Stripe, etc

Snowflake is setting up vertical silos for data sharing (healthcare, retail, finance, etc), which will make their platform much more sticky.

Moving into new international markets

Taking advantage of the need for security monitoring with CyberSecurity Workload, which serves as a platform for the data from companies who want to do their own security analysis, or who want to hire one of Snow’s partners to do it. Snow gets more data storage, and more data analysis, on their system, without the cost and headache of creating their own security analysis. The customer benefits from cheaper and easier.

New products for new fields. A new Cloud Native Application Protection Platform to allow developers to develop, deploy and monetize applications, all on Snowflake.

From Frank Slootman, CEO: “Our next frontier of innovation is aimed at reinventing cloud application development. Our ambition is far reaching. Our aim is to transform how cloud applications are built, deployed, sold and transacted. To help achieve this, we launched our Powered by Snowflake program. Today, we have 590 Powered by Snowflake registrants, representing 35% quarter-over-quarter growth” .

Introduced UniStore and Hybrid Tables to allow analyzing transactional SQL data on Snow. Here’s a little excerpt from FinallyFoolin’s post on the Hybrid Tables. (He’s a techie and I’m not).

“Just finished watching a webinar of Snowflake’s Hybrid Tables. IMO, this is a HUUUUUUUGE deal !!! Companies can build applications, using row-store (good for lots of small transactions; think booking an airline or checking out at the grocery store). capabilities of it and it AUTOMATICALLY gets copied to a column-store (Good for analytical workloads & faster BIG queries). Snowflake under the hood automatically determines which version of the hybrid table to use to return the query.

“The BIG, BIG, BIG, benefit of using Snowflake is that it will be MUCH, MUCH, MUCH, easier & cheaper to do analytics. There’s no need to move data regularly and maintain these mega operations; especially when needing up-to-second accuracy on their reports. ETL processing [Extract, Transform, and Load] is very time consuming and expensive. The most expensive and time consuming part of big reporting & analytics.”

Snowflake was ranked first in JP Morgan’s survey of where CIO’s planned to spend additional funds in 2022 (ahead of Microsoft, Google cloud, and Crowdstrike).

Buying back employee RSUs to prevent dilution, which is already under 1% per year.

Management is very enthusiastic .

Snow is going to become a behemoth of a company, long term. Heck, it already IS becoming a behemoth :grinning:!

To quote Morningstar’s headline from its report after results: “Snowflake’s Q2 beats by taking its upmarket by storm; shares attractive even with shares up 18% in premarket .”

Usage based, so it could be hit a bit more in a recession than a SaaS company who gets the same subscription revenue come what may.

Snow is down 61% from its high of appox $408, but up 45% from its sell-off bottom of $110.30.

Overall, to me it’s a very positive picture. I’ve built it into my top position, now at 20.2%. I have no intention of trimming it at present.



Zscaler

Why did I sell out of Zscaler again? Probably a mistake, but I just preferred to have my money in super-innovative companies like Cloudflare, Datadog and Snowflake.

100 Likes

Part 3

FINISHING UP

Let me remind you first, that I have NO IDEA what our stocks will do next month. I’m terrible on predictions. But I know that the businesses of our companies will do just fine for the most part.

I feel that my portfolio is made up of a bunch of great companies. But that’s just my opinion, and I can’t say often enough that I’m not a techie and I don’t really understand what most of them actually do at all ! I just know what great results look like. I figure that if their customers clearly like them and keep buying their products in hugely increasing amounts, they must have something going for them and, as I’ve often said, I follow the money, the results. And I listen to smart people about the prospects of these companies.

When I take a regular position in a stock, it’s always with the idea of holding it indefinitely, or as long as circumstances seem appropriate, and never with a price goal or with the idea of trying to make a few points and selling. I do, of course, eventually exit. Sometimes it’s after months, and sometimes after years, but I’m talking about what my intention is when I buy.

I do sometimes take a tiny position in a company to put it on my radar and get me to learn more about it. I’m not trying to trade it and make money on it, I’m just trying to decide if I want to keep it long term. If I do try out a stock in a small position and later decide that it’s not what I want, I sell it without hesitation, and I really don’t care whether I gain a dollar or lose one. I just sell out to put the money somewhere better. If I decide to keep it, I add to my position and build it into a regular position.

You should never try to just follow what I’m doing without making up your own mind about a stock . First of all, you may have a completely different financial picture than I have. Different age, different income, different assets, different debts, different expenses, different financial and family responsibilities, etc.

Besides, in these monthly summaries I’m giving you a static picture of where I am currently, but I may change my mind about a position during the month. In fact, I not infrequently do, and I make changes in the position. I usually don’t announce these changes until the end of the month, and if I’m busy or have some personal emergency I might not announce them even then. And besides, I sometimes make mistakes, even big ones! Don’t just follow me blindly! I’m an old guy and won’t be around forever. The key is to learn how to do this for yourself.

THE KNOWLEDGEBASE

Since I began in 1989, my entire portfolio has grown enormously. If you are new to the board and want to find out how I did it, and how you can try to do it yourself, I’d suggest you read the Knowledgebase , which is a compilation of my “words of wisdom”, and definitely worth reading (a couple of times) if you haven’t yet. It’s on the panel to your right.

For some additions to the Knowledgebase, bringing it up to date , I’d advise reading several other posts linked to on the panel, especially:

How I Pick a Company to Invest In,

Why My Investing Criteria Have Changed,

Why It Really is Different.

Illogical Investing Fallacies

I hope this has been helpful.

Saul

136 Likes

Correction, thanks to Mozzie505. I wrote that “Cloudflare, Bill and Datadog will all report next week on November 2nd.”

It should be: “Cloudflare, Bill and Datadog will all report next week on November 3rd”.

Saul

31 Likes