September 2021 Portfolio Analysis

Welcome to my tenth publicly written portfolio update (and 4th on ExponentialDave.com). My portfolio is up 445% as of writing on 9/19/2021 from when I started tracking my results in January of 2020. This means that, $100 invested in the ExponentialDave portfolio on January 1, 2020 would now be worth $545, which is more than a quintuple (5x). Meanwhile my benchmark, WCLD, is “only” up 135% since January of 2020, and the S&P 500 is only up 37%. For the year 2021 through 9/19/2021, my portfolio is up 68%, meanwhile WCLD is up 17%, and the S&P 500 is up 20%.

Monthly YTD performance at the end of each month:
Jan 2021: 6.5%
Feb 2021: 4.2%
Mar 2021: -9.8%
Apr 2021: -0.9%
May 2021: 3.0%
June 2021: 20%
July 2021: 23%
Aug 2021: 53%
Sep 2021: 68% (as of writing on 9/19/2021)

2020 Performance: 225%
Cumulative Performance Since Jan 2020: 445%

Options trading results from 2021 have added 16% to my YTD results. So, without options trading, my results would be 52% as of 9/19/2021.

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Regarding Results this Year
I found the results I’ve had this year to be bordering on other-worldly, since last year was so crazy. I sort of thought this year might be an ordinary year, where the exponential portfolio rises maybe 25%-35%. That’s not to say it won’t ultimately end that way, as there’s plenty of time left in the year for a major sell off.

I’m not the first to say this, but I think it’s a good time to try my best to keep ego in check and stay humble. A simple way for me to do this is to think of the mistakes I’ve made this year. After all, I weeded out Asana at $56/share! Then I remind myself that the best investors don’t own every stock that goes up, and they weed out stocks that don’t match their criteria. When a stock does fit their criteria, they own concentrations of it that match confidence level.

It’s also a good time to step back and ask why I’m getting the results I’m getting. If I subtract all gains from Upstart, my returns suddenly shrink down to 33% YTD, which is still quite superb, but far less than 68% YTD. This sort of reminds me of the 80-20 rule applied to my portfolio, in the sense that a substantial portion of my results (clearly not exactly 80%) come from a small portion of the companies I own. The same could be said for last year, when Zoom and Livongo delivered a turbo charge to my results last year (but of course, they were aided to a degree from strong results in CRWD, DDOG, NET, etc).

And the greater reason for why my results are what they are is because I have concentrated my portfolio into winning stocks. I have regularly trimmed losers and added to winners. Winners tend to keep winning, and losers tend to keep losing.

I stayed invested throughout the entire year. I knew a smart guy last year (who happens to be a millionaire) who sold everything in May of 2020 since his portfolio had risen 30% for the year. He said that stocks had risen too high, and that he had hit his goal of 30%. He would end up missing the massive run ups in the rest of the year and leaving a lot of potential gains on the table. Applying this logic to this year, 2021 has been pretty lumpy. By far most of my gains came from August 2021. If, by chance, I had decided that the 23% YTD gains I had accumulated by the end of July 2021 were good enough for me, I would have missed out on enormous gains to be had in August 2021.

Lastly, and perhaps most importantly, I read Saul’s Investing Discussions almost every day. This forum of people is effectively a mastermind group; it has incredibly sharp dialogue on the best stocks to own. Saul has done an amazing job of cultivating an environment where people want to help each other and “teach each other how to fish”, rather than just “giving you a fish”. I owe so much of my success to this incredible forum.

Current Allocation vs Allocation as of Last Portfolio Update on 8/22/2021.

Conviction Levels:
Highest Conviction: UPST
Second Tier: DDOG, LSPD, CRWD, MNDY, ZS
Third Tier: SHOP, SNOW, ZI, NET
Experimental: GLBE

Risk/Reward Categorization
Highest Reward/ Highest Risk: UPST
Higher Reward, Higher Risk: MNDY, LSPD, SNOW
Higher Reward, Lower Risk: DDOG, CRWD
Lower Reward/Lower Risk: ZS, SHOP, ZI, NET

Sells: I sold Roku because I needed money to buy Monday.com. I think the narrative is intact with Roku. Monday.com is a pricier, more aggressive stock to own, which I think fits in better with my risk profile than Roku, which I suspect is a safer stock to own over the next couple of years. However, in the short term, the tone on the last Roku earnings call was as though they are gearing up for a long winter ahead, which makes me think the next couple of quarters may limit some of Roku’s short term upside. I wrote about this “long winter” commentary in my August 2021 investment report.

Some of what I said above about Roku applies to Docusign. Not that there is a long winter coming for Docusign, but rather the narrative is intact, and I see it as a safer, “more sure bet” than some of my stocks. I love the valuation of Docusign, but I just don’t think it offers as much upside as Monday.com, Datadog, Lightspeed, and Zscaler. I sold all of Docusign and distributed it into those holdings.

I also trimmed Crowdstrike to add to Lightspeed. This is because Lightspeed is firing on all cylinders and accelerating its revenue growth, meanwhile Crowdstrike is slowly decelerating somewhat. But Crowdstrike is for sure still a top conviction for me.

And I trimmed Snowflake because, although the quarter was quite solid, slowing RPO growth might mean that future revenue growth will be harder to sustain in 6-12 months, unless we see better RPO in coming quarters.

MARKET CONDITIONS:
In the last few months, we have seen cloud stocks generally rise across the board. At the end of May, WCLD was down 6% YTD, but since then it has turned around and is now up 16% YTD, passing all time highs to hit $63.07 not too long ago. I took this as my signal that it’s time to cut most of my options loose. This also has coincided with large upswings in my favorite stock (and the one which I had the most options invested), Upstart. So I wound down those positions and am no longer holding any options.

Some of you may read this and hear alarm bells, thinking that it’s time to start selling stock and converting to cash. To each their own, and everyone needs to formulate their own portfolio management strategy. But to me, the odds of best in breed growth stocks going higher, at any moment in time, is always greater than the odds that they go lower. To me, holding cash is like betting against the house in Blackjack. It’s just a losing proposition. Furthermore, if I decide that I want to convert some holdings to cash, I have to then figure out when it’s time to buy back in. That means I have to be right twice (I need to sell at the right time and then buy back in at the right time), which is much easier said than done.

In the worst case scenario, if I sell to cash, what happens if my stocks actually rally 15% higher? Do I decide I was wrong and then buy back in? What if I decide to hold out further, because surely they must go down at some point eventually, right? Well, if I’m wrong again and my stocks keep going up, this was a very expensive mistake I made. And what if, after I buy back in and they’ve rallied 25% without me, then they finally crash downward?

In the best case scenario, if I sell to cash and then my stocks plummet, I have to decide at some point to buy back in. If I miscalculate and they start rising before I buy back in again, what was the point? To pay my capital gains taxes sooner? I don’t want to belabor this point further, but basically I think holding cash is trickier than it seems and often a mistake anyway.

YoY revenue growth rates of my companies:

COMPANY SPECIFIC ANALYSIS

A quick word on Upstart Options: In my last monthly report on 8/22/2021, Upstart was trading at $195/share. I wrote that, Rather than being concerned about the downside risk, I am more concerned about the risk that it continues rocketing higher and I don’t own enough of it. For that reason, I have decided I will most likely hold these options for longer. This ended up being a great decision, as Upstart recently crested over $300/share. But, I did sell all my Upstart options as they approached their respective strike prices. This is not because of any lack of confidence in Upstart as a business. On the contrary, my conviction in Upstart as a business is about as high as possible right now, which is reflected in my position sizing of 26%.

Upstart the business couldn’t be doing any better right now. My concerns are about Upstart the stock. Upstart the stock has seen incredible multiple expansion in an extremely short period of time. This makes me wary of short term price action, which means options are particularly risky right now. I am also quite confident we will see another terrific quarter of 20%+ sequential growth. The problem is, even something amazing like 20% sequential growth may not be enough to beat whatever the market is expecting. And there is simply no way to know what the market is expecting.

I still think the risk reward ratio in Upstart is favorable enough for long term investors for me to keep the significant concentration I have. I know that if Upstart stumbles, there will basically be hell to pay in the company’s stock price. But if the long term picture stays bright, any short term weakness in share price would actually present a terrific opportunity to acquire even more shares.

SNOWFLAKE
The infrastructure platform of the future came in with what I thought was a solid quarter. Turns out, this was a controversial take! This was mainly because of RPO growth dropping from 206% YoY last quarter to 122% YoY in the most recent quarter. Additionally, the last two quarters have seen RPO growth of 7% sequentially, a serious step down from Q4 of 2020, when we saw QoQ growth of 44%. Management gave us reasons for this slow down in growth, namely that last year was the first year sales teams were incentivized to do multi year contracts. There was also an especially large contract signed in the comparable quarter last year, for $100mm.

Quick reminder on what RPO is: RPO is remaining performance obligation – in plain English this just means the amount of a contract that has not been used yet. So if a Snowflake customer signs a 3 year contract for $3, after the first year $1 of the contract has been used, but $2 is still considered a part of RPO.

So RPO effectively is a good measure for determining Snowflake’s ability to get new customers to sign up for large amounts of money upfront. Although this is useful to know, I don’t think it’s a thesis buster for Snowflake. The beauty of Snowflake is that it is a usage based business model, whereby customers are able and perhaps very likely to spend more than what they alot for in the initial contract.

Additionally, as the RPO debacle began to bubble over on Twitter, I tweeted that the investment thesis for Snowflake revolves around its unmatched monetization of the exponential growth of data, and the best metric to give us insights to that is DBNER, which came in at an all time high of 169%.

The other somewhat weak point was in customer growth. Million dollar customer growth was pretty solid, coming in at 12% sequentially and 107% YoY. The sequential number is meaningfully lower than last year, but my thoughts here are that 12% sequentially annualizes to 57%, which is an objectively good number to grow at. Especially when we are talking about MILLION dollar customers, a metric most of my other companies are too shy to even mention, most likely because they don’t want investors judging them by it.

There was a similar drop in customer growth (of the non million dollar variety). YoY growth came in at 60%, meanwhile sequential growth was 10%. 10% will annualize to 46%. Another thing worth mentioning here is that, with DBNER at 169%, Snowflake signing up a new customer is much more meaningful than Crowdstrike, Zscaler or Lightspeed signing up a new customer. Snowflake monetizes customers much better than any other company I own, and perhaps even better than any company I’ve ever heard of.

Moving away from RPO and on to what I see are more important metrics, revenues grew 21% sequentially or 110% YoY. The sequential rate is very much in line with the past several quarters. YoY growth rate is steadily (but rather slowly) dropping, which is normal as the law of large numbers eventually catches up with Snowflake. Revenue guidance for next quarter is for 12%, which is… pretty much the same thing they’ve guided for every quarter since they’ve gone public. And they’ve always beaten that number by at least 7%.

Last 4 quarters $1mm dollar customer % increase (YoY, most recent first): 107%, 117%, 88%, 110%
Last 4 quarters customer % increase (YoY): 60%, 67%, 73%, 84%
Last 4 quarters DBNER: 169%, 168%, 168%, 162%
Product N GAAP Margin: 74%, 72%, 70%, 70%
Quarterly N GAAP Operating Expenses as % of Rev: 8%, 16%, 24%, 30%, 44%
ExponentialDave: Look at that scaling!

Key quotes from the Q2 2021 earnings transcript:

“We are pleased with our geographical expansion outside of the United States for product revenue from EMEA and Asia Pacific, outstripping the company’s growth as a whole, growing 185% and 170% year-on-year, respectively.”

Snowflake continues to deliver performance and optimization improvements throughout the platform, from improving storage efficiencies, lower ingestion latencies to faster query performance across different workloads
ExponentialDave: This is how they monetize consumption so well. They continually optimize the experience for customers and developers, which makes people want to use Snowflake more, which drives consumption.

The Data Cloud is the sum of all data networking relationships that are active at any point in time. We track these data relationships through what we call edges. We added over 450 customers in the quarter and continue to expand the number of customers with stable edges. At the end of the quarter, 16% of our customers had stabilized edges in place with external Snowflake accounts compared to 15% last quarter.

“The total number of these stable edges grew more than 20% quarter-over-quarter. This growth is fueled by the content on our marketplace, which saw listings grow 32% quarter-over-quarter
ExponentialDave: This is the data flywheel which is a key part of why I’m invested in Snowflake for the long term. 20% more edges QoQ is significant. The more data edges show up on Snowflake the higher the percent of customers on Snowflake will create edges of their own.

We are still maturing sales organization to sell multi-year contracts, and the timing of the largest multi-year deals will be lumpy. As a reminder, in Q2 last year, we sold our largest multi-year contract ever, a three-year $100 million deal. While the multi-year component of new booking sets up a difficult comparison, we saw a net – we saw new annualized contract value accelerate compared to the year ago period. This is why RPO and revenue must be evaluated together in a consumption-based business model.
ExponentialDave: Looking at RPO in a vacuum would give the impression the business is weakening, but when you also factor in revenue growth over 100%, it becomes clear the business is actually quite healthy.

Analyst”:So, you’ve now signed up more than 10% of the Fortune 500 over just the last 12 months. That’s incredibly difficult to do. And my question here is, given the nature of your model, would it be fair to say that a very small percentage of your Q2 revenue came from these 54 relatively new Fortune 500 customers?”

Michael Scarpelli: “I would say less than 1% has come from new customers we landed in the quarter. And for the full year, less than 10% will be for customers we land in the year. As a reminder, when we land these customers, it takes nine months to 12 months before they really start consuming at a rate. So what’s really driving the revenue this year are all of the customers we landed – those large customers we landed last year.”

Analyst: “I guess what do you see is the bigger driver of your business today? Is it the replacement of legacy data warehouse architectures? Or is it more net new from modern companies like Instacart and Coinbase that start out and build businesses on top of Snowflake?

Frank Slootman: “It’s actually an important question to ask because we have very high net revenue retention rates and people are often wondering, where’s that coming from because that’s typically not seen. The reason is a lot of what Snowflake does is what we call enabling the demand. In other words, we’re not creating it, we’re allowing it to happen. …So, there’s a lot of latent bottled-up, pent-up demand that has literally grown over literally decades where people have – because of fixed capacity limits on storage, on computational or contractual limitations, they have not been able to do what the technology is now capable of doing. So just unlocking that puzzle and allowing workloads to be provisioned, allow unlimited number of concurrent workloads, let jobs run every night as opposed to once a month, if you’re lucky.
That is really the explosion, the enablement of demand that was already there is really the big, big driver behind Snowflake.

Frank on how Snowflake enables application development of the future:
“One of the biggest challenges that application developers face today is the notion of data governance where they need to get customers to trust them and share the data with them. What we are enabling is bringing those applications to operate within the governance and security perimeter of Snowflake.
And we see interest from applications across horizontals and verticals wanting to build on top of Snowflake and running closer to the data without creating copies or silos.
But what that means is we have a data cloud that has number one live data. Number two, it has full-blown infrastructure, obviously, that can scale unlimited as a function of our public cloud relationships. We have, through Snowpark, a complete application development infrastructure on top of that cloud.

Then we have a marketplace that allows people to find, to discover, to explore, to try out applications. And then you layer monetization on top of that, you have basically an environment where developers can build cloud applications that the world has never seen before. And we sometimes compare this to what happened on mobile development, which obviously was a huge world.”

ANALYST: “And where do you see the risks of deceleration, particularly as you think about your guidance?”

Frank Slootman: “I really don’t see any deceleration risk.”

“the Fortune 500 account for roughly 25% of our million dollar plus customers. We have a number of Global 2000 we started looking at Global 2000. I think we now have 462 of the Global 2000 mostly reporting on that next year.”

Frank Slootman on guiding to DBNER: “…I’m not going to guide long term. It’s hard to do that. I’m just going to say reiterate again what I said to Derrick is we will stay above 160 for this year. And I do expect longer term as our customer base gets bigger and bigger and more mature, that number will come down, but I still think it will be well above 130, 140 for a very long time.”

“Storage is running just under 10% of our total revenue. And so clearly compute is what’s driving the margin now. And we think with data sharing will be a higher percentage of compute going forward. I don’t expect it to see much improvement on the storage side. The biggest driver though on gross margin is as we move into larger customers that are buying enterprise and business-critical. That is more software rich that drives the gross margin.

ZSCALER
Zscaler had what I thought was a pretty strong quarter relative to how the business usually performs. Revenue growth came in at 56% YoY and 12% sequentially. 12% sequentially is nearly as high as it’s ever been (best all time sequential growth was Q2 of 2020, which saw 13.5% sequential growth). DBNER came in at an all time high of 128%, and the company provided a new metric(to me anyway) of million dollar ARR customers, which came in at 202 in the latest quarter, up 87% from the comparable quarter last year. The only other company I know ballsy enough to report this metric is Snowflake, which has 112 million dollar customers. So ZS has more million dollar companies than any other company I know of.

Guidance is for 8% sequential revenue growth, which is the highest guidance Zscaler has ever provided. With a usual beat of 5%, we can reasonably hope to see another very strong quarter (relative to Zscaler’s usual results) coming up next.

Key quotes from the latest quarter’s earnings transcript:
“51% of revenue was from outside the United States” “ZPA revenue surpassed $100 million in fiscal 2021, growing 166% year-over-year

“Finally, we continue to invest to capture a large federal opportunity, with a sizable Fed sales team and the highest FedRAMP certifications, we count well over 100 government agencies, and federal integrators as customers. In Q4 alone, we added over 20 new federal customers, including 4 with over $1 million in annual contract value.Driven by the President’s recent Executive order, we’re seeing increased interest in our Zero Trust Exchange across all levels of the government. We are among a select group of companies chosen by NIST”

“ZDX is the fastest-growing solution in our history. And a natural complement to ZIA and ZPA. With a single lightweight endpoint agent. It is frictionless to turn on ZDX to provide end-to-end visibility to help resolve performance issues for every Zscaler user.”

“VTA [ZPA] product revenue was 17% of total revenue [in the latest quarter].”

Our strong billings performance was driven by a record number of new seven-figure annualized contract value deals in the quarter and we sold more of our platform offering.

Looking at our pillars, ZPA was 27% of our totally new and upsell business in fiscal 2021. Abridging products which include ZDX and ZCP, are tracking ahead of our expectations and contributed high-single digits of our totally new and upsell.

We had 202 customers with ARR greater than a million dollars up 87% from 108 in the prior year. We also had 1480 customers with an ARR greater than $100,000 which compares with 973 customers last year

We organically added approximately 1,000 new logos in fiscal ’21, excluding acquisitions. And we ended the year with over 5,600 customers expanding our field engagement with smaller enterprises with 2,000 to 6,000 employees

“And so, we are seeing basically companies that are buying ZIA add-on, ZPA, and ZDX, we’re seeing those types of dollar amounts. So, the other point which we haven’t talked about, the average revenue per user is increasing substantially.

we’re seeing between 35% and 40% increased price per user on a year-over-year basis.

CROWDSTRIKE
Crowdstrike had a somewhat weak quarter relative to how it usually performs. Probably my first time writing that sentence! Revenue growth came in at 11% sequentially, which is the lowest sequential growth rate it’s ever had, going as far back as Q4 2018. YoY growth looks a bit better, sitting at 70% YoY. Some deceleration is normal for growth stocks due to the law of large numbers, so I am not sounding any alarm bells. I did ultimately decide to trim somewhat, something I may consider doing more of in the future. Customer count continued to steadily grow, coming in at 15% sequentially and 81% YoY.

Guidance is for 57% YoY growth or 8% sequential growth. This is a very average sequential growth forecast for CRWD (their historical average guidance is for 8% sequential growth). With an average beat, we could see sequential growth come in around 12-13%, which is 63% YoY growth.

Key quotes from latest earnings call:
“Additionally, we continue to perform at a high level well in excess of the SaaS industry’s Rule of 40 benchmark, once again achieving a Rule of 80.”

“Our dollar-based net retention rate was once again above our benchmark.” (Benchmark is 120%)

“Revenue growth in the U.S. was 73% and contributed approximately 72% of second quarter revenue. Approximately 14% of revenue was derived from Europe, Middle East and Africa markets, 10% from Asia Pacific and approximately 4% from other markets.”

We’re still in the early innings. If you look at the number of customers we have, 13,000-and-change versus some of our legacy competitors that have over 100,000…

Analyst: “And I want to ask you about the importance of automation and that’s specific in relation to the selling point of SentinelOne. And second, about the price difference between you 2. As far as I understand and please correct me if I’m wrong, they compete with you with a lower-price solution. Is price a significant factor in the sales process?
George Kurtz:“Sure. I think if you buy into the marketing hype, that’s one thing. But if you look under the covers, we have more automation by far than any other competitor, including SentinelOne. I mean that’s how we get the scale. That’s why the product is easily deployed. That’s why we can drive cost out of the customer base because it does it automatically. When you look at the totality of all the services, again, we’re focused on stopping breaches, not just — we didn’t come from a malware product that we tried to bolt on other pieces, we built this from the ground up. So on the pricing standpoint, we sell on value and we routinely win with a higher price point because the product works. It doesn’t blow up machines, it’s scalable. And people are talking to other customers saying, what are you using? And how is it working? And again, we’re focused on stopping breaches, not just dealing with malware. And I think that serves us well. So low-cost options, I think you get what you pay for. There’s a difference between a Fiero and Ferrari. And we happen to be the Ferrari model and that’s what a lot of customers want.
ExponentialDave: I’ve been in the tech industry long enough to know that sometimes the inferior product wins. Sometimes it wins quite often. I am wondering if perhaps SentinelOne has been cutting into Crowdstrike’s marketshare. There is no particularly good data to support this that I know of, but the sheer fact that CRWD’s revenue growth is decelerating meanwhile SentinelOne revenue growth is much faster makes me wonder.

DOCUSIGN
DOCU saw revenues grow 9% sequentially and 50% YoY. This was the weakest stock I own on a YoY revenue growth basis, which is a big part of why I sold it. Part of why I owned it is because I was hoping for sustained higher growth than we got this quarter. Another reason I had kept it this long is because it tends to have a noticably lower valuation than my other stocks. I see Docusign as a safer bet than something like Snowflake with its nosebleed valuation, which might get hurt much more than Docusign should a sell off happen. All in all, there were some signs of strength from DOCU this quarter, including Non-GAAP GM expansion to 82% (from 81% last quarter) and international revenue growth of 71% YoY. DBNER ticked down slightly to 124%, although this number is somewhat elevated relative to historical numbers for DOCU.

Guidance is for 4% sequential revenue growth, which is 1% below the all time average of 5%. A typical revenue beat of 5% would put us in for another quarter of 9% sequential revenue growth, or 46% YoY revenue growth. I ultimately decided my portfolio doesn’t need the perceived added safety from a more lowly valued stock such as Docusign, and I decided to sell it entirely and add to my higher conviction positions.

Key quotes from latest earnings call:
Total customers crossed the 1 million marks with more than 65 000 new customers added in the quarter. This brought our total customer count in Q2 to 1,053,000 worldwide, an increase of 41% compared to a year ago. We also saw customers with an annual spend greater than $300,000 grow 37% year-over-year to a total of 714 customers.

While we do not expect to maintain the peak levels of growth seen at the height of the pandemic, our value proposition is strong, regardless of whether people go back to the office, we don’t see them going back to pen and paper.
ExponentialDave: They’ve been communicating this for a while, but with a history of conservative management, it was hard to know just HOW conservative they were being. Turns out, not enough for me to keep owning it.

Analyst:“In some ways, investors might ask why would a customer not have signed up for DocuSign last year and are signing up now, are there kind of new regulatory hurdles that they’ve been able to get over. Just any color you could provide just kind of the impetus for new customer strength now compared to last year.

Dan Springer: To answer the sort of the conundrum which people ask us all the time, of who hasn’t started with DocuSign already when you look at those new customer accounts. Just give you two thoughts to think about it. One is TAM and one is the number of companies. They are obviously highly correlated numbers. But if you think about the signature TAM at 25 billion and growing, and you think about the rest of the Agreement Cloud it’s coming close to doubling that TAM. And you look at the fact that, if you take a look at Cynthia’s guidance, we’re going to do a little over $2 billion of revenue. And we are by far a dramatic market share leader, a clue with over half the market. The answer is, this is an underpenetrated space. So, and if you think about the fact that we’ve got a little over a million customers, we got pretty excited to say we passed a million customers. But I mean, just in the U.S. alone, there are like 25 million businesses. So, you think about a global number, many multiples of that. So, the reality is, we are lightly penetrated. This is very early innings in the game”
ExponentialDave: I found this to be a great question from the analyst but a rather unsatisfactory answer from Dan Springer. To be a bit repetitive, the analyst asks, “Why buy Docusign now if you didn’t during the pandemic?” Dan doesn’t really answer the question but just says “the market is an underpenetrated space” along with some fluff. That doesn’t answer “why Docusign now”.

MONDAY.COM
Monday.com is a new stock for me purchased mostly at the end of August. Monday.com is a creator of low-code and no-code work management/collaboration software. What sticks out to me about Monday.com is the breakneck pace of revenue growth, only beaten in that regard by Upstart and Snowflake. Its non-GAAP GM is 90%. Additionally, operating leverage is rapidly improving, from -91% in 2019 to -41% in Q2 of 2020, and to -14% in Q2 of 2021. Non-GAAP net loss improved from $-15mm in Q2 of 2020 to $-11mm in Q2 of 2021. Enterprise customer growth of > $50K ARR rose at an insane pace of 226% YoY to be 470 in the most recent quarter.

Insider ownership is high, with cofounders/Co-CEO’s [sic] Roy Mann owning 15.3% of shares and Eran Zinman owning 5.6% of shares. Firstly, companies still led by their founders tend to outperform hired gun CEO’s, and secondly having the C-Suite’s financial interests aligned with shareholders is always a good thing for shareholders. Monday.com ticks both of those boxes.

Guidance is for 6.2% sequential revenue growth, which would translate to 76.1% revenue growth YoY. Per the S-1, Monday.com has never grown revenue less than 14%, so I am guessing this 6.2% number is extreme sandbagging. I would bet on revenue growth coming in closer to 16% or 17% sequentially, which would equate to YoY growth of about 93%.

I really like how Monday.com fits in nicely with the stocks I’ve had the most success with. It is a SaaS company with breakneck revenue growth, high Non-GAAP gross margins, founder led and highly insider owned, rapidly acquiring enterprise customers, not profitable yet, considered “too over-valued” and too expensive. These commonalities are seen with Zoom back in its day, or Crowdstrike, Datadog, etc. And furthermore, its software is incredibly easy to understand. They help teams within companies collaborate more effectively, and they charge their customers on a per user per month basis.

All in all, this looks like a solid company that I will very likely be adding more to in the short term.

Key quotes from the company’s latest (and first) earnings call:

“Zoom and Salesforce invested $75m in the company in a private palcement at the IPO price”
ExponentialDave: Nice to see the old guard putting their faith into Monday.com.

our total addressable market was $56.1 billion in 2020, and will grow to $87.6 billion in 2024

” Our cloud-based platform is a no code/low code framework. It consists of modular building blocks that allow our customers to create their own software applications and work management tools. By using our platform our customers can simplify and accelerate their digital transformation, create a unified workspace across departments…”

“We employ an efficient go-to-market model, combining our extensive self-service funnel and a direct sales approach, which consists primarily of our sales team, our customer success and partner teams as well as our apps marketplace.”

“For the full year 2021, revenues are expected to be in the range of $280 million to $282 million, representing growth of 74% to 75% year-over-year. We expect full year non-GAAP operating loss of $93 million to $91 million and negative operating margin of between 33% and 32% compared to negative operating loss of $86.2 million in 2020 and negative operating margin of 53%.”

“52% of our revenue is outside of the US, 38% is in the US. 70% of our customers are non-tech.”

Analyst: “I know that a lot of other work management tools are also chasing the larger end of the market or the enterprise customer. So, I was just wondering if any of these bids are competitive that you are seeing right now or are they mostly greenfield?

Eran Zinman: “Anything that we see, this is a huge greenfield opportunity for us on — this is something we follow as part of the IPO. On 70% of the deals we see literally no competition. Usually customers use email and spreadsheets and PowerPoint — and email to communicate and collaborate. And it just seems that everybody are trying to improve how they work and make it more efficient. It doesn’t feel like a greenfield.

On 30% of the deals we see, I would say, more of a vertical competition. So, if somebody used monday for CRM for example, we might compete with SMB focused CRMs. If somebody is using project development we might see other competitors in the project management space. But broadly speaking, this is a huge greenfield and there’s a huge opportunity to grow within this market.”

As always, thanks for reading this far!

If you found this article helpful, or if you have any questions, feel free to leave me a like or a comment below. I love hearing from readers and want to answer any questions if I can.

ExponentialDave is not a financial advisor. Everything on this blog is only for entertainment. Nothing written here is advice.

8 thoughts on “September 2021 Portfolio Analysis

  1. Dave,

    Thank you so much for your posts and portfolio updates. I’ve been following along for almost two months now and am finding it really informative. Thanks for the work you put in to share with others – free of charge.

    One question that’s come up for me as I’ve been following, is when you find a new company you have conviction in, how do you manage your first purchase/position? Are you concerned if your first buy or tranche goes down 5%, 10%, 15%? Are there rules you use to manage these first purchases in a new company?

    It seems that as you have more profit / margin to work with it becomes slightly easier and you shift focus to conviction in the company, but any insight would be really helpful.

    Thank you again,

    Stephen

    • Hey @Stephen Lohoefer, that’s a good question. There’s no hard and fast rule to apply here, but I do have some tips that I use to get into a company I have conviction in. If conviction is not as high, I move slowly, often creeping into a position 1% at a time. As in, I only add to it in increments of 1% on days when I feel like adding to it. Meanwhile, I do increasingly more research on the company the more skin I have in the game.

      Using Monday.com as an example, I have high conviction in it, but it’s still a very nascent company that only IPO’d a few months ago. It’s pretty richly valued, so I have moved more slowly into it than I otherwise would. This has enabled me to dollar cost average into it and get exposure to a variety of prices between $355/share and $400/share.

      Using a different stock as another example, when I figured out what Upstart really was, I absolutely pounced on it. It felt like I found a thousand dollar bill on the ground, and I added to Upstart swiftly.

      Lastly, you asked if I’m concerned if my first tranche goes down 15%. As a generality, I’m mostly not worried about price movements so long as they are not because of new found weaknesses in the business. So long as you have high conviction, these down movements can serve as opportunities to buy low.

    • Hey Sanjeev! If I am sort of “between monthly updates”, I tend to tweet position changes (only if I have time and only if I think they are meaningful). My twitter is @xponentialdave. If I am close to doing a monthly update, I usually just wait for the monthly update to describe what I did.

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