No. of Recommendations: 206
My portfolio at the end of Apr 2019

Here’s the summary of my positions at the end of April. As I always do, I give my summary on the last weekend of the month, so Monday and Tuesday will carry over into May. If you prefer, you can think of it as a four-week summary.

As always, I’d welcome questions or comments on what I did or didn’t do, and will try to respond. Please note that I almost always use the adjusted figures that the companies give.




MY RESULTS YEAR-TO-DATE
I would have been happy at the beginning of this year with a gain of 25% for the whole year, after the huge gains the last two years. Well, my portfolio closed Apr up 40.7% year-to-date. This is up from my Mar close of up 36.9%.

Even this current close is ridiculous! In fact, the 40.7% is much larger than the 24.8% that I was up at the end of Apr in 2018, last year, when I finished the year up 71.4%, and also larger than the 26.1% that I was up at the end of Apr in 2017, when I finished the year up 84.2%. I don’t know what else to say. It‘s just ridiculous! It’s truly hard to imagine a third year in a row finishing over 70% or 80%, but I couldn’t have imagined either of the last two years finishing that high either. We’ll just have to see which direction the rest of the year goes.

At the end of last year some skeptics told us that most of our huge gains of the last two years were due to valuation expansion, and assured us that we were finished, so it’s interesting to see the 41% gains so far this year.

Here is the monthly progress of my portfolio results since the beginning of 2019:


End of Jan +16.5%
End of Feb +28.0%
End of Mar +36.9%
End of Apr +40.7%


What can I say? Just that investing in great companies pays off.




ON MARKET TIMING

Let me remind you that I’m no good on timing the market, and I don’t try. If I did, I would have exited all my positions at the end of April 2017, when I was up 26% in four months and my portfolio had already beaten my total results of the previous two years. It was time to get out and wait for the pullback that never came!

I feel the same now. Up 41% in four months sounds even more ridiculous, but I don’t know the future, and I am surely not going to sell out of great companies because their share prices have risen.

Well-intentioned people have been warning us constantly that another bear market and/or recession is coming. “The bull market is too old.” or “The market is too high.” or “This technical indicator proves it.” Honest to God, I’ve heard that all of their charts and indicators proved it in 2010, 2011, 2012, 2013, 2014, 2015, 2016, again in 2017, and loads of it in 2018, especially in December. Now, in 2019, it’s that the curve inverted, or the Bull is “too old” (but they were telling us the Bull was too old five years ago). Eventually they’ll be right, and they will say, “See! I told you so! I was right all along!” But what a price those people paid for “keeping their powder dry” and staying out of this market for the past ten years, waiting for the big correction that never came.

Picking good companies makes much more sense to me than trying to pick good companies AND trying to time the market too. I have stocks in a small group of remarkable companies, in which I have high confidence for the most part. I feel that they mostly dominate their markets or their niches, they are category crushers or disruptors, they have customers that absolutely need them, they have long runways, and they will have great futures.




HOW DID THE MARKET INDEXES DO?

Let’s look at results year-to-date. The three indexes that I’ve been tracking against for ages closed year-to-date as follows.

The S&P 500 (Large Cap)
Closed up 17.3% year-to-date. (It started the year at 2507 and is now at 2940).

The Russell 2000 (Small and Mid Cap)
Closed up 18.0% year-to-date. (It started the year at 1349 and is now at 1592).

The IJS ETF (Small Cap Value)
Closed up 17.3% year-to-date. (It started the year at 131.9 and is now at 153.6).

These three indexes
Averaged up 17.5% year-to-date.


If you throw in the Dow, which is up 13.8% and the Nasdaq, which is up 22.8% you get up 17.8% for the five of them year to date.


Since the beginning of last year (2018), the five indexes are up 7.8%. Now compare that result with my portfolio’s gain of 141.1% in those 16 months (1.714 x 1.407 = 2.412). Read that again: 7.8% for the indexes, 141.1% for my portfolio. Tell me what about those results makes investing in the averages seem “conservative” to you?

And, if you want a real shocker, my results from the beginning of 2017 are more than a quadruple: 1.842 x 1.714 x 1.407 = 4.442. Clearly, picking stocks that will be winners, the way we do, has beaten investing in ETF’s and Indexes, and by huge amounts.

For more on why I compare against those indexes, please see my summary at the end of 2018. To simply state my goals, I'm simply trying to measure my performance against that of the average return for an investor in the stock market, and combining those five indexes gives a pretty good approximation.




HOW CAN WE EXPLAIN THE DISPARITY between our results and the averages? Well the Cloud has become crucial and Software-as-a Service (SaaS) has blossomed. We have caught a secular wave. Our companies are exploding in function and importance, as well as in mostly recurring revenue. It’s the wave of software, big data, the cloud, and AI. All enterprises, whatever industry they are in, are using more and more software, wanting to use the cloud, AI, big data, and the rest, and they need the software that our compaies are leasing. Most of our companies provide the picks and shovels for enterprise companies switching over to the cloud, and the enterprise companies NEED what our companies have to offer.




LAST FOUR MONTHS REVIEW

In January, I was busy. I sold out of Vericel which I had recently added. I took small positions in three little SaaS companies (Anaplan, Zuora, and DocuSign). But I said that these were small get-to-know-you positions and may be gone in a month. I later exited my small position in Abiomed for cash to add to these and other positions.

MongoDB had a very uncomfortable month, with first Amazon entering the field as a competitor, and then Red Hat, representing the open-source point of view, attacking Mongo for trying to protect itself and for veering away from pure open-source. I decided at the time that Mongo was just too much of a battleground stock for me, especially since I had zero technical knowledge to help me evaluate the pros and cons of the situation, and I sold out of it.

I was in no way sure that I was correct in doing so. I said at the time that I may have been completely wrong, and that the preponderance of evidence seemed to be that this could be even a positive for Mongo, and that I knew that they will have great results for their Jan quarter, but it made me worry about the long term viability of their open source business model. I simply had other companies without that kind of issue and existential worry. It turns out that I was completely wrong but that’s what I did.

I continued to build up my Nutanix position throughout the month (just shows how wrong I can be!), encouraged by its partnership with Intel, Darth’s collection of enthusiastic comments by users, Bert’s enthusiasm, the general release of Xi cloud services, and Nutanix achieving FedRamp ready designation. I added to Okta, Elastic and others.



February. I decided that I had been wrong about Mongo, and I bought back in in early in February, and built it up to a 3.5% position.

I added back to Square as my confidence returned as they kept coming out with amazing new products. I still felt though that it doesn’t belong in my top four or five positions.

To get money for these purchases I reduced Alteryx from over 20% to 17%. (Having 0% in Mongo and 20% in Alteryx just didn’t make sense to me).

I also exited my speculative position in Guardant Health after thinking about all the things they are hoping for in the next six months which might not happen just the way they think. I decided I would rather speculate in little SaaS companies instead. [I was wrong again. That makes three times: wrong on exiting Mongo, wrong on increasing Nutanix, wrong on exiting Guardant when I did]. Guardant shot up the week after I sold out, this time because of a MF recommendation, and because they reported great results from their NILE study. In my defense I had no way of knowing either of those was coming.

I also exited Anaplan, and replaced it with Coupa.



In March, Nutanix announced that their sales were falling off a cliff and I exited at $34.60, and am not looking back. On this one I will say “Never again!”.

Guardant Health announced that their Nile Study was a success, and I felt that this would ensure that the FDA will approve it, and I bought back in at about $70.70, inspite of a 70% or so rise from when I sold. Then when they announced earnings, and said that in the 4th quarter more insurance companies approved Omni360 for reimbursement, even before FDA approval, I bought more. It rose to $100 and then fell back, finishing March at $76.70, up 8.5% from my $70.70 purchase.

Mongo again! I exited when I mistakenly thought that they had backed down on their new software licensing rules, but bought back almost immediately after they blew out their quarterly report, even though it had run up after earnings. You are probably tired of hearing about my wavering on Mongo, and I am too. I can’t think of anything that will make me sell Mongo again except actual poor operational results, which I don’t think will happen.

I told the board that I considered my little SaaS positions like Docusign, Coupa, Zuora, EverBridge, with 30-40% growth and 110-120% retention rates, as weak relatives to our dominant SaaS positions, and asked for suggestions for a new position that would be better. I got a huge outpouring of good advice and finally sold all of the littletry-outs and I started a position in SmartSheets, which fit much better, with revenue growth of 58%, and a retention rate of 134%.


In April, I finally exited Guardant again and put the money into Mongo, Zscaler, Okta, and The Trade Desk. I didn’t add to Twilio as it was already too big.

Here’s why I did what I did! I kept Elastic at a one percent position because of its ‘pure open source’ model, which made me uneasy for a long term holding, as well as the issues of dilution and of the lock-up expiring, and just preferred to have the money in Mongo which is growing as fast and seems safer. I just don’t understand all the issues involved with being open source. I see that Amazon couldn’t use Mongo’s code and had to copy it (re-invent the wheel), but it could just use Elastic’s basic code. I just sleep better with money in Okta, Zscaler, Trade Desk, and Alteryx, which don’t have the same kind of issues. I reduced Guardant, and finally sold out of it, because of all the posts on the board pointing out that Guardant isn’t the sure thing, and huge TAM, that it had originally seemed to be to me.




HOW THE INDIVIDUAL STOCKS HAVE DONE
Here’s how my current positions have done this year
. I’ve arranged them in order of percentage gain. I’ve used the start of the year price for stocks I’ve been in all year, and my initial buy price for stocks I’ve added during the year. Please remember that these starting prices are from the beginning of this year, and not from when I originally bought them if I bought them in earlier years.

Trade Desk from 116.1 to 215.2 up 85.4%
Zscaler from 39.21 to 66.94 up 70.7%
Okta from 63.80 to 102.99 up 61.4%
Twilio from 89.30 to 134.92 up 51.1%
Alteryx from 59.47 to 86.76 up 45.9%
Square from 56.09 to 71.55 up 27.6%
Elastic from 71.48 to 86.55 up 21.1%
SmartSheets from 39.21 to 41.80 up 6.6%
MongoDB from 131.47 to 138.98 up 5.7% 3rd time



Exited positions this year showing my gain or loss from the beginning of this year, or from when I first bought if it was during the year, and my average exit price. Please remember that these are from the beginning of this year and not from when I originally bought them, if I bought them in earlier years. You’ll note that almost all of these were tiny little try-out positions that I ended up deciding against, and don’t represent actual churn of the body of my portfolio


Docusign from 43.75 to 56.80 up 23.4%
Zuora from 19.80 to 24.00 up 21.2%
Guardant from 37.59 to 41.50 up 10.4% 1st time
Anaplan from 28.75 to 31.05 up 8.0%
Mongo from 95.0 to 99.9 up 5.2% 1st time
Coupa from 91.95 to 93.13 up 3.0%
Abiomed from 325.0 to 334.0 up 2.8%
EverBridge from 73.58 to 73.95 up 0.5%
Vericel from 17.40 to 17.38 down 0.1%
Guardant from 70.70 to 69.50 down 1.7% 2nd time
Mongo from 83.74 to 76.20 down 9.0% 2nd time
Nutanix from 41.59 to 36.00 down 13.4%





MY HERO COMPANIES.
Square, Alteryx, Twilio and Okta have all been in my portfolio for more than a year now, and Zscaler since last June, although I did reduce my position in Square a some months ago and built it partially back in February. The Trade Desk has now hit six months from when I bought it last October.

Twilio is a quintuple in a little over a year, at 5.4 times what I paid for it in January a year ago ($25.70) and up 441%.

Square is over four times what I paid for it (or more than a quadruple), up 309% since I first bought it in March 2017 at $17.50, just over two years ago.

Okta is 3.4 times what I paid for it ($29.95), also in January, a year ago, more than a triple, up 244%.

Alteryx is up 213%. That means it’s 3.1 times what I paid for it in December 2017, a year and some months ago, at $27.72, or just over a triple.

Zscaler is up 87% since I bought it ten months ago, in June 2018, at $35.84.

And finally Trade Desk is up 78% in six months, from when I bought it at $121.0 last October

This is how you make money in the stock market, buying exceptional companies and holding them as long as the story doesn’t change.

And another point from this is:

Do you think I care, or even remember, if I bought Twilio at $25.90, $25.70, or $25.50, now that it’s a quintuple and its price is $134.92? Think about that for a moment! I know that I belabored this in the Knowledgebase, but the decision that matters as far as making money in the market is “Do I want a position in this company?” and not “Can I buy it 25 cents cheaper?” I think that you guys, who have stocks that you want to buy because you believe they will GO UP, and then put in buy orders for them 25 cents or 50 cents below the market, and hope that they will FALL to your price, are out of your minds! But that’s just my opinion.

You may think that that is odd from me, who thinks that Zoom is too high to buy, but… Zoom isn’t 25 or 50 cents too high, it is multiples too high! Austin sent me a graph of recent Best of Breed SaaS IPO’s with their Day One, Post-IPO, P/S ratios . (S was taken as most recent quarter Sales before the IPO times four). Mongo, Shopify, Twilio and Zendesk were all selling at the very high price of around 10 times sales. Okta was about 13 times.

So note that Zoom, at 40 times sales isn’t 30% or 40% more expensive than they were, it is four TIMES more expensive than most of them were. And these companies opened at what most people thought were ridiculously high prices. Then Zscaler came along and opened post-IPO at 19 times sales, and everyone thought that that was an insane valuation. Well Zoom is more than 100% more expensive than even Zscaler was.

How did Zoom get so expensive? Well analysts and the investing public have finally caught on to our SaaS stocks a couple of years late, and everyone wants in. Zoom got to that crazy price because they were offering a fairly limited number of shares and a lot of people, who felt they had missed the big run up in our high growth SaaS companies, all tried to get in at the opening (“30 times oversubscribed” was one figure I heard), so Zoom opened at $65.

The trouble is that it has nowhere to go, not because it isn’t a great company (Heck, I was going to invest in it too!). The trouble is that it has nowhere to go because it’s already there!

At any rate, five trading days later Zoom is up just $1.22 from that $65 opening, in spite of a truly explosive week during which my portfolio rose from up 29.9% to up 40.7%.... But look, I may turn out to be completely wrong about this one too. Or I may change my mind and take a tiny trial position. Who knows? And yes, I know that barring catastrophe, Zoom will be selling higher a year from now than it is now. But if its revenue is up 95% a year from now, and guiding to 75% the year after, its stock price won’t be up 95%, mostly because that 41 times EV/S will drop to 20 or 25 times, but also because of stock dilution. My “realistic guess” estimate would be up 45% a year from now to about $96, which certainly is not chicken feed.




POSITION SIZES.

I’m still trying to keep my portfolio concentrated and streamlined. I’m now back to nine positions, which is quite concentrated. My top three positions make up 56% of my portfolio, and the top six of the nine make up 90%. By the way, keeping my number of stocks down really makes me focus my mind and decide which are really the best and highest confidence positions.

Here are my positions in order of position size. Note that the Twilio, Zscaler, and Alteryx positions are larger than I usually like, but they are high conviction Category Crushers. Note also that if you compare with a month ago, the top three are about the same size, Okta has passed The Trade Desk, and Mongo and SmartSheets have increased in size. Guardant is gone (see the four month summary above for an explanation).


Twilio 20.7%
Zscaler 18.1%
Alteryx 16.7%
Okta 12.3%
The Trade Desk 11.7%
Mongo 10.1%
Smartsheets 5.8%
Square 3.7%
Elastic 1.0%





STOCK REVIEWS

My largest positions are Twilio, Zscaler, and Alteryx. As you can see, they are by far my largest positions. They are all small companies but in my opinion they each dominate the market they are in with little credible competition (except do-it-yourself). I’d have to call the three of them Category Crushers, and juggernauts.


Twilio is a 20.7% position. It provides communication services and it seems to have no viable competition in what it does besides “do-it-yourself”. In February Twilio announced enormous results for the December quarter and proved it is still a Category Crusher, a Juggernaut, a One-of-a-Kind company, and a pure phenomenon of nature. Its base revenue growth accelerated from 40% a year ago to 77% this quarter! It was up 21% sequentially! The last five quarters' growth rates have been:

40%
46%
54%
68%
77% !!!!

Yes I know that they made excuses for the great growth and said it was partly due to one big customer, and partly due to the acquisition. But these companies always try to damp down expectations like that, so they can beat expectations. Next quarter they will have a different excuse for their great growth and for their low guidance.

Now look at dollar based net retention rate: 118% a year ago. That was great. But now it's 147%. That's greater! The last five quarters have been:
118%
132%
137%
145%
147%

They hit adjusted profit in the June quarter unexpectedly, and have stayed profitable since.

They had 64,286 Active Customer Accounts up 31% from a year ago. But, from the Conference Call: Together, we and Sendgrid have more than 140,000 customer accounts. It doesn’t take much imagination to think about the cross-selling that can come both ways from that!!!

And the average revenue per customer continues to grow at a 25% to 30% rate.

Back a quarter ago they also had a euphoric conference call:

… I think that that means there's a runway for us for many, many years to be replacing old legacy technology… I think there is going to be no shortage of opportunity for us to do that for years to come.

There was a lot of obsessing on our board and elsewhere about “weak” guidance. For the life of me I don’t understand why anyone even looks at the guidance figures for these companies. Have you ever seen even one of our SaaS companies that doesn’t simply destroy their guidance at least 95% of the time? Why waste your time. Unless reduced guidance is due to an actual problem with the business (ie Nutanix), follow the actual results!

I’ll give Twilio six confidence stars. To be honest, probably seven stars on a one to six scale. Do I like it? I’ll let you figure it out.



Zscaler is in second place at 18.1% of my portfolio. I’ve continued to build my position. It has an interesting, innovative, and revolutionary idea in Internet security (and insecurity). They feel that putting a hardware firewall around a company doesn’t work anymore, now that the enterprise company is partly in the cloud and people can sign in from anywhere, and sign on to other outside programs from within the enterprise. Zscaler provides native cloud-based security, and as far as I can tell they are far and way the leader in this, if not the only player. They have 100-plus data centers all around the world, which would be difficult for most potential competitors to replicate. Zscaler has been operating them for ten years.

Here’s what their last earnings looked like:

Revenue was up 65% to $74 million. This was an acceleration from 53% growth a year ago, and an acceleration from 59% sequentially, from 54% the quarter before that, and from 49% the quarter before that. Now go back and read that again!

Why is Zscaler’s revenue growth accelerating like that instead of slowing down by the law of large numbers. Well their quarterly revenue was only $74 million. It’s a small company. And they aren’t selling something trivial. It’s the security of the customer’s entire company. For a big enterprise to trust Zscaler with the family jewels of its security requires an act of faith. Therefore, as Zscaler became a listed company, grew larger, and also signed up more and more large enterprises as customers, they have more revenue, and more large company references, and other large enterprises feel better and better about trusting them. So it snowballs, and with each signing it becomes easier and easier to sign the next large customer and they seem to have passed that inflection point, and ar taking off.

Calculated billings were up 74% from $66 million to $115 million. Read that over carefully too.

Adj net income of $11.6 million, up from a LOSS of $2.8 million.

Adj operating income was 13% of revenue or $10 million, improved from a LOSS of 6% of revenue or $2.7 million, a year ago.

Adj EPS was 9 cents, improved from a LOSS of 3 cents

Free cash flow was $12 million, or 16% of revenue, up from a LOSS of $4.6 million, or 10% of revenue

Cash $340 million, up $26 million sequentially, and No Debt.

Named a leader in Gartner for the 8th year in a row.

Zscaler Private Access (ZPA) is the first zero trust architecture to achieve AWS Security Competency status, and it achieved FedRamp authorization. This sets the stage to further expand its growth within the Federal market.

You’ve probably figured out by now why I’ve built Zscaler into my second largest position. In my opinion Zscaler is a Disruptor, a Category Crusher, and a juggernaut like Twilio and Alteryx. The traditional security providers can’t compete with Zscaler because their businesses are built around high-priced hardware and firewalls, and they don’t have the data centers all over the world that Zscaler has. I’ve been building my position steadily, and I now give it a full six out of six confidence rating. It sells at a high valuation, as you might expect.

I posted a long two-part Deep Dive on Zscaler a week ago on the board, in case you missed it.



Next is Alteryx. This is my 3rd largest position at 16.7% of my portfolio. What they do is to enable non-techies to quickly and easily analyze data. Their clients therefore love them. They announced splendid fourth quarter results, and had a euphoric conference call. They changed accountants this last quarter because their current accountant, Price Waterhouse, was reselling so much Alteryx solutions to their other clients, that they could no longer consider it non-material, and wanted to avoid any appearance of conflict of interest. Thus their choice showed that they were happier having Alteryx as a valued technology partner than keeping it as just one more accounting client.

Going to the December quarter results, they changed from ASC 605 to the new standard 606, this quarter. I’ll give you the 605 results for comparability to previous quarters. their revenue percentage growth looks like this:


2016: 57 67
2017: 61 50 55 55
2018: 50 54 59 57


That looks solid as a rock to me.

Their adjusted gross margin was 90%! (If you think that’s high, it was 93% under the new accounting standard).

Their dollar based net retention rate was 129, after having been 130 or more for eight quarters..

Their number of customers, 4700, is three and a third times the number of customers that they had three years ago, and up about 39% yoy.

The number of shares is growing fairly slowly, which is remarkable for one of these super fast growing companies.

They feel they have no competition. From one of their conference calls: “We are in a space where there's little to no competition and a much larger TAM.”

They finished 2018 year up 135% for the year. I still feel very justified in calling Alteryx a Category Crusher, with very high confidence level. I’d give it six confidence stars out of six. I reduced my position from 20% to 17% last month for cash to buy back into Mongo. (Having 20% in Alteryx and 0% in Mongo just didn’t make any sense).

Actually I think Twilio, Zscaler, and Alteryx as juggernauts. They are each a one-of-a-kind company. Each seems to control its space and is growing like mad.



Okta is now in fourth and has grown into a 12.3% position, and is at a five star confidence level. What Okta does is control individual sign-on to all the apps you use using a native cloud SaaS platform. It’s called identity and access management. It is loved by the people who use it, because they no longer need a million passwords for each program they sign on to. I almost backed it down from 5 stars to 4.5 stars because the rate of revenue growth “fell” from 58% to 50% sequentially. That’s the bad news. The good news is that it has become evident from the conference call, and their recent acquisitions, that they do a lot more than smart sign in, more than I can understand, for sure, and it seems likely their revenue growth will take off again. I added considerably this month and was rewarded as the share price rose 24% from $82 to $102 in these four weeks. This is a Disruptor and Category Leader, and a Cloud-based New Market Stock.



The Trade Desk announced stupendous results at the end of February, and rose $47, or more than 31%, in one day. Revenue was up 56%, with growth accelerating from 50% sequentially and from 42% a year ago. Earnings were $1.09, up just over 100% (!) from 54 cents in the same quarter a year ago.

It is an 11.7% position and is in 5th place in my portfolio. I’d rate it five confidence stars now, gradually getting over my mistrust in them over them being an advertising company, which is a field that I have zero confidence in, even though I feel that this is a very innovative and creative company. The Trade Desk seems to be a Leader in a Rapidly Growing niche Market within the larger field of advertising, which up to now is controlled by the behemoths.






MongoDB. As I wrote in my four month summary, I’ve been in and out a couple of times, being scared out by Amazon, Red Hat and a lot of other FUD, each time having to buy back at a significantly higher price than the one I had sold at. Such is life! You can’t go back in time and buy it two weeks ago. A shame, isn’t it? You are probably tired of hearing about my wavering on Mongo, and I am too. I can’t think of anything that will make me sell again except bad operational results, which I don’t think will happen. It’s now in 6th place at 10.1% of my portfolio.

Mongo has pretty much invented its solution and category, although it does have competition. It’s the leader in NoSQL data storage and last quarter its revenue growth accelerated to 85% from 50% the year before. (That’s under ASC 605, but from now on it will be reporting under 606, which will confuse comparisons for a while). It has chosen to put almost all its money into growing, and thus is still running an adjusted loss, which was 28% of revenue for 2018, down from a loss of 49% of revenue in 2017. (Under ASC 606 it was only 19.5% for 2018).

Bert likes it, the MF likes it, and Mongo has come out with Atlas which gives it a fully managed cloud solution, and Atlas is growing at about 400%, although off a small base. I’ll call Mongo a Disrupter, a Category Leader, and a Big Data New Market Stock, and I’ll give it four confidence stars for now.



SmartSheets is in 7th place at 5.8% of my portfolio. I had said when I asked for help, that my three little SaaS companies (DOCU, ZUO,COUP), with 30% to 40% growth and net retention rates of 110% to 120%, were good companies but they seemed like weaker versions of my full position companies. Well, you guys found Smartsheets for me, and it was what I had been looking for. I established a position and I am currently considering it as a long-term hold.

Revenues were up 58% last quarter, and up 60% for the year (down from 66% the year before). Current guidance to 45% for the next year is just silly.

Subscription revenue was about 89% of total revenue and was up 57% for the year (down from 61% the year before).

Adjusted gross margins were 82% for the year, up from 81% the year before. Subscription gross margins were 88%, which is in the range we are looking for.

Billings were 121% of revenue for the year and were growing at 59%.

Customers with ACV over $50,000 and $100,000 were 444, up from 189, and 147, up from 65, (up 135% and up 126% !!!!).

The net retention rate was 134% last quarter, up from 132 sequentially, and from 130% the year before.

They hit positive free cash flow for the first time last quarter.

It's kind of odd but I don't see any weak spots to worry about. I could mention revenue growth rate, but it's hard to worry about a growth rate of 58% for the last quarter and 60% for the year. I’d give them four stars of confidence for now.



Square, in 8th place, is now 3.7%. I explained why I had decreased my position in my December monthly summary, but the main reason it now keeps slipping in percentage of my portfolio is that everything else is moving up in share price and Square has been stagnant.

Its stock price was traumatised in December by its CFO, the charismatic Sarah Friar, leaving to be CEO of a little start-up.

Square has been annoucing incredibly good results. Its total revenue has grown year-over-year by 39%, 41%, 45%, 47%, 51%, 60%, 68%, and 64% in its last eight quarters. Instead of revenue growth returning to the mean, as they get larger their rates of revenue growth have been increasing. That 64% last quarter was up from 47% the year before.

How is that happening? It’s because its Subscription and Service Revenue which is its high margin revenue, the good stuff, is growing at over 100%. Quarter by quarter it’s grown year-over-year by 104%, 97%, 86%, 98%, 98%, and 131%, 155%, and 151% (!) the last three quarters.

Adjusted EBITDA was $81 million, up about 100% from $41 million the year before, and was 17.5% of adjusted revenue.

They’ve were adjusted profitable in 2016, 2017, and 2018, and EPS grew from 4 cents to 27 cents to 47 cents. We also learned that Square’s Cash App passed PayPal’s Venmo in total downloads (which was a big surprise for most of us.

Square also released Square Payroll App in September, and Square Payroll and Square Terminal in October, and Square Reader SDK, and Square Installment somewhere in there, and now Square Card andSquare Payments, and Square Payroll, and Square for Retail, and Square Online Stores (competing with Shopify) so Square is still rolling along for now! I can’t keep track of all of them so I may have missed some. Somewhere in there they added Square Appointments for service businesses, and last week it was Square Invoices.

As far as Sarah Friar leaving, I’ll miss seeing her but Square will probably get along without her.

So why in the world did I cut my position so markedly? Read my reasons in my Dec monthly summary.

I didn’t feel I need to sell out of all my Square, and I added some back since December as I’ve regained confidence with the hiring of a new CFO and with some of their announcements of creative new products, but I felt that it shouldn’t be in the top half of my portfolio. I’ll call it a Rapidly Growing Company in a Rapidly Expanding Market, and I’ll rate them four confidence stars out of six.



Last, and 9th is Elastic, which I had reduced down to a 1.0% position last month. I’ve kept it small because of a number of factors which make me have less confidence in it than I have in my other companies. Here they are:

It has a very high sales to market cap ratio, but it’s growing revenue at 70% to 80% yoy, so what would you expect?

Amazon recently announced a competing product based on Elastic’s own code, but it may not really be effective competition at all.

There is talk of a “Consortium” formed to possibly compete with Elastic, which I don’t understand at all.

Elastic claims to a pure open source company, which has worked very well for it so far, but I am not sure about the long term sustainability of the model as well financed companies will continue to compete against it using its own code.

Putting the whole thing together, I think of it as a Category Crusher currently. However, I rate it as only three stars of confidence, because I only have one star of confidence in their business model. But, since they are growing revenue at 70%, who am I to complain? There is, of course, some ambivalence there.




FINISHING UP

I feel that most of my portfolio is made up of a bunch of great companies. But that’s just my opinion, and I can’t say often enough that I’m not a techie and I don’t really understand what most of them actually do at all ! I just know what great results look like. I figure that if their customers clearly like them and keep buying their products in hugely increasing amounts, they must have something going for them and, as I’ve often said, I follow the money, the results. And I listen to smart people about the prospects of these companies.

When I take a regular position in a stock, it’s always with the idea of holding it indefinitely, or as long as circumstances
seem appropriate, and never with a price goal or with the idea of trying to make a few points and selling. I do, of course, eventually exit. Sometimes it’s after months, and sometimes after years, but I’m talking about what my intention is when I buy.

I do sometimes take a tiny position in a company to put it on my radar and get me to learn more about it. I’m not trying to trade it and make money on it, I’m just trying to decide if I want to keep it long term. If I do try out a stock in a small position and later decide that it’s not what I want, I sell it without hesitation, and I really don’t care whether I gain a dollar or lose one. I just sell out to put the money somewhere better. If I decide to keep it, I add to my position and build it into a regular position.

You should never try to just follow what I’m doing without making up your own mind about a stock. In these monthly summaries I’m giving you a static picture of where I am currently, but I may change my mind about a position during the month. In fact, I not infrequently do, and I make changes in the position. I usually don’t announce these changes until the end of the month, and if I’m busy or have some personal emergency I might not announce them even then. And besides, I sometimes make mistakes, even big ones! Don’t just follow me blindly! I’m an old guy and won’t be around forever. The key is to learn how to do this for yourself.




THE KNOWLEDGEBASE

Since I began in 1989, my entire portfolio has grown enormously.
If you are new to the board and want to find out how I did it, and how you can try to do it yourself, I’d suggest you read the Knowledgebase, which is a compilation of words of wisdom, and definitely worth reading (a couple of times) if you haven't yet.
A link to the Knowledgebase is at the top of the Announcements panel that is on the right side of every page on this board.

For some additions to the Knowledgebase, bringing it up to date, I’d advise reading several other posts linked to on the panel, especially:

How I Pick a Company to Invest In,
Why My Investing Criteria Have Changed,
Why It Really is Different.

I hope this has been helpful.

Saul
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