What did I do during this crazy earnings season, or should I say earnings week! I’ve never had all my stocks report at once like this before, that I can remember. On July 27, Amazon and Mulesoft reported and that was easy to digest, but then came last week, where in three days I had Shopify, Paycom, Square, Hubspot, Arista, Ubiquiti, Talend, BlackLine, and New Relic. I couldn’t keep up with all the earnings, conference calls and relevant posts, and often had to act on incomplete information. I just couldn’t keep them all straight in my mind it was happening so fast. And tomorrow is LHIH and Kite, leaving only Splunk for later in the month.
Okay, what did I do?
Amazon reported first and I continued to trim my position. It’s down now to a 3.8% position. Why am I trimming? After all, Amazon is a great company and I’ve ridden it from $550 or so to $1000 in less than two years. However, it’s not one that I can see tripling in price in the next few years, because of size. I’m also a little concerned about possible anti-trust action, especially when Bezos is publically feuding with a powerful politician, and when I see figures thrown around like 45% of all online commerce going through Amazon. Also AWS, their cash producer, was totally dominant at first but now it’s having more and more competition from Microsoft and others. They announced loads of marvelous products introduced, expansions of services and lots of entertainment produced in-house. However, they seem to have gone off and forgotten again about being profitable. That gave me four reasons to trim and I’m more comfortable with my position smaller.
Mulesoft is next. Yes, their sales cycle is lengthening, but heck, their revenues WERE up 57%, their deferred revenue was up 50%, their gross margins were up, their customers are spending more each quarter, etc. I added to my position on the drop. Most of what I bought is now in the green as it’s been coming back. It’s now a 6.4% position.
Then came Shopify, which is a juggernaut! After earnings I added as it fell back from its initial well-deserved rise. It was at about 15%, rose with the price rise, and then I built it back up to a 20.4% position. I know it’s against my principles, but how often in life do you get a Shopify? By the way, they promised profitability in the fourth quarter but I think they are planning a surprise with third quarter profitability.
PayCom I found very disappointing and I’ve sold most of my position. Why? They are slowing down rapidly:
Earnings growth in 2015 was 122%.
Earnings growth in 2016 was 118%
Earnings growth in 2017 Mar Q was 42%
Earnings growth in 2017 Jun Q was just 24%. PE is 64 (at $68) !!!
Revenue growth in 2015 was 50%.
Revenue growth in 2016 was 47%
Revenue growth in 2017 Mar Q was 33%
Revenue growth in 2017 Jun Q was 32%
They have had to spend a lot more on R&D (up 80% to 100% each quarter), but the big thing is they only seem to grow by opening more offices, and with that you get the restaurant syndrome (when you have 25 offices you can add 5 and gain 20%, but when you have 50 offices, adding 5 only gets you 10%. How are they going to keep growing fast? It used to be one of my largest positions but now it’s down to just 1.6%
Square and Hubspot seem to be doing just fine and I added small amounts to each of them. Square seems very focused on making money. Hubspot, especially, will be profitable for the year, is doing much better than expected, and is making major increases in guidance. They are 9.7% and 8.2% positions at present
Then came Ubiquiti. It was up to $66 in the premarket, and I sold almost all of my position at that price. My thinking, without much time to think, was that a rise from 69 cents earnings to 75 cents was hardly worth a 25% rise in price, and that 75 cents was actually down sequentially from 78 cents. But then I read the press release, the conference call, and various commentaries carefully, and decided I was missing the forest for the trees. They have two businesses, a WISP business which is pretty stagnant, and an enterprise business which is growing like mad and is now up to 50% of the whole. I added back a little today (actually at about a dollar less than I sold, and I have about a 2.1% position.
Arista blew it out of the water, and when I had a chance to consider, I decided to add, even though it had run upquite a bit. I bought near the opening this morning so I was lucky to get it at a little sell off, and it is now an 8.75% position.
Everything seems to be going according to plan with Talend. I’m very happy with them and I’ve added a small amount. It’s an 8.0% position.
I thought the sell off in BlackLine was excessive, and I bought some as it went down, but then decided I didn’t need quite that much and sold some back. It was possibly a mistake to add but we’ll see. I now have a 6.1% position.
Finally, I felt that New Relic was slowing DRASTICALLY, perhaps due to its limited TAM, and I sold out of my little half position, at prices close to what I originally paid for it.
I also took a little 1.2% position in Twilio because of all the enthusiasm for it by people I respect on the board saying so many good things about it. I also figured they probably guided to a worst possible scenario with Uber, and would probably beat consensus when they reported tonight.
I also took a little put it on the radar 0.4% position in TelaDoc that Bear and Ryan have talked about. I have no idea whether I will keep it at this point.
Finally I added to my LHI Homes position after they announced July closings. It’s also been rising in price so it’s now a 11.0% position.
Putting it all together, my ups were greater than my downs and I’m now at up 47.3% for the year, up another 1.6% from up 45.7% at the end of July. The average of the three Indexes I follow is down about 1% from the end of July.
I’d welcome comments or questions.
Saul
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