Two Week Update

Investment Analysis Clubs Saul’s Investing Discussions
21

So what do they need? They need a group of people sitting at their own homes, on their own internet, logging into flex in the cloud. They need a supervisor sitting in his home, on his internet, watching all the calls, texts, email, going through the system.

I can see the advantages of this. However, I don’t know what percentage of call centers are located in the U.S. I don’t know the value of having English-as-first-language working the call centers. I live in the Philippines and there is a call center way out here in a provincial capital. It is a very attractive job here. But they have many empty seats as they do not have enough qualified applicants. They have first world snack bar and those bed-in-a-tube rest thingies, etc. Lot of overhead.

But, over here the work at home model wouldn’t work well. Power outages, for one. Internet speed is adequate in town but not in the outlying municipalities. And the “in-house” is not air conditioned and at any time there can be (will be) karaoke party next door or other disruptions.

At least, as you say, there is a supervisor somewhere monitoring the calls. But, it is not like having the employees showing up at the workplace, sober and such. And, as above, the working conditions cannot be monitored. You can’t even be sure that it isn’t Juan’s uncle who is manning the station, right? Just something I am thinking about–and perhaps showing my ignorance of call centers.

KC

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22

At least, as you say, there is a supervisor somewhere monitoring the calls. But, it is not like having the employees showing up at the workplace, sober and such. And, as above, the working conditions cannot be monitored. You can’t even be sure that it isn’t Juan’s uncle who is manning the station, right? Just something I am thinking about–and perhaps showing my ignorance of call centers.

You have a better understanding of the Philipines then I do so I can’t say anything about that. The link I provided gave stats on call centers in the U.S, Philipines, and India. It doesn’t seem to be working right now but maybe it will come back later :).

But let’s think about this for a minute. If they have call centers staffed with employees in their own home that takes out alot of the call centers overhead. So a call center staffed through twilio would be cheaper then a call center in the Philipines and India. Then maybe the call centers in the Philipines and India will require their employees to reside in buildings that have a reliable back up generator, who knows. Competition will continue to compete though.

Andy

23

OK, first off, I think Saul is correct. Twilio overhyped Flex. I don’t think there’s any reasonable way to deny that. But given that, I’m not ready to abandon Twilio. And longer term I think Flex will be significant contributor to revenue.

I’m not sure Flex will be used to send everybody home. Different companies have different reasons for allowing or even forcing employees to work off site. They also have different motivations to keep people in the building so to speak. Where I worked, they went through a few gyrations on this with the IT staff. One executive tried to shrink the footprint of IT staff square footage. A few years later,a new executive walks through the building and muses, “Where are all the people?” Within months a lot of them were back in the building. The work didn’t change. The people doing the work didn’t change. One executive wanted to reduce overhead. The next one wanted to see butts in the chairs.

Anyway, I think that’s actually a bit off topic. The advantage of Flex, whether the people are on or off site is reduction in hardware, ease of implementation, ease of use, ease of maintenance and reliability. That’s off the top of my head, there are probably more. I don’t know enough about call center economics to compare a traditional call center with Flex holding all other variables constant. Maybe someone on the board could provide some insight on that. My guess is that Flex is the cheaper option, but that’s just a guess.

But I view Flex in a similar manner to Zscaler. Call centers are already up and running for those companies that most need them. In other words they already have sunk cost in an operation that is functioning and not necessarily crying out to be replaced. Flex will likely be a candidate when the next h/w refresh cycle rolls around or when the next call center needs to be implemented. And yeah, when some executive says how do I reduce my overhead? So we might be looking at lease expiry dates or corporate expansion that demands more physical space for employees that need to be in the office. Flex provides for the work at home option, a traditional call center does not.

But of this I’m certain, though the adoption rate may be lumpy, like Zscaler, it will be very sticky. Once a company adopts Flex, I can’t see anything that would motivate them to go back to a traditional style call center. Eventually, the gravitational pull of simplicity and flexibility will win.

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24

Hi Brittle,

OK, first off, I think Saul is correct. Twilio overhyped Flex. I don’t think there’s any reasonable way to deny that. But given that, I’m not ready to abandon Twilio. And longer term I think Flex will be significant contributor to revenue.

I think you just stated in this paragraph a reasonable explanation of why Twilio didn’t overhype Flex. :slight_smile:

Andy

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25

Saul,

I noticed SMAR is up to 3.3% for you (from 2.8% at the end of July). Since the stock price is down, I guess you added some. I have too, thinking they’ve spoken so confidently on every earnings call, that I expect that to continue when they report in a few weeks. What’s your logic?

Thanks,
Bear

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26

Hi Bear, I guess I did raise my percentage of Smart somewhat. I think it was influenced both by their excellent results, and by Bert’s analysis and discussion in his recent long deep dive, especially with regards to their emphasis on pivoting to larger companies, and their raising their average ACV per customer.
Best,
Saul

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27

Thanks for the update, Saul, always enjoy hearing your perspectives on the companies you hold and why you do what you do, as you’re under no obligation whatsoever to keep us informed, I appreciate it when you do.

I’m with you on some points, but don’t agree with a couple others, and you seem to want people’s opinions so here are mine.

Like you did, I have also been adding to my Crowdstrike position. They released a great report almost a month ago now (their first since IPO) and the stock has performed well since then. I plan on continuing to build this into a larger position for me as opportunities present themselves.

I don’t agree with the following statement about Mongo, I’ve started to lose patience with Mongo. I’ve held it for 21 weeks now, and it is up 7% in the 21 weeks while the rest of my portfolio has been hitting it out of the ballpark. I don’t remember “losing patience” as a reason to trim/sell a stock if nothing has changed with the underlying company. And “21 weeks” is a pretty short, arbitrary time frame to be judging a stock’s performance, I realize that’s how long you’ve been back in it this time, and your other stocks have done well during that time, but looking at different short term time frames would yield some pretty good results from MDB. I realize you only slightly reduced your position size, and did so to put it in other stocks you hold that you feel are better opportunities (which is a reason to trim/sell), so I’m not knocking what you did, just the wording used “losing patience”, makes it sound like momentum investing, trying to find the stocks that are moving up the most right now, not willing to be patient with ones that may move up more in the future.

Regarding Square, I have no problem with you getting out of the company for some solid reasons, the stock has definitely not performed well over the last year, but I do take issue with the following statement regarding Sarah Friar’s departure, it now seems likely that, as CFO, she had a good view and she left because she saw the handwriting on the wall… I really don’t see how you can jump to that conclusion unless you read or heard that in an interview somewhere, I don’t remember ever hearing such a thing. I could just as easily say it seems likely she left because she saw the handwriting on the wall that she was going to be canned for implementing financial decisions that were going to stall the company’s stock growth for potentially a year or more. Do I believe that? No, but I could say it with no proof. You and many others here only hold 10-12 stocks or less so I understand no room for stocks that take a breather. I currently have about 18, so there is room for SQ in my portfolio as I feel it (the COMPANY) continues to perform well IMO, and I think it has a great risk/reward ratio to potentially perform better than some of the other stocks I hold that have had huge runs of late. No stock goes straight up, there’s always FUD events, pullbacks, and some periods of consolidation that can be followed by explosive growth in the stock price if the company continues to perform well, and I think SQ will do just that.

And just to complete my thoughts of what I’ve been doing recently…I’ve been adding to some stocks I hold that are not widely held on this board, but have shown triple digit growth rates (some accelerating triple digit growth rates), Exact Sciences (EXAS), Tandem Diabetes (TNDM), and StoneCo (STNE). Not going to go into further detail on those as I believe I’ve posted about each of them over the past few weeks as they’ve released earnings (STNE officially releasing tomorrow, but they pre-announced a couple weeks ago). And for full disclosure, I’m adding to these with monies from some legacy stocks I still held that I’ve gotten out of recently (Paypal, Abiomed, Nektar).

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28

I don’t agree with the following statement about Mongo, “I’ve started to lose patience with Mongo. I’ve held it for 21 weeks now, and it is up 7% in the 21 weeks while the rest of my portfolio has been hitting it out of the ballpark.” I don’t remember “losing patience” as a reason to trim/sell a stock if nothing has changed with the underlying company. And “21 weeks” is a pretty short, arbitrary time frame to be judging a stock’s performance, I realize that’s how long you’ve been back in it this time, and your other stocks have done well during that time, but looking at different short term time frames would yield some pretty good results from MDB. I realize you only slightly reduced your position size, and did so to put it in other stocks you hold that you feel are better opportunities (which is a reason to trim/sell), so I’m not knocking what you did, just the wording used “losing patience”, makes it sound like momentum investing, trying to find the stocks that are moving up the most right now, not willing to be patient with ones that may move up more in the future.

Hi foodles, Thanks for the intelligent commentary and criticism. In my defense, I can only say that I am human, and I do lose patience. I do still do bar graphs on my stocks weekly and I have companies like Alteryx, Okta, and Zscaler that seem to be responding to their great results buy going straight up, and I had expected something similar from Mongo, but it’s been kind of sitting in the middle of where it’s been ever since I bought it, and I don’t understand why. When the public has what seems to me to be a clear misunderstanding of some issue, it doesn’t bother me, but I can’t even imagine what’s holding it back, so that makes me worry that there is something wrong that I’m not aware of. At any rate, as you pointed out, I only reduced it from an 11.6% position to an 11.0% position, so I haven’t kicked it out. It’s just that when I was looking for a little cash to apply to other smaller positions, that’s where I looked.

Regarding Square, I have no problem with you getting out of the company for some solid reasons, the stock has definitely not performed well over the last year, but I do take issue with the following statement regarding Sarah Friar’s departure, “it now seems likely that, as CFO, she had a good view and she left because she saw the handwriting on the wall…” I really don’t see how you can jump to that conclusion unless you read or heard that in an interview somewhere, I don’t remember ever hearing such a thing.

Here I think you are overdoing it. First of all, “seems likely” seems clear that I am speculating, and not that I am “jumping to a conclusion,” Secondly I gave seven or eight reasons why I had sold three quarters of my position in December (luckily) and redeployed the money, and for why I was exiting totally now, and Sarah’s leaving was only one of those reasons, and not one of the main reasons. Thirdly, back when she left I couldn’t understand why she would leave a prominent successful world-beating company, where she got enormous exposure and became an icon in the investing world, to join a little no-name company that no one ever heard of… “CFO of Square” seemed a lot more important than “CEO of no-name”. It seemed like a terrible career decision by a very smart woman, and didn’t make any sense. Now that Square hasn’t moved in a year and two months (and is actually considerably down from where it has been in most of that year and two months) I think that it was normal for me to speculate as to why she left. My speculation was a little throw-away remark, not a determining factor.

Best,

Saul

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29

but most shareholders today would be thrilled to get to $22.5B for MDB five years from now (2.5x from today)

Hi mekong,
Maybe “most” shareholders would be thrilled, but that comes out to almost exactly 20% growth compounded for five years, and I for one would be hugely, hugely disappointed.
Saul

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30

An item I want to highlight is the visible end-of-day volume spikes happening in many stocks, driven by bot/program trading. I read an article recently that pointed out that across the market, trading volume within the last 1/2 hour of the day is consistently several times that of the average hourly volume. This is visible in MDB, for one, in the below 10-day chart (I hope/think this is open to all)
https://eresearch.fidelity.com/eresearch/evaluate/snapshot.j…

it’s clearly visible that there’s a consistent spike in volume at the end of the days. (Also at the open, but somewhat less).

When one looks at a market “heat map” of behavior recently, or even just a daily chart of a number of various symbols at once, something that glaringly stands out that most stocks across most asset classes are being moved in the same direction day to day - not dependent on company fundamentals. Mostly everything was down Monday - US, most sectors, large cap, small cap, EU, Asia), up yesterday, and down again today.

The point is that it’s difficult to discern market opinion on any one stock / company except in extremely obvious situations like Macy’s, when so much volume is driven by “the macros” or the algos.

“In the short run the market is a voting machine, in the long run it’s a weighing machine.”

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31

Hi foodles, Thanks for the intelligent commentary and criticism. In my defense, I can only say that I am human, and I do lose patience. I do still do bar graphs on my stocks weekly and I have companies like Alteryx, Okta, and Zscaler that seem to be responding to their great results buy going straight up, and I had expected something similar from Mongo, but it’s been kind of sitting in the middle of where it’s been ever since I bought it, and I don’t understand why. When the public has what seems to me to be a clear misunderstanding of some issue, it doesn’t bother me, but I can’t even imagine what’s holding it back, so that makes me worry that there is something wrong that I’m not aware of. At any rate, as you pointed out, I only reduced it from an 11.6% position to an 11.0% position, so I haven’t kicked it out. It’s just that when I was looking for a little cash to apply to other smaller positions, that’s where I looked.

I am 90% a fundamental investor, and 10% a technical investor. I do think though that looking at the price has value.

Here are my reasons.

  1. Usually, the market knows more than any single person.

  2. Before we know, the suppliers, the employees, and the customers, know what is happening in a company. That will show up in the price. The funds, may look at this, and sell accordingly.

  3. Bad news shows up in the price before the financials. Enron is a perfect example.

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