Valuation evaluation

[PaulWBryant]

The two most rec’d posts on this board in the last couple days both address valuation:
https://discussion.fool.com/austin-truly-respect-your-approach-a…
https://discussion.fool.com/none-of-that-stuff-will-matter-if-we…

If you’re one of the apparently many people on this forum who are interested in valuation, please make sure you understand the conversation at this far less popular thread:
https://discussion.fool.com/fcf-is-the-future-34323092.aspx

And since people are interested, here are my thoughts on valuations for my favorite stocks. I’d be interested to hear if anyone has reasons they agree or disagree that they think I may be missing.

SMAR’s PS is at about 19 right now. It’s also only a 4.3 billion dollar company. I think it should sustain 50% growth for a while, so I think this price is more than fair.

MDB is at 19 as well. It’s been a better than 50% grower, even 60%+ sometimes. I think this is a bargain.

TWLO’s PS is 17. I think it was over-priced at 25, because I think it will be a maybe 40% grower after the next couple quarters. But at 17, it’s nearing bargain territory. And here’s the thing: after it reports next week, its PS will be about 15 (before any bump in share price).

ESTC’s PS is at 17.5. It is growing at roughly 60%, and I think it will stay close to that for a while, and certainly above 50%. This is a bargain.

AYX is at 20.5. It is growing at roughly 60%, and I think it will stay close to that for a while, and certainly above 50%. It should also get a bump over ESTC because it is already profitable, and has the best Gross Margin I’ve seen. So this is close to bargain territory. Before any share price bump, its PS will drop to about 18 next week with earnings.

CRWD is at about 28. But it is growing at 90%+. I actually think it will do that for at least a few more quarters, so this is a bargain.

PINS has a PS of only about 16. With 60%+ growth, that’s a steal. The only thing is, I’m not confident about their future growth trajectory. It’s only just gone public. Still, there’s a lot of upside here.

I’m not sure DDOG (PS now under 30) is in bargain territory yet, but it’s gotta be close. The future growth rates for ZS and TTD are unclear to me, but neither seem expensive. If anyone feels strongly about their valuations, let’s hear why.

Hope this is interesting. Times like these may not be fun, but they can give us some great opportunities if we know where to go shopping. I added a bunch of CRWD yesterday.

Bear

[GauchoRico]

And since people are interested, here are my thoughts on valuations for my favorite stocks. I’d be interested to hear if anyone has reasons they agree or disagree that they think I may be missing.

Bear,

You ask for an opinion on what you may be missing. I think you are anchoring to the recent highs. These high EV/TTM Sales ratios have only been around for a relatively brief period. We have gotten used to them over the past year. If you go back further as I did with my analysis of CRM you will notice that we never had EV/TTM Sales above 17.6 (and that was when CRM was an 80% revenue grower AND it had FCF that 25% of revenue on a TTM basis!!!). Most of the time when CRM was a 50-80% grower, which was a period spanning 4 years, its ratio was between 7 and 12. Now with the benefit of hindsight, we know that CRM was one of those home run companies. So if the companies that are now trading at EV/Sales of 15-17 will become home runs then they will still good investments in the long run. Some of them may be home runs, others may not. But using history as a guide, these fast growers dropping to EV/Sales of 8-12 is not completely out of the question. No one has a crystal ball.

I am still analyzing the CRM numbers and plan on posting a comprehensive analysis once I’m done.

Chris

[PaulWBryant]

If you go back further as I did with my analysis of CRM you will notice that we never had EV/TTM Sales above 17.6

And it was a bargain the whole time! It’s up like 14x in the last decade. Are you saying that it was overvalued at a PS of 18?

I think you are anchoring to the recent highs. These high EV/TTM Sales ratios have only been around for a relatively brief period.

I’m not anchoring to anything. Here’s my thinking: A PS of 10 correlates to a PE of ~33 for a company with a 30% net margin. A PS of 20 correlates to a PE 66. That seems like a pretty reasonable range for companies that are growing at 50% or 60%…and downright cheap for companies that are growing at 90%.

If you are to say that, "Well, they’re not spouting off 30% net margins (or FCF margins) yet, yes I agree completely. But we don’t want them to! We want them investing back in their businesses and sales teams, and continuing to grow as rapidly as possible.

What am I missing?

Bear

[Capitalism]

“I think this is a bargain” “I think this price is more than fair.”

This is the problem I see here–what is this statement based on? Is it that these stocks traded at 25 or 30x multiples a few months ago, so now 19 is a “bargain”?

I’ve done this a long time and each time I hear investors say “this time is different”, I cringe. Software stocks have historically traded at a 12-13 TTM P/S multiple (I took the average lifetime P/S multiple for CRM, WDAY, NOW, ADBE, VEEC, PAYC, and TEAM). I have yet to see a compelling argument about why today’s SaaS companies should trade at 50+% or in some cases 100-150+% times that multiple. What is REALLY so different about SaaS vs. traditional software companies? Yes, cloud delivery presents efficiencies in deployment. Fine. The recurring subscription is a little more favorable than getting customers to sign traditional annual or multi-year licenses. Agree. But do either of those differences really warrant such a premium to what software companies historically have traded at? Software has always provided a nice ROI–that’s why customers purchase it–to increase productivity and/or cost-savings & efficiency. Lastly, as Chris has touched on in his recent posts, mature companies like CRM have grown in the 50%+ range for long periods of time, but they still never traded at the types of multiples we saw for many of the Saul favorites. You say a 19 P/S ratio is a “bargain”…but what really is so “different this time” to warrant that substantial premium valuation vs. historic software company multiples?

I can make an argument why today’s high-growth SaaS companies face a much tougher environment to compete in compared to companies like CRM, WDAY, NOW that came to dominate their markets starting 5-10 years ago:

1. The “easy money” monetary policy of this day has caused a bubble in VC funding (look no further than WeWork, but it spans much wider than that). This means it is VERY easy for any start-up looking to disrupt or compete with one of today’s SaaS solutions to get funding. That has historically not been the case, at least not as egregiously as it is now with record low rates.
2. The number of software developers out there has boomed in recent years as supply has started to catch-up with demand. The labor/expertise to build software is easy to find. Again, not so much the case a decade ago.
3. The sheer level of developer tools and APIs makes it much faster to bring products to market. Time to market for new software is multiple times faster than it used to be. What took 1-2 years to build now can take 3-6 months.
4. Traditional software companies like CRM or WDAY were going up against 1 or 2 slow-moving legacy vendors. The number of competitors out there today, public and private, has exploded for reasons 1-3 above.

[thejusticier]

Salesforce has been a pioneer. Its ‘lower’ valuations throughout its public history may be due to being the first, and most did not value its stock as highly as they do today this sector simply because they never saw such a thing before. I recall back in 2007 Ellison was laughing at the ‘Cloud’ and somehow dismissing its budding importance. That was more than 12 years ago. In the interim ‘Cloud’ became a big thing and Salerforce turned out to be an investment of that age.

Like you said, in hindsight people see the strength of this business model and this sector and have been more willing to pay up for such a thing in part because of the success of Salesforce. They will be on the hunt to find the next ‘Salesforce’ or the next ‘Google’, or the next ‘Amazon’ etc…That search could lead to new green fields or it could just become crowded. In the latter case, there will be a time when everything in that same sector is bid up. Then there will be a reckoning. Only the better ones will succeed. We are still in that period. Some will become duds and some will become the settlers and they will command new vistas. But it is very difficult to see which is which. Looking at quarterly growth is like focusing on one tall tree in the forest and be awed by it while maybe the forest around it is burning. Time moves on and other things come to fore.

tj

[PaulWBryant]

You say a 19 P/S ratio is a “bargain”…but what really is so “different this time” to warrant that substantial premium valuation vs. historic software company multiples?

You probably posted this before you saw my response to Chris, but it’s CRM etc that are exactly why I call these companies bargains. Chris said CRM’s multiple got to ~18. And I think it has been a bargain all along the way!

So I’m not saying, “it’s different.” I think these companies may have CRM type potential, and it would have been a great buy at a PS of 19. Just because in the past you could have gotten it for less than that…isn’t relevant. Unless you have a time machine?

Bear

[GauchoRico]

And it was a bargain the whole time! It’s up like 14x in the last decade. Are you saying that it was overvalued at a PS of 18?

In hindsight (knowing that it would become what it became) it was not overvalued and a bargain. Why did CRM not trade for more back then with such great financials and growth? I guess it wasn’t know then how big and successful it would become. We are not 100% certain that our SaaS companies will become the next CRM.

If you are to say that, "Well, they’re not spouting off 30% net margins (or FCF margins) yet, yes I agree completely. But we don’t want them to! We want them investing back in their businesses and sales teams, and continuing to grow as rapidly as possible.

What am I missing?

What I can say is that as a $100M revenue company in 2004, at the time it went public, it was growing revenue in the high 80%s range AND was generating 18% FCF of revenue AND its EV/Sales ratio never ever got above 17.6. So CRM back then was a better company than our SaaS companies of today because our companies throw off less cash to grow revenue at a similar or lower rate.

What you are missing is that if we look at historical EV/TTM Sales ranges for a comparable company then we have a lot farther to fall (possibly) to hit even the top of that historical range. Now, if we are certain that our SaaS companies will grow into CRM-like behemoths then, yes, they are a bargain. The companies that can’t become behemoths may not be bargains yet.

Now in the period of 2004-2006, we also had the Fed aggressively raising short term interest rates (1% up to 5.25%) which would depress the EV/Sales ratios. So perhaps they deserve to be higher in today’s environment.

What am I doing? Well, I am 100% invested (except for cash that I need for the next 2 years) in these SaaS stocks. I am sitting tight and watching. If prices on these stocks drop another 20-30% then I will start using my living expense cash and going on a rice and beans diet. I’d like to see EV/TTM Sales (depending on the company of course) drop to 12-13 before I begin leveraging. If they don’t fall that far, I expect to fully recover to my July 26, 2019 peak within 1.5 - 3 years. When I read your initial post of this thread, it seemed like you were saying that people would be smart to buy these companies now. I thought you posted that you have deployed all of your cash which would mean that you have begun to leverage now. Again, my main point is that looking at the best available comparable company AND knowing in hindsight it became what we hope AYX, MBD, OKTA, and ZS will one day become, we are not even at the top of the historical valuation range from 2004 through 2017. So at this point, I am of course not selling but I am not comfortable leveraging yet. Somebody posted the other day that they might mortgage their house to buy more. I say they should at least look to history to see where a similar stock traded of an extended period of 15 years.

Chris

[mauser96]

Most software has a limited life span. Before too long it is replaced by something just about as good but cheaper, or something better. There are exceptions ,but most of the software products that hang around for decades are true platforms like Windows , Android etc. Because pure software seldom has any lock in patents like Polaroid or Xerox or ISRG. Patents primarily on the hardware that enables the company to sustain a virtual monopoly for years.
The rate of change in technology continues to increase. And Capitalism is right, nearly free capital is bound to create more competitors. For centuries the world was restrained by expensive capital, near zero interest rates are bound to have a big impact. Perhaps the shortening life span of companies staying in the SP 500 is evidence of this trend.
The idea sticks in my throat a bit, but the prices we were paying at peak for many of these companies does seem a bit bubble like.
But that was then, this is now.
For sustainability something resembling a platform would be nice ,so at near present prices I like TWLO . But I don’t like anything enough to bet my retirement on it.

[remmdawg]

Salesforce has been a pioneer. Its ‘lower’ valuations throughout its public history may be due to being the first, and most did not value its stock as highly as they do today this sector simply because they never saw such a thing before. I recall back in 2007 Ellison was laughing at the ‘Cloud’ and somehow dismissing its budding importance. That was more than 12 years ago. In the interim ‘Cloud’ became a big thing and Salerforce turned out to be an investment of that age.

Like you said, in hindsight people see the strength of this business model and this sector and have been more willing to pay up for such a thing in part because of the success of Salesforce. They will be on the hunt to find the next ‘Salesforce’ or the next ‘Google’, or the next ‘Amazon’ etc…That search could lead to new green fields or it could just become crowded. In the latter case, there will be a time when everything in that same sector is bid up. Then there will be a reckoning. Only the better ones will succeed. We are still in that period. Some will become duds and some will become the settlers and they will command new vistas. But it is very difficult to see which is which. Looking at quarterly growth is like focusing on one tall tree in the forest and be awed by it while maybe the forest around it is burning. Time moves on and other things come to fore.

tj

CRM may be the best example for the best longer term perspective here. Just over 10 years ago, it suffered a 75-80% decline in the 20008 meltdown and was about the same enterprise value/market cap that AYX is at today (after a lesser 40% decline). Since then it has risen about 2600% (about 35% annual return compounded. That’s also still a rise of about 600% (about 19% annual return compounded) from the peak just prior to the 2008 meltdown.

That’s why the market should probably pay a little more for some of these stocks today. And why some of these might be screaming bargains, regardless of the exact P/S today.

Dave

[iyu]

I take a different angle to compare our stocks with large cap software companies such as Microsoft. I think their present-day valuations serves a better benchmark for comparison. (I pulled the data from Yahoo Finance assuming the data is accurate.)

MSFT PS(8.49), YoY Growth rate (12.1%)
ORCL PS(4.53), YoY Growth rate (0.3%)
INTU PS(9.89), YoY Growth rate (15%)
ADBE PS(11.86),YoY Growth rate (23.7%)

Except ORCL, these large slow-growing software companies are trading above PS ratio 8.

Since our companies are growing north of 50%, more than two times faster than any company of above, the PS ratio of our companies should be priced much higher than “between 7 and 12”.

Even our stocks may not be a complete bargain, but they are definitely reasonably priced for investors to participate in their long term growth.

[XMFBreakerTinker]

May not be the bottom, but can anyone give me a reason why Alteryx is not going to continue hyper-growth with all its sales drivers? Many of them are just automatic these days, Fortune 2000 adopt even faster and just starting to focus there and so on.

Based on this, current year $380 or something, say what you will about that. What about into 2020? A large deceleration down to 40% growth (doubt it, but lets go there) we are at 10x ttm when we start 2021. At the margins that Alteryx has, that is the 33 pe and still growing rapidly.

At this point I’ll take it, go watch the Vikings play on Thursday night and not over think things. Earnings at the end of the month.

Possible that thousands of companies will decide they can no longer afford to expand into more seats or upgrade to server, or whatever. Data just is not that valuable and we can handle it all with Excel. Or maybe not.

In this instance time is on our side. I did use money from Zscaler to do so. Zscaler is more speculative at present. Alteryx sales cycle is almost on automatic and cannot help but grow despite itself even. Zscaler has a more complex sales job that is not automatic.

Fascination with the product or not, don’t fall in love. Invest where your money will get the best risk/reward. In my mind better in Alteryx and Zscaler at the present.

Valuation serves as a risk/reward indicator in my opinion here. No need to compare multiples as that seems a fruitless enterprise to me. Take a look at absolute valuation based upon the risk of a company not hitting a Nutanix or Cloudera or Talend like wall.

Tinker

[tamhas]

Why did CRM not trade for more back then with such great financials and growth?

I think one of the simple reasons would be that the market did not have prior experience of the kind of growth a SaaS company could sustain. Now, we have that experience and so are willing to pay more for it.

[addedupon]

As Chris and others here intimate, and as Warren Buffett uncharacteristically warned in a series of famous speeches during the 1999 Internet Bubble, investors often lose while trying to ride a tech revolution because it is very difficult to identify the eventual winners.

Yahoo!, AOL, Lycos, Netscape, and even more hardware companies such as Commodore, Wang, Nokia, and Blackberry might have well looked like their rapid growth would endure far longer than it actually did.

OTOH, Amazon, Qualcomm, CSCO, MSFT, AAPL, Priceline, and others, survived through the Y2K crash and continue to flourish.

There is little doubt that the majority of our favorite high growth, cloud, SAAS, subscription, companies of the past 2 years will underperform considerably. But a few will likely become big and successful.

My immodest hope/expectation (hubris?) is that i can escape the downside results predicted by Buffett in 1999 by investing in a few unrecognised giants. i.e people endowed with the kind of true genius who brought their companies through the storms, and inclined with the exceptional executive acumen necessary to rebound and rebuild into great companies that serve society better than ever. People like Bezos, Gates, Jobs and the few who have come along after them.

Over 20 years, so far so good, though there have been a few scary moments. Today is one of them, though not the worst of them. Twice over 20 years, i have suffered 50% losses, then recovered more quickly than expected.

Among the cloud stocks discussed here, i’m invested in the leadership of ROKU, RNG, AYX, TTD, APPN, ANET, PEGA, and WIX. These companies IMO, are led by brilliant people and proven executives who have the capacity to manage much more complexity, and who are shareholder friendly.

Looking at others. Wish i understood PANW and ZS technology better. Both companies are well led.

FWIW

[XMFBreakerTinker]

That’s why the market should probably pay a little more for some of these stocks today. And why some of these might be screaming bargains, regardless of the exact P/S today.

The market is all or nothing. It either sees stock growth 3 or 4 years in the future (as it was doing recently), 5 to 10+ years (in bubble such as in the internet bubble), or as if the world is ending and 6 months to 1 year or less or even negative (as it presently is doing).

Since Alteryx is the company I just looked at, as announced, I will use that as an example. The market is valuing Alteryx as no more than 1 year forward (either that or dramatically declining growth rate in a manner like Nutanix sort of thing).

I am happy to hold stocks either way if they have sufficient CAP as what happens in the interim will eventually take us to the same end point.

However, when the market is looking at a stock likes Salesforce (historically), or even Palo Alto in 2012, Twilio in 2017 (with its crash from $60s to $20s), and as it is doing now to Alteryx, what is the big controversy? You cannot wait 12 months for the business to grow into its fundamental value with ZERO years thereafter built in absent a real and dramatic sudden business decline?

Absent some fundamental reason about the business, or catastrophic economic turn, what is controversially at this point in time? {Gonna wait for the bottom. Great, let us know when that is.}

Tinker

[NajdorfSicilian]

Hi Paul, I have a quick question for you:

AYX is at 20.5. It is growing at roughly 60%, and I think it will stay close to that for a while, and certainly above 50%. …and has the best Gross Margin I’ve seen. So this is close to bargain territory.

I’m going to use the comparison of AYX to Adobe. Both have basically the same astronomical gross margin [85-90%!].

Both companies dominate their markets. Nobody dominates their software market like Adobe.

AYX is certainly growing much faster. 59% and slowing versus 24% [but accelerating from their 5-yr average] for Adobe.

AYX is trading at 320x FCF, which presumably will drop after they report versus 34x for Adobe [same].

Why is AYX in/close to bargain territory and Adobe not so? Or are they both and you just prefer AYX with its higher valuation?

best,

Naj

Long ADBE, wish I had been long AYX the past year

[foodles]

addedupon,

There is little doubt that the majority of our favorite high growth, cloud, SAAS, subscription, companies of the past 2 years will underperform considerably.

I agree with some of the points in your post, but completely disagree with the above statement. I know you followed it with But a few will likely become big and successful, but what you’re stating is a more likely outcome with a random section of 10 stocks or a portfolio of more than 30-50 stocks. With a random selection, a couple will be huge losers or go bankrupt, a couple will be huge winners that will carry your portfolio (like the Fool proves), and most will fall in between and have average market returns.

I contend the stocks discussed here will perform better based on the fact that we’re not randomly selecting companies, or becoming too diversified where you can’t get better than market returns (took me awhile to learn this one), but we instead have a very select basket of stocks that have been crowd-sourced and crowd-vetted by many, many, very smart (much more savvy than me) investors on this board.

We also are not married to the stocks we’ve chosen (the one downfall I feel the Fool has, rarely selling), if they start to show more pedestrian results, we can/will get rid of that company from our portfolio.

I’m not making any prediction that our stocks are done falling (today was another tough one), but I agree with many here that even if they just hit their expected growth rates, these stocks are gaining more and more potential the further they fall. As the next few quarters reports come out, with the rates they’re growing, the prices will eventually start to rebound (barring some unforeseen macro catastrophe).

[FourthStooge]

The recurring subscription is a little more favorable than getting customers to sign traditional annual or multi-year licenses. Agree. But do either of those differences really warrant such a premium to what software companies historically have traded at?

I’ve been negotiating enterprise software contracts for over 20 years now, and there are a lot more benefits to today’s SaaS model when compared to traditional annual sales or multi-year licenses.

First, our companies today have put their ongoing business on autopilot. As long as they continue to deliver value and strengthen their platforms, customers won’t want to leave.

Traditional sales models were built upon contractual lock-in, which led to a lot of unintended consequences. So our companies today don’t have a lot of bad incentives built into their business. They focus on taking care of their customers and not on leveraging their contracts.

Old school software companies spend a lot of time, effort and costs with contracts and revenue recognition. Our new companies chose not to do this. Also, highly negotiated contracts leave a lot of bad Ts & Cs that make both sides feel as if they got screwed on the last deal. Generally, our companies don’t have this level of customization of their contracts.

In my opinion, I think that these features are understated and make a significant difference in the long run, maybe even a 50% premium on the P/S ratio.

Naturally, it sucks seeing our companies get whacked like this. But we at least have an opportunity to buy at a better value point. I also have no doubt that greed will return. As long as our companies execute, we’ll profit a lot when it does.

DJ

[12x]

I contend the stocks discussed here will perform better based on the fact that we’re not randomly selecting companies, or becoming too diversified where you can’t get better than market returns (took me awhile to learn this one), but we instead have a very select basket of stocks that have been crowd-sourced and crowd-vetted by many, many, very smart (much more savvy than me) investors on this board.

We also are not married to the stocks we’ve chosen (the one downfall I feel the Fool has, rarely selling), if they start to show more pedestrian results, we can/will get rid of that company from our portfolio.

I run across people who seem to fall in love with every single fast growing SaaS company out there. So where’s the discretion? How are you truly picking the long term winners if you are going with every one? It is extremely unlikely that 1 out of 10 SaaS companies, if that, are the next CRM.

As for valuation on CRM in 2005, or only trading at 18x sales, first off, that’s where a lot of the high growth SaaS companies are at now, so I don’t see the problem. And like others have said, if ADBE trades at 12x sales and growing at 23% a year, but MDB is trading at 18x sales growing at 50% plus, I really do not see the problem!

Here’s an interesting one for you. In my research dating back to the sixties, I have found growth stocks simply traded at much lower levels than they do now, even after t his fall. But that is a trend that has been going on for decades. Sensitron, a transistor company growing at over 50% annually, traded at a PE ratio of 3 at the bottom of the 1962 bear, then went on to go up over 10x within the next few years.

Take a look at this abstract I found for Microsoft going public:
[Bill] Gates had thought longest about the price. Guided by Goldman
[Sachs], he felt the market would accord a higher price-earnings multiple to
Microsoft than to other personal computer software companies like Lotus or
Ashton}Tate, which have narrower product lines. On the other hand, he
argured the market would give Microsoft a lower multiple than companies that
create software for mainframe computers because they generally have longer
track records and more predictable revenues. A price of roughly $15, more than
ten times estimated earnings for fiscal 1986, would put Microsoft’s multiple
right between those of personal software companies and mainframers.
2By the end of the "rst day of trading,2Microsoft’s stock stood at $27.75.
(Uttal, 1986, p. 26, describing the Microsoft initial public offerring).

This is consistent with what I heard, that MSFT traded at roughly 20x earnings as a new company back in 1986. Microsoft had revenues of $198 million in 1986. $346 million revenues in 1987. That’s 74% growth. For a company that went public at a PE ratio of 20.

I attribute this to not that we should expect the next MSFT to go public at 20x earnings while growing at 74%, I attribute it to the fact the market has become more efficient at valuing companies.

Now we have DDOG going public at 50x SALES, which suggests what, say 200x earnings? Same for ZM and Crowdstrike. And DDOG is sure no MSFT.

The days of the next MSFT going public at 20x sales are over. First off, there have been multiple books written that describe how to find the next MSFT, that people simply did not know about back then. I know that the abstract above was not a thesis on why MSFT should be valued what it was at it’s IPO, but we all know that a “broader product line” is not what gave MSFT it’s power. Thinking was just different back then. And it’s only going to get harder as time goes on. The market is becoming more sophisticated at valuing companies. It’s no easier for value investing. Benjamin Graham made 20% a year by buying companies trading at less than their short term assets. Good luck trying that today.

On one hand I felt that ZM, DDOG, and CRWD are still too high valued. I simply do not buy 50x revenues for falling growth rate companies. OTOH for a 50% grower maintaining that growth, at 20x revenues, I do not see a problem. I just don’t, especially in 1-2 years it will have the same P/S ratios of large, slow growing companies (and no I don’t look at valuation in isolation, I try to get the most differentiated/large TAM companies).

At the same time, valuation is not going to tell you where the floor is. Or the peak. You may be able to say “stocks are kind of high” or “they’re pretty cheap” but at no point does it help you as to when to load up on margin or lay off the margin, or where tops or bottoms are.

What we may get back to out of this, is a return to some kind of normalcy. Not videoconferencing companies going public at 50x sales.

[hmcproperties]

addedupon,

Agreed. With the exception of RNG and PEGA, I too own those stocks with part of the thesis being great leadership and invested founders:

APPN - Matt Calkins - 46% ownership
ANET - Andy Bechtolsheim - 17% ownership
TTD - Jeff Green - 16% ownership
WIX - Giora Kaplan - 1.3% ownership only (a bit of an outlier)

ROKU - Own, would have to do my research here
AYX - Own, would have to do my research here

A few you don’t mention that own under the same thesis:

EPAM - Arkadiy Dobkin - 5% ownership
TEAM - Cannon-Brookes/Farquhar - 50% ownership, but 90% voting
ESTC - Shay Banon - 13% ownership

[PaulWBryant]

AYX is certainly growing much faster. 59% and slowing versus 24% [but accelerating from their 5-yr average] for Adobe.

AYX is trading at 320x FCF, which presumably will drop after they report versus 34x for Adobe [same].

Why is AYX in/close to bargain territory and Adobe not so? Or are they both and you just prefer AYX with its higher valuation?

I never said ADBE isn’t a bargain. 24% growth doesn’t sound very great, but accelerating sounds nice. Why don’t you write them up for the board, Naj? I’ve heard of Flash and Acrobat but I don’t know how much money they make on enterprise versions – I think I’ve only used the free versions.

Bear