Hello Saul’s Investing Discussions,
Thank you for reading my first end-of-month portfolio review.
A few years ago, I purchased a Rulebreakers subscription and learned that it is possible to beat the market. But before long, I had more than 50 positions. I started to realize that I knew which stocks would be my winners, but my gains were being diluted because I lacked the investing confidence to commit to my positions. Then came the Fastly saga, which brought me to this board. After seeing so many people discuss their 8-stock portfolios, I realized there is a solution to my problem: Do your due diligence and invest based on your conviction in the company.
RESULTS YEAR TO DATE
My portfolio peaked in its Icarus moment before UPST earnings at 55% YTD. Following the November pullback, my returns are:
Sept-Nov: -3%
YTD: 23%
*I was not tracking contributions in all of my accounts, so I am only using the internal rate of return from my main brokerage, which accounts for 82% of my portfolio. I will have better data in 2022.
POSITION SIZES
DDOG: 24.64%
UPST: 18.60%
NET: 16.73%
MNDY: 14.35%
CRWD: 7.91%
ZI: 7.73%
AMPL: 3.59%
ZS: 4.47%
BILL: 1.94%
CASH: .03%
COMPANY DISCUSSION
Datadog
I first took a position in Datadog two years ago thanks to Rulebreakers. Datadog provides service support and analytics to businesses that operate on the cloud.
DDOG reported earnings on November 4th. The top of the press release stated in big, bold letters: “Third quarter revenue grew 75% year-over-year to $270 million. Strong growth of larger customers, with 1,800 $100k+ ARR customers, up from 1,082 a year ago.” I actually said “wow” out loud when I read the press release. I added to my position afterwards.
DDOG has now grown to be a large position for me. If it continues to gain share in my portfolio I will have to trim some.
Upstart
One of the main reasons I am writing this summary is to get my thoughts out about UPST. Since UPST began trending on this board in Q2, it has been a powerhouse. The company uses artificial intelligence to obtain a more holistic view of a person’s creditworthiness. Their target is the “hidden prime” consumer, someone who lacks sufficient credit history, or for one reason or another, does not have a great FICO score, yet is in actuality a reliable borrower. As a result of their AI, Upstart is able bring a new class of customers into the lending ring, lower interest rates, and lower default rates. If UPST executes, everyone wins.
Now comes the 800-pound gorilla in the room…. Earnings. Prior to earnings, UPST was 35% of my portfolio. I believed in the company’s narrative, and its prior earnings reports and share appreciation were spectacular. I let the euphoria get to me.
I made sure to address DDOG first because its earnings press release was very different from Upstart’s. DDOG immediately let everyone know that it crushed the quarter. Upstart did not. When I saw that UPST grew revenue at ~18% QoQ, I was mildly disappointed and confused. With any other company, I would have been delighted with 18% QoQ, but with UPST, I had set such a high bar. Other than that blip, the numbers seemed good.
Nonetheless, the stock saw a major sell off after hours. I decided not to buy or sell any shares until after I listened to the conference call. Dave and Sanjay said all the right things, albeit with little enthusiasm. Everything seemed to make sense. My thesis was still intact. Yet, I could not reconcile what I heard and what I read with the stock movement. I looked to the board for answers and saw so many people selling. I did not understand what everyone was so worried about that I was not. The next morning, after putting more thought into it, I decided to trim my position to 20%. The price action is uncertain and although the wheels are in motion for auto-lending, it still remains to be seen.
UPST is still my highest conviction stock. I think it has the potential to be a transformative company, so long as it keeps executing. I see the potential for multi-year hypergrowth, but since it is not a SaaS company, the road will be bumpy and growth will come in spurts.
Cloudflare
I am very happy that Saul asked everyone what he was missing because I sure did not know. Saul summarized a bunch of great responses here: https://discussion.fool.com/cloudflare-here39s-what-we-were-miss…. I added to my NET position after reading Brandonwahl’s post here: https://discussion.fool.com/saul-as-someone-who-never-understood…. Muji also had an informative post about NET’s valuation and TAM: https://discussion.fool.com/hi-all-i-feel-intjudo39s-take-10-sum…
Although NET’s numbers may seem “mediocre” compared to some of the hypergrowth companies we discuss here, it looks like it can sustain its growth for the time being. This board found NET when it was in the sweet spot of its S-curve, but tech companies can go through multiple S-curves as they enter new channels and continue to innovate. I struggle with visualizing how a $65-70B company can continue to grow at such rates, but perhaps I simply lack vision.
Crowdstrike
Crowdstrike is a leading cyber security company. In early November, it agreed to acquire SecureCircle, to increase its zero-trust capabilities. Despite this positive news, the stock price took a hit in mid-November because of an analyst downgrade.
CRWD is reporting earnings tomorrow after the bell, so I’ll hold off on my commentary.
Monday
I was having a tough time understanding what Monday actually does until I found this helpful 3 minute video: https://www.youtube.com/watch?v=yjOU3KTYHhw&ab_channel=m…. Think of all the different programs on your computer that you might use. They all have tons of features that are meaningless to you and that make it more difficult for you to find the features you actually need. Wouldn’t it be great if your software only had the features you want to use, and wouldn’t it be even better if all your programs could work together? That is what Monday aims to do.
And turns out, people like paying them for it. MNDY reported $83M revenue, 95% YoY revenue growth, and customers with $50k+ ARR increased 231% YoY. For customers with 10+ users, MNDY has an NRR of 130%. They are landing and expanding. Non-GAAP operating loss was $9.4M compared to $30.9M a year earlier. MNDY has $876M cash on hand.
I increased my position following earnings.
Zoominfo
ZI might not be the coolest stock discussed on this board, but it is a solid performer. ZI provides its customers information about corporate organization structures and is growing into the wider business intelligence market. If you want to do business with a company, ZI will help you get in touch with the right person. That saves time and increases the likelihood of you closing your sale.
Revenue grew 60% YoY in Q3, compared with 57% YoY growth in Q2. ZI closed Q3 with more than 1,250 customers with $100k or greater contract value, compared with 1,100 in Q2.
The Chorus.AI transaction closed a few months ago and is now being integrated into the ZI platform. Chorus transcribes customer calls and provides analytics. This is a fascinating tool. If you analyze enough phone calls, you can figure out what factors make a customer more likely to get upset, what factors make it more likely that you will close a sale, the possibilities are endless. ZI provides its customers great value—its business is make its customers better at their businesses.
Amplitude
Amplitude is a data analytics company that went public in September via a direct listing. Its focus is optimizing the digital experience, which includes figuring out precisely what makes a customer more likely to click or purchase on a website, or to have a favorable experience.
The Q3 numbers seem great. Revenue grew 72% YoY and is accelerating. AMPL had a 121% NRR. In the September 2021 Investor Overview, AMPL stated that 95% of its revenue is recurring.
I would like to do a little more homework on it before I give it more portfolio share.
Zscaler
ZScaler is a SaaS cloud-based cyber security company. ZS hinted a few weeks ago that it was going to have a good earnings report by moving its earnings up a day, so as to report before Crowdstrike. It reported earnings today:
Revenue increased 62% YoY, accelerating from 57% YoY last quarter. ZS increased its FY2022 guidance from $210-212M revenue to $240-242M.
The earnings release paints a picture of a company that is executing well, and is surprisingly still accelerating despite already seeing huge growth over the past year.
Bill .com
BILL is a SaaS financial operations company for mid-size businesses. It allows companies to automate and manage payments.
At the start of November, BILL reported 164% YoY revenue growth, which the company explained as including 78% YoY organic growth. Its revenue is split approximately 1/3 from subscription fees and 2/3 from transaction fees, which makes sense for a payments company. The company saw a significant 319% YoY increase in transaction fees.
The company seems to be executing well and the numbers look good. I am, however, concerned about its lack of a moat.
CLOSING THOUGHTS
I am sincerely grateful for this board. Saul and so many others on here take the time to explain things to people who would like to learn. While getting a few good stock tips is great, the education I have received here over the past year is invaluable.
Thank you,
StocksandStouts