Upsidedown's December 2021 summary

YTD return: 2.67%
Current drawdown from ATH: ~23%
Portfolio hit an all time high drawdown of 36.14% mid-may.

YTD returns by month:
December: 3.89%
November: -0.7%
October: 30:89%
September: 19.29%
August: 23.91%
July: -1.57%
June: +8.99%
May: -2.84%
April: 6.52%
March: -16.5%
February: +1.26%
January: +7.91%

2020 return: 159%
2021 return: 3%

Below par year by all measures for me. At the end of 2020, I was wondering if I learned any sustainable investing skills from 2020 and the answer a year later is a NO at least as per my results that ended up significantly lagging SPY, QQQ and leaders of this board. Glad to put the year behind and start fresh.

Portfolio holdings.
Monday – 15%
ZI – 15%
UPST – 13%
MELI – 11%
DOCN – 11%
CRWD – 10%
AMPL – 8%
BILL – 8%
SNOW – 6%
NET – 2%

Only changes I made this month were to sell out of Affirm and add to Snowflake and Cloudflare.


A cloud SaaS company with products to build custom applications to run projects and collaboration workflows.

In line with the sentiment of this board, stock price is at 31% off of 52 week Highs as compared to 49% for Asana.

?Revenue ->?Hyper growth by all means and probably should be at their size to be qualified to feature on this board.??

Gross Margin → Consistent 85%+ margins. No problems with the trend.

Operating leverage → Loss making but trending in the right direction and could expect then to be at or near profit in the near future.?

Leadership ->? Dual CEOs, not usual. Founderled.
Business Model ->? SaaS company with recurring revenue nature. Team management Project management tools, although not as sticky as enterprise software that typically have deep integrations with all facets of the organization, there may be some stickiness aspect to them for teams that have already adopted them.?

Balance Sheet/Cash flow → Positive OCF, no debt problems.?

Potential ->?Their USP is customizability to suit any team’s needs which may act as a counter weight to their potential to be like that of ServiceNow where enterprises prefer some uniformity across the board.

Easy to follow ->?Israeli company but relatively easy company to follow with decent coverage on Saul’s board and comparisons with the other hot kid in town in this space, Asana.

Guidance / Key Metrics ->?
Rev guidance, >50K customer growth on par with expectations.?

Platform/Moat/Category Crusher/Optionality ->?
They may have some optionality to add more adjacent products like service management software, issue tracking, file sharing but moat, platform stature can only come with huge scale. Category though may have multiple players with no one company able to crush.?

Conviction: High?

A cloud SaaS company that provides a database and products to aid with go-to-market efforts for organizations globally.

One of the lesser beaten companies with stock price only 19% away from 52H.

?Revenue ->? Steady growth this year starting at 50% and at ~54% organic YoY last quarter.?

Gross Margin → Consistent 85%+ margins. No problems with the trend.

Operating leverage → Highly profitable although I don’t think they explained? reduced profitability this quarter as Operating Margin came at 10% down from 24% Q2 21.?

Leadership → Founder led CEO, young. Very articulate.?

Business Model ->?SaaS based leading B2B contact data combined with sales intelligence, engagement software, and workflow tools provider. As long as their contacts database is industry leading, I think their revenue will be resilient although DBNR growth may not be as easy as growing horizontally in marketing and customer management space will mean running into big shots like CRM, HubSpot, SAP, Adobe etc.

Balance Sheet/Cash flow → Comfortably OCF positive, although carries some debt but appears to be on choice and no major red flags.?

Potential ->? Probably every company will have a need for a ZoomInfo like product but I wonder if that also limits their ability on how vertically integrated they can get in the CRM space. International revenue is still only 11% of total revenue so that may provide them enough growth ahead to upto >5x from the current ~25B market cap. In addition, they will have to deal with the taboo around Personally identifiable information.?

Easy to follow ->? They have been acquisitive so that creates some muddy waters for easy tracking. However I think theirs is an easy to understand product portfolio and decent coverage on Saul’s board as well as metrics shared by the company.?

Guidance / Key Metrics ->?

Steady state affairs with >100k ACV customer additions, revenue guidance at ~52% inorganic. Nothing outstanding but nothing alarming as well.?

Platform/Moat/Category Crusher/Optionality ->?

I doubt if they have the opportunity to grow into a CRM, SAP like platform.??
They may have some moat in their niche area but not sure if it’s impenetrable as Sales reps are always on constant lookout for better ways to scout for their prospects.??
Don’t think they are much of a category crusher nor do they have any meaningful optionality.

Conviction - High

An AI based lending platform company with current product portfolio for personal loans, auto refi and aspirations for mortage and micro-loans.

Currently at 62% away from 52H, so very badly beaten.

In retrospect, my position sizing should never have been at 20%+ for my skill, experience levels and its non-SaaS nature. I think this is one area that I need to work on. As an example, if my analysis gave me a medium conviction that allows for 8-10% position size in my portfolio, then I should be trimming if the stock price has increased significantly in a short timeframe and made the position size say ~20% which is reserved for high conviction positions. Not sure, still thinking about how to manage the nuances with letting winners run vs trimming to bring back in line with conviction levels. I guess at minimum, adding right after a great quarter like Upstart had in Q2 was appropriate, but adding in anticipation of another great quarter should have been avoided as any price appreciation was purely driven by investor sentiment and not necessarily by company’s performance.

?Revenue ->? Still a hyper growth company although came back to earthly levels as they lap Covid hit quarters.

Gross Margin → Consistent 80%+ margins. No problems with the trend.

Operating leverage → Adj EBITDA margin positive since long, no problems here.

Leadership → Founder led team, young. Although their track record in navigating long periods of?

Business Model → AI based lending platform company. General lack of confidence in their ability to sustain revenue growth for a meaningful period of time. Risk of even revenue deceleration as evidenced during Q2, 20. With almost all the revenue from Fees, revenue sustenance risk is real and unlikely to go away given their industry focus.?

Balance Sheet/Cash flow → Comfortably OCF positive, no debt issues.

Potential → Broad based lending industry is a breeding ground for socio-political scrutiny. So the faster and larger they grow, the more eyeballs on them. I don’t think there is a precedent for a company of their nature but it’s hard to imagine them to be a 100B+ company even with auto and mortgage lending.?

Easy to follow → ? Lots of coverage on Saul’s board and they provide good metrics but given their non-SaaS nature, it is not straightforward to understand what pitfall may lie ahead of them.?

Guidance / Key Metrics ->?

% of loans automated, # loans transacted QoQ%, Contribution Margin all came at lowest of past 5 quarters.

Revenue Guidance came at 83% annualized but then their revenue is non-recurring in nature. Overall, I guess on par guidance but disappointing key metrics and then they have the concentration risks with Crossriver bank.

Platform/Moat/Category Crusher/Optionality ->?

Don’t think they are a platform yet where there is an ecosystem built on top of their products. Lenders in due course of time that aren’t seeing results with them may switch to the next best option in the market.?

Also not sure of their moat yet. Actionable insights based on data is a tough nut to crack and only demonstrated by Google, Facebook and the likes at massive scale over long periods of time.?

They are probably a category crusher in AI based lending models for small to medium sized lenders that probably will never have critical volume of data and infrastructure.?

Although on paper, they appear to have optionality I think it still needs to be seen if historically disparate sub sectors can be conquered by a single provider with a proprietary AI modeling capability.?

Conviction → Medium

Mercado Libre
A Latam e-commerce and fintech company with a very large footprint of products and services.

Currently at 33% away from 52H.

?Revenue ->? 67% YoY growth lapping a Covid quarter but only 9% QoQ which is in the pre-covid range. Even tougher comps to deal with next two quarters. Same situation with GMV.?

Gross Margin ->? 43% which came down from 50% about two years ago as they focused on expansion.

Operating leverage → They were able to maintain profitability or stay close but they have been around over 2 decades, so maybe they should be so at minimum.

Leadership ->? Founder led, very convincing team.?

Business Model ->? Primarily ECommerce and some Paypal/Square like Fintech aspirations.?

Balance Sheet/Cash flow → There is some seasonality where they dip to negative OCF during Q1 each year, they have been cash flow positive since long. Not the strongest balance sheet with the capex nature of business.?

Potential ->? They probably have the biggest chance to be like that of Amazon in the latam world as they become more and more vertically integrated with logistics and fintech products.

Easy to follow ->? Non-US company, no first hand visibility into their story besides online reading and company reporting.

Guidance / Key Metrics ->?

GMV, Items sold, TPV all reverting back to pre-covid levels. Not hyper growth by any means.?

Platform/Moat/Category Crusher/Optionality ->?

A successful marketplace with $1.9B quarterly revenue and 7.3B quarterly GMV is a platform with an ecosystem of partners building services and products on top of them.?

They also probably have a strong moat, are a category crusher and has optionality.?

Conviction level: Medium .?

Digital Ocean
A cloud IaaS solutions provider catering to SMB and individual software developers.

Currently at 40% away from 52H.

Revenue ->? Medium growth profile at ~35% YoY.?

Gross Margin ->? Hit their highest ever 61% gross margin. Given they are IaaS, their margins will probably never by 80% SaaS like.?

Operating leverage → 30% Adj EBITDA margin profile, so pretty good.?

Leadership ->? Not founder led, some blank space in this area.?

Business Model ->? Popular IaaS provider for the individual and small development teams. But as teams scale, they may choose to graduate to Amazon Cloud, GCP, Azure and the likes. But there will always be space for Digital Ocean like services in non-enterprise scale companies.

Balance Sheet/Cash flow → Positive OCF, no debt problems.?

Potential ->? They are already popular in their target market and may continue to be so but it’s hard to see them in the multi-billion dollar run rate league with 30%+ growth rate.?

Easy to follow ->? Nature of the business, metrics shared by company are relatively easy to keep track of their progress or lack thereof.

Guidance / Key Metrics ->?
Reported loss of customers this quarter, which they explained with “The slight sequential decline from Q2 was the result of our implementing enhanced security protocols to remove certain low-value customers from our platform.”?
They have been only adding customers QoQ only at the rate of 0-2% and now this negative adds doesn’t put them in good light.?
Rev guidance is again in the same range, maybe a basis point or two acceleration at best.?

Platform/Moat/Category Crusher/Optionality ->?
Interestingly, I think they may have some aspects of all four characteristics in their target market but not sure if it helps them accelerate their revenue growth into hyper growth mode.?

Conviction: Low

A cloud SaaS cybersecurity company.
Currently at 31% off of 52H.

?Revenue ->? Still posting decent hyper growth numbers but with clear deceleration.?

Gross Margin ->? Solid 80%+ margin profile.?

Operating leverage → Been profitable on a non-GAAP basis since long, no problems here.?

Leadership ->? Founder led, articulate and very consciously aggressive PR strategy.??

Business Model ->? Cloud based security SaaS provider with recurring nature.

Balance Sheet/Cash flow → Positive FCF, no debt problems.?

Potential ->? Their revenue growth seems to be hitting a ceiling, legacy competitors may have caught up to them, there may be a situation in security SaaS industry that no one company can build a product that is fool proof and enterprises may be satisfied with a “good enough” solution.?

Easy to follow ->? SaaS nature of the business, metrics shared by company are relatively easy to keep track of their progress or lack thereof. Although it has been hard to explain their lack of revenue acceleration with all the SolarWinds, Colonial Pipeline, government agency uptake tailwinds.

Guidance / Key Metrics ->?
Slowest QoQ% customer adds from over two years, steady but continuation of deceleration of revenue guidance.??

Platform/Moat/Category Crusher/Optionality ->?

They have a marketplace but not sure if there is any ecosystem of third party solution providers that built solutions on top of their services.?

Moat in Cybersecurity space may be not as impenetrable as majority enterprises may just be happy to look for a good enough solution and not necessarily spend premium dollars for premium products.?

Conviction: Medium

A cloud SaaS company with products to measure and optimize customer behavior on websites and mobile apps.

Currently at 40% off of 52H.

?Revenue ->? 50-70% growth rate on a smallish base with some acceleration past two quarters

Gross Margin ->? ~70% range, trend is flat.

Operating leverage → Not yet profitable but close on a non-GAAP basis at -5%.

Leadership ->? Founder led, young. Recently IPOed.

Business Model ->? Digital Optimization SaaS company that allows for measuring and optimizing customer behavior. >95% revenue is recurring. May be less mission critical and less recession proof.??

Balance Sheet/Cash flow → Inconsistent FCF trend, currently at -35% non-GAAP FCF Margin. No balance sheet problems.

Potential ->? Should be able to grow their TAM with newer products and acquisitions as most aspirational companies will have a need for their products at some point. Sub 10B market cap currently.

Easy to follow ->? Recent IPO, so needs to wait for some track record but metrics to follow are straight forward.

Guidance / Key Metrics ->?

Rev guidance 56% YoY, 3% QoQ so nothing super exciting. Customer adds YoY% is at 54% as compared to 51% YoY last Quarter.???

Platform/Moat/Category Crusher/Optionality ->?

Still a small company in a smallish category so not sure if they have any long standing advantage over peers.

Conviction: Medium
A cloud based SaaS company with products to automate back-office finance functions for SMBs.

Currently at 29% off of 52H.

?Revenue ->? 78% organic revenue growth, accelerating revenue but wonder if it is because of easy compares as the SMB market that they cater got hit by Covid.?

Gross Margin ->? Consistent 70%+ margin profile.

Operating leverage → Loss making with ~-10% non-GAAP operating margins.

Leadership ->? Founder led, 15 year old company that IPOed in december 2019.?

Business Model ->? Back-office accounting software provider which are a must have businesses but there may be some SMB related customer churn.?

Balance Sheet/Cash flow → Not consistently cash flow positive, decent balance sheet.?

Potential ->? With acquisitions they may be able to maintain good growth as companies try to consolidate back office functions with one provider as much as possible.

Easy to follow ->? Recently started following, although some coverage on Saul’s board. They also acquired two companies this year which may make it a little difficult to piece together their story.

Guidance / Key Metrics ->?

Lapping easy covid comps, acquisitions make it difficult to see how they are doing here. Need to analyze more.??

Platform/Moat/Category Crusher/Optionality ->?

I think their products once implemented are sticky. They may have some optionality to add adjacent products and companies. Not sure if they are a category crusher.?

Conviction level: Low.

Other positions
Besides the above, I have positions in Snowflake (16% off of 52H) and Cloudflare (40% off of 52H) and still working on forming my renewed conviction levels. Really impressive of Snowflake to continue to perform to its sky-high expectations. Shows that even during indiscriminate sell offs, quality companies continue to outperform which brings back to why Saul’s focus on this board to find and discuss individual high-quality companies because it’s the only fuel that drives results at the end of the day.

November Summary -…
October Summary -?…?
September Summary -…
August Summary -…
July Summary -…
June Summary -…
May Summary -…
April Summary -…
March Summary -…



I just wanted to write a note of encouragement, and I’ll post this to the board for others who weren’t happy with their 2021 results.

You faithfully posted your results monthly throughout 2021, and as I look back at your Jan/Feb portfolio construction, I really think you’ve come a long way. You had 15 or 20 positions then, and 8 or 10 now (depending on whether you count your two small ones). It looks to me like you have honed your skills and your portfolio a lot in 2021. You even had a positive month in December! Not many of us can say that!

When someone has close to 20 positions, including many small companies (thinking of the likes of SKLZ and FTCH) that are not widely discussed on the board, they are typically trying to “hit” a big win. I was guilty of that when I first started posting my portfolio each month back in 2016. What you’re learning, I think, is that you don’t need to “hit” – you simply need to ride the wave with the best companies you can find.

One challenge: you still have a few companies like Digital Ocean that few other folks here have keyed into or held. In fact, that one in particular is a large 11% position. Yet you say your confidence in it is low – I say perhaps either you should change that or lower your allocation. (Just my opinion.) I challenge you to dig into it more, and if you still feel it merits an 11% allocation, make the case to the board for this company. Obviously if you don’t want to, no worries; I just think this is a good practice for each of us. I decide for myself what I own as I’m sure you do, but it is super reassuring to have the board vetting most of my large positions.

Again, congrats on the progress and thanks for your thoughts.



Thank you Bear for the response, very kind of you. You are amongst the leaders of this board not just with your results but also with your generosity.

And sorry it took a few days to respond as my schedule currently allows for extra time only during weekends.

Regarding my position in Digital Ocean, Yes, it is in my low conviction category ( more on the reasoning below) and the reason for a 11% position was partly because some of my other positions have fallen more. It was about a 6% position during my initial purchases in August/Sept with an average cost price of $61. Also, I was probably a little hesitant to cut their size as they are the only ones in green on my brokerage screen from a cost basis standpoint besides CrowdStrike. But I have culled them to a 8% position as part of little restructuring after my 2021 review.

After taking positions in “no” or “loose” conviction companies like CuriosityStream, Skillz, Farfetch etc early last year, I started running companies through a Saul themed 10 point framework to form convictions. That helped in getting comfortable in holding ~10 positions vs ~20 a year ago. But my results have gone the other way since then, so yet to see if my improved comfort with increased concentration is a good thing or a bad thing in the long run.

Now about Digital Ocean.

What do they do - A cloud computing platform offering on-demand IaaS and PaaS solutions for SMBs and independent developers. AWS, Azure, GCP are an overkill for individual/SMB scale applications. So, this whitespace in the down-market is serviced by Digital Ocean, Linode and Vultr, the latter are still private companies and Digital Ocean is considered to have better tutorials, support, additional services amongst the three and so arguably most popular as well.

Headquartered in NewYork. They are not founder led and CEO is Yancey Spruill who was CFO/COO of Sendgrid at the time of acquisition by Twilio in 2019.

They IPOed on March 24th, 2021 for $41.50 and posted three Quarterly reports since then. Below is what I wrote in my August review when I initially took the position -

“They are only growing in the 30% range, with gross margins in the 55% range so not a hyper growth company but I think they will do much better from now with all the awareness and marketing that comes along with being a public company. Their earnings will show.”

And that’s pretty much the reason for my low conviction but definitely with enough conviction to have a spot in my portfolio. They are a low - medium(prospects) growth company with medium gross margins and with signs of acceleration and re-rating after their IPO. I think they serve a market where the big guys don’t want to compete and they have a proven product portfolio that is well liked and by their customers.

From October review -
“They were probably flying a little under the radar until they went public in March this year despite their popularity in the independent developer and SMB market. But now that they have appreciated 100%+ since the IPO and with a solid Q2 report, they now probably have a lot of eyes on them and any slippage from acceleration will be punished harshly.”

And after their Q3(numbers below), their results IMO are still decently in-tact for my conviction levels and the broad market sell off is making it even more difficult to see if they will recover before or after the hyper-growth recovery, or may be they will not recover and I will have to let them go.

Rev Growth YoY%

Year	Q1	Q2	Q3	Q4
2020	24.9%	24.2%	24.3%	26.45%	
2021	28.8%	35.2%	36.8%	36.0%	

*2021 Q4 - High end of outlook

Rev Growth QoQ%

Year	Q1	Q2	Q3	Q4
2020	5.0%	5.7%	5.4%	7.8%	
2021	7.0%	10.9%	6.73%	7.21%	

For Q2, Q3 2021 beats were $5M and $2M respectively over the top end. So a meet or even a slight beat will put them on par with the modest acceleration trend they have had this year.

Gross Margin%

Year	Q1	Q2	Q3	Q4
2019	51.2%	51.7%	52.6%	52.3%	
2020	52.4%	54.2%	54.3%	55.8%	
2021	57.7%	58.2%	61.1%		

Gross Margin trend is up and to the right. Given their hosting service provider and not pure SaaS like say CrowdStrike, they probably will never have 80%+ margins.


Year	Q1	Q2	Q3	Q4
2020	25.3%	31.0%	32.5%	30.9%	
2021	32.6%	30.1%	32.7%	

Stable Adj EBITDA margins around 30%+


Year	Q1	Q2	Q3	Q4
2019	519	531	536	542	
2020	546	554	559	572	
2021	585	602	598		

Customers QoQ%(k)

Year	Q1	Q2	Q3	Q4
2020	0.6%	1.4%	0.9%	2.4%	
2021	2.1%	2.9%	-0.6%		

Given their target market and being around for about a decade already, it appears they have hit a ceiling in customer growth which puts a cap on their revenue growth as well. And they explained this last Q dip in customer count “The slight sequential decline from Q2 was the result of our implementing enhanced security protocols to remove certain low-value customers from our platform.” which I thought was a reasonable explanation given the nature of their customers but if it doesn’t jump back up to positive next quarter, it will be time for me to let them go.

Their ARPU, DBNR were accelerating in the last year or so which is helping them post some modest acceleration in revenue.


Year	Q1	Q2	Q3	Q4
2019	37.8	39.2	40.5	42.8	
2020	44.6	46.4	48.5	51.2	
2021	53.6	58.0	61.9		


Year	Q1	Q2	Q3	Q4
2019	100	101	100	100	
2020	101	102	104	105	
2021	107	113	116		

Thanks again and happy new year to everyone.