Some thoughts for the week

Investment Analysis Clubs Saul’s Investing Discussions
#7

cherry-picking your dates

Your board, so I am not going to argue with you about ESTC any more.
But pretty sure I am not alone in cherry-picking dates.

SMAR was up about 10% on Thursday and MDB was down at least 9% on Thursday at one point. (I know bc I bought a bunch in a swing trade, because that was just a silly short-lived move after such a great ER). So I guess, at that moment in time, the market thought SMAR was an unbelievable investment compared to MDB, after seeing both their ERs.

Then on Friday SMAR was only up another 2% or so, and MDB was up 15%.
You posted on Friday that the market agreed with you that MDB was a better investment than SMAR, based just on the Friday delta, kind of ignoring the huge move SMAR had on Thurs. That is cherry-picking, too.

As for ESTC going from IPO of $70 to $81 since Oct…again, ZS did the exact same thing, going from IPO of $33 to a whopping $40 by Jan 2019. Again, you can always pick dates to suit a narrative.

But going by your logic on ESTC, then one should never have invested in ZS, based on their poor stock performance from March 2018 to Jan 2019. I forget when you jumped on ZS, but obviously their lack of stock performance didn’t dissuade your thesis in the stock.

I won’t bother commenting again on ESTC here.

Dreamer

17 Likes
#8

I just wanted to briefly weigh in here. There is no doubt that so far mongo has been a better investment. But i think we should look at which business is going to give us the best returns going forward. Using Duma’s numbers here with my addition in (), most recent quarter first. On the surface it looks like mongo is killing estc and estc is falling off.

ESTC 62.59% (68%), 69.95% 71.65% 79.00%

Mongo 85.37% 70.33% 56.64% 61.49%

I’d like to provide a bit of context though. Mongo acquired mlabs in october 2018 which is what valuted them from 56% growth up to the 70-80% range. Lets be clear though, the organic growth of MDB is still amazing and probably in the low 60% range.

Moving on to ESTC it looks like their growth has really slowed down. A little over 40% of their business is international. I couldn’t find corresponding figures for MDB. The dollar was quite strong last quarter so on a constant currency basis ESTC’s revenue growth was a pretty astounding organic 68%.

Listen, I like mongo a lot. It is my largest position. The business is kicking behind. THey are starting to show some operating leverage. It has been a fantastic investment. My new investment dollars are going into ESTC. THeir growth is downright amazing and their valuation has compressed dramatically. I’d argue that ESTC business is doing really well, they are taking over their space and sit in the middle of so many different industries. Their EV/s is 21 compared to MDB’s 31. Lots of other companies out there are “cheap” because of some execution hiccup (zuo, ntnx, pvtl) Those companies have continued to disappoint. ESTC is not in that situation. THey are growing like wildfire, taking over industries, moving strongly into security (i’ll post more on that later). How many more quarters of 60%+ growth will it take until the market realizes amazon isn’t going to be a major threat? I’d guess 1. The lock up expiration won’t be a question any more in a couple of days. All the FUD is falling away. We do need to keep an eye on expenses though.

best,
Ethan

61 Likes
#9

I was one of the people who pointed out OKTA’s high p/s ratio but I definitely did not proudly assert I had sold it based on valuations as if I was smarter than everyone.

I see/saw the declining revenue growth rates and the increasing p/s ratio made it seem like a danger to me they would get hit on a further drop in revenue. Furthermore they are facing more and more competition as Zero Trust security is attracting more competition among legacy security vendors who according to Gartner offer a superior product. So I see continued slowing from them.

But what happened instead is Okta shot up after continued slowing growth (though hardly slowing).

So what I saw out of this is slowing growth is not necessarily the end of the line for stock price appreciation.

2 Likes
#10

"ESTC 62.59% 69.95% 71.65% 79.00%

Mongo 85.37% 70.33% 56.64% 61.49% "

when saying learning from your error, one needs to follow the same set of rules and look at the outcome. Ideally the environmental conditions would be the same but of course that is never the case. Nonetheless you have to follow at least to first order the same principle to be able to learn ‘from you errors’.

In the case of SHOP, we sell ‘saying decelerating growth’. But in this instance it does not apply (for MDB). While ESTC growth is growing, we sell.
I understand the ‘open source is bad’ argument. Certainly Mongo is not ‘pure open source’ but why would ESTC be? It can really never be a ‘pure open source’ business because there would be no business in the end.

tj

#11

Okta, MDB, and Estc. 5-6 weeks ago I bailed out of okta because of the valuation and okta because the market wasn’t appreciating it because of Amazon and the lockup. Movec all the money to MDB!!

I also work in IT and have used all the products. Based on prices / evaluations I may not touch MDB but I will be moving money back into Estc before its next earnings as it has a great basket of products that Amazon can’t replicate and it’s under valued.

Lastly, I see no reason as to why estc won’t outperform okta from now until the end of the year. Saul will get back in but I agree that it was confusing and not doing ahything, so smart money was wise to bail for about 6 months.

1 Like
#12

12x,

What I think gets lost when there is “more and more growing competition” such as in zero trust, you have to ask is it “real” competition. As an example (extreme and historical mind you) Apple simply has a better operating system on its computers. This can be subjective, but in the end don’t argue with me because you won’t convince me and objectively I will blow you away.

Apple was not “real” competition to them anyways, and neither was IBM with OS/2 or any other operating system that tried to become something on a PC because no one could match the entire ecosystem around what Microsoft had. It ran everything.

Amazon see more and more competition all the time from online retailers. Does not mean it is “real” competition.

OKTA has built up an enormous network of users and at this point has become so large and embedded in the world it sells into that I doubt OKTA has any “real” competition either anymore. They may as they move into adjacencies but not in their core businesses. They are hooked in to the infrastructure of their clients and no one is going to unhook and dig them out.

That is why Okta can continue to thrive even with some slowing in revenue growth. That is CAP.

Tinker

9 Likes
#13

I’m going off the Forrester report. Symantec and PANW are “leaders” in the magic quadrant and OKTA is one of 8 contenders with Cisco. Looking at the report again most of the other contenders are not significant companies. I do know that OKTA’s single sign on gives them an advantage with their lead there. So maybe the competitive threat is not as big as I thought earlier.

1 Like
#14

How about “cherry picking” from ESTC’s IPO to the present?

http://softwaretimes.com/pics/estc-06-07-2019.gif

Denny Schlesinger

1 Like
#15

TJ,

I believe that you are reading Duma’s table backwards.

AD

Let’s look at revenue growth rates from most recent to oldest quarters:

ESTC 62.59% 69.95% 71.65% 79.00%

Mongo 85.37% 70.33% 56.64% 61.49%

2 Likes
#16

At least Symantec is not a disaster with end point security. They have a good business there. However, all of this links back to their appliances in the enterprise. Okta sells no appliances and is all cloud. Different selling proposition, and this is all OKTA does.

As such, no, I don’t see the competitive pressure that “real” in the scheme of things. Who steps in if Okta were not to exist? There is no one with an all cloud operation with the reach of OKTA. Someone else would need to invest the business and grow it. Growing a new OKTA would be much more difficult now that the appliance players have stepped up.

That is why being a first mover in a new disruptive market can be so important. Being ahead of everyone is one thing that makes it possible. Whereas today a new OKTA, if OKTA just vanished, may not grow into any material existence.

Tinker

3 Likes
#17

Using Dave Gardner’s snap test. If you snapped your fingers and Okta suddenly vanished from existence, a lot of companies (many of whom are intertwined in our daily lives) would be left wondering what in the world to do and where in the world to go. Without that single sign on connectivity and security build in it would cause a lot of problems.

Can you imagine all the password resets or people wandering aimlessly trying to find their old password notebook. “I can’t get any work done!”

CAP

Darth

10 Likes
#18

So what I saw out of this is slowing growth is not necessarily the end of the line for stock price appreciation.

Indeed, as “slowing growth” SHOP continues to make new all time highs.

1 Like
#19

PAYC same deal slowing growth but still climbing lower left to upper right!

Rob

2 Likes
#20

Why Saul needs to pick a date? His performance is more than enough to prove his skills which I do not have.

Most importantly, Saul is willingly to share with us. You can pick any dates you like and show us your performance! I own both MDB and ESTC. I totally agree with what Saul said.

I am very fortunate to find this board and learn from Saul and other posters. So far Saul’s posts are most inspiring to me. Thank you again!

7 Likes
#21

Hey I will pick a date, Friday. My annualized returns are 2,250%. Next.

Why is it that Saul needs to pick a date? Should Tom Brady pick a date when he became great? You just know it and the results speak for themselves.

Blimey!

Always interesting to categorize things. It is not that difficult pick market dominating category crushing high growth businesses with a high CAP and a real (and not made up) TAM selling greatly needed disruptive productive with founders running the company.

There, one paragraph, did not need an article.

Tinker

16 Likes
#22

I won’t bother commenting again on ESTC here.

Dreamer

I wish you would continue commenting on ENPH. It’s good to have you to balance things out.

1 Like
#23

How many more quarters of 60%+ growth will it take until the market realizes amazon isn’t going to be a major threat? I’d guess 1
Why you think competition from Amazon has to “here and now” and why AWS is not a long-term threat?

1 Like
#24

OKTA has built up an enormous network of users and at this point has become so large and embedded in the world it sells into that I doubt OKTA has any “real” competition either anymore. OKTA has built up an enormous network of users and at this point has become so large and embedded in the world it sells into that I doubt OKTA has any “real” competition either anymore

Just curious, how many organizations have AD or Active Directory versus OKTA? If an IT shop is trying to rationalize the number of software vendor, tools, which one they will go with?

1 Like
#25

Superior products is a debatable claim. I worked in IT at a Fortune 50 company for 30 years. More than once I saw executives opt for an “inferior” product for reasons other than price competition.

Also, if you’ve never been there and seen what it takes to transition from one product to another. The transition costs and disruption are highly dependent on the type of product. A product like OKTA resides near the heart of virtually every business process there is. Once implemented and in general use it will be very difficult for a competitor to dislodge. Whatever a competitor has to offer, it has to be way better than a marginal improvement over some function. Being “way better” is how OKTA has been able to gain market share. It’s hard to even imagine how a competitor could offer a vastly superior product. However, competition is real when addressing new customers. But in the arena OKTA has a network effect of sorts working in its favor.

3 Likes
#26

Sorry…this one always stuck with me, as looking at random 3 month periods can show very different outcomes to suit any perspective.

Saul wrote on June 8th:
"Now I have 0% in Elastic, and 14% in Mongo. How has it worked out? Let’s see.

Going back exactly three months to March 7th, Elastic was at $84.94. Friday it closed at $81.40, so in three months Elastic is down 4%.

Going back exactly three months to March 7th, Mongo was at $99.46. Friday it closed at $169.97, so in the same three months Mongo is up 71%."

The idea being that the market was apparently validating the MDB over ESTC argument.
I own both.

But I would note MDB has now done just about nothing for over 4 months, and is at $143 today…quite a bit down from the $169 price on June 8th.

ESTC has of course had a nice run, and is about $100, up from $81 back on June 8th.

What does this all mean? Nothing really.
To me though, MDB got a bit too hot, and ESTC was too beat-down, and as they have similar hyper-growth rates and similar revenue run-rates, it seems they both reset to where they perhaps should be at this moment in time, with just about the same market cap of $7.5b and roughly same P/S now.

They both had same ER date of June 6th, so next ER likely not until early Sept, so a month away at least.

I have a heavy ESTC position right now, and added more to MDB yesterday, and if it falls further I will likely add some more. I look forward to watching their race up from here!

Dreamer

22 Likes