Stocknovice's April 2023 Portfolio Review

Two steps forward, one step back.

2023 Results:

Screenshot 2023-04-28 at 10.02.24 PM

2023 Monthly Allocations:

• darker green: started during month
• lighter green: added during month
• yellow: trimmed during month
• blue: bought and sold during month
• red: position exits
• positions >10% in bold

Past recaps:

December 2018: Stocknovice's End of Year Portfolio Review - Saul’s Investing Discussions - Motley Fool Community
December 2019 (contains links to monthly reports): stocknovice's 2019 portfolio review - Saul’s Investing Discussions - Motley Fool Community
December 2020 (contains links to monthly reports): stocknovice's December Portfolio Review - Saul’s Investing Discussions - Motley Fool Community
December 2021(contains links to monthly reports): stocknovice's December Portfolio Review - Saul’s Investing Discussions - Motley Fool Community
December 2022(contains links to monthly reports): Stocknovice's December 2022 Portfolio Review
January 2023: Stocknovice's January 2023 Portfolio Review
February 2023: Stocknovice's February 2023 Portfolio Review
March 2023: Stocknovice's March 2023 Portfolio Review

Stock Comments:

Earnings season has certainly started with a bang. Two of them to be exact…

BILL – Bill’s main update was the hiring of a new CTO (Bill - BILL Hires Ken Moss, Technology Industry Innovator, as Chief Technology Officer). Ken Moss, who replaces the retiring Vinay Pai, joins Bill after three decades of experience including stints with Electronic Arts, eBay, and Microsoft. This seems like a strong addition as Bill continues to integrate and expand its offerings.

A more important update will be Bill’s May 4 earnings release. One thing I’m guessing we’ll hear about is Intuit announcing it will launch an internal payment service for its QuickBooks product. Since Bill’s current QuickBooks integration has been a steady source of customers, this is disappointing to hear. Frankly, it is hard to interpret this as anything other than Bill’s competitive landscape becoming more difficult. That also makes it a backdrop to how the market is likely to interpret the quarter.

CRWD – CrowdStrike gave us several updates this month. First, CRWD earned its third consecutive placement on Fortune Magazine’s 100 Best Companies to Work For (CrowdStrike Named to Fortune’s 100 Best Companies for 3rd Time in a Row). Next, it released “the world’s first and only” EDR/XDR solution to Extended Internet of Things assets (CrowdStrike Introduces World’s First XDR for IoT Offering). According to the release, this includes any “IoT, OT, medical devices, Industrial IoT and connected devices” across a customer’s entire organization. While I’m not sure exactly what that all means, I do know finding more endpoints to protect is right in CrowdStrike’s wheelhouse.

Toward the end of the month, CRWD introduced a new Falcon Complete XDR service extending its “24/7 expert management, threat hunting, monitoring and end-to-end remediation” services (CrowdStrike Announces Managed XDR: Closing the Cybersecurity Skills Gap). Lastly, it expanded its Google partnership with the first native XDR protection service for devices using the Chrome operating system ( This Chrome update offering will be generally available by June, hopefully adding another avenue for additional endpoints.

In addition to the steady flow of releases, CrowdStrike hosted an early April Investor Briefing (slide deck here: While most info was simply a recap from last month’s earnings report, I did see a couple new details worth noting.

First was CEO George Kurtz directly touting CRWD’s simplicity and technical advantages over Microsoft’s security offerings. This includes the statements “Microsoft Windows represents 95% of the compromised endpoints CrowdStrike remediates” and “when CrowdStrike’s IR team investigates a Microsoft customer that has been breached, 75%+ of the time Defender [Microsoft’s protection offering] has been bypassed.” Kurtz has never shied away from addressing competition directly, so kudos to him for leaning strongly into this one. Besides, it’s not as if CRWD is trying to sneak up on anyone anymore. Game on.

Next was CRWD reiterating it expects FY24 net retention above its benchmark 120% while remaining on track to hit $5B+ in ARR by FY26. The one minor disappointment in my opinion was management keeping all its other long-term goals intact:

As the graphic shows, CrowdStrike has already reached its current target in every metric but operating income. Having literally owned CRWD since its day of IPO, I give it all the credit in the world for performing as well as it has. The question, of course, is where it goes from here. With little left to squeeze in the way of leverage, it will be imperative CRWD continues to maintain growth. This month’s flurry of activity suggests CrowdStrike is aggressively trying to do just that. Carry on then.

DDOG – Datadog released quite a bit of April news. It began with the acquisition of Codiga (Datadog Acquires Codiga | Datadog). A “tool that helps developers write better code faster,” Codiga monitors code for errors as it is being written. Since catching mistakes earlier saves time, effort, and money for users, this seems like a smart add to Datadog’s product line.

Next Datadog moved its Application Vulnerability Management tool to general availability ( This feature “expands Datadog’s application security capabilities by automatically uncovering and prioritizing the most important vulnerabilities in open-source libraries.” With so many applications using open-source code, this strengthens users’ ability to monitor, identify and resolve issues. This seems like a natural expansion for DDOG and should increase its stickiness with customers.

Datadog followed with the launch of a new data center in Japan ( The significance here is the firm’s first Asian data center. This will help local customers “comply with local data privacy and security regulations.” All existing products will be available through the new center, so if nothing else this move extends Datadog’s sales reach in the region.

Lastly, Datadog moved its data streaming monitoring service to general availability ( This feature “makes it simple for organizations to track and manage the performance of applications that rely on messaging systems.” This doesn’t sound like a gamechanger but does seem to fit with DDOG’s steady cadence of adding to its offerings.

Our next formal update occurs when Datadog reports before market open on May 4. Fingers crossed.

ENPH – Enphase started April with several business updates. First, it launched its battery in France, the Netherlands, and Switzerland ( European business has been a key growth driver for ENPH the last few quarters. This hopefully keeps that trend going.

Next, ENPH expanded US deployments in Michigan and European deployments in Spain and Portugal ( and The more the merrier.

The company ended the month with its Q1 earnings release April 25. The market hated it, but I found it reasonable mostly because it was almost exactly what the company said it would be – seasonal US softness, continued strength in Europe, improved operational efficiency, and additional capacity coming online. The highlights included a record 45.7% gross margin, 25% sequential growth in Europe, and everything on track to produce 10M units per quarter by the end of 2023. The lowlights included disappointing battery sales and the admission of macro and interest rate headwinds in the US market. Management assures us the US blip is “temporary”, but the price reaction suggests the market isn’t buying it.

Stepping back, this seems to be a timing race between management’s visibility and how long it takes for the US economy to work through whatever it is working through. One thing I’ve learned though while studying ENPH is CEO Badrinarayanan Kothandaraman (yes, I copied and pasted that) really knows the business. To that end, he concluded:

“Our strategy doesn’t change. We are focused on working closely with our installers to address their issues, making new products and entering new markets and countries. The fundamentals are intact for our industry. 30% ITC for the next decade, the rising utility rates, the focus on climate change and the desire for resilience are all going to push the need for solar plus storage more than ever before. With our differentiated products, high quality and exceptional customer experience, we are in a strong position to capitalize on this trend.”

Kothandaraman (yes, pasted again) is adamant things will free up in the second half. Given his track record, I don’t have significant reason to doubt him (yet). Maybe I’m simply chasing fool’s gold after recent prediction gaffes by NET’s Matthew Prince and SNOW’s Frank Slootman, but this selloff feels overdone. I’ve swallowed hard and added a few shares. We’ll see. :grimacing:

NET – Our initial news on Cloudflare was its addition to the 2023 Gartner Magic Quadrant in the Security Service Edge (SSE) category (Cloudflare One named in Gartner® Magic Quadrant™ for Security Service Edge). Cloudflare joins nine other firms in the report and is the only new vendor added to the list. If interested, more info about NET’s position in the report along with customer comments can be found here:

Our more important update was NET’s April 27 earnings release. Unfortunately, it stunk. All we really need to know is the quote near the top of the release:

“Increasing macroeconomic uncertainty over the course of the first quarter resulted in a material lengthening of sales cycles and a significant backend-weighting of linearity. Despite the continued reacceleration of our new pipeline generation and our sustained high win rates and renewal rates during the first quarter, our guidance assumes these external headwinds will persist through the end of the fiscal year.”

That led to management restating its initial FY23 guide down to $1.284B from $1.342B. That’s a huge no-no in any market, and the stock has been hammered accordingly. That’s also a humongous credibility loss for a management team that was supposed to be one of NET’s selling points.

To make matters worse, most secondary metrics moved in the wrong direction. Net retention has dropped from 127% to 126%, 124%, 122%, and now 117% the last four quarters. Likewise, the 5,353 new customers marked the fourth consecutive quarter of fewer adds than the prior year. I also couldn’t help but notice the revenue contribution from large customers went from very specific 61% and 63% figures in Q3/Q4 to a more generic “>60%” this time around. Honestly, that feels sneaky combined with the customer and NRR declines.

Shockingly, Matthew Prince absolutely torched the sales team by calling out 100+ salespeople who “consistently missed targets” in his opening remarks. That’s not a good look, especially after all his we-know-our-levers comments the last few quarters. Prince knows the sales lever ultimately stops with him, right? Maybe it’s just me, but he could have simply stated NET is extremely unhappy with its sales structure and aggressively fixing it including firing underperformers. Instead, his comments sounded blaming and petty. I found it way out of character for what is usually a smooth presenter. Kudos to the analyst who basically asked (paraphrasing here):

“Maybe I’m ‘a little dense’, but if you keep bragging about identifying this economic softness first and your must-have customer ROI, why so far off on these Q1 results and your FY outlook?”

I think that about sums it up.

After all Prince’s recent visibility bravado, I can’t call this quarter anything other than an epic fail in both numbers and narrative. Hindsight is always 20/20, but the customer adds and declining NRR never suggested the acceleration needed to meet the FY guide. It was all based on the belief and trust that management knew what it was talking about when stating the initial figure. That trust is now gone as far as I’m concerned. Not to mention the fact that lowered guide might still be tough to meet given the declining trends. It’s never a good sign to say I’m hoping we’ve gotten our worst report of the season out of the way early, but there you have it. Ugh.

I sold our entire position afterhours other than a small number of shares covered by $63 calls into earnings. Those will be gone soon as well. I just don’t see much upside here until Cloudflare pokes its head out of the hole it just dug for itself. My condolences to fellow shareholders. Reports like these never feel good.

SNOW – A top watchlist name, Snowflake’s first April announcement was naming the ten semifinalists in its annual startup challenge (Snowflake Startup Challenge 2023: 10 Semi-Finalists). This contest features businesses built on SNOW’s platform and awards up to $1M in prizes to the top three. The three finalists will be announced in May and compete for the Grand Prize by pitching to the judges during the Snowflake Summit annual conference in late June.

The follow up and probably more significant news was the launch another industry-specific data cloud, this time for manufacturing (Snowflake - Snowflake Launches Manufacturing Data Cloud to Improve Supply Chain Performance and Power Smart Manufacturing). This initiative “enables companies in automotive, technology, energy, and industrial sectors to unlock the value of their critical siloed industrial data by leveraging Snowflake’s data platform.” This joins several other industry-specific verticals including finance, healthcare, and retail. Part of Snowflake’s appeal is its ability to let customers share and leverage combined datasets for additional insights. This should be another strong step in that direction.

TMDX – I saw no releases of note for TransMedics, which is not unusual at all for our smallest holding. However, @ZoroSGInvesting found the following article out of the UK: It references “a US-made device called an Organ Care System – better known as the ‘heart-in-a-box’ machine – helps restart the heart, keeping it healthy for longer.” Given the timing, I can’t help but think this news and/or the research behind it contributed to TMDX’s recent spike to $90 before settling back into the end of the month. It’s possible we’ll learn more when TMDX reports May 1.

TTD – No real news to report on The Trade Desk other than earnings on May 10. The stock has seen a recent rise as the market digested ad-related results from Facebook, Google, and Snapchat. This hopefully bodes well.

ZS – Zscaler’s initial April news was the wrap up of its One True Zero Live customer event in London (One True Zero Live in London is a wrap! | Zscaler). This marked the first live gathering in four years with “the engagement, enthusiasm, and support on behalf of attendees, customers, partners and speakers reminded us why events like this truly matter.” A quick recap of the highlights can be found at the link above.

Next was Zscaler being named a Leader by Gartner Research in its Magic Quadrant rankings for Security Service Edge ( This was the second year in a row it made the Leader category. The release notes this follows Zscaler’s prior recognition by Gartner in it 2022 Customers’ Choice report, in which ZS was the only vendor to be classified as a leader in all eight judging segments. If interested, ZS is offering a free copy of Gartner’s Magic Quadrant report here Gartner MQ Security Service Edge (SSE) Report | Zscaler (email address required).

One thing I noted in the accompanying comments of the report is Zscaler did not get credit for some recent platform enhancements since they were released too late to be included in this report. However, it’s clear ZS has some fellow Leaders to watch in the competition space.

My current watch list in rough order includes Semsara (IOT), Aehr Test Systems (AEHR), Snowflake (SNOW), (MNDY), SentinelOne (S), and MongoDB (MDB).

And there you have it. I’d call April a decent start with a sour finish. Our first wave of tech reports received mixed responses, which only extends the market’s ongoing skittishness with the sector. That will only be exacerbated by the Fed’s upcoming May meeting and probable interest rate hike. As with most of these meetings in the last 18 months or so, Jerome Powell’s comments will likely drive the market more than any company news in the short term. At some point we’ll get back to fundamentals. However, it doesn’t look like that time is just yet. And so the cycle continues…

Thanks for reading, and I hope everyone has a great May.


On the TMDX spike to $90, it happened during a week when there was a national heart transplant conference going on. I have not seen any confirmed news reports, but I saw some internet chatter that the CEO said something during that conference that made the stock spike. I believe the speculation was that it had something to do with their progress on owning the delivery network. Again, this is speculation, but I don’t think the article you mentioned had anything to do with the spike in price.

Also, I don’t know where to go to confirm these #'s, but institutional ownership is over 90% (that’s pretty high). So there are not a lot of shares readily available. I think it was probably a short squeeze that made it shoot to $90 temporarily. Short % is 7% according to yahoo finance.

Long TMDX ~ 5%.


Hey @Stocknovice, was this posted on another board, because I didn’t see it here at Saul’s? Just want to make sure I’m catching all the TMDX-related news.


No, Zoro posted it on Twitter. You can find him here:


Hi Stocknovice,
I really value your opinions but I have to say that I’m afraid that you are taking guidance misses by Cloudflare, Snowflake, Sentinel, etc as personal affronts, as if you feel the CEO had lied to you… Or on the other hand, as signs of incompetence by the CEO and CFO to miss their guidance, as if they don’t know how to predict their own businesses… when all these guys made what they felt to be conservative guidance only to be blindsided by the rapid and even sudden further deterioration of the B2B atmosphere, as things changed rapidly AFTER they had given their guidance…

It’s not a sign that the CEO’s have been negligent when a guidance miss has hit so many of them who have rarely or never been hit like this before in years of giving guidance, even who have never missed guidance before.

You wrote:

That led to management restating its initial FY23 guide down to $1.284B from $1.342B. That’s a huge no-no in any market, and the stock has been hammered accordingly. That’s also a humongous credibility loss for a management team that was supposed to be one of NET’s selling points… It was all based on the belief and trust that management knew what it was talking about when stating the initial figure. That trust is now gone as far as I’m concerned.

Moo had a different way of presenting it:

I have been following Cloudflare’s CEO, Matthew Prince, for a long time now. He is a trustworthy and respectable CEO who cares deeply about his company. If I were in Matthew Prince’s position, I would issue a very conservative, sandbagged guidance to avoid missing it ever again. Doing so would make it possible for the company to beat and raise expectations…

In addition, management emphasized the 100 quota sales reps who underperformed and only generated 4% of annualized new business last year, compared to the top 15% of reps who hit 129% of their quotas. I understand that Matthew Prince was trying to emphasize the discovery of areas for improvement, which provides upside…

Anyway, that’s just the way I see it. I don’t think these people who we’ve respected for so long have lost all credibility and trust because they all got blindsided by a rapid worsening of the B2B environment, but who knows, you may be right. I just don’t see it.



And that doesn’t mean that I haven’t trimmed these companies in response to slowing growth, just that I haven’t felt that management has lost my trust.


But not everybody here has trusted Prince for a long time.

And if the last two calls do not make one question their assumptions, I don’t know what will. It is not about guidance per se, it is about what the CEO chose to highlight in the Q4 and Q1 calls.

NET has long enjoyed a larger-than-life status on this forum, which IMO in itself demands heightened scrutiny rather than blanket statements on how trustworthy a CEO is.

Just my 2c. My more specific points on NET posted recently did get a lot more likes than I expected, but I am surely not writing these things to win a popularity contest!

This forum does need contrarian views. We all would have been far better off if there were more contrarian views back in 2021.


Saul -

Thanks for the comments. It just goes to show our views and expectations for management can be as individual as how we might interpret a quarter’s numbers. If my writing comes off as personal, that’s my mistake. My point is the conviction we have in any company is also tied to our trust in management.

First and foremost, following the numbers is key to understanding any business. That is something this board has proven over and over again. Our numbers consist of two things: the performance the company gives us and the projections management provides. Cloudflare, Snowflake, and SentinelOne have only been singled out because those are the three I owned who have had to publicly issue corrections for faulty projections. In fact, S has done it more than once. Is making projections tougher in this market? Certainly. However, that doesn’t change the fact any management is responsible for the statements it makes. If you’re not sure, say you’re not sure. Overpromising and underdelivering is never a good look, especially if it’s an unforced error like SNOW floating 47% growth after Q3 when it wasn’t even required.

In Prince’s case, I also believe he was a poor leader this quarter. Publicly disparaging those under you is a terrible message for any leader in any field. My entire professional career has been spent in an insanely competitive environment where subtle differences in leadership make a huge difference in results especially in tougher times. I will not deny that experience influences my investment choices. A boss is someone you have to follow. A leader is someone you want to follow. Unfortunately, I found Prince very bossy this quarter. Who wants to work in an environment where you know the bus might run you over next? If an elite sales candidate is weighing competitive offers, I fail to see how these comments tip the scales in Cloudflare’s favor. Good leaders share credit and take blame. Prince chose the opposite. I am not saying anyone else needs to hold that standard, but it’s the one I choose to use.

Finally, nowhere did I state management was negligent. I also made no accusations of lying. In my opinion, this is more about my standards for competence and integrity from the business leaders I entrust with our money. You can put them in three buckets:

  1. Underpromise and overdeliver
  2. Do what they say
  3. Overpromise and underdeliver

I prefer to own companies doing #1 or #2 and have no problem pointing out when I believe they have done #3. For example, I used the same standards when OKTA switched from the CEO’s “we love our internal SIEM product” and CFO’s “we’ve never had a stronger pipeline” to “we bought Auth0 because their SIEM was better, we apparently didn’t invest enough during COVID, and the CFO is retiring” just two quarters later (March 2021 Portfolio Review - TheStockNovice). I sold immediately and have never looked back. Similarly, I held FSLY to the same account in the second message here (Here's what I did about Fastly) and full post here (Figuring Out Portfolio Fit - TheStockNovice).

For what it’s worth, Enphase’s CEO is next on my personal clock. I believe ENPH’s report fell into category 2. It did what the CEO said it would out of Q4. At the same time, he remains adamant any first-half softness is temporary and we’ll see a bounce in the second. Everyone owning ENPH should now reasonably expect that outcome. Why? Because the head of the company has told us so. He didn’t say he wasn’t sure. He didn’t say they were building in extra caution. He didn’t imply more patience would be required. Instead, he doubled down on his temporary and second half comments of last quarter. If it doesn’t happen, ENPH’s management falls to category 3 (and those who sold already will be justified because my guess is they don’t believe him in the first place). That will undoubtedly cause another wave of exiting shareholders, and I will likely be one of them in search of an alternative falling in one of the first two categories above.

Regardless of market conditions, I don’t believe it an unfair standard to expect a management team to at least do what it says. While there can always be extenuating circumstances, Prince gets no pass from me for the egg I believe he has thrown on his own face the last few quarters.


I don’t think this was the case. He didn’t “publicly disparage” anybody, he didn’t give out the names of those who underperformed. He simply highlighted one area that didn’t do well and that needs improvement/replacement (he also said that their top sales outperformed by delivering 129% of their quotas – so he went in both directions). I don’t see anything wrong with that. It’s like highlighting any other area that needs improvement. He is the CEO of a public company and as such he has the fiduciary duty to be transparent as to what didn’t go well in the business. Hiding these things would be a negative, to me.

The CEO of a public company is ALWAYS responsible for anything that happens in the business. By definition, anything good and anything bad. He can be fired by the Board on the whim if things go bad or if (especially important) he/she isn’t fully transparent. So, he takes a big risk. It’s not that, if he says that 100 salespeople underperformed, he’s magically exonerated from that responsibility. He’s the ultimate responsible for anything that happens in the business. So, I don’t understand this differentiation of taking the credit and sharing the blame. Sharing the blame with whom? If something bad happens, he may get fired anyways.
Look, I’ve done private equity buyouts of companies for 20 years and I dealt with any type of CEO. And I can assure you that “sharing credit and taking blame” (or the other way around) doesn’t mean anything. The CEO is always the figure who will pay or get credit for ANYTHING, in the eyes of the shareholders (represented by the Board).


And you are 100% entitled to that opinion. As is anyone else reaching the same conclusion. Saul himself seems to lean that way, which I find a feature of this board rather than a bug. I can only provide the thinking behind what I do with my portfolio and have no intention of telling anyone else what to do with theirs. That’s the same for any member of this forum. Anyone who’s been here a while already knows that (as I know you do Silvio), but any newbies should probably read that twice.

Also true. And I am ALWAYS responsible for whether I believe what happens in the business deserves our investment dollars. I kept our ENPH shares after the big haircut but dumped NET. My criteria, my responsibility, my consequences. I can live with that.

Good for you. It sounds like your experience has created different criteria for what you look for in a leader. I’d expect nothing less since each of us is heavily influenced by our past. I have no private equity background but considerable experience making large-dollar business decisions as both a professional and an investor. In this case, I’ve decided I’m simply not comfortable letting Matthew Prince keep our money while trying to lead Cloudflare out of the very same ditch it drove into on his watch. I personally find it borderline disingenuous to brag about his bold macro vision at the same time he was apparently blindsided by an underperforming sales apparatus right under his own nose. That makes me question whether his “vision” was trained on the right spots especially since it was obvious customer adds and NRR trends had been lagging for multiple quarters. Kudos to the analyst who basically called him out with the same observation. You, of course, are entirely welcome to a different interpretation.

In the end, I’m glad we’re having this discussion. This board often gets accused of groupthink when in reality it is a collection of independent thinkers who just happen to practice a similar investment style. I simply articulated my criteria and how I apply them to my decision making process. Everyone else should do the same.

For the sake of education @silviocast, would you mind giving us your view of NET’s overall performance this quarter through your private equity influenced lens? I would sincerely like to hear it if you’ll share. This could potentially lead to a very good discussion of Cloudflare’s quarter and its prospects going forward. In my opinion, those types of discussions is when this board is at its best.


Many thanks, @silviocast for your POV.

To second @stocknovice everybody should indeed make up their own mind. Here are in more detail the issues that bug me. I understand that these may not bother others. That’s ok. We can help each other better by laying our POV clearly and then let it stand so others can read multiple opinions. No need for a back-and-forth.

First, this is bigger than business, it is about leadership. Very few people rise above the majority with consistent leadership in tough times and IMO the NET CEO just failed to be one of them. Not a general any mercenary worth their salt would follow into battle. Or a top salesperson, in this case.

Second, this was an attempt to explain away bad overall performance by throwing under the bus a bunch of employees. Extremely poor form irrespective of what organization it is: business, government, military, education, whatever. Others also laid off a lot of people but found no reason to do it in this particular fashion. And as the analyst at around the 45 m mark pointed out, these people at NET must have been unproductive for a while prior to Q1. So it explains nothing. To me it suggests bigger issues.

Third, this is the second quarter in a row the CEO found a way to deflect attention. Even I knew back in 2020 that NET would benefit from AI. However, in Q3 2022 NET found no reason to mention AI at all. Yes, I did check out the transcript. Then suddenly the CEO brought the subject up during the Q4 call–and made a big deal out of it. Sure, analysts were asking everybody about it. But the NET CEO was the one to beat the drum first. Why? How come AI was irrelevant to NET in Q3 but suddenly was a revelation in Q4? Of course, there was no massive AI-hype at the time of the Q3 call but there was one in Jan-Feb.

So these are two consecutive calls in which NET chose to highlight something fundamentally irrelevant to their CURRENT performance while posting disappointing results and/or guidance.

Fourth, why is NET unwilling to break down its revenues? Why don’t clearly tell me: this is how our traditional business performs and this is how our great new products perform, taken together? TWLO, a company that has long lost retail following, did just that with Q4. They put their head on the guillotine. Now they have to deliver to a specific target for two components of the business. But not NET. For example, how do I know NET is winning anything that matters against ZS? Because of a couple of illustrative examples? They are completely meaningless. They can as well be the sum total of all examples. We don’t know. They can be won at a huge discount. We don’t know. They can be very real, high quality wins. We don’t know.

Fifth, why is NET unable to say anything beyond all verticals are bad, it was bad all along? See, AYX pinpointed an issue: SVB and the subsequent weeks. Otherwise, they would have exceeded rather than met guidance. And they said their closing those in April so reaffirmed guidance. AYX did lay off a lot of people but did not present that as an excuse. NET was vague suggesting a debacle across the board and a quarter salvaged at the end. And they did lower guidance.

I am no longer keeping NET on my short list.

By no means does this mean that anybody in particular has to agree with me. Just my 2c.

Have a great May everybody!


I mentioned my PE background solely because evaluating and dealing with top management is pretty much all PE investors do during the life cycle of a portfolio investment. No intention whatsoever to brag about my background, which by the way I often deem non-conducive to particularly good investment judgement on public companies (it’s a completely different ball game). Having said that, PE has a long term, highly operational, management-focused approach, that I try to adopt when looking at public companies. Having lived many companies from the inside, I know that value doesn’t get created – or destroyed – in a quarter. Also, value creation is not a linear process: it goes up and to the right through ebbs and flows, if execution is right. All this to say that I do not really understand all this fuss after one quarter’s results. I don’t understand how NET could be consistently one of the top three positions in virtually every portfolio here up until last week (with large position sizes), and now all of the sudden it’s become a bad company, led by a guy who’s no longer trustworthy. Prince is not a new figure to this board, we know about his style in earnings call, we know he likes to have an unorthodox way of conveying things about his company and the future of the business. So, nothing new there, as far as I’m concerned. And this thing about the underperforming sales people, to me, is really no big deal. As I said, I see it as a way of being transparent with shareholders.
You say “I personally find it borderline disingenuous to brag about his bold macro vision at the same time he was apparently blindsided by an underperforming sales apparatus right under his own nose”. We’re not talking about an underperforming sales apparatus; these apparently were just 100 people. I don’t know how many people work in sales at NET, but I think we’re talking about a small percentage of the total. And I don’t understand your “right under his nose”: he analysed it, he judged it, and he reported it. It doesn’t seem that things happen under his nose: I see someone well aware and cognizant of the situation. Also, your bolded text “especially since it was obvious customer adds and NRR trends had been lagging for multiple quarters” is not true. Total customer adds in the last 4 quarters were (from the most recent) 6073, 6086, 4197, and 3619. Big customer adds were 114, 134, 159, 212 (but the PRIOR 4 Q were 121, 156, 172, 143 – so, basically all over the place). NRR has decreased, yes, but is still 117% and it hasn’t really lagged “for multiple quarters”. Over the 4 preceding Q’s it was 122, 124, 126, 127, showing a slight decreasing trend but nothing dramatic, imo.

As I said above, I find it hard to be so dramatic after a quarter of so-so results in a tough macro environment. I too was disappointed when I saw that they decreased their year guidance, but again, it was a 4% reduction. I think we’re so used to see large beats and ever increasing guidances that we lost sight of the fact that things cannot go always linearly up and to the right. Especially when companies get big, especially in uncertain times like these. I think we need to be able to ascertain whether a business will grow durably and profitably and will continue to play a leadership role in their market over the next decade. Also, on the reported numbers, they basically hit the high of their guidance range for the Q (ok, one million lower), but this is NOT a tragedy. They also reported record profitability and cash flow, so all good there.
My view is that this is still a great company that makes products/services that are necessary to their customers, must-have products/services, and that this year will grow to be a 1.2/1.3bn company in terms of revenues, likely with good profitability and cash flow. They have their unique infrastructure that makes the business capital intensive but at the same time hard to replicate overnight. And, yes, I like Matthew Prince and his top management people. I think he has very clear where this company needs to go and develop into a multibillion revenue player a few years from now. I’m just not willing to jump around every Q from company to company. Maybe I’ll lose something in terms of momentum, but in the grand scheme of things (especially after all we’ve suffered over the last year and a half) it won’t make a huge difference.


About NET and how Prince threw their sales team under the bus - from anecdotal stories I’ve heard, their sales reps quality is all over the place and many clients wondered “how do you have such amazing product but such poor sales” when it comes to support or help customer find solutions from their product stack. Still, it is unusual to see a CEO throwing the team under the bus. I still think they have the best mix of product roadmap for land and expand and competitive landscape in the group of software companies discussed on the board besides Snowflake, which has very high multiples. On the other hand, the execution from NET in the last two quarters are very bad. I still hold all of my NET positions (about 20%) since I don’t see significantly better options to invest in the IT budget tightening macro.


The whole thing about the Sales team is that Prince knew they were underperforming but as long as the economy was humming along he was ok with it. He should have been cutting them all along. Now when the economy starts tanking he finally owns up to it? I still think this is a great company, and I don’t think Prince can destroy it because of what they have built. But maybe Prince learned a good lesson, because that bull market had run so long and also, Everyone of us does the same thing, well except maybe Saul, We keep telling ourselves this or that company is really not that bad but if we give it just one more quarter they will pull through.



Its pretty clear that different people are going to react differently to what Prince said.

In my OWN take, I think Prince was trying to say [look lots of stuff going wrong with macro, but by god here is something we can control and we are going to optimize the heck out of everything we are doing to emerge stronger and better in all this]. That is I feel like he was trying to say that he isn’t going to sit back (kind of like what Bill said as I recall), [well its bad and everyone knows its bad and we are just going to hunker down and get through it].

Prince took the opposite track. [NO, I’m just not going to sit back and let this happen to us. We are going to do EVERYTHING WE CAN to get better, stronger, and use all this pain for a greater purpose]!

Therefore, I appreciated Prince’s approach, as an executive myself, I aspire to control the things I can control to get the best possible outcome. I may fail because of stuff I can’t control, but I’m not going to go down without a fight!

So that is how I took it.



This has been one of the best discussions I have seen on this board in a while. Appreciate all the input.

I don’t have the depth of understanding about this company that most of you have. But based on what I have ready over the last several years (mostly on this board), if I had to pick only one SaaS company to buy and hold for the next 10 years, it would be NET. That is why I made it my largest SaaS holding. Moat, management, speed of innovation, optionality, potential for profitability, cash management, growing market, solid growth history.

We are in a freaking boarder-line financial crisis. Banks are going bankrupt. Credit availability is tightening. Companies are slowing spending and tightening their belts. Things are changing rapidly.

The stock price is where it was…wait for it…3 months ago!

The price is very close to the long-term trend line. The risk/reward seems good here. I could be wrong - I’ve been wrong lots of times - so this is not investing advice, and make your own decisions based on your own analysis.

I have not sold or added any shares.

p.s. - Can you believe 1.5 years ago we were arguing about why the P/S ratio of 60 was ok? There might be something to learn there.


Well, Prince himself called it embarrassing. You should probably let him know he didn’t need to use such strong language. Come to think of it, if there’s really nothing to worry about he probably shouldn’t have led his opening remarks with all the talk about how many heads were going to roll.

C’mon, silvio…on this one, I have to call you out. Allow me to walk you through it.

Total customer adds:

That looks like four straight quarters of noticeable YoY declines to me. From the first four quarters to the last four that’s ~9K and 30% fewer customers added. It’s something I’ve noted as we’ve gone along.


1Q22: 127%
2Q22: 126% (Prince’s initial “won’t be satisfied until it’s above 130%” statement)
3Q22: 124% (with another 130% reminder)
4Q22: 122% (but don’t worry, 130% is coming)
1Q23: 117% (couldn’t find a mention of 130% in all the hammering of the sales staff)

Yeah, that looks like another four straight declines and 10% drop overall. The end of the world? No, but certainly not encouraging when combined with the new customer numbers.

And just to clarify:


So, which part of my statement about lagging for multiple quarters is not true? You might choose to weigh those numbers differently in your investment decision, but you can’t change the numbers themselves.

Again, please read the definition of “multiple” above. You can also check out recaps from various posters pointing out these trends the entire time. I can’t speak for others, but I have owned NET from August 2020 until I likely sell my final shares this week. I figure that’s plenty long enough to put this one quarter in whatever context I’d like. You can totally disagree, and I sincerely hope you make gobs of money on your shares.

A perfectly reasonable view. I just happen to feel differently in how I am allocating my current capital. Let’s face it. This quarter puts NET in more of a split camp than the past. That’s happening with a lot of companies right now. I totally get your point about making allowances in the current market. I also understand there’s a fine line between making allowances and starting to make excuses. NET has zero responsibility for macro conditions. However, it has every responsibility for the quality of its sales team. Given the way I am interpreting NET’s trend, I’d rather err on the side of caution while NET tries to clean up a mess of its own making. Everyone else, including you, is allowed to make whatever decision they feel is best. That’s what makes a market.


Below are quoted from two reddit threads and reviews from the Blind site on Cloudflare:

“Instead of a mass layoff of sales people, there should have been action plans for people underperforming. This is a layoff, not an “upgrade”. On the off chance Matthew Prince finds this thread, if you read this, feel free to DM me so I can personally tell you what a XXXX you are. You accepted zero accountability and that speaks to your personal character and the culture that you are fostering at Cloudflare. If your product is so good, fire the entire sales team and just let the fish jump in the boat. Let me know how that goes.”

“I’m in the software sales world with experience selling to IT and security buyers. I didn’t work at cloudflare but I know people that were at cloudflare and it definitely had too many sales reps and territories that were too chopped up. They probably did need to lay people off because like many software companies they had more employees than made sense but spinning this as a failure of the reps rather than a failure of the company is super tone deaf. They architected the org in a way that not many people could realistically achieve and that’s on leadership.”

“I met with folks from that company before and they fit the tone of that message. It’s definitely on my list of companies to never work for or with.”

“Wow, this is crazy. It’s really harmful to those who want to pursue a different career in sales, and I personally never want to work for an org who does this to their own.”

“Let me just add this to the list I’ll never work for or collaborate with.”

Recently, a lot has changed at Cloudflare…My last Cloudflare team knew everything about Cloudflare, and could even warn me about quirks, inaccuracies, and features that were still half-baked on the back end. This new team glosses over those and tries to sell, sell, sell. They treat me more like a clueless CEO than a technical professional. Does this seem like a systemic issue at Cloudflare? Or just an isolated bad team?”

6 figure cloudflare customer under management here. Pricing on anything is like throwing darts at the wall. I reached my breaking point a few weeks ago and basically told the useless new team to leave us alone for the rest of the year. Probably giving Akamai a shot later this year.”

We tend not to contact cloudflare or want to use any more of their services… We find they always want to renegotiate the contract or and what we are paying each time…”

Cloudflare was by far the worst sales experience I’ve had as an existing enterprise customer. Akamai does the same things too, but at least Akamai listened to our complaints.”

April 25, 2023:
Compensation isn’t that great
Benefits are quasi inexistant
Quotas don’t seem to be reached by AE [Account Executives]

April 17, 2023:
Management turn over with no clear vision, politics over performance, eng and IT treated amazing but sales not so much

April 4, 2023:
• Losing its identity. Cloudflare is going through its angsty teenage years and trying to figure out how it wants to be moving forward to its $5B goal. Naturally scaling management and operations becomes very messy.
• No 401k
Quiet firing. At least it’s suspected by a lot of us. Hiring has slowed down and the teams numbers have been going down.
Poor management— you expect a company of this size to have its act together. However, it feels like we’re still at a startup sometimes. Up until recently it’s been the Wild West. Ironically they tried to fix that and somehow managed to make it more confusing. Changes have the right goals in mind but they’re always terribly implemented.
Low morale (in the sales org). The market is down, and expectations feel unrealistic. Quotas are rising and there’s zero room for mistakes. A lot of people thrown on PIPs; being managed out; or quietly looking for outside opportunities.
• Metric-focused. The changes in management brought with it outdated ideas on KPIs. They’re watching you like a hawk and emphasis is on putting out “activity” just for the sake of it.
• TC leaves much to be desired.


Perfect example of how we see things differently and place emphasis on different bits. And this is ok and the beauty of this game.

Let me point out my thoughts about some color that you added to your reply, if I may.

Have you listened to the call? Or maybe read the transcript? Well, first of all, I didn’t hear anywhere that he called it embarassing. But maybe I missed it, so I went back and re-read the transcript. And I didn’t see any statement of such tone. Second, his opening remarks are not really centered around “all the talk about how many heads were going to roll”. In fact, he gets to it not even right away, at the start of the call, and I found his way of addressing the issue very linear and rational and (as a shareholder) reassuring. And he added that this has been a problem but that, luckily, there’s a quick fix as 1) these 100 sales people contributed to just 4% of the revenues, and 2) there’s plenty of talent available on the market to replace them (and that while many tech companies are laying off people, they’ll be hiring). Is it sad to see people go? Yes, of course it is. But it happens every day in every company and not every CEO is open and transparent about that. This is not an unusual dynamics.
So, if I had access to him I could certainly let him know that “he didn’t need to use such strong language”, but I would tell a lie, because his language wasn’t really that strong.
Sorry to paste a big chuck of the transcript below, but I think this is important to clarify:

"Marc Boroditsky, our new President of Revenue, has dug into retooling our go-to-market efforts and identified significant opportunities to improve efficiency and performance of our sales teams. Although we’ve won 1/ 3 of the Fortune 500 customers, if we’re honest with ourselves, we saw a lot of our success with our enterprise customers because our products were so good and solved real problems that every big company faces. That allowed many on our sales team to succeed largely by just taking orders. When the fish are jumping right in the boat, you don’t need to be a very good fisherman. But at the risk of mixing watering metaphors, as the tide goes out, you get a clear view who’s not wearing shorts. The macroeconomic environment has gotten harder, and we’re seeing that some on our team aren’t dressed for work. Digging in with Marc, we’ve identified more than 100 people on our sales team who have consistently missed expectations. Simply put, a significant percentage of our sales force has been repeatedly underperforming based on measurable performance targets and critical KPIs. That’s obviously a problem. But it’s one in this environment with a particularly available and actionable solution. We are now in the process of quickly rotating out those members of our team who have been underperforming and bringing in new salespeople who have a proven track record of success, grit and a strong cultural fit. To give you some sense, these 100-plus people contributed approximately 4% of annualized new business sold over the last year. So we’re optimistic we can make this team upgrade without significantly impacting sales capacity. While team upgrades are always hard, this is a uniquely good time for us to do this. A year ago, the tech labor market was extremely tight. Today, there is an abundance of talent eager to work at Cloudflare. In Q1, we received more than 0.25 million applicants, approximately 40% of which were for sales positions. That’s more applications than we received in all of 2021. In addition to the volume, the caliber of the applicants we’re receiving is higher than we’ve seen at any point in our history, especially for go-to-market positions. While other companies are laying off, we’re going to be bringing on great people with proven track records to raise the capability of our enterprise go-to-market team. We’ve always had a culture of high performance at Cloudflare."

I think the overall tone of this piece of call was fine. I don’t see any “strong language”. What I do see is a CEO who’s transparent about the business. And again, if those 100-plus sales reps consistently underperformed the blame is only on him, as the ultimate responsible for ALL the choices that his team makes on a daily basis.

On the numbers, thank you for clarifying that we were looking at them from different angles: I was thinking Q/Q, while you meant Y/Y. And yes, the NRR has gone down. I shouldn’t have written that your statement was not true. My point was exclusively on the importance of looking at the big picture.

Oh, and thank you for teaching me the meaning of the words “lag” and “multiple”! :slight_smile: Learning is really a never ending experience :slight_smile:


A couple of years ago ZS had a similar problem with sales. It turned in a poor quarter and it’s stock price was pummeled. During the earnings call the CEO announced that a new head of sales was being hired. It took only a couple of quarters for things to significantly improve.

As a former sales nug, I have an understanding of how a few underperformers skate. I also understand that the CEO doesn’t run the sales organization by name, but uses metrics to measure the organization’s success. Issues come to light when they are unearthed. If metrics were being meet, the CEO probably didn’t care about over and under performers. In this environment he had to do a deep dive. He did the dive and is letting us know what he’s found. Seems honest to me.

I prefer to understand the issue than to get some generic mea culpa that does little to enlighten.

I would be concerned if I heard many stories about lost deals. While the Reddit comments are interesting, I don’t appreciate how to put them in context.