I didn’t do a monthly summary yet this year, and my first summary for the board was end December 2020:
At that time I was up 220% for 2020 and was wondering if, given the high valuations of our companies, 2021 would be a year that our companies continue to execute very well but the market tumbles nonetheless. So I decided to take 30% out in cash.
Over the last weeks I’ve been putting that 30% back into the market and I’m now again fully invested. I’ve decided to reduce my cash position as exactly what I feared has happened. I do not know if this is the bottom, but feel quite comfortable with being 0% cash again.
Back in December my portfolio looked like this:
Crowdstrike 15% Docusign 13% Etsy 12% Cloudflare 12% Teladoc 8% Datadog 6% Zoom 5% Magnite 1% CASH 29%
As of today, 27/3 it looks like this:
Crowdstrike 21.3% Datadog 20.8% Inari 13.6% Cloudflare 9.2% Pinterest 7.6% Bandwidth 9.3% Snowflake 9.1% Asana 4.7% Magnite 1.9% Docusign 2.4%
So what did I do and why in the last months:
POSITIONS I TRIMMED OR EXITED
I sold down Zoom in January and sold out completely out of Zoom only a week or so ago, after holding on for arguably too long. Saul pointed out that the $ values of growth has been declining for a number of quarters, which was the final argument for selling for me.
I sold ETSY during February at an average price af around $204. I felt that it had rerated and was probably at risk of difficult compares into 2021 and that the pandemic effect could be more pronounced with e-commerce relative to opportunities in SaaS so decided to exit and redeploy the cash elsewhere.
I trimmed, and then sold completely out of Teladoc after Q4 results. TDOC has a lot of moving parts/humans (vs software for our SaaS stocks) to deliver their services, so watching costs as they scaled their system was always something that I wanted to watch. When I saw their Dec numbers with an operating loss ($401m) bigger then their revenue ($383m) I decided that although the business could certainly continue to grow at an impressive clip, the costs in the business will likely continue to grow too, unlike many other opportunities, so I exited.
I sold out of my Docusign position during the quarter but bought a position again end March after reviewing recent performance, and finding it compelling.
Docusign’s revenue growth has been accelerating in the last quarters of FY2021:
2021 297 342 383 431 yoy: 39% 45% 53% 57%
Gross margins improving:
2021 78.6% 77.9% 78.8% 80.0%
2021 119% 120% 122% 123%
Operating margin improving:
2021 7.8% 9.9% 12.8% 17.0%
Customer growth accelerating:
yoy: 30% 39% 46% 51%
AND ARPU increasing and the highest it has been in the last 16 Q’s:
2021 449 457 466 483
Actually after reading this I don’t know why my position is so small…
I trimmed Cloudflare from a top position to a mid-sized one mainly because I felt Datadog deserved the #2 position more than Cloudflare (see below). The only things that I could find that bothered me a bit about Cloudflare was their revenue growth which did not accelerate and their operating margin and FCF which does not show strong signs of leverage.
Revenue growth yoy% was:
2020 48% 48% 55% 50%
and they guided for 43% for Q1 2021.
FCF looked like this:
2020 -30.6 -20.2 -17.8 -23.5
while operating margins improved:
2020 -16% -10% -4% -4%
but they guided for -7% op margin for Q1. So guiding for yet no leverage, which for me is becoming somewhat of a question mark.
The big positives are their NRR improvements and their RPO growth, which was up 75% yoy in Q4 and 81% in Q3:
NRR: 2020 117% 115% 116% 119%
So a great company, but with some concerns about cash flow and operating margins, and a question mark about when/if their revenue growth will accelerate from the 50% level, or not.
POSITIONS I ADDED TO OR ENTERED
I built up a #3 position in Inari. Saul wrote up why here:
I find the CEO extremely confident and convincing in the conf calls and the numbers are fantastic. Also, in January Flotriever received FDA approval for clot in transit in right atrium; first procedure to get that approval; condition is 80% fatal if left untreated - 25k cases per year in US. They grew revenue at 144% yoy in Q4 and guided for 104% in Q1. GP% was 92% !! in Q4, they’re profitable, the number of cases performed in Q4 grew by 156% yoy.
I built up my position in Datadog throughout the last months from a relatively small position in Dec to a top conviction position currently. Datadog and Crowdstrike are my top conviction positions and has been discussed at length on the board. What I could perhaps add is that I believe that DDOG will have relatively easy comps towards the end of 2021, and yoy revenue growth will accelerate already early in the year. Compared to NET, GP% is similar, NRR is higher, customer growth is similar, guidance for next quarter is similar, and RPO growth was 100% in Q3 and 78% in Q4. BUT unlike NET FCF and operating margins are positive and has been for all quarters in 2020.
I built up PINS to a mid-sized position. I wrote up why in this deep dive:
I believe there is a major change underway to how online advertising works and that Pinterest has been, and will continue to be a major beneficiary of this trend.
If you need convincing to read the deepdive above, look at these numbers of last FY:
Revenue growth: 2020 35% 4% 58% **77%** GP%: 2020 64% 61% 75% 82% EBITDA%: 2020 -19% -13% **21% 42%** Number of monthly active users (millions): 2020 367 416 442 459 ARPU growth yoy: 2020 7% -21% 15% **29%**
I built Bandwidth to a mid-sized position too, and also wrote up why in a deep dive:
I think that Bandwidth may surprise significantly on the upside as the benefits from the Voxbone acquisition comes through. Also, I believe Zoom Phone runs on Bandwidth, and reading through the latest Zoom results, it is clear that Zoom management is putting a lot of focus and resources on growing this and it is already in hyper-growth.
I built up Snowflake to a mid-sized position after the price fell to around/below IPO levels. It is still very expensive, but it is an exceptional company. Bear wrote up this excellent review on what makes it special:
The numbers also speak for themselves. RPO was up and incredible 205% to $1.3bn in Q4. The only negative I could find was Gross margins coming down to 57% in Q4 from 61% in Q1 and in the prior year.
FY revenue growth:
2021 149% 121% 119% **117%**
FCF turned POSITIVE in Q4:
2021 -7.8 -44.0 -37.1 17.3
NRR is incredible:
2021 171% 158% 162% **168%**
Op margin improving:
2021 -66% -44% -30% -24%
I bough a 5% position in Asana and wrote up why in a deepdive here:
When I wrote the above I was still sitting on the fence. Since then they have had a very impressive quarter, and their numbers look like this
2021: 70% 57% 55% 57%
Free cash flow margin started improving. Even though I’m still not 100% comfortable with the huge costs in the business - with lots of cash burn and a -51% operating margin (rule of 40 score is significantly under 40, unlike all of my other portfolio companies), it seems to be moving in the right direction:
2021 -36% -58% -33% -26%
The best number for me is the customer growth number yoy:
2021 17% 15% 22% 24%
So for Asana I’m hoping that some form of operating margin starts kicking in and I won’t likely be adding to Asana.
Magnite is a bit more of a complex story. It is a bet on TV advertising budgets moving from linear to online/CTV. Magnite is a combination of two companies which makes any comparison of the past difficult. The Telaria acquisition closed 1 Apr 2020 so to get to pro-forma full year numbers we need to add Q1 of Telaria. Now to make things more complex is that Magnite will acquire SpotX in Q2. Adding in Telaria for Q1 and SpotX for the whole 202 yields 2020 numbers that looks like this for Magnite and SpotX:
2020 Proforma revenue:
Mag SpotX Comb CTV $35 $67 **$102 (30% of total)** Oth $202 $49 $251 Tot $237 $116 $350
That CTV part of Magnite has been growing at 53% yoy in the last Q whereas the overall company has been growing “proforma” at a rather uninspiring 20%. Magnite’s CTV revenue is 15% of the total. Including SpotX, 2020’s CTV revenue would have been 30% of the total and the assumption is that this part will continue to grow >50% yoy. Their anchor customer for this is Disney, who has recently extended their contract by 18 months.
The CEO was very upbeat in the Q4 conf call, stating:
“CTV growth trends continue to be very favorable from cord cutting, to increasing growth estimates, to movement of linear TV dollars to CTV, to recent results from the trade desk in Roku. All sign support very healthy market growth dynamics. We continue to outpace industry growth estimates from e-marketer in CTV in the fourth quarter and grew our Q4, CTV revenues 53%.
We are thrilled to have announced the proposed acquisition of SpotX. The SpotX deal is a big strategic win for Magnite, our clients and shareholders.
SpotX is great tech, great people, strong customer relationships, fast growing revenue and is highly profitable. The transaction is expected to close in Q2.
One of the exciting benefits of the acquisition will be to combine two great engineering and sales teams which will accelerate the release of new features and functionality for our CTV clients. The goal of the super charged development roadmap is to draw more linear TV advertising dollars to ad supported programmatic CTV by providing our clients with the tools they need to succeed.
Growing CTV which will continue to be our most compelling opportunity for the foreseeable future further accelerated with the addition of SpotX.”
Details about the acquisition is as follows:
The SpotX acquisition consideration would have been valued at $1.17 billion based on the value of Magnite stock on the date of signing comprised of $560 million in cash and 40 million shares issued to the RTL Group. This represents roughly 10x multiple of SpotX’s 2020 non-GAAP net revenue.
So Magnite is buying $116m of revenue - increasing its size by roughly 50% - at a 10x revenue multiple and is itself trading at just under 15x currently. That will also change it’s composition from 15% CTV to 30% CTV growing at 50+.
So a complex story, which is why it remains a small position. I will probably no keep it given the opportunities elsewhere in my portfolio, but thought to give an overview of why I bought it in the first place nonetheless.
It’s been another interesting couple of months in which I did not keep to all of my new years investing resolutions. I hope that the multiple contraction that our stocks are currently experiencing stops sooner rather than later. But I’m very comfortable with all of my positions.
In fact, my biggest struggle at the moment is which companies to pass over, and which ones to concentrate my portfolio into. There are a number of excellent contenders that I’m not invested in: Twilio, Okta, Lighspeed, Zscaler, Fiverr, ETSY come to mind. And within my portfolio Docusign, Pinterest, Snowflake and Cloudflare could all deserve a higher spot.
Would like to hear others’ views - both positive and negative!