WSM’s portfolio 30 Aug 2022

I, like most Europeans this time of year, have been soaking up some sun the last months and I skipped my monthly update last month, hence this one covers two months.

Below is my performance for the year. I was up a tad vs July. But only two days later - this last Friday - I was back to where I was en July…


Jan	 -27.1%
Feb	 -23.9%
Mar	 -33.8%
Apr	 -43.4%
May	 -59.0%
Jun	 -59.6%
Jul	 -58.4%?
Aug	 -54.2%


Below is the composition of my portfolio on 2 Sept.

**Cloudflare		19.5%?**
**Crowdstrike		16.3%**
**Datadog			15.2%**
**SentinelOne		15.0%**
**[](		14.8%?**
**Snowflake		12.3%**
**Gitlab			6.4%**
**Cash			0.5%**


In July and August I made changes mostly in the % of my positions. I also took a position in and I sold MongoDB, same as many on the board.

I sold MDB but unfortunately only after the stock had dropped like a rock after earnings, and deservedly so imo. Because it was a very large position, it hurt my portfolio a lot. Even though revenue came in ok at 53% yoy, the guide was for revenue to remain flat in the next quarter, and any semblance of operating leverage disappeared. Customer growth stalled. Gross margins dropped by 1.6% sequentially, operating margin deteriorated by 7.4% sequentially and FCF by 18.9% sequentially, to -16% for the quarter, the worst FCF margin in 4 years. I really didn’t need to look much further than that to sell.


Cloudflare ended up as my top holding only towards the end of the month, after I sold MDB. I found their results strong. They didn’t accelerate by much, to the disappointment of some, but growth stayed constant. That constancy is what I am more and more coming to value greatly. Clocking in at >50% growth quarter after quarter without any deceleration is an incredible feat. One which I have not seen at any other company that I know of, and in none of my other holdings (again, if anyone knows of another, please shout!)

And even though they have the most capex-heavy business model of any of my holdings and they have not really started to throw off cash in a meaningful manner, they intend to and have a credible path to achieving same.

Revenue grew 10.5% sequentially - the fastest pace since 2017 - and 54% yoy to $234.5m.
FCF was -1.9% of revenue vs -6.4% last year and -30.3% last quarter, so leverage keeps kicking in.
RPO was up 10% sequentially and 57% yoy, higher than revenue growth - pointing to more good things to come.
GP margin was constant at 79%, and Op margin was essentially at zero, and given that the second half of their year has historically seen better margins, they will in all likelihood be op margin positive for the full year, the first time in their history.
NRR ticked down a notch to 126% from 127% in the prior Q, but was still the second-highest NRR in their history, and customers spending more than $100 pa kept growing at a strong clip - at 14% sequentially and 61% yoy.


CRWD had a good, but not blow-out quarter.

At $535.2m for the Q, revenue growth slowed to 58% yoy vs 61% in the prior quarter and 70% in the prior year, so their growth was 84% of the prior year’s growth rate; slightly above the 81% average of the year before that, that they did during last year.
ARR showed a similar trend, but RPO was a bit slower still, at 49% yoy vs 81% in the prior year and 60% in the prior quarter. So all was not well in RPO land, probably reflecting customers being loathe to commit upfront as much as they were willing to when money grew on trees.
FCF was up 4%pts vs the prior year (it’s seasonal so a comparison vs prio Q is not as useful) which is great. However CRWD is quite a big SBC spender, and as ethan1234 pointed out here, had they in stead used cash to pay for those salaries (in stead of SBC, which is a non-cash item - essentially it’s management getting the shareholders to pay the employees directly by giving away a bit of the company rather than forking out any cash), the FCF trend would have been less rosy.

I’m willing to give them the benefit of the doubt here, though, as it would seem in the most recent quarter it has taken a turn for the better, but it still bears watching. (ZS on the other hand gets no benefit of the doubt from me; their SBC is growing at rates that far outstrip their revenue growth, in addition to the other issues I have with them, but I digress…).

Crowdstrike is the dominant player in next-gen endpoint security, have never disappointed in the years I’ve been following them and they have huge macro tailwinds helping them along. I want to be overweight cybersecurity, so I’m happy to have it as a core holding.


Datadog had a good report but disappointed a bit vs what I had hoped for. Accordingly I cut my position in half just after earnings - possibly too quickly as I built it up to the current level again after selling MDB.

Revenue grew by 74% to $406.1m, down from 82% the prior q but still up meaningfully from the 67% in the prior year.
Their GM came in at an all-time high of 81%, operagin margins were strong at 21%, down by 2%pts from 23% sequentially but up from 13% a year ago, so great operating leverage.
However, FCF and FCF% went down quite a bit - FCF down 54% sequentially and margin by 21%pts sequentially to 14.8%, from 35.8%.

Nevertheless, standing back a bit and looking at FCF margin on a per year basis the cash flow margin expansion story is firmly in tact.

So what bothered me? The leading indicators. Now some people may argue with me on any single one of these indicators: RPO just shows some contracting shyness from customers and does not really predict revenue as this is a consumption model, billings is not a good indicator of their growth as this is a consumption model and billings are prone to big timing differences, guidance just reflects conservatism about the macro environment. Fair enough: all three points are valid on their own. But I think taken together they paint a picture of a slowdown coming:

  1. The full-year guide didn’t really move by much - it did go up, but by less than the current Q’s beat, so looked at in that light, it actually went down.
  2. RPO decelerated to 51% yoy from 85% sequentially and 103% the prior year.
  3. Billings actually dropped. Down by 11% sequentially and up 47%. This is the biggest sequential billings drop in all the quarters I’ve tracked. They did explain that this was due to timing differences and adjusted for that it would have been “mid-fifties”, and Q1 & Q2 together was 72%. Still, popping in 55% billing growth yoy would put billings down 6% sequentially, which is still the worst billings decline in all the q’s I have for them (14 quarters).

So why is the Dog one of my top positions? Well, like I said, it wasn’t after their earnings. But then as the other companies in my portfolio (and outside) reported, I reassessed all of my positions and decided that the Dog deserved a big spot, and that I cannot predict what will happen here. Because it is, well, a usage-based model…and we are definitely heading into/already in a recession, where no B2B company can be expected to power through without feeling a bit of pain. Hence I am now looking for relative strength, not invincibility. As expressed by the CEO:

”We saw our larger spending customers continue to grow but at a rate that was lower than historical levels. This effect was more pronounced in certain industries, particularly in consumer discretionary, which includes e-commerce and food and delivery customers and affected more specifically our products with a strong volume based component such as log management and APM suite. Note that we did not see this with our SMB and lower spending customers who continued growing with us as they have in the past.”

However he also said they had success even with companies where there has been business contraction and/or layoffs, because they help them save money.

The CFO didn’t want to promise too much but he did say that some of the usage pullback that they saw early in the quarter got a bit better in July and they also said that they put some extra conservatism in their guide - even more than usual.

If I step back from the details of this quarter, it sounded like their customers - especially ones with a lot of spend with DDOG - optimised where they had the opportunity to do so, just like they did in COVID, but at a much smaller scale. So if this is a mini-COVID-sized pullback and they revert to trend hereafter, we should be in for a good performance of the company and probably the stock. If this is the beginning of something worse - a couple quarters of mini-COVID pullbacks, say, then not so much. I’m thinking it will be the former.

I’m also sure they will come out the other side of the coming/current recession still being the category leader. Two of the most impressive to me are these two quotes, one from the CEO and the other from their prezzo:

”For those of you who have followed us for a long time, we burned less than $30 million on our way to IPO, and we’ve generated a lot more cash than that since then.”

“130%+ DBNRR in each of the past twenty quarters”.

Lastly, the CEO was very positive:

we see that all of the leading indicators of success are looking good for us. So I’ve mentioned it on the call but we’re seeing great action with new logos. We’re seeing great success with new product attaches. The pipeline’s going into the second half of the year are very good.”


SentinelOne is out of favour with many people on the board and in the market. However, after some digging (in my June portfolio write-up) I liked them before this report, and I like them more after.

Everything was up and to the right:

  • GM% up nicely to 72% up 4%pts sequentially and 10%pts yoy!
  • NRR up very nicely to 137%! from 131% the prior Q (6% sequentially!).
  • Revenue and ARR came in as expected at $102.5m and $438.6m, up 124% and 122% respectively. However this is boosted a bit by Attivo, which they won’t be reporting separately going forward.
  • Op margin improved 16%pts sequentially to -57% from -76% and 41%pts!! yoy from -98% (their opex is seasonal so the Q1 to Q2 drop is not that relevant).

Their Q2 guide was for $111m in revenue which gives them a bit of leeway to come in with a beat at around $117m next Q which will be good for 109% yoy.

Two minor disappointments for me: FCF and the full-year guide:

  • They just beat by $6.5m and raised full-year rev guide by between $7m and $10m depending on how one calculated the guide last Q, so not by much.
  • FCF didn’t improve by much; they’re still burning tons, but still it did show improvement: FCF margin improved by 4%pts to -65% from -70% sequentially and by 32%pts from -98% yoy.

Customer adds, especially larger customers were good. The in-quarter performance was therefore quite good and the slightly disappointing guide I’m putting down to prudence.

And for those who are still comparing them to an earlier version of CRWD (I am, just for the hell of it), they now have something different to offer ito trajectory: they are not showing as much operating leverage yet - yes, BUT they have accelerated their revenue growth and absolute revenue past where CRWD was in Q1 2020 (yes, yes, due an acquisition, but still that’s now part of the S story, no?), which means they could potentially go a bit further?


I took a fairly big BILL position after having been on the sidelines for a long time. I thought a bit about the nature of what they do. Most of their revenue comes from transaction fees, which generally has not been great for me from an investment point of view (LSPD, UPST…). So I started thinking about why that was. And it is essentially because that type of revenue is non-recurring and can be switched off much easier than subscription revenue. And herein lies the rub. I believe that a big part of BILL’s transaction revenue is in fact highly sticky and recurrent - much like subscription revenue. That is because 80% of core BILL transaction revenue is for repeat payments by their customers - think paying a core supplier like AWS if you’re a SaaS business, something that you will do every single month come hell or high water. And that means that around that 80% of BILL’s core payment/transaction revenue is actually very much recurring in nature. The Divvy part is not, but it does tilt the scales for me as a much higher % of their revenues has a lot of certainty than would seem to be the case if one did not consider the nature of their transaction revenue.

Their last 2 years of revenue and yoy growth looks like this:

$m	Q1	Q2	Q3	Q4
2021	46.2	54.0	59.7	78.3
2022	116.4	156.5	166.9	200.2

2021	62%	38%	45%	86%
2022	152%	190%	180%	156%

The sceptic in me says: yes, but that’s juiced up by Divvy, which is all relatively lower margin revenue (esp if one reallocates some of their marketing spend to CoS as has been pointed out elsewhere on the board) as well as being quite volatile.

Fair enough. So let’s take it out and leave Divvy as the cherry on top. This is what BILL’s core revenues and growth looks like with Divvy taken out (not total revenues, mind you, this is only the subscription and transaction piece - at least that’s how I have it; they give a lot of detail in the calls but you’re still left to do the work yourself to try and figure out what each piece of the business was up to):

$m	Q1	Q2	Q3	Q4
2020	28.6	33	36.1	38.8
2021	43.8	52.2	58.6	67.2
2022	77.7	97.1	102.1	114.9

2021	53%	58%	62%	73%
2022	77%	86%	74%	71%

I like them apples. In addition their NRR was 131%, up from 124% a year earlier and they’ve started to show some operating leverage - both FCF and operating margins are close to break-even and appear to be heading in the right direction.

That is the one question mark with BILL imo, though. Those operating and FCF margins didn’t really impress in Q4, with FCF going to -2% from +3% in the prior Q and +5% in the year ago quarter, and op margin going to -2 from -3% sequentially vs -8% a year ago. It looks like there could be a trend there, but it’s not yet very clear that they will start to generate significant cash soon. I’d like to see some more of that and will therefore probably reduce my position a bit from here.


In July I wrote of SentinelOne that:

I don’t know of any SaaS company (or elsewhere for that matter - perhaps someone can weigh in if they know of one!), which combines the following:
1. has some scale: run-rate revenue > $300m pa
2. gross margins above 65%
4. guiding for organic next Q revenue growth above 90% (and total revenue growth above 100%.)
5. guiding for full-year revenue growth of ±100%
6. NRR above 130%
7. operating margins improved by >30%pts yoy
8. guiding for operating margins improving a further ±30%pts in the coming year
9. In a market with big tailwinds and which is expected to see limited pullback of spend in the expected coming economic recession

I got one bite, from rmtzp - who said that he knows of a company that has almost all of those characteristics, and pointed me to GTLB.

Then Peter Offringa wrote a nice overview (…) and I delved into the numbers. And sure enough, Gitlab seems to tick all of the boxes above, and it is still a much smaller company that say a SNOW. It impressed me enough to take a relatively big starter position. They haven’t reported results yet, so I’ll be waiting to see what they report on 6 September before making a decision on whether to increase or decrease my position size. My main reasons for taking a position were:

  • I like the CEO - he’s a smart guy and they went through Y combinator. He’s very bullish on their prospects in a recession. Sees what they do as a way for customers to save money and they have a very long runway in their existing customers still to unlock and a very high NRR (±150%) which could accelerate further.
  • Their position vs the hyperscalers is favourable imo. Amazon and Google are actively promoting Gitlab because they won’t push Github, it being Microsoft. So the partnership with Google and Amazon is growing very nicely as these guys see Gitlab as an enabler of faster cloud adoption - similar to DDOG. But differentiated in that there are only really two players in town: Gitlab and Github. And Github is Microsoft…
  • They focus on very large customers and have a massive NRR in these customers. Similar to Snowflake - but at a $8bn valuation and only getting started in a huge market - their competition is DYI devops; they don’t compete a lot with Github as their combined market share in their estimated TAM is <5%
  • The product is extremely sticky - they mentioned that they don’t really lose customers so gross retention must be extremely high. Once you adopt a Devops platform you don’t move as it’s instrumented in the very way you do dev.
  • They are moving to SaaS and their SaaS business is growing >100%. So a similar dynamic to MDB, except that the on premise part of what they do is growing at hypergrowth too.
  • They’ve built a great innovation machine, similar to NET, DDOG etc. Where NET gets to test, ideate and iterate on all of their free customers, Gitlab has managed, through their pricing model which I find very smart, to get the open-source community to continue to innovate on their behalf. On top of that they have a big engineering force similar to the others. They are starting use this to branch into new/adjacent areas.


These guys just blew past my expectations and have proven that they will be a behemoth one day. I had a much smaller position going into earnings and built it up after their great performance.

Revenue was up 83% to $497m which is amazing at this scale.
Operating margin was up 4%pts to 4% from 0$ seequentially and 12%pts from -8% yoy.
FCF pulled back a bit to 12% from an incredible 43% last q, but a pull-back was to be expected as Q1 is historically a very strong CF quarter and was boosted by strong collections from the record Q4 bookings of last year.

Couple of things that stood out for me in addition to the obvious great KPI’s:

  • The excitement and confidence about the next phase of them disrupting app dev, and the early signs of success there
  • The success in Europe
  • Very strong indications that RPO will accelerate (a lot) in Q4 due to renewal dates starting to converge on that Q coupled with repeated comments about the current macro-environment favoring Snowflake’s solutions, billing/consumption model and in some cases being the cause of faster migration to the cloud by on-prem customers
  • Sales momentum building towards the second half of the year with record s&m employee growth in the first half coupled with already increasing (vs last 2 q’s) sales efficiency (new customers per S&M employee is up meaningfully vs q1) and a ramp-up time of 6 months to a year for sales reps.

Of the KPI’s the key thing that surprised me on the upside was their NRR durability. NRR dropped 3%pts sequentially to 171%!! and was up 2%pts vs the prior year. I wrote on board a couple of quarters ago that I thought that NRR would drop, perhaps significantly, and the CFO even said the same thing. However NRR stayed at stupendous levels, clocking in at 171% this quarter.

What that means to me is that, due to the size of their customers there is exceptional runway in each of them. And I guess thinking about the typical customer journey as expressed by the CEO and CFO a number of times in the past substantiates this view. Generally, Snowflake starts as a migration away from on-prem solutions for huge customers. And this migration takes years - sometimes more than a decade, not quarters. Hence it is only logical that a customer like this will have an ever-increasing spend with SNOW (and decreasing with the legacy vendor). Then, the super-charger on top is the new workloads that Snowflake enables through efficiency, performance, and new capabilities. Taken together the spending path of a large customer is like a river gaining momentum rather than a single burst over a short period of time.

Some choice snippets from the call - all very bullish:

Frank Slootman, CEO: “There is a very, very high urgency around advancing towards cloud computing environments and then having an opportunity to really pursue the promise that it brings.“

Loved this CFO quote about RPO: “Yes. We expect we will have a big increase in RPO. But I’m not guiding to it. You’ll have to wait and see. I’m never going to guide RPO.


All in all a great report, huge confidence and all things pointing to continued success going forward. I increased my position post results.


This is a trying year investing-wise and geopolitically…I’ve stocked up on firewood and will be installing some heat-saving things in my home for the coming European winter. Let’s hope the stockmarket winter is largely behind us!

  • WSM

Previous reviews:

June 2022:…
May 2022:…
Apr 2022:…
Mar 2022:…
Jan 2022:…

Dec 2021 full-year:…
Dec 2020 full-year: