What do you say to someone who gives you $20 for free? Gee, that’s pretty nice of them. You thank them. What if someone gives you much, much more than $20? I don’t know how to thank Saul and the incredibly sharp members of this board that add so much value to me and the Motley Fool community. As always, I will try to give back what I can.
This is my fourth investment report, and I can tell you first hand that these things are extremely time consuming. They take days of effort. Getting the information and formatting it is a lot of effort (and mine are not nearly as detailed as Saul’s). And Saul has been doing this every month for years! Everyone be sure to be grateful to him and this board both when our stocks are way up (like this year) as well as when performance is poor, like say Sep-Dec of 2019.
Although the reports are time consuming, it is rewarding to give back to Saul and this board, and selfishly, it does help me make tough investment decisions. It forces me to compare stalwarts like ZM and LVGO against more shaky holdings such as TTD and bill.com. It makes it easier to be ruthless and sell stocks that are “objectively pretty great”, but relative to our best stocks they are not so great, such as bill.com.
Before this board, a good year for me was when I beat the S&P 500 by a couple percentage points. Now I am beating the S&P 500 by an enormous margin - I am up 158% YTD.
Regarding my monthly results this year (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%
Worth mentioning is my low point: in mid March I was down about 22% YTD during the worst of it.
The Nasdaq as of 7/31/2020 is up roughly 16.5% YTD. Meanwhile, the S&P 500 is pretty much breakeven YTD, being down about 1% as of this writing.
A board member also brought up WCLD, an ETF comprised of a lot of my top holdings, such as FSLY, ZM, SHOP, DDOG, CRWD, COUP, etc. Hypothetically, if investing wasn’t fun for me and I didn’t care about money, I could just buy WCLD and go to the beach. (this is not an endorsement of the ETF though – some ETF’s have expensive fees and annoying tax ramifications to keep in mind). WCLD is probably the fairest benchmark to compare myself to, and at the time of writing, WCLD is at $41.04, and it began the year at $26.11, a gain of roughly 57%. 57%, in a normal year, is pretty incredible, although most people on this board are doing much better than WCLD.
Previous Monthly Updates:
https://discussion.fool.com/vinegar101-first-portfolio-update-34…
https://discussion.fool.com/vinegar10139s-aprilmay-portfolio-upd…
https://discussion.fool.com/vinegar10139s-june-2020-portfolio-up…
Highest Convictions: ZM, CRWD, DDOG, LVGO
Second Tier Convictions: SHOP, FSLY, TDOC
Chopping Block (Positions I either did partially sell or am considering selling to some degree): TTD, OKTA, COUPA, NET, TWLO, AYX
The other positions I have, I am confident in them, but I am more price sensitive to when I buy. My top convictions, so long as they are top convictions, I will pretty much buy at any price.
Moves Made in July
Buys: I added heavily to TDOC and started a TWLO position. I bought small amounts (5%-20% more) of LVGO, ZM, DDOG, CRWD, and FSLY.
Sells: I sold out completely of bill.com, I sold 30% of my AYX shares, and I also trimmed small amounts of COUP, TTD, and OKTA.
Why did I sell out of bill.com? The short of it is just that it’s hard to argue how bill.com is better than any of my other positions. I’m really trying to keep my portfolio concentrated, and bill.com was the easiest for me to part with. I was also swayed by Bert Hochfeld’s lukewarm article on bill.com.
Holdings as of 7/31/20 vs holdings as of 7/1/20 (my last report)
LVGO 17%, 12%
ZM 12%, 15%
DDOG 11%, 11%
CRWD 11%, 11%
FSLY 9%, 8%
SHOP 7%, 8%
TDOC 7%, 3%
COUP 5%, 7%
TTD 5%, 6%
OKTA 5%, 5%
AYX 4%,8%
NET 4%, 4%
TWLO 3%, 0%
BILL 0%, 3%
TELADOC
Big quarter for Teladoc – revenues were up 85%.
Quarterly Revenue yoy growth trend (most recent quarter first): 85%, 40%, 27%, 24%, 37%, 43%, 59%, 61%, 111%, 109%, 115%
^^Massive revenue growth acceleration
Highlights from their latest quarterly report:
Q2 yoy rev grows 85% to $241mm (was 130mm in Q2 19)
Yoy quarterly rev breakdown
?U.S. subscription Fee rev 152mm vs 85mm : 78%
?International subscription fees – 30mm vs 25mm: 17%
?Combined: 182mm vs 11mm: 64%
???Visit fee revenue breakdown
?U.S. paid visits: 39mm vs 15mm: 159%
?U.S. visit fee only – 19.4mm vs 3.5mm: 449%
?International paid visits: 347k vs 406k: -14%??Q2 yoy visits Increase 203% to 2.8mm vs 908k??Net loss was 25.7mm in q2 20 vs 29.3mm in q2 19
Adjusted gm was 62.3% vs 68% last year
Net Income trends (most recent quarter first): Basically hovering between a loss of 20mm and a loss of 30mm going all the way back to Q1 2018.
TDOC is taking market share and growing their business by leaps and bounds. If they are losing business to Zoom, with these numbers, it does not matter. There is clearly enough room for both of them for the near term. In the longer term, we will just have to wait and see.
People are rapidly warming up to telemedicine. Many people had no reason to try it before this year. Now that people have it and are using it, they are not going tow ant to stop.
From McKinsey:
–Only 11% of consumers had used telehealth services in 2019 – in 2020 that has increased to 46%.
?–“Providers are seeing 50x to 175x the number of patients via telehealth than they did before”
?–“Up to $250 billion of current US healthcare spend could potentially be virtualized”
https://discussion.fool.com/telehealth-mckinsey-article-34565800…
FASTLY
Regarding what FSLY does, I will borrow from RonJon’s excellent post:
“FSLY: Trying to redefine content delivery ( high performance). They have focused their efforts on placing fewer, more powerful POPs( points of presence ) with solid-state drive (SSD) powered servers building a blazing-fast network that requires less hardware to deliver comprehensive global reach. At 35.4 microseconds, Fastly’s environment is supposed to offer a 100x faster startup time than other offerings on the market.”
https://discussion.fool.com/net-vs-fsly-which-is-better-34517311…
Fastly has a Programmable Edge service platform – and as Muji and Smorgasbord have said, CDN is just one thing you can do with that. There could be many other use cases here and significantly ramp up FSLY’s Total Addressable Market.
Management expects margins to be in the 70% range someday, which is a huge improvement from where they are currently at, the mid 50’s.
Other helpful quotes from ibuildthings and Smorgasbord on Fastly:
From ibuildthings:?The article goes on to say that Fastly is building a truer edge computing platform that allows some of the “origin server” computation and decision-making to happen on Fastly equipment (closer to the consumer), rather than at the origin server. They aren’t just storing content, they are storing software that makes decisions about the request and the response. Decisions made there will optimize the actual request made to the origin server(s) and how the content gets back to the consumer.”
Thread: https://discussion.fool.com/fastly-bull-v-bear-34555892.aspx?sor…
One more from Ibuildthings :
Fastly studied the tradeoff between a ton of POP’s around the world versus fewer POP’s that contain more expensive, but better performing hardware. They chose to limit the number of POP’s, and build each with high performing compute devices and large numbers of high performing solid state drives to cache as much routing information and content as they could. Caching means it is already there, not at the end of a long request out to the internal or their POP network. They challenged the assumption the competition made that many small POP’s were the way to go. Their system is faster. Also they have address computation and interconnection routing knowledge to the other POP’s that figure out the route in 35 microseconds, 85 to 5700 times faster than competitors.
Thread: https://discussion.fool.com/fastly-deep-technical-dive-34552552…
From Smorgasbord, on compute@edge: ?• Compute@Edge won’t be rolled out to everyone until 2021, so no revenue from it until then. Smorgasbord here: With select customers already building solutions in Beta, once it goes live revenue could start pretty high at day one.
https://discussion.fool.com/fastly-deep-technical-dive-34552552…
For more on FSLY, you gotta read Muji’s summary here, a truly outstanding post:
https://discussion.fool.com/fastly-q120-recap-its-potential-3456…
Quarterly metrics:
Yoy revenue growth (most recent quarter first): 38%, 44%, 35%, 34%. For june 2020, they are guiding for 52%-56% rev growth. Big time acceleration.
Gross margins are mostly slowly ticking upward: 56.7%, 56.7%, 55.2%, 55%
NER (most recent quarter)– 133%
NRR 130%
I didn’t dig up enough quarterly net income numbers to do trend analysis, but based on the transcript of its latest earnings report (5/6/20), they are expecting net loss between $0.02 and $0.00 for the year.
LIVONGO
Livongo grew 69.2% and is now my top holding, outperforming even Zoom. I did add a tiny amount in mid july which is already up 20ish percent.
The big news was the preannouncement of revenues, skyrocketing to 113% on the high end. I am also of the belief that, you don’t pre-announce something like that unless both the quarter and the forecast will be immaculate. If there is any disappointment to be had with the results, the stock will depreciate rapidly. So, any wise CFO would not pre-announce unless they are extremely confident in all relevant aspects of the quarterly results and forecast.
As always, one of my favorite reports to read is StockNovice’s – I hope he does not mind that I borrow pieces from his. He has been particularly spot on with LVGO. If you haven’t already, you definitely should read it:
“Livongo also published research this month detailing measurable benefits for its weight-loss offering (https://www.ncbi.nlm.nih.gov/pmc/articles/PMC7337618/). In an analysis of 2,037 users “Overall, participants lost on average 5.15% of their starting weight. Highly engaged participants lost 6.6% of starting body weight, with 25% losing >10% at 12 months.” Breaking the study down into individual components showed food logging, nutrition education and personalized coaching all contributed to the success. While this is admittedly a company study, it is yet another example of LVGO attempting to quantify its value add.”
https://discussion.fool.com/stocknovice39s-july-portfolio-review…
Another good livongo post this past month from analogkid70’s post on LVGO’s moat:
"These large channel partnerships are significant for Livongo, because not only do they provide the potential for the company to rapidly scale in a low-cost manner by leveraging an external salesforce, which should help improve long-term margins, but it also provides an element of stickiness with its solution in these channels. Creating partnerships with large healthcare insurers and pharmacy benefit managers is a very complicated and time-consuming process, requiring training on the Livongo platform, alignment of operational support and execution of rollout to members.”
“Livongo’s platform approach is also key here, because the fact that the business can address multiple conditions with one platform means less contracting, vendor management and sales training for healthcare plan operations teams and insurers who are managing the rollout and servicing of member conditions. It’s difficult for point solutions, even best of breed, to get any traction as healthcare organizations will be predisposed to a single management platform."
https://discussion.fool.com/lvgo-moat-follow-up-34566633.aspx?so…
Rev growth yoy per quarter (most recent first): 115%, 140%, 147%, 156%, 167%
Margins were at 74.4% in the most recent quarter, and the company is trending positively towards profitability. The goal is to be EBITDA profitable by 2021.
SHOPIFY
I wrote a couple detailed posts about shopify’s most recent quarter. In the interest of everyone’s time, I don’t want to repeat myself, so I will link to those posts:
https://discussion.fool.com/shop-quarterly-results-summary-wow-3…
https://discussion.fool.com/i-wasnt-going-to-make-another-shopif…
In short, I will say that this last quarter was a total game changer for them. They have cemented themselves as a leader among growth stocks, and they went from being a stock that I was considering selling to one that you could not pry from my cold dead hands haha.
The new business that they acquired from this pandemic, sure, some of them might go out of business entirely. But a lot of them won’t. They will stick with shopify this year and next year and so on. On the conference call, I think it was Harley Finkelstein (COO) who said that this quarter, it was as though they pulled 2030 into 2020. Yes, it is a hyperbolic statement. But the point remains. They pulled forward an enormous amount of business that it may have otherwise taken them years to acquire. Their platform gets stickier and stickier. This is not just some little start up that helps small entrepreneurs go online. They have small and large clients (such as Molson Coors, Chipotle, etc) who love them, and they become more profitable as they scale.
I do think it’s reasonable to conclude that 97% rev growth will not continue. I would imagine their pre-covid rev growth rate (47%) would serve as a likely floor, and this most recent quarter (97%) could probably be considered a ceiling. Rev growth for upcoming quarters will probably fall somewhere in between those two bounds.
Quarterly YoY rev growth rate looks like this (most recent quarter first) 97%, 47%, 47%, 44%, 47%, 49%, 54%, 57%, 61%, 68%, 70%
^^ Massive acceleration!!!
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
CLOUDFLARE
Not much new information here is you ready my last report – skip if you want:
Muji and RonJon helped me understand this company big time. Huge thanks to you both. Borrowing from RonJon:
CloudFlare is “Trying to build a better Internet which is secure, fast and reliable. Cloudfare has focused on security right from the beginning ( It was in 2015 when I was researching on security of websites and stumbled upon Cloudfare). The work they do is quite incredible with data centers in over 200 cities around the world.”
DBNER is smaller than FSLY. This could possibly be explained by NET’s larger number of small customers. Small customers are less able to use more cloudflare products or scale up usage of cloudflare’s existing products. In contrast, FSLY has fewer customers, but the customers it has are much larger and capable of expanding their usage of FSLY’s products.
Cloudflare yearly revenues (2019 first), $287, 193, 135, 85
Revs for quarter ended 3/31/2020: $91mm, 47% higher yoy
Rev growth trends (quarterly yoy, most recent first): 47%, 51%
Gross margin (Most recent first): 78.3%, 79%
^^Interestingly, much better margins than FSLY, even though Cloudflare has so many free tier customers.
Non gaap net loss: Q1 2020: -12.3mm or $.04. Q4 -18mm or $.06
Total customers: 2.6mm at end of 2019 (includes non paying)
49% of customers are from outside of the U.S.
In most recent quarter, they ahd 556 customers with > 100k in annualized rev, a 65% increase
Needham analyst Alex Henderson upgraded his price target due to cloudflare’s innovation (a new feature was introduced that enables it to handle traffic 40% quicker), the fact it will benefit from 5g edge computing adoption, and the shift to the cloud.
DDOG - Not much new here from my last monthly report – skip this section if you read the last report.
Truly astounding quarterly report:
Revenue Up 87% yoy
Gross profit Up 105% yoy
Op income from -9662 to 3778
89% increase in customers spending more than $100k, DBNER of 130%
–63% of customers using more than one product, up from 58% last quarter and 34% last year
–GM of 80%, up from 78& last quarter and 70% last year
–RPO was 256mm and 86% growth yoy
–in general, not impacted materially by covid.
–Rev growth going backward looks like: 87 - 85 - 88 - 82 – 76
adjusted gross margin improved yoy to 80% from 73%
Q2 rev growth is being guided to 63% on the high end
TWILIO
For why I am in TWLO, see this post here: https://discussion.fool.com/moves-made-before-earnings-season-34…
Basically, it’s a speculation. A wise member of this board asked me why I’m in it at all, when we have more certain plays that appear better right now.
The reason is pretty simple: we don’t have to own only one horse. We can buy however many horses we want in whatever quantity we want. I think this particular horse has potentially big upside, and I’m happy to let it join my stable for now.
How much of this upside got priced in after last quarter, and how big will their numbers be this quarter is anyone’s guess. Based on what we saw with Shopify, I would posit that usage based api’s like those from Twilio are probably exploding in growth. I think there’s enough upside here to warrant taking a small, exploratory position ahead of earnings this Tuesday. Based on what we see in earnings, I may buy even more, or if they disappoint, I will exit ASAP.
ZM:
Not much new on ZM in my opinion. Hardware as a service (HAAS) does not have me terribly excited, but there was some good board discussion on it from Saul and others.
Skip this section if you ready my last report.
ZM put up the greatest quarter in enterprise software history. I am comfortable allowing it to remain as a top position and just let it grow. ZM is so good, it is almost not even worth talking about it.
Revenue growth rate yoy (most recent quarter first): 169%, 77%, 85%, 94%
Revenue growth rate quarter to quarter (most recent first): 84%, 14%, 17%, 22%, 17%, 21%, 25%
Adjusted Gross Margin: 69.4% (falling from 84.2% last year)
FCF: 251mm
NER: >130%
Adjusted Income: 58.3mm, +551% yoy
Customer >100K growth +90%
COUP –
Again, not much new here for Coupa. I realize more as time passes that it is one of my lower conviction picks, and I have been trimming coupa.
The latest earnings report was fine I thought. StockNovice raised a great point though, that in their guidance, they indicated that some of their customers are getting hit hard by the covid. For this reason, Coupa is uncertain regarding when various deals will close, making its quarterly estimates less confident and more conservative. And why should we hold companies that are forecasting short term headwinds (which could in theory become long term headwinds if covid never goes away…) when there are excellent companies facing covid tailwinds? Therefore, Coupa is on my “maybe partially sell” list.
Quarterly statistics:
Revs up 47%, 119.2M
Subscriptions up 45%, accounting for 89% of rev
Rev trend (most recent quarter first): 48%, 52%, 53%, 44%, 38%, 42%, 37%
Net income trend: most recently was $-15mm, generally hovers between -15 and -26mm
CRWD –
Nothing new to see here - CRWD is a signature stock on this board, and well, if you still haven’t bought it yet, you need to read Saul’s monthly updates more carefully Rapidly growing revenues, rapidly growing net income, and high gross margins are why I’m invested here. Currently, CRWD has one of if not the best “mouse trap” on the market for end point protection.
However, we know that a lot of these high flying information security companies tend to have a short shelf life – better mouse traps can and do get made. So long as revs are growing like they are, I don’t think there’s any signal that a better mouse trap is starting to eat CRWD’s lunch.
The Trade Desk
As time passes, I continue to believe TTD is in the bottom tier of stocks I own, and I have trimmed it this past month. If we get a particularly bad quarter, I may sell out entirely.
Revenue growth has been slowing, but profits continue to rise. I like this company’s strong competitive position, growing profits, and extremely high TAM. I let this stock stay in my portfolio despite its slower rev growth because of the TAM.
Highlights from quarterly update:
Revs up 33% yoy to $160.7mm vs analysts forecast of $158.3mm, (was up 35% yoy in previous quarter)
Expectation is for a significant slowdown in Q2, with no guidance provided
EPS (non gaap adjusted) was $.9, vs $.49 a year ago
EBITDA margin up from 20% last year to 24% this year
$445mm of cash/equivalents
CTV ad spend was up 100% yoy
Audio ad spend up 60%
Mobile ad spend up 38%, mobile in-app up 55%, mobile video ad spend up 74%
Quarterly YoY rev growth looks like this (most recent quarter first):
33%, 35%, 38%, 43%, 41%, 55%, 51%, 53%, 62%, 43%
So we see the trend of decelerating revenues continues. Covid headwinds may have sunk this latest quarter though, to be completely fair.
AYX
AYX is somewhat fascinating because at the beginning of the year, it was my top conviction stock. This was probably the case for most people on this board. But as it turns out, AYX has been a laggard most of the year, when compared to Zoom, DDOG, CRWD, etc. So when AYX revealed its subpar Q1 results, many of us (myself included) pared down our positions. This made a lot of sense.
My take after last quarterly report (still relevant):
Alteryx is being negatively affected by coronavirus, or worse, maybe the business already peaked anyway and was going to report a subpar quarter with or without coronavirus. Maybe coronavirus just gives them a good excuse.
Most likely, AYX is still a great company and will pick things up again, and we will see revenue growth back in the 60’s and 70’s, as opposed to this quarter (just 43%).
Regardless, I have trimmed AYX throughout July. Hopefully it was a short term blip, and the ayx we all know and love comes back. If you are a david gardner style investor, you hold through these short term blips. The more aggressive among us though will be ruthless and cut back on ayx or maybe even sell out entirely. We will see how this upcoming quarter goes.
I think that, due to its business model (it sells per license per person, as opposed to FSLY, which goes by usage), it is less likely to generate an overly positive surprise from the numbers alone. If there is some sort of surprise pop, it will be because they lowered everyone’s expectations so much that whatever numbers they come out with actually seem great.
OKTA
Nothing new to add to Okta. I have been trimming it because its rev growth is not as high as our other stocks, and they did not appear to be getting a covid boost. Their margins are in the 70’s or 80’s though, which is much higher than our other stocks. But I still think that is not enough to consider it a top holding when we have other stocks growing at 80%-200%. We are very spoiled lol.
Thanks for reading everyone – as always, thanks again for this incredible board. Fool on.