PERFORMANCE
MTD
My portfolio: (13.40%)
S&P 500: 4.46%
17.86 points worse
YTD
My portfolio: (6.10)%
S&P 500: 5.99%
12.09 points worse
My portfolio: (13.40%)
S&P 500: 4.46%
17.86 points worse
YTD
My portfolio: (6.10)%
S&P 500: 5.99%
12.09 points worse
*****
CURRENT PORTFOLIO
Tier 1 (10-25%):
Crowdstrike (CRWD) - 19%
Crowdstrike (CRWD) - 19%
Datadog (DDOG) - 18%
Roku (ROKU) - 11%
Tier 2 (5-9%):
Twilio (TWLO) - 9%
Pinterest (PINS) - 9%
Zoom (ZM) - 8%
Asana (ASAN) - 7%
Tier 3 (2-5%):
Digital Turbine (APPS) - 5%
Upstart Holdings (UPST) - 3%
FuboTV (FUBO) - 3%
Celsius Holdings (CELH) - 3%
Cash - 5%
12 positions, including cash (14 last month)
*****
Bought:
Upstart, Celsius Holdings
Upstart, Celsius Holdings
Added:
Datadog
Trimmed:
Sold:
Cloudflare, DocuSign, Okta, Magnite, Red VioletSold:
*****
GENERAL THOUGHTS
Between an ATH on Friday, February 12 and a relative low on Monday, March 9, I had a drawdown of 29.72%. That's pretty brutal. But there's an element of cherry-picking there since the ATH was on an arbitrary day. Either way, yea it's still painful to go through.
I had a busy month as I tried to digest earnings, a changing post-Covid world, and a tumbling portfolio.
On the latter, I can say that the stock market is definitely more fun when it only goes up.
I had a busy month as I tried to digest earnings, a changing post-Covid world, and a tumbling portfolio.
On the latter, I can say that the stock market is definitely more fun when it only goes up.
At the end of February, before the meltdown in my portfolio, I said "We might be at the part of the story where a lot of people start to think that they’re smart and that investing in the stock market is easy." At the time, growth companies had continued their ascent from 2020. At one point in mid-February, my portfolio was up 25% YTD. And then high-growth proceeded to sell off aggressively over the next few weeks.
Despite this sell-off, my portfolio is down a whopping 6% YTD. Doesn't seem that bad when I put it like that.
But as I said, the drawdown from all time highs was painful. And then I start to see posters in forums say things like "I'm about to bail on this whole growth investing thing." Or things like "I discovered growth investing a few months ago ...".
What happened is that a lot of "growth" companies had huge run-ups in 2020 which attracted attention. Then people piled in. And now it's going through a rough patch and people are bailing out in order to pile into "value" or other strategies. When I see people say that they are going to "bail" on "growth investing" I know that we're at least approaching some kind of near-term bottom.
As the ghost author "Adam Smith" said in his 1967 book "The Money Game", "if you don't know who you are, this is an expensive place to find out."
No strategy is full-proof. Pain should be expected. But you have to push through with your strategy, and iterate. If the volatility keeps you up at night, you can try holding a greater allocation of cash in the future. Or hedge by shorting the Nasdaq 100 or some other index. Or try switching large-cap for small-cap stocks after everything has fallen. Or try using options as leverage. Or simply just learn to eat the volatility and not anchor to all-time highs. Whatever you do, try to learn what works for you individually.
Liverpool FC were one of the best football teams in the world in 2018 and 2019. They won the Premier League, the Champions League and the Club World Championship in 2018 and 2019, which crowned them the best team in England, Europe and the world. Their style of play is characterized as fast-paced and high-flying. They press high up the pitch. They try to hit teams on quick counters after winning the ball in what is described as Gegenpressing, which is German for 'Counter-pressing'. They play a high line in defense. Their fullbacks push up the pitch with blistering pace and whip balls into the box. Jurgen Klopp is heralded as a tactical genius, and he built the team over five to six years. That's five to six years of honing a strategy, using what he had at his disposal. It takes integration of the whole club from the scouts to the groundskeepers.
But this year, in 2020-21, Liverpool have been abysmal. Injuries have plagued them, yes. But in general their style of play has been figured out to some extent. The same things are not working. Their strategy needs refreshing. They need to iterate. That doesn't mean they will abandon their strategy altogether and try something completely different. They aren't going to go out and buy all new players. They aren't going to sit way back and switch to "park the bus" or "route one" football. They aren't going to become a dead ball team.
Investing is similar in that the same strategy is not going to work all the time. There will be periods when any strategy doesn't work. If one strategy worked all the time then everyone would do it.
Switching to a completely different style of investing is not the answer. The answer is to work through the pain. Growth investing has painful drawdowns. That's precisely what shakes a lot of people out – because most people can't handle the volatility. That's what March has been about, pain. And it could continue to go on longer. But at some point the stocks of the companies I own, which have sold off aggressively will turn back up because the companies that underlie them are still doing fine.
Investing is similar in that the same strategy is not going to work all the time. There will be periods when any strategy doesn't work. If one strategy worked all the time then everyone would do it.
Switching to a completely different style of investing is not the answer. The answer is to work through the pain. Growth investing has painful drawdowns. That's precisely what shakes a lot of people out – because most people can't handle the volatility. That's what March has been about, pain. And it could continue to go on longer. But at some point the stocks of the companies I own, which have sold off aggressively will turn back up because the companies that underlie them are still doing fine.
*****
It still feels like too many. I'd rather have eight to nine positions rather than eleven.
*****
COMPANY OVERVIEWS
Crowdstrike (CRWD)
Market cap: $40 billion
MTD performance: minus 18%
YTD performance: minus 16%
T6M performance: 29%
T12M performance: 203%
What the company does:
CrowdStrike is a cloud-native security platform. Given the continued work-from-anywhere trends and heightened security environment combined with the best tech and world-class management, I'd say they are in a good place.
Recent company performance:
They announced earnings on March 16 and the numbers were remarkable. It's telling how the company can release earnings like they did and not have the stock move. In another quarter, it might have gone up 20% or more on the day.
Revenue grew 74% YOY to ~ $265 million. That topped guidance by 9%. Wow!!
Guided to 64% next quarter and 51% next fiscal year despite the tough covid comps
Subscription revenue grew to 92% of total revenue compared to 91% last year
FCF was ~ $97 million in the quarter. Wow. That is a 37% FCF margin, compared to 33% last year and 0% in 2019.
Adj Subscription-based gross margin improved to 80% vs 77% last year. Wow! They continue to improve
Adj operating margin improved to 13% compared to minus 4% last year, and THAT was a huge jump from minus 34% in 2019. WOW!!
Adj net margin improved to 12% compared to minus 3% last year, and THAT was a huge jump from minus 34% in 2019. Wow!! It's really these massive improvements in operating and net margins that show how well the business is doing.
Adj EPS was 13 cents compared to minus 2 cents last year!!
Added 1480 net new customers in the quarter, a record for the company, for a total of 9896 customers up 82% YOY.
Look at the customer growth
9896 - Q4 21
5431 - Q4 20
2516 - Q4 19
RPO is currently at ~ $1.3 billion. That's ~ $701 million in current deferred revenue + ~ $209 in non-current deferred revenue + ~ $448 million in unbilled "backlog". That's 5.1 times revenue in the quarter. And it grew YOY at 78%, faster than YOY revenue growth. And it grew 27% sequentially.
Net retention increased to 125% as of the end of FY '21
What to look for in the future:
They guided to ~ $1.3 billion in revenue next FY for 49% growth, which they will beat handedly. How will they fare as they start lapping the Covid quarters? Guidance was strong so it seems they are predicting favorable conditions for continued success. RPO balance will be a leading indicator of how much the world plans to use their products.
Datadog (DDOG)
Market cap: $25 billion
MTD performance: minus 16%
YTD performance: minus 18%
T6M performance: minus 13%
T12M performance: 134%
At one point mid-month I went in and bought aggressively taking my allocation of Datadog from about 13% up to 19%. If the market is going to be manic then I need to take advantage of it. And it feels that way with Datadog. Sometimes you have to get aggressive. Otherwise what's the point of spending so much time analyzing.
Datadog has essentially been dead money now for almost nine months. The stock has been in a "consolidation zone" around the $80-range. But I think that is going to change. Eventually business performance will lead to stock performance, and the business has been firing on all cylinders.
What the company does:
DataDog is a software monitoring platform. Like CrowdStrike it is cloud-native and operates on a Software-as-a-service (SAAS) business model. The company sells software that allows other companies to monitor their own. If problems arise, DataDog is on top of it.
The company wasn't immune to the pandemic. They had one bad quarter of decelerating revenue (80%+ to 60%+ in Q2 2020). Now they're working off a lower baseline until we lap that quarter in 2021.
They reported great results this month. We were looking for QOQ growth of ~15% and that's what we got. 56% YOY growth. In Q2 2021 we will see an acceleration of YOY revenue so long as they continue to hit ~ 15% sequentially.
Recent company performance:
They had one bad quarter in Q2 2020 due to the pandemic shut-down, but have quickly recovered and are firing on all cylinders.
What to look for in the future:
The number one thing to watch is sequential revenue going forward. If they continue to hit ~ 15% then the YOY revenue growth will show an acceleration starting in Q2.
What the company does:
DataDog is a software monitoring platform. Like CrowdStrike it is cloud-native and operates on a Software-as-a-service (SAAS) business model. The company sells software that allows other companies to monitor their own. If problems arise, DataDog is on top of it.
The company wasn't immune to the pandemic. They had one bad quarter of decelerating revenue (80%+ to 60%+ in Q2 2020). Now they're working off a lower baseline until we lap that quarter in 2021.
They reported great results this month. We were looking for QOQ growth of ~15% and that's what we got. 56% YOY growth. In Q2 2021 we will see an acceleration of YOY revenue so long as they continue to hit ~ 15% sequentially.
Recent company performance:
They had one bad quarter in Q2 2020 due to the pandemic shut-down, but have quickly recovered and are firing on all cylinders.
What to look for in the future:
The number one thing to watch is sequential revenue going forward. If they continue to hit ~ 15% then the YOY revenue growth will show an acceleration starting in Q2.
Roku (ROKU)
Market cap: $39 billion
MTD performance: minus 20%
YTD performance: minus 8%
T6M performance: 65%
T12M performance: 242%
I don't have anything to add on Roku. At one point during the month when I was feeling really despondent about the stock selling off, I realized it was down all the way where it was back in ... January. Doesn't seem that bad when you say it like that.
What the company does:
Roku makes little boxes that sit next to your tv and connect it to the internet. They also license that software so manufacturers can install it live natively into "smart tvs".
What to look for in the future:
There will be a lot of uncertainty about Roku as they lap the Covid quarters. And unfortunately, management doesn't have a great track record of assuaging Wall Street's fears. Anthony Wood (CEO) can be pretty reticent. Therefore, the stock might face some pressure in the second half of the year as we wait to see how actual business performance looks. That's something to consider, and I might lower the allocation significantly.
Twilio (TWLO)
Market cap: $54 billion
MTD performance: minus 19%
YTD performance: minus 6%
T6M performance: 31%
T12M performance: 218%
What the company does:
Twilio is a communications company. They create products that allow developers to communicate through phone calls and messages.
An example of what they do is, when you call a driver through the Uber app, and it connects you without showing personal phone numbers. Or when you use Instacart and chat with the person who is shopping.
Recent company performance:
Twilio reported earnings in February and capped off a phenomenal year with a phenomenal report.
The scale is impressive. $2 billion in revenue annually and growing at 50%+.
Two great numbers:
- Active customers up 23% YOY. About on par with the previous 4 quarters
- DBNER of 139%. Amazing number at scale. An acceleration from previous quarters
What to look for in the future:
- DBNER of 139%. Amazing number at scale. An acceleration from previous quarters
What to look for in the future:
The company guided for 47% revenue growth at the high end for next quarter, which means we should see something like 53%.
They will have tougher comps starting in Q1 and Q2.
I think Twilio could be a $500 billion company one day, maybe ten years from now. Unlikely that I'll still own the stock, but it seems to have that sort of pedigree.
Pinterest (PINS)
Market cap: $43 billion
MTD performance: minus 14%
YTD performance: 5%
T6M performance: 69%
T12M performance: 354%
What the company does:
Pinterest is a social media platform that allows users to share and discover ideas using images and videos on "pinboards".
Recent company performance:
From a high-level here is the near-term investment thesis: 76% revenue growth, guided for 70%+ next Q, AND will have an easy comparable quarter in Q2 (2019 Q2 revenue growth was only 4% b/c ad dollars evaporated).
CFFO in the quarter improved yoy from ~ 9 million to 100 million. Went from 2% of revenue to 14%!!
FCF improved from minus 3.7 million to positive 97 million. Went from minus 1% of revenue to 14%!!
What to look for in the future:
Revenue growth in the 70's for at least two quarters. They will have tougher comparable quarters in the second half of the year.
Zoom (ZM)
Market cap: $94 billion
MTD performance: minus 14%
YTD performance: minus 5%
T6M performance: minus 34%
T12M performance: 127%
Everyone knows what Zoom is. Where does the growth go from here? Is this still a "growth" company? The market currently says no based on stock price action. The market thinks the company will have a Covid hangover. I am willing to give them another quarter to see if new products and international expansion can move the needle. That might be a mistake. Realistically, if they are able to move the needle going forward then we might be at the "low" for the stock price right now. It might only go up from here for the next few months.
Asana (ASAN)
Market cap: $4.3 billion
MTD performance: minus 21%
YTD performance: minus 7%
T6M performance: minus 5%
T12M performance: N/A IPO'ed in September
Asana is a "work-place management" application. You can think of it as similar to Slack – or
something like email 2.0. It helps teams organize, track, and manage work.
The company was founded by founders from Facebook and Google.
Recent company performance:
Revenue growth suffered through the pandemic similar to Slack. As companies tried to cope with cost-cutting, they prioritized teleconferencing (Zoom) over work-place management software like Slack and Asana.
Recent company performance:
Revenue growth suffered through the pandemic similar to Slack. As companies tried to cope with cost-cutting, they prioritized teleconferencing (Zoom) over work-place management software like Slack and Asana.
Asana released earnings this past month and from a high level I'd say the revenue growth was impressive but they continue to show lack of operational leverage. That's ok for now as it's more important for them to blitzscale and get as many users as possible and then monetize them.
In the last earnings report:
Revenue grew 57% YOY to ~ $68 million. That beat guidance by 9%. It was also 16% sequential growth, which was an acceleration from 13% sequentially the previous ER. The business doesn't appear to have seasonality either looking at 2020 results, the sequential revenue growth was 18% (Q1 to Q2), 15% (Q2 to Q3) and 14% (Q3 to Q4).
For next quarter, they guided to 48% YOY growth and 3% sequential. And for the year guided for 38%.
Cash from operations in the quarter was minus ~ $18 million compared to minus ~ $16 million last year. That translated into a margin of minus 27% this quarter compared to minus 37% last year. That's good.
And FCF margin improved to minus 26% from minus 44% last year. That's a good jump.
Adj gross margin of 88% compared to 87% last year. Wow that is really great. This is what allows them to spend so much on sales and marketing.
Adj operating margin fell to minus 51% from minus 46% last year. That's the really bad number there. That's what we DON'T want to see.
Adj net margin was also minus 51% compared to minus 46% last year. Not good.
Adj EPS was minus 22 cents compared to minus 27 cents last year. That's a bit of a reprieve
MISC KPI'S
Ended the year with 93k paying customers up from 89k last quarter. That's only a 4% sequential increase. Not great.
They mentioned 1.5 million paid users, but I don't see that number in previous reports
These are good:
- Customers spending $5,000 or more on an annualized basis in Q4 grew to 10,174, an increase of 55% year over year.
- Customers spending $50,000 or more on an annualized basis in Q4 grew to 397, an increase of 92% year over year.
- Overall dollar-based net retention rate in Q4 was over 115%.. NOT GREAT
- Dollar-based net retention rate for customers with $5,000 or more in annualized spend was 125%.
- Dollar-based net retention rate for customers with $50,000 or more in annualized spend was over 140%.
What to look for in the future:
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 in the next earnings report.
In the last earnings report:
Revenue grew 57% YOY to ~ $68 million. That beat guidance by 9%. It was also 16% sequential growth, which was an acceleration from 13% sequentially the previous ER. The business doesn't appear to have seasonality either looking at 2020 results, the sequential revenue growth was 18% (Q1 to Q2), 15% (Q2 to Q3) and 14% (Q3 to Q4).
For next quarter, they guided to 48% YOY growth and 3% sequential. And for the year guided for 38%.
Cash from operations in the quarter was minus ~ $18 million compared to minus ~ $16 million last year. That translated into a margin of minus 27% this quarter compared to minus 37% last year. That's good.
And FCF margin improved to minus 26% from minus 44% last year. That's a good jump.
Adj gross margin of 88% compared to 87% last year. Wow that is really great. This is what allows them to spend so much on sales and marketing.
Adj operating margin fell to minus 51% from minus 46% last year. That's the really bad number there. That's what we DON'T want to see.
Adj net margin was also minus 51% compared to minus 46% last year. Not good.
Adj EPS was minus 22 cents compared to minus 27 cents last year. That's a bit of a reprieve
MISC KPI'S
Ended the year with 93k paying customers up from 89k last quarter. That's only a 4% sequential increase. Not great.
They mentioned 1.5 million paid users, but I don't see that number in previous reports
These are good:
- Customers spending $5,000 or more on an annualized basis in Q4 grew to 10,174, an increase of 55% year over year.
- Customers spending $50,000 or more on an annualized basis in Q4 grew to 397, an increase of 92% year over year.
- Overall dollar-based net retention rate in Q4 was over 115%.. NOT GREAT
- Dollar-based net retention rate for customers with $5,000 or more in annualized spend was 125%.
- Dollar-based net retention rate for customers with $50,000 or more in annualized spend was over 140%.
What to look for in the future:
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 in the next earnings report.
Market cap: $6.7 billion
MTD performance: minus 8%
YTD performance: 34%
T6M performance: 144%
T12M performance: 1600%
What the company does:
Market cap: $10.5 billion
MTD performance: 118%
YTD performance: 251%
T6M performance: N/A company IPO'ed in Jan
T12M performance: N/A company IPO'ed in Jan
Okay, the company I'm most excited about currently is Upstart. It just IPO'ed in December and released earnings this past month. Well the stock went up 100% in one day because while they grew revenue by ~ 40% for 2020 they guided for 100%+ revenue in 2021. That kind of change in guidance will send a stock through the roof. I wish I could say I owned it before that happened. But I think it says something that I am buying it now. A couple of years ago I would have thought that I "missed it". I don't think that's the case at all.
What the company does:
Upstart is a financial company that uses AI and data analytics to approve loans. The company sells their services to banks so that banks can decide on loans.
Upstart's mission is "to enable effortless credit based on true risk". They are a leading artificial intelligence (AI) lending platform designed to improve access to affordable credit while reducing the risk and costs of lending for their bank partners. Their platform uses sophisticated machine learning models to more accurately identify risk and approve more applicants than traditional, credit-score based lending models.
The company just IPO'ed at the end of December.
They had a really terrible Q2 of 2020 due to Covid 19. But without that quarter their revenue growth would have been much higher for the rest of the year. Well, now Covid is behind them and they are growing very rapidly AND have easy comparisons to last year.
I want to build a solid Tier 2 position for Upstart. I'll take it to 6-8% and then see how it performs. The stock was up 100% after they released earnings and then up 30%, down 25%, up 15%, down 20%, etc in the days after. Trying to get a decent allocation while not getting burned is like catching a chicken by the foot. However, I think the stock still has plenty of room to run based on the forward guidance, and eventually it will settle down while continuing to ascend.
Recent company performance:
They released earnings at the end of March and it was all about the forward guidance.
Revenue grew 39% YOY in the quarter to ~ $87 million from ~ $63 million
However, they guided for 36% sequential growth next Q and 114% revenue growth for the full FY @ approx $500 million!!
Contribution margin, which backs out the variable costs from revenue, was 48% vs 37% last year.
Adj EBITDA grew 123% YOY to ~ $15 million. Adj EBITDA margin was 18% vs 11% last year
Adj EPS was 7 cents vs 10 cents last year
What to look for in the future:
What we'll see is crazy stock action as the market tries to make sense of going from 40% growth to 114% growth. Likely to see lots of volatility both up and down. But overall, this stock is going to go up if they come anywhere near 114% revenue growth, which I'm sure they will because why would they guide that high unless they knew with almost absolute certainty they could get there.
Digital Turbine makes software that sits on Android devices, and helps monetize users
Recent company performance:
The company has grown at a torrid pace through acquisition. From the earnings report in February:
- Revenue grew 146% yoy
- GAAP op margin improved from 11% to 23% yoy
- GAAP net margin improved from 9% to 16% yoy
- Revenue grew 146% yoy
- GAAP op margin improved from 11% to 23% yoy
- GAAP net margin improved from 9% to 16% yoy
(I used their GAAP numbers there to show they are indeed GAAP profitable)
What to look for in the future:
The company is growing through acquisitions. It will be interesting to see how that plays out.
They will have very tough comps starting in Q2 as they lap their acquisition of Mobile Posse
Upstart (UPST)
MTD performance: 118%
YTD performance: 251%
T6M performance: N/A company IPO'ed in Jan
T12M performance: N/A company IPO'ed in Jan
Okay, the company I'm most excited about currently is Upstart. It just IPO'ed in December and released earnings this past month. Well the stock went up 100% in one day because while they grew revenue by ~ 40% for 2020 they guided for 100%+ revenue in 2021. That kind of change in guidance will send a stock through the roof. I wish I could say I owned it before that happened. But I think it says something that I am buying it now. A couple of years ago I would have thought that I "missed it". I don't think that's the case at all.
What the company does:
Upstart is a financial company that uses AI and data analytics to approve loans. The company sells their services to banks so that banks can decide on loans.
Upstart's mission is "to enable effortless credit based on true risk". They are a leading artificial intelligence (AI) lending platform designed to improve access to affordable credit while reducing the risk and costs of lending for their bank partners. Their platform uses sophisticated machine learning models to more accurately identify risk and approve more applicants than traditional, credit-score based lending models.
The company just IPO'ed at the end of December.
They had a really terrible Q2 of 2020 due to Covid 19. But without that quarter their revenue growth would have been much higher for the rest of the year. Well, now Covid is behind them and they are growing very rapidly AND have easy comparisons to last year.
I want to build a solid Tier 2 position for Upstart. I'll take it to 6-8% and then see how it performs. The stock was up 100% after they released earnings and then up 30%, down 25%, up 15%, down 20%, etc in the days after. Trying to get a decent allocation while not getting burned is like catching a chicken by the foot. However, I think the stock still has plenty of room to run based on the forward guidance, and eventually it will settle down while continuing to ascend.
Recent company performance:
They released earnings at the end of March and it was all about the forward guidance.
Revenue grew 39% YOY in the quarter to ~ $87 million from ~ $63 million
However, they guided for 36% sequential growth next Q and 114% revenue growth for the full FY @ approx $500 million!!
Contribution margin, which backs out the variable costs from revenue, was 48% vs 37% last year.
Adj EBITDA grew 123% YOY to ~ $15 million. Adj EBITDA margin was 18% vs 11% last year
Adj EPS was 7 cents vs 10 cents last year
What to look for in the future:
What we'll see is crazy stock action as the market tries to make sense of going from 40% growth to 114% growth. Likely to see lots of volatility both up and down. But overall, this stock is going to go up if they come anywhere near 114% revenue growth, which I'm sure they will because why would they guide that high unless they knew with almost absolute certainty they could get there.
FuboTV (FUBO)
Market cap: $3 billion
MTD performance: minus 38%
YTD performance: minus 22%
T6M performance: 138%
T12M performance: N/A the company IPO'ed in September
What the company does:
FuboTV is a streaming TV service that focuses on sports, including all the major leagues (NFL, MLB, NBA, NHL, MLS and the major football leagues in Europe).
Recent company performance:
FuboTV released earnings at the beginning of March, which feels like years ago now.
They are what I would call extremely unprofitable.
To put it mildly, I'd say it's all about the revenue growth going forward. Everything below the revenue line is ugly and complicated. So the question has to be ... can they grow out of it???
It's also complicated by the fact that the company was part of a merger. Because of the merger, GAAP accounting won't allow them to compare FUBO this year to last year. In other words, they can't include FuboTV revenue from last year because it wasn't part of the company. Therefore, the accounting is Pro Forma.
The guidance was strong though:
"Our Q1 2021 revenue guidance takes this seasonality into account with revenue of $101-$103 million. This would represent growth of 98-102% year-over-year and a sequential decline of 2-4% quarter-over-quarter.
On a full-year basis we are increasing revenue guidance to $460-$470 million, up 76-80% year over-year. We are also guiding to total year-end subscribers of 760,000-770,000, an increase of 39-41% year-over-year."
What to look for in the future:
A big part of the "story" is sports betting, which they plan to monetize
We should expect to see strong revenue growth and strong guidance as the company should have easy comparable quarters upcoming. Sporting in general shut down early in the pandemic, which is obviously bad for a streaming service focused on sports.
Revenue grew 48% yoy to ~ $35.6 million. That's a huge deceleration from 80% in Q3, 86% Q2, 95% Q1 in previous quarters, but that is because the company is also ingesting an acquisition.
GAAP gross margin improved to 49% from 42% last year. That's a good improvement but not a good gross margin
GAAP op margin was 1% compared to minus 5% last year. but fell sequentially from 13%. Terrible! There must be seasonality in their business. We can see how the acquisitions are affecting operational leverage.
GAAP net margin improved to 5% from minus 5% last year. But fell sequentially from 13%.
GAAP eps improved to 2 cents from minus 2 cents. But fell sequentially from 6 cents
Adj EBITDA improved 1700% to ~ $3 million from $170 thousand. Adj EBITDA margin of 9% vs 1% last year. But fell sequentially from 19%
What to look for in the future:
Improving sales environment coming out of Covid lock-downs
MTD performance: minus 38%
YTD performance: minus 22%
T6M performance: 138%
T12M performance: N/A the company IPO'ed in September
What the company does:
FuboTV is a streaming TV service that focuses on sports, including all the major leagues (NFL, MLB, NBA, NHL, MLS and the major football leagues in Europe).
Recent company performance:
FuboTV released earnings at the beginning of March, which feels like years ago now.
They are what I would call extremely unprofitable.
To put it mildly, I'd say it's all about the revenue growth going forward. Everything below the revenue line is ugly and complicated. So the question has to be ... can they grow out of it???
It's also complicated by the fact that the company was part of a merger. Because of the merger, GAAP accounting won't allow them to compare FUBO this year to last year. In other words, they can't include FuboTV revenue from last year because it wasn't part of the company. Therefore, the accounting is Pro Forma.
The guidance was strong though:
"Our Q1 2021 revenue guidance takes this seasonality into account with revenue of $101-$103 million. This would represent growth of 98-102% year-over-year and a sequential decline of 2-4% quarter-over-quarter.
On a full-year basis we are increasing revenue guidance to $460-$470 million, up 76-80% year over-year. We are also guiding to total year-end subscribers of 760,000-770,000, an increase of 39-41% year-over-year."
What to look for in the future:
A big part of the "story" is sports betting, which they plan to monetize
We should expect to see strong revenue growth and strong guidance as the company should have easy comparable quarters upcoming. Sporting in general shut down early in the pandemic, which is obviously bad for a streaming service focused on sports.
Celsius Holdings (CELH)
Market cap: $3 billion
MTD performance: minus 27%
YTD performance: minus 14%
T6M performance: 115%
T12M performance: 971%
What the company does:
Celsius is a "Fitness Drink". It's like Red Bull but marketed as healthier.
I wanted to own something that wasn't software. A simpler story. Celsius makes soft drinks and sells them. Pretty simple.
And it's growing like gang busters.
To be honest I may get bored of this one and sell it. The company makes and distributes physical items, which means their gross margin is inherently lower.
But part of their story is that they are growing rapidly. And they were able to do that even during a pandemic when gyms were closed. So coming out of Covid should be really bullish for them. Essentially, they are selling a fast-growing product in a fast-growing industry with lots of pent up demand. And it's just soft-drinks stupid, nothing complicated to figure out.
Recent company performance:
The company reported mid-month and it wasn't great relative to previous quarters.Revenue grew 48% yoy to ~ $35.6 million. That's a huge deceleration from 80% in Q3, 86% Q2, 95% Q1 in previous quarters, but that is because the company is also ingesting an acquisition.
GAAP gross margin improved to 49% from 42% last year. That's a good improvement but not a good gross margin
GAAP op margin was 1% compared to minus 5% last year. but fell sequentially from 13%. Terrible! There must be seasonality in their business. We can see how the acquisitions are affecting operational leverage.
GAAP net margin improved to 5% from minus 5% last year. But fell sequentially from 13%.
GAAP eps improved to 2 cents from minus 2 cents. But fell sequentially from 6 cents
Adj EBITDA improved 1700% to ~ $3 million from $170 thousand. Adj EBITDA margin of 9% vs 1% last year. But fell sequentially from 19%
What to look for in the future:
Improving sales environment coming out of Covid lock-downs
Magnite (MGNI)
Market cap: $4.7 billion
MTD performance: minus 16%
YTD performance: 33%
T6M performance: 514%
T12M performance: 575%
I sold out of Magnite this month.
What the company does:
Magnite is an advertising company. They are a "sell-side platform" (SSP). They connect publishers to brands. An example is that they connect Hulu with brands that want to advertise on Hulu.
I sold out in March and here was my reasoning.
In the last earnings report, revenue was up 69% YOY on an as reported basis, BUT only up 20% on a pro forma basis. This is because they went through a merger.
CTV revenue for Q4 2020 was $15.3 million, up 53% on a pro forma basis.
CTV revenue was 19% of total revenue.
They acquired Spot X in order to have more exposure to CTV. And disclosed:
Total non-GAAP net revenue growth in 2020 was over 25% year-over-year
CTV non-GAAP net revenue growth in 2020 was over 40% year-over-year
And then they said:
CTV and OLV formats would represent two-thirds of our total company revenue
So clearly they are relying on SpotX to give them growth in the fast-growing area.
But that revenue is only growing 40% today!!
So the fastest growing part of their revenue is expected to grow 40%? That's not really enough.
On top of all that there is concentration risk in Disney.
I may be missing something with Magnite. Perhaps their CTV will accelerate meaningfully. But I have to accept that if that turns out to be true after I sell the stock.
The stock more or less tripled for me in a few months. And that was great. I should be super happy for that. I was lucky for that. But a big reason it went up so much so fast was because it was coming off a despondent low.
Cloudflare (NET)
Magnite is an advertising company. They are a "sell-side platform" (SSP). They connect publishers to brands. An example is that they connect Hulu with brands that want to advertise on Hulu.
I sold out in March and here was my reasoning.
In the last earnings report, revenue was up 69% YOY on an as reported basis, BUT only up 20% on a pro forma basis. This is because they went through a merger.
CTV revenue for Q4 2020 was $15.3 million, up 53% on a pro forma basis.
CTV revenue was 19% of total revenue.
They acquired Spot X in order to have more exposure to CTV. And disclosed:
Total non-GAAP net revenue growth in 2020 was over 25% year-over-year
CTV non-GAAP net revenue growth in 2020 was over 40% year-over-year
And then they said:
CTV and OLV formats would represent two-thirds of our total company revenue
So clearly they are relying on SpotX to give them growth in the fast-growing area.
But that revenue is only growing 40% today!!
So the fastest growing part of their revenue is expected to grow 40%? That's not really enough.
On top of all that there is concentration risk in Disney.
I may be missing something with Magnite. Perhaps their CTV will accelerate meaningfully. But I have to accept that if that turns out to be true after I sell the stock.
The stock more or less tripled for me in a few months. And that was great. I should be super happy for that. I was lucky for that. But a big reason it went up so much so fast was because it was coming off a despondent low.
Cloudflare (NET)
Market cap: $21 billion
MTD performance: minus 8%
YTD performance: minus 11%
T6M performance: 65%
T12M performance: 213%
After Cloudflare's earnings release in February, I said this:
They released earnings this past month and I thought it was good but not excellent. From a high-level, my take on Cloudflare is that it is essentially a souped-up CDN, which is just not a great business. It's ultimately capital intensive relative to other SAAS companies. I could be wrong on that (and very likely am), but that's how I see it. Cloudflare is a better bet than Fastly, but I don't want to put too much money on either horse.
And then I took a systematic approach and scrolled through my portfolio looking at revenue growth. Cloudflare had the lowest projected revenue growth going forward at ~ 39%. Sure it'll end up being closer to 50%, but ... that still isn't amazing.
So I sold it. Cloudflare has a lot going for it, but I think I can put money into faster growing companies.
So I sold it. Cloudflare has a lot going for it, but I think I can put money into faster growing companies.
DocuSign (DOCU)
Market cap: $38 billion
MTD performance: minus 11%
YTD performance: minus 9%
T6M performance: minus 6%
T12M performance: 141%
I sold out of DocuSign after they reported this month. In short, I think Billings will continue to decelerate and so will their revenue. I think it'll be a successful company (very successful) but I don't think the top-line growth will be high enough to satisfy what I'm looking for. And I don't want to own it based on the idea that it's a good "value".
I can't get away from the fact that it was a 30%+ grower pre-pandemic and will likely return there. There's a lot more to it of course. It's a profitable company. It's a bigger company now. So those things will affect the valuation in a positive way as well. But I can't get my head around how fast it will continue to grow, so I'm just going to sell it and move on to something I can better wrap my head around.
The truth is, I was sort of looking around the room so to speak at what others were doing. I wasn't sure what to do. I didn't know how to frame the future. DocuSign is in the same boat as Zoom. They both make simple and sticky products whose adoption benefitted during the pandemic. And now they are both guiding for ~ 40% growth next year. Is that enough? Not really. Am I hoping to find out that DocuSign grows much higher? Yes. Their management is unsure. Investors are unsure. Everyone is unsure. So it's just better for me to move into something that is more certain.
I feel like the issue wasn't whether or not I should have continued to hold DocuSign, the issue was that I NEVER should have bought DocuSign in the first place in October. I was already late to the game! Now I could hold and continue to wait out the "consolidation period" in the stock. Or admit I was wrong in the first place and move on. This is just me speaking to myself. I could of course be wrong again. I followed others blindly into DocuSign without doing my own due diligence. I admit that. I had a 20% portfolio position in Livongo that I sold at the end of August, and a 15% position in Fastly that I sold in October, and wanted to put that money elsewhere, so I took a 6% position in DocuSign. But it's time to move on.
Red Violet (RDVT)
Market cap: $ 231 million
MTD performance: minus 18%
YTD performance: minus 27%
T6M performance: 3%
T12M performance: 7%
I sold out of Red Violet this month.
*****
MACRO THOUGHTS
Last month the narrative was that the yield on the 10 year was causing "growth" stocks to sell off. Here's my best attempt to try and sound smart and define what that means: The Federal Reserve is buying short-term treasuries to try and stimulate the economy. The bond market thinks that all the money printing by the Treasury and bond purchasing by the Fed is going to cause inflation, which would require the Fed to raise rates on the long end of the curve. So therefore investors are selling the long end of the curve now. That causes bond prices to go down and rates to go up. In the longterm, that is supposed to mean that debt gets more expensive and hurts long duration assets like "growth stocks". That's a pretty good sounding narrative. But I also like the narrative of owning asset light companies growing like gang-busters, having high cash flow margins, selling vital software in a digital revolution.
Either way, from a 50,000 foot view, we're still in a "reflationary" environment. Growth and inflation are accelerating. That is historically bullish for "growth" stocks, regardless of what the yield on the 10 Year is doing.
*****
NEW LINEUP GOING FORWARD
Tier 1 (10-25%):
CrowdStrike (CRWD)
Datadog (DDOG)
Roku (ROKU)
Tier 2 (5-9%):
Twilio (TWLO)
Pinterest (PINS)
Zoom (ZM)
Asana (ASAN)
Tier 3 (2-5%):
Digital Turbine (APPS)
Upstart (UPST)
FuboTV (FUBO)
Celsius Holdings (CELH)
Watchlist:
Snowflake (SNOW)
Inari (NARI)
Roblox (RBLX)
Voyager Digital (VYGVG)
*****
ACTIONS FOR NEXT MONTH
- Continue to build Upstart. Take it to Tier 2
- Trim Digital Turbine to keep around 3%
- Trim Zoom to keep under 7%
- Initiate Snowflake
