What I did yesterday with MDB and SMAR

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

77 Likes

Makes sense. I think SMAR has a long runway remaining with some surprises likely.

But, Mongo is Mongo and it makes sense to have more Mongo than SMAR. I haven’t read the Mongo call but was very happy with SMAR call.

That said SMAR probably has more risk than Mongo but potentially fantastic rewards. Both SMAR and ZM I noticed talked about shortened sales cycles and closing big deals faster than ever so that’s the opposite of the DOCU thing.

For me Mongo has been #1 for awhile at 15% compared to 9% for SMAR. Why haven’t I gotten to the call yet? Almost don’t need to I am almost certain it was great!

Darth

And Zoom!

10 Likes

So you have about a 4-5% position in ZM now Saul?

Have to say, I believe most of this board has stayed away thus far (except I think Lieberman has purchased a small position in ZM as well?) - it’s just uncanny how you have the ‘pulse’ of market participants, I would say almost subconsciously. I know you say that you can’t time the market, and surely you say that because you remember the many times when it didn’t work out for you in your long investing career. But I think your instincts are still more naturally attuned to the market than the rest of us. Reminds me of the stories (probably myths) of George Soros, where he will sometimes change market position just because his back hurts - how the hell are we suppose to learn from that?

Anyways, all this to say that it’s very impressive how many times your calls turn out to be correct, how confident you seem to be when making these “risky” calls, and how brave it is to buy something that the rest of us are staying away from because of expensiveness, but have the market agree with you in turn

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I know gratitude is OT, yet… Thanks Saul, as a novice investor it is super useful to read how you manage this movements.

Greatly appreciated!!!

ferran

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So you have about a 4-5% position in ZM now Saul?

3.7% as of yesterday’s close. Increasing a 3% position by 12% is only adding 0.36%.

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increased my small Zoom position by about 12% before the close (before earnings were announced), mostly at $77.40.

Was that a typo or do you mean on 6/5? It looks like it didn’t trade below $78 on 6/6 after 11am on the NASDAQ.com interactive charts?

Good call either way.

Saul,
Could you elaborate a bit on why SMAR results were perhaps a bit underwhelming to you?
Was there something you particularly didn’t like, or simply that MDB was that much better of an ER?

Also - did you look at Elastic’s numbers and have any thoughts on reentering? I know Bear had a nice writeup yesterday on ESTC ER.

It seemed ESTC, MDB, and SMAR all had above 50% growth (elite) and each seemed to show great growth in # of customers with ACV > $100k, etc…

thanks!
Dreamer

10 Likes

Thanks Saul, for sharing your thought process. Great learnings for newbies like me.
Refreshing to see you did not use regression analysis w/ multiple spreadsheets. LOL. Just some simple yet sanguine thoughts and swift action. Amazing!

increased my small Zoom position by about 12% before the close (before earnings were announced), mostly at $77.40.

Was that a typo or do you mean on 6/5? It looks like it didn’t trade below $78 on 6/6 after 11am on the NASDAQ.com interactive charts?

It was actually early in the day. I just meant to say that it wasn’t after the earnings announcement.
Saul

1 Like

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… I took another (much smaller) part of the SMAR money and increased my small Zoom position by about 12%. Am I expecting a beat and raise? Of course I’m expecting a beat and raise!

I just got home and signed on to my broker and I see that the market eventually saw it the same way I did:

Zoom up 22.0%
Mongo up 9.4%
SMAR up 1.5%

It’s nice to hit them all right once in a while. I just wish I had a larger Zoom position, but I wouldn’t be able to sleep nights.

Bet,

Saul

26 Likes

Also - did you look at Elastic’s numbers and have any thoughts on reentering? I know Bear had a nice writeup yesterday on ESTC ER.

The ER was good according to you and Bear (I bought some thank you very much) but I think the market is waiting to see what happens when the stock lockup expires on next Monday.

Saul,
BYND is up 35% today and is up 5.5x since IPO last month! I do not know what to make of these stock price movements. Is it irrational exuberance affecting all high growth stocks or just crazy high valuations in certain stocks like BYND. I am thinking the latter.

Mr. Saul!

I see linear extrapolation worked this time for Zoom. It is the way most people forecasts but it often is wrong. Not in this case. It was a good and lucky call. I did not add just before earnings but I did take a position in May because I liked their growth prospects and their financial position looks very good.
On Mongo, I did see you mentioning the upgrade the day the market was down (June 3, 2019), and I took that to mean that you saw that upgrade as a nudge to buy more. I decided to wait for the report. It was good but I did not like their weak guidance but you did not read that the same way. You put the emphasis on the big growth of Atlas(I assume) so much that you added. With the stock rise after that, one might think your move is self-explanatory but I don’t. What do you make of the weak guidance for 2020? Please don’t tell me you never pay attention to guidance? Really?

Maybe my focus is wrong? I like to look at guidance and at prospects and at potentials when deciding to invest. Afterall the market is about the future, isn’t it? But nobody really can know the future. So we extrapolate the past into the future. I have been cautious about doing that, and I am always worried about nonlinearities and black swans and balls from left field. Paradoxically, extrapolation often works well in the shorter term because the gap starts to be visible only after a longer time. That is true for the business performance. However there is this additional volatility due to the varying views and valuation of the business. That can definitely be unpredictable.
In the longer term this component could be settling down after seeing a ‘track record’. However the business does not linearly extrapolate and the gap can increase (or decrease) in a big way. You could be totally right or totally wrong ( i.e. let’s see where Tesla business will be in 5 or 10 or 20 years…only beliefs either way). One must come to a belief that what the current position of a business is will be sustained and will pan out. In order to be successful, you have to weave a mental picture of where the business is at now and where it is going. That takes more time and you don’t need to be accurate as long as you get the gist right. Along the way good things that you never even thought of could occur but bad things as well.
Along the way if the stock does not do well, you start to doubt your belief. Contrast that to what you are doing. Whatever you do if it is not reflected in a rising stock price in the shorter term (a few months), you tweak or change direction, and you do that constantly. Certainly these past few years have been good to a SaaS oriented portfolio and the trick is to get in the best ones in this sector and kept them for the longer term until of course ‘something changes’…

I am rambling. Let’s return to Mongo. I can see why one would see Atlas performance as a validation that Mongo is on its way and Google is not to be feared. But the guidance? Why so weak?

tj

Saul, BYND is up 35% today and is up 5.5x since IPO last month! I do not know what to make of these stock price movements. Is it irrational exuberance affecting all high growth stocks or just crazy high valuations in certain stocks like BYND. I am thinking the latter.

Hi TexMex, I know nothing at all about BYND and have never read anything about it, but in looking it up on google I see that they make plant-based meat substitutes. I can see no reason that it would have been up 5.5x since its IPO. So here are a few thoughts.

    • They sell things, not software subscriptions, so to double their revenue next year they have to sell all they sold this year, and the same amount again. How many doubles like that can you count on?
    • They have no recurring revenue. No guaranteed revenue.
    • Being in the food industry they are in danger of the Chipotle Syndrome: One bad batch that makes people very sick could sink the company.
    • On the other hand, their IPO could have been priced too low. Investment banks rip off little companies who have no pricing power, and try to price IPO’s as low as possible so that they can give a bargain to their regular customers, who take shares. And the investment bank also takes shares, and so try to price the IPO as low as possible.
    • When the price shot up after the IPO, a lot of people seeing it double quickly may have shorted it, and this could have set up a short squeeze, that you are seeing the bubble end of now.

As for me, I’m all for plant-based protein, but I wouldn’t touch it at present with a 10-foot pole.

Saul

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What do you make of the weak guidance for 2020? Please don’t tell me you never pay attention to guidance? Really?

Hi TJ,

As Saul has mentioned many times over, the guidance these companies put out is absurd fiction, unless it comes with a paragraph explanation of why they are reducing guidance (I.E., not enough sales reps, head of sales left, new product delays, longer lead times, etc etc). I mean, you read and listen to Mongo’s CC’s, and they are nothing short of euphoric. There’s no apologizing, stammering, or excuses. Sorry, short of a massive unforseen event, there no way in hell they drop from 80% to 40% growth in just a couple quarters.

Incidentally, have you checked over the last 4 quarters of “guidance” versus actual? I dont pay much mind to guidance given when it comes to our tech companies but I wouldn’t be surprised in the least if they had not smashed “guidance” every quarter since they went public.

Best,
Matt

13 Likes

Hi tj,

Please don’t tell me you never pay attention to guidance? Really?

Actually I usually don’t even bother reading the guidance. When a company is in a car-crash situation like Nutanix, maybe, but I’m usually out by then. For our usual SaaS companies, I just don’t bother. “Really?” … Yes really.

But the guidance? Why so weak?

So they can beat and raise, of course. When a company grew revenue at 78% this quarter, and in the press release and the conference call they talk euphorically about being at the top at the beginning of one of the biggest revolutions in data ever, and then their annual guidance calculates out to 34% or whatever in both of the last two quarters, it’s beyond nonsense, and I feel that your desire to obsess about why they gave it isn’t worthy of you. You know, and I know, and everyone on this board knows, that they will beat and raise every quarter.

Best,

Saul

15 Likes

BYND is up 35% today and is up 5.5x since IPO last month! I do not know what to make of these stock price movements. Is it irrational exuberance affecting all high growth stocks or just crazy high valuations in certain stocks like BYND. I am thinking the latter.

Not Saul of course, but attribute BYNDs move to lack of public traded companies in the sector. Have seen the mania in 3D stocks, Crypto-currencies, and pot stocks (see TLRY’s run to $100).

Rob

2 Likes

“Sorry, short of a massive unforseen event, there no way in hell they drop from 80% to 40% growth in just a couple quarters.”

Hi Matt:

this is the selective ‘hear what we want from management’ that have I have not mastered yet. If there isn’t something that leads them to say that, why are they doing that? setting up for extreme under-promise and over-deliver?

tj

I usually do not post my investment activity. Nothing to be embarrassed or ashamed of. Well, not in a bad way anyway. I’m up nearly 70% so far this year - that’s a little embarrassing in a good way. The reason I don’t post about my investments is twofold.

  1. So many people post such comprehensive monthly reports regarding the what and why of their portfolios I have nothing to add in that I do not hold any positions that are not thoroughly covered by others in more detail than I would be likely to post, and

  2. When I have something to add to the conversation, I usually do it in threads related to specific companies/products. So by the end of the month, if I’m going to say something, I’ve already said it. If anyone is really interested in what I have to say about MDB for example. It’s not hard to find my posts (in brief, MDB is my largest position).

So, this post marks an exception for me.

On Monday, my investments were down significantly. I imagine that was true for a lot of readers here. That downdraft motivated me to take some action. I still held a medium-small position in SQ. Due to the recent market swoon, I tried to think about how each of my positions might fair when the inevitable recession hits. I decided that Square was probably quite vulnerable due to the customer concentration of small businesses. I think a lot of Square’s customers will likely go out of business in a recession. I don’t care if sell subscriptions or licenses or even hardware, if a lot of your customers go out of business, that’s going to hurt your business.

I still like SQ, but I thought I could hold less. I sold about a third of my position. I seldom sell without a plan as to how I will reinvest the funds. I held some in cash, I have a mandatory withdrawal from an IRA, so I kept cash for that. Also, I kept some cash in a taxable account as I’m planning some landscaping. But, I put the rest of the proceeds into Zoom. I didn’t put any in MDB as it’s already my largest position at about 19%, that’s 4% larger than my arbitrary “comfort level.”

I had held off buying Zoom as I was still concerned with valuation, something I usually don’t pay too much attention to. But, then when Saul bought a position, I had to reevaluate. I don’t mimic Saul, but I sure pay attention to what he does. Of my smallish positions (DOCU, ESTC, SMAR, ZM) I like Zoom because they are so easy to understand and they are doing great.

I have trouble understanding just what ESTC and SMAR offer. I know, ESTC sells themselves as “search” but that is not really what they do, at least not in any traditional sense of the word. I find their offerings hard to understand, and as a result I have trouble understanding their moat and competitive landscape. And, like Saul, I have some reservations about their business model. I can’t well entertain their threats. I have similar feelings about SMAR. I’ve browsed their website and I still don’t really get their product. I don’t see a robust project management tool, it might be there, but I don’t see it. It’s another product I just don’t really understand.

I understand DOCU. My confidence is not too high just because they want to displace a lot of business activity in an area where I think most companies are not experiencing significant discomfort. They are facing the “if it ain’t broke, don’t fix it” syndrome. When companies entertain a s/w procurement, two things from a financial perspective become the primary evaluation tools. Those two things are ROI over the anticipated life of the product and payback period, the amount of time it takes to recoup the implementation costs. DOCU might have a decent ROI, but I would imagine the payback period is rather extended. DOCU disturbs a lot of relatively low cost operational activity. The replacement will create significant disruption (that equates to cost). In the long run, I’m sure there will be improvements in efficiency but in the short term it will just add to costs.

Or, at least that’s the way I see it. Obviously, I’ve not performed a financial analysis as its something that’s highly dependent on specific circumstances. But if I’m right, this will act as deterrent to management with respect to purchasing this product. My own experience is that management does not like extended payback periods. I’ve seen it be sufficient to kill projects with otherwise good ROIs. Management tends to be a leery about ROI, no one can really see 5 years or more into the future. The longer the payback period, the more the ROI becomes dependent on delayed rewards from the project. So, I hold a small position in DOCU, but it will most likely be the next one on the chopping block when I decide to buy something new or more of something I already have. Zoom is moving up on my mental list of where to put a few more dollars.

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“You know, and I know, and everyone on this board knows, that they will beat and raise every quarter.”

ok, they set themselves for the beat by lowering expectation but why do they have to low ball that much until it is like you say unbelievable?

I guess it is difficult to forecast growth rates quarter to quarter and gearing down to 40% is their way of saying ‘we might slow so don’t expect that much every quarter’ , or what? Some are selling because growth is slowing from 70% down to 55% but you don’t believe Mongo can slow from 70 down to 40%? then what about from 70 down to 60 or 55%? Sorry but this kind of justification is still incomprehensible to me especially after deciding selling because of one piece of news of Google muscling in. Yes you ‘corrected’ and re-bought what you sold and added. Yes but I mean it can turn starkly on any little news. Shoot first and then ask question. It’s head spinning.

I wish I knew. But I didn’t and I still don’t.

tj