- Implications of the current market cap
Zscaler is presently a $10 billion company. Crowdstrike is at ~18b and Zoom is at ~28b. Think about that! Zscaler can triple and only be about the size Zoom is now! And I think a lot of people would say that Zscaler’s TAM is just as large or larger than Zoom’s. I don’t personally feel like we can put a good number on TAM, and I’m always skeptical when a company states their TAM. But just intuitively, Zscaler seems like a product that could appeal to almost every company in the world, and Zoom could too, but on a lot smaller scale. Zscaler’s customers pay them a lot more money than Zoom’s, at least on average.
I am in same mindset, although I have never really seriously considered ZM.
I think CRWD could make a great complement to ZS as a cloud-based security play, but although I traded it for a short period, it started too high and now is just a bit silly.
Splunk is interesting to me, in terms of looking at market cap. Twilio is now bigger than SPLK, and so is CRWD. This is despite years of hyper-growth from Splunk, and despite Splunk still having solid growth for a $2b runrate business.
If Splunk is an example of the “end state” for our hypergrowth companies, than isn’t their market cap instructive perhaps? Splunk has same P/S as CRM, but CRM is over a $100b mkt cap. It appears that once you have growth slow to a certain point and/or your business model is thrown into question (Splunk’s pricing model compared to open source options) then the P/S deflates.
In a similar manner, what would it take for the fastest-growing stocks to suddenly undergo P/S deflation. NEWR plummetted, and so did SPLK. I think it is nuanced, but they appear to have been disrupted by competition. In the case of ZM, hard to see a moat or a reason why they couldn’t be disrupted. CRWD has an interesting bus model and was built-for-cloud, but when you started investing in AYX/TTD/MDB/ZS in early 2018, they were all about $3b or less mkt cap. If at that time I told you they would get to $17b mkt cap, you would jump for joy and consider it a job well done.
In order for CRWD to mimic the stock appreciation of those 4 companies from early 2018, CRWD would have to become…what…a $75b mkt cap in 12-18 months? Is there a planet where that makes sense?
Anything produced on this board is free (except ones’ time given) and I am appreciative of that.
But I would like to see the board shift more to a focus on CAGR models and expectations over the next 1-2-3 years from current valuations. If the point is ultimately to maximize our port gains while balancing our personal risk tolerances, shouldn’t we at least do some napkin math to imagine where these stock prices could/should be in the next 12 months or 18-24 months, etc… and see what kind of returns are most likely?
My reply is rambling compared to Bear’s, but I have seen a few of his posts that are in alignment with my thoughts that at some point the stocks we own may need to appreciate based on growth and not via multiple expansion, and history seems to teach us that the multiples will eventually contract. Shouldn’t we be factoring in future contraction? ServiceNOW (NOW) should eventually track closer in P/S to CRM, but right now they are younger and growth is still a bit higher. Likewise, WORK or PLAN should eventually echo multiples closer to NOW.
So the multiple expansion is like a curve, in my mind…starts lower if under-the-radar, then awareness combined with stellar results equals multiple expansion. Multiple is maintained while growth is maintained and/or as liklihood of future net profit margins gains clarity. Then multiple tracks lower as growth declines and/or realistic TAM appears more saturated (either due to success or competition).
I recently dipped back into ZS when it got near 70, which is about a 5-month time machine. Still expensive, but actually under $9b mkt cap, and I have a much easier time of seeing ZS get to $12b mkt cap, than CRWD and ZM increasing their size by 1/3rd in same period of time.
ZS at $9b mkt cap and low-30s P/S with a $300m TTM can, imo, easily be envisioned as a $12b mkt cap at mid-20s P/S with a $450-475m TTM in one year, for about 25-30% gain. But notice that the 25-30% stock price gain is lower than their likely revenue growth. If I am wrong and the market continues to give them a P/S over 30, then I still win, but at least I have some reasonable math to fall back on if their multiple does contract over the next year.
Dreamer