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No. of Recommendations: 199
At 30 September my portfolio ended up ytd 83.9%.

Towards the end of the month I was sitting on a 27% cash position, which I have almost fully deployed during the last week or so of the month. I bought more of my existing stocks, and especially more Lightspeed.

2021 ytd results:


End of Jan +7.6%
End of Feb +7.7%
End of Mar -6.0%
End of Apr +4.6%
End of May +6.6%
End of June +24.1%
End of July +22.1%
End of Aug +79.4%
End of Aug +83.9%



MONTH OF SEPT REVIEW


I sold Docusign early in September and trimmed Crowdstrike and most of my other positions except Upstart and Datadog.

The proceeds went into two new positions: Monday - the better Asana - and Docebo, a Canadian SaaS company bringing social and AI to learning management systems for enterprises.

I built up a substantial cash position during the month and invested almost all of it in the last weeks of the month when the market declined.


Why did I sell Docusign (DOCU)


Docusign reported results on 2 September and I wrote up the results and my conclusion in detail here: https://boards.fool.com/docusign-q2-thoughts-34923878.aspx

The short version is that a number of key metrics decelerated, leading me to sell.

The numbers

In all of the tables below, look at the 2022 Q2 QoQ growth and compare that to the 2020 Q2 QoQ growth rate and spot the obvious. Spoiler alert: it’s roughly the same.


Revenue:
2020 214 236.0 250 275
2021 297 342 383 431
2022 469 512

QoQ:
2020 7% 10% 6% 10%
2021 8% 15% 12% 13%
2022 9% 9%


-> So revenue growth is back to growth rates pre-covid, when it was good, but not hugely exciting.


Billings:
2020 215 252 269 367
2021 342 406 440 535
2022 527 595

QoQ:
2020 -18% 17% 7% 36%
2021 -7% 19% 8% 22%
2022 -1% 13%


-> Billings growth, too is back to growth rates pre-covid, or even lower.


RPO:
2020 574 629 673 571
2021 769 785 849 938
2022 1200 1300

QoQ:
2020 10% 7% -15%
2021 35% 2% 8% 10%
2022 28% 8%


-> RPO growth, same story: back to pre-covid growth rates.

Customer growth tells a similar tale: qoq growth dropped to 7%, which is what it was pre-COVID. But if you look at the absolute number of customers added, the story is a little more cloudy:


Customers ‘000
2020 508 537 562 589
2021 661 749 822 892
2022 988 1053

QoQ
2020 6% 6% 5% 5%
2021 12% 13% 10% 9%
2022 11% 7%

Net customer additions ‘000
2020 31 29 25 27
2021 72 88 73 70
2022 96 65


-> So on the customer add front, things look ok on a qoq growth basis, but net customer additions is the lowest it’s been in, in absolute numbers - 65k - in the last 6 quarters.

Margins - GM, Operating margin and FCF - have all improved as the company has grown and operating leverage kicked in. And that is the big positive of Docusign: it generates and will continue to generate lots of profits and increasingly, cash.

Operating margins improved nicely:

Op Margin%
2020 5.0% 0.0% 7.0% 8.0%
2021 7.8% 9.9% 12.8% 17.0%
2022 20% 19%


Although if I were a bit cynical I could say that gross margins are now back to where they were 3 years ago, so the improvement there is illusory:

Gross margins
2019 80.3% 81.5% 79.0% 78.0%
2020 79.4% 78.2% 78.9% 79.0%
2021 78.6% 77.9% 78.8% 80.0%
2022 81.0% 82.0%


NRR, although impressive at 124%, ticked down a notch vs last quarter’s 125%:


NRR
2020 112% 113% 117% 117%
2021 119% 120% 122% 123%
2022 125% 124%


Conclusion

Docusign’s growth numbers have downright decelerated in Q2. And management said that we should expect a return to pre-COVID relatively slower growth. This left me feeling that Docusign was the definition of a COVID stock plus perhaps a quarter longer. Growth accelerated for the duration of the epidemic plus a quarter or so - for 5 quarters - and has now fallen back to where it was pre-COVID.

I thought there were better places for my money, including good old-fashioned actual money. So I sold out completely.


Why did I buy Monday (MNDY)?


I recommend reading these two threads:
Saul’s post about why he invested in Monday:
https://boards.fool.com/why-i-invested-in-monday-34925522.as...

-> I really cannot put it more succinctly and clearly than that. So I won’t ;-)

Junomean’s post with a nice comparison to Asana:
https://boards.fool.com/mndy-reversing-my-opinion-34930000.a...

So why Monday and not Asana? Monday beats Asana on three critical areas: pace of customer growth, pace of revenue growth and operating leverage. And because of the trajectory of these things, in a few quarters, I bet that Monday will overtake Asana in revenues and free cash flow. It is already ahead on profitability. The last 4 quarters’ growth (Q2 2021, the last quarter reported, shown last):

Customers with >50k ARR yoy:

ASAN: 104% 92% 92% 111%
MNDY: 302% 247% 219% 226%


There really is no competition here: Monday is growing customers much, much faster than Asana. Monday has 470 customers spending >50k ARR vs Asana’s 598 as of end Q2 2021, but with the pace of Monday’s growth, Asana’s lead will not last for more than a few quarters more.

Revenue growth yoy:

ASAN: 55% 57% 61% 72%
MNDY: 102% 89% 85% 94%


So here Asana’s revenue has been accelerating nicely over 4 quarters, while Monday decelerated slightly for 3 of those, but then picked up again in the last quarter. Still, in each of those 4 quarters, Monday was growing much, much faster than Asana - almost double as fast 4 quarters ago, and still more than 20%pts faster in the last quarter.

Comparing adj operating margin and free cash flow margin for the last 4 quarters between the two companies looks like this (again, Q2 2021, the last reported, shown last):

Adj FCF margin

ASAN: -33% -26% 10% 10%
MNDY: -18% -24% 3% 2%


Adj Operating margin

ASAN: -63% -51% -43% -43%
MNDY: -91% -53% -40% -14%


The above shows clear operating improvement visible at Monday as the company scales, whereas this is not happening to the same extent at Asana. In the last 4 reported quarters, Monday improved FCF margin by 20%pts, still lagging Asana’s 43%pts. However, operating margin, which is ultimately the thing that will determine longer-term cash flow margins improved by 77%pts, from -91% to -14%, while Asana improved by only 20%pts, from -63% to -43%. So Monday improved by much, much more than Asana and is already much closer to operating margin break-even than Asana, despite being smaller scale, and growing faster.

So for me this is a great company with none of the issues that bothered me about Asana: costs, a spendthrift culture, and question-marks about the motivation of the CEO. I’m very happy with my mid-sized position in Monday and can see this one becoming a core position in time. Let’s see how the story unfolds in the next quarters.


Why did I buy Docebo (DCBO)?


Docebo is a small Canadian SaaS company taking on learning management in companies. Traditionally that was limited to HR, but as the need to educate customers, suppliers, etc. online grows, they are branching out from HR into other parts of the business.

Here is the intro on our board, written by DaveM https://boards.fool.com/introducing-docebo-34934791.aspx

Most recent results prezzo is here: https://s24.q4cdn.com/246292444/files/doc_presentation/2021/...

The numbers

Revenue has been accelerating in the last two quarters, and all of their other numbers seem to tick the boxes we are looking for here.

Revenue $m

2020 $13.5 $14.5 $16.1 $18.8
2021 $21.7 $25.6

Revenue QoQ%

2020 10.0% 7.4% 10.7% 16.5%
2021 15.9% 17.9%


Customers

2020 1,831 1,923 2,025 2,179
2021 2,333 2,485

Customers YoY %growth

2020 22.8% 24.1% 24.1% 26.3%
2021 27.4% 29.2%


ARR $m

2020 $52 $57 $65 $74
2021 $83 $93

ARR QoQ%

2020 10.4% 9.4% 13.3% 14.6%
2021 12.7% 12.0%


It looks to me like they are at an inflection point: revenue, ARR and service revenue growth is accelerating.

Customer growth of 29.2% yoy for the last quarter reported too is accelerating (QoQ growth for Q2 was the highest in 3 years).

The fact that they are increasingly branching out from HR into other departments could be important here, as it should be the catalyst that accelerates the company’s relatively low NRR of 108% reported for 2020. If they can successfully land, in say HR, and then expand in Marketing, NRR should tick up and contribute to their growth flywheel.

So we will need to see how this pans out: my bet is that NRR is up quite a bit, and that they are landing bigger customers on average (despite what was said on the call).

Leadership

Maybe it’s the language, but Claudio Erba (the CEO, who’s Italian) didn’t come across to me as confident/strong as some of the super-star CEO’s we have at our other investments, but he got a bit more into his stride after the first question of the Q&A.

His Linkedin heading had this to say:

”Launching Docebo’s growth into the stratosphere isn’t my only passion - one day I’ll explore the galaxy in person, I’m patiently awaiting my chance to buy a ticket on Virgin Galactic (Update, I am in the waiting list now!)

I spend my free time riding the biking trails on my Santa Cruz Hightower Carbon (while listening audiobooks) or working out in my Technogym equipped home Gym. When I’m not cruising the trails or hitting the iron, you can find me reading about artificial intelligence, longevity or geoplitics - I’m fascinated by the impact that new technology will have on longevity, aging and space science.

Top read favourites include: 2052 - Global Scenarios for the next 40 years, Antifragile, Foundation series by Isaac Asimov and just about anything written by J.R.R. Tolkien, Nassim Taleb and John Grisham

Want to spark up a conversation? Ask me the question, are we living in a multiverse, or is it all just a computer simulation?”


Ok…but that last sentence just had me wondering about his calibre and maturity: that’s ok for first year philosophy classes, but not as a heading for a CEO. Anyhow, perhaps he's the right guy for markets outside the US, which sounds like that is where a lot of growth is coming from, as well as for HR departments who are by their nature sometimes more airy than, say finance. But can he take this thing to the super-league? He’s been at the helm for 17 years and it’s been private for most of those almost two decades and it sounds like they only raised very small amounts of capital: $2.4m in 2012 and $3m series A in 2015. So probably the king of his smallish castle for two decades and now suddenly he’s the boss of a $4bn listed company. On the call he sounded green to me. But perhaps that’s just optics as he’s obviously been great at building the company.

The plans

They are accelerating hiring: increased headcount by 50% to capitalise on increased growth. And they hired a new COO from AWS to help with this scaling, which is significant and positive.

The CFO, who is relatively new and clearly was brought in in preparation for the IPO, said that GM% is expected to continue ticking up and could reach 82-85% soon which is also great. Finally, I really liked this bullish quote from him:

”At the same time, I want to reiterate that I don't see anything in the near to medium-term, but would suggest the strong momentum we've been seeing on our sales pipeline and reflecting in our ARR performance has materially changed.”

So except for the smallish question mark about the CEO - which could be down to language issues, it looks like key metrics are all accelerating, making this an opportune time to climb on board.

Because there are some question marks, I took only a small position for now.


POSITION SIZES


I now have 9 positions - 4 top conviction, 2 mid conviction, 3 small positions, and some cash. In brackets are my position sizes end of last month.


Upstart 22.8% (18.5%)
Lightspeed 16.5% (6.3%)
Datadog 15.8% (15.4%)
Crowdstrike 14.3%(25.4%)

Zoominfo 8.7% (7.8%)
Monday 5.9% (-) -> New

Doximity 3.5% (6.6%)
Docebo 3.2% (-) -> New
Digital Turbine 2.3% (1%)

Cash 7.1% (12.6%)

——

Docusign -% (6.4%) -> Sold
Global e-online -% -> Sold and bought during the month

——



REVIEW OF MY POSITIONS


Upstart (UPST)

‘Nuff said about Upstart, methinks. So I’m just going to give a couple of snippets below.

The most impactful number from their Q2 results was their annualised qoq revenue growth rate. Revenue grew 60% qoq which annualises to 555% which is truly amazing. So growth is currently off the charts, and could plausibly continue at a tremendous pace.

It’s a fantastic company with top notch leadership. It’s a profitable, cash-generative hyper-grower. On top of that they have unbelievable prospects in an enormous TAM.

If anything my confidence has increased in September. There are two important posts that added to my confidence. I’m going to be a bit abrupt and give my summary of what each of the posts say:

UPST-Kemba webinar. GREAT insights - https://boards.fool.com/upst-kemba-webinar-great-insights-34...

-> Basically what this podcast shows is that bank customers are very happy with the results of their partnership with Upstart and are actively promoting them. This should not be news to most proponents of NPS, but the extent of the promotion is what is great in this podcast. Taking so much time and effort to promote another company - as Kemba is doing here - is quite special. It’s an important part of any flywheel: word of mouth. And I guess this shows that word of mouth for Upstart is currently running on steroids.

UPST: Review of trustpilot - https://boards.fool.com/upst-review-of-trustpilot-34940379.a...

-> Here Johnwayne shows that revenue is likely to grow next quarter again, by a LOT. Possibly/probably more than most of the market is expecting.


Lightspeed (LSPD)


So the big thing for Lightspeed this month was a short report which moved the stock significantly down just before month-end. I believe it’s absolute garbage.

The report, of course, would have nothing to do with the company’s actual performance unless something in the report pointed to an important recent metric being wrong (which it didn’t), but it nonetheless led lots of people to sell - both on this board and off board. That’s not a smart move imo.

Because of that, in addition to just dismissing the report as junk - which many on this board did, including Bear, rmtzp, BraodwayDan, Tryingmybest and others - I am going to state here quickly why. I will only address the points that Ben Axler (the CEO of the firm that wrote the short opinion) said were the key ones in his SeekingAlpha post.

But let me start off by quickly stating what they did NOT challenge - the post IPO numbers:


Rev$m Q1 Q2 Q3 Q4
2020 24 28.0 32.2 36.2
2021 36.2 45.5 57.6 82.4
2022 115.9

QoQ Q1 Q2 Q3 Q4
2020 17% 15% 12%
2021 0% 26% 27% 43%
2022 41%

YoY Q1 Q2 Q3 Q4
2020 51% 63% 79% 128%
2021 220%

EBITDA% Q1 Q2 Q3 Q4
2020 -21.3% -18.2% -16.5% -17.1%
2021 -6.1% -6.2% -11.5% -11.7%
2022 -5.2%


GMV$b Q1 Q2 Q3 Q4
2020 4.6 5.4 6.2 6.1
2021 5.4 8.5 9.1 10.8
2022 16.3

QoQ Q1 Q2 Q3 Q4
2020 15% -2%
2021 -11% 57% 7% 19%
2022 51%

YoY Q1 Q2 Q3 Q4
2020 57% 47% 77%
2021 202%

Cust loc Q1 Q2 Q3 Q4
2020 57,000 66,000 76,500
2021 77,000 80,000 115,000 119,000
2022 150,000


Organic revenue growth was 78% last quarter; total, incl acquisitions was 220%. Gross profit margin was 50% in the last quarter and they’ve only started to penetrate their GTV with their payments solution; currently at 10% of US GTV (from <1% in the same quarter two years ago) and with a clear path to reaching 50% over time. NRR is above 100% (they don’t give an exact number). Operating leverage is starting to kick in; Opex as % of revenue has decreased steadily from 90% in Q1 FY2020 to 57% in Q1 FY2022. Adjusted EBITDA margin has also increased steadily.

Just look at those numbers! All of them are fantastic, accelerating and, coupled with a likely acceleration of the restaurant business, pointing to a potential acceleration of revenue growth in the coming quarter!

So what did the short report say was inconsistent?

In the SeekingAlpha summary they point out inconsistencies (differences between what they said at different points in time) in TAM, customer and GTV numbers, office locations and ARPU. All before IPO and customer numbers going back to 2012, 13, 14, and 15. That’s between six and 9 years ago, and a completely different company! And all four numbers are non-GAAP. So what that means is that there is no fixed definition for how to calculate these numbers. If the numbers were GAAP and they were doing it wrong or the numbers were materially wrong, that would be a misstatement and if they were intentionally inflated/deflated then that would be fraud. The shorts don’t allege anything like that because they know they don’t have a case. So they are exceptionally careful to loudly point out pre-IPO non-GAAP inconsistencies and point to “indications” of post IPO organic decline (anyone can believe there are indications of something but I prefer proof).

Everything they point to are carefully chosen non-issues. But then they blow them up via twitter and Seeking Alpha and whatever platform they have access to. I was taken aback by the brazenness.

I’m part of an unlisted SaaS company and revising non-GAAP numbers is par for the course! You calculate it one way based on the data you have at your disposal and the definition you choose now - and another way a couple of months later when you have better info or decide to change the definition. This happens all the time with non-GAAP measures.

Even our listed companies have different ways to calculate some key non-GAAP numbers. RPO, NRR, ARR, adjusted GP, etc. etc. - all are calculated slightly, and sometimes very differently by different companies that are regularly discussed on this board. As is their right as it is not defined in GAAP like Revenue is, for example.

So let’s take the gripe with customer numbers. A customer can be defined in very many different ways. Anyone who has ever had to report on customer numbers in B2B will know this. If you have two divisions of the same company on your books, is that two or one customer? Two different entities (Same Group, but different company in Brazil and Mexico for example) - one or two? One legal entity with sub-accounts (Accounting, Marketing)? One legal entity with sub-accounts for customers of theirs? One legal entity with two different physical locations? A customer which has been suspended pending payment of debts in arrears - customer or not? In the end they settled on “customer locations” post IPO. Big deal. The key is that they then went and calculated their customers based on this definition going back for everything they report post IPO (pre-IPO is not relevant) as well as aligning same for businesses they acquire.

Same with GTV. Not a GAAP number. So what is it? It’s the total dollar value of transactions going through your platform. Ok. So does GTV include transactions going through the platform if you are using the platform yourself? Say your company also sells via your platform - do you include that or not? What about discounts? The selling price is $100 and the vendor gives a 20% discount which is run as a campaign for a certain period. GTV $100 or $80? Credit notes that you give to your vendors - should they be deducted from the GTV you report? Early payment discounts you give? Your vendor gives? Delivery costs - include in GTV or not? Discounts for large transactions at the checkout - deduct or not? Returns - deduct or not? Etc. etc.

Then ARPU - first off ARPU is calculated using customer count, so if you define customers differently, then of course ARPU follows. Secondly, ARPU is an average over a period. So let’s take a year with revenue of $120, opening customers of 0 and closing customers of 10. You can calculate ARPU based on closing customers - ARPU is then $1 per month ($120/10/12) for the preceding year (this would be a poor definition but ARPU is not GAAP so you can do what you want as long as you define it properly). Or you can use average customers (0+10/2 = 5 average customers for the year) so ARPU per month is $120/5/12 = $2 pm. Or you can calculate average customers by calculating the weighted average with 13 data points - opening base of 0, and 1 data point for every month of the year for customers (the last is arguably the best definition). All different answers.

And lastly they moan that TAM and number of office locations were defined differently at different points in time. Now on TAM - there’s a non-GAAP measure open to any type of definition you can think of, and which obviously changes as new info comes to light, products are released etc, so I’m not even going to discuss it further. And number of office locations…having someone work from home in Singapore qualify? Work from a flex workspace? Shared workspace? Dedicated office in shared workspace? Sales office only? Again, open to different definitions.

The point is that only at IPO does one go through a hellish process of defining each and every one of these non-GAAP metrics, and ensuring that everything you report in your registration doc or subsequently is calculated in a way that matches your definition. I did that for an F-1 listing back in the early 2000’s - I was they guy doing the wordsmithing, defining and calculating. Pre-IPO you can, and often do, change your definition and the resultant numbers. No big deal.

Nothing about the company has changed in my view and I’m as excited as ever. So I bought a shedload of shares.


Datadog (DDOG)


With Datadog there is nothing not to like at the moment. Hypergrowth, with lots of runway to upsell existing products and NRR already trending up in the +130% range - and a whole new market in the form of security still to address. Cash generative and profitable on the operating profit line already with still more leverage to come.

In the month of September the CEO, Pomel spoke at the Citi Global Tech conference. A couple of snippets worth focusing on from that:

About the demand environment:

We do see overall the cloud migration and the digital transformation picking up where they were before the pandemic pretty much. And in many ways the rhythm at which companies are moving workflows to the cloud, starting to work with the cloud, and expanding their footprint in the cloud is coming back to what it was before the pandemic.

So, overall the demand situation is very similar to what we saw before the pandemic with the added benefit of having a lot more companies, having started their transition during the pandemic.


-> Nice. Basically this points to acceleration to me. More customers came in during the pandemic, and now the same pre-pandemic flywheel continues off a higher base of customers.

Pricing philosophy:

So there's a few things in terms of pricing philosophy first of all so we want to be - we're not here to do a price disruption. […] Philosophically also we think it's very important for our pricing to put the customer in charge and give them, put them in control of and give them the tools they need to align with their pay, with the value they get. And that's why you see we've had a number of different SKUs that we actually unbundle the product as much as possible. So customers can pick and choose for which part of their data and which part of their infrastructure they use which part of our products and make sure that they get their core value for that.

-> This was interesting for me given that in the recent results conf call he said for the first time that longer term they may need to look at moderating how their fees scale exponentially while customers’ businesses don’t. I liked the answer. They’re not in the business of disrupting pricing (i.e. simply lowering pricing); they want to deliver value and extract value in return. And if the value they extract gets too much for the customer, they give them the tools to limit what they consume/pay for.

Pricing longer-term expectations:

Now in terms of the broader question for what happened to prices over time. What's pretty clear is that the footprint and the impact of applications and infrastructure is only growing over time. It's becoming a bigger and bigger part of every single company. I mean it's obvious that for cloud native companies and digital business units to be a part of it, but for every single other business is becoming a digital business all the time. So it's becoming a bigger and bigger part of what they do.

At the same time, data volumes can explode in a way that way outstrips the top line growth of any of our customers, right? So what we believe in is that we’ll be getting a larger and larger wallet share from our customers while at the same time the pricing of the data points to the gigabytes that we get are going to decrease over time. So the way we like to think about is maybe in five years we charge 10 times less per gigabyte but customers will pay 100 times more. And that's the way it would play out. That's pretty much the way it’s played out in software in general. Yes. So we'll see.


-> Great.

Their plans in security:

We started also entering another very large category we see as being a potential TAM multiplier, which is security, and much bigger cloud security. And what we target with that is security for applications in the cloud as opposed to corporate IT.

So, as I was saying, I think it's going to be a long build for us because there's a lot to do. It's also a market that I would say is more nascent than the cloud or the basic market. If I were to drive parallels, the market for cloud security bringing together developers, operations, and security folks today is very similar to the market for observability bringing together developers and operations 10 years ago, which is when we started Datadog.

We see all the same trends. We see those teams fighting and then working well together. We see the greenfield and the multiplicity of point solutions and open source projects and things that try to solve only part of the problem for part of the team. So we see all that. The situation is very similar.
With specific security is that there's a lot of functionality to build for these products to be minimally useful and broadly applicable across a few customers. And in the case of security, there's also a number of point solutions that we’d compete with as we start selling into these markets specifically.


-> So security is their Act 2. With observability being Act 1. For me this made clear that what they are doing is not just a foray into security, but a very serious and longer-term focus.

And with AI:

So we - the way we do it is we actually - we are consistent in a way that is completely multi-tenant and completely SaaS-based in such a way that gives us anonymized access to all of our customer’s data point infrastructure, application, and things like that. We use that to train algorithms, train our models. And with the position since we don’t sell position since we don’t sell SKUs specifically that sales we're going to automate it with AI, we have positioned to actually pick and choose the used cases for which order all data is going to allow us to give excellent high accuracy, insights and answers.

-> Great again.

And where they will get to with customers:

As we grow, look, we think we're nowhere near done in acquiring customers we need to acquire. We definitely think we would be in the hundreds of thousands if not more of customers.

-> They’re currently at 16,400 customers, so Olivier wants to go to at least 10x of where they are now.

Public sector:

On the go-to-market, we've been building the team and it's been new for us, so we don't know yet exactly what to expect from it. For us, it's upside. When you look at our forecast and everything else. But when we look at some of our peers in the market for some of them, it's a very bulked up a bit for a big part of their business. So, we think we can make a very successful business there too. So, we're going towards that. We're still early.

-> I take this as saying that they haven’t factored any ramp-up in public sector work into their forecasts, and that anything that does come in will be gravy.

There were other comments which I also liked relating to the efficiency of the sales force (payback) being too good at the moment, indicating that he believes that the efficiency should be a little lower which would let them grow even faster. This indicates that the demand environment must be exceptionally strong and that they cannot hire sales/gtm people fast enough. Both are good problems to have.

I really like this company for all the reasons I stated before. The CEO is great, the business model fantastic and the vision around security as their next big act superb. Top position; I may add some more.


Crowdstrike (CRWD)


I expected a bigger quarter on 31 Aug than what they ended up reporting, and I subsequently trimmed my position a lot, before building it up again towards the end of the month.

I wrote up in detail why I trimmed and what I thought of the results here: https://boards.fool.com/crowdstrike-thoughts-34922016.aspx

The gist of it is that I expected an acceleration in some numbers, but what they delivered was a continuation at a very high growth rate. It is because of that last bit that I added back again after they dipped towards the end of the month. Crowdstrike remains an extremely strong hyper-grower with a rock-solid CEO and massive secular tailwinds. It just remains to be seen if this increasingly large ship can pick up speed from here. I hope so.

In September George Kurtz, the CEO attended the Deutsche Bank 2021 Technology Conference. There were many questions and follow-up questions about SentinelOne, Palo Alto, Microsoft. A huge amount of time spent on the competitive dynamics. It’s a good one to listen to in full.

An interesting point for me was about what he saw as tailwinds for them. He did not mention the Government, per se as a specific tailwind. He instead mentioned two other things. The first is that the threat environment is steadily getting worse, making security more and more a top 1 or 2 risk at the board level, and the second is digital transformation, which he sees as requiring more modern security technologies, like Crowdstrike.

Specifically on SentinelOne I found his take on why they win why they lose interesting. Kurtz said that they won due to 3 things that I could pick out: 1) the true platform nature of Crowdstrike and the multi-module support plus things like Overwatch and Complete and the ease of use, deploy and efficacy. 2) True cloud-native architecture 3) real-time nature of Cloudflare vs batch mode of SentinelOne, which has a big local storage impact. And he said that if they lose, they lose price or because there was a pre-existing relationship.

He was much less dismissive of Palo Alto, but did point out that they are network providers, and network and endpoint don’t go together well.

And Microsoft he termed a formidable competitor, but pointed to customers not wanting to have all of their eggs in one basket, and the myriad of breaches happening on Microsoft.

He named what he considered the best of breed next-gen security providers: Crowdstrike, Okta and Zscaler.

And it certainly sounded like the Zscaler partnership is going really well: We are routinely selling into each other's accounts and leveraging that, and it's worked out really well because you've got two great technologies that work and play well together.

The market opportunity:

Kurtz characterised the total TAM for them as comprising displacement of legacy providers as well as cloud protection, and saw massive runway left for both. This last part is why I still really like the company’s prospects a lot.

How much runway for displacement of legacy providers? There's a massive amount left, massive. Again, just this simple math on the number of customers that are out there 13,000 plus that we have, you're talking about hundreds of thousands of customers that the McAfee and Symantec half. That's just them, right? And you've got Microsoft customers. You've got other folks that are out there. So we're really in the early innings of that.

And what’s the opportunity in cloud endpoint protection? But when you look at the spend around cloud security, it's like 1% and it should be 5%. So the overall market is still massive and it's really early days in the cloud protection environment. There's not even anybody there to displace.

So Crowdstrike is certainly facing a lot of competition, and perhaps some price competition from SentinelOne recently. But they are still the king of the next-gen security providers and they are still winning in a massive market with clear tailwinds, which is why it is still a big position.


Zoominfo (ZI)


During September Zoominfo announced that they’ve completed the first integrations with Chorus.ai, which should start delivering for them in the next couple of quarters, and I believe that the contribution could be bigger than expected as the cross-sell is seamless.

This should bode well for their NRR number, which has been relatively low and only gets reported once a year.

They also announced that they will eliminate their multiple share class structure, so no more super-voting shares, which is good for us normal shareholders, and lastly they announce that they have acquired RingLead, a data orchestration firm.

RingLead describes what they do as follows:

The RingLead Platform orchestrates Salesforce and Marketing Automation processes like managing duplicates, data normalization, segmentation, enrichment, routing, and much more. Go To Market intelligently by empowering all of your systems with GTM-ready data.

-> A data cleansing acquisition, therefore, to make the ZI data more reliable. Nice tuck-in acquisition.

All good on the Zoominfo front; looking forward to their next results.


Doximity (DOCS)


Doximity was brought to the board by Nervokid, here: https://boards.fool.com/doximity-docs-new-company-34863509.a...

They reported on 10 Aug. After listening to the results presentation - their first as a public company - I decided to look deeper and came away very impressed. The leadership is very strong, the market wide open and they are dominant in the healthcare niche that they serve.

Think of Doximity as LinkedIn, Zoom and Whatsapp with a little bit of Teladoc for doctors and you’ll have a good idea of what they do. 80%+ of US physicians, 50%+ of nurse practitioners and 90%+ of graduates use their platform. They then sell this audience to hospital and pharma customers’ marketing departments - which make up 80% of their revenue. They also serve more than 30% of all US physicians with their paid telehealth system.

There was no real news in September.

I trimmed Doximity this month as it ran up a lot; happy with my current smallish position. I think the key question for them will be if it is just a COVID play, or whether they can successfully maintain their incredible momentum.

And I just saw a question Junomean2 posted to my August portfolio summary (Sorry - only saw this now)

He raised a good challenge to me taking this position. Basically he said that they are already so dominant in their niche - already have almost all of the doctors, all of the top 20 big pharmaceutical companies and all of the top 20 hospitals and health systems. So where will growth come from?? Is there only expand left and no land?

And to be honest this is a great question, as I sold out of Pinterest when customer growth slowed and only had an “expand” part left.

So I will try to answer this as best I can, but I can be wrong here too. The company is not discussed much in these parts, so I don’t have much other analysis to go on except for my own thoughts here.

Anyhow, here is what I think.

First off, health care is such a mega-huge part of GDP worldwide that the ability to sell stuff is astronomical if you have the attention and trust of the medical professionals who make it all go round. The attention of the actual people (patients/customers) being treated is less relevant imo as the decisions get taken by the doctors and medical professionals by and large - it is one of the few areas in society where there is such a concentration of power in the professional. The consumer doesn’t have a lot of buying power. The doctor decides for the most part whether the patient gets this or that pill, gets scanned by this or that machine, or needs this or that procedure. I can go on an on - bottom line is that doctors have a lot - a huge lot - of power in the industry. And all of that massive amount of GDP spent on health care in one way or another is influenced by them. So having their attention is worth a lot. And Doximity seems to have that part sewn up.

Secondly, the medical fraternity is a laggard when it comes to technology adoption imho (sorry to all the doctors on the board!!), and they have a way of wanting to do things their way. My wife is a doctor and she’s worked in more than one country so I say this with just enough first hand experience without actually being a doctor. It sometimes astounds me how advanced and at the same time technologically backward the space seems to me. For goodness sakes they still fax stuff to one another! That seems to be the case globally as that’s one of Doximity’s key functions (being able to fax from the app) in the US and here in Europe it’s the same thing - the fax still rules.

Thirdly they seem to have quite a nice optionality in their platform; they are not only selling advertising/channels to market to their pharma and hospital clients; they also sell a telemedicine application to their doctors, and a match-making service to their student-doctors looking for a suitable place to specialise. So I think there is more that they could do in future.

And fourthly most advertising dollars in this space is still offline, and only now moving online - this is different to, for example Google’s online ad revenue being displaced by Pinterest and the like. Doctors do not Google to find the next best thing; they don’t have to. A rep drives to her and shows her the new gizmo, gives her a few for free and asks if there is anything else that they could do for them, like wash their dishes. Ok I exaggerate, but this is how it feels to me; doctors are sought after, and specialists even more so. Everyone wants them to buy their stuff: the theatres in hospitals compete for the specialists because they make money if specialists operate there, Phllips Healthcare wants to sell the next big hugely expensive machine to a specialist somewhere; Inari, for those who followed it, wants to sell their gizmo to specialists who use them, etc. And they have armies of people doing that for them. So the move to sell stuff in a trusted way to doctors online is probably still early in the life cycle, and if it continues there is a lot of advertising/promotional money to be made there. I.e. the expand motion here could be huge.

That’s my take. Could be wrong; it is such a new public company after all - so I will keep my position small and see what happens at the next quarterly report.


Digital Turbine (APPS)


An advertising play which is not valued very richly at the moment. What is perplexing to me is that their constituent companies were all growing at hypergrowth prior to acquisition, and last quarter they again grew like crazy, yet the guide was for flat revenue for next quarter. And it is valued accordingly. My thesis is that, should they end up growing at a more reasonable pace, we could see some price action, but I don’t yet know if this is something that I want to own for the long run.

I will therefore give this stock until after the next quarterly report and then decide what to do with it.


CLOSING

September was another see-saw month: up a lot, down a lot (and seeing that I’m posting this now, just two trading days after month-end - down even more).

But remarkably I’m feeling very Zen about it. Thank you Saul.


- WSM



Previous reviews:

Aug 2021: https://boards.fool.com/wsm8217s-portfolio-review-end-of-aug...
July 2021: https://boards.fool.com/wsm8217s-portfolio-review-end-of-jul...
June 2021: https://boards.fool.com/wsm8217s-portfolio-review-end-of-jun...
May 2021: https://boards.fool.com/wsm8217s-portfolio-end-of-may-2021-3...
April 2021: https://boards.fool.com/wsm8217s-portfolio-review-end-of-apr...
March 2021 Q1 ytd: https://boards.fool.com/Message.asp?mid=34791940
Dec 2020 full year: https://boards.fool.com/Message.asp?mid=34710356
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