Stocknovice's March 2024 Portfolio Review

[stocknovice]

https://media0.giphy.com/media/v1.Y2lkPTc5MGI3NjExNnJ2Z2Z3bDJwazI3dTByOGk4dzdwZnRrc3I5YmpveGcyYjd2YmkwYyZlcD12MV9pbnRlcm5hbF9naWZfYnlfaWQmY3Q9Zw/3b8GDuWKKGZIyACVM0/giphy.gif(image larger than 4 MB)

2024 Results:

2024 Monthly Allocations:

Key:
• 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
December 2023 (contains links to monthly reports): Stocknovice's December 2023 Portfolio Review
January 2024: Stocknovice's January 2024 Portfolio Review
February 2024: Stocknovice's February 2024 Portfolio

Stock Comments:

Another earnings season come and gone. In the end, I’m happy with how our holdings held up (pun intended).

AXON – Axon’s major news this month was the announcement of a new deal with the Puerto Rico Police Bureau (Puerto Rico Police Bureau Continues Expansion of Axon Body Cameras to First Responders - Mar 13, 2024). Under this contract, the bureau will be upgrading its officers to Axon Body 4 cameras in addition to using Axon’s digital evidence solution. This deal expands a successful 2023 deployment of Body 3 cameras for officers and Fleet 3 cameras in cars.

CELH – March saw Celsius announce plans to enter Australia and New Zealand (CELSIUS® to Expand to Australia and New Zealand - Celsius Holdings Inc. %). Said CEO John Fieldly, “We’re pleased to introduce our refreshing, great tasting and functional Celsius energy drinks to consumers in Australia and New Zealand. We expect to continue our international growth at a measured pace, targeting strategically important energy drink markets and employing our proven playbook to build a strong and passionate consumer base.”

Build away, John.

CRWD – CrowdStrike continues its recent cadence of rapid-fire news. It began March by expanding its partnership with Dell (https://ir.crowdstrike.com/news-releases/news-release-details/dell-technologies-and-crowdstrike-expand-partnership-delivering). Under this arrangement, CRWD’s Falcon platform is now a featured tool in Dell’s own Managed Detection and Response services.

The company followed with what I thought was an excellent March 8 earnings report. I didn’t see a single area in which the company’s performance didn’t meet or beat my personal expectations for the quarter. Even better, the record net new ARR and RPO allowed management to issue a strong FY25 outlook.

In conjunction with earnings, CRWD announced the acquisition of Flow Security to add “the industry’s first and only cloud data runtime security solution” (https://ir.crowdstrike.com/news-releases/news-release-details/crowdstrike-acquire-flow-security-expand-its-cloud-security). Management expects Flow to strengthen its real-time endpoint and cloud protection. Even better, the deal will be paid “predominantly in cash” meaning shareholders won’t see significant dilution. The transaction is expected to close during Q1.

Next, CRWD conducted the CrowdStrike Gov Threat Summit event in Washington, DC on March 19 (https://ir.crowdstrike.com/news-releases/news-release-details/crowdstrike-gov-threat-summit-brings-together-public-sector). The event featured speakers from across the public sector discussing the future of cybersecurity and its impact on national security including upcoming elections. This seems like a natural extension of CrowdStrike’s role as a member of the US’s Joint Cyber Defense Collaborative and is quite timely given where we are in the US’s election calendar.

Then CRWD unveiled a new SEC Readiness Service (https://ir.crowdstrike.com/news-releases/news-release-details/crowdstrike-sec-readiness-offering-prepares-public-companies-new). This offering is specifically designed to help public companies navigate the new SEC requirement “to disclose the processes for assessing, identifying and managing material risks from cybersecurity threats in their annual 10-K filing, and to report on material cyber incidents within four days of determining an incident is material.” While more of a niche product, this seems like a no-brainer value add for current and potential publicly traded customers.

CrowdStrike then joined with one of the coolest kids around (OMG!!! NVIDIA!) on one of hottest products around (OMG!!! Generative AI!) (https://ir.crowdstrike.com/news-releases/news-release-details/crowdstrike-collaborates-nvidia-advance-cybersecurity-generative). Unveiled at an NVIDIA customer event, the firms announced a strategic collaboration embedding NVIDIA’s AI computing services into CRWD’s Falcon XDR platform. This partnership “puts custom and secure generative AI model creation in the hands of CrowdStrike and NVIDIA customers.” The quotes in the release came directly from CEO’s George Kurtz and Jensen Huang rather than a couple of VP’s of Whatever, so this seems like a pretty significant deal. Either way, it continues a nice run of best-in-class innovation efforts by CrowdStrike.

Lastly, it announced a global strategic partnership with global technology company HCLTech (https://ir.crowdstrike.com/news-releases/news-release-details/crowdstrike-and-hcltech-announce-global-strategic-partnership). Under the terms of this deal, HCLTech’s managed detection and response solutions will be powered by CRWD’s Falcon platform.

CrowdStrike has certainly been on a roll the last few quarters. Its excellent business performance has in turn pushed the stock to our top spot since November. Though I did trim slightly exiting this report, I see no reason not to let it keep fighting for that distinction.

DDOG – Datadog’s only March activity was presenting at a Morgan Stanley investor conference March 5. I didn’t see anything that looked like new news compared to what we heard coming out of DDOG’s mid-February earnings report.

ELF – The first piece of e.l.f. Beauty news I found this month was the late-February opening of its first European office in London (e.l.f. Beauty Opens First European Office in London to Further Connect with Global Community –). According to the release, the 10,000-square-foot office will house roughly 40 employees and serve as a gateway to ELF’s European expansion efforts. Given the potential of its international runway, this seems like a smart move.

The second piece of news was a partnership with Liquid Death – a canned water company of all things – on a limited-edition “Corpse Paint” makeup kit for heavy and black metal music fans (https://www.businesswire.com/news/home/20240326565753/en/). For those that click the article, you have to watch the embedded video. It’s both clever and on point. While black metal music is far from my jam, I’m also the kid who absolutely, positively needed to have the latest Michael Jordan or Bo Jackson sneaker back in the day. ELF apparently hit the right notes since the offering was already sold out when I checked just three days later. Luckily, it still has a smartly placed link to the individual items so you can build your own kit (https://www.elfcosmetics.com/elf-x-liquid-death-corpse-paint-vault/81576G.html).

Hmmm…clever, amusing, and sold out. Sounds like good marketing to me.

IOT – Samsara earned some third-party accolades in March. The first came when it was named a “Great Place to Work” in Poland (https://investors.samsara.com/news/news-details/2024/Samsara-Earns-Great-Place-to-Work-Poland-Certification/default.aspx). Workplace culture is a consistent focus for Samsara, and this award follows similar recognition in the UK along with an overall ranking award from noted job-search site Glassdoor.

The second and more relevant accolade came from the market after an outstanding earnings report. Samsara set several new performance records while showing excellent trends for the future. Most notably, it appears to have permanently flipped to positive cash flows and profits. CEO Sanjit Biswas feels very comfortable Samsara is addressing “a large market in the early innings of digitization.” So do I. Therefore, IOT will continue to hold a healthy allocation in our portfolio.

TMDX – TransMedics’ followed its excellent end-of-February earnings report with appearances at two March investor conferences. It also purchased its 14th aircraft on March 8 (https://investors.transmedics.com/node/9581/html). Management continues to sound very confident about its business heading into the new fiscal year. Given the increased number of targeted planes and pace of purchases, I’m feeling similarly.

TTD – Always our quietest company, The Trade Desk stayed true to form in March. Since it is also one of our most reliable companies as far as consistent results, that’s fine by me.

ZS – Zscaler’s first March news was the acquisition of Avalor to expand its Zero Trust capabilities (https://ir.zscaler.com/news-releases/news-release-details/future-security-risk-management-and-operations-data-and-ai). Avalor’s tech includes “over 150 pre-built integrations enabling customers to proactively identify and predict critical vulnerabilities as well as improve operational efficiencies.” From acquisitions to recent staff additions, Zscaler is clearly increasing its AI capabilities as it looks to leverage the more than 400 billion daily transactions it currently processes.

Next Zscaler was named a Leader for Q1 2024 in the first-ever Forrester Wave Security Service Edge Solutions report (https://ir.zscaler.com/news-releases/news-release-details/zscaler-positioned-leader-new-tier-1-analyst-firm-security). ZS received the highest possible score in 11 criteria including user experience, vision, innovation, and partner ecosystem.

Lastly, Zscaler announced an expanded partnership with BT Group in the UK (https://ir.zscaler.com/news-releases/news-release-details/zscaler-and-bt-announce-new-commercial-partnership-strengthen). BT Group provides telecommunication, security, network, and IT infrastructure services to customers across 180 countries. Under the new arrangement, BT’s full suite of managed security solutions will feature ZS’s Zero Trust Exchange platform.

Despite some increased market attention on cybersecurity in recent months, Zscaler has admittedly taken on more of slow, boring vibe. While that’s better than competitor Palo Alto Networks (which was forced to restate its guides down), ZS has unfortunately given back much if not all the 2024 business momentum it was sharing with CrowdStrike. I’m OK with our current allocation at the current price, but mostly because I’m not interested in carrying any more cash. That being said, ZS and DDOG are the names I continue to grind away at in seeing if I can find alternatives. Stay tuned.

My current watch list is basically monday.com (MNDY) and Super Micro Computer (SMCI). I have some interest in MercadoLibre (MELI) and NVIDIA (NVDA), but both are complicated businesses a little outside my circle of competence. MongoDB (MDB) and Snowflake (SNOW) both took a step back as I found neither earnings reports very inspiring, especially the customer growth for each.

And there you have it. March’s decent portfolio start unfortunately faded by the end of the month. However, I have no real complaints about the business updates we received this earnings season. I’d lump everyone’s results as expected or better and am comfortable with our current allocations. Looks like it’s time to settle in and wait for our next round of news…

As usual, thanks for reading, and I hope everyone has a great April.

[wsm007]

Hey Stocknovice,

As always a great write-up. Thanks for taking the time; I always enjoy reading your views.

I have just one point where I believe we have a different take on things and I would like to explain my thinking.

I thought SNOW had a terrific quarter of customer additions.

If one looks at $1m+ customer growth I think one misses the point. The way they define those is to base the count on trialing 12 month revenue. So there is no surprise for me that those again weren’t that strong. That metric tells the tale of the last 12 months and we all know that has not been a great story: customers rationalizing spend, scrutinizing budgets etc. All old news captured in a 12 month backward looking metric. So I don’t really think that tells us anything ito in-quarter sales success/execution.

They also don’t publish arr. So what we have is total customers. And that, on the face of it didn’t change that much either: up 21% yoy vs 22% the quarter prior.

But looking at net new customers added I see a marked change:

Cust added	Q1	Q2	Q3	Q4
2020			387	458
2021	328	397	437	585
2022	393	458	426	528
2023	378	486	484	536
2024	339	370	370	530

They added 530 customers this last q. Just eyeballing those numbers above shows me that there’s been a step up.

The net customer adds number is up 43% qoq vs 0% in the prior q and 9% the q before. Last year the qoq change from q3->4 was 11% and the years before that 24%, 34% and 18%. So this last q4 was the biggest step up in the velocity of customer wins of the last 5 years.

Which is one of the reasons I have a position in SNOW at this time.

-wsm

[stocknovice]

Thanks, @wsm007. Good discussion point.

First, I am carrying slightly different numbers since SNOW constantly restates its past customer counts. I’m carrying these figures for raw adds:

For total customers, I’m using this slide from the most recent presentation:

Being honest, the fact SNOW restates its customer count literally every quarter has always bothered me. For example, when SNOW initially reported 4Q23 total customers were 7,828. Now it’s 7,744. With the old number, SNOW would have only 20.6% YoY growth versus the current 21.9%. I wouldn’t consider that a trivial difference. It made last year’s numbers look better at the time, and now it makes this year’s look better.

That dynamic is exacerbated by the fact management has had to restate its recent guides down not once but twice. For a company literally built around data, it is downright annoying to see changed customer data in every set of slides. I’ve adjusted by dumping in the new past numbers every quarter, but still…

I guess my overall take puts less weight on percentages given the circumstances. Even with the shifting numbers, I have SNOW adding roughly 100 fewer new customers during FY24 than FY23 (I’m open to seeing others’ math). Your numbers are even less inspiring at 275 fewer new customers added this year. This is the same issue I see recently with DDOG and to a lesser extent MDB. Yes, SNOW says it is hunting bigger fish, but where exactly is this showing up on the top or bottom lines?

Part of the current thesis with these usage-based names is increased workloads as the economy loosens. The flip side is I can’t help but wonder whether any usage expansion benefits for SNOW/DDOG/MDB will be at least partially offset by fewer customers coming on board to buffer growth at scale. I would think these companies are far from customer saturation, yet I’m still struggling to make sense of the undeniable trend of decreased adds. This is the exact opposite of what we are seeing recently with companies like IOT or even NET.

Thoughts?

[wsm007]

Hi Stocknovice,

Indeed good argument. And yes you are right, the customer numbers they present differ from quarter to quarter; and it is indeed annoying that they restate those (and it tripped me up - mine are old numbers for past periods), but changing them is not necessarily wrong or worse than keeping them static…I looked up why they do this, and it is certainly defined properly. They adjust their customer numbers retroactively to reflect the current reality in their customer base:

Total Customers: We count the total number of customers at the end of each period. For purposes of determining our customer count, we treat each customer account, including accounts for end-customers under a reseller arrangement, that has at least one corresponding capacity contract as a unique customer, and a single organization with multiple divisions, segments, or subsidiaries may be counted as multiple customers. For purposes of determining our customer count, we do not include customers that consume our platform only under on-demand arrangements. Our customer count is subject to adjustments for acquisitions, consolidations, spin-offs, and other market activity, and we present our total customer count for historical periods reflecting these adjustments.

But regardless of the differences in the reported customer numbers, I think both our arguments hold, but we are highlighting two different things.

What I believe you are highlighting is that this last years’ customer adds have been relatively poor. And I agree. In fact that has been a gripe of mine with SNOW (and DDOG) going back quite a bit.

However the thing I am trying to highlight is that there was a significant improvement in the last quarter of the last financial year.

And that is even more apparent with the adjusted customer numbers. Using the adjusted numbers you show above, the last quarter’s customer adds was the highest raw customer adds in the last 12 quarters. Performance-wise they also had a massive step-up in RPO (up 41.4%), and installed a new CEO who understands AI and has shown that he can quickly bring new products to market. So I like the last quarter’s performance and the forward-looking indicators.

Add to that the fact that I believe they have significantly de-risked (or sandbagged if you will) the guide, and that the stock has taken a beating (down 18.8% ytd while a big part of the rest of the market is up), is only 19% above its 52 week low and 35% above its all-time low of June 2022, and I think this is a good buy at this point.

-wsm