Fwiw, after yesterdays drop, found some cash and brought back in again for the third time in 2 years. Unless something drastic happens or changes within the Company, I will hold this time and unlike Shop where I feel I made a mistake in selling out too early, feel they have room to grow substantially, just need some patience.
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I think the market is scared that Facebook’s enter in the same market. If you read the articles in past few months on Facebook checkout, payment and cash transfer between Instagram and Whatsapp users, they are a lot closer to what Square is doing today.
Bear, I never fully understood why you sold out of WIX? Regret is too strong a word as we all have to move forward, but do you regret selling it? A nice run since end of last year and under the radar methinks. Hardly a word spoken about this Company on this board as far as I know recently.
I love the company, but no way am I riding with a leader who is not working for my money full-time.
Steve Jobs ran Apple and Pixar simultaneously.
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Hey Bear,
My last post on this exchange as I must not be explaining myself clearly and I don’t know that others are getting much out of it, and I don’t want to clutter up the board.
You: Understood. I’m just trying to figure out why you feel this way:
Me: I’m more confident in the results (long term) than switching horses if not necessary.
I was just saying that SQ is a top 10 confidence stock for me, about 5% (remember, I have about 20 holdings), and I don’t want to sell it as I’m confident in it’s future prospects.
You: I’m not down on the 97%. In fact, the 97% is neither good nor bad. Because it’s in the past. All that matters is what it will be next quarter, and the next, etc. The market thinks it will be maybe 70%, then maybe 50%, then something like 20%, then maybe single digits…
Wow! That’s quite the drastic drop from 97% to single digits! I sure hope that doesn’t happen over the next 4 quarters (or even over 4 years). And I’m pretty confident it won’t as it’s a huge market, yes, with plenty of competition, but SQ is a leader in segments of it that will continue to grow for a long time. And they’re very innovative if you haven’t noticed.
You are welcome to believe differently. But you might want to have a good reason why you think the market is wrong.
Well, if you’re saying the market is thinking it’s going to single digits, I’ll take that bet!
Good day, Bear.
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My last post on this exchange as I must not be explaining myself clearly and I don’t know that others are getting much out of it
I think you’re right that maybe no one is getting much out of this. I can’t help myself from trying one more time to communicate this point, though. I think I’ve done a bad job so far, so let me back up and think slowly and carefully. (And foodles, clearly I’m speaking to everyone below. You communicated your point, and we can end our convo. Thanks for the dialogue.)
The whole reason I got interested in this thread is because I think a lot of people feel “safe” holding a lot of stocks, especially ones they have had for a while which have done well at some point and are down. Maybe that’s why the posts here defending SQ and advocating being patient hit a nerve. It seems to me that one of the main reasons people doubt this board and our style is that it seems wrong NOT to be more patient. It seems like we’re jumping from horse to horse too ruthlessly or that it’s some kind of magic, but it’s not. It’s just that such aggressiveness, I think, is counterintuitive.
For example, I often see TMF still recommending stocks that peaked years ago and all I can think is what life changing money people could have made instead if they’d been willing to “switch horses.” People bought CMG ten years ago for under $100/share, and watched it soar to like $700 by 2014. But then, the company had grown so much — not completely saturating their potential yet, but valued like they were - that all the signs pointed to selling. Maybe CMG is a bad example because they had the food borne illness issues, because they took a hit and have bounced back. But here they sit, years later, still at $700. In those 5 years…heck even the last 2.5, people could have sold CMG at the bottom, down 50%, and then bought some SaaS stocks and made 400%. They’d have 4x as much money today. If you do that with everything in your portfolio instead of avoiding “switching horses,” the results are life changing. People especially don’t want to switch horses at the bottom, so maybe CMG is a good example after all.
This is why I say it matters that Square is a ~$30 billion company now (I’ve been saying that since I woke up and sold 6 months ago) — they haven’t stopped growing, but maybe most of the remaining growth they’ll have is priced in, and we’ll see growth slow a lot very soon. When people say SQ looks relatively cheap it’s based on how they’ve been growing, not what they’re likely to do going forward.
If you believe they’ll keep growing at 50%+ for years, you’re believing that against what the market is saying, and against what Square is saying. We can talk about sandbagging, but they guided for 57% last quarter and 44% this coming quarter!
Sorry if I’m beating a dead horse. If no one is interested, I’ll leave it here. But to me this is the life changing point. People who say their results aren’t as good as Saul’s and that he can see the future…no, he just ruthlessly gets rid of stocks he isn’t sure about and buys ones he feels sure of. That includes not holding on just because the past with the stock has been grand.
Bear
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Yes, but selling = taxes… even long term cap gains are around 36 percent for some, depending on state and income (20 fed, 13 state, 3 medicare). That’s a big hit and has to be taken into consideration.
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Bear,
What an excellent post. This conversation is one I am very interested in, because its the type of civil discussion that makes us better investors. Clearly stated reasons on both sides that both make since to me.
I posted yesterday that I decided to keep my SQ shares for now, mainly because I don’t see SQ slowing with their largest customers, with growth of 52% in that cohort. This is the key measure for me going forward, along with overall growth, because I think they are running out of small customers.
You nailed my main concern with SQ, I think it has under performed because the market thinks it can’t move upmarket to larger customers. I found some data where I think it is, but I don’t like to go against the market, it is usually right. So we shall see.
Some have argued that Shop was flat for a while and than took off. I don’t see that as the same, because I think Shop was flat in a down to flat market. Square is not moving in a great market, so all companies not doing well right now, the market is telling us it has issues with. Our job is to decide if we have good reasons to think the market is wrong.
SQ grew organically this quarter at 49%, so a guide of 44% growth, which is all organic because we come past a year from the acquisitions, I don’t see as a problem because with a slight beat they aren’t slowing.
Jim
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“Sorry if I’m beating a dead horse. If no one is interested, I’ll leave it here. But to me this is the life changing point. People who say their results aren’t as good as Saul’s and that he can see the future…no, he just ruthlessly gets rid of stocks he isn’t sure about and buys ones he feels sure of. That includes not holding on just because the past with the stock has been grand.”
I agree with you. This argument that one has to hold long term, that it’s a mistake to sell, I don’t get. I sold a third of my position in ANET yesterday at the close, happy to sell those shares at 278. Many on MF think that’s crazy to sell. ANET has had two not so great quarters in the last 4 and have zero visibility going forward. Yet somehow not only are many MF members not selling, they are adding to their holdings. I don’t get it.
So you brought up Saul and his method above. Curious if you and anyone else knows if Saul is now selling or out of SQ. He was very bullish in defending the stock before earnings.
My biggest problem when selling out of a position is that there seems to be fewer and fewer companies to put that money to work with confidence therefore creating a much more concentrated portfolio.
somehow not only are many MF members not selling, they are adding to their holdings. I don’t get it.
Seriously, nobody knows what will happen with ANET going forward. I can understand you having conviction in your decision, but there are many things “to get” about a decision to hold or buy at this point. I would think you “get” that.
First, data needs may never slow. It is possible Cloud Titans have over-built for the current data atmosphere, but it is just as possible this is a small blip and further build out will continue for a long, long time. ANET is positioned incredibly well if that is the case. It could be that Arista’s offering are managing data so well, they have gotten somewhat ahead of themselves providing customers with more capacity currently than has been typical. These are all hypotheticals, but the point is, we simply don’t know.
None of the above mentions the solid footing the company is on.
I don’t find it amazing that you are selling. I don’t find it amazing that others are holding or buying. It is a matter of how one views the company’s future prospects.
The above is what makes horse races. I just don’t think Arista is a case where you can say, “Geez, this company has no prospects going forward whatsoever and I have no idea why investors put their money in the name.” That seems arrogant and short sighted to me.
I agree with one of you last statements about wondering where to put new money or money gained through sales.
A.J.
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The above is what makes horse races. I just don’t think Arista is a case where you can say, “Geez, this company has no prospects going forward whatsoever and I have no idea why investors put their money in the name.” That seems arrogant and short sighted to me.
AJ, he didn’t say Arista has no prospects…he simply expressed surprise that anyone would add shares at this time (of uncertainty), and I completely agree with him. I’m holding ANET in my Mom’s account because I can’t figure out what else to buy (I agree with both of you there), and I don’t keep a keen enough eye on her account to make it match my holdings exactly. But for someone to listen to Arista’s call from this week, which I did, and decide that now is the time to buy? That leaves me scratching my head just like Tryingmybest said he was. I’m not saying they have no prospects going forward. I’m saying to put new money there at this time, and instead of buying AYX or something is surprising to me.
So you brought up Saul and his method above. Curious if you and anyone else knows if Saul is now selling or out of SQ. He was very bullish in defending the stock before earnings.
No idea. I’m kind of curious as well, Saul, if you feel like enlightening us. But as always, Tryingmybest (and everyone), don’t worry about what Saul is doing, because you have to have the confidence in your own opinions. But Saul does have a keen eye and may see something we’re missing, so I hope he’ll share his opinions soon.
Bear
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Curious if you and anyone else knows if Saul is now selling or out of SQ. He was very bullish in defending the stock before earnings.
No idea. I’m kind of curious as well, Saul, if you feel like enlightening us.
Hey, I’m no expert on what to do with Square. As you know I reduced my position a great deal in December when Sarah left (and broke Bear’s heart)
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In December I also listed about five or six additional reasons for reducing my position. Then I built back up to maybe a 5% position at one time. It’s now a tiny 3.1% position (tiny for me with nine positions total), because it’s not been going up like everything else, and yes, because I trimmed my higher price buys in my taxable accounts.
Here’s the issue for me. I don’t mind selling out of a position when it’s down for good reason. Nutanix was a great example. I could see what was wrong. It may sort it out in the future but for now it was exit time. The problem is that I don’t see a clear reason for Square to not be coming back. Because revenue growth was down to 59% ??? What the hell kind of reason is that ??? (It was 51% in the year ago quarter). Or because Subscription revenue growth has “fallen” to 126% ???
But whether I’m happy with it or not, Square seems stuck between $65 or so and $80 after hitting $100 a full eight months ago, so there seems to be something wrong. I’m really torn. Bear seems happy with selling out, Chris seems happy with staying in. I’m not happy with either.
I’m sure that that doesn’t help, sorry.
Saul
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Some have argued that Shop was flat for a while and than took off. I don’t see that as the same, because I think Shop was flat in a down to flat market. Square is not moving in a great market, so all companies not doing well right now, the market is telling us it has issues with. Our job is to decide if we have good reasons to think the market is wrong.
I had the same problem with TEUM. They have a HUGE backlog of contracts and supposedly a near 100% conversion rate on the backlog. But another stock that hasn’t moved in a great market. Something was wrong and so I got out. As of now that decision has been the right one. I also found the same to be true on STNE and that has been true also. I believe there is something to be said about relative strength.
Rob
To put square in perspective, Shopify moved sideways from March 2017 until December 2018, a full nine months. But from March 2018 through today it’s up 100%. In not reading too much into the short term consolidation that seems to be affecting Square, and also Twilio for that matter.
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Saul,
Thanks for chiming in on your thoughts on SQ.
I’m in the same boat. A small position, small enough to hold tight and see how it plays out.
I was out to dinner last weekend with a table full of millennials. 16 people. So when the check came one of the women sitting next to my wife and I said who are we Venmoing.
Venmoing? Yea that’s a thing now. One person puts the entire bill on their credit card and everyone else Venmo’s that person right there at the table what they owe. No handing a dozen credit cards to the waitress, one person get all the points on their card and everyone else sends that person cash instantly.
Not sure if this effects Square and the other card processors or not. Less swipe fees? Or is the fee based on the amount of the check anyway.
Times are changing though and it’s good to know what is going on in the millennial and younger worlds.
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I noticed SQ Q1-19 cash from operation is about $30M, last year $50M, so lower. While Shopify this quarter cash $24M positive, while last year negative -$2M. Just an observation from a different perspective than revenue growth rate.
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Just went though the transcript. First off SQ raised revenues for the full year. The remaining 3Qs are likely to come in the 40-45% rev growth rate assuming their usual beats. Since these Qs include weebly/zesty in prev year it is not fair to see it as a drop from the 59% in Q1.
As for the law of large numbers, FB annual rev went from $2B to $48B over a 7 year period at a CAGR of 50%+. It comes down to company size vs TAM. Does SQ have such a high TAM and can it maintain a high growth rate (40%+) for a long period? Going by market reaction over the last few months it appears many don’t believe that to be the case. But the CC transcript certainly did not outline any material weakness in the business such as what we could see in Nutanix. The ecosystem appears to be only getting stronger and stronger.
Comparatively, SHOP is likely to be in the same 40-45% growth rate for the remaining 3Qs. But the market appears to believe that it has a much larger TAM and can maintain its growth rates for a longer period.
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As for the law of large numbers, FB annual rev went from $2B to $48B over a 7 year period at a CAGR of 50%+. It comes down to company size vs TAM
Isn’t that a contradiction in terms. Yes it comes down to TAM but Facebook proved it wasn’t necessarily down to size - they grew at 50% CAGR as a 100bn+ company and a 2bn+ run rate company.
Social Media was also a hyper growth industry and Facebook was a category crusher/monopoly platform with a network effect.
I do think sector secular growth rates help (as is the case for e-commerce and cyber security).
I also think emerging de facto market dominance is a key feature (Saul’s category crushers). This was how PANW overtook checkpoint and took their crown with 3-4x the growth rate of the previous leader.
A
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Isn’t that a contradiction in terms.
Hi Ant. I don’t think Tex was being contradictory. He was pointing out how despite already having high revenues of 2 billion plus, FB managed to maintain hyper-growth for 7 years because they had a huge TAM. 7 years ago there was doubt about whether they could monetize mobile. Today, it just seems so obvious and it’s hard to think why there was such doubt back then. But then we didn’t have 4g and smartphones weren’t as widespread as they are now.
This is what we do when we analyse all our companies, isn’t it? Determine CAP/dominance and TAM/SAM
Are they a dominant category crusher, are they in a growing industry, and how much have they penetrated it? i.e. is there a lot more room to grow.
As for SQ, they seem dominant in their field for small and medium merchants in the US. The question is, are they able to penetrate adjacent markets? Larger merchants and international/foreign markets, where there is more competition.
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Thanks Ben, that is what I meant. I think it would be of value if we focus on SQ’s TAM here. Does anyone have a good idea? I recall seeing a number of $70B sometime back. But the optionality have only been increasing. Competition for SQ is clearly there in all of its market segments so it is unclear how much they can penetrate each segment. But as they say no one else provides the unique eco system like the way they do. Is that a good enough moat? The company thinks it is but the market is not so sure.
With SHOP there seems to be a clarity that they are the clear winners vs anyone else WIX for example.
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