What I did yesterday.
I had a different reaction than the market had to MDB and SMAR. They both had good results but the tones of the results and the conference calls were very different. Mongo gave the feeling that they were taking over the world. Revenue was up 78%. Atlas revenue was up 340%. “We are in the early stages of the largest platform shift in history,” etc. Maybe a little hyperbole, but they have the numbers to back it up. Smartsheets seemed much more pedestrian, a company doing very well in its little niche. People are talking about whether Mongo will be the next Oracle! Smartsheets will just be Smartsheets. So SMAR is worth a smaller position.
What I did was sell about 60% of my SMAR position and moved most of it into Mongo, which astoundingly was down (but to be fair it had risen $18 in two days going into earnings). I bought with multiple small purchases between $138.70 and $147.50. All the purchases were below the previous close of $148.87, and all were below the eventual close yesterday at $147.74.
I took another (much smaller) part of the SMAR money and increased my small Zoom position by about 12% before the close (before earnings were announced), mostly at $77.40. Why? Well after explaining to tj how surely Zoom would enormously beat expectations, I had convinced myself, and made use of the conviction that I had gained. Here’s what I wrote earlier in the week in response to the following question
Saul, are you really holding ZM through the earnings? are you expecting them to beat and raise?
I responded as follows:
“tj, you must be kidding. Of course I’m “really” holding ZM through the earnings. I don’t think I’ve ever sold out of a company “before earnings” in my life. I take positions in companies to hold indefinitely, until the story changes. Nothing has changed yet for Zoom.
Am I expecting a beat and raise? Of course I’m expecting a beat and raise! Can you remember when one of our SaaS companies hasn’t beat its estimates, even once? I can’t. I don’t know what Zoom estimated (if they did) because I don’t pay attention to estimates unless they are accompanied by all sorts of apologies (like Nutanix, for instance), but I just “googled revenue estimates for ZM” to help me answer your question, and I got $111.66 million as the consensus.
Now the last three quarters they rose sequentially by $15 million, $15 million, and $16 million (From $60 to $75 to $90 to $106 million). Do you think they’ll beat $111 million? It’s laughable.
If you add another $16 million on the last quarter’s $106 million you get $122 million (up 103%). That beats the estimate by $11 million! If you give them a little nudge because of all the amazing publicity their IPO got… and say that was worth an extra 2% revenue, up to $124 million, and we are looking at up 107%. (On the other hand, we don’t know whether there is seasonality with the first quarter, so I’ll be happy with the $122 million, or even a little less). Yes, I expect a beat and raise!”
As you can see, I hit the $122 million, up 103%, on the nose (just luck😀), and as that was $11 million above consensus I figured I’d add to my little position before earnings. Apparently everyone else figured they’d collapse after earnings.
Best,
Saul
PS - By the way I hit a new high yesterday at up 150.7%… It’s been a bouncy year.
**Mar 21 high of 42.7%**
**Apr 19 low of 29.9%**
**May 03 high of 44.3%**
**May 13 low of 31.7%**
**May 16 high of 48.3%**
**Jun 03 low of 34.4%**
**Jun 06 high of 50.7% so far.**
As you can see, each high is higher than the one before, and each low is higher than the one before so far, but I have no advance knowledge as to what the future will bring.
Saul