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:
- Underpromise and overdeliver
- Do what they say
- 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.