The Technology Era

Investment Analysis Clubs Saul’s Investing Discussions
1

The Technology Era

It’s the end of the year, and I feel like celebrating my contributions to this board a bit. I’m sure you might have noticed, but I did a couple of deep dives into the various technologies behind a lot of our hypergrowth stories followed here. Some of these posts took a evening to write up, however most deep dives took a week or two of my free time (and one even took a few months). But I feel that all that effort is worth it – both for informing my own portfolio decisions, as well as giving back to Saul and the fantastic contributors on this board.

Let’s review! In looking over the entirety of my tech posts, you may spot some consistent messages on how I feel about this cloud-based app economy fueling the SaaS trend. I opine a bit on each post in addition to posting links.

== OVERVIEW

If you recall, back in my intro to this board 14mo ago, I hammered on a point. EVERY company must be a tech company today. … EVERY company has to make huge investments in security and in analytical tools. … , and how this massive technological wave being followed here is just beginning.

In a recent interview posted here (h/t FrankDip), the Okta COO agreed, calling it the “Digital Transformation” – everyone has to be a software company; everyone has to be a technology company – and that this is the early innings. https://www.cnbc.com/video/2019/12/09/okta-co-founder-on-fut… But then again, Okta always “got it”. At Oktane’19, Okta CEO Todd McKinnon put it succinctly: “You need to be a technology company, or your replacement will be…” https://youtu.be/JpvLgDZa5jc?t=545

Speaking of Okta, that is where I started the first of the major deep dives…

== OKTA

First you needed to learn the basics of Identity Management and the user authentication aspects of security. Every company needs what Okta offers - either on the SaaS systems they access, or within the software they themselves are developing, or both. I then dove deep into the product line, including their acquisition that brought Okta blazing into the Zero Trust market.

End result, I was extremely impressed at the breadth of their applicability, and the extreme stickiness of their service. They ARE the category. And as the number of SaaS services continue to grow, so to does the need for IAM.

If you haven’t read the Flavors of Security series yet, you might not know all the acronyms. But Okta is riding a lot of major tech trends - the rise of cloud services, the criticality of cybersecurity, the move towards Zero Trust and a CARTA mindset, and adaptive intelligence over it all with ML/AI. And that move into ML/AI is not just for the benefit of their own platform’s security, they are monetizing it with their Adaptive MFA, Risk-based Auth, ThreatInsight, and SecurityInsight products.

== ZSCALER

  • Saul’s Deep Dive (Apr '19)

Kudos to Saul for his Zscaler notes. At the time, I was starting to research a technical deep dive – but his notes were so extensive on Zscaler’s basic story that I didn’t have much to add. But fear not, I later reused these unused notes in my extensive cybersecurity deep dive.

The love for ZS has waned here a bit since I posted this cybersecurity review. But I still own it, and am especially excited by the B2B product line as a way to kick-start ZPA standalone growth. But the proof is in the execution, and that is waning a bit. However, they remain such a sticky service that they will have many years of success – but they need to revitalize their sales process & marketing angles immediately, in order to continue to capture customers new to the concept of SWG and Zero Trust in order to secure their traffic. The need to secure traffic between your employees and the SaaS services you utilize is not waning. Like Okta, Zscaler rides a general trend of growing cloud use, and as the number of SaaS services continues to grow, so does the need for securing your users and their traffic.

== MONGODB

Haven’t done any deep dives, but I covered a few different angles with MDB, given that I work heavily with data engines as a software developer, and am very familiar with need around their products and what is driving its heavy adoption.

Folks were overreacting to Amazon’s moves into being a competitor to their database & cloud platform. But… AWS had been a competitor for a long time before that, and it hadn’t slowed MongoDB’s performance down thus far.

Beyond that, MongoDB made some good moves into mobile databases, bolting on a product that strengthens their use cases.

Then MongoDB made some moves directly towards the search capabilities of AWS and Elastic – they started branching into standalone SaaS enterprise search services.

If you want to get into the technical weeds more, I responded to a good Shikotus post about their new Field Level Encryption, expanding a bit into how and why MDB implemented this. From an investment standpoint, just know that MongoDB is strengthening the security of its product, as well as eliminating one of the only strengths that AWS’s platform had over them.

== ELASTIC

While I know MongoDB from being in the immediate industry, I know Elastic more closely, given that I use it as part of my software stack.

My first post covering their developer conference gave hints as to what was to come, it just took them a while to make it official – cybersecurity is now a major product line focus alongside infrastructure & app monitoring.

  • Elastic technical review (May '19)

From there, I did a massive deep dive into the Elastic Stack, what it solves for its customers, and the enormous cross-applicability it has from there. It can be an infrastructure monitoring platform, a search database used in a development stack, a cybersecurity SIEM, and much more. Plus they are no longer just a developer- or IT-focused platform… they are expanding into enterprise SaaS services, like a web site search service, or a broader search across the entire enterprise, by plugging in into various back-end and SaaS platforms as inputs. They too are embracing ML/AI analytical capabilities, and expose it to their customers via their top tier of pricing.

Here I expanded more into their recent moves into cybersecurity, both the new SIEM product line, as well as their acquisition of Perched and of Endgame – making them a direct EPP competitor to CrowdStrike. Speaking of which…

== CROWDSTRIKE

  • CrowdStrike deep dive (May '19)

A first look at CrowdStrike before its IPO. It made me realize I didn’t know enough about cybersecurity, as I wasn’t up on it enough to know what a EPP solution really provided. I had to know more – and it planted the seed for the later Flavors of Security series.

From the start, CrowdStrike reminded me of Zscaler. They work in harmony, and subsequently they decided to form a partnership – Zscaler protects the traffic, CrowdStrike protects the device or server. However, as we know, CrowdStrike has double the revenue growth…

As mentioned at the start, every company must focus on securing their own infrastructure and devices. It is now clear that EPP is a crucial component in any company’s cybersecurity stack, and CrowdStrike is making a ever-benefiting platform around ML/AI at its core. They are crowd-sourcing analytics over the entirety of their customer base, so that attacks on any one customer are known by all. And the more customers and devices on their platform, the stronger and stronger it becomes. Like Okta and Zscaler, their customers are no longer maintaining their own island of security – all analytics and security concerns are shared across the platform, and are only strengthened as the customer base grows.

== ALTERYX

I turned the heat up with this one, a bit more controversial of a stance, instead of the typical technical and product dive. I’m not looking to revisit the arguments, as it drew focus away from my main points – how I was disappointed that AYX is Windows only, and that they were not moving towards any cloud-hosted SaaS services. But despite these concerns, they remain one of the top hypergrowth picks here, and within my own portfolio. Why? See the point at the start – EVERY company must have analytics, to stay ahead of the competition and to better leverage their data. So Alteryx remains a top pick in the Analytics trend – but unfortunately they are not also taking part in the Cloud trend. [If there is a competitor that can take advantage of both trends simultaneously - well, color me interested.]

== FLAVORS OF SECURITY

The earlier technical dive into Identity Mgmt in Okta provided the lead in to a much larger discussion about cybersecurity, and the hypergrowth within. It brought together my earlier dives in Okta, Elastic and CrowdStrike into a cohesive whole (plus my unpublished research into Zscaler).

  • Flavors of Security (Nov '19)

Everything you ever wanted to know about cybersecurity, and especially the strengths behind the upcoming trends of Zero Trust, CARTA, and ML/AI. For our hypergrowth companies, it all boils down to them providing these key components within the CARTA mindset:

  • Identity mgmt = Okta
  • Incoming protection (Zero Trust) = Zscaler, Okta
  • Outgoing protection (SWG/CASB) = Zscaler
  • Endpoint protection (Devices) = Crowdstrike, Elastic
  • Monitoring = Elastic
  • ML/AI = all the above

And speaking of monitoring, that brings up our latest IPO and newest major addition to many of our portfolios … Datadog.

== DATADOG

Datadog is a leader in infrastructure and application monitoring. My conclusion was that I ultimately see Datadog as “Elastic, if it could focus solely on being a monitoring SaaS service”. It is knocking it out of the park as a SaaS provider of what Elastic offers as DIY. There is plenty of competition, but “3rd place” Datadog is clearly growing faster than the others.

Coincidentally enough, in November they just announced that they were adding a SIEM cybersecurity product to their monitoring platform. So now they compete with Elastic on that front too.

Whew. It was an already busy year filled with an prodigious amount of additional typing. I hope you enjoyed it as much as I did.

Here is to a prosperous 2020 for us all. May you and yours stay happy and healthy.

  • muji
    (Owner of all stocks mentioned.)
224 Likes
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Incredible work muji!!

Thanks so much.
JT

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A model contributor to this board as i understand its purposes, thank you muji!

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What a great early Christmas present, thank you very much muji
Merry Christmas everyone
Erik

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Thank you very much Muji, your contributions have been so appreciated!!

Happy Holidays,
Caroline

1 Like