November Portfolio Roundup

 PERFORMANCE

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GENERAL THOUGHTS

I'm not posting my portfolio this month because it's in flux as I try to work out a new strategy going forward. It was mostly in cash at month end. Needless to say I probably should have done it earlier, and perhaps the fact that I'm bailing marks the bottom. But I doubt it. 

Generally speaking, going forward, I'm going to try and just go long things that are going up. At least until we get through this Quad 4 bear market. 

It's been interesting looking back and trying to buy the dip when all my stocks were trending down. It doesn't work. Buying the dip only works in bull markets, AKA when stocks are trending up. Even with this trend following strategy that I'm working out now, it doesn't really work because I get in and then just sell out lower. Perhaps it'll prevent me from having cascading waterfalls down. But it's definitely "choppy" at best. I get "chopped up". 

There has been so much uncertainty this year around the macro. At first it was inflation and rising rates and the market trying to wrap it's head around it. Now it's dealing with the impending recession while still trying to guess how high rates will go. How bad will it get? We don't know. Maybe a lot worse. 

There is so much talk from people trying to pick the bottom. Buy tech. Buy stocks. It's super-charged FOMO. The reality has (very) slowly sunk in. The bottom was not in. It kept getting worse. 

And that's why I eventually changed my mind and my strategy. I realized that, objectively speaking, I should have never owned these stocks this year. That's easy in hindsight but I realized how obsessed I was with hoping the bottom was in. When the bottom blew out again in November I finally capitulated and changed my mind. I think changing your mind in the markets is important. Not to become too dogmatic. 

Hedgeye has really helped to open my eyes to the macro. To see the "why" of certain things. We'll see if I can actually strategize a way to make money using it. We'll see. It'll be fun to track Saul's et al portfolios vs mine in the coming months. I just can't accept losing 60% YTD or 70% from ATH. It's not acceptable going forward. 2020 and 2021 were years like I'll never have again. Tripling my portfolio in under 2 years. Surely that'll never happen again. And hopefully the same is true for 2022, losing 60%+ in one year. Hopefully that'll never happen again either. It's par for the course. It's easy to be smart during raging Fed-induced bull markets. It's hard to grapple with emotions on the other side, raging Fed-induced bear markets. At least I didn't blow up. That's actually a very good feat. Because a lot of people did. A lot of people who made money in 2020 and 2021 gave it all back in 2022. I'm still up about 80% or so. So that's pretty good. I mean that's incredible to be up 80% in three years. 

Either way, I have to live and learn. I still have a long runway ahead. I mean a few decades at least. Keep going. Keep learning. Survive and compound. 

October Portfolio Roundup

  PERFORMANCE

*****

CURRENT PORTFOLIO

Tier 1 (Allocation sizes: 15%-25%)
None

Tier 2 (Allocation sizes: 7%-12%)

13% - Bill.com (BILL)

12% - Crowdstrike (CRWD)

12% - Zscaler (ZS)

12% - Cloudflare (NET)

11% - SentinelOne (S)

7% - Datadog (DDOG)

6% - Snowflake (SNOW)

Tier 3 (Allocation sizes: 2%-4%)

4% - Gitlab (GTLB)

2.8% - ZoomInfo (ZI)

0% - MongoDB (MDB)

19% - Cash

9 positions, plus cash (9 last month)

*****

ACTIONS FROM THIS PAST MONTH 
Bought:

- N/A

Added:

- Added to Cloudflare (NET), Snowflake (SNOW), and SentinelOne (S) taking them up to upper Tier 2 companies. 

Trimmed:

- N/A

Sold:

- Sold my tiny 1% position in MongoDB (MDB) for now. 

*****

GENERAL THOUGHTS

This roundup will be brief because I have a newborn in the house, and earnings season is about to kick off for me tonight starting with ZoomInfo and then Datadog and Cloudflare on Thursday. 

I've iterated on my process and am starting to use a trend following system to manage downside risk. I've simply had enough, and don't want to sit idly by and watch all these long duration assets sell off for no (apparent company-related) reason. It's obviously pretty late to be doing this, but looking back on the past year I don't want to go through something like this again if I can help it. I'm still up 86% from January 2020, which is quite good, but I've given a lot back and don't want to go through that if I can help it. To be frank, it takes more than just owning the best companies. 

I'm going to find a way to combine by system of finding the best companies and using some technical analysis to manage the holdings. I've started just this past week by reducing Datadog and Snowflake in half because they were triggered. I still consider them "Tier 2" but until the stocks start trending again in the right direction they will be lower percentage holdings. All my other companies are on the cusp of also falling into a downtrend but we'll see how November pans out. 

So it will be a 2 step process from a high level:

Step 1: Find the best companies (as I had before)

Step 2: Trend following strategy using EMA's to get in/out of the stock.

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PORTFOLIO THOUGHTS

I use a "3 Tier System". Once a position is set, it's allowed to float, with rebalances about monthly. The general goal is to have 9 total.

Tier 1 should really only be one or two high-confidence companies. 

Tier 3 is similar in that it should also be one or two companies that are either new starter positions or companies about to fall out.

Tier 2, is the in-between, ideas on the back-burner ready to either step up to Tier 1 or step down to Tier 3. 

At the moment I have no Tier 1 positions, and seven Tier 2. That's telling me I don't have high confidence in anything. 

*****

I track the monthly market caps and TTM revenue numbers because I like how it's a snapshot. The trailing P/Sales is far from perfect but it gives a quick and dirty comparison. Since most of my portfolio is SAAS, which has steady revenue, I don't feel the need to use a forward estimate. I'm just looking for trends over time. You can take the P/Sales and then intuit things like revenue growth rate, operating and cash flow margins, etc. 

In general, for me, valuation doesn't seem to matter whether it's in a bull or bear market. In bull markets valuations are stretched and in bear markets things get way to "cheap". 

COMPANY THOUGHTS

Datadog (DDOG)

31 Dec 2021: $178.11 (Market Cap: ~ $62b, TTM Revenue: $880m, P/S 70)

31 Jan 2022: $146.11 (Market Cap: ~ $50.7b, TTM Revenue: $880m, P/S 57)

28 Feb 2022: 161.11 (Market Cap: ~ $56b, TTM Revenue: ~ $1b, P/S 55)

31 Mar 2022: 151.47 (Market Cap: ~ $53b, TTM Revenue: ~ $1b, P/S 53)

29 Apr 2022: 120.78 (Market Cap: ~ $42b, TTM Revenue: ~ $1b, P/S 41)

31 May 2022: $95.39 (Market Cap: ~ $33b, TTM Revenue: ~ $1.2b, P/S 28)

30 June 2022: $95.24 (Market Cap: ~ $33b, TTM Revenue: ~ $1.2b, P/S 28)

29 July 2022: $102.06 (Market Cap: ~ $35b, TTM Revenue: ~ $1.2b, P/S 30)

31 Aug 2022: $104.95 (Market Cap: ~ $36b, TTM Revenue: ~ $1.3b, P/S 27)

30 Sep 2022: $88.79 (Market Cap: ~ $30b, TTM Revenue: ~ $1.3b, P/S 23)

31 Oct 2022: $80.51 (Market Cap: ~ $27b, TTM Revenue: ~ $1.3b, P/S 21)

Datadog reported last month and from a high level we can see revenue growth slowed but not as bad as Covid. Customers slowed similar to how they did in Covid, not good at all. Slight margin pressure but it's an efficient business. The question is how much more will it slow in this macro situation?

Consumption-based cuts both ways. So if the macro is affecting them. The business should accelerate coming out on the other side. The problem is we don't know when that will be. And we don't know if they'll be able to achieve hyper growth now at a much larger run rate than two years ago coming out of covid. 

I think the uncertainty of the guide is what caused the sell off after the report. And it's a legitimate reaction.

Frankly, it wasn't a great report. There's uncertainty in the guidance. That's it. 

After going through the call it seemed like the business had already reaccelerated again in August. But they don't actually know. So there is some uncertainty. 

Datadog is in limbo in my portfolio. Initially I decided to bring it down to a lower Tier 1 position at 15%. It's floated down a touch to 14%. But I'm now considering it a Tier 2 holding.

Bill.com (BILL)

31 Dec 2021: $249.15 (MC ~ $25b, TTM Rev $308m, P/S 83)

31 Jan 2022: $188.21 (MC ~ $19b, TTM Rev $308m, P/S 62)

28 Feb 2022: $237.88 (MC ~ $24.6b, TTM Rev $411m, P/S 60)

31 Mar 2022: $226.79 (MC ~ $23.4b, TTM Rev $411m, P/S 57)

29 Apr 2022: $170.71 (MC ~ $17.6b, TTM Rev $411m, P/S 43)

31 May 2022: $118.24 (MC ~ $12.2b, TTM Rev $518m, P/S 24)

30 June 2022: $109.86 (MC ~ $11.4b, TTM Rev $518m, P/S 22)

29 July 2022: $135.07 (MC ~ $14b, TTM Rev $518m, P/S 27)

31 Aug 2022: $161.88 (MC ~ $16b, TTM Rev $640m, P/S 27)

30 Sep 2022: $132.37 (MC ~ $13.8b, TTM Rev $640m, P/S 22)

31 Oct 2022: $133.36 (MC ~ $13.9b, TTM Rev $640m, P/S 22)

Bill.com reported August 18th and of all my companies, they had the strongest report, and it's one of my highest confidence positions as it is neck and neck with Datadog. They crushed it. We have high revenue growth and improving margins but not drastically improving. So for that reason I can't take it up to Tier 1. But this was a strong report and the guidance was strong enough as well that it exceeded Wall Street expectations. 

Bill.com is also a bit of a complicated story with the acquisitions.

And further, remember it's consumption based so it cuts both ways. One thing we've seen in the reports is that companies with consumption-based revenue have had mixed results. What I mean by that is that some companies like Datadog and, in particular, MongoDB had very apparent macro headwinds. Snowflake didn't show a ding (but they did report a pull-forward in revenue from a large customer). 

Bill.com showed very little to no slowdown. However, the employment rate has stayed historically low, which means lots of people are getting hired and getting paid. And that's how Bill.com makes money. If the unemployment rate starts to rise it could mean that Bill.com will be affected. And in fact, the rate did tick up in August, and with the Fed continuing to raise rates, it's likely to continue. That's another reason I'm cautious about Bill.com.

On the call they did say they were seeing a sign of macro headwinds: "TPV growth rates moderate and this trend continued into July and early August"

Crowdstrike (CRWD)
31 May 2022: $159.99 (MC ~ $38b, TTM Rev $1.6b, P/S 24)

30 June 2022: $168.52 (MC ~ $40b, TTM Rev $1.6b, P/S 25)

29 July 2022: $183.62 (MC ~ $44b, TTM Rev $1.6b, P/S 27)

31 Aug 2022: $182.61 (MC ~ $44b, TTM Rev $1.8b, P/S 24)

30 Sep 2022: $164.81 (MC ~ $40b, TTM Rev $1.8b, P/S 22)

31 Oct 2022: $161.20 (MC ~ $39b, TTM Rev $1.8b, P/S 21)

Crowdstrike also reported in August, and from a high level we can say it was routine outperformance. They have incredible opex and cash flow margins, as well as a positive adj net margin and eps. They have lots of tailwinds, etc. They beat consensus and raised guidance. All great things.

But the growth is slowing down very, very steadily. And it doesn't seem there's any chance it's going to reaccelerate. I've known that now for almost a year. The stock in 2022 has been buffeted because it had stalled relative to others in 2021. We can easily see evidence of this by looking at their 200 day SMA.  

At the moment it's a solid Tier 2 holding. I'll give it another quarter and reevaluate.

Zscaler (ZS)
31 Dec 2021: $321.32 (MC ~ $48b, TTM Rev $761m, P/S 63)

31 Jan 2022: $257.11 (MC ~ $38.5b, TTM Rev $761m, P/S 51)

28 Feb 2022: $239.15 (MC ~ $35.8b, TTM Rev $860m, P/S 42)

31 Mar 2022: $241.28 (MC ~ $36b, TTM Rev $860m, P/S 42)

29 Apr 2022: $202.74 (MC ~ $30b, TTM Rev $860m, P/S 35)

31 May 2022: $153.09 (MC ~ $23b, TTM Rev $969m, P/S 23)

30 June 2022: $149.15 (MC ~ $22b, TTM Rev $969m, P/S 23)

29 July 2022: $155.06 (MC ~ $23b, TTM Rev $969m, P/S 24)

31 Aug 2022: $159.24 (MC ~ $23b, TTM Rev $969m, P/S 24)

30 Sep 2022: $164.37 (MC ~ $25b, TTM Rev $1.1b, P/S 23)

31 Oct 2022: $154.10 (MC ~ $24b, TTM Rev $1.1b, P/S 22)

Zscaler reported Sept 8th and was the last of my companies to report. This one was tough because it's Q4 for them and they have to guide for FY. All-in-all this was a good strong report.

The last two showed "disappointing" billings growth in the 50's, having fallen from the 70's, and most were expecting that downtrend to continue. However, Calculated Billings was up 51% QoQ and 57% YoY to ~ $520 million. That's a huge fucking number QoQ. 

I said last month:

Others have sold out of ZS due to the billings so I have to watch that in the next quarter or two. Am I missing something that is obvious to others? We'll see and learn. 

For now at least that trend has reversed, and a big reason for that was the Federal deals they announced on the call, which are just getting started. 

At the same time, they still aren't improving operating margins in a meaningful way. I mean, they're positive but flatlining. They said on the call the long term goal is 20%. When that will be, who knows. So for that reason I think I need to leave it as a Tier 2 holding. 

It seems like cybersecurity is the place to be. If ZS is losing business to competition you wouldn't know it by looking at this report and listening to the call. I feel really good about having ZS, CRWD, S and NET all around 10% because that means 40% is in cybersecurity. Maybe I could take them up more, but don't really feel the need at the moment because: 

- ZS has flatlining OM. 

- NET is more capital intensive and is "only" growing in the 50's. 

- CRWD is strong but slowing revenue. 

- S was incredibly strong but the revenue guidance left me scratching my head. 

But having all four together seems pragmatic.

Another thing worth calling out is their comically high RPO balance, which grew 68% YoY to 2.607 billion. And they said current RPO is 49% of the total.

So cRPO is 1.277 billion that will get recognized as revenue in the upcoming FY, which is more revenue then they earned this FY. So their baseline for next year is already above what they earned this year. That's why these SAAS companies have such high multiples. 

Another way to think about it is to compare their RPO balance to the current quarter's revenue, which for ZS would be 2.6 billion / 318 million (this current quarter's revenue). They have 8.2 quarter's of revenue already on their balance sheet. That's the highest I've seen of any company. 

Snowflake (SNOW)

29 Apr 2022: $171.44 (MC ~ $62b, TTM Rev $1.2b, P/S 51)

31 May 2022: $127.65 (MC ~ $46b, TTM Rev $1.4b, P/S 32)

30 June 2022: $140.28 (MC ~ $50b, TTM Rev $1.4b, P/S 36)

29 July 2022: $149.87 (MC ~ $54b, TTM Rev $1.4b, P/S 38)

31 Aug 2022: $180.95 (MC ~ $65b, TTM Rev $1.6b, P/S 40)

30 Sep 2022: $169.96 (MC ~ $61b, TTM Rev $1.6b, P/S 37)

31 Oct 2022: $160.30 (MC ~ $57b, TTM Rev $1.6b, P/S 35)

Snowflake reported August 24th and it was a great report. From a high level it was high revenue growth combined with meaningful margin improvements. The stock was up 15%+ the next day.

Last quarter I said:

It seems like they were back up and running in May. I'm iffy on this because I don't know why April in particular would have been such a slow month from a macro level. So I'm still guessing as to whether it was the bottom in macro.

But it seems from the results of Q2, that April was perhaps the low for them in terms of macro headwinds. And that they will continue to execute now going forward. There were still some macro headwinds, but those only caused them to reiterate guidance whereas other companies, like Salesforce, lowered guidance. So perhaps Wall Street was expecting them to lower. Reiterating is the same as a beat in this environment.

However, two things stood out from the report:

#1 They had a pull forward in revenue. The CFO said in his opening remarks:

"We collected a $33 million invoice in Q2 from a customer who had paid its invoices in Q3 in prior years."

This is important because that represented 6.6% of the revenue in the quarter. If we pull that number out, QoQ revenue growth would have been 10% instead of 17.7%.

#2. Guidance was relatively weak. They guided for $505 million in product revenue for Q3, which would represent 8% QoQ growth. They had guided for 12% QoQ growth coming into this quarter. So that's a slowdown in my mind and what I would call relatively weak guidance (8% vs 12% last Q).

These two things are tied together obviously. The pull forward caused the weak guidance. And that's important because last year their Q3 was very strong at 23% QoQ growth. The CFO reminded everyone of this in his opening remarks:

"I would like to remind everyone that in Q3 last year, we saw unusual seasonality due to reaccelerated product revenue growth."

The Q3 pull forward set up Q4 to be a disappointment when they "only" reported 15%. And then Q1 was a further disappointment at 10%. So we can see it's lumpy. Look at the numbers:

23 15 10 18

So we just have to be careful and not get too excited. 

All that said, it seems Snowflake is still a best of breed tech company growing fast and improving margins. And it seems they can grow for a very long time.

MongoDB (MDB)

28 Feb 2022: $$381.99 (MC ~ $25.4b, TTM Rev $778m, P/S 33)

31 Mar 2022: $443.59 (MC ~ $30b, TTM Rev $873m, P/S 34)

29 Apr 2022: $354.93 (MC ~ $24b, TTM Rev $873m, P/S 28)

31 May 2022: $237.15 (MC ~ $19b, TTM Rev $873m, P/S 18)

30 June 2022: $259.50 (MC ~ $17.6b, TTM Rev $978m, P/S 18)

29 July 2022: $312.45 (MC ~ $21.2b, TTM Rev $978m, P/S 22)

31 Aug 2022: $322.86 (MC ~ $22b, TTM Rev $1.1b, P/S 21)

30 Sep 2022: $198.56 (MC ~ $13.6b, TTM Rev $1.1b, P/S 13)

31 Oct 2022: $183.03 (MC ~ $12.5b, TTM Rev $1.1b, P/S 11.6)

Mongo DB reported on 31 August and all the air came out of the tires of this one. Of my companies, this is the weakest report so far. 

The macro is hurting them. If consumption takes a hit then revenue takes a hit. And then everything else below the revenue will also look worse. IE margin pressure. It's pretty simple. 

Consumption cuts both ways. Coming out of whatever this macro slowdown is might be a boon for them and revenue will reaccelerate. But when will that be? It's tough to know. 

If you have a time horizon of a year or more, probably the company is going to regain business momentum and then stock momentum. It's just a question of if you want to wait that long. 

They are guiding for 0% QoQ growth for the next 2 quarters. That's really bad. And the tough YoY comps will make it look even worse. 

But I can't have this be a large part of the portfolio. It has to come down to Tier 3. Down to a level where it can't hurt me. 

Cloudflare (NET)

31 May 2022: $56 (Market cap: ~ 19b, TTM revenue: $730m, P/S 26)

30 June 2022: $44.28 (Market cap: ~ 15.2b, TTM revenue: $730m, P/S 21)

29 July 2022: $50.32 (Market cap: ~ 17.3, TTM revenue: $730m, P/S 24)

31 Aug 2022: $62.57 (Market cap: ~21b, TTM revenue: $812m, P/S 26)

30 Sep 2022: $55.31 (Market cap: ~19b, TTM revenue: $812m, P/S 23)

31 Oct 2022: $56.32 (Market cap: ~19b, TTM revenue: $812m, P/S 24)

Cloudflare had a good report this month. They reported the same day as Datadog and their report was better. Their numbers aren't as good but they are more consistent quarter after quarter and now they are going after Cybersecurity.

ZoomInfo (ZI)

31 Dec 2021: $64.20 (Market cap: ~ 26b, TTM revenue: $653m, P/S 40)

31 Jan 2022: $52.86 (Market cap: ~ 21.5b, TTM revenue: $653m, P/S 33)

28 Feb 2022: $54.69 (Market cap: ~ $22b, TTM revenue: $747m, P/S 30)

31 Mar 2022: $59.74 (Market cap: ~ $24b, TTM revenue: $747m, P/S 32)

29 Apr 2022: $47.40 (Market cap: ~ $19b, TTM revenue: $747m, P/S 26)

31 May 2022: $40.39 (Market cap: ~ $16b, TTM revenue: $836m, P/S 20)

30 June 2022: $33.24 (Market cap: ~ $13.6b, TTM revenue: $836m, P/S 16)

29 July 2022: $37.89 (Market cap: ~ $15.5b, TTM revenue: $836m, P/S 19)

31 Aug 2022: $45.42 (Market cap: ~ $18.7b, TTM revenue: $928m, P/S 20)

30 Sep 2022: $41.66 (Market cap: ~ $17b, TTM revenue: $928m, P/S 19)

31 Oct 2022: $44.53 (Market cap: ~ $18b, TTM revenue: $928m, P/S 20)

After their report in May I again sold half my shares and took it to Tier 3. 

And after their report this month I trimmed a little more. The revenue has been surprisingly durable but organic revenue of only 42% isn't really exciting. That said, their margins are incredible. 

SentinelOne (S)

31 Dec 2021: $50.49 (MC ~ $13b, TTM Rev $169m, P/S 79)

31 Jan 2022: $44.75 (MC ~ $11.7b, TTM Rev $169m, P/S 70)

28 Feb 2022: $41.50 (MC ~ $10.9b, TTM Rev $169m, P/S 65)

31 Mar 2022: $28.74 (MC ~ $7.5b, TTM Rev $204m, P/S 37)

29 Apr 2022: $33.27 (MC ~ $8.8b, TTM Rev $204m, P/S 43)

31 May 2022: $23.79 (MC ~ $6.3b, TTM Rev $204m, P/S 31)

30 June 2022: $23.33 (MC ~ $6.5b, TTM Rev $245m, P/S 27)

29 July 2022: $24.84 (MC ~ $7b, TTM Rev $245m, P/S 28)

31 Aug 2022: $27.31 (MC ~ $7.6b, TTM Rev $302m, P/S 25)

30 Sep 2022: $25.56 (MC ~ $7.1b, TTM Rev $302m, P/S 24)

31 Oct 2022: $22.84 (MC ~ $6.4b, TTM Rev $302m, P/S 21)

Sentinel One also reported on 31 August and I thought it was incredibly strong. Maybe the strongest report of all my companies. 

They said in the call a couple of times that the beat on revenue came from the organic business. And they also said they had their "largest ever customer win". They showed a meaningful improvement in operating margin which is what I was looking for. 

So it was an incredibly strong quarter, but the guidance leaves me scratching my head. Unless they are just being uber conservative. It seems like way too much conservatism. It leaves a question in my mind. 

The market sold it down 7% on the day they reported which was really surprising to me. Everything in my portfolio was down that day yes. But still. I think the market is sleeping on SentinelOne a bit, and will eventually wake up. 

I can take this to a 10% position, but don't want to let it get much bigger than that because of the uncertainty around the guide.

Gitlab (GTLB)

31 Aug 2022: $59.87 (MC ~ $8.8b, TTM Rev $333m, P/S 27)

30 Sep 2022: $51.22 (MC ~ $7.5b, TTM Rev $333m, P/S 23)

31 Oct 2022: $48.46 (MC ~ $7.1b, TTM Rev $333m, P/S 22)

Gitlab reported 6 September and from a high level we have high and strong revenue growth with some weak guidance but they still beat consensus across the board. We have good, not amazing, improvement on adj OM and NM. Balance sheet is strong. Cash flow is the problem. They are burning cash and not improving the margin. Not a huge deal with the balance sheet but we want to see improvement. 

On the call the CFO said they are not seeing any macro headwinds

Despite the volatility in the macroeconomic environment in the second quarter, we have not seen any impact to our business. Customers increasingly recognize the need to address multiyear digital transformation challenges. The current environment is not slowing down customer decisions, nor elongating our sales cycles. Buying cycles have actually sped up across the business and we continue to see strong win rates.

For me, there are two question marks around customer growth and operating cash flow. So given that I have a fair amount of confidence in other stocks I own, I am keeping this at a small allocation. 

They've had three reports now as a public company and I'll look forward to further reports. The company has a similar P/Sales as Datadog, Crowdstrike and Cloudflare and I don't think it has earned that valuation necessarily. 

*****

MACRO THOUGHTS

There really is no good news anywhere in the world at the macro level. We've got persistently high inflation, slowing growth, War in Ukraine, and Central Banks raising interest rates. Now we have to look toward a global recession. Companies have started to lower guidance this quarter and Q4 will be even tougher. All the large cap tech stock generals have been shot except Apple, and I'm guessing they get shot after reporting Q4.

High growth companies, which are "long duration assets", have a history of bottoming before indices and will take off before the indices on the other side. 

*****

Watchlist:

Bowlero Corp (BOWL)

September Portfolio Roundup

PERFORMANCE

*****

CURRENT PORTFOLIO

Tier 1 (Allocation sizes: 15%-25%)
None

Tier 2 (Allocation sizes: 7%-12%)

13% - Datadog (DDOG)

13% - Bill.com (BILL)

12% - Crowdstrike (CRWD)

12% - Zscaler (ZS)

10% - SentinelOne (S)

10% - Cloudflare (NET)

10% - Snowflake (SNOW)

Tier 3 (Allocation sizes: 2%-4%)

4% - Gitlab (GTLB)

2.5% - ZoomInfo (ZI)

1% - MongoDB (MDB)

11% - Cash

10 positions, plus cash (9 last month)

*****

ACTIONS FROM THIS PAST MONTH 
Bought:

- Gitlab (GTLB). Opened a starter position after earnings.

Added:

- Cloudflare (NET) after the stock retraced the earnings bump took it to high Tier 2 and did the same with the two below

- Snowflake (SNOW) 

- SentinelOne (S)

Trimmed:

- MongoDB (MDB). Took it to 1% after earnings, which was disappointing in my mind.

Sold:

- None

*****

GENERAL THOUGHTS

There's a dynamic playing out where the indexes have just recently hit new lows for the year while my portfolio is about 19% above the lows set on June 16 and May 24. So perhaps my portfolio has bottomed. It could also go lower of course. Treasury yields spiked higher in September. At some point as those start to fall, it should benefit long duration assets. 

*****

On another note, my son will be born in a couple days. I'd like to start a fund for him and see how it CAGR's over many years. Starting early, even with a small amount, is the key to exponential growth. 

*****

PORTFOLIO THOUGHTS

I use a "3 Tier System". Once a position is set, it's allowed to float, with rebalances about monthly. The general goal is to have 9 total.

Tier 1 should really only be one or two high-confidence companies. 

Tier 3 is similar in that it should also be one or two companies that are either new starter positions or companies about to fall out.

Tier 2, is the in-between, ideas on the back-burner ready to either step up to Tier 1 or step down to Tier 3. 

At the moment I have no Tier 1 positions, and seven Tier 2. That's telling me I don't have high confidence in anything. 

*****

I track the monthly market caps and TTM revenue numbers because I like how it's a snapshot. The trailing P/Sales is far from perfect but it gives a quick and dirty comparison. Since most of my portfolio is SAAS, which has steady revenue, I don't feel the need to use a forward estimate. 

In general, for me, lower valuation is a "nice-to-have" but not a "need-to-have". 

COMPANY THOUGHTS

Datadog (DDOG)

31 Dec 2021: $178.11 (Market Cap: ~ $62b, TTM Revenue: $880m, P/S 70)

31 Jan 2022: $146.11 (Market Cap: ~ $50.7b, TTM Revenue: $880m, P/S 57)

28 Feb 2022: 161.11 (Market Cap: ~ $56b, TTM Revenue: ~ $1b, P/S 55)

31 Mar 2022: 151.47 (Market Cap: ~ $53b, TTM Revenue: ~ $1b, P/S 53)

29 Apr 2022: 120.78 (Market Cap: ~ $42b, TTM Revenue: ~ $1b, P/S 41)

31 May 2022: $95.39 (Market Cap: ~ $33b, TTM Revenue: ~ $1.2b, P/S 28)

30 June 2022: $95.24 (Market Cap: ~ $33b, TTM Revenue: ~ $1.2b, P/S 28)

29 July 2022: $102.06 (Market Cap: ~ $35b, TTM Revenue: ~ $1.2b, P/S 30)

31 Aug 2022: $104.95 (Market Cap: ~ $36b, TTM Revenue: ~ $1.3b, P/S 27)

30 Sep 2022: $88.79 (Market Cap: ~ $30b, TTM Revenue: ~ $1.3b, P/S 23)

Datadog reported last month and from a high level we can see revenue growth slowed but not as bad as Covid. Customers slowed similar to how they did in Covid, not good at all. Slight margin pressure but it's an efficient business. The question is how much more will it slow in this macro situation?

Consumption-based cuts both ways. So if the macro is affecting them. The business should accelerate coming out on the other side. The problem is we don't know when that will be. And we don't know if they'll be able to achieve hyper growth now at a much larger run rate than two years ago coming out of covid. 

I think the uncertainty of the guide is what caused the sell off after the report. And it's a legitimate reaction.

Frankly, it wasn't a great report. There's uncertainty in the guidance. That's it. 

After going through the call it seemed like the business had already reaccelerated again in August. But they don't actually know. So there is some uncertainty. 

Datadog is in limbo in my portfolio. Initially I decided to bring it down to a lower Tier 1 position at 15%. It's floated down a touch to 14%. But I'm now considering it a Tier 2 holding.

Bill.com (BILL)

31 Dec 2021: $249.15 (MC ~ $25b, TTM Rev $308m, P/S 83)

31 Jan 2022: $188.21 (MC ~ $19b, TTM Rev $308m, P/S 62)

28 Feb 2022: $237.88 (MC ~ $24.6b, TTM Rev $411m, P/S 60)

31 Mar 2022: $226.79 (MC ~ $23.4b, TTM Rev $411m, P/S 57)

29 Apr 2022: $170.71 (MC ~ $17.6b, TTM Rev $411m, P/S 43)

31 May 2022: $118.24 (MC ~ $12.2b, TTM Rev $518m, P/S 24)

30 June 2022: $109.86 (MC ~ $11.4b, TTM Rev $518m, P/S 22)

29 July 2022: $135.07 (MC ~ $14b, TTM Rev $518m, P/S 27)

31 Aug 2022: $161.88 (MC ~ $16b, TTM Rev $640m, P/S 27)

30 Sep 2022: $132.37 (MC ~ $13.8b, TTM Rev $640m, P/S 22)

Bill.com reported August 18th and of all my companies, they had the strongest report, and it's one of my highest confidence positions as it is neck and neck with Datadog. They crushed it. We have high revenue growth and improving margins but not drastically improving. So for that reason I can't take it up to Tier 1. But this was a strong report and the guidance was strong enough as well that it exceeded Wall Street expectations. 

Bill.com is also a bit of a complicated story with the acquisitions.

And further, remember it's consumption based so it cuts both ways. One thing we've seen in the reports is that companies with consumption-based revenue have had mixed results. What I mean by that is that some companies like Datadog and, in particular, MongoDB had very apparent macro headwinds. Snowflake didn't show a ding (but they did report a pull-forward in revenue from a large customer). 

Bill.com showed very little to no slowdown. However, the employment rate has stayed historically low, which means lots of people are getting hired and getting paid. And that's how Bill.com makes money. If the unemployment rate starts to rise it could mean that Bill.com will be affected. And in fact, the rate did tick up in August, and with the Fed continuing to raise rates, it's likely to continue. That's another reason I'm cautious about Bill.com.

On the call they did say they were seeing a sign of macro headwinds: "TPV growth rates moderate and this trend continued into July and early August"

Crowdstrike (CRWD)
31 May 2022: $159.99 (MC ~ $38b, TTM Rev $1.6b, P/S 24)

30 June 2022: $168.52 (MC ~ $40b, TTM Rev $1.6b, P/S 25)

29 July 2022: $183.62 (MC ~ $44b, TTM Rev $1.6b, P/S 27)

31 Aug 2022: $182.61 (MC ~ $44b, TTM Rev $1.8b, P/S 24)

30 Sep 2022: $164.81 (MC ~ $40b, TTM Rev $1.8b, P/S 22)

Crowdstrike also reported in August, and from a high level we can say it was routine outperformance. They have incredible opex and cash flow margins, as well as a positive adj net margin and eps. They have lots of tailwinds, etc. They beat consensus and raised guidance. All great things.

But the growth is slowing down very, very steadily. And it doesn't seem there's any chance it's going to reaccelerate. I've known that now for almost a year. The stock in 2022 has been buffeted because it had stalled relative to others in 2021. We can easily see evidence of this by looking at their 200 day SMA.  

At the moment it's a solid Tier 2 holding. I'll give it another quarter and reevaluate.

Zscaler (ZS)
31 Dec 2021: $321.32 (MC ~ $48b, TTM Rev $761m, P/S 63)

31 Jan 2022: $257.11 (MC ~ $38.5b, TTM Rev $761m, P/S 51)

28 Feb 2022: $239.15 (MC ~ $35.8b, TTM Rev $860m, P/S 42)

31 Mar 2022: $241.28 (MC ~ $36b, TTM Rev $860m, P/S 42)

29 Apr 2022: $202.74 (MC ~ $30b, TTM Rev $860m, P/S 35)

31 May 2022: $153.09 (MC ~ $23b, TTM Rev $969m, P/S 23)

30 June 2022: $149.15 (MC ~ $22b, TTM Rev $969m, P/S 23)

29 July 2022: $155.06 (MC ~ $23b, TTM Rev $969m, P/S 24)

31 Aug 2022: $159.24 (MC ~ $23b, TTM Rev $969m, P/S 24)

30 Sep 2022: $164.37 (MC ~ $25b, TTM Rev $1.1b, P/S 23)

Zscaler reported Sept 8th and was the last of my companies to report. This one was tough because it's Q4 for them and they have to guide for FY. All-in-all this was a good strong report.

The last two showed "disappointing" billings growth in the 50's, having fallen from the 70's, and most were expecting that downtrend to continue. However, Calculated Billings was up 51% QoQ and 57% YoY to ~ $520 million. That's a huge fucking number QoQ. 

I said last month:

Others have sold out of ZS due to the billings so I have to watch that in the next quarter or two. Am I missing something that is obvious to others? We'll see and learn. 

For now at least that trend has reversed, and a big reason for that was the Federal deals they announced on the call, which are just getting started. 

At the same time, they still aren't improving operating margins in a meaningful way. I mean, they're positive but flatlining. They said on the call the long term goal is 20%. When that will be, who knows. So for that reason I think I need to leave it as a Tier 2 holding. 

It seems like cybersecurity is the place to be. If ZS is losing business to competition you wouldn't know it by looking at this report and listening to the call. I feel really good about having ZS, CRWD, S and NET all around 10% because that means 40% is in cybersecurity. Maybe I could take them up more, but don't really feel the need at the moment because: 

- ZS has flatlining OM. 

- NET is more capital intensive and is "only" growing in the 50's. 

- CRWD is strong but slowing revenue. 

- S was incredibly strong but the revenue guidance left me scratching my head. 

But having all four together seems pragmatic.

Another thing worth calling out is their comically high RPO balance, which grew 68% YoY to 2.607 billion. And they said current RPO is 49% of the total.

So cRPO is 1.277 billion that will get recognized as revenue in the upcoming FY, which is more revenue then they earned this FY. So their baseline for next year is already above what they earned this year. That's why these SAAS companies have such high multiples. 

Another way to think about it is to compare their RPO balance to the current quarter's revenue, which for ZS would be 2.6 billion / 318 million (this current quarter's revenue). They have 8.2 quarter's of revenue already on their balance sheet. That's the highest I've seen of any company. 

Snowflake (SNOW)

29 Apr 2022: $171.44 (MC ~ $62b, TTM Rev $1.2b, P/S 51)

31 May 2022: $127.65 (MC ~ $46b, TTM Rev $1.4b, P/S 32)

30 June 2022: $140.28 (MC ~ $50b, TTM Rev $1.4b, P/S 36)

29 July 2022: $149.87 (MC ~ $54b, TTM Rev $1.4b, P/S 38)

31 Aug 2022: $180.95 (MC ~ $65b, TTM Rev $1.6b, P/S 40)

30 Sep 2022: $169.96 (MC ~ $61b, TTM Rev $1.6b, P/S 37)

Snowflake reported August 24th and it was a great report. From a high level it was high revenue growth combined with meaningful margin improvements. The stock was up 15%+ the next day.

Last quarter I said:

It seems like they were back up and running in May. I'm iffy on this because I don't know why April in particular would have been such a slow month from a macro level. So I'm still guessing as to whether it was the bottom in macro.

But it seems from the results of Q2, that April was perhaps the low for them in terms of macro headwinds. And that they will continue to execute now going forward. There were still some macro headwinds, but those only caused them to reiterate guidance whereas other companies, like Salesforce, lowered guidance. So perhaps Wall Street was expecting them to lower. Reiterating is the same as a beat in this environment.

However, two things stood out from the report:

#1 They had a pull forward in revenue. The CFO said in his opening remarks:

"We collected a $33 million invoice in Q2 from a customer who had paid its invoices in Q3 in prior years."

This is important because that represented 6.6% of the revenue in the quarter. If we pull that number out, QoQ revenue growth would have been 10% instead of 17.7%.

#2. Guidance was relatively weak. They guided for $505 million in product revenue for Q3, which would represent 8% QoQ growth. They had guided for 12% QoQ growth coming into this quarter. So that's a slowdown in my mind and what I would call relatively weak guidance (8% vs 12% last Q).

These two things are tied together obviously. The pull forward caused the weak guidance. And that's important because last year their Q3 was very strong at 23% QoQ growth. The CFO reminded everyone of this in his opening remarks:

"I would like to remind everyone that in Q3 last year, we saw unusual seasonality due to reaccelerated product revenue growth."

The Q3 pull forward set up Q4 to be a disappointment when they "only" reported 15%. And then Q1 was a further disappointment at 10%. So we can see it's lumpy. Look at the numbers:

23 15 10 18

So we just have to be careful and not get too excited. 

All that said, it seems Snowflake is still a best of breed tech company growing fast and improving margins. And it seems they can grow for a very long time.

MongoDB (MDB)

28 Feb 2022: $$381.99 (MC ~ $25.4b, TTM Rev $778m, P/S 33)

31 Mar 2022: $443.59 (MC ~ $30b, TTM Rev $873m, P/S 34)

29 Apr 2022: $354.93 (MC ~ $24b, TTM Rev $873m, P/S 28)

31 May 2022: $237.15 (MC ~ $19b, TTM Rev $873m, P/S 18)

30 June 2022: $259.50 (MC ~ $17.6b, TTM Rev $978m, P/S 18)

29 July 2022: $312.45 (MC ~ $21.2b, TTM Rev $978m, P/S 22)

31 Aug 2022: $322.86 (MC ~ $22b, TTM Rev $1.1b, P/S 21)

30 Sep 2022: $198.56 (MC ~ $13.6b, TTM Rev $1.1b, P/S 13)

Mongo DB reported on 31 August and all the air came out of the tires of this one. Of my companies, this is the weakest report so far. 

The macro is hurting them. If consumption takes a hit then revenue takes a hit. And then everything else below the revenue will also look worse. IE margin pressure. It's pretty simple. 

Consumption cuts both ways. Coming out of whatever this macro slowdown is might be a boon for them and revenue will reaccelerate. But when will that be? It's tough to know. 

If you have a time horizon of a year or more, probably the company is going to regain business momentum and then stock momentum. It's just a question of if you want to wait that long. 

They are guiding for 0% QoQ growth for the next 2 quarters. That's really bad. And the tough YoY comps will make it look even worse. 

But I can't have this be a large part of the portfolio. It has to come down to Tier 3. Down to a level where it can't hurt me. 

Cloudflare (NET)

31 May 2022: $56 (Market cap: ~ 19b, TTM revenue: $730m, P/S 26)

30 June 2022: $44.28 (Market cap: ~ 15.2b, TTM revenue: $730m, P/S 21)

29 July 2022: $50.32 (Market cap: ~ 17.3, TTM revenue: $730m, P/S 24)

31 Aug 2022: $62.57 (Market cap: ~21b, TTM revenue: $812m, P/S 26)

30 Sep 2022: $55.31 (Market cap: ~19b, TTM revenue: $812m, P/S 23)

Cloudflare had a good report this month. They reported the same day as Datadog and their report was better. Their numbers aren't as good but they are more consistent quarter after quarter and now they are going after Cybersecurity.

ZoomInfo (ZI)

31 Dec 2021: $64.20 (Market cap: ~ 26b, TTM revenue: $653m, P/S 40)

31 Jan 2022: $52.86 (Market cap: ~ 21.5b, TTM revenue: $653m, P/S 33)

28 Feb 2022: $54.69 (Market cap: ~ $22b, TTM revenue: $747m, P/S 30)

31 Mar 2022: $59.74 (Market cap: ~ $24b, TTM revenue: $747m, P/S 32)

29 Apr 2022: $47.40 (Market cap: ~ $19b, TTM revenue: $747m, P/S 26)

31 May 2022: $40.39 (Market cap: ~ $16b, TTM revenue: $836m, P/S 20)

30 June 2022: $33.24 (Market cap: ~ $13.6b, TTM revenue: $836m, P/S 16)

29 July 2022: $37.89 (Market cap: ~ $15.5b, TTM revenue: $836m, P/S 19)

31 Aug 2022: $45.42 (Market cap: ~ $18.7b, TTM revenue: $928m, P/S 20)

30 Sep 2022: $41.66 (Market cap: ~ $17b, TTM revenue: $928m, P/S 19)

After their report in May I again sold half my shares and took it to Tier 3. 

And after their report this month I trimmed a little more. The revenue has been surprisingly durable but organic revenue of only 42% isn't really exciting. That said, their margins are incredible. 

SentinelOne (S)

31 Dec 2021: $50.49 (MC ~ $13b, TTM Rev $169m, P/S 79)

31 Jan 2022: $44.75 (MC ~ $11.7b, TTM Rev $169m, P/S 70)

28 Feb 2022: $41.50 (MC ~ $10.9b, TTM Rev $169m, P/S 65)

31 Mar 2022: $28.74 (MC ~ $7.5b, TTM Rev $204m, P/S 37)

29 Apr 2022: $33.27 (MC ~ $8.8b, TTM Rev $204m, P/S 43)

31 May 2022: $23.79 (MC ~ $6.3b, TTM Rev $204m, P/S 31)

30 June 2022: $23.33 (MC ~ $6.5b, TTM Rev $245m, P/S 27)

29 July 2022: $24.84 (MC ~ $7b, TTM Rev $245m, P/S 28)

31 Aug 2022: $27.31 (MC ~ $7.6b, TTM Rev $302m, P/S 25)

30 Sep 2022: $25.56 (MC ~ $7.1b, TTM Rev $302m, P/S 24)

Sentinel One also reported on 31 August and I thought it was incredibly strong. Maybe the strongest report of all my companies. 

They said in the call a couple of times that the beat on revenue came from the organic business. And they also said they had their "largest ever customer win". They showed a meaningful improvement in operating margin which is what I was looking for. 

So it was an incredibly strong quarter, but the guidance leaves me scratching my head. Unless they are just being uber conservative. It seems like way too much conservatism. It leaves a question in my mind. 

The market sold it down 7% on the day they reported which was really surprising to me. Everything in my portfolio was down that day yes. But still. I think the market is sleeping on SentinelOne a bit, and will eventually wake up. 

I can take this to a 10% position, but don't want to let it get much bigger than that because of the uncertainty around the guide.

Gitlab (GTLB)

31 Aug 2022: $59.87 (MC ~ $8.8b, TTM Rev $333m, P/S 27)

30 Sep 2022: $51.22 (MC ~ $7.5b, TTM Rev $333m, P/S 23)

Gitlab reported 6 September and from a high level we have high and strong revenue growth with some weak guidance but they still beat consensus across the board. We have good, not amazing, improvement on adj OM and NM. Balance sheet is strong. Cash flow is the problem. They are burning cash and not improving the margin. Not a huge deal with the balance sheet but we want to see improvement. 

On the call the CFO said they are not seeing any macro headwinds

Despite the volatility in the macroeconomic environment in the second quarter, we have not seen any impact to our business. Customers increasingly recognize the need to address multiyear digital transformation challenges. The current environment is not slowing down customer decisions, nor elongating our sales cycles. Buying cycles have actually sped up across the business and we continue to see strong win rates.

For me, there are two question marks around customer growth and operating cash flow. So given that I have a fair amount of confidence in other stocks I own, I am keeping this at a small allocation. 

They've had three reports now as a public company and I'll look forward to further reports. The company has a similar P/Sales as Datadog, Crowdstrike and Cloudflare and I don't think it has earned that valuation necessarily. 

*****

MACRO THOUGHTS

There really is no good news anywhere in the world at the macro level. We've got persistently high inflation, slowing growth, War in Ukraine, and Central Banks raising interest rates. Now we have to look toward a global recession. Will companies start lowering guidance? Will earnings get revised down? There's lots of bad news.

High growth companies, which are "long duration assets", have a history of bottoming before indices and will take off before the indices on the other side. 

*****

Watchlist:

Bowlero Corp (BOWL)

August Portfolio Roundup

  PERFORMANCE

*****

CURRENT PORTFOLIO

Tier 1 (Allocation sizes: 15%-25%)
None

Tier 2 (Allocation sizes: 7%-12%)

14% - Datadog (DDOG)

14% - Bill.com (BILL)

13% - Crowdstrike (CRWD)

10% - Zscaler (ZS)

8% - Snowflake (SNOW)

7% - MongoDB (MDB)

6% - Cloudflare (NET)

Tier 3 (Allocation sizes: 2%-4%)

2% - ZoomInfo (ZI)

2% - SentinelOne (S)

24% - Cash

9 positions, plus cash (9 last month)

*****

ACTIONS FROM THIS PAST MONTH 
Bought:

- None

Added:

- To Cloudflare (NET) after their report, and took it from a Tier 3 to Tier 2 holding.

- To Snowflake (SNOW) after their report

Trimmed:

- ZoomInfo (ZI)

Sold:

- None

*****

GENERAL THOUGHTS

This month my portfolio was up about 8% while the S&P 500 was down about 4%. That was a similar dynamic to June, but it's small consolation compared to being down 48% YTD. But it's a consolation nonetheless. The June to August period was one of euphoria and "maybe the bear market is over". But by the time August ended that has again turned to doom and gloom. 

Investing through bear markets is difficult because the macro weighs on company results. The strategy is continue to find the companies that are growing even through the headwinds. That might entail more trading than usual, but it's a necessary part of the process. 

The stock market discounts the future. When all the bad news has been discounted that's when the bottom hits. If more * new * bad news comes out in the coming months then it could get worse. At the moment the trend has turned back down. 

*****

On another note, my son will be born in a couple weeks. I'd like to start a fund for him and see how it CAGR's over many years. Starting early, even with a small amount, is the key to exponential growth. 

*****

PORTFOLIO THOUGHTS

I use a "3 Tier System". Once a position is set, it's allowed to float, with rebalances about monthly. The general goal is to have 9 positions total.

Tier 1 should really only be one or two high-confidence companies. The idea is that Tier 1 should drive the results. 

And Tier 3 is similar in that it should also be one or two companies that are either new starter positions or companies about to fall out.

Tier 2, is the in-between, ideas on the back-burner ready to either step up to Tier 1 or step down to Tier 3. 

At the moment I have no Tier 1 positions (after I trimmed Datadog this month), and seven Tier 2. I also have a 24% cash position. That's telling me I don't have a lot of confidence in anything. 

*****

I track the monthly market caps and TTM revenue numbers because I like how it's a snapshot. The trailing P/Sales is far from perfect but it gives a quick and dirty comparison. Since most of my portfolio is SAAS, which has steady revenue, I don't feel the need to use a forward estimate. 

In general, for me, lower valuation is a "nice-to-have" but not a "need-to-have". 

Current month P/Sales:

DDOG - 27

CRWD - 24

ZS - 24

Bill - 27

SNOW - 40

MDB - 21

NET - 26

ZI - 20

S - 25

GTLB - 27

Last month P/Sales:

DDOG - 30

CRWD - 27

ZS - 24

BILL - 27

MDB - 22

SNOW - 38

NET - 24

ZI - 19

S - 28

COMPANY THOUGHTS

Datadog (DDOG)

31 Dec 2021: $178.11 (Market Cap: ~ $62b, TTM Revenue: $880m, P/S 70)

31 Jan 2022: $146.11 (Market Cap: ~ $50.7b, TTM Revenue: $880m, P/S 57)

28 Feb 2022: 161.11 (Market Cap: ~ $56b, TTM Revenue: ~ $1b, P/S 55)

31 Mar 2022: 151.47 (Market Cap: ~ $53b, TTM Revenue: ~ $1b, P/S 53)

29 Apr 2022: 120.78 (Market Cap: ~ $42b, TTM Revenue: ~ $1b, P/S 41)

31 May 2022: $95.39 (Market Cap: ~ $33b, TTM Revenue: ~ $1.2b, P/S 28)

30 June 2022: $95.24 (Market Cap: ~ $33b, TTM Revenue: ~ $1.2b, P/S 28)

29 July 2022: $102.06 (Market Cap: ~ $35b, TTM Revenue: ~ $1.2b, P/S 30)

31 Aug 2022: $104.95 (Market Cap: ~ $36b, TTM Revenue: ~ $1.3b, P/S 27)

Datadog reported this month and from a high level we can see revenue growth slowed but not as bad as Covid. Customers slowed similar to how they did in Covid, not good at all. Slight margin pressure but it's an efficient business. The question is how much more will it slow in this macro situation?

Consumption-based cuts both ways. So if the macro is affecting them. The business should accelerate coming out on the other side. The problem is we don't know when that will be. And we don't know if they'll be able to achieve hyper growth now at a much larger run rate than two years ago coming out of covid. 

I think the uncertainty of the guide is what caused the sell off after the report. And it's a legitimate reaction I think.

Frankly, it wasn't a great report. There's uncertainty in the guidance. That's it. 

After going through the call it seemed like the business had already reaccelerated again in August. But they don't actually know. So there is some uncertainty. 

Datadog is in limbo in my portfolio. Initially I decided to bring it down to a lower Tier 1 position at 15%. It's floated down a touch to 14%. But I'm now also considering it a Tier 2 holding. In fact I may cut it back to 12%. 

Crowdstrike (CRWD)
31 May 2022: $159.99 (MC ~ $38b, TTM Rev $1.6b, P/S 24)

30 June 2022: $168.52 (MC ~ $40b, TTM Rev $1.6b, P/S 25)

29 July 2022: $183.62 (MC ~ $44b, TTM Rev $1.6b, P/S 27)

31 Aug 2022: $182.61 (MC ~ $44b, TTM Rev $1.8b, P/S 24)

Crowdstrike also reported in August, and from a high level we can say it was routine outperformance. They have incredible opex and cash flow margins, as well as a positive adj net margin and eps. They have lots of tailwinds, etc. They beat consensus and raised guidance. All great things.

But the growth is slowing down very, very steadily. And it doesn't seem there's any chance it's going to reaccelerate. I've known that now for almost a year. The stock in 2022 has been buffeted because it had stalled relative to others in 2021. 

At the moment it's a solid Tier 2 holding. I'll give it another quarter then reevaluate.

Zscaler (ZS)
31 Dec 2021: $321.32 (MC ~ $48b, TTM Rev $761m, P/S 63)

31 Jan 2022: $257.11 (MC ~ $38.5b, TTM Rev $761m, P/S 51)

28 Feb 2022: $239.15 (MC ~ $35.8b, TTM Rev $860m, P/S 42)

31 Mar 2022: $241.28 (MC ~ $36b, TTM Rev $860m, P/S 42)

29 Apr 2022: $202.74 (MC ~ $30b, TTM Rev $860m, P/S 35)

31 May 2022: $153.09 (MC ~ $23b, TTM Rev $969m, P/S 23)

30 June 2022: $149.15 (MC ~ $22b, TTM Rev $969m, P/S 23)

29 July 2022: $155.06 (MC ~ $23b, TTM Rev $969m, P/S 24)

31 Aug 2022: $159.24 (MC ~ $23b, TTM Rev $969m, P/S 24)

Zscaler reports Sept 8th and will be the last of my companies to report. 

The strong secular tail winds combined with strong demand in the current environment are pushing and pulling with the current macro slowdown. Their product is needed more than ever yet companies are having to cut costs. That combined with ZS's long sales cycle makes for a bit of a guessing game. 

But I thought their report was strong, certainly relative to other companies (like Monday.com). Billings and operating margin were a bit disappointing but FCF was strong, and revenue continued along. 

Others have sold out of ZS due to the billings so I have to watch that in the next quarter or two. Am I missing something that is obvious to others? We'll see and learn. 

Bill.com (BILL)

31 Dec 2021: $249.15 (MC ~ $25b, TTM Rev $308m, P/S 83)

31 Jan 2022: $188.21 (MC ~ $19b, TTM Rev $308m, P/S 62)

28 Feb 2022: $237.88 (MC ~ $24.6b, TTM Rev $411m, P/S 60)

31 Mar 2022: $226.79 (MC ~ $23.4b, TTM Rev $411m, P/S 57)

29 Apr 2022: $170.71 (MC ~ $17.6b, TTM Rev $411m, P/S 43)

31 May 2022: $118.24 (MC ~ $12.2b, TTM Rev $518m, P/S 24)

30 June 2022: $109.86 (MC ~ $11.4b, TTM Rev $518m, P/S 22)

29 July 2022: $135.07 (MC ~ $14b, TTM Rev $518m, P/S 27)

31 Aug 2022: $161.88 (MC ~ $16b, TTM Rev $640m, P/S 27)

Bill.com reported August 18th and of all my companies, they had the strongest report. They crushed it actually. We have high revenue growth and improving margins but not drastically improving. So for that reason I can't take it up to Tier 1. But this was a strong report and the guidance was strong enough as well that it exceeded Wall Street expectations. 

Bill.com is also a bit of a complicated story with the acquisitions so I don't want to make it Tier 1 for that reason.

And further, remember it's consumption based so it cuts both ways. One thing we've seen in the reports is that companies with consumption-based revenue have had mixed results. What I mean by that is that some companies like Datadog and, in particular, MongoDB had very apparent macro headwinds. Snowflake didn't show a ding (but they did report a pull-forward in revenue from a large customer). 

Bill.com showed very little to no slowdown. However, the employment rate has stayed historically low, which means lots of people are getting hired and getting paid. And that's how Bill.com makes money. If the unemployment rate starts to rise it could mean that Bill.com will be affected. And in fact, the rate did tick up in August, and with the Fed continuing to raise rates, it's likely to continue. That's another reason I'm cautious about Bill.com

On the call they did say they were seeing a sign of macro headwinds: "TPV growth rates moderate and this trend continued into July and early August"

Snowflake (SNOW)

29 Apr 2022: $171.44 (MC ~ $62b, TTM Rev $1.2b, P/S 51)

31 May 2022: $127.65 (MC ~ $46b, TTM Rev $1.4b, P/S 32)

30 June 2022: $140.28 (MC ~ $50b, TTM Rev $1.4b, P/S 36)

29 July 2022: $149.87 (MC ~ $54b, TTM Rev $1.4b, P/S 38)

31 Aug 2022: $180.95 (MC ~ $65b, TTM Rev $1.6b, P/S 40)

Snowflake reported August 24th and it was a great report. From a high level it was high revenue growth combined with meaningful margin improvements. The stock was up 15%+ the next day.

Last quarter I said:

It seems like they were back up and running in May. I'm iffy on this because I don't know why April in particular would have been such a slow month from a macro level. So I'm still guessing as to whether it was the bottom in macro.

But it seems from the results of Q2, that April was perhaps the low for them in terms of macro headwinds. And that they will continue to execute now going forward. There were still some macro headwinds, but those only caused them to reiterate guidance whereas other companies, like Salesforce, lowered guidance. So perhaps Wall Street was expecting them to lower. Reiterating is the same as a beat in this environment.

However, two things stood out from the report:

#1 They had a pull forward in revenue. The CFO said in his opening remarks:

"We collected a $33 million invoice in Q2 from a customer who had paid its invoices in Q3 in prior years."

This is important because that represented 6.6% of the revenue in the quarter. If we pull that number out, QoQ revenue growth would have been 10% instead of 17.7%.

#2. Guidance was relatively weak. They guided for $505 million in product revenue for Q3, which would represent 8% QoQ growth. They had guided for 12% QoQ growth coming into this quarter. So that's a slowdown in my mind and what I would call relatively weak guidance (8% vs 12% last Q).

These two things are tied together obviously. The pull forward caused the weak guidance. And that's important because last year their Q3 was very strong at 23% QoQ growth. The CFO reminded everyone of this in his opening remarks:

"I would like to remind everyone that in Q3 last year, we saw unusual seasonality due to reaccelerated product revenue growth."

The Q3 pull forward set up Q4 to be a disappointment when they "only" reported 15%. And then Q1 was a further disappointment at 10%. So we can see it's lumpy. Look at the numbers:

23 15 10 18

So we just have to be careful and not get too excited. 

All that said, it seems Snowflake is still a best of breed tech company growing fast and improving margins. And it seems they can grow for a very long time.

MongoDB (MDB)

28 Feb 2022: $$381.99 (MC ~ $25.4b, TTM Rev $778m, P/S 33)

31 Mar 2022: $443.59 (MC ~ $30b, TTM Rev $873m, P/S 34)

29 Apr 2022: $354.93 (MC ~ $24b, TTM Rev $873m, P/S 28)

31 May 2022: $237.15 (MC ~ $19b, TTM Rev $873m, P/S 18)

30 June 2022: $259.50 (MC ~ $17.6b, TTM Rev $978m, P/S 18)

29 July 2022: $312.45 (MC ~ $21.2b, TTM Rev $978m, P/S 22)

31 Aug 2022: $322.86 (MC ~ $22b, TTM Rev $1.1b, P/S 21)

Mongo DB reported on 31 August and all the air came out of the tires of this one. Of my companies, this is the weakest report so far. 

The macro is hurting them. If consumption takes a hit then revenue takes a hit. And then everything else below the revenue will also look worse. IE margin pressure. It's pretty simple. 

Consumption cuts both ways. Coming out of whatever this macro slowdown is might be a boon for them and revenue will reaccelerate. But when will that be? It's tough to know. 

If you have a time horizon of a year or more, probably the company is going to regain business momentum and then stock momentum. It's just a question of if you want to wait that long. 

They are guiding for 0% QoQ growth for the next 2 quarters. That's really bad. And the tough YoY comps will make it look even worse. 

But I can't have this be a large part of the portfolio. It has to come down to Tier 3. Down to a level where it can't hurt me. 

Cloudflare (NET)

31 May 2022: $56 (Market cap: ~ 19b, TTM revenue: $730m, P/S 26)

30 June 2022: $44.28 (Market cap: ~ 15.2b, TTM revenue: $730m, P/S 21)

29 July 2022: $50.32 (Market cap: ~ 17.3, TTM revenue: $730m, P/S 24)

31 Aug 2022: $62.57 (Market cap: ~21b, TTM revenue: $812m, P/S 26)

Cloudflare had a good report this month. They reported the same day as Datadog and their report was better. Their numbers aren't as good but they are more consistent quarter after quarter.

ZoomInfo (ZI)

31 Dec 2021: $64.20 (Market cap: ~ 26b, TTM revenue: $653m, P/S 40)

31 Jan 2022: $52.86 (Market cap: ~ 21.5b, TTM revenue: $653m, P/S 33)

28 Feb 2022: $54.69 (Market cap: ~ $22b, TTM revenue: $747m, P/S 30)

31 Mar 2022: $59.74 (Market cap: ~ $24b, TTM revenue: $747m, P/S 32)

29 Apr 2022: $47.40 (Market cap: ~ $19b, TTM revenue: $747m, P/S 26)

31 May 2022: $40.39 (Market cap: ~ $16b, TTM revenue: $836m, P/S 20)

30 June 2022: $33.24 (Market cap: ~ $13.6b, TTM revenue: $836m, P/S 16)

29 July 2022: $37.89 (Market cap: ~ $15.5b, TTM revenue: $836m, P/S 19)

31 Aug 2022: $45.42 (Market cap: ~ $18.7b, TTM revenue: $928m, P/S 20)

After their report in May I again sold half my shares and took it to Tier 3. 

And after their report this month I trimmed a little more. The revenue has been surprisingly durable but organic revenue of only 42% isn't really exciting. That said, their margins are incredible. 

SentinelOne (S)

31 Dec 2021: $50.49 (MC ~ $13b, TTM Rev $169m, P/S 79)

31 Jan 2022: $44.75 (MC ~ $11.7b, TTM Rev $169m, P/S 70)

28 Feb 2022: $41.50 (MC ~ $10.9b, TTM Rev $169m, P/S 65)

31 Mar 2022: $28.74 (MC ~ $7.5b, TTM Rev $204m, P/S 37)

29 Apr 2022: $33.27 (MC ~ $8.8b, TTM Rev $204m, P/S 43)

31 May 2022: $23.79 (MC ~ $6.3b, TTM Rev $204m, P/S 31)

30 June 2022: $23.33 (MC ~ $6.5b, TTM Rev $245m, P/S 27)

29 July 2022: $24.84 (MC ~ $7b, TTM Rev $245m, P/S 28)

31 Aug 2022: $27.31 (MC ~ $7.6b, TTM Rev $302m, P/S 25)

Sentinel One also reported on 31 August and I thought it was incredibly strong. Maybe the strongest report of all my companies. 

They said in the call a couple of times that the beat on revenue came from the organic business. And they also said they had their "largest ever customer win". They showed a meaningful improvement in operating margin which is what I was looking for. 

So it was an incredibly strong quarter, but the guidance leaves me scratching my head. Unless they are just being uber conservative. It seems like way too much conservatism. It leaves a question in my mind. 

The market sold it down 7% on the day they reported which was really surprising to me. Everything in my portfolio was down that day yes. But still. I think the market is sleeping on SentinelOne a bit, and will eventually wake up. 

I can take this to a 10% position, but don't want to let it get much bigger than that because of the uncertainty around the guide.

Gitlab (GTLB)

31 Aug 2022: $59.87 (MC ~ $8.8b, TTM Rev $333m, P/S 27)

*****

MACRO THOUGHTS

It seems inflation is sort of discounted by the market in general at the moment. Unless we get another shock to the system. 

Now we have to look toward a recession. Will companies start to lower guidance? Will earnings get revised down?

High growth companies, which are "long duration assets", have a history of bottoming before indices and will take off before the indices on the other side.

*****

Watchlist:

Gitlab GTLB