When the Tide Rolls Out

Hello Ed -

I think SEDG is a fine company, but not quite the bargain it was last year. There was a time when folks considered ENPH and SEDG bitter rivals, but the companies have diverged a bit. SEDG no longer rules the rooftop space, now deriving almost half its revenue from commercial projects. The focus is now less on optimizers and more on the central inverter offerings. This divergence brings with it different headwinds (Huawei as a competitor for one). There’s lots to consider. I’ll try to write more as time permits.

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Denny,

I have read and enjoyed several of Gladwell’s books. Do you have a link to the New Yorker article?

Thanks

Andy

I didn’t save the link but this is what Google brought up.

Blowing Up
https://www.newyorker.com/magazine/2002/04/22/blowing-up

but this is not the full article. I also found a pdf that seems to be the whole article

http://www.frontieradvisorsllc.com/files/1257437345_Blowing%…

Denny Schlesinger

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This is bringing back memories of reading this article several years ago. It’s probably how I first heard of Taleb, and right now I’m in the middle of reading his book Fooled by Randomness.

Taleb’s website:
http://www.fooledbyrandomness.com/

Taleb buys options because he is certain that, at root, he knows nothing—or, more precisely, that other people believe they know more than they do

“you know nothing John Snow” -
been binge watching Game of Thrones.
That is a really dangerous world…

The book is worth reading. A Black Swan is not what most people think.
Though the author spends a good bit of print space showing how smart he is. And how dumb almost everybody else is.

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thank you

andy

Consider for example Saul’s portfolio of which one stock has no product (NKTR)and most others have no earnings (SHOP, TWLO, AYX, PSTG, OKTA, NTNX, TLND, HUBS, SQ) although these two do have earnings (NVDA, ANET) and a few of the no earnings appear to have future PE’s.

I’m going to say this again… PSTG has transitioned into profitability as well as + free cash flow.

So has SHOP for that matter.

HUBS was profitable for every quarter last year as was SQ.

Otherwise great post and take your point.

Ant

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PSTG has transitioned into profitability as well as + free cash flow.

So has SHOP for that matter.

  • For SHOP, how are you calculating FCF…are you including Capex?

  • For both PSTG and SHOP, your thoughts on the quality of their cash flows (e.g., their dependence
    on stock price, dependence on growth)?

Thanks,
Ears

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PSTG is not profitable on a GAAP basis.

It’s fine to say their adjusted metrics are profitable, but managements have a way of leaving out actual costs to make the numbers look better–even Amazon.

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HUBS was profitable for every quarter last year as was SQ.

HUBS was unprofitable last year for every Quarter.

Their OpIncome ranged from negative 8m to negative 12m.

Their Net ranged from negative 8m to negative 11.5m. Minus $40m of net income last year.

They did turn FCF positive.

Sources: MStar, Yahoo.

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It’s fine to say their adjusted metrics are profitable, but managements have a way of leaving out actual costs to make the numbers look better–even Amazon.

GAAP has a way of leaving out REALITY!

Denny Schlesinger

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http://d18rn0p25nwr6d.cloudfront.net/CIK-0001512673/da35ab78…

Square also lost money every Q last year.

’ Net loss in the fourth quarter was $16 million, essentially flat on a year-over-year basis.’ from their annual report.

Of course, you’re not buying Square for their 2017 results, but let’s stop calling unprofitable firms ‘profitable.’

I have owned SQ in the past but simply consider it too pricey at these levels. Would happily buy again on a pullback.

Naj

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I have owned SQ in the past but simply consider it too pricey at these levels. Would happily buy again on a pullback.

I still own some shares of SQ, but am considering buying some short-ish term puts as a hedge. It has run up almost 65% YTD looks like…and was one of the few holdings of mine that was only down slightly yesterday.

PSTG is not profitable on a GAAP basis
HUBS was unprofitable last year for every Quarter.

Hi NajdorfSicillian

With the utmost respect for you and your outstanding contribution to the boards across TMF, I completely disagree with this assessment.

Leaving aside that the board as a whole generally uses Non-GAAP EPS as its preferred measure (see the google spreadsheet resource, Saul’s resources etc as well as the past discussions of GAAP vs Non GAAP), I looked at the reconcillation of this for HUBS and SQ and PSTG and in every single case the SBC expensing when alone made the difference between profitable Non-GAAP and Loss making GAAP.

I agree it is very important to:

  1. Understand what levels SBC are running at
  2. Understand what else management is pushing into adjustments
    …and whilst I would love all my companies to be simply profitable on both measures, I am completely satisfied that this an SBC treatment effect only and nothing more than that.

Don’t get me wrong I have called B8IIsh1t on companies for their GAAP/Non-GAAP and core vs non core accounting - GSK being one of the absolute worst offenders I know, however this is not the case with these companies.

These firms are profitable full stop and the only consideration here is basically an SBC treatment point and not anything else to do with restatements or adjustments of operating activities.

Ant

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