Vinegar101's 2020 Year End Portfolio Review

Thank you Saul and everyone on this board for contributing such intelligent content and helping me learn so much the past couple years. As I’ve said before, I would have never had the confidence to own concentrations of high growth software stocks if it weren’t for the incredible generosity, logic, and reasoning that permeates this board. Before Saul’s board, I had 60 or 70 positions and would only beat the market by a point or two on a good year.

Quick reminder that my name changed from Vinegar101 to ExponentialDave. Due to my job, I have not been able to do a monthly portfolio update since August! I decided instead to contribute when I could by doing a few transcript summaries, with a preference towards good companies that aren’t covered as much here, such as SHOP and TDOC.

Regarding my monthly results (ytd perf by month):
January 2020: 15.2%
Feb 2020: 16.5%
Mar 2020: 8.6%
Apr 2020: 36%
May 2020: 76%
Jun 2020: 122%
July 2020: 158%
Aug 2020: 168%
Sep 2020: 208%
Oct 2020: 188%
Nov 2020: 221%
Dec 2020: 224.5%
Jan 2021: 6% as of writing on 1/16/2021

Cumulative % Gain Since Converting to the Saul Method: 245%. Thanks Saul!!!

Worth mentioning is my low point: in mid March 2020 I was down about 22% YTD during the worst of it. My biggest peak to trough though was in October, when my portfolio was up as much as 255% YTD, but then dropped down to being up “only” 162% YTD. I lost almost the entire starting value of my portfolio (as of Jan 1) but then gained a lot of it back to finish November up 221%. My all time high was in December at 262%.

I think it’s interesting how utterly jaw dropping my first nine months were. And it’s worth noting how uneven gains are spread out throughout the year. I know most people know this, but it really illustrates why it’s important to remain fully invested if you can – you just risk missing out on a lot of gains if you’re not invested 24/7 365.

And it’s also worth noting how lackluster my final 3 months were. My biggest winners became drags on my portfolio, such as Zoom dropping 30%-40% of its value and my LVGO shares not really moving (which I fully let convert to TDOC shares).

Also, did you guys know that Warren Buffet’s best annual performance was 129% in 1976? I would never try to say that one year of insane outperformance makes us here on Saul’s board better than Warren Buffet, but it is a fun goal to strive for.

WCLD is my benchmark of choice which is comprised of a lot of my top holdings, such as ZM, SHOP, DDOG, CRWD, etc. WCLD ended November at $53.59, and it began the year at $26.11, a gain of roughly 105%. . IGV and CLOU are also possible benchmark candidates, and they didn’t do nearly as well as WCLD.

The Nasdaq finished the year up 44%, meanwhile, the S&P 500 finished up 16%.

Previous Monthly Updates:…………

Highest Conviction: CRWD
Second Tier Convictions: DDOG, NET, ZS, SNOW
Chopping Block (Positions I either did partially sell or am considering selling to some degree): FSLY

Basically that third tier is consisting of positions where the pandemic has particularly clouded my ability to tell what revenues are going to do after the world gets vaccinated. The bear case for them is that the low hanging fruit is gone, and the law of large numbers is going to make it incredibly hard to keep revenue growth at current levels. Of course, large numbers of people are not going to go back to physically signing documents, they won’t stop using telemedicine, they won’t stop using zoom, but *that’s not good enough *. We need *new customers to decide to start doing so. And lots of them.

CRWD 27%
DDOG 13%
TDOC 13%
NET 12%
DOCU 10%
ZM 8%
ZS 4%

Some may notice that some 3rd tier convictions are weighted more heavily than 2nd tier convictions. This is due to various tax consequences, and I also in general don’t quickly sell out or buy into anything. I like making 1% moves at a time, as in neither buying nor selling much more than 1% of my portfolio at a time.

I bit the bullet and bought a small snowflake position, despite its massive valuation. It just seems like it’s established itself as a company that can clearly become one of the greatest of our time. And unlike many of our other companies which benefitted greatly from the pandemic, it is hard to say that Snowflake’s growth is attributed to the pandemic. Snowflake advertises itself to shareholders as “not a SAAS company” because 93% of their revenue is consumption based.

Huge credit here must first go to Muji and the incredible content he has posted on HHHypergrowth ( I have paraphrased some key takeaways into my own words below to help myself understand it better and also lifted some material from Snowflake’s S-1.
Snowflake is a Database as a service provider, like MongoDB in that regard. One of the key facets of Snowflake is that it separates “storage” from “compute”. You can think of this as a “pile of data” and “ability to do stuff to that data”, respectively. Also key to Snowflake’s dominance is its support of the 3 major cloud vendors – Amazon, Microsoft, and Google. Additionally, Snowflake’s value grows with the amount of data it handles – it allows customers to scale their usage and be billed accordingly. And lastly, Snowflake makes it incredibly easy for customers to trade data amongst each other and outside users.

From Muji on Snowflake’s key usages: “it can be a data warehouse, a data lake, an enterprise-wide search or analytical engine, a cloud-native database to develop data-driven applications on top of, a collective pool of shared data across a partnership, and a marketplace for monetized data access.”

Below ordering is always most recent to least recent:
YoY Rev Increase: 119%, 121%, 147%, 137%, 151%
QoQ Rev Increase, 20%, 22%, 24%, 21%, 22%, 36%, 19%, 28%
Next Rev Retention Rate: 162%, 158%
Adjusted GM: 70%
RPO growth QoQ: 35%, 47%, 10%, 56%
Enterprise Customers (>1mm in rev) by quarter: 65, 56, 48, 41, 31, 22
In the prior twelve months that ended on July 31, 2020, these customers represented 46% of all revenues.
Total Customers by quarter: 3554, 3117, 2720, 2392, 1934
Total Customers Increase % QoQ: 14%, 15%, 14%, 24%

On the one hand, TDOC rev growth was stellar last year. The million dollar question, that is never truly known for any of our companies, is what will it be next quarter and next year?

It is forecasted to grow at 6% QoQ – they very modestly adjusted estimates only a few days ago. So, perhaps the odds of a huge beat just went down substantially. I would have thought that with the explosion of covid in Q4, there would have been a higher demand for telemedicine. But if TDOC only barely raised their guidance a few days ago, seems maybe I was wrong. The correlation between TDOC revenues and rising covid threat seems much diminished from earlier in 2020.

Seasonally, Q4 tends to be strong. In 2019 quarterly growth was 13% for Q4, and in 2018 it was 11%. An average beat over the high estimate of revenue going all the way back to Q3 2018 is 2.1%, so if we factor that in we will see TDOC revenues organically (without LVGO) growing at 8% QoQ.

TDOC estimated growing in the 30%-40% range for all of 2021, and they gave that estimate before the public had knowledge of the merger. TDOC has always beaten on revenues, so whatever number TDOC is comfy with, rest assured they will probably do better than that. If TDOC “only” grows at 30% next year, maybe I will reconsider my position, or maybe it will still be worth owning. If it does much better than 30%, which I suspect it will, then it’s a solid growth stock.

Revenue yoy growth trend (most recent quarter first): 108%, 85%, 40%, 27%, 24%, 37%, 43%, 59%, 61%, 111%, 109%, 115%
QoQ rev growth: 19.5%, 33%, 16%, 13%, 6%, 0.7%, 5%, 11%, 17%, 5.5%, 17%

Building a secure, fast, and reliable internet. I think I can oversimplify the investing thesis for the non techies here into a few key points: accelerating revenue growth, steadily increasing customer count, high margins, and improving profitability.

Cloudflare yearly revenues (2019 first), $287, 193, 135, 85
Revs (Q3, Q2, Q1): $114.2mm, $99.72mm, $91mm
Rev growth trends (quarterly yoy, most recent first): 54%, 48%, 47%, 51%.
QoQ Rev growth: 14%, 10%, 8%, 14%, 10%, 8%, 12%, 11%
Guiding rev to 118.5mm for 4th quarter, represents 4% sequential growth Quarter over Quarter.
ExponentialDave: This guidance sounds quite conservative to me. If they do only grow 4%, it will be 50% lower than their lowest quarterly sequential growth ever.
N-gaap Gross margin (Most recent first): 77%, 78%, 79%
Non gaap net loss (most recent quarter first): -5.7mm or $0.02/share, -9.6mm or $.03, -12.3mm or $.04. , -18mm or $.06
Ended q3 2020 with $1.1bb in cash

Total paying customers: > 100k at end of Q3 2020
736 customers spending >100k: added 100 such in Q3
Large customers accounted for 47% of spend
Total customers: 2.6mm at end of 2019 (includes non paying)
49% of customers are from outside of the U.S.

They are guiding for revenue growth of $164mm, which would be 6% sequentially or 44% YoY.

Looking purely at the YoY revenue numbers, you would think that DataDog is going downhill fast. But Saul made an excellent post about how the reason for their current underwhelming revenue numbers is mostly due to a single bad quarter (looking at you, Q2 2020). So now DataDog’s revenue is growing off a lower base. Sequentially, we can see that indeed Q3 (10%) was much better than Q2 (7%). That is almost 3% is the difference between 10 and 7, and 3 is about 43% of 7. Looking at it that way, Q3 was 43% better than Q2.

Anecdotally, I switched jobs seven months ago, and my new company is in the process of adopting DataDog. I got to watch a very impressive demo from DataDog sales people. Additionally, same as my old company, people who I find to be very competent have very high opinions of DataDog.

Quarterly Revenue growth YoY(most recent first): 61%, 69%, 87%, 84%, 88%
Quarterly Revenue growth QoQ: 10%, 7%, 15%, 19%, 16%, 19%

After Zoom published their most recent quarterly report, I wrote that Zoom revenue growth had “fallen off a cliff”. Perhaps that was a melodramatic statement to make. Or was it?

My argument then, which I still think is valid, is basically that Q2 was comprised of 3 months that averaged out to 178% growth sequentially. How bad was sequential growth in the final month of Q3 then? Imagine if the first month of Q3 had growth anywhere near 178%, that means that for the final number to come out to 17%, growth must have been substantially below 17%. Heck, maybe it was even negative.

Of course, on the bright side, it is technically possible that growth for Q3 was 17% in each of the 3 months, however unlikely it may be. My general point stands though – I think there is reasonable chance that growth is much slower than 17%. If it’s a bit slower than 17%, then I am writing a few paragraphs about nothing :slight_smile: But if it is much lower than 17%, say it is 5%, then Zoom is clearly no longer in hyper growth and no longer worth holding.

One counter argument to the above logic is with regards to enterprise customer growth accelerating the past 3 quarters. The logic goes that if they continue to sequentially accelerate among enterprise customer adds, then overall rev growth will stabilize instead of continuing to plummet. I hope this ends up true, since I still own a decent amount of Zoom and always want people to succeed around here, but it looks like maybe the biggest growth driver might have actually been the surge in customers with just 10+ employees as opposed to enterprise customers. Again, this is just my interpretation, and if I’m misreading something or you have a different opinion, I’d love to hear it. I guess the question I’m asking is, is revenue growth correlated more strongly with enterprise customer growth or with customer 10+ revenue growth? In general, common sense says it should be correlated more strongly with enterprise customer growth, but based on the data below, it is less clear to me.

Customer Growth (QoQ)(10+) starting with Q3 2020: 17%, 39%, 224%, 11%, 12%, 13%
Enterprise Customer Growth (QoQ)($100k) 30%, 28%, 20%, 17%, 17%, 15%

Revenue growth rate yoy (most recent quarter first): 365%, 354%, 169%, 77%, 85%, 94%
Revenue growth rate quarter to quarter (most recent first): 17%, 102%, 84%, 14%, 17%, 22%, 17%, 21%, 25%
Adjusted Gross Margin:68%, 69.4% (falling from 84.2% last year because ZM gave away a lot of free usage)

As someone coined, the “tiger woods” of growth stocks. I don’t think I have much to add to this discussion other than that I am another one on this board who believes CRWD is clearly the most Saul-y stock.

Rev Growth QoQ: 17%, 12%, 17%, 22%, 16%, 13%, 20%
Rev Growth YoY: 86%, 84%, 85%, 90%
Most recent N Gaap GM: 78%
Most recent N Gaap net income: 18.6mm

Q4 is usually SHOP’s best quarter, but it is possible that an unusually good Q2/Q3 has made for very hard QoQ comps. Seasonally, the 7% QoQ gain we saw in Q3 was in line with Q3 2019 within a percent. If seasonality maintains, having a QoQ gain as good or better than Q4 2019 would mean a 29% or better QoQ improvement, which is possibly a lot to ask for in a year that’s seen yearly growth topping out around 100%.

Annoyingly, SHOP continues to not issue any guidance during the pandemic, which sort of tells us that they have no idea what revenues might be for the quarter. Clearly that is bad lol.

I wrote a detailed post about shopify’s most recent quarter, which I thought was pretty great. In the interest of everyone’s time, I don’t want to repeat myself, so I will link to it here:…

Quarterly YoY rev growth rate looks like this (most recent quarter first) 97%, 47%, 47%, 44%, 47%, 49%, 54%, 57%, 61%, 68%, 70%
QoQ rev growth rate: 7%, 52%, -6%, 29%, 8%, 13%, -7%, 27%
Gross Profit Margin:53.5%, 54%, 52%, 55%, 56%, 56%, 54%, 55%, 55%
Adjusted net income was 129.4mm in Q2 20, compared with a net loss of 28.7mm in Q2 19

Gary had a post about revisiting ZScaler which was spot on. Although their sales process is for sure not as nimble or consistent as their competitor Cloudflare, ZScaler’s fortunes have changed enough to bring revenues back over the 50% yoy line into their old growth cohort. With excellent margins and improving profitability, Zscaler looks like a Saul stock to me.
They are guiding for 3.5% QoQ growth or 47% YoY growth, so if we add in an average beat of 4.4%, then we see QoQ growth coming in around 7%-8% and YoY growth steady at 51%-52%.
YoY growth: 52%, 47%, 41%, 36%, 49%, 53%, 61%, 64%
QoQ growth: 13%, 14%, 10%, 7%, 9%, 9%, 7%, 17%, 13%

I ended up selling out of most of my FSLY position (around $65/share, so at the worst possible time lol), but luckily I did not sell all of it. And so it recovered back into the 90ish dollar per share range. But a lot of compelling arguments were made that Cloudflare is better (in particular due to its much higher rate of customer acquisition) and also that FSLY just doesn’t have the growth potential that Cloudflare has because of FSLY’s steep learning curve.

Part of why I haven’t sold out of FSLY is because its net expansion rate is so high. With an average NER of 137% over the past 3 quarters, doesn’t that mean it doesn’t even have to add new customers to grow at 37%? So if/when it does start adding a decent number of new customers, that number can easily be much higher than 37%.

Quarterly metrics:
Yoy revenue growth (most recent quarter first): 42%, 62%, 38%, 44%, 35%, 34%.
Gross margins are mostly ticking upward if we remove the Q2 outlier: 59.8%, 62%, 56.7%, 56.7%, 55.2%, 55%
NER (most recent quarter first)– 141%, 137%, 133%

Companies I’m watching: Roku , Asana, Twilio, Fiverr, TTD

Thanks for reading everyone – as always, thanks again for this incredible board.


Thanks for the great write up and congrats on a fantastic year! I have one thing I want to point out that I am sure you already know, but I think it might help us understand the difference between Zoom’s enterprise and smaller customer growth.

You wrote - “it looks like maybe the biggest growth driver might have actually been the surge in customers with just 10+ employees as opposed to enterprise customers… I guess the question I’m asking is, is revenue growth correlated more strongly with enterprise customer growth or with customer 10+ revenue growth?”

We need to remember that the figures given regarding enterprise growth are backward looking while the number of customers with 10+ employees is taken from the end of the current quarter. This helps explain why it looks like the surge in revenue was due in large part to the customers with 10+ employees segment. By Zoom’s last quarterly report, only about 2/3 of the trailing 12 months were impacted by COVID. As a result, the QoQ growth rates for the customers with 10+ employees versus the enterprise growth are going to paint a totally different picture because that is comparing two very different time periods in Zoom’s history.

With this being said, we should have a much clearer picture of Zoom’s enterprise growth over the next couple quarters. I am fully expecting the number of customers contributing more than $100,000 in trailing 12 months revenue to explode in the coming few quarters. I want to see growth of at least 200% YoY, especially now that they announced over one million Zoom Phone seats sold. If this is not the case, then I would agree with you that Zoom is no longer in hyper growth mode and is not likely to be worth holding compared to our other companies. I am expecting big things, but I have certainly been wrong before.

Again, thanks for the fantastic write up!



@MajorFool20, thanks for pointing this out. I for sure make plenty of mistakes, and that was one of them. Now that you explained it, I can’t “un-see it” lol and it looks quite obvious to me.

In case anyone else still doesn’t get it, the point is that enterprise customers are defined as “those customers spending more than 100k in the past twelve months .”. So it is as MajorFool20 says, necessarily backward looking over the past 12 months. In contrast, customers having more than 10 employees just looks at the number of employees on the last day of the quarter and so does not rely on data from one, two, or three quarters ago.

So I’m sure there are some (but not many) of the largest enterprise customers who newly joined Zoom and immediately hit the 100k threshold. On the flip side, the smaller customers that are close but not quite big enough to qualify for enterprise will take more quarters in order to hit the 100k threshold. Same goes for older customers that ramped up spending a lot but not quite enough to make the cut for enterprise in one quarter.

The effect of this, is that even QoQ enterprise customer growth does not reflect true enterprise customers, because enterprise customer status is ordained by spending over the past 12 months.

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So I’m sure there are some (but not many) of the largest enterprise customers who newly joined Zoom and immediately hit the 100k threshold.

Actually, there were a significant number of enterprise customers who immediately joined at the $100K threshold. In Q1 Zoom had 500+ new customers come on board at >$100K (slide 9 here:…). I didn’t see specifics for Q2 or Q3 but would have think those were strong as well. While there will be several growth metrics to watch closely in FY21, my guess is customers >$100K won’t be one of them given the TTM requirement.