November Portfolio Roundup

PERFORMANCE

MTD
Me: (9.89%)
S&P 500: (0.83%)

9.06 points worse

YTD
Me: 43.54%
S&P 500: 21.59%

21.95 points better

*****

CURRENT PORTFOLIO

Tier 1 (10-25%):
MNDY - 21%

DDOG - 19%

ZI - 14%

UPST - 11%

Tier 2 (5-9%):
CRWD - 9%

GLBE - 7%

AMPL - 6%

Tier 3 (2-5%):
FUBO - 2%

BILL - 2%

Cash - 9%

10 positions, including cash (9 last month)

*****

ACTIONS FROM THIS PAST MONTH 

Bought:
BILL

AMPL

Added:

MNDY alot, 6% to 21%

GLBE a little, 4% to 6%

Trimmed:
FUBO alot, 8% to 2%

UPST alot at first, then bought some back. But now considering selling some back to make it a Tier 2

Sold:

DOCS

*****

GENERAL THOUGHTS
Rough month in the end. But now coming off tour, I can spend time concentrating on investing again. 

The market, in general, had ugly days this month. Even the last day of the month the S&P was down 2+% and my portfolio was down 5-6%. Ouch. 

Early in the month I had 6 of my companies report on the same day and everything was down, down, down. A painful day of down 9%. Very shocking and bruising to see 6 companies out of 10 fall 10-22% each. I think it's the worst I've experienced in one day. 

At one point I was up about 70% on the year. But stepping back, to still be up 44% on the year is something I should be thankful for. 

I have no idea what the market will do. It could get worst still.

My moves in Datadog and Upstart earlier in the Spring and Summer have made my year. It only takes 1 or 2 ideas to really move a portfolio.

When I think about the Tiers, the idea is that Tier 1 should really be driving the results. There should be one or two that really drive it home. It's important to lean into winners. To become aggressive when the opportunity is there.

Tier 3 are companies either about to fall out of the portfolio, or are new positions.

Tier 2, is the in-between, ideas that are on the back-burner ready to either step up to Tier 1,  or step down to Tier 3 if need be. They aren't large enough to really impact the overall portfolio in either direction.

*****

PORTFOLIO THOUGHTS
The number of positions feels comfortable. I like having 9 + cash. It basically allows me to allocate 3 to each tier. 

I've also noticed how I don't really like taking positions to over 20%. My thinking may evolve on that, but I like the idea of taking a high conviction idea to 20%, let it pop, then trim back to 15% or so. Doing that with UPST and DDOG worked well. It starts to bother me if I have a position sitting at 25% for more than a few days. It's a balance of letting winners run, but trimming something that has grown to be too large within the overall portfolio.

*****

COMPANY OVERVIEWS

A lot happened in November with reports. Because I was on tour, I wasn't able to really digest the earnings. It was difficult to try and take them all in ("difficult" is an understatement). I basically only concentrated on the numbers and made decisions based on that. It allowed me to look at them scientifically, but provided no context. That said, my decisions were basically summed up in one or two sentences on each company. 

MONDAY.COM (MNDY)

When Monday.com reported and I looked at their report I wrote off the cuff: 

Even just scanning the release I can see that this is exactly what I want. High revenue growth and rapidly improving margins

This is exactly what I want

And my reaction was to take it from about a 6% position to 14%. Then as the stock continued to fall with the market overall, I eventually got aggressive and took it to 20%, which is where it is today.

Obviously, there's more to it than just my two sentences above, like the fact that the customer growth was again off the charts and the improvement in DBNER. But those sentences sum it up. 

Their lockup expires 7 December and it could be a ride around that date. The float is very low until then, avg volume of ~ 400,000 shares traded daily.

UPSTART (UPST)

I had Upstart at about 18% going into earnings. It had grown to as high as 26% but I trimmed several times. The day after earnings the stock fell 20%, and has trended down since then.

After I looked at the numbers, I sold 2/3 of my shares then bought some back.

What can I say? The numbers they reported were stellar. But everyone, myself included, was expecting (hoping for?) something truly out of this world. After the company reported 60% QoQ growth in Q2 it got everyone thinking they could continue on an asymptotic trajectory. In retrospect, that wasn't tenable. I'm just glad I had trimmed it some. 

I still have high hopes for the company but it's a reminder of what it's like to invest in non-SAAS companies. The growth is lumpy, and therefore warrants a lower allocation within the portfolio. I can't have a Tier 1 position fall 20% in a day. I just can't. 

These were my stream of conscious initial thoughts:

I'm going to have to come to terms with the fact that the numbers took a huge hit QoQ, and how does that compare to Zoom last year?

Q2 was an extreme outlier but it looks like they are still planning to grow in the 15 to 16% QoQ which is 75% to 80% YoY

After I thought about it, I don't think that the falloff in revenue is similar to Zoom simply because they have guided much stronger than Zoom did. 

But I also don't think that it makes sense to annualize Upstart's revenue in any quarter. So it comes back to what I said before, which is that this is not a SAAS company and guessing where the growth is going to go is going to be quite difficult. Therefore I can follow the numbers and go along for the ride while it lasts but keep it lower Tier.

Global E (GLBE)

Global E's report showed strong growth but of course the company has a much lower gross margin than I'd like. I like that it's a smaller company, and the tailwinds behind it are as strong as anyone could ask for. I let this one sit.

AMPLITUDE (AMPL)

Like GLBE, I like that this is a smaller company ($9 billion market cap). After the report I wrote:

Everything looks pretty standard SAAS. Except the guidance for next quarter is only 3%. that's really terrible

But since then, I've digested it more, and in the earnings call, the CEO addressed the guidance directly and it seems he's simply being very prudent since it's their first full quarter as a public company. We'll find out!

"Pretty standard SAAS" is maybe a loaded term but it's got all the metrics I'm looking for. Similar to Monday.com, it's got high revenue growth with rapidly improving margins. It's got land-and-expand along with some big customers. I'd say the potential for this company to continue to grow rapidly is quite good.

Fubo TV (FUBO)

FuboTV is now a stock I've held for close to a year albeit at a ~ 2% allocation. It's a stock the market loved at first and has since completely hated. Prior to earnings, it had trended down and I took it up to an 8% allocation thinking it would pop on earnings. It then rose going into earnings and subsequently sold off hard after they reported back down to where I had bought more shares. I've now taken it back down to a less than 2% allocation with nothing lost except opportunity cost. 

After their report I wrote:

High revenue growth but still no operational leverage. In fact the margins deteriorated slightly. 

I might give FUBO another quarter. I do think it could really go on a run if they could improve their margins, but it hasn't happened yet. Fubo is exactly what I have in mind for a Tier 3 holding: something I can keep an eye on, but keep at a harmless 1-2% allocation.

Doximity (DOCS)

I sold out of Doximity after their report because I don't see their TAM as big enough. It's very profitable with strong cash flow and extremely high DBNER (170%) but there's been a deceleration over the past few quarters. Even if they grow above guidance it's slowing to a 40-50% grower. The growth just doesn't seem sustainable. They would have to go into other verticals I think. I could be wrong, but I'm out for now. 

Bill.com (BILL)

I've been ignoring Bill.com for two years now. I looked at the company two years ago, and have kept a tenuous eye on their reports since, but have never dug in. The company's growth really slowed during Covid but now they have the same thing going on as Datadog and Asana: accelerating YoY revenue growth because of the easy Covid comp – even if the company continues to grow at the same rate QoQ, it will appear as if the revenue is accelerating YoY. 

They also just made a couple of acquisitions that appear to have actually improved their margins, which is rare. So we have core revenue accelerating YoY and acquisitions that push their growth into overdrive. I'll likely build this one up to a Tier 2. 

*****

MACRO THOUGHTS
There's a lot of noise about the market "topping out". That might be true. It doesn't affect my decision making much in my retirement account, which has a 30 year horizon. Maybe I'll try to hold more cash, maybe not.

It does affect my decision-making in our shorter term accounts. It's a reminder that if you need the money in the next three years or so, be prudent with how it's allocated.

Overall from a GDP level, we're in an environment where growth and inflation are both accelerating (reflation). That's historically good for "growth" stocks. The economy seems like it will transition to something else where inflation can't continue to rise at the same rate at which it has. In other words, inflation will, or has already, peaked, and will now decelerate. So that will transition us into a world where growth either continues to accelerate (goldilocks), or will also decelerate with inflation (deflation).

That said, the Fed is tapering their asset purchases and that tends to trump everything. This could be the harbinger for things to come. "Long duration" assets will get sold hard. Again, in my retirement account (which is what I post) it doesn't bother me too much because the time horizon is long. 

*****

NEW LINEUP GOING FORWARD

I might consider doing something like this. CRWD reports 1 Dec so I'll reassess then.

Tier 1 (10-25%):

MNDY - 20%

DDOG - 19%

ZI - 14%

Tier 2 (5-9%):
UPST - 9%

BILL - 7%

GLBE - 7%

AMPL - 6%

Tier 3 (2-5%):
CRWD - 5%

FUBO - 2%

Cash - ??

Watchlist:
ASAN after their earnings report this week.

ZS, NET, SNOW are all companies I have kept an eye on.

*****

ACTIONS FOR NEXT MONTH
- Build position in BILL

- Consider selling UPST back down to Tier 2

October Portfolio Roundup

 

PERFORMANCE
MTD
Me: 7.02%
S&P 500: 6.91%

0.11 points better

YTD
Me: 59.5%

S&P 500: 22.61%

36.89 points better

*****

CURRENT PORTFOLIO

Tier 1 (10-25%):
21% - DDOG

19% - UPST

12% - ZI

11% - CRWD

Tier 2 (5-9%):
8% - FUBO

6% - MNDY

Tier 3 (2-5%):

4% - DOCS

4% - GLBE

16% - Cash

9 position including cash

*****

ACTIONS FROM THIS PAST MONTH 

Added:

FUBO

Sold:

TWLO

*****

GENERAL THOUGHTS
I've been underwater with tour and haven't had time for investing.

I sold Twilio after scanning their earnings release. The past two earnings I said "from a high level we can see that there is high revenue growth but no improving margins". And that was the case once again with this release. This time the market sold it off about 17% because on top of that they guided lower and had a management shakeup. 

It's funny, because I wasn't able to give much thought to it. I was in the middle of four shows in a row and I just scanned straight to the numbers, input them on my spreadsheet and decided immediately that I was out. I gave myself no time to consider all the great opportunities ahead for Twilio. I was forced to just look at what they reported today. And based on that, I sold.

Lesson learned. Twilio is an incredible company and I'm sure anyone could do well by holding the stock for 3-5 years, but that doesn't work for a concentrated portfolio. So I'm out and unlikely to get back in. I managed to hold Twilio twice over two years and not get any appreciation from the stock. Oh well.

Datadog and Upstart have driven results this year but that was my plan a few months ago.

This month, I loaded up on Fubo when it hit $23 again taking it from a 2% allocation to over 8%. I just think that they've had two solid reports in a row with the stock going nowhere, and they will again. At some point the stock will follow company performance.

*****

NEW LINEUP GOING FORWARD
Same

September Portfolio Roundup

 

PERFORMANCE
MTD
Me: 3.78%
S&P 500: (4.76%)

8.54 points better

YTD
Me: 49.42%
S&P 500: 14.68%

34.74 points better

*****

CURRENT PORTFOLIO

(no decimal points)

Tier 1 (10-25%):
UPST - 18%

DDOG - 18%

CRWD - 11%

ZI - 10%

Tier 2 (5-9%):
FUBO - 6%

TWLO - 6%

Tier 3 (2-5%):

DOCS - 4%

MNDY - 3%

GLBE - 2%

Cash - 22%

10 positions, including cash

*****

ACTIONS FROM THIS PAST MONTH 
Bought:
GLBE

MNDY

Added:

ZI

Trimmed:
UPST

Sold:

ROKU

ASAN

DOCU

*****

GENERAL THOUGHTS
I've been so busy I haven't been able to give much thought to investing this past month. I'm waiting for the market to get really manic again, which I think will happen soon so I can deploy some cash. 

*****

COMPANY OVERVIEWS

UPST    

I've trimmed it quite a bit, or it would have grown to something like 30% of the total portfolio. I haven't done a great job of trimming because I started trimming at around $200 and now the stock is at $300. And that also means that I will have to add back at some point. 

But my plan is just to wait for the market to get really manic again, which happens about every six months, and then add back when it seems like it's really silly.

CRWD

I'll probably let Crowdstrike fall to below 10% or less of the portfolio. Their growth is now starting to slowdown and it's a $55 billion dollar company. So I think it's going to be hard for the stock to double or triple over the next 12 months.

ZI

I have a lot of confidence in ZI right now, as I think the YoY revenue will continue to show acceleration for the next few quarters. I'm going to probably build up the position more.

FUBO

I'm increasing my allocation to FUBO because I think the company has had two solid earnings reports yet the stock hasn't moved. If they have another strong quarter + issue strong guidance for Q4, I think the stock will follow.

TWLO

I'm unsure of what to do about Twilio. I think it's relatively "undervalued" for what it is, and so I'll give it another quartrer.

ASAN

I sold out of Asana simply because I don't think the stock price action is warranted given the company's results. It's growing nicely but has a negative 40% operating margin and I don't think it deserves to be one fo the most expensive stocks in the SAAS universe given that. 

I also think that the owner of the company, who, at age 36, with a net worth of $17 billion, is the 107th wealthiest person in the world, is manipulating the stock price a bit. 

ROKU

I also sold out of Roku simply because I think that their user growth slowing precedes the revenue growth slowing. 

DOCU

I finally sold out of Docusign again, and won't reenter most likely. I never did well with Docu, but that's ok. 

GLBE

I'm excited to learn more about Global E. It's a company with relatively lower margins, but the top line growth and TAM are exciting. I've currently only got a try-out position.

*****

NEW LINEUP GOING FORWARD

Same

August Portfolio Roundup

PERFORMANCE

MTD
Me: 22.01%
S&P 500: 2.92%

19.09 points better

YTD
Me: 44.19%
S&P 500: 20.44%

23.75 points better

*****

CURRENT PORTFOLIO

Tier 1 (10-25%):
Upstart - 20%
Datadog - 19%
CrowdStrike - 14%

Tier 2 (5-9%):
ZoomInfo - 9%
Twilio - 6%
Roku - 5%

Tier 3 (2-5%):
DocuSign - 4%
Doximity - 4%
Asana - 4%
FuboTV - 3%

11 positions, including cash (11 last month)

*****

ACTIONS FROM THIS PAST MONTH
Bought:
- ZoomInfo

Trimmed:
- Upstart when it reached 26% of my portfolio
- Datadog when it reached 22%
- Roku after what I thought was a disappointing earnings report
- Crowdstrike
- Asana

Sold:

- Snowflake
- Latch
- Digital Turbine

*****

GENERAL THOUGHTS

I had a couple of realizations this month on portfolio construction. They might seem obvious, but it's good to write them down to cauterize them in my mind.

#1.
I prefer about 9 positions. 10 maybe. 11 is definitely too many.

That doesn't include cash. So with cash, it would be 9 + 1, 10 +1, etc.


#2
I want to own companies that are crushing it both long-term and short-term. That might sound silly but it's important for a concentrated portfolio. Compare the earnings releases this month of Upstart, Datadog and ZoomInfo, which you would be hard-pressed to find any sore spot in, to Roku or Pinterest, which both had disappointing customer growth metrics. Rather than ignore those metrics as "not that important" or "the market doesn't understand the company", it's better to put money into companies that are crushing it today, and have long-term tailwinds.

"Long-term" and "short-term" are relative and subjective, so it's important to define them for my purposes.

The short-term is 3 months. Until the next earnings report. Do I think the stock is going to go up in the next three months based on the numbers that were just reported?

And if the stock is not going to go up in the next 3 months, then lose it. If it's not going to go up meaningfully after the earnings report, if there is nothing meaningful about the report that is going to cause it to go up, then lose it.

Keep in mind this is not trying to guess which way the market, in general, is going to move. That's impossible. I'm not making a bet as to which way the market is going to move, but the individual stock within the market.

And then combine that with the long-term, which is basically just over the horizon as far as you can see. Is there no end in sight? That is what I could call a long-term secular tail-wind.

The short-term is 3 months (until the next ER) and the longterm is there is basically no end in sight. 5 to 10 years. The TAM will expand, and they will become the gorilla within that TAM.

The kinds of companies that just released a killer earnings report and have growth as far as you can see are the kind of companies I want to own.

*****

UPST
I would fail to come up with an adequate superlative to describe Upstart's Q2 2021 earnings report if I tried.

My plan coming into August was to lean heavily into Upstart and Datadog and that worked out quite well. So much so that I now wish I had leaned in more. But that's of course a fool's errand. Anytime I make a good call on a position I'll always wish I had loaded up even more.

I trimmed a few times when it hit about 26% of my portfolio. I plan to add back more if it falls.


DATADOG
See above. It wasn't on the level as Upstart's, but I've been waiting about 9 months for this earnings report with the idea that YoY revenue would accelerate as they lapped their Covid comp, and that played out.

Datadog will now likely show accelerating YoY revenue for the next 2 quarters at least, if not 3. The company is firing on all cylinders, and I plan to keep it as a top Tier 1 holding.


CROWDSTRIKE
I trimmed Crowdstrike from about 19% to 14% simply because I think they've hit peak optimism in the market. Meaning that everyone knows it's a great idea and I don't think their stock will double over the next 12 months. That could turn out to be dumb, and I haven't seen any evidence of it yet. But their market cap is around $57 billion! I don't really see it becoming a $120 billion company in the next 12 months.


ZOOMINFO
I've been following ZoomInfo since their IPO last year, and even held a small position toward the end of 2020. But I sold it because their organic revenue growth was only around 40%. My thoughts were that eventually as they lapped their acquisitions, the growth would fall off. But instead it showed an acceleration when they reported this month. So I immediately thought "this is exactly the kind of company I want to own". There were no sore spots in the report.


ROKU
I sold about half my shares in Roku after what I thought was a disappointing earnings report. Then because of Upstart's and Datadog's moves, Roku fell relative to the rest of the portfolio and is now about 4%.

I think it's an incredible company with many long-term secular tailwinds. And I think an investor will do fine by holding the stock for 3, 5, or 10 years. But, with a concentrated portfolio, I'm looking for companies that are crushing it on all metrics both in the near-term (quarterly) and long-term (secular trends). Compare Roku's report to ZoomInfo's. What part of ZoomInfo's earnings report makes you go "oh well those two metrics over there were bad, but the rest were all good." There was nothing like that. It was more like "wow they really crushed it on all fronts." Same thing with Crowdstrike the past several reports. 

Roku on the other hand had disappointing user growth metrics. It's easy to ignore those or write them off as not important. But Roku's basic business model is: acquire users, increase engagement with those users, monetize users. Last year in Q2, their Covid quarter, we saw increased user acquisition, but a fall off in revenue (b/c ad dollars left the AVOD system). But revenue poured in in Q3 and Q4 as they then engaged with and monetized those users. In other words, revenue growth lagged user growth. 

Q2 of this year, the most recent quarter they reported, we saw the exact opposite. Revenue looked great but user growth was disappointing. I think it's only a matter of one or two quarters before the revenue growth will show a deceleration. Again, because revenue growth lags user growth. There are reasons to believe that revenue won't decelerate. Perhaps Roku will maintain revenue growth near 70% or 80% simply because they are better at monetizing the users they have (increased ARPU). But to keep it simple, from a high level, I'm going to make a bet that revenue continues to trail users.

DOCUSIGN
I bought back into DocuSign toward the end of the month because I wanted to own it going into earnings. I've done a really terrible job of owning DocuSign. I never owned it during it's Covid run-up. Then I bought it last year at its ATH. Then sold it prior to Q1's report, and subsequent big run up in stock price. Now I'm buying back in just before an earnings report. I've really screwed that up! But the growth has continued and it's profitable and free cash flow positive, so we'll see what this report brings.


DOXIMITY (DOCS)
Just looking at the numbers, this is exactly the kind of company I want to own: high revenue growth and rapidly improving metrics of profitability.

Revenue increased 100% YOY to ~ $73 million

~ $726 million in cash

$0 Debt

Cash from operations of ~ $33 million. That's a margin of 46% vs 24% last year. WOW!

FCF margin of 45% vs 21% last year

Adj EBITDA of ~ $ 31 milllion. 43% margin vs 11% margin last year. Wow!

89% Adj gross margin vs 79% last year. Wow!

Adj op margin of 42% vs 9% last year. Wow!

Adj Net margin of 42% vs 7% last year. Wow!



ASANA
I sold about half my shares of Asana after the stock nearly doubled in a month or so. At the beginning of this year I said:

I feel like this one has the most upside potential given that it's a smaller company with less float, has easy upcoming comps, and is relatively under-valued. But that's just a feeling and it could be wrong

The one thing they haven't demonstrated is operational leverage. We want to see that.

And then they demonstrated some operational leverage and the stock quickly doubled. But they still have a long way to go, and one report doesn't make the company a success.


FUBOTV
Fubo is showing good traction but is still what I would call extremely unprofitable. And it may be for a while. I'm going to hold this one and follow the numbers. If the company turns a corner on profitability I think the stock could easily 3 or 4x due to institutional ownership.



SNOWFLAKE
I sold out of Snowflake after their earnings report this week. Simply put, what could Snowflake possibly report that would meaningfully move its stock price? I viewed it as a conservative investment because their reports were just ho-hum another incredible quarter of jaw-dropping numbers. But the problem is that there isn't any upside surprise the market isn't expecting. It's just routine outperformance. Everyone knows that it's an incredible company that is poised to be a big time winner. There isn't any room for meaningful upside. I do think it'll continue to grow at a faster rate for longer than the market is predicting. But it could take easily another year for that to kick in and move the stock price meaningfully. The stock is about flat from where it IPO'ed 1 year ago. It's an $80 billion company at a $1 billion run-rate. Valuation doesn't have to be some precise calculation. When Berkshire Hathaway and other "value" investors own a growth company, it tells you something about the assurance that the market at large has about its future success. Everyone knows that everyone knows, etc.



LATCH.COM
I sold out of my trivial 0.5% Latch position after their report this month. I do think this one has a very long runway as it is a small company, but the macro housing market is hurting their business currently. I'll continue to follow them.


DIGITAL TURBINE
Simply put, it's too complicated due to the acquisitions. Why mess around? The revenue growth is high. But the margins are falling and it looks like they'll have to do a capital raise.

When in doubt, get out!

MONDAY.COM
I took a look at Monday.com on the last day of the month and I have to say that it's enticing.

As I said above about Doximity, just looking at the numbers, this is exactly the kind of company I want to own: high revenue growth and rapidly improving metrics of profitability.

Revenue increased 95% YoY and 20% QoQ to ~ $71 million. Fantastic.

Adj gross margin of 90% vs 88% last year. Amazing

Adj op margin of minus 14% vs minus 41% last year. Amazing improvement

Adj net margin of minus 16% vs minus 41% last year. Amazing improvement

Adj eps of minus 26 cents vs minus 39 cents last year. Amazing improvement

Cash is at ~ $ 875 million

$0 Debt

Current deferred revenue increased 44% YoY to ~ $101 million. That's pretty good

Cash from operations was minus 1% of revenue vs minus 38% last year. That's great

FCF margin of minus 2% vs minus 41% last year. Great improvement.

*****

NEW LINEUP GOING FORWARD

I'm considering losing Roku and Twilio, and perhaps DocuSign and replacing them with Monday.com and higher allocations to Asana and Doximity.

Watchlist:
Monday.com

July Portfolio Rounup

PERFORMANCE
MTD
Me: (1.32%)
S&P 500: 2.41%

3.73 points worse

YTD
Me: 18.28%
S&P 500: 17.02

1.26 points better

*****

CURRENT PORTFOLIO

Tier 1 (10-25%):
20% - Datadog (DDOG)

17% - Upstart (UPST)

15% - Crowdstrike (CRWD)

11% - Roku (ROKU)

Tier 2 (5-9%):
8% - Twilio (TWLO)

7% - Asana (ASAN)

Tier 3 (2-5%):

4% - Snowflake (SNOW)

4% - FuboTV (FUBO)

3.5% - Digital Turbine (APPS)

0.5% - Latch (LTC)

11 positions, including cash (11 last month)

*****

ACTIONS FROM THIS PAST MONTH 

Bought:

Latch 

Added:

to Upstart

Trimmed:
Crowdstrike

Sold:

Pinterest

*****

PORTFOLIO THOUGHTS

Well I got it to ten positions after selling out of Pinterest. I do have a 0.5% holding in Latch, but that's basically a non-position.

It's been a disappointing year thus far. This month was disappointing for sure. One because Pinterest was a big letdown. But also because if I look back about six months I see that I made an active decision to sell Docusign and buy Pinterest. And those two actions were both wrong. 

But I am now leaning pretty hard into Datadog and Upstart. Two companies which should show accelerating YoY revenue for the next few quarters. Both of those companies will report in early August. 

*****

COMPANY OVERVIEWS

Pinterest (PINS)

Market cap: $37 billion
MTD performance: down 25%
YTD performance: down 11%
T6M performance: down 17%
T12M performance: up 134%

I sold out of Pinterest after the company reported earnings on 29 July. The stock sold off about 18% that day. Pretty brutal. Was it warranted? Maybe. I don't actually know. But I've managed to lose a good amount on Pinterest. It was a mistake to buy it when I did. I saw high revenue growth and an easy Covid comp and thought I had a sure thing. And that was dumb.

There are a lot of things going for Pinterest but the Monthly Active User (MAU) growth is concerning in the near term. In short, the revenue growth and guidance were strong. But the MAU growth and guidance was disappointing. Same thing as last quarter.

And they didn't miss guidance by that much, but this is what happens when a growth company misses guidance. The stock takes a big hit.

And the truth is ... the best companies simply don't miss. They just crush. There is no "but this and that ... etc ... it will get better." They just fire on all cylinders.

Also this company is cyclical so that combined with Covid comps makes comparing QOQ really difficult. Revenue grew 26% QOQ but that's about on par with 2019 at 29%. So it's not really that impressive.

Again a really capital efficient business that is showing drastic moves toward profitability, and probably a great stock to hold for 3 years and forget about. But that's not what I do.

Yes from a high level the revenue and ARPU are growing and that's great. But remember that users are the denominator in ARPU. And so if there are fewer users, while revenue laps an easy Covid comp, then it makes sense we will see a bump in ARPU. And MAU's are a leading indicator.

After reading the report it became a psychological game. I can hope and wish that Wall Street will see something different and bid the stock up in the near term. I can hope and wish. Or I can get out now and move into something where hoping and wishing isn't part of it.

And that's what I did.

Crowdstrike (CRWD)

Market cap: $57 billion

MTD performance: up 1%

YTD performance: up 20%

T6M performance: up 18%

T12M performance: up 127%

I trimmed Crowdstrike this month from 20% down to about 15%. I feel like we're at peak optimism for Crowdstrike right now, and for good reason. All the news about hacks has created a situation where everyone knows Crowdstrike is a good investment. 

However, at a $57 billion market cap, how much can it grow over the next year? Will it double from here? Seems unlikely. Maybe that's simple-minded thinking, but it's something I've been thinking about. 

Further, they are not accelerating revenue. It is slowing down. And while it's still high, it is slowing down. It will be interesting to watch.

Latch (LTCH)

Market cap: $1.8 billion

MTD performance: up 9%

YTD performance: N/A

T6M performance: N/A

T12M performance: N/A

Latch specializes in keyless entry security systems to open and manage every door in an apartment building from a smartphone.

It's a newly public company that came out of a SPAC earlier this year. 

From a high-level it's a tiny company with terrible margins but they have guided for the next two quarters to have 50% sequential growth each followed by something like 33% to finish the year. 

In other words, they reported $6.6 million in revenue in Q1. But guided to $10 million in Q2, $15 million in Q3 and $20 million in Q4 to finish the year with around $52 million. That's torrid growth and would represent about 183% YoY growth for the fiscal year.

And in an investor presentation, they have targeted almost $1billion run rate by 2025, which would represent 65% CAGR over five years.

The company also has agreements with AvalonBay, which gives a high degree of certainty on future revenue. From here:

https://www.latch.com/news/latch-avalonbay-partner-to-create-an-affordable-tech-first-resident-experience

AvalonBay Communities is one of the largest real estate investment trusts in the world, and NMHC’s third largest apartment owner in the United States. With upwards of 90,000 apartment units across the country, they own and develop multifamily buildings in both urban and suburban environments to appeal to many types of renters.

Their products seem sticky because once the system is installed in a building it seems highly unlikely that they would go in and rip it out and replace it with another one. 

*****

MACRO THOUGHTS
From a macro level, the US will now start to show decelerating growth in GDP. While also showing decelerating inflation. Historically, that is good for large growth stocks. I don't base investment decisions off that, but it will be interesting to see how it plays out.

*****

NEW LINEUP GOING FORWARD

Same

Watchlist:
DocuSign

Olo

June Portfolio Roundup

PERFORMANCE
MTD
Me: 14.25%
S&P 500: 2.21%

12.01 points better

YTD
Me: 19.86%
S&P 500: 14.41%

5.45 points better

*****

CURRENT PORTFOLIO

Tier 1 (10-25%):
Crowdstrike (CRWD) - 19%

Datadog (DDOG) - 19%

Upstart (UPST) - 17%

Roku (ROKU) - 12%

Tier 2 (5-9%):
Asana (ASAN) - 8%

Twilio (TWLO) - 7%

Pinterest (PINS) - 5%

Tier 3 (2-5%):
FuboTV (FUBO) - 3.5%

Snowflake (SNOW) - 3.5%

Digital Turbine (APPS) - 3%

Cash - 3%

11 positions, including cash (11 last month)

*****

ACTIONS FROM THIS PAST MONTH 
Added to Upstart significantly as it fell after their lockup expiration.

*****

GENERAL THOUGHTS
Last month I wrote:

At one point mid-month my portfolio hit a bottom for the year at around minus 16% (I had 84% of what I started the year with). But then it turned abruptly and went straight up to finish the month just under positive 5% YTD. 

And that trend continued aggressively to the upside through June.

My portfolio finished June up 19.86% YTD (or at 119.86% of what I started with). From the mid-May low point of minus 16% (or 84% of what I started with), my entire portfolio rose 42% (119.86/84 = 1.42) in just six weeks. I guess the "rotation" into "value" and cyclicals has reversed.

As we now start to lap the deepest Covid quarter (Q2), we will start to see divergence in companies showing accelerating vs others showing decelerating revenue. I'm going to lean in hard on the companies that will show accelerating over the next six to nine months. Those include Upstart, Datadog and to a lesser extent Asana. 

For reasons I explained last month, I think Upstart has huge potential in the next few months. The growth the company will report in their next 2-3 earnings reports is going to be huge and it will accelerate YoY each quarter. There's likely to be a massive short squeeze that is going to drive the stock price very high very quickly.

At any given time, the portfolio is really driven by one or two positions. It's important to lean into those positions when you see the opportunity. You have to swing for the fence when you get a fat pitch. And that's what I'm going to do with Upstart.

I could of course be wrong. Maybe there is some risk that I don't see. But I'm ok to take that chance. Because I don't use leverage or options to invest I don't have the risk of blowing up over night. So even if something really catastrophic happened to Upstart's business it wouldn't blow up the entire portfolio. The biggest drop I've experienced in a stock was when Stamps.com dropped 50%+ in one day. That happened a few years ago when the company broke their exclusive deal with the USPS. I only mention that because it's first-hand experience of what I consider a devastating drop. It's something I've lived through. So even if Upstart were 30% of my portfolio and it dropped by 50% overnight, it would drop the portfolio by around 15%. That would of course be painful, but it wouldn't blow me up. On the other side, I think the upside potential is so great that it could easily grow into a 30% position before I started to trim.

We'll see how it plays out. My main point is that I think Upstart will really drive results the next month or two. And zooming out further, I think Datadog and Upstart will drive results over the next year. I'll update in real time of course, but that's how I see it currently.

*****

PORTFOLIO THOUGHTS
I'm still looking to consolidate into fewer positions, which seems likely with earnings reports coming up again. 

*****

COMPANY OVERVIEWS

I don't have time to write up company overviews this month. But Crowdstrike, Asana, and Digital Turbine all reported stellar earnings. Asana's stock nearly doubled in June and it has moved into an 8% position.

DocuSign also reported a stellar report. I dropped the stock in March because I thought their growth would slow substantially coming out of the lockdowns. I was wrong. The company reported a revelation of an earnings report, and it's my #1 watchlist contender.

I also looked at UiPath and Latch.com, but passed on both for now.

*****

MACRO THOUGHTS
None.

*****

NEW LINEUP GOING FORWARD

Same

Watchlist:

DocuSign

UiPath

Latch.com

*****

ACTIONS FOR NEXT MONTH
Nothing specific.

May Portfolio Roundup

PERFORMANCE

MTD
Me: 7.34%
S&P 500: 0.62%

6.72 points better

YTD
Me: 4.91%
S&P 500: 12.01%

7.1 points worse

*****

CURRENT PORTFOLIO

Tier 1 (10-25%):
Crowdstrike (CRWD) - 20%
Datadog (DDOG) - 19%
Upstart (UPST) - 15%
Roku (ROKU) - 11%

Tier 2 (5-9%):
Zoom (ZM) - 7%
Twilio (TWLO) - 7%
Asana (ASAN) - 5%
Pinterest (PINS) - 5%

Tier 3 (2-5%):
Snowflake (SNOW) - 4%
Digital Turbine (APPS) - 3%
Fubo TV (FUBO) - 3%

Cash - 0%

11 positions, including cash (12 last month)

*****

ACTIONS FROM THIS PAST MONTH 

Added:

Added a lot to Upstart (UPST)

Sold:

Celsius Holdings (CELH)

*****

GENERAL THOUGHTS
At one point mid-month my portfolio hit a bottom for the year at around minus 16% (I had 84% of what I started the year with). But then it turned abruptly and went straight up to finish the month just under positive 5% YTD. A lot of that had to do with Upstart, but really all my stocks just went up together. Perhaps the sector rotation has passed.

*****

PORTFOLIO THOUGHTS
I still have 11 positions and would like to narrow it further to 9 or 10. I imagine that will come in June but we'll see how earnings shake out in the coming week. 

*****

COMPANY UPDATES

Datadog
Market cap: $28 billion
MTD performance: 6%
YTD performance: (8%)
T6M performance: (8%)
T12M performance: 31%

Recent company performance:
Datadog reported in the first week of May and it was right on track. The QoQ growth was only 12% and I was looking for more like 14%, but everything else was solid. Datadog has now shown YoY slowdown in revenue for the past three quarters due to the one bad Covid quarter. But now that trend will play out in reverse and they will show accelerating YoY growth for the next three or four quarters going forward. It's likely they'll be showing 60%+ growth going forward.

They already raised yearend guidance this quarter from 38% to 47%. They will raise it again after next quarter. I have a high amount of confidence in this.

- Revenue was up 51% YOY and 12% QOQ to ~ $199 million. They had guided for 42% YOY and 5.3% QOQ

- For next quarter, they guided for 52% YOY growth and 7.28% QOQ, which they will beat.

- Cash on the balance sheet was up 94% YOY and 2% QOQ to ~ $1.5 billion

- Cash from operations was up 112% yoy to ~ $52 million. That's a margin of 26% compared to 18% last year. That's great!

- FCF was up 130% YOY to ~ $44 million. That's a margin of 22% compared to 15% last year. Fantastic!

- Adj gross margin was 77% compared to 80% last year. Down, but I feel it's in-line. Their gross margins move between about that range. In fact, Q1 2020 was the only time their gross margin was in the 80's going back to 2017.

- Adj operating margin was 10% compared to 12% last year. Down. But I feel like the lower revenue growth has put pressure on these margins. They have trended down since Q2 2020. So we should see margin improvement as well in Q2. This is a big point and something to watch.

- Adj net margin was 10% compared to 14% last year. Exact same note as above on the adj opex.

- Adj eps was 6 cents compared to 6 cents last year. That's good actually considering the margins had all declined.

KPI'S
- As of March 31, 2021, we had 1,437 customers with ARR of $100,000 or more, an increase of 50% from 960 as of March 31, 2020. This is big!

From the call:
- Billings were $220 million, up 59% year over year. There were no major pro forma impacts to call out in the quarter.
- Remaining performance obligations or RPO was $464 million, up 81% year over year. Contract duration continued to be at an increased level from the year-ago period.

What to look for in the future:
Accelerating YoY revenue for the next 3-4 quarters. The Covid quarter that plagued their growth starting in Q2 2020, will now become an easy comparable and make the company appear to be accelerating.

Upstart (UPST)
Market cap: $11.3 billion
MTD performance: 36%
YTD performance: 264%
T6M performance: 403%
T12M performance: N/A IPO'ed in December

What the company does:
Upstart is a lending platform that sits between banks and customers. They use proprietary artificial intelligence (AI) and machine learning (ML) models to evaluate applicants. Their platform is capable of more accurately identifying risk than traditional, credit-score based lending models.

Recent company performance:
The company reported mid-month and it was simply a blow-out. I had a fair amount of confidence going in. I'm not sure how much of that was warranted, but I just sort of felt like it was going to be really good. Simply put, they are growing revenues at a fast rate AND showing rapidly improving metrics of profitability. That's what we want!

It's important to develop instincts for the market. Over time, I can see how stocks trade based on the numbers they report. I'll see patterns. If the earnings report is good in certain ways like if the company posts near-triple digit revenue growth, a big improvement in operating margin, and drastically increases their revenue guidance for the remainder of the year, the stock will jump 20% or more on the day. Obviously, numbers like that warrant big stock moves. Upstart reported just like that. And their stock ... FELL by a couple of percentage points. The market was manic that day. Absolutely positively manic. And it had been manic the previous couple of weeks. All my stocks, and particularly Upstart were battered.

When Upstart reported the numbers it did, and the stock price fell, I considered it a fat pitch. And when you get fat pitches you have to swing for the fence. I did just that by increasing my allocation from about 6% to 13%. And sure enough, the stock proceeded to go up by about 70% over the next week and grew into a 17% position at one point. It was just up every day.

The numbers were incredible.

- Revenue was up 90% YOY to ~ $ 121 million.
- More importantly, they raised FY guidance from $500 million to $600 million. That is a change from 114% to 157%!! And they indicated in the call that they'll likely get to $700 million by the end of the year, which would be 200%+ growth.
- GAAP Operating Margin of 13% vs 1% last year. Wall Street loves improving profitability.
- GAAP Net Margin of 8% vs 2% last year.
- GAAP EPS of 11 cents per share.
- Worth noting that Shares Outstanding only increased by 1% sequentially
- Cash from operations increased YOY from MINUS ~ $87 million to POSITIVE ~ $43 million. That's an Operating Cashflow Margin of 36% vs negative 135%!!
- Contribution Profit increased 117% YOY and 26% QoQ to ~ $ 56 million.
- Contribution Margin improved to 48% vs 38% last year. Great!
- Adj EBITDA increased 472% YOY and 26% QoQ to ~ $21 million. That's a margin of 17% vs 6% last year. An improvement to 17% shows they are further along on the journey.
- Adj Net Income increased 479% YoY and 267% QoQ to ~ $20 million. Adj net margin improved YoY from 5% to 16%! Fantastic
- Adj EPS improved YoY to 22 cents from 5 cents. Amazing!

KPI'S:
- Number of loans contracted increased 102% YoY to ~ 170 million
- Conversion on rate requests was 22% in the first quarter of 2021, up from 14% in the same quarter of the prior year.
- Fully Automated loans was 71% compared to 70% last year.

What to look for in the future:
More of the same. Next quarter will be an easy comparable because of the Covid quarter last year. So we'll watch QoQ growth and want to see them now hit QoQ growth of around 28% in each of the next three quarters as indicated in the call.




Roku
Market cap: $46 billion
MTD performance: 1%
YTD performance: 4%
T6M performance: 18%
T12M performance: 207%

Recent company performance:
Roku reported on the same day as Datadog. Other than Upstart, Roku had the strongest earnings report this month. It was astonishing. I can't really seem to wrap my head around Roku as an investment. I just don't have quite the conviction with them as I do with Datadog and Crowdstrike. Over the past 6 months, I've continued to trim while they just continue to blow expectations out of the water. This quarter was no different and might have been the time to really use the superlatives.

The company reported 79% revenue growth vs 54% guidance. What!? How is that possible? A truly stellar quarter. And they guided for 74% for next quarter. Part of the reason I don't have as much conviction in Roku is because their income statement is messier than SAAS companies'. But this quarter showed true operational leverage at scale.

- Revenue increased 79% YOY to ~ $574 million. Wow. They had guided for 54% YOY. That was also only a 13% sequential decline when it's usually closer to 30% decline going from the seasonally strong Q4 to the seasonally weak Q1.

- They guided for 74% revenue growth in Q2, which they will crush. I could see YOY revenue growth over 100%. It doesn't really matter though, it's an easy comp. H2 will be harder to beat. But still, this quarter now makes H2 YoY comps somewhat easier to beat.

- They are showing extreme leverage. It will most definitely come down over time. Their GAAP operating margin was 44% compared to minus 17% last year.

- They guided for a GAAP loss of $16-23 million and instead reported positive $76 million. Wow.

- GAAP eps was 54 cents compared to minus 45 cents last year

- Cash increased 253% YOY and about 100% QOQ, to ~ $2 billion. BUT they raised approximately $1 billion through an At-The-Market (ATM) stock offering

- Cash from operations increase 108% yoy to ~ $96 million from ~ $46 million. That's a margin of 17% vs 2%. Although it seems like Q1 is generally higher for this margin

- FCF improved 100% YOY to ~ $92 million vs ~ $0 last year. That's a FCF margin of 16% vs 0%. Capex was only $3 million though. They've already said that OPEX is going to increase, which will dent cash from operations, which will dent FCF.

- Adj EBITDA increased to ~ $126 million, which was a complete and utter blowout vs $34 million forecasted. That's a margin of 22% vs minus 5% last year. They've already said it will come down later in the year

- Adj operating margin was 51% vs minus 8% last year. Wow. (I just back out SBC from their GAAP operating income)

- Adj net margin was 20% vs minus 15% last year. Wow. Same as above on calculation. But again we know the margins aren't going to be this good going forward.

KPI'S
- Active Accounts up 35% YOY to 53.6 million. HOWEVER the sequential gain was only 4.7%. This is where we see that the growth is already slowing, and need to watch it.

- Streaming Hours up 49% YOY to 18.3 billion. HOWEVER the sequential gain was only 7.65% compared to 12.84% in Q1 2020. Same as above, this is where we see that the growth is already slowing.

- Average Revenue Per User up 32% YOY to $32.14. AND up 11.75% sequentially, which is more than usual. This is because monetization lags user growth. It will be up again next quarter and then probably start to slow in H2

- Platform Revs up 101% YOY to ~ $467 million. Sequential decline was only minus 1% too. This is why revenue was so strong. How long can it last? Or better how long can the acceleration last?

- Platform Revs as a % of Total increased to 81% vs 73% last year. And 73% in Q4. This might be the most important number of the entire report. However, can it sustain?

- Platform Gross Margins improved to 67% vs 56% last year. Pretty incredible.

What to look for in the future:
Last year when the pandemic came down, people went inside and started watching more Roku than ever. However, because ad dollars evaporated from the system at large, Roku's revenue took a hit. In other words, they added users but saw a decline in revenue. However, starting in Q3 and then continuing into Q4 and now Q1, they are monetizing those users.

Now, we are coming out of the pandemic, so user growth will slow. The thing to watch from a high level is that ad dollars are continuing to pour into the system. So that means that even if users don't grow as quickly in the near-term, the revenue could still continue to grow through the end of the year. I don't think it can accelerate YOY, but it can sustain high YOY comps. That's if the ad dollar thesis is correct.

Twilio
Market cap: $58 billion
MTD performance: (9%)
YTD performance: (1%)
T6M performance: 5%
T12M performance: 69%

Recent company performance:
Twilio reported Q1 earnings early this month and the company is just so solid. From a high level, we can say that they are growing very well but are not improving profitability. And yes, their gross margins are lower than other companies. But they are a really high conviction  Tier 2 holding for me because they seem to have so many tailwinds. The question will be, can they continue growing revenue at a high enough rate? We'll see how long it lasts, but as I've said before, this company seems to have the pedigree of a Salesforce.

- Revenue grew 62% YOY to ~ $590 million. That was off guidance of 47% at the high end. Wow that's a huge beat.

- Approximately $45 million of that was from Segment. Excluding Segment, revenue grew 49% year-over-year.

- They guided for 50% next Q. Also great

- Cash increased 47% sequentially to ~ $5.7 billion but they raised $1.8 billion in a follow-on offering during the quarter.

- Long-term debt increased 75% sequentially to $1.2 billion. Because they Issued and sold $1.0 billion aggregate principal amount of senior notes. The net proceeds from the debt offering were approximately $985.1 million.

- Cash from operations fell 71% YOY to ~ 4.5 million. That's a margin of 1% compared to 4% last year. That's bad.

- FCF was ~ minus $11 million in the quarter. That's a margin of minus 2% compared to 0% last year. That's pretty bad honestly. It's not great at least. It shows how capital intensive their business is.

- Adj gross margin fell yoy from 57% to 55%. And sequentially from 56%. That's bad.

- Adj op margin was 3% compared to 2% last year. And 2% last quarter. That's also bad, really.

- Adj net margin was flat YOY at 2%. And up from 1% last quarter. That, also, is not good.

- Adj eps was 5 cents compared to 6 cents last year. also not good.

- Active customer accounts was up 24% yoy to 235,000 from 190,000. That's great!

- DBNER was 133% compared to 143% last year (although they said: Excluding SendGrid, it would have been 135%)

What to look for in the future:
We want to see 50%+ revenue growth and some improving profitability. I think we'll likely see more acquisitions too. The company has $5 billion in cash.

Snowflake
Market cap: $70 billion
MTD performance: 3%
YTD performance: (15%)
T6M performance: (27%)
T12M performance: N/A company IPO'ed in September.

What the company does:
In short, Snowflake = data.

Snowflake created what they call "the Data Cloud", which allows organizations to mobilize data with near-unlimited scale. Wherever data or users live, Snowflake delivers a single and seamless experience across multiple public clouds. Snowflake’s platform is the engine that powers and provides access to the Data Cloud, creating a solution for data warehousing, data lakes, data engineering, data science, data application development, and data sharing.

Recent company performance:
Snowflake is the elephant in my portfolio – the company with the outlying ridiculously high valuation. But one that everyone knows they will grow into. So in a way, it's what I consider to be a conservative investment (although many people would scoff at that).

But the company is simply putting up numbers on another level. They IPO'ed earlier in their journey than other SAAS companies. So we aren't used to seeing numbers like this from a public company. Zoom had similar numbers, but they didn't IPO until year 8 or 9, whereas Snowflake IPO'ed in year 6.

It's important to remember that new customers take 6 to 9 months before their revenue impact starts to show up. So watching RPO growth is important.

Here are the numbers from my notes:

- Revenue grew 110% YOY to ~ $229 million. That was up from ~ $109 million btw. Sequential growth was 20%. Wow that's great. They had guided to $200 million at 96% growth YOY

- Cash held steady sequentially at ~ $ 5.1 billion!

- And no debt!

- Current deferred revenue fell 1% sequentially to ~ $ 635 million. Their RPO did not grow substantially this quarter.

- Deferred revenue noncurrent fell 15% sequentially to ~ $3.6 million. It's almost insubstantial. Which means their RPO balance is big but it's not necessarily money in the bank because they are consumption based I'm guessing. So it's important to look at RPO instead of deferred revenue.

- Cash from operations in the quarter was ~ $22 million compared to minus ~ $6.6 million last quarter. That's great. Op cash flow margin of 10% vs minus 6% last year.

- FCF was ~ $13 million vs minus ~ $11 million last year. That's a FCF margin of 6% vs minus 10%. That's great

- Adj gross margin improved to 68% vs 62% last year. Good improvement especially for Gross margin

- Adj operating margin improved to minus 16% vs minus 67% YOY. That's what we're looking for. That is great.

- Non-GAAP S&M expense was 49% of revenue vs 84% last year. Great!

KPI'S
- Total customers grew 9% sequentially to 4532. I don't know what to think of that. 9% isn't on par with revenue and they don't give customer count last year.

- However, Customers with TTM product revenue greater than $1 million increased 26% sequentially to 104 total. That's great.

- RPO balance grew 7% sequentially to ~ $1.4 billion. It grew 206% YOY, but all of that growth came from last quarter. RPO / Quarterly revenue fell sequentially from 6.8 to 6.1. Not great IMO, but that number may come down over time.

- NRR held steady sequentially at 168%, which is an absolutely out of this world metric for a public company.

- It looks like the trailing P/Sales is 98 down from 118 last quarter. Is that good??? Who cares. The company's market cap fell about 1 billion from last quarter. And after falling 22 billion the previous quarter.

What to look for in the future:
I will likely continue to increase my allocation over time.

Simply, will it grow faster for longer than the market is predicting? Like, will it grow at 100% for another year and then drop to 80%, whereas the market is more like expecting 80% and then 60%. That sounds like not a big deal, but would have big implications. I don't actually know. But it seems like it's a safe investment in the sense that it will grow into it's current market cap. That might mean no capital appreciation for me, but at the same time it's sort of a conservative investment by my standards. I could easily sell the bottom half of my portfolio and just put everything into Snowflake. I've said that several times now. In fact, if I really wanted to narrow the portfolio, that's exactly what I'd do.




FuboTV
Market cap: $3.3 billion
MTD performance: 18%
YTD performance: (15%)
T6M performance: (14%)
T12M performance: N/A they IPO'ed in October

Recent company performance:
Fubo reported on May 11th, same day as Upstart, which was near the nadir for my stocks. Around that time, all my stocks were completely beaten down. Just down and down and down some more each day. Fubo was getting battered. When they reported I think any sort of positive news would have caused the stock to pop. They did report what I thought were great numbers and, like Upstart, the stock went no where. It fell on the day. But then it popped over the following week.

From a high level, I'd say that there is clearly traction for the company. This isn't just a story stock. However, they are still very unprofitable. That said, I'm happy to keep at a very modest less than 3% allocation.

Coming in, we wanted to see 100%+ revenue growth and some kind of improvement in profitability. We wanted an update on sports betting. And most importantly, we didn't want to see a shiny Shareholder Letter that explains away near-term progress with lots of great stories about opportunities ahead. And the company delivered on all of those.

Further, they called this an "inflection point" because they didn't show seasonality going from Q4 into Q1. They used "inflection point" many times in the report and call.

- They raised guidance for the year from 78% to 101%. That is exactly the kind of stuff we want to see.

- Increased revenue by 135% YoY to ~ $120 million. That's up from ~ $51 million. It's a 14% QoQ increase too when they expected a small decrease due to seasonality. They also beat their guidance by 16%. Amazing!!!

- They are guiding for a 2% sequential gain in revenue. And 174% YoY. I'm not sure how seasonality usually is

- Op margin improved YOY from (101%) to (54%). Amazing improvement.

- Net margin improved YOY from (131%) to (59%). Amazing improvement.

- Cash was up 71% sequentially to ~ $460 million. This included the impact in the quarter of $390 million net proceeds from the closing of our convertible senior notes offering on February 2, 2021

- Long-term debt increased to $305 million as mentioned above.

- FCF margin was minus 46% compared to minus 143% in Q4

- Adj EBITDA margin improved to MINUS 39% compared to MINUS 72% last year. And MINUS 133% in 2019. Great improvement!

MISC KPI'S
- Subscribers increased 106% YoY to ~ 590 thousand

- Content hours streamed increased 113% to 228 million hours

- ARPU was up 28% YoY to $69.09 from $54.16

- Advertising ARPU was up 57% YoY to $7.11 from $4.54

What to look for in the future:
FuboTV is similar to Roku in that user growth could slow in the back half of the year, but ad dollars pouring back into the system should offset that. Plus Fubo is a smaller and faster growing company.



Celsius Holdings (CELH)
Market cap: $4.7 billion
MTD performance: 14%
YTD performance: 30%
T6M performance: 103%
T12M performance: 637%

What the company does:
Celsius Holdings is an energy drink company. It's the #3 energy drink in the US behind Red Bull and Monster. The company is growing rapidly and is easy to understand but I sold it for all the reasons I list below.

Recent company performance:
I sold Celsius Holdings after the company released earnings on 13 May.

I wrote this in my notes:
It's funny coming into this report I was looking for reasons to sell this stock because the market had been really manic. And just yesterday the Nasdaq crossed some line-in-the-sand technical level that Knox warned about. And the stocks in my portfolio have been in free-fall for close to 3 months now. They've gone up but mostly down over time. So now I'm really on guard. I'm really looking for ways to raise cash and focus.

And immediately when I scanned the report I started seeing things that I didn't like. Whether that was me just looking or actually seeing the truth and reality I'm not sure. But I decided then and there that I was going to sell it. Even before inputting the numbers myself I saw:

- No guidance for next quarter
- Slow international growth at 25%

And I thought

- "This is a complicated story with the acquisitions"

And then I also thought:

- "This isn't a Star business. They aren't the leader in their field (Red Bull and Monster are). And that's one of my first principles, to only own Star businesses."

And most importantly, I saw this sentence in the report:

- Margins were impacted due to increases in input costs associated with the global can shortages as well as increased repack fees. It’s anticipated that input costs associated with cans will normalize towards the end of 2021 and throughout 2022. Margins were also impacted by increases in freight costs and processing costs. As the company realigns co-packer volumes in the second half of 2021, it anticipates co-packer toll fee savings to materialize

And then I thought:

- "Inflation will have a direct impact on this company as input costs for things like sugar and aluminum rise relative to the US dollar."

And those last two items pretty much sum it up. This is a physical product. Yes it's a simple concept to understand – energy drinks – it's a fast-growing product within a fast-growing industry. But it's still a physical product that has to get constantly re-manufactured, re-sold, and re-shipped. And if my goal is to own a highly concentrated portfolio of the best businesses out there, then this just isn't it. Not compared to software companies that can scale to infinity (with marginal additional cost) and are mission-critical. These are the reasons I sold Peloton.

And sure enough, the gross margin took a 5% (500 bp) hit YoY. And an 8% hit (800 bp) hit QoQ!!! And it's only in the 40% range to begin with, so there goes the operating margin. They have absolutely no way to overcome that large of a hit.

And so this has been a short but fun ride, and a good lesson, but I'm done putting my money on the line. If we were still in a bull market this thing would probably continue to rip higher. But when the market turns ugly, the best defense I have is to own the absolute best businesses. I don't want to own stories or even companies selling physical products.

The numbers from their report looked like this:

- Revenue increased 78% YoY to ~ $50 million.

- It also increased 40% QoQ. Wow, that's really impressive. Something else!!!

BUT

- GAAP gross margin fell from 46% to 41% YoY. And it fell from 48% QoQ. That's a really bad sign.

- GAAP op margin fell from 3% to 2% YoY. It was 1% last quarter. So much for scaling revenue by 78% YoY!

- GAAP net margin fell from 2% to 1% YoY. And from 5% last quarter. Bad!

- GAAP EPS was 1 cent vs 1 cent last year, and 1 cent last quarter.

- Cash is down 37% QoQ to ~ $31 million. That's bad! They do have a negative cash from operations.

- Cash from operations was MINUS ~ $13 million vs MINUS ~ $3.8 million last year. That's a cash from operations margin of MINUS 27% vs MINUS 14% last year. They were bleeding cash this quarter.

- FCF was basically the same at MINUS ~ $14 million vs MINUS ~ $3.9 million last year. FCF margin of MINUS 28% vs MINUS 14%.

- The adjusted EBITDA increased 81% YoY to ~ $5 million vs $2.7 million last year. That's a margin of 10% vs 10%. And it was 9% last quarter. If revenue grows by 78%, the business should be scaling and showing greater profitability YoY, not stagnant profitability. That's what happens when a company selling physical products gets caught in supply chain shortages with simultaneously rising inflation.

*****

MACRO THOUGHTS
None. It does appear the sector rotation is behind us. We'll see how the overall market behaves once we get into Q3 and Q4 which will show decelerating growth at the macro level. Who knows what inflation will do, but I imagine it will also decelerate at the same time as GDP growth.

*****

NEW LINEUP GOING FORWARD
Exact same. Maybe lose Digital Turbine and Zoom depending on how earnings look.

Watchlist:
Olo (OLO)

UI Path (PATH)

*****

ACTIONS FOR NEXT MONTH
None