Sean's Quarterly Portfolio Review - Sept 201

Quarterly Portfolio Update as at 15.09.19

This is my third post of my current portfolio on Saul’s board. I have found the process of creating this post highly beneficial, and it has helped me make some further adjustments to my portfolio.

Results Summary:

US portfolio gains for CY 2019 (ex. Currency gains): 23.9%
Non-US portfolio gains for CY 2019: 42.8%

The US portfolio has fallen substantially over the past week or two, and was actually up 54% on September 1 for the calendar year. I also purchased a substantial quantity of Zscaler shares over the past few days, which also distorts the return (as it counts as zero according to the Sharesight methodology outlined below).

I am quite happy with my performance, and I expect one of two things can happen going forward in the short term (I am a long term investor, and this is not of great concern to me):

  1. US portfolio recovers some or all of its recent losses; or
  2. Non-US portfolio falls in sympathy of the US SAAS route. Although, my Non-US portfolio is more diverse, providing a buffer for any SAAS backlash.


I have a non-US bias in my portfolio, and the has been a divergence between the two portfolios in the past week or two. But, comparing the two portfolios has actually helped me identify areas to improve / refine each set of investments, and the competitive tension I think will lead to better investment decisions. I am now highly motivated to ensure my US portfolio can keep pace with my current Non-US portfolio. GIVEN THE RELATIVE WEAKNESS IN THE US PORTFOLIO, IT LOOKS LIKE NOW MAY BE AN OPPORTUNE TIME TO INCREASE MY US PORTFOLIO HOLDINGS.

My investments are made via our superannuation trust (retirement fund) and our family trust. I have combined the holdings of these two trusts and have split the portfolio into two. US and non-US holdings. I thought my non-US holdings would be of some interest, and includes names that are not mentioned on this board.

My approach is to take a more cautious approach to buying and selling, so I tend to change positions less frequently than other posters on this board, and the past 3 months I have transitioned some of my Non-US holdings to higher conviction / potential investments. I have added some try out positions in businesses that I think have potential to generate great returns, and will either add to them of sell if the thesis holds or breaks.

I use Sharesight to monitor returns of my portfolios. Sharesight uses a dollar-weighted (also referred to as a ‘money-weighted’) return methodology. A dollar-weighted return measures investment performance taking account of the size and timing of cash flows. I love this platform, and highly recommend it.
So here goes:

Current cash position (1%)

I have reduced my cash position, adding to both my Non-US and US portfolios – more on that below. I typically use cash as a hedge in my portfolio. I am looking to increase my cash position, but I do not see too many weeds in the garden at this point in time.

I added another 4-5% of capital to the portfolio, which was directed as outlined in the following breakdown:

US Portfolio
No. 1 – TTD (8.8% - up from 10.7% previously)
• Market leader and innovator outside walled gardens
• Top US position due to steep valuation discount in December.
• Sector tailwinds, high margins, high growth.
• Keep an eye on: Walled gardens, disrupters, agencies starting up own platforms, Chinese adventure.

I held my position in TDD, and it’s portfolio weighting has reduced due to share price fluctuations, and additional capital (4-5%) added to the portfolio.

No. 2 – TWLO (7.4 % – up from 7.1% previously)
• Market leader and innovator
• Developer tailwinds.
• Sector tailwinds, high margins, high growth.
• Keep an eye on: gross margins, customer acquisition costs, changes in growth trajectory.

I increased my position in TWLO, buying more between $108 and $111 in September.

No. 3 – STNE (5.4% - up from 4.8% previously)
• Unique and effective customer service model.
• Continuing strong growth.
• Great profit margins.
• Great operational leverage.
• Maintain holding –FUD competition event progressing well.

No change in holding, however, STNE was one of the better US performers over the past 3 months. Does it really justify being my No. 3 US holding? Hmmmmm.

No.4 – ESTC (5.3% - 3.1% previously)
• Leading data search provider.
• Leading innovator in the search space.
• Ever growing optionality.
• Open source model – keep an eye on copycat competitors.

I increased my holding in Elastic, following the most recent quarterly report. I am watching costs carefully though. Shay mentioned in the previous quarter that Elastic was showing good operational leverage (indicating costs were trending down as a percentage of revenue), and then in the most recent quarter said they are investing heavily for long term growth (increasing costs as a percentage of revenue). These two statements conflict one another, and it makes me a little uneasy when I don’t hear a consistent message.

No.5 – MDB (5.1% – down from 6.4% previously)
• Undisputed market leader.
• Accelerating growth, with Atlas now driving faster growth. Crossing the chasm???
• Major transition to NoSQL database in the early stages.
• Keep an eye on competition from AMZN, and GOOGL. Watch for issues with Atlas (reliability/security/onboarding).

I increased my position in MDB, buying more between $144 and $145 in August, however, the recent pullback has seen the portfolio weighting reduce.

No. 6 – AYX (5.1% - up from 4.8% previously)
• Undisputed market leader.
• Continuing strong growth.
• Keep an eye on competition. Tableau buyout a positive

Steady as she goes.

No. 7 – ZS (4.2% up from 1.5% previously)
• Undisputed market leader.
• Accelerating growth, and huge TAM
• Keep an eye on competition. Although competition hindered by legacy products, and fear of market cannibalism.

Backed up the truck and increased position to 4.2% weighting over the past few days.

No. 8 – OKTA (1.9% up from 1.3% previously)
• Undisputed market leader in identity / sign-on as a service.
• New product innovations increasing TAM.
• Strong growth.
• Keep an eye on new product adoption, net revenue per customer expansion. Questions regarding size of TAM.

I have not increased my weighting in OKTA, as I think they as still just too expensive for my liking.

No. 9 – FB (0.1% down from 2.7% previously)
• Leading social media platform.
• Growth slowing, regulatory risks, taxation risks.
• Holding to retain daughter’s interest in investing.

Positions sold since March 19, 2019:

I am quite happy with my portfolio, and I have only sold down one holding.
• SQ (100% of holdings)
Sold out of Square in the quarter, and re-invested into Elastic. I decided competition outside the US was going to hinder the growth prospects for SQ, as it appears the incumbent outside US are have adopted much of Squares strategies. I have also considered Squares market cap, and decided there were better places for my money.

Positions acquired since March 19, 2019:
Positions I added to include:
• ZS
US Portfolio percentage = 40.0%, down from 43.0% previously, despite capital injection.

US Portfolio Return since January 1, 2019 = 25.8% (includes currency gain 1.9%)

Non- US portfolio

No. 1 - Xero – XRO (ASX) – (5.9% steady from 5.9% previously)
• Leading SAAS accounting platform.
• Pure cloud play (unlike INTUIT).
• Revenue growth = 32% pa ; gross margins = 82.8% !
• Top dog in AUS, NZ, and UK.
• Watch performance in USA (Intuit fighting back hard), watch to see UK growth and dominance continues.
• UK is growth engine going forward for next 1-2 years. It is unclear where the growth will come from 2-3 years out – If a new market is not identified, revenue growth will slow to 20-25% pa – Consider reducing weight in portfolio to fund future winners (if small, high risk picks execute).

Steady as she goes in the short term.

No. 2 - Appen -APX (ASX) – (4.6% down from 6.9% previously)
• AI Data feeder.
• 60% HY revenue growth, underlying NPAT up 62%.
• Consistently beats guidance.
• Establishing top dog status through strategic acquisitions (competitive threats)
• Recently acquired Figure eight
• Threats – Watch out for AI disruption to service. Look out for top customers DIYing (akin to UBER and Twilio).

Reduced holding to balance risk. APX has a higher acquisition risk, having brought a silicon valley competitor with poor cost management performance. However, organic growth is still excellent.
Sold further holdings in July to reduce exposure.
No. 3 - Altium -ALU (ASX) – (5.4% up from 5.3%)
• Chip design software company.
• Top dog / market leader
• IoT is a huge tailwind for the company.
• Strong cashflow.
• Revenue growth of 23%, but net profit growth of 40% due to operational leverage. EBITDA Margin expansion at about 10-20% pa.
Steady as she goes.

No. 4 - Afterpay Touch – APT (ASX) – (4.7% up from 2.6%)
• World’s leading buy now pay later lender.
• Business model is to take 4% of purchase price of item up to say, $1200, with the customer repaying Afterpay over 4 fortnightly installments. Retailers win by raising sales and bringing forward customer spending. Customers win by having a frictionless way of buying goods and services NOW, and not having to save for it (Very millennial).
• Current sales growth over 75% pa.
• Successful establishment in the US, with 7900 new customers signing up PER DAY. Afterpay active US customers have gone for 0 customers to 1.5 million in 12 months! It looks like Afterpay has crossed the chasm in the US, with a long way to run.
• With its runaway success. Australian regulators are auditing Afterpay’s anti-money laundering policies and safeguards. There is regulatory risk now for Afterpay in Australia, and costs will increase to address regulators requirements in the short term.
• UK launched with even greater success, 200 000 subscribers within weeks. Success demonstrates the powerful network effect in the model, as international retailers using Afterpay in Oz and US became launch partners in the UK. Geographic expansion risk appears to be ameliorated by this network effect.
• Afterpay appoint Frerk-Malte (Malte) Feller (ex. Facebook exec) as global COO, giving some more operational clout to the team. The business, I think, has outgrown the capacity of the founders, so I think this is a good move.
• Visa seeking to cut a deal with Afterpay – a partnership to develop financial innovations in the US market. This is a huge validation of the model, IMO. Visa shareholders should take note.
• Many more copycat competitors launching, but they lack the network effect Afterpay has established.

Position not added to this quarter - Steady as she goes.

No. 5 - Pushpay – PPH (ASX) – (4.4%, down from 4.5%)
• Leading SAAS provider in the faith donations administration sector.
• Top dog - First mover.
• 35% revenue growth. Reached cashflow breakeven. Management recently re-affirmed guidance and identified long term revenue goal of $1 billion pa (Current revenue = $130 M USD).
• Increasing gross margins.
• Watch for slowing growth as management focus on generating cash, stabilizing costs, watch for poor acquisition execution.
• Recent FUD event has dampened share price, with co-founder selling a large parcel of shares.

Recently purchased more shares at depressed prices.

No. 6 - Wisetech Global – WTC (ASX) – (4.0% up from 3.3%)
• World’s leading SAAS supply chain / logistics platform – CargoWise.
• 57% revenue growth, NPAT up 33% (yes, hyper growth and profitable).
• 43 (up form 38 previously) of the top 50 3rd party logistics providers use Wisetech products.
• 7 of the top 25 freight forwarders use CargoWise. Note: all the top 25 use a Wisetech product. Great expansion opportunity for transitioning all customers to the CargoWise platform.
• Customer attrition <1% pa.
• Acquires local logistics businesses to establish geographic foothold, increasing competitive moat. This has accelerated significantly, introducing a risk.
• Watch for emerging competition, trade disruption.

Wisetech is at relatively expensive share price. On hold for now.

No. 7 - A2 Milk – A2M (ASX) – (3.6%, down from 4.1%)
• A2 the only A2 only protein milk producer.
• Capital light model – A2M outsources production.
• High margin for “premium” milk product.
• High growth in china, US. Currently 16% revenue growth in US! 46% growth in China.
• UK market expansion scrapped to focus and building on US success –
• Great optionality, with infant formula yet to be released in US markets. Huge growth runway.
• Watch for branding – vulnerable to customer whims, and reputational damage.
• China announced regulatory changes that may impact Daigou channel. Economic risks could greatly impact A2M. Monitor Daigou channel, and sell on signs of channel stuffing.
• Market didn’t like increase spend flagged for FY2020. I think A2M is doing the right thing, as it looks to grow its reach into the US.

Steady as she goes.

No. 8 - Electro Optic Systems – EOS (ASX) – (3.6% up from 2.1%)
• Defence technology company, being a world leader in remote weapon systems, and satellite tracking/defence systems.
• Founder led, with impressive management team.
• Over $600 m order backlog, with a further pipeline of around $1.5 B in orders. Forecast revenue growth of 50% pa over the medium term.
• Satellite tracking and high power laser system also has non-military uses, such as clearing out space junk to protect commercial satellite assets. EOS is the fifth largest space agency in the world. I BELIEVE THIS ASSET IS MASSIVELY UNDERVALUED, and EOS anticipates it will begin monetising its IP, at very high margins, in the near term, with a $200 M contract currently tendered, where there is no equivalent competitor.
• Watch for sovereign risk, and reputational risk with defence orders.

Acquired EOS in August and September. I believe this is a very high quality business, with a huge backlog of orders, AND a technology / innovation backlog. The chairman recently reported that two thirds of their IP is effectively stockpiled while competitors catch up with their current technology. Once they do, they release their next round of innovation, thereby protecting their industry leading margins.

No. 9 - Audinate – AD8 (ASX) – (3.0% up from 2.2%)
• World’s leading AV networking protocol, Dante (converts audio / video to digital signal).
• Sells to OEMs – Dante AV use cases – Sports Bars, conference rooms, classrooms, Courtrooms, retail AV, transport hubs.
• Adoption accelerating – Dante now the leading protocol.
• 40% revenue growth, with huge TAM.
• Tailwind with the adoption of zoom, which integrates with Audinate.
• Market penetration – 7-8% of audio, and 0% of video.
• Video product to be being released this year to double TAM.
• Cashflow positive.
• Watch for decline in adoption, slowing revenue growth.
• Management appear quite conservative, targeting 25-30% annual revenue. I think they are sandbagging.

Added to position in August. Will seek to acquire more at the right price.

No. 10 - Tinybeans – TNY (ASX) – (3.0% up from 1.0%)
• Facebook for Millennial families - secure and private.
• Big advertising wins, with Lego buying advertising on the site.
• 3 revenue streams, advertising, subscription, and printing revenue (for photos / memories)
• 143% revenue growth for Q3 2019.
• Subscriber growth at 29%, and retention rates around 80-85%. Acquires customers through relationships at hospitals, and work of mouth.
• CAC is 9c per customer, and $11.30 for a premium customer, whilst ARPU grew to $2.48 (89% growth pa).
• On track for cashflow breakeven.
• Revenue seasonal, with the peak revenue occurring in December.
• Google US trends indicates Tinybeans has the top dog in this segment.
• Focus has been on improving engagement on the platform, with a new content platform, and AI for advertisers to more effectively target customers. i.e. infant formula to families with babies, lego toys for infants, etc.
• THIS IS A TOUGH ONE TO EVALUATE IT COULD BE WORTH ZERO OR 500% MORE THAN IT IS NOW. SELL IF ARPU or customer growth slows. BUY if the opposite occurs.

Acquired more TNY in July after execution of strong sales growth. UPDATE: Discovered a Japanese competitor making strong advances in the US – They appear to be acquiring more customers than TInybeans. MUST WATCH THIS CLOSELY. Review after Q2 report (Seasonally strongest quarter). Prepared to sell if the competitor maintains initiative.

No. 11 - Nearmap - NEA (ASX) – (2.7% down from 5.9% previously)
• Leading SAAS geospatial service in Australia. Hyper growth in USA.
• First mover.
• 45% revenue growth, and accelerating from low 30s. US growth = 108% pa.
• Watch for disruption from GOOGL, and other competitors.

Sold a further 35% of holdings to reduce exposure. Unhappy with aggressive accounting policies, and feel it was overvalued.

No. 12 - Raiz Invest – RZI (ASX) – (2.5 % up from 0.8%)
• Mobile micro investment platform (Oz version of Acorns). Targeting millennials.
• Expanding to Indonesia and Malaysia.
• Provides access to ETFs, cash savings plans, at low fees. Revenue through 3 streams. Platform advertising, buy/sell spreads, and account fees.
• Revenue per customer growth: 40%
• Active customer growth: 21% pa.
• Will sell if there is a decline in active customers – would be a sign of an adverse reaction to the maintenance fee increase. Will sell if FUM slows significantly.

Added to RZI in August.

No. 13 - Advance Nanotek – ANO (ASX) – (2.5% up from 1.4%)
• Innovator in cosmetics, with patented technology to produce nano particles of zinc oxide, making them invisible to the eye, yet the most effective sunscreen on the market.
• 100% revenue growth for 2019, 150% revenue growth FORECAST for 2020, and gross margin is expected to expand on increased scale.
• ANO struggling to keep supply up with demand.
• Massive tailwind as the demand is driven by desire for reef safe products and US FDA considering banning alternative sunscreen chemicals.
• Net profit margins good at around 40-45% as the company scales.
• MAXIMUM ALLOCATION: 2.5% - will increase if I gain more faith in management.

Acquired more ANO in July and August. Not game enough to increase position beyond current holding.

No. 14 - Readcloud – RCL (ASX) – (2.0% up from 1.7%)
• No. 1 digital learning / e-book platform in Australia.
• Over 100% revenue growth (off a low base).
• Gross margins only around 35-40%.
• Expansion into tertiary / vocational training is widening the TAM.

Steady as she goes.

No. 15 - Pointerra – 3DP (ASX) – (1.7% up from 0%)
• Enables massive point cloud data sets to be compressed, stored, analyzed, and edited via a cloud platform, saving substantial resources and time for enterprises in the Engineering, Utilities, Property, and Surveying Sectors.
• Uses proprietary technology that reduces the cost to store massive 3D data sets.
• Nascent opportunity, with a massive, untouched TAM.
• Recurring revenue model, with high revenue expansion rates - +150% at this early stage.
• Annualised Contract Value growing at about 30% Quarter on Quarter (albeit off a very low base).
• High gross margins - +80%.
• The Problem: Running out of Cash. Will need a capital raise in Q2 or Q3.
• Management have a good reputation in relation to cost control, and the business was co-founded by Dr Newman (Founder of Nearmap).
• Some recent misfortune with one co-founder’s untimely death early this year.
• Very early days, with high execution risk. Unsure of how effective / strong their IP is. Really needs capital to exploit the opportunity – High risk of squandering this huge opportunity without a large effort to grab market share whilst there is no competition.
• If Management show strong sales execution in the next update, I will consider adding to my holding in a capital raise.
• Will sell if: Analytics as a service turns out not to be recurring revenue, if they customer churn increases, or failure to execute required sales team expansion, or the sales pipeline slows, or a strong competitor emerges and appears to be winning. Long list that will hopefully shorten over time.

No. 16 – Selfwealth – SWF (ASX) – (1.8% up from 0%)
• Low cost online broker platform.
• Lowest cost broker.
• Peer-to-peer portfolio provides interesting differentiator.
• CAC have plummeted over the past 6 months as the business learns how to efficiently acquire customers.
• On the verge of cashflow breakeven.
• Releasing Selfwealth ETF, based on top investors, which will drive additional revenue.
• Releasing advisor platform, providing a further revenue channel.
• Revenue up 128% , albeit off a small base.
• Inflection point approaching with breakeven anticipated Q4, 2020.
• Risks: Zero interest rates. A portion of Selfwealth’s income is interest off trading accounts. This is likely to head to zero. Customer acquisition becomes tougher as competitors react to the recent traction Selfwealth appear to have gained. Sell if trade growth slows, customer acquisition costs grow, taking into account market conditions.

No. 17 - Livetiles – LVT (ASX) – (1.1% up from 0%)
• Enterprise software that is an add onto O365.
• ARR at July 2019 was $40.7 M up 167% yoy.
• Targeting +$100 M ARR by June 2021.
• Poor cost control – Using external contractor for sales – Burning heaps of cash as a result. I don’t trust management entirely on managing costs.
• High risk of capital raise before achieving cashflow breakeven.
• Key stakeholder risk as Livetiles relies 100% on Microsoft to allow it to add its “tiles’ to O365.

Starter position in a hyper growth company. Irt remains to be seen whether management can scale the business and manage costs.

Positions sold since March 19, 2019:
I sought to reduce my “de-worsificiation”, and offloaded a number of holdings where the thesis had broken, or their prospects did not compare favourably with other opportunities. .
• HUB24 – solid perfomer, but better places for my money.
• CRD – Takeover offer from the Murdochs
• KNO – I think Zendesk will monster them I then long run.
• VLT – try out position, but exited after they overhyped the success if their smart watch interface.
• Trimmed Nearmap, Appen.
Positions acquired since June 19, 2019:
Positions I added to include:
• Raiz Invest – I think it is upon a critical inflection point, where it is approaching sufficient scale to generate positive cashflow, with multiple growth drivers.
• Pointerra – Nascent industry, with a first mover opportunity ahead of it.
• Livetiles - Enterprise software
• Selfwealth – Falling CAC demonstrates platform viability, and increased optionality with Selfwealth ETF and Advisor platform.
• Pushpay. – Hi quality business, with great operational leverage, and could not resist picking up this company at low prices.
• Electro Optic System – hi quality business, & well run. I think there is significant unrealized value in its Space / Satellite business. It has years of growth ahead, and is resistant to recessions / market downturns.
• Advance Nanotek – The management are a worry – But the business is going from strength to strength. I
• Tinybeans, Livetiles, Selfwealth, and Pointerra are highly speculative investments, and it is possible they may disappear from the portfolio in a short space of time.

Non-US Portfolio percentage = 58%
Non-US Portfolio Return since January 1, 2019 = 42.8%

If you have any feedback, I would really appreciate it.


Thanks Sean for your discussion. It sounds as if you are doing great. Thanks especially for sharing your thoughts about each stock, but it seems like more stocks total than I could keep track of. Congratulations for the great results.


Sean -

I looked at your non-US portfolio specifically. A lot of these companies are either micro caps but some are bigger too with P/s ratios on par with US based SaaS companies even higher. That gave me a pause. I have a hard time following companies in US and being risk averse I feel if I am buying in international market I should have better margin of Safety. This is not a critique. Since most of the non-US companies in your portfolio seem to be from Australia (one was from New Zealand) you might have more specific knowledge of that market.

Since most of these companies and markets are not covered much stateside, unfortunately for me to get more interested, I would need to know more about the market plus I would need better margin of safety.

Kudos to you. Obviously you know what you are doing.



Shay mentioned in the previous quarter that Elastic was showing good operational leverage (indicating costs were trending down as a percentage of revenue), and then in the most recent quarter said they are investing heavily for long term growth (increasing costs as a percentage of revenue). These two statements conflict one another, and it makes me a little uneasy when I don’t hear a consistent message.

Seems like a valid question that IR should be glad to clarify if you would ask them before increasing your allocation to ESTC