SQ, PVTL, CLDR, HDP and the market

Investment Analysis Clubs Saul’s Investing Discussions
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So, the selling on Square is a ridiculous over-reaction in my opinion. I would say this is one of those opportunities when a big player decides to sell to reduce risk and also because of the over all drop in tech, and it causes a temporary crazy sale price. Everyone should do their own due diligence, but I think this is a gimme - buy for a quick turn around, as I previously did in AMD.

I bought a full position this morning (having always been waiting for a good entry point), and have also bought Dec 21 70 Calls at around $6.

Concerning PVTL, I was a bit happy about the earlier punishment of the stock . The management needs to clearly articulate their strategy for the mid-market, which is where most of the money will be in the long run. I hope this has focused them on long term revenue growth beyond their current huge customers. This was always my concern about their business. Otherwise I thought the last quarter’s numbers weren’t bad and didn’t warrant the huge drop.

RedHat’s revenue growth in Containers is sputtering - not at all impressive. I think PVTL is in a clear leadership position in the cloud-native tools market. Of course there is risk that they won’t manage the move toward the mid-market, but every stock carries risk, and I think PVTL is in a great leading position in their industry. This looks to me to be a great risk/reward tradeoff. I consider this an excellent price to start or increase a position, and I have bought more PVTL.

I took nice profits on the CLDR HDP merger, and am out of both stocks. I don’t trust mergers of startups in the same market. I’ve worked at some of the biggest investment banks, and they always suggest these mergers since they make big fat fees on them, and the CFOs of the companies always like the numbers. But my question is whether either CEO would think about this, if they had any other choice to shoot up their revenues. To me this is a red flag - these companies don’t have any other ideas on how to shoot up their revenue. I’m out.

A quick note on me - I’m lurking, and not even too much of that these days - I catch up when I can to look at new stock ideas - this is such a great community that I can get very valuable info quickly.

Besides lots of busyness at work and home, I’ve also been asked by a to write a book on data patterns for API-based development and microservices. Since I’m ridiculously busy, I said yes, so now I have even less time.

I will respond if someone thinks my opinion is of value for a decision they want to make, but since I’m not on these boards very often, the best way to ping me is via the little button that sends a reply to my email.

Cheers

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I’ve also been asked by a to write a book on data patterns for API-based development and microservices.

Asked by whom? Looks like part of that sentence got cut out.

Any updated thoughts on MongoDB? Seems that the latest quarter was a pretty great revenue growth acceleration, but the share price may have gotten a bit ahead of itself, similarly to Square. My Mongo position is full, or I would probably be looking to add in the near-term with this recent market-wide dip.

-volfan84

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One more thing - about the market. I totally agree with Saul’s post on the risk/reward of investing the Saul way.

Investing in high growth stocks involves lots of risk of ups and downs. If your ok with the upward risk (you might make too much money), you also have to be ok with the downward risk. Growth stocks always have more volatility, but you are compensated with a better long term growth rate, especially in the current case where a long term change in the way the world does technology is happening.

I manage my risk by having a few different slices - I have my main investments in Saul style growth stocks, some investments in value stocks and dividend stocks, and I also have some Gold ETF. I have 2 ideas behind this - I want to be able to rotate into sectors that get unfairly punished, but buy the best stocks in these. And I also want to have something I can sell when sectors I like get battered - so I have been able to buy a number of stocks on sale today, by selling a few of my other investments.

That’s just the way I do it - everyone can figure out how best they can manage the stress of stock market down days. And I think it is important to remember - everyone doesn’t need to invest the same way. If this market drop is making you crazy, go to a more conservative style of investing - there is no shame in being able to sleep at night.

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On the book, I wrote a blog post on LinkedIn, and the editor from a major tech book publisher read it and asked me if I would be willing to write a book on the subject. I’ll keep the book title and publisher private until the publisher is ready to make it public.

For MongoDB, people don’t seem to believe me when I say I’m keeping the stock for 20 years, and I don’t bother looking at price movement. Now if their CFO leaves, and they drop 20%, I might buy a bit more or at least trade some options, but otherwise I’ll let the price movement take care of itself - it will overshoot, then catch up to value, then overshoot, as these things usually do in the market.

Of course I’ll keep track of their quarterly reports - but they have totally won the NoSql database market, in my view, and have no real competition at the moment, and they can only shoot themselves in the foot, which they are not doing at all - quite the reverse as they seem to be executing really well in both sales and technology development.

For Mongo, I think any time is a good time to add - it is very hard to time the market, and the price will probably drop at some time after you buy it - but if you have a long term perspective, I think the only way it is going is up for the next 20 years.

By the way, I’ve been keeping an eye on Elastic Search also. This is a different beast in my opinion. MongoDB is a general purpose NoSql database - you are going to use it for every new thing in the long run. Products for corner cases will come up, but in most cases Mongo will probably either develop or buy a competitor and take most of that area also.

At the moment Elastic Search is mostly a single purpose tool. As such it could be disrupted easily enough. I consider it to have much more risk, so I’d be looking for more proof of its growth and a better price to invest in it.

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I took nice profits on the CLDR HDP merger, and am out of both stocks. I don’t trust mergers of startups in the same market. I’ve worked at some of the biggest investment banks, and they always suggest these mergers since they make big fat fees on them, and the CFOs of the companies always like the numbers. But my question is whether either CEO would think about this, if they had any other choice to shoot up their revenues. To me this is a red flag - these companies don’t have any other ideas on how to shoot up their revenue. I’m out.

–

This is where my head was leaning, too. A bit surprised, given how close you are to the data world that you feel the same, but glad as it validates my decision to do nothing. It was tempting with the deeper drop they both received yesterday than the rest of tech peers, too.

PVTL has certainly retraced, so it is a great entry point if you believe the company can execute the vision. Is mid-market focus really needed though, or just more of the Global 1000 top companies or so? Or does your definition of mid-market fall in there perhaps?

thanks,
Dreamer

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Thanks for the confirmation bias, Step! :wink:

the selling on Square is a ridiculous over-reaction in my opinion…and it causes a temporary crazy sale price…I think this is a gimme…

Although we seem to be about the only two on the board that think this, I said the same yesterday, big over reaction for the departure of an executive when no black clouds are swirling around the move…it’s just some short term uncertainty of who will replace her, and she can be replaced without SQ, the company, missing a beat. I bought SQ yesterday before the announcement of her departure, and I bought again this morning at $66-$67 when I saw it was down 14% more!

I think PVTL is in a great leading position in their industry. This looks to me to be a great risk/reward tradeoff. I consider this an excellent price to start or increase a position, and I have bought more PVTL.

I, too, added more here when it went back under $18 (my original purchase price prior to the first run up and subsequent fall). As I think you know this segment well (much better than I), it was nice to see you feel this way on PVTL’s future potential.

I know you don’t want to completely insulate yourself to only hearing the same things, but confirmation from respected voices is nice to hear!

I’m fully aware the price of both of these stocks could go down a bunch more from here, but long term, I think these purchases will pay off. And as I stated in a previous post, I still have a fair amount of cash to continue deploying if things continue to go lower.

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@DreamerDad

Concerning CLDR and HDP - I haven’t given up on cloud data - this is a really big problem with a big fat prize to the team that solves it - in fact my book will touch on some aspects of this. I also believe the approach these 2 companies took is the most promising to get to the solution - there is simply nothing better than the Hadoop File System to solve this type of problem. Something better may come up, but it will most likely be a version 2.0 of the Hadoop File System, not something radically different.

What actually runs on the Hadoop file systems is still open - a version of Hadoop or Spark, or one of the other dozen libraries that are trying to solve this problem.

What I’ve lost faith in is the ability of these 2 companies to solve this problem. If the CEOs are going to their CFO instead of their R&D teams to improve market share, they are out of ideas. For innovative companies, CEOs should only go to their CFO to figure out how to stay in business, not how to grow their revenue. Now it is possible they’ll find something later and get back on track, but to me this is a really bad indicator at the moment - I want to see non-merger related growth or an exciting tech platform before I consider coming back.

I think what is really happening is that HDP and CLDR haven’t found a compelling offering that is making companies put significant revenue their way, after the initial proof of concept. The cloud titans and companies like MongoDB have their DIY offerings, and companies like Talend will hold your hand for the small-mid projects before it gets too expensive. CLDR and HDP need the real projects that return big ROI to get their big growth, and we aren’t seeing enough of those with the current cloud data technology.

I think Microsoft Azure, AWS, Google Cloud, as well as IBM, Accenture, Pivotal Labs, and Mongo are all getting a piece of the revenue here, and will continue to do so until someone rolls out a product that enables enterprises to solve their cloud information problem easily.

As for PVTL, I have always believed that long term growth requires them to make a great offering in the mid market. They have a fantastic product for the enterprise, but they can’t depend on the Dell sales team forever, and it is risky to have all your revenue come from huge companies.

Sure Ford loves PVTL and is stalking them, building their labs right next door to PVTL. But when they start having bottom line issues (like today), someone’s going to ask why they are spending tens of millions/yr in a subscription for PVTL. One way or another, the number will go down - whether through deal-making, competition, or reduction in use. This will be repeated with all their big clients.

Every enterprise in the world is going to have to move to the cloud. How stupid would PVTL be to give away 90% of that revenue, and only go for the 10% coming from the largest companies. And of course, whoever does take the mid market will prove out a product that works and is more cost-effective - they will become a fierce competitor to the top of the market also.

Handling the mid-market is hard, and a different type of pricing might mean that they have to reduce their revenue from their current clients - these are tough decisions to make. I trust their management to see that they need to move in this direction, and start making the moves to take over the entire cloud native tools industry, not just the big data centres. Things are still early, they have time to collect all the gravy from their big customers. But if they don’t show they can see the importance of moving to the mid market and figuring out how to sell there without big brothers Dell and EMC, within the next year, I will be getting worried.

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Hi Steppenwulf,
Thanks for posting, you always have some great insights. Be sure to post the title of your book when it is done. I would really like to read it.

Andy

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Thanks Andy, I’ll do so - I would love more readers, as I don’t know how many I’ll have for a book aimed toward software architects, developers and managers.

I’ll have to be a bit more careful about what I post, once my name is public - my bank does not take well to having anything at all published about it without going through compliance - and compliance always says “no”. But I haven’t written anything about my workplace much anyway, so I guess it shouldn’t matter.

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I would love more readers, as I don’t know how many I’ll have for a book aimed toward software architects, developers and managers.

It will probably be over my head but I really like reading books on technology from people that know what they are talking about.

I’ll have to be a bit more careful about what I post, once my name is public - my bank does not take well to having anything at all published about it without going through compliance - and compliance always says “no”. But I haven’t written anything about my workplace much anyway, so I guess it shouldn’t matter.

Yea compliance can be a problem. Maybe you should have a pseudonym, I hear Mark Twain is a good one :slight_smile:

Andy