Huge thank you to Saul for all of his hard work over the years. I have had unimaginable success this year following Saul’s approach to the best of my ability. I ended June up 122% YTD, and yesterday I hit a high water mark of up 131% YTD!
It’s hard to express the kind of gratitude I have towards both Saul and the many intelligent and thoughtful board members that post here. These investing ideas that have led me to such great success are not my own. Far from it. I am mostly trying to do “my best Saul impression”. This board has enabled me to stand on the shoulders of giants.
Regarding the current market environment and my portfolio, there are two metaphors that come to mind. The first being, it feels like I’m on a roller coaster, and it keeps going up and up and up, and I don’t know when the drop will come, but I know it will come. The second metaphor is that it feels like I own a money printing machine.
I don’t say the above things to brag – I’m saying it because I think that others feel the same way some times. It’s good for us growth investors to relate to each other in good times and bad, to know that we are not crazy lol. When I try to explain growth investing to people, they mostly either think it’s boring or that I’m crazy. Their loss.
I have been investing for long enough to know “easy come, easy go”. Volatility comes with the turf. I may finish the year only up a “measly” 40% - who knows. 40% is still terrific in the scheme of things, although extremely far down from 131%.
Although I anticipate drops to come, I will not be selling. That same voice that I have in my head every day tells me “Your portfolio has gone up too high, you should sell before it drops!” That voice has been nagging at me since like, mid April. If I had listened to it at any point between now and then, I would have missed out on enormous gains.
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%
Worth mentioning is my low point: in mid March I was down about 22% YTD during the worst of it.
Probably the fairest bench mark to compare myself to is the Nasdaq, which as of 7/2/2020 is up 12.2% YTD.
Highest Convictions: ZM, CRWD, DDOG, LVGO Among them, ZM is the absolute top conviction, with the other 3 about equally very high convictions. FSLY may join them soon.
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.
Holdings as of 7/1/20 vs holdings as of 5/18/20 (my last report)
ZM 15%, 12%
LVGO 12%, 10%
DDOG 11%, 13%
CRWD 11%, 12%
AYX 8%, 9%
FSLY 8%, 0%
SHOP 8%, 10%
COUP 7%, 7%
TTD 6%, 7%
OKTA 5%, 7%
NET 4%, 0%
BILL 3%, 4%
TDOC 3%, 2%
ROKU 0%, 5%
ESTC 0%, 2%
Buys: I bought lots of stuff actually, but in small amounts. The only large purchases I made were into FSLY (now 7.8%) and NET (3.8%) .
The only stocks I did not add to were: SHOP, TTD, BILL, OKTA, AYX
Sells: As someone said, Saul will ruthlessly cut down stocks that are not living up to his standards. In my case, this led to me selling out of ESTC and ROKU. I outlined in my last portfolio report that I was speculating on ESTC possibly seeing a covid revenue bump due to increased usage of its services (some of its revenues are usage based). Its earnings report was not particularly impressive and pretty typical for ESTC. Revenue growth mostly on par with usual (57% yoy growth if I recall properly) and more growing losses on the bottom line. Sell
Roku was harder for me to sell. Roku is a great company, but relatively speaking, my other stocks are just performing much better. When the company is putting forward what I think are good numbers, and yet the stock price doesn’t respond much, that probably means I am missing something. By comparison, when CRWD or DDOG put up good numbers (which, by the way, are much better numbers in most regards anyway), we see a bump in stock price.
I guess, what I am saying, is that ROKU is not demonstrating a good ability to move the needle meaningfully upward anymore. Especially not when you compare ROKU’s ability to move the needle versus the rest of our stocks ability to move the needle.
Individual Stock Updates
Gonna lead with what I like most about tdoc – revenues are accelerating rapidly. This has been known since 4/30/2020 (when Q1 2020 was reported). That quarter showed revs growing at 40% yoy, which was much higher than it’s been in recent quarters. They project Q2 2020 will show rev growth of 65-73%. This is a huge reacceleration of revenue growth – not too long ago they were only growing at 24% yoy.
Quarterly Revenue yoy growth trend (most recent quarter first): 40%, 27%, 24%, 37%, 43%, 59%, 61%, 111%, 109%, 115%
News since last report: announced the closing of its acquisition of InTouch Health, another provider of telehealth services. 150mm in cash and 450mm in teladoc stock funded the deal. InTouch has a network of 450 hospitals, 14,500 phsyicians and 40 clinical use cases.
This has me wondering though, at what point do these new revenues from InTouch get factored into Teladoc’s quarterly reports? Per their latest quarterly report from April 30th, those numbers do not reflect any revenue from Intouch, because the deal hadn’t closed yet. Their next quarterly report (coming out in late July I think) will have InTouch revenues included. Hopefully they split out revenues so we don’t see a repeat of what Twilio did…
Highlights from their latest quarterly report:
Revenue jumped 41% higher to 180.8mm
Net loss was $0.40, versus $.36 expected
Subscription fee revs rose 29% to $137mm
Visit fee rev jumped 93% higher to $43.7mm (mostly from U.S. market)
Growth in U.S. market rev – 33% yoy to $107.9mm
International subscrioption access fee rev – Up 17% to $29.1mm
Acquisition of MedicinDirect helped revenues, but 40% of 41% of rev was organic
Visits up 92% to 2 million for the quarter
U.S. fee-only subscrioptoins are up 263% to 227k
Paid membership up 61% - the heart of the company’s business (businesses paying subscription fees to use teladoc’s telehealth services
Forecasting FY 2020 to be over $800mm. Midpoint of range would be 49% yoy growth.
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.
Regarding the people who think Teladoc will get beaten by Zoom. Put simply, it is very possible there will be multiple winners in this market. My understanding is that regulations were loosened recently due to covid, which was a big boon to zoom in particular. Should regulations re-tighten, Teladoc may emerge as the clear cut winner. Or maybe both companies will thrive. If Teladoc’s revenue’s shrink, we could possibly imply that Zoom (or some other competitor) is eating Teladoc’s lunch, in which case I would sell. But that’s not happening to a large enough degree right now for TDOC to be a “bad investment”. On the contrary, revenues are growing by leaps and bounds. At the moment, zoom is the better investment, but TDOC is also a worthy investment.
FSLY: I dove quickly into this one because I had already read very positive things about it over the last year from Bert, TMF, and Muji. Everything seemed right except the revenue growth was too slow. Well, PaulWBryant’s post here made it clear that is no longer the case, so I dove in:
Those initial shares (bought on 5/21 for $43.47) are up nearly 100%, but it was just a 2.5% position at first. I bought along the way up (as I tend to do – I am a huge advocate of dollar cost averaging on the way up for positions you are confident in). Cumulatively, the position is already up around 60%, which includes shares I bought as recently as 6/23/20.
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.”
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%
I couldn’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.
–On the newsworthy front, Motley Fool maintains that Fastly may have been the biggest winner in Walmart’s new partnership with Shopify: Key quote is this:
“Fastly reported earning 88% of its revenue in Q1 from just 297 enterprise customers (up from 288 at the end of 2019). But the company reported in its 2019 annual report that nearly a third of its revenue comes from its top-10 customers. One of those customers specifically named was Shopify. Besides adding new customers, Fastly’s growth relies heavily on key partnerships like with Shopify continuing to expand.”
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.”
From bert, although Cloudflare has an edge computing platform, it’s not really a competitor of FSLY because it doesn’t have a CDN service.
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%
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.
ZM put up the greatest quarter in enterprise software history. I am comfortable allowing it to remain as my top position and just let it grow. ZM is so good, it is almost not even worth talking about it.
I am wary of its valuation and its potential to keep growing at this rate. I do recall how good of a stock it was even before covid hit, but still, are the expectations that ZM will grow at 170% yoy every quarter?? I understand the next few quarters will pretty much certainly have similar if not higher yoy growth rates. But what about next year? This is setting a very high bar to maintain. I guess we will cross that bridge when we get there.
Despite these concerns, I won’t be selling. I will be buying more.
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)
Adjusted Income: 58.3mm, +551% yoy
Customer >100K growth +90%
Worth repeating how uncannily close Saul’s revenue estimate was to Zoom’s actual revenue – Saul is a legend: https://discussion.fool.com/zoom-expectations-34523974.aspx
News: I learned this one from StockNovice’s excellent June report - More studies showing Livongo’s improved outcomes for its users:
I did see that Saul sold LVGO because it cannot grow like FSLY. FSLY charges based on data usage, LVGO charges per employer. This is an excellent argument to own FSLY, and I really appreciate that Saul brought it up. Because I hadn’t actually thought of FSLY like that before, and it does make the case for FSLY extremely strong. However, I do not think it’s an excellent reason to sell LVGO. Based on LVGO’s revenue growth (115% yoy most recently), it probably has significantly more companies out there to offer its services to. Furthermore, LVGO has barely penetrated the market for diabetes, and it is extending its reach to other chronic conditions. And they aren’t even trying to be international yet. There are so many ways for LVGO to keep hyper growth, or at least high growth for the next 2-4 years.
Other than that, not really any news on this one since my last monthly update – skip this section if you read my last report. It is still a top tier conviction for me.
About the company
In a nutshell, this is a product that companies believe saves them money (because Livongo has put out research that proves it), it is a product that helps people live better lives, and the icing on the cake is that users don’t even have to pay for it (their insurance pays for it). Furthermore, LVGO’s remote monitoring capabilities are leading to the company getting industry wide praise in the era of coronavirus. People want to avoid doctor’s offices if they can, and remote monitoring greatly assists with that.
I have let this company grow to a rather large 12% stake in my portfolio because of its amazing revenue growth rate (115% yoy), its goal to be EBITDA profitable by 2021 and its progress thus far, high gross margins (74.4%), enormous total addressable market that is largely untapped, high insider ownership, and its innovation.
Livongo for diabetes currently has over 328k members enrolled, which is impressive, but there are over 34mm adults in the U.S. with diabetes. Additionally, the company uses its “nudge” technology (friendly reminders sent from the software to the user to remind them to engage in good habits) to help adults with other chronic conditions such as hypertension, weight management, and behavioral health. Assuming continued success, they will probably apply this technology to other chronic conditions, broadening the TAM even further. There are more than 147mm Americans living with a chronic condition, and 40% living with more than one.
Risks is that revenue rate is decelerating (which is pretty normal for a company growing so fast and at such a scale as Livongo), so I am not worried about this now. Other risks include the insurance industry or the government turning on Livongo (not likely, at the moment there are scientific reports done that show the effectiveness of Livongo both for people’s health and for the ROI for companies with employees using LVGO).
Rev growth yoy per quarter (most recent first): 115%, 140%, 147%, 156%, 167%
It is worth noting that Livongo’s growth slowed down quite a bit from its previous levels, however, it is obviously very much still in hyper growth mode. If it’s growing over 70%, I’m happy, but if it keeps decelerating very quickly, we should probably start asking why. It is of course normal for hyper growers to stop at some point.
The big news for bill.com is that the lockup period expired in mid June, and there was no stampede of insiders selling.
Next, the company extended its contract with Intuit through 2023, causing shares to go up 6.5%. This means the company gets to keep supporting “Simple Bill Pay” service in Quickbooks.
Really good but long podcast transcript on bill.com from the fool:
Bill.com provides enterprise software that helps small and medium sized businesses across all industries manage customer payments. They process accounts payable for companies, and they invoice customers. A simple example of how bill.com helps is by eliminating the need for small businesses to manually process checks, something that more than 90% of SMB’s do to make and/or receive payments.
A customer has been quoted as saying that without bill.com, they would have had to hire at least one more full time accounts payable person, which is pretty incredible when you consider that bill.com pricing starts at $39.99/month.
The company is led by founder/CEO Rene Lacerte, who still owns 3.2mm shares, roughly a 4.4% stake worth over $200mm.
The company is still quite small, having a market cap of $5.5bb, and only 91k customers. The company estimates their market to include 6mm SMB’s.
In its most recent quarter (earnings released on 5/7/2020), they grew their core revenue 63% (comprised of subscription revenue and transaction revenue) to $36.1mm, non gaap gross margin to 78.8%, total customers to 91k(28% yoy growth), 6mm payment transactions (23% yoy growth), and total payment volume to $24.2bb (33% yoy growth).
Although a lot of people (myself very much included) suspected bill.com would be susceptible to revenue growth slowdown due to its exposure to SMB’s, the CFO indicated COVID had a very immaterial effect on revenue, causing the business to lose about $100,000.
In some ways, covid may actually accelerate the need for bill.com - processing, approving, and depositing payments electronically is necessary in a world where you can’t get your employees to go to the bank, or meet with clients, or retrieve snail mail.
Quarterly yoy Rev growth (most recent quarter first): 46%, 50%, 59%
Quarter to quarter rev growth (most recent quarter first): 5%, 11%, 9%, 14%, 8%, 18%
Definitely seems like we are seeing deceleration in quarter to quarter growth. It could just be seasonality in their earnings? I am not sure. It might also be more helpful analysis if I had historical data for core revenues, as opposed to just plain old revenue.
400mm in cash on the balance sheet
DDOG - Not much new here from my last monthly report – they got fedRamp certified, so it can be used in gov agencies.
Truly astounding quarterly report:
Revenue Up 87% yoy
Gross profit Up 105% yoy
Op income from -9662 to 3778
89% increase in custoemrs 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
SHOP – Why do I hold onto shopify when I could move my money into a much faster revenue grower, such as DataDog or Zoom? The reason is Shopify’s TAM. The TAM for SHOP is significantly larger than Zoom’s or DataDog’s or CrowdStrike’s will ever be. I think this is why Shopify stock sees big gains when it gets what appears to be only marginally good news.
The big news was the Walmart deal – shopify’s merchant clients can now directlys ell their products on walmart’s 3rd party market place
Less big news was teaming up with Chiptole to provide a virtual farmers market
From its last quarter:
Revenues rose 47% to $370mm, much higher than the 443.1mm consensus, leading to a profit of 22.3mm, or $0.19/share. Analysts expected a loss of $.18/share!!
Gross merchandise volume up 46% to $17.4bb w/ gross payments volume of $7.3bb
GMV through point of sale went down 71% from mid march to mid april, but merchants were able to get back 94% of those sales through their digital sales.
Shopify capital (lending to small businesses) has 192mm in loans outstanding, up from 150mm at year end 2019. Monthly recurring rev fro this is up 25% to $55.4 mm
Quarterly YoY rev growth rate looks like this (most recent quarter first) 47%, 47%, 44%, 47%, 49%, 54%, 57%, 61%, 68%, 70%
Gross Profit Margin: 54%, 52%, 55%, 56%, 56%, 54%, 55%, 55%
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.
Since that quarterly report, AYX stock has done quite well, up give or take 46%. I don’t know why. But what makes this fascinating to me, is that it demonstrates that even the smartest of us cannot predict what ayx will do over any given time period. This is why I am always hesitant to let positions become huge within my portfolio, in case I misjudge a stock.
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%).
Revenue growth has been slowing, but profits continue to rise. I like this company’s strong competitive position, growing profits, and extremely high TAM. Similar to SHOP, 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.
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 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 ghit 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.
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
DOCU – really liked stocknovice’s break down of docu in his June report. They clearly are getting covid tailwinds, which is exactly the kind of businesses we should be looking for.
TWLO - Seems they are still duping people by including SendGrid in current results but not separating out revenue growth (Saul pointed this out when they started doing it). Still, I will be watching their next quarterly report (estimated for 7/29/2020), since that should be the first quarterly report where they fully had SendGrid in it in the year prior.
Congrats to people who made it this far in my report – hope you enjoyed. *Thanks again so much to Saul and this incredible board. *