stocknovice's February portfolio review

February was a very busy investing month despite fewer days on the calendar. In fact, it’s probably the most I’ve learned as an investor in such a condensed period of time. With the flood of earnings now behind us, I find myself developing a much more discerning eye in regard to expectations and results for my companies. I’m quickly learning the value of knowing what ideas or metrics to home in on even before a company reports. I’m finding a large part of being a successful investor is being able to assess a situation and make a decision before the broader market catches on. You can’t do that if you’re not prepared and paying attention. Waiting a couple of days or even a couple of weeks to make a decision on an Apple or Berkshire Hathaway probably isn’t that big a deal. However, having a reactionary approach with smaller high-growth companies can leave you much more exposed to being whipsawed by the whims of the market.

My last few months have been an interesting balance. While I still eagerly await the input of others to help fill my still-considerable knowledge gaps, I’m gaining ever more confidence in my own guidelines for what makes a company worth my time and – more importantly – my investment dollars. I assume this development is a natural side effect of a more concentrated portfolio. Following fewer companies clearly allows for deeper looks, but it also raises the stakes considerably on each decision (or non-decision) I make. One thing I can say with certainty over the last few months is my decision-making process and the conviction behind it is MUCH improved for buys, adds and exits. However, I still find myself waffling when considering strategic trims or allocation shifts. I know others here have that type of nuance in their tool belt, but that’s a part of my game I clearly need to continue thinking about.

My month in a nutshell can probably be summed up in an exchange I had over on NPI:

Texmex said somewhat off the cuff about Nutanix**: ”What will NTNX stock do? If [the stock takes off] I would kick myself for not adding more now. If [it drops 10%] I would kick myself if I had more now.”

I replied, ”I know that statement is somewhat tongue in cheek, but this was a very important lesson for me to learn as an investor. I can’t control the price result. I can only control my buy/sell/allocation process. If I’m going to kick myself regardless of whether a stock goes up or down, I’m not only doing this wrong but I’m setting myself up for a lot of failure.”

Just writing that down made me a better investor. Thank you, Texmex.

**Sorry to use NTNX in this example. Is it still too soon?

February Portfolio and Results:

	%Port	%Port			
	28-Feb	31-Jan	1st Buy		XIRR
TWLO	13.6%	13.3%	08/27/18	41.9%	
TTD	11.9%	9.8%	06/08/17	91.3%	
MDB	10.0%	10.4%	08/29/18	34.6%	
AYX	8.8%	11.9%	08/27/18	29.0%	
SQ	8.2%	7.5%	08/27/18	1.6%	
OKTA	7.3%	8.0%	06/15/18	34.9%	
ZS	7.2%	8.0%	08/27/18	23.4%	
NTNX	6.0%	7.0%	08/30/18	-4.9%	
SMAR	5.2%	4.5%	01/07/19	47.3%	
PAYC	4.5%	4.2%	09/10/18	30.4%	
PLAN	4.0%	2.0%	01/22/19	11.8%	
SHOP	3.4%	3.4%	08/06/18	33.4%	
ZEN	2.7%	-	02/08/19	5.6%	
EVBG	2.6%	-	02/21/19	5.4%	
NEWR	-	5.2%	08/29/18	4.6%	
VCEL	-	1.1%	12/20/18	30.0%	
WIX	-	3.8%	09/04/18	7.4%	
Cash	4.5%	0.1%			
				XIRR	+/- S&P
			Month:	11.5%	8.5%
			2019:	34.9%	23.8%

Past recaps for anyone who’s interested:

Stock Comments:

I currently hold 14 positions and record my allocations on the 15th and last day of each month. I seem to be settling in around 35% in my top 3 positions, 55% in my top 5 and 80-85% in my top 10. I’ve tweaked positions here or there, but those ranges seem to be the norm and I find I’m comfortable with them. From a broad portfolio standpoint I believe I’m more likely to drift toward fewer holdings going forward than expanding past say 15 slots. I ended the month with a tick more cash than I’d like, but I plan on putting it back to work after I take a couple of days to exhale and think after a rapid-fire week of earnings.

As noted earlier there were plenty of reports this month, which means quite a few comments. Put on your reading caps if you dare to venture further…

AYX – I apologize for the length on this one, but AYX was my toughest position to manage this month. We parsed the auditor change and pre-announced numbers to death. Some noted concern it was done through an SEC filing with no press release, but I kept reminding myself this all started because PwC decided they’d rather give AYX money than take it from them (…).

My agita – my Nana’s favorite word! ( – came more from the CMO departure announcement, which was handled in roughly the same manner. As far as I can tell, they made the required filing with no other public comments. CMFFrankDip started two excellent threads on the potential effects of a sales change even before it happened (link to the first embedded in this link to the second):….

AYX didn’t do anything wrong, but as a shareholder these communications felt a little clandestine. I was perfectly content with their pre-announced numbers. However, I found myself becoming skittish about their ability to maintain those rates if a marketing and/or sales reorganization was in order. AYX is not really priced for hiccups. I realized skittish is no way to feel about one of your the top positions heading into earnings, so I decided to trim some and reassess after the release. I sold about 15% of my allocation at $79 and another 15% at $77, which cut my allocation from ~11% to ~7.8% heading into their report.

Now that earnings are past, it seems my concern about the CMO departure was much ado about nothing. In fact, my biggest headache was trying to figure out how the heck to keep my spreadsheet comparisons in order with their switch to the ASC 606 accounting standard. Their numbers were strong, their gross margins remain absolutely ridiculous (92% for FY18 under the new standard) and management’s call comments were very business-as-usual. To my utter disappointment no one even asked about the CMO departure! Their FY19 guide is in the same range as the FY18 guide they just handily beat. There’s no reason to think AYX can’t keep plugging along with growth >50%. I decided against buying all of it back right away, but did grab some at $74.70 to goose my allocation back up. All that angst and all I ended up with was a lucky trade…

EVBG – A watch list company that became a buy after a strong Q4/FY report. They are quickly expanding beyond their Mass Notification roots into a holistic Critical Event Management platform. They seem to be effectively greasing both domestic and international runways in all three of their markets (corporate, government and defense). They are accelerating revenues, expanding their TAM and have a seemingly unique product line for today’s fast-paced, ever-vigilant, communications-driven world. To top it all off the CEO stated on their call “we blew it out on every metric”, followed up with “we’re stoked about our future” and then said part of their international business “is poised to grow as – without using the word explode – grow as fast as we can probably manage it”. Hyperbole??? Sure it is, but I have to admit that I too get stoked by blowouts that might explode further. So I decided they were worth a starter spot to see if they can actually do it.

MDB – Well, if nothing else February proved last month’s Amazon wobble was indeed FUD. Mongo quickly regained its footing and marched all the way to new all-time highs. My allocation at the time was too large to feel comfortable adding on the dip, but my decision at the time to wait things out appeared to have been a good one.

Now we’ve got 1) the news Lyft is “leaving” Mongo and 2) a Mongo price reduction in some areas. I saw a lot of the same reactions as the AMZN announcement, and I continue to be amazed at the amount of info that can quickly be gathered by people here, at NPI and on the premium boards. Ultimately, Lyft is just one customer out of thousands and their business was actually acquired with mLab rather than being original to Mongo. And there’s clearly a question of just how material that business was anyway, with 12x finding a video with Lyft’s Chief Tech Officer basically stating Lyft has been 100% on AWS since 2012 (

I’m not as sure how to assess the price cut. Database pricing in a vacuum is not in my circle of competence. According to Mongo the cut is partially due to savings from a move to the latest hardware, and it’s fair to point out those lower-tier cuts are also accompanied by the addition of two premium-priced tiers on the top end (…). Is this a forced price cut that will hurt their business or instead a more flexible pricing plan that better optimizes demand? Is this making the land phase easier just to earn the money back during the expand phase as usage increases? Is this the beginning of the end or just another FUD?

I honestly don’t know and it’s still TBD. What I do know is Mongo has a strong performance base and has already guided for accelerating Q4 (64.3%) and FY (58.4%) growth when they announce on March 13. Barring any additional news, I’m willing to wait for the numbers and see what the company has to say.

NEWR – I sold after what I thought were so-so earnings. I also found it odd they announced an acquisition the same day, which made it seem almost like a distraction instead of a positive event. (Granted that ever-so-hot take could admittedly be WAY off base, but since it was a small factor in my decision I have to hold myself accountable to it.)

Revenue growth held but op expenses, op margins, gross profits and free cash flow all ticked slightly the wrong way. Their hyper EPS growth stalled as well – after posting $.05, $.10, $.15 and $.20 they earned $.19 this Q and guided for just $.06 next. Most concerning (to me anyway) was that customer count remained flat for the second Q in a row despite touting the potential growth of their addressable market. The monitoring and management of infrastructure and applications strikes me as a business that should have a growing client base in our current world. That doesn’t seem to be the immediate case here. I thoroughly read Bear’s recap more than once (…), but I ultimately felt more comfortable taking my small NEWR profit and turning it into a bit more SMAR and a new position in ZEN. NEWR stays on my watch list though.

NTNX – What’s the right word? Ouch? Yuck? #$*%!!!?

Like a lot of people here, I’ve stuck with them the last few Q’s waiting for that “hidden” growth to see the light of day. Their report suggests that growth isn’t actually “hidden” but rather “cloaked in indefinite darkness”. Forget the numbers, which fell well short in multiple areas. When the CFO of a growth stock is quoted in an earnings release as saying ”…our third quarter guidance reflects the impact of inadequate marketing spending for pipeline generation and slower than expected sales hiring”…well, look out below. There’s not much to say here. That 6% allocation you see for February 28 will be 0% as early as March 1.

OKTA – Okta had a relatively quiet month after a big January jump. Q4 earnings are March 7. Revenue growth was 58% in Q3 and has ranged from 57%-60% the last four. Revenue guides/actuals for the first 3 Q’s were $79/$84, $85/$95 and $97/$106. Likewise, revenues increased sequentially ~$10, $6.5, $11 and $11 the last 4 Q’s. Despite their Q4 guide of $108 and 40% growth, I believe a sequential gain of $10-12, actual revenue of $116-118 and growth around 50-53% seems more realistic. Fingers crossed.

PAYC – Paycom posted a strong Q4 and saw a nice pop in a down market the next day. Revenue growth ticked up for the third consecutive Q to 31.8% and client retention crept to 92% from 91%. FY18 gross margins improved to 84.7% and they guide for a FY19 top end of 85%. While operating expenses did increase YoY, they contracted slightly from last Q as a percentage of revenues. They also generated enough cash to repurchase 1.1M shares in FY18. They see continued success in their dual strategies of moving upmarket toward bigger clients and driving employees to interact directly with their platform rather than using HR staff as middlemen for data input. PAYC seems insanely driven by customer ROI, and their customers seem to be responding. It’s a pretty sticky business model if they can continue to pull it off.

All that being said, I did note some things to at least watch going forward: 1) the buybacks suggest some maturity rather than growth, 2) revenues grew twice as fast as clients this Q which puts added pressure on their upmarket move and 3) meeting guidance for 1Q19 (27.3%) or FY19 (25.7%) would mean noticeably slowing growth. As I said last month, ”Their success the last few Q’s has been driven by operating leverage rather than growth”. If they are already posting such strong margins, what drives the stock if growth actually slows? Bear suggested the same here:…. The price has continued its upward momentum – it was my second biggest gainer this month behind TTD – but I’m not seeing a clear path to significant price gains in their immediate future. PAYC is probably the bar to clear for the top of my watch list as we enter March.

PLAN – Reported a strong Q4/FY19. After I opened the position last month I wrote: ”Revenue grew 40.3%, 40.8% and 40.3% the last three Q’s with a guide for 38.1% in 4Q. Beating by just $1M puts it right back at 40.3% and anything above that means accelerating growth.” They did indeed beat, accelerating revenue growth all the way to 49.4%! The same trend applied for FY19 (42.9% vs 39.7%). Some of this Q’s gain was due to a large jump in lower-margin service revenues, but they attributed that more to seasonality than any change in their revenue mix. Subscriptions growth accelerated sequentially to 43.8% from 42.3% and came in at 86.2% of revenues overall. Their gross margins and expansion rate (123%) held while operating expenses continue to decline as a percentage of revenues. Billings growth also spiked to 53.5% from 44% in Q3 with the company stating the increase was not influenced by any one-time events but rather was indicative of overall interest in their products. So far so good in my opinion, and I added a bit more immediately after earnings even as it jumped ~10%.

SHOP – SHOP was on my bubble entering 2019, but as I wrote last month the strong holiday season and their foray into the Canadian cannabis market made me curious enough to hold through earnings. While growth technically slowed, SHOP still posted an impressive 54% Q4 rate and 59% for FY18. Shopify touted that as record growth for a company posting a $1B revenue year. Most metrics are understandably sliding though as the company gets larger. The question is when SHOP will start to leverage more of those revenues to the bottom line. When asked about that leverage on the call, they stated they are still in full growth mode and have a very healthy $2B in cash on their balance sheet to fuel that growth via investment or merger. They’ve guided Q1 at 44.6% growth and FY19 at 37.9%. I’d expect >40% for the year as long as there is not an economic slowdown limiting sales volume through their platform.

SHOP seems to be a controversial holding around these parts. Are those slowing rates? Yes. But in trying not to overthink this, I have other unprofitable or barely profitable companies with similar growth rates that are a fraction of the market cap. To me that means SHOP is less likely to provide an upside surprise, but it also might be a little more predictable in continuing growth at a >40% clip for at least a little while longer. I can’t say I have 14 better ideas than SHOP right now, and it was my sixth-biggest price gainer in February. Compared to my other holdings and watch list, I’m comfortable with it as a tail position even at these “depressed” growth rates. I’m basically ending the month valuing it as a great place to park some capital until a better idea presents itself or I decide to hold fewer positions.

SMAR – SMAR has been a very strong addition to my portfolio. I made two purchases in January and added a bit this month using some NEWR proceeds. Stay tuned for earnings on March 19. The short version is I’m looking for revenue and subscription growth to both stay within their current shouting distance of 60%.

SQ – I made a small add after the late-January downgrade dip. I personally couldn’t see the rationale for the downgrade, and Bert posted some info at the time providing further context. (As an aside, let this be yet another plug for Bert’s service: It’s excellent and well worth the investment.)

Square was already a 10%+ price gainer this month leading into earnings, then posted solid numbers and ticked up yet another notch. Adjusted revenues came in at 64% growth for Q4 and 61.4% for FY18. Subscriptions and services grew 144% and now account for 21% of revenues overall. Gross margins hold steady in the low-80’s. In the end Square continues to build out their ecosystem, release innovative products and increase their stickiness. Steady as she goes.

TTD – My oldest holding and one I’ve added to at various points over the last few months. They absolutely crushed earnings and the huge price spike this month moved them from #4 to #2 in my portfolio (they passed AYX even before I trimmed it). TTD posted accelerating growth on both the top and bottom lines while continuing to tout multiple avenues for continued success. The company is almost perfectly situated to benefit from any of a further move to programmatic ads, an increase in Connected TV penetration or a decrease in walled ad platforms. The fact the world seems to be creeping toward all three of those at once bodes extremely well for their future. They did guide downward for Q1 and FY19, but the price action and their past guidance patterns suggest investors think they are seriously sandbagging. Count me as one of those investors, and I plan on keeping them as one of my top holdings.

TWLO – Twilio completed the SendGrid acquisition and then posted BIG numbers. I liked what I saw and made a small conviction add after hours when the stock temporarily dipped. The fact this board and NPI had about 40 posts generally confirming my enthusiasm within a couple hours of the report helped as well (famous groupthink last words I guess). I believe the merger makes TWLO a soup-to-nuts digital communications and customer engagement company with plenty of growth runway available. It is currently my #1 holding as a result. I don’t necessarily have a hard cap if it happens to hit the 15% allocation mark, but I am very unlikely to buy more shares if it gets above that number.

VCEL – VCEL was an interesting test of patience even though it was my smallest position. It’s a small company whose entire thesis depends on increasing their MACI surgery revenues. There’s not really a sector or news to drive it between earnings, and its price movements the last few months have been spurts more than gradual moves. It was hard to watch the stock drift sideways during January and early February as the market went up all around it. However, I kept reminding myself of my original reason for buying and willed myself to wait until earnings. The stock made a nice run into the report, and VCEL did indeed beat on MACI revenues for the Q and FY. Unfortunately, their other product was fairly flat and they guided for a drop to 23% revenue growth for FY19 vs 42% in FY18. That was clearly disappointing, and their call contained much more hedging and much less enthusiasm than last Q’s. Neither the guidance nor call performance was what you want to see from a company with a still tiny $90M revenue base that needs to grow to be successful.

I was able to sell just as the market opened and before the stock dropped 10%. Thanks to Ethan for the rec and the 30% gain in two months. I’ll most likely sit on the sidelines for the next Q or two to see if things reaccelerate. If they don’t, VCEL probably drops off my radar entirely. In the meantime, I found this a valuable lesson in paying attention and trying to be nimble. We’ll see if it actually works out in my favor.

WIX – WIX snuck upwards most of the month and then really climbed prior to 2/20 earnings. Actual earnings weren’t as pleasant though. They posted small beats for Q4 and FY18 with revenue growth at 39% and 42% respectively, which I liked. However, their initial 2019 guides showed huge drop offs for both Q1 (25.6%) and FY (26.1%). Most of their key metrics ticked down as well. Those drops were simply too big for my liking even if they are sandbagging, and their answers on their conference call did little to ease my concerns. We discuss too many companies at similar run rates with better growth prospects. The stock opened down sharply the day after earnings, but it had still run up enough through February for me to take some profits and skedaddle. So I that’s what I did. Part of the proceeds became EVBG. The rest went to buying more PLAN.

ZEN – Zendesk is my first company write up here and had been on my watch list since that September post (…). They moved to the top of that list after a great report and then earned a portfolio spot after I decided to part with NEWR. Revenue growth hit 41.3% after 7 straight Q’s in the high 30’s. FY18 revenues grew 39.1% vs 38.0% in FY17. 1Q19’s guide of 38.7% would be a YoY acceleration from 38.2%. Their FY19 guide is 34.4%. On the margins side both gross and operating ticked up in the second half despite their growth initiatives and should improve further once ZEN’s service migration to the cloud finishes during the first half of FY19. Finally, both the early success of their Suite product (released in May) and an increase in professional services headcount support a stated push toward larger enterprises. Putting it all together I believe ZEN has sowed the seeds for potentially accelerating revenues and improving margins simultaneously as 2019 goes on. The numbers lined up well enough for me to make it a buy.

ZS – I began the month wondering if ZS had become overpriced even though it’s one of my higher conviction companies. The stock had appreciated quite a bit through January and pretty much drifted along with the market through February – it gained just 2.7% for the month vs 3.0% for the S&P. Their earnings as the month drew to a close proved their unique product is still a clear winner. They accelerated revenues for the third straight Q – 54%, 59%, 65%. At the same time, operating expenses as a % of revenues declined (84%, 80%, 67%) and operating margins improved (-4%, 2%, 13%). They are not only crushing the top line, but seeing those increased revenues drop quickly toward the bottom line. They offer what appears to be a vital security product and they’ve carved out a dominant spot in their space. There’s no reason to think their momentum will be slowing any time soon.

My current watch list in very rough order is COUP (I know I’m not supposed to entirely believe guidance but blech!), TEAM, ESTC, DOCU, PS, ZUO, NEWR, ABMD. I also need to dig on SAIL and TWOU when I have time.

Well, there you have it. If you’re still here, thanks for sticking around. My plan going forward is:

Phase 1: Read the boards and pay attention to my companies.
Phase 2: ?
Phase 3: PROFIT!

I hope everyone has a most excellent March.



Thank you for the excellent write up. I look forward to your posts, I have found that we have similar views on how to evaluate a company so I like seeing your perspective. I sometimes see things I have missed.


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Thanks for the kind words Jim, and the feeling is mutual. I literally have your observations about customer churn as one of my things to watch for SMAR.

I feel like my write ups are about 60% original thinking and 40% aggregating the work of others. There’s definitely a lot of credit to go around in this neck of the MF woods.


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