June 2021 Portfolio Analysis

Welcome to my first portfolio update on ExponentialDave.com! This is my seventh publicly written portfolio update in total. My portfolio is up 247% as of writing on 6/15/2021 from when I started tracking my results in January of 2020. Meanwhile my benchmark, WCLD, is “only” up 90% since January of 2020. For the year 2021 until 6/15/2021, my portfolio is up 7% year to date, meanwhile WCLD is down 0.5%.

Quick reminder that, if you want to be notified via email when I make posts like this, please feel free to subscribe.  There is an email input box on my home page: http://exponentialdave.com

Regarding my monthly results this year (YTD performance by month):
Jan 2021: 6.5%
Feb 2021: 4.2%
Mar 2021: -9.8%
Apr 2021: -0.9%
May 2021: 3.0%
As of writing on 6/15/2021: 7%

Regarding why WCLD is my benchmark, it is comprised of a few of my top holdings, such as NET, SHOP, DDOG, CRWD, etc. The truth is though, most investors come nowhere near the performance of WCLD. Probably the best approximation of the return most investors get is the good ole S&P 500, which is up 30% from January 1st, 2020. It’s worth repeating again that, in the same time frame, my portfolio is up 247%. This means that, if you had invested $100 on January 1, 2020 in the S&P 500, you would have $130 now. Whereas, $100 invested in the ExponentialDave portfolio from January 1, 2020 until now would be worth $347.

For the current year, the S&P 500 is up 13% YTD and the Nasdaq is up about 11% YTD.

Conviction Levels

Highest Conviction: CRWD
Second Tier Convictions: DDOG, NET, ZS, SNOW, UPST
Experimental: ASAN, AFRM
Sold out of: ETSY, PINS, ZM

Allocations (now vs last update) **These include options.


Specific options held:

It’s worth noting that most of the options held above are new.  I added many of them in the last month or two as growth stocks hit seasonal lows during what many call a stock “rotation”.  The other thing worth mentioning is just how fast options can grow to become sizeable portions of a portfolio.  A 1% Snowflake LEAPS option now could grow to be 8% of my portfolio next year.  Or (less likely), they could become pretty worthless.

On my allocation changes:

A few words on Zoom since it was big enough for me to call it a concentration. Before earnings I had whittled it down to 4%, and then earnings came out rather disappointing. Sequential revenue growth has now decelerated 3 quarters in a row, and annualized sequential revenue growth is under 40%.  This bad quantitative news reinforces the likelihood behind the bear case for Zoom, which is that Zoom captured all the low hanging fruit last year, and the law of large numbers has made it too hard for Zoom to grow as fast as the other companies in my portfolio.

I should also talk about why I shifted money away from CRWD, DDOG, and DOCU. Plain and simple, their growth rates are slower than FVRR, SNOW, NARI, and UPST. That doesn’t mean that I think these faster growing companies are necessarily better investments on the whole. Investing is a game of probabilities, and I want to put my money behind the investments which give me the greatest probabilities of winning the most money.

YoY Revenue Growth Rates of My Companies:

Although revenue growth rates are a very key component of my investment thesis in each of the companies I own, don’t get too caught up in the numbers above. They are going to change rapidly once we start lapping some of the covid quarters! Looking at you Shopify, Fiverr, and Upstart in particular.

Company Specific Analysis

Shopify’s last quarter was superb. In Q2 of 2020 (peak of covid’s effect on most businesses), Shopify had a seasonally abnormal quarter where it grew revenues 52% *sequentially*, but then returned to “seasonal normality” in Q3 2020 and Q4 2020, with sequential revenue growth of 7% and 27%, respectively. Q1 2021 came in at 1.1% revenue growth, which sounds pretty disappointing at face value. BUT, Shopify usually has such an incredibly strong Q4 due to holiday shopping, that in a normal year its revenues will contract about 6% in Q1. But it had a seasonally normal Q4! Which tells us it’s actually a pretty big deal for Shopify to grow its revenues in Q1. So Shopify is starting the year off with a bang.

Annoyingly, Shopify stopped issuing guidance for good, so we can only sort of vaguely guess that things are going to continue mostly normal (hopefully better than normal). For Shopify, a normal Q2 would see revenues grow about 13% sequentially. This would translate into 56% YoY growth and revenues of $1.12 billion.

Quarterly YoY rev growth rate looks like this (most recent quarter first) 110%, 93%, 97%, 47%, 47%, 44%, 47%, 49%, 54%, 57%, 61%, 68%, 70%
QoQ rev growth rate: 1%, 27%, 7%, 52%, -6%, 29%, 8%, 13%, -7%, 27%
Gross Profit Margin: 57% in Q1 2021 versus 56% in comparable quarter in Q1 2020
Merchant Solutions Revenue YoY by quarter: 137%, 117%, 132%, 147%, 57%, 53%, 50%, 56%, 58%, 63%

Snowflake’s valuation is still very high. This may hamper short term returns (< 1 year), but at some point the company’s massive growth will outpace its valuation. We just don’t and can’t know when that will be. Until then, we can see that SNOW’s fundamentals are better than any company at its size.

Snowflake advertises itself to shareholders as “not a SAAS company” because their revenue is consumption based. This consumption model is superior to the SAAS model so long as customers are willing to pay up. They are, and this is because, as per CEO Frank Slootman, Snowflake enables “10x the work at half the price”, compared to legacy competitors.

On the data sharing front, my thoughts are that this functionality will have a viral networking effect – the more data that goes to snowflake the more people will want to join Snowflake, thereby increasing its value in a virtuous cycle beneficial to both snowflake and its customers.

Product revenue guidance for Q2 2021 is for $240mm, which would be a 12% QoQ increase. Notably, this is exactly what they guided for last time (a 12% QoQ increase), and we know they ended up coming in at a 20% QoQ increase. I am no fortune teller, but I think it’s perfectly realistic to expect growth to come in much closer to 20% than 12%.

Below ordering is always most recent to least recent:
YoY Rev Increase: 110%,116%, 119%, 121%, 147%, 137%, 151%
QoQ Rev Increase, 20.5%, 19%, 20%, 22%, 24%, 21%, 22%, 36%, 19%, 28%
Net Rev Retention Rate: 168%, 168%, 162%, 158%
^^This is a key part of the investment thesis on Snowflake. With net retention this high, revenue numbers are sure to stay elevated for a long time. And, CEO Frank Slootman was willing to say it will stay over 160% for the entirety of 2021, a very bold statement that speaks to SNOW’s potential.
Adjusted GM: 72%, up from 67% last quarter
RPO growth QoQ: 7.4%, 44%, 35%, 47%, 10%, 56%
^^Comparable quarters boldened to emphasize seasonality.
Enterprise Customers (>1mm in rev) by quarter: 104, 77, 65, 56, 48, 41, 31, 22
Total Customers by quarter: 4532, 4139, 3554, 3117, 2720, 2392, 1934
Total Customers Increase % QoQ: 9.5%, 16%, 14%, 15%, 14%, 24%
Non Gaap gross margin: 72%

One of the best quarterly reports of the season was from no other than Fiverr. They grew revenues 22% sequentially, which is huge, but we must keep in mind FVRR has seasonality in its business. That said, in Q1 2020 and 2019 they grew 13% and 14%, respectively. So by comparison, we see that this was in fact a huge Q1 for Fiverr.

You might be thinking this is just another covid stock, destined to deflate like the Zoom’s of the world. However, Fiverr is confidently asserting 63% YoY guidance for the full year, which we can be confident they will beat. Additionally, management went out of their way on the conference call to explain that, even in places where covid has waned significantly (such as Israel, where Fiverr is based), business is very strong.

Fiverr currently has a trifecta going on, which is big growth in buyers (up 56% YoY), steady growth in spend/buyer 4%-5% per quarter (you can think of this as effectively being DBNER), and expansion of its business into new areas, such as Fiverr’s new aptly named “Subscriptions” service.

QoQ Revenue growth: 22%, 8%, 11%, 38% (covid), 13%, 7%, 8%, 8%
YoY Revenue Growth: 101%, 87%, 86%, 81%, 42%, 43%, 40%
N Gaap Margin: 84%

If I were to try to nitpick at Cloudflare I would tell you that, although they have gotten very good at landing large customers, they have been growing at about the same rate for 7 or 8 quarters in a row (50ish percent YoY). What does it take to move the needle for them?

Of course, consistent 50% growth is terrific, but you would think that with all the innovation they do, and all the big customers they land, that they may accelerate at some point. But it just doesn’t happen. That said, I am not here to nitpick at Cloudflare and get caught missing the forest for the trees. Cloudflare had a solid quarter, and if they consistently grow at 50% for the next 8 quarters, this investor will probably not be selling anytime soon:

–4.1mm free & paying customers
–17% of fortune 1000 are paying customers
–48% of revenue from outside U.S., down from 49% at the end of Q4 2020
–70 billion cyber threats blocked per day
–99% of the internet connected developed world population is located within 100 milliseconds of the Cloudflare network
-TAM expansion through innovation in application services, network services, and zero trust services: $32b in 2018, $72b in 2020, $86b in 2022, $100b in 2024
-Operating Margin Leverage: 2018-2020: -30%, -25%, -8%

88% of our contracted customers now use four or more Cloudflare products, up significantly from 18 months ago when we went public. Four is a significant number for us because our usage data suggests once someone is using that many products, customers consider us a core platform that is very sticky and difficult for any competitor to match.”

“Our $1 million large customer cohort continues to be the fastest-growing of the large customer cohorts that we disclosed at our Investor Day in February.”

“So I don’t think like I actually don’t think that that COVID was a particular tailwind for us over the course of last year. And as we’ve talked about, in previous calls, in a lot of ways, it was a real headwind, because we had to adjust to a lot of things. But I do think that it accelerated the digital transformation.”
ExponentialDave: It’s generally accepted that covid was a tailwind for NET and comparable companies like CRWD, FSLY, and ZS. That doesn’t mean it’s true though! Very interesting to hear Matthew Prince try to convince us that covid was a headwind.

Rev growth trends (quarterly yoy, most recent first): 52%, 50%, 54%, 48%, 47%, 51%
QoQ Rev growth: 10%, 10%, 14%, 10%, 8%, 14%, 10%, 8%, 12%, 11%

N-gaap Gross margin (Most recent first): 78%, 78% 77%, 78%, 79%
DBNER by most recent quarter first: 123%, 119%, 116%, 115%, 117%
ExponentialDave: Note the expanding DBNER.

Total paying customers: 119K, 111k, 101k, 90k, 89k
customers spending >100k: 945, 828, 736, 636, 536, 526
Large customers accounted for more than half of revenues, up from 49% at end of Q4 and 47% at the end of Q3.
Total customers: 4.1mm at the end of Q1 2021, up from 3.5mm at end of 2020 and 2.6mm at end of 2019 (includes non paying).

I was hoping for QoQ growth north of 10%, and we got 11%. Datadog reported a “business as usual” quarter with strong guidance. They are guiding for 8% sequential growth next quarter, which is a bit higher than their usual guidance of 5%. An average revenue beat for DDOG has been 8%, so we might be in for one heck of a Q2 when Datadog reports again.

Enterprise customer adds were very strong, coming in at 15% sequential growth. They haven’t put up a number that high since Q4 2019. Overall customer growth ticked up to 15,200, representing 7% sequential growth which is more or less business as usual.

I wrote last quarter the following:
“A key driver of DataDog’s growth: they have strategic partnerships with all the major cloud vendors. That said, the integration with Microsoft/Azure is not even live yet but I suspect will be a nice boost to revenue when it does go live.” Funny enough, I am a software engineer who is working on a product that is going to use that Azure integration. Small world, and I look forward to seeing and using Datadog on a daily basis. We are in the process of setting it up now, so the Azure integration is 100% live.

Key quotes from the conference call:
usage growth from existing customers was stronger than expected and above historical levels. Among other factors, we are seeing the benefit of new logos signed in the back half of last year as they grow into their commitment.

“As of the end of Q1, 75% of customers are using two or more products, which is up from 63% last year. Additionally, 25% of customers are using four or more products, which is up from only 12% a year ago.”

“Datadog was recognized as a leader in Gartner’s 2021 Magic Quadrant for APM for the first time.”

we had a strong uptick in the quarter in million dollar customers.

“And the way we think about pricing for all the data and everything they send us is that these models are going to grow exponentially over time. They’re going to grow faster than these customers top line for all practical purposes.

Quarterly Revenue growth YoY(most recent first): 52%, 56%, 61%, 69%, 87%, 84%, 88%
Quarterly Revenue growth QoQ: 11%, 15%, 10%, 7%, 15%, 19%, 16%, 19%
Cust > $1m: 2020: 97, 2019: 50, 2018: 29
Cust > $100k (last 4 quarters): 1437, 1253, 1107, 1015
customers (last 4 quarters): 15200, 14200, 13100, 12100
N gaap gross margin: 77%, 78%, 79%
DBNRR: > 130%, as it has been for 15 consecutive quarters. They do not tell us exactly what the rate is though.

Key trends CRWD is capitalizing on: digital and security transformation, cloud adoption, and an ongoing heightened threat environment.

–added $143.8 million in net new ARR and grew ending ARR 74% to exceed $1.19 billion

–accolades from Gartner+Forrester for endpoint protection

–Zscaler is now a CRWD customer. CRWD is now a Zscaler customer. They have even incentivized their sales reps to sell together.

Key conference call snippets:

“Revenue growth in the U.S. increased to 70% and contributed approximately 73% of first quarter revenue. Approximately 14% of revenue was derived from Europe, Middle East and Africa markets; 10% from Asia Pacific; and approximately 3% from other markets.”

“Total non-GAAP operating expenses in the first quarter were $202.9 million or 67% of revenue versus $133.0 million last year or 75% of revenue.”

“For the full fiscal year 2022, we currently expect total revenue to be in the range of $1,347.0 million to $1,365.7 million reflecting a growth rate of 54% to 56% over the prior fiscal year.

Analyst Matt Hedberg: “it still looks like you’re early and potentially could 10x your customers and still not be fully penetrated into that global opportunity.

On why customers want Zscaler + CRWD together: George Kurtz: Sure. I think, thematically, its customers are looking for a next-gen endpoint workload technology platform like CrowdStrike combined with next-gen network technology, and they’re looking to replace their legacy Palo Alto Networks….we’re not a network company, that information can be supplied to us in the Falcon platform [from Zscaler]. And we’ve got tremendous visibility on the endpoints that go beyond anything a network company could have, and that’s useful to Zscaler customers.

Andrew Nowinski: you saw no seasonality from Q4 to Q1, which I think is the first time at least the last three years where net new ARR has not declined sequentially, clearly indicating a significant change in the spending environment.
On why this happened, Burt Podbere: So, I think it’s just more broad-based demand. I don’t think it’s necessarily focused in just AWS. I think, the great news is we essentially delivered a second Q4 in Q1, to your point. You’ve been following us closely. I think it’s the continuation of trends we have been seeing for quite some time. George talked about them, the digital and security transformation, cloud adoption, this robust threat landscape. And I think we’re in a buying environment.

George Kurtz talked about how CRWD is still early innings, they are #1 in worldwide market share for modern endpoint security (according to the IDC). There’s still market share to be taken from Symantec and McAfee.

Guidance for CRWD’s next quarter is for 7% sequential growth, which is pretty average guidance for CRWD. They typically beat by 6%, so we could likely see another 13% sequential growth quarter, which would be more or less business as usual.

Rev Growth QoQ: 14%, 14%, 17%, 12%, 17%, 22%, 16%, 13%, 20%
Rev Growth YoY: 70%, 74%, 86%, 84%, 85%, 90%
N Gaap GM: 79%, 77%, 78%
N Gaap net income: 23.3mm, 31.6mm, 18.6mm
Customers: 11420, 9896, 8416, 7230, 6261, 5431, 4561
> 4 modules: 64% ,63%, 61%, 55%, 50%, 47%
> 5 modules: 50%, 47%, 44%, 35%, 33%
> 6 modules: 27%, 24%, 22%
DBNER (starting q4 2020 – not reported yet for Q1 2021): 125%, 128%, 131%, 126%, 124%, 131%, 133%, 142%

Zscaler had another great quarter, and, as good as the numbers were, I thought by far the best thing was the announcement of the parternship of ZS and CRWD on the ZS conference call, and then seeing a mirror of that on the Crowdstrike call. We all know by now that Founder/CEO of Crowdstrike George Kurtz calls a spade a spade (and is willing to talk trash about Microsoft and Sentinel One). The fact that he is willing to share some of the spotlight of the Crowdstrike earnings call to talk about how big of a fan he is of the Zscaler partnership, I think it says a lot about Zscaler’s product quality.

Conference call highlights:
“We are processing more than 160 billion transactions daily, preventing up to 7 billion security incidents and policy violations.”

“we closed a record number of seven-figure ACV deals across a broad range of industries”

“In addition to incremental product integrations, we continue to grow our go-to-market partnership with CrowdStrike, who also became a customer this quarter. I am proud that Zscaler was named the Zero Trust Champion at Microsoft’s 20/20 Partner Awards. Further expanding our technology relationships, we recently partnered with IBM to add Zscaler services to their zero trust security offerings. This partnership includes integrating with their identity, MDM and SIEM solutions, and joint go-to-market initiatives.”

“$72 billion serviceable market”

“Remaining performance obligations, or RPO, which represent our total committed non-cancelable future revenue, were $1.2 billion as of April 30th. RPO grew 85% from one year ago. The current RPO is 51% of the total RPO”

On the impact of high profile hacking in the news: “So first of all, So it’s clear that there’s a high degree of interest in making sure that companies are secured. That’s point number one. Point number two, when those level of C-level get engaged, the budgets open up, they become less of an issue. When you’re dealing with the CIO, whose budget is hundreds of millions of dollars, to get a few million dollar deal for us generally becomes a lot easier.”

“endpoint serves as an important layer and cloud serves as a second layer…it’s natural for customers say, endpoint from CrowdStrike and cloud security from Zscaler”

YoY growth: 59%, 55%, 52%, 47%, 41%, 36%, 49%, 53%, 61%, 64%
QoQ growth: 12%, 10%, 13%, 14%, 10%, 7%, 9%, 9%, 7%, 17%, 13%
N Gaap Gross Margin (Q4): 81%
Net income (Q4): $21m
Dollar based net retention rate: 126%, 127%, 122%, 120%, 119%
Customers (as of Q4): 5,000, including 500 of the global 2000

In terms of sequential growth from Q4 to Q1, Docusign grew 9%, which is their best sequential growth in Q1 that they’ve had since going public several years ago. DBNER was also a record high for Docusign, coming in at 125%. During their latest conference call, they mentioned, to no surprise, that international revenue continues to be the biggest driver of future growth and the largest part of Docusign’s TAM. It’s now up to 21% of total revenues.

Guidance is for 3% sequential growth next quarter. Average beats for DOCU over the past 2 years have been 6%, so we should hope for continued growth 9% or higher for the next quarter.

YoY Rev Growth (most recent quarter first): 57%, 53%, 45%, 39%, 38%, 40%, 41%
QoQ Rev Growth:13%, 12%, 15%, 8%, 10%, 6%, 10%, 7%, 12%
N Gaap Gross margin: 80%
Customers (in thousands): 892, 822
N Gaap net income: $77m vs $22m a year ago

Pretty average Q1 for Twilio, with 8.5% organic growth QoQ or 49% organic growth YoY. Guidance is weak at 1.7% sequential growth for Q2 2021, but if we look back at past guidances, they have guided at 2% or less sequential growth in each of their past 5 quarters. Every time they have had large revenue guidance beats of 8% on the low end.

In my last report, I mentioned that Twilio has 10 million developers with Twilio accounts. This is important enough for me to just leave here.

Conference call quotes:
“Revenue from our top 10 active customer accounts represented 12% of revenue in Q1, compared to 13% last quarter and 15% in the first quarter of 2020. International revenue was 29% of total revenue in Q1, compared to 27% last quarter and 28% in Q1 2020.”

On the decrease in DBNER: “So on a sequential basis you obviously don’t have like the political dynamic, right. We’re in a non-election year and so that’s going to direct it down a little bit. And then we’ve also locked the right to carrier fees and so one year away from that, you know that’s going to have a little bit of impact as well.”

QoQ Rev growth: 7.6% (8.5% organic) ,22% (12% organic), 12%, 10%, 10%, 12%, 7%
YoY Rev Growth: 62% (49% organic),65% (52% organic), 52%, 46%, 57%, 62%, 75%
Active Accounts: 235k, 221k, 208k, 200k
DBNER for Q4 2020: 133%, 139%, 137%, 132%
N Gaap Gross margin: 55%

I bought Lightspeed because of its solid fundamentals AND the possibility that revenues really accelerate once the economy fully reopens and people get back to using hotels/restaurants. In the United States (where most of Lightspeed’s customers are), Q1 was marred by January/February covid closures and lockdowns. People were still afraid to go out. But people started to get vaccinated in droves. Subsequently, covid cases dropped precipitously from February through the present (with some ups and downs along the way). It seems like restaurants are coming back now, and based on how hard it is for me to rent a car these days, I wouldn’t be surprised if domestic travel is also booming. But the lack of international travelers may still suppress the hotel industry. It’s unclear.

Data mentioned in the latest conference call is encouraging:

Within retail, e-commerce volumes were up almost 100% from a year ago. Hospitality was down 15% year-over-year organically, but a solid resurgence in March, which continued into April.  March grew, approximately 10% sequentially from February and April grew by approximately a further 15% from March. We’re quite bullish on how these trends continue as economies reopen around the world and look to our Australian market as a bellwether here, which saw GTV growth of over 75% year-over-year in the quarter.”

Q2 2021 *might* be the quarter where we see a big QoQ acceleration in Lightspeed’s business. Or perhaps a lagging hotel industry continues to weigh down Lightspeed’s results.

The past few quarters have seen Lightspeed make 3 moderately sized acquisitions. Most recently it closed the acquisition of Vend, prior to that Upserve and Shop Keep. This makes quarterly comparisons (sequential comparisons) very wonky and misleading. For example, they are guiding for $94mm of revenue in Q2 2021, which would represent 14.1% growth, but how much of that comes from the vend acquisition? It’s hard to say, but Vend is not a small company. Its revenues at time of acquisition were roughly $34mm in the trailing twelve months, so if we approximate and say one quarter of yearly revenue would be $8mm or so, that would be roughly 8.5% of revenues, which is a rather material part of the 14.1% growth they are guiding for.

It’s easy to get lost in the trees and miss the forest when looking at revenue growth so granularly. I think the forest is worth sticking around for in this case, but I also think it’s important to keep looking at the trees for indications that perhaps growth won’t be as good as we think it can be.

Organic Revenue growth YoY: 42.2%, 54.1%, 60.7%, 50%
Gross Margins: 53%, 58%, 60%, 60%, 63%, 64%, 66%, 65%
^^Margins continue to drop – worth keeping an eye on.

Pretty much, to oversimplify my investment thesis for Lightspeed, if they can do as good as they are doing with covid as a major hindrance, imagine what they will do when they emerge from covid with their new acquisitions!

Very strong quarter from Roku. From 2017-2020, Q1’s saw -32%, -27%, -25% and -22% sequential contraction from Q4 to Q1. But in 2021, sequential contraction from Q4 to Q1 was only -12%! And YoY growth has never been higher, coming in at 79%.

To pick out a key negative from the quarterly report, the sequential new accounts growth rate was 4.7%, which was the lowest it’s been since Q2 2019. I suspect one weak quarter like this should be fine, but if we start to see more of these, you can expect growth numbers to taper downwards in time.

Although new accounts growth was slow, streaming hours growth came in at 7.6% to 18.3 billion (business as usual), ARPU growth came in at 11.8% sequentially to $32.14 (much higher than business as usual!), and platform revenue grew 101% (the highest it’s ever been!) YoY to $466.5mm.

Worth noting, Roku falls into the category of companies who are afraid to provide full year guidance. Regarding short term (quarterly) guidance, I dug back to March 2019 and found a lot of very large revenue beats over guidance. On average, they beat guidance by 13%. You could argue this is a good thing, but it also probably indicates that their business model doesn’t have as high of a degree of predictability as other companies in my portfolio. This may also explain why they don’t want to give full year guidance. They are guiding for next quarter’s sequential growth to be 7%, or 72.8% YoY.

Platform Rev Growth YoY (Most recent quarter first):101%, 82%, 78%, 46%, 73%
Platform Rev Growth QoQ: -1%, 48%, 30%, 6%, -10%, 45%, 7%, 25%

They chose not to provide guidance for next quarter, but I think the fact that they maintained and even raised their full year guidance (from 68% YoY to 79% YoY) makes it more than ok that they skipped next quarter’s guidance.

The maker of blood clot removal technology posted a solid quarter, with its business as usual high margins of 92%. Procedures in Q1 2021 were up to 5,500 – 140% higher than the comparable quarter last year and 20% higher than Q4.

In the conference call, the company highlighted some risks, including hospital staff shortages, lower visibility of VTE and reduced accesss. This is normal for them – they also highlighted business risks in their Q4 2020 call, and yet Q1 was quite strong!

TAM is also a potential weak point, coming in at $3.8b.  This is obviously far smaller than say, Shopify’s trillion dollar TAM, but the important thing is that this $3.8b number is far greater than 100x Inari’s current revenues. Clearly they have a long runway here.

A key quote from the earnings call: “the operating environment is considerably improved since Q4 and probably even since our last earnings call, which was not so long ago ….and so I don’t think there is any COVID related headwinds to bringing on new customers.”

About 90% of our cases in fact came from existing accounts and over two-thirds of our case growth came from existing accounts and from penetration. So although we’re adding new accounts, we continue to see the majority of the growth coming from driving deeper penetration at the existing account base.

YoY Rev Growth: 113%, 144%, 179%, 150%, 291%
QoQ Rev Growth: 18%, 25%, 56%, -7%, 36%, 42%,

One of the most interesting and volatile companies I own right now is Upstart. Upstart is disrupting the archaic personal loan industry, with legacy companies still using FICO scores and the major credit bureaus (square wheels inc) to determine whether or not someone should get a loan and what sort of interest payments they can get.

Although I am long term very bullish on Upstart, I have mentioned to friends of mine that I get somewhat wary when I see UPST’s price to sales multiple creep up towards (and pass) some of our favorite SAAS companies, like DDOG and DOCU. This is because UPST does not have the enormous portion of subscription revenue that DOCU and DDOG has, which makes DOCU and DDOG a safe haven during tough times. We have already seen how quickly UPST’s revenues will crater, such as Q2 2020.

Some people are convinced that big banks are going to replicate Upstart’s technology and render them obsolete. As a software engineer, my opinion is that this is unlikely. Finance companies tend to be 5-10 years behind the rest of the world in terms of their technology. There are reasons for this. Firstly, banks tend to be conservative and risk averse with technology. Secondly, top tech talent tends to not want to work at big banks.

The bigger risk is probably the Credit Karma risk, which refers a significant portion of business to Upstart. My take on this is that there is no way we can know what will happen in the future here. In the present, Upstart and Credit Karma have a mutually beneficial relationship with no reason to terminate it any time soon.  Additionally, the more sources of loan origination Upstart gets, the smaller this risk becomes.  This makes the recent news that Upstart became a preferred partner with the National Association of Federal Credit Unions that much more important.

Quote from latest quarterly report:
Our Q1 2021 revenues were up 90%. Our profits were up by a factor of seven over the first quarter of 2020. Despite softer loan demand from consumers due to government stimulus programs, almost 170,000 loans were transacted by our bank partners in Q1, more than double the volume from just two quarters ago.

Quarterly guidance is among the strongest of companies I follow, coming in at 32% *sequential* growth from $121mm in Q1 2021 to $160mm in Q2 2021. Because revenues tanked so badly in Q2 of 2020 due to covid, YoY growth rates come in at a meaninglessly high 841% YoY.

This stock is the equivalent of a bucking bronco, but it is incredibly obvious it is among the highest potential stocks I own.

YoY Rev Growth: 89%, 40%, 33%, -48% (covid), 220%
QoQ Rev Growth: 39%, 34%, 282%, -73% (covid), 3%, 27%, 48%, 65%

Companies I’m watching: GLBE, Roblox, ZoomInfo

4 thoughts on “June 2021 Portfolio Analysis

  1. Thanks for this update. Ca you write a separate blog post about your option strategy? I would be very interested in this. Thanks!

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