This month I will be shortening my write-up somewhat in the absence of any earnings results. I will also assume that readers have followed what others have written on the board, so I will not rehash what’s already been said by others. Stocknovice’s write-up especially is a tough act to follow!
At 31 October my portfolio ended up ytd 101%.
2021 ytd results:
End of: Jan +7.6% Feb +7.7% Mar -6.0% Apr +4.6% May +6.6% Jun +24.1% Jul +22.1% Aug +79.4% Sep +83.9% **Oct +101.1%**
MONTH OF OCT REVIEW
I did only one big thing this month - I reduced my cash position to zero from 7% by adding to my positions, with most going to Monday and Lightspeed, with the latter leveraged with call options. That last part hasn’t yet worked out so well; I believe that it will change after Nov 4 when they report and finally dispel the FUD that has overshadowed their narrative this last month. Lastly I trimmed Crowdstrike and Digital Turbine a bit and opened a small position in Pubmatic again after selling out a couple of months ago.
I’m back to 10 positions - 4 top conviction, 2 mid conviction, 4 small positions, and some cash. I show my position sizes for the last three months, with end Oct first.
Upstart 22.3%, 22.8%, 18.5% Datadog 19.3%, 15.8%, 15.4% Lightspeed 16.4%, 16.5%, 6.3% Crowdstrike 11.9%, 14.3%, 25.4% Zoominfo 8.7%, 8.7%, 7.8% Monday 8.8%, 5.9%, 0% Doximity 4.9%, 3.5%, 6.6% Docebo 3.0%, 3.2%, 0% Digital Turbine 3.0%, 2.3%, 1% Pubmatic 2%, 0%, 0% Cash 0%, 7.1%, 12.6%
The 10 stocks above had the following movement for the month of October (from the first to the last of the month, ordered by my position sizes):
Upstart - up 1% Datadog - up 21% Lightspeed - down 1% (remember that it fell a lot just before end Sept when the short attack hit) Crowdstrike - up 18% Zoominfo - up 10% Monday - up 13% Doximity - down 15% Docebo - up 3% Digital Turbine - up 26% Pubmatic - up 10%
Of my top conviction stocks, Upstart and Lightspeed stand out for me going into earnings. Neither of them budged for the month despite a ton of good commercial news - new products, new customers, positive macro trends. They have all of the makings of producing excellent results in a couple of days, yet the stock prices do not seem to have anticipated this imo.
REVIEW OF MY POSITIONS
There has been a ton of good news coming from Upstart this month, and yet the stock barely moved for the month and is down quite a bit since almost hitting a high of $400.
Three things stand out for me: ?
- They are super-fast on executing against the auto loan opportunity vs what they said just a few months ago and this is a much bigger opportunity with as much as, or even more inefficiency than the personal lending market: they launched Upstart Auto Retail on October 6. So with a bit of luck it can start contributing meaningfully this year already, vs only towards next year per their comments in Q2.
- Their core unsecured loans business has seen great new bank and credit union partner adoption and their existing partners seem to be accelerating lending via the Upstart platform. This is a key driver of their growth, and it is a leading indicator as these banks take a while to fully gear up. The last 3 quarters they added Q4: 5, Q1: 3, Q2: 7, bringing the total to 25 at end Q2. Since then - if I’m counting correctly - they added 2 in July, 1 in August, 2 in September, so I’m expecting 5 for Q3. So by my rough calc they would have added 20 new partner banks and credit unions in the last year, out of a total of 30. That’s very rapid partner growth. In October alone they announced another 3 new partners.
- And lastly, the lending market overall has seen healthy growth, with the big banks coming in with bumper profits, some of it driven by strong lending performance.
All of this point to Upstart potentially again blowing everyone’s socks off on 9 November.
I intend to position even more aggressively in the days ahead.
Datadog is just exceptional. The pace of innovation, the quality of the CEO and the rate of growth are all in harmony. They released a ton of new products and enhancements in October. For an overview, read Stocknovice’s write-up - it’s excellent.
I really look forward to their results on 4 November.
Last month I wrote at length why I thought the short attack on the company was baloney and I’ve seen nothing since then to change my mind.
There is one thing that I’ve seen from the posts about the short attack that looks like a mistake on their part - thanks Poleeko for digging it up in detail. It boils down to this: in a presentation of August 2021 they mistakenly estimated a much too small TAM of $16bn vs a TAM of $113bn which they estimated two years prior to that. That’s it as far as I’m concerned. They incorrectly showed a too small TAM. Not too big a TAM. And I’m convinced they will correct that when they report.
Since the short attack there has been, in my mind, an inclination to look for negatives in the narrative. Such as a number of posts on the board of Trustpilot reviews by devs at the company who complained about rapid changes to product roadmaps, their view of management as poor and some managers being toxic etc. All of this is subjective and employees with a negative and sometimes very negative view of the company they work at exist at all companies. Which is why we need to look at the average of employee opinion, and not focus too much on the views of a few highly ecstatic or highly frustrated individuals in a company imho. And on average employees are positive about Lightspeed on Glassdoor and Trustpilot, the CEO’s of recent acquisitions have been smartly deployed, people have a good opinion of the CEO. Nothing to see here.
Much more important for me is the great execution that they’ve shown in the month which showcased good integration of product and teams, which did not get the same level of attention. These pieces of news point to great results to follow. In the month they launched their flagship integrated ecommerce solution for retail customers and a separate one for hospitality, expanded Lightspeed Capital’s availability to their merchants in the US by about 40% and closed the acquisition of Ecwid.
Which brings me to the bottom line: above all else we need to follow the numbers!! And those were also fantastic up to now.
Lightspeed has been a drag on my portfolio performance this month as I bought as it went down. However, I expect growth to surprise on November 4th when they report and the narrative to change. Management will have the chance to set the record straight with proof of execution as illustrated by the numbers. And then analysts and market commentators will have the ammunition they need to again venture forth with positive stories.
Crowdstrike certainly came back with all guns blazing with the release of their XDR alliance in October.
Despite a slight feeling of disappointment at the last quarterly results I cannot find a good reason to drop this stock.
A pain point raised by some was that SentinelOne seemed to have a better product with their newer XDR tech. But then Crowdstrike launched XDR and upped the ante by launching an alliance and integrations which should make their XDR offering stronger.
Lots of competition was another - yet, they just grew revenue at 70% and RPO by 81% at a 78% GM!
This is not Zoom where it was clear growth was going to tank, Docusign where growth and all leading indicators of growth decelerated or Twilio where growth decelerated and gross margins went the wrong way, with the latter already being materially worse than our other SaaS stocks. And it’s not Cloudflare either, where no-one can figure out why it keeps on appreciating despite growth not accelerating.
Crowdstrike continues to be the top challenger dog growing at 70% yoy in a market with massive tailwinds. So I’m keeping a meaningful position.
Zoominfo is another stock that I think deserves more love than what the market is giving it. In September they announced that they’ve completed the first integrations with Chorus.ai, which should start delivering for them in the next couple of quarters, and I believe that the contribution could be bigger than expected as the cross-sell is seamless. In October they received a very favourable review by Forrester in their Q4 Forrester Wave report. From the report:
”While all B2B conversation intelligence providers have focused on video to support working from home during the pandemic, Chorus.ai, acquired by ZoomInfo, stands out above the rest.”
Success with Chorus should bode well for their NRR number - as they can now cross-sell, the good old “expand” part of SaaS companies’ flywheel, which has been relatively low historically and only gets reported once a year.
Luckily we won’t have to wait that long to hear how they did anymore; they report later today - the first of my companies to report. I expect acceleration.
There was not much news on the Doximity front in October (or September for that matter). The stock dropped from a high of $102 to about $69 now after debuting at $53 end June.
When they report on 9 November I’ll be looking for sustained revenue growth and will be scrutinising the NRR number a lot. Until then, not much to talk about.
If that NRR number disappoints or there are indications of deceleration which could point to them getting a COVID-bump sticker, I’ll be out.
Docebo got an award from Trustradius which is in line with who they are as a company - for caring. That was the only news from them in October.
I will be closely watching the performance of the exec team in the earnings call on 11 November (they disappointed me in the first earnings call) as well as for a continuation of the accelerating trend in the underlying numbers.
If either of those disappoint, I’ll be out.
Digital Turbine (APPS)
There was no news this month. Yet the stock ran up from around $70 at the beginning of the month to $86 now. I trimmed it as it ran up. The key thing I will watch when they report on 2 Nov is what happened to growth, which they guided to be flat for the quarter despite hyper-growth of the constituent businesses in prior quarters.
If the revenue growth does actually drop as much as management forecast, I’ll be out.
Pubmatic is a company that I bought in July and sold in August - a VC bred ad exchange similar to Magnite, scaling at hyper-growth but with a very low relative valuation.
It’s a try-out position that I would like to keep an eye on as uncertainty stemming from Apple’s IDFA changes reduces and the future becomes clearer for advertising businesses. They report on 9 November.
So this month I doubled my portfolio ytd…after more than trebling it last year, which was the first year of running a super-concentrated portfolio and spending the hours necessary to do so. Last year, after my 220% return I thought there was no way that this year could even come close to matching that. In Dec 2020 I wrote:
“the chances of having two consecutive years of results like I had in 2020 are vanishingly small.”
So I actually decided that I was going to take 29% cash permanently out of the market. In the end I didn’t, which was an exceedingly good thing!!
Because now here we are, with me up 101% on top of that 220% of last year. I’ve just 6x my portfolio in less than two years with all of your help. Wow. Just wow.
Happy investing, all!
Sept 2021: https://discussion.fool.com/wsm8217s-portfolio-review-end-septem…
Aug 2021: https://discussion.fool.com/wsm8217s-portfolio-review-end-of-aug…
July 2021: https://discussion.fool.com/wsm8217s-portfolio-review-end-of-jul…
June 2021: https://discussion.fool.com/wsm8217s-portfolio-review-end-of-jun…
May 2021: https://discussion.fool.com/wsm8217s-portfolio-end-of-may-2021-3…
April 2021: https://discussion.fool.com/wsm8217s-portfolio-review-end-of-apr…
March 2021 Q1 ytd: https://discussion.fool.com/Message.asp?mid=34791940
Dec 2020 full year: https://discussion.fool.com/Message.asp?mid=34710356