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No. of Recommendations: 7
Good discussion, Bear.

What do you think revenue will be for the fiscal year that spans July 2021 through June 2022? None of us can offer a very good guess, I don't think. That was the entire point of my first post. Since we can't do that, we shouldn't be overconfident in PTON.

I have nothing new to offer by way of revenue predictions other than what has already been shared. But that doesn’t automatically limit portfolio allocation for me. Two reasons:

SaaS companies deserve a “baseline confidence” level (I like the way you phrased that). But not if valuations rise to meet the expectations of built-in growth.. Now I don’t pretend to know what “proper” valuation levels are for a SaaS vs. non-SaaS companies, but this just makes sense. While SaaS companies should be valued higher (as Saul has demonstrated multiple times), what happens once they are? The risk of growth slowing approaches (equals?) the risk of a non-SaaS company. For example, if ZM growth slows (a post-COVID world? MSFT competition? Poor execution? Something else?) do you think their stock will be crushed any less than PTON? They’ll both take a 30% haircut overnight. I just don’t see the justification for basing investment allocation on the basis of a SaaS/non-SaaS model.

Therefore, any highly valued high growth company requires constant scrutiny. I’m a LTBH guy at heart. But I’ve had to come to grips with the fact that high growth stocks, especially in a targeted portfolio, just require constant verification of growth and the investment thesis. This has proven true of my SaaS as well as non-SaaS companies.

So here’s PTON, a fitness Gorilla that could possibly (probably?) have multiple S-curves to ride for extraordinary gains, yet it lacks our preferred SaaS model. What’s one to do? Assuming one believes in the PTON story (and that’s a big assumption), I think it’s very reasonable to allow a larger allocation, proportional to one’s confidence level, while staying vigilant. For me, that’s about 15%.

-Dave.
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