Thanks for the help. Here's what I did!

Investment Analysis Clubs Saul’s Investing Discussions
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Thanks for all the help. It was an amazing and wonderful outpouring. What a great board! And what great people! Here’s what I did, mostly on Monday.

I sold out of all of my Coupa at an exit price of $93.13.
I sold out of almost all of my Zuora at an exit price of $24.00 (It will probably be all gone by tomorrow.)
I sold out of most of my DocuSign at an exit price of $57.60. (I sold out in my IRA’s but it had gone so straight up since I bought it that I’m reflecting what to do about the shares in my taxable accounts).
The amount left in Zuora and Docusign now is less than 1.0% combined.

I added to my Gardant Health, which is now up to a 5.0% position.
I added a little to Zscaler (even though it was my second largest).
I added a little to Elastic.

I took a 3.4% position in Smartsheets. (59% revenue growth and 132% retention rate was what I was looking for).
I took a 0.8% position in EverBridge, but it’s just a get-to-know-you position. May be gone in a week.

As of right now, my entire portfolio is up 30.4% this year, and up 312% (quadrupled) since the beginning of 2017 (2 years, 2 months, and 2 weeks).

Best, and thanks again to all of you.

Saul

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That was an excellent thread and I learned quite a bit. Most importantly what I learned is that this board does not have blinders on, it is not mindlessly following this investing strategy. And that makes me feel more confident in adopting this approach myself.

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Most importantly what I learned is that this board does not have blinders on, it is not mindlessly following this investing strategy. And that makes me feel more confident in adopting this approach myself.

great point… i noticed for few months now looking at monthly summaries of all the people who share (I am not yet one of them but I hope to become one soon)… that there is enough variation in portfolio holdings and size of allocations… yet many others on the board have been hitting similar returns to Saul’s and some may be exceeding as well. Thats the testament of teaching / learning rather than just following.

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Interesting! Docusign (DOCU) is scheduled to report earnings after the market closes on Thursday this week (March 14th) and Zuora (ZUO) reports earnings after the market closes next Thursday (March 21st). Is this another one of Saul’s prescient moves to get out just in time? We will see.

Saul - thank you for everything you do.

Wiseguy

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Saul,

I posted the following in the other thread.

I see a couple of issues raised in earlier posts (on SMAR)

  1. 7% annual customer growth
  2. 10% customer churn - if true this is a huge negative
  3. Concerns that this is not an essential but good to have product

Did you get a chance to look into these?

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Saul
Have you looked at CLDR lately?

I purchased some yesterday. Seems to me that with earnings out this week and the weakness to to their acquisition last year, the stock price might be setting up for an unexpected surprise.

I bought TLND for same reason two days before earnings and it’s paid off nicely.

One of those possibly forgotten cloud stocks that might be worth looking at.

Chris

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I raised the issue of the 7% customer growth and 10% churn.

The 10% churn number comes from the last earnings report Q&A section, in response to a question.

The customer growth has been falling each quarter also, which I don’t like.

However, 10% churn with 7% growth means they are signing up 17% more (yoy) each quarter.

I know Darth has pointed out he thinks the churn is from non paying (or lower paying) customers.

I think he is correct.

Revenue growth of 60%.

132% expansion rate, so 28% of the revenue growth is coming from new customers, which is only a net 7% increase in number of customers.

New customers are much larger that the lost ones.

There was an excellent twitter post yesterday by Tren Griffin.

He was saying that churn is important, but you can’t just look at the averages, “customers are rarely homogeneous.”

What is important is WHAT customers you are losing, some are much more important than others.

Jim

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Tex

We batted these exact issues around quite a bit on NPI.

Some of the thoughts.

7% “unique domain” customer growth is not a concern. What is growing like crazy is meaningful customers. At 77,000+ “customers” the unique domains are probably good and saturated.

Some context as to what meaningful customers mean.

Customers with >$5K annual contract value (ACV) grew by 70% to 5,575. Over 72,000 “customers” don’t even spend $5,000 a year.

Customers with >$50K grew 148% to 360.

Across all contracts average ACV grew 48%.

Point being that real revenue generation is from a smaller group of the total that is growing much much faster than that total.

This is because a great many of customers, say Bob from accounting starts a trial of Smartsheet and registers the domain @bob.com. Boom Smartsheet gets a new unique domain customer. What matters is what Bob from accounting and Phil from marketing and Jen in management do with that Smartsheet trial.

This is excerpts from the prospectus.

Domain-based customers, defined as customers with a unique email domain name
such as @cisco and @aramark

We have over 92,000 customers, including more than 74,000 domain-based customers, 90 companies in the Fortune 100, and two-thirds of the companies in the Fortune 500. As of January 31, 2018, our Fortune 100 and Fortune 500 customers have ACVs ranging from $99 to $2.3 million per customer, and approximately half of these customers have ACVs lower than $5,000 per year. Our customers typically begin using our platform for a single initiative or project. Over time, as users realize the benefits of improved execution, adoption of our platform expands across an organization through new use cases and teams. Our platform is designed to serve the 865 million knowledge workers (4) who have historically relied on a combination of manual, email- and spreadsheet-based processes to manage work.

Our platform drives viral adoption by our customers. After the initial use by a team or department, we frequently expand to other users and departments as they realize the benefits of our platform. Many of these new users start out as free collaborators, and then become paying subscribers as they realize the benefits of Smartsheet. With increased adoption of Smartsheet across an organization, the strategic value of our platform grows as we provide broader visibility into the status of work, enabling better decision-making at all levels. This strategic relevance is demonstrated by our 130% dollar-based net retention rate for the trailing 12 months ended January 31, 2018. This rate climbs to 149% for customers with an ACV of $5,000 or more, indicating that as usage of Smartsheet grows, our customers are finding more ways to derive value from our platform.

I think it should be intuitive that domain customer growth is not really an important number.

Greater than 90% retention rate is excellent. Most of the companies we follow are 90-95%. Above 95% would be truly remarkable.

Darth

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I raised the issue of the 7% customer growth and 10% churn. The 10% churn number comes from the last earnings report Q&A section, in response to a question.

The customer growth has been falling each quarter also, which I don’t like. However, 10% churn with 7% growth means they are signing up 17% more (yoy) each quarter. I know Darth has pointed out he thinks the churn is from non paying (or lower paying) customers. I think he is correct.

Revenue growth of 60%.
132% expansion rate, so 28% of the revenue growth is coming from new customers, which is only a net 7% increase in number of customers. New customers are much larger that the lost ones.

Thanks Jim, that’s what I was getting set to write. With revenue growth last quarter of 60% and 132% expansion rate, the churn can’t really mean much from a practical point of view.
Saul

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Interesting! Docusign (DOCU) is scheduled to report earnings after the market closes on Thursday this week (March 14th) and Zuora (ZUO) reports earnings after the market closes next Thursday (March 21st). Is this another one of Saul’s prescient moves to get out just in time? We will see.

Hi Wiseguy, nothing prescient about it. I explained my problem with thesis three companies follows: These are all SaaS companies with easy to understand businesses, but ones that are growing more slowly than the ones above, and with questions (to me) about where they are going.

I have no advance knowledge, or even feelings, about their next earnings releases, which may be great for all I know.

And, for the record, I’m now out of all the Zuora, and my Smartsheets position is 3.54% and Everbridge is 0.84

Saul

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I see a couple of issues raised in earlier posts (on SMAR)
1. 7% annual customer growth
2. 10% customer churn - if true this is a huge negative
3. Concerns that this is not an essential but good to have product

Tex -

You’ve already gotten some very good answers on the churn.

Here are a couple of other threads touching on that item and the “not essential but good to have” thought (which was a discussion point for me in my original research).

You might have to scroll through them a bit, but I found the info helpful in managing my SMAR position.

https://discussion.fool.com/a-deeper-look-at-smartsheet-smar-341…

https://discussion.fool.com/so-much-saas-which-saas-to-buy-34136…

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Thanks Jim, that’s what I was getting set to write. With revenue growth last quarter of 60% and 132% expansion rate, the churn can’t really mean much from a practical point of view.

Factoids can derail great investments. :wink:

Denny Schlesinger

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