February 2020 Portfolio Review

Well, I said it couldn't last...

Dec 31, 2019 value – £56.6K

Jan 312020 value – £66K

Feb 29, 2020 value - £75.3K (slightly different from what I posted to Twitter as I had forgotten to include my ROKU purchase)

Cash added this month - Approx £4100


February has been a strange month - In my mid-month review, I commented that it seemed reasonable to anticipate that some of the companies might sell off soon, and boy did they…every company in my portfolio took a hard dive amidst the market sell-off, which saw the greatest drop in the DJIA since 2008. The portfolio has fallen from its highs, but I am surprisingly positive in February!

The coronavirus is a real cause for global economic concern this year. However it is out of my control and I am focusing on issues that I can exert some influence over: identification and investment in the best businesses I can find.

Portfolio Changes since are listed here (accurate after 18 Feb 2020)

https://www.holfolio.com/user/adventuresinfi

$AYX added - position full

$LVGO added - position full

$ZS Sold 1/3 of my position

$CRWD Bought 60 shares with the proceeds of the $ZS sale

$LSPD.CA Started a small position

$ROKU Bought a tiny position

Current ISA Portfolio Allocations in Image from HolFolio (a Scottish startup)

$AYX

21% Position

Alteryx snuck past $TTD as my largest position after I added another 10 shares to my holdings. They had a stellar ER report this month, and I happily made a small addition on the pullback.

$TTD

20.8% Position

The Trade Desk had an extremely volatile month, peaking at $323 before falling like a stone to $250 just before ER.

Revenue growth rate clocked in at 35% for Q4 and 39% overall for 2019, which is significantly lower than historical trends. This is part of the law of large numbers. They beat estimates and raised guidance above consensus again, and I expect circa $870M for 2020.

  • Q4 Quarterly total platform spend topped $1B for the first time

  • Revenues grew 34.5% for the quarter, to $215.9M (and helped drive full-year 39% growth to $661M).

  • Non-GAAP net income $71.6M

  • CTV up >137%; Audio up > 185%; Mobile video up > 50%; Mobile in-app up > 67%

http://investors.thetradedesk.com/news-releases/news-release-details/trade-desk-reports-fourth-quarter-and-fiscal-year-2019-financial

Post ER, the stock bounced back up to $287. Jeff Green continues to run an excellent profitable business, and although I acknowledge the revenue growth slowdown, there is nothing I see to make me concerned about the ability of the team to execute on the opportunity.

Long term tailwinds still to come from China and ad funded streaming is still early days.

$MDB

11.8% Position

Mongo is essentially flat on the month, after peaking like many software companies in Mid Feb. Next ER is due mid-March.

$LVGO

10.4 % Position

Another stock that is essentially flat on the month after spiking up to $28.5 and selling off with the rest of the market. I previously commented that I would like to add around technical support of $24, which is exactly where the stock currently sits, but unfortunately, I added more just before the selloff hit hard.

I expect that in 3-5 years, whether I bought more at $24 or $27 will be essentially irrelevant. ER due this week coming and I expect more volatility - hopefully upwards. This company is exceptionally undervalued for the revenue growth it has shown to date. Livongo is a leader in a new market and may take some time to demonstrate its leadership to Wall Street. My position has hit the maximum allocation for an individual position (generally £8,000 or US$11,000), so I will no longer be adding in the near term.

What i want to see at LVGO ER

Triple digit revenue growth for Q4

Guidance above consensus for 2020

Some more medically validated research

$ESTC

8.8% Position

Gained approx 10% in Feb

Elastic went nowhere in January and had a very volatile February - rising to the mid-70s, selling off just before ER and bouncing back up after releasing a fantastic set of results, continuing to grow revenue at 60% per year at a run rate of $425M.

ER Highlights

  • Q3 Revenue of $113.2 million, up 60% year-over-year

  • SaaS Revenue of $25.1 million, up 114% year-over-year

  • Calculated Billings of $122.9 million, up 54% year-over-year

  • Non-GAAP operating margin (-)18%

  • Cash and cash equivalents were $294.1 M as of 31/1/20

https://ir.elastic.co/news-events/press-releases/press-releases-details/2020/Elastic-NV-Reports-Strong-Third-Quarter-Fiscal-2020-Financial-Results/default.aspx

https://seekingalpha.com/article/4327609-elastic-n-v-estc-ceo-shay-banon-on-q3-2020-results-earnings-call-transcript

$TWLO

5.8% Position

Dropped about 8% in February. Twilio maintains impressive revenue growth at scale. However, they are still in growth and investment mode, and operating profits are scant. Compared to many software companies, TWLO gross margins are relatively low (in the mid-50s), so operating leverage is yet to kick in.

ER Highlights

  • FY19 total revenue up 47% YoY

  • FY19 base revenue dollar-based net expansion of 136%

  • Q4 total revenue of $331.2 million, up 36% organically year-over-year

  • Q4 base revenue dollar-based net expansion of 124%

  • More than 179,000 active customer accounts, as of December 31, 2019

  • Guidance: FY20 total revenue of $1.475 billion to $1.490 billion, up 30% to 31% year-over-year

$ZS

4.8% Position

Lost 7% in Feb

ZS ER was not great, with slower but solid revenue growth but unimpressive billings growth

  • Revenue up 36% year-over-year to $101.3 million

  • Calculated billings up 18% year-over-year to $135.4 million

  • Deferred revenue up 36%year-over-year to $280.0 million

  • Non-GAAP net income of $12.0 million compared to non-GAAP net income of $11.6 million on a year-over-year basis

https://seekingalpha.com/article/4325983-zscaler-inc-zs-ceo-jay-chaudhry-on-q2-2020-results-earnings-call-transcript

In the words of ZS leadership “billings grew 18% year-over-year, which had a difficult comparison due to a non-recurring private cloud sale to a large public sector customer last year. Adjusting for this, revenue grew 41% and billings grew 30%.”

Whether you accept the sugar coating or not, there seems to be evidence that ZS has sales execution challenges in the short term. The product does not enjoy a bottom-up viral adoption model a la Zoom, but rather needs high-level C-suite buy-in and therefore has longer sales cycles vs other software companies as the client company size increases.

I have trimmed my position due to reduced confidence that my expectations will be exceeded and have deployed the funds to $CRWD. Crowdstrike is also in Cybersecurity, has a partnership with ZScaler, none of the execution challenges and is also trading at a more attractive valuation for the subscription revenue growth rate of 98%.

$BZUN

4.4% Position

Flat on the month

Coronavirus impact TBD, ER likely in March. But cheap enough that I’m not going to worry too much in the short term. Near long-term technical support at 30.

$NVTA

4.2% Position

Gained 12% in Feb after a run-up to the pre-announced ER and subsequent dramatic fall.

ER was a small miss on revenue, but the long term thesis and 2020 guidance is reasonable at $330M.

  • Increased test volume by nearly 60% year-over-year

  • Increased revenue by approximately 47% year-over-year

  • Decreased average cost per sample 7% year-over-year

  • Improved gross profit by 46% year-over-year

  • Reported 46% gross margins in 2019, including 45% gross margins in the fourth quarter

Total operating expense, excluding cost of revenue, for the full year 2019 was $342.8 million compared to $190.2 million in 2018. Operating expense for the fourth quarter of 2019 was $108.6 million.

https://ir.invitae.com/news-and-events/press-releases/press-release-details/2020/Invitae-Reports-2168-Million-in-Annual-Revenue-Driven-by-More-Than-482000-Samples-in-2019/default.aspx

The biggest challenge with NVTA as an investment in the cost of scaling the business. Cash burn is going higher, and more dilution seems likely in 2020. This is the most speculative investment in my portfolio.

$CRWD

3.7% Position

New small position. ER due late March.

$LSPD.CA

2.7% position. Lightspeed POS is a Canadian software company that sells cloud-based POS inventory management with an expanding global footprint. It's admittedly a competitive market, but there is enough to keep me interested for a nibble.

Latest Lightspeed ER

Investor presentation

New purchase. Bought towards the lower part of the trading channel. Hoping to see 31 support hold.

$ROKU

1% Position.

I might be better off adding to my $TTD position instead since they are part of the same theme of CTV. But the ROKU valuation is much more attractive at this precise moment, and I think it is markedly undervalued for its 70% platform growth rate at scale (ROKU hardware revenues are not interesting to me). I would buy more if I had spare cash.

Overall Portfolio Performance

I knew volatility would be guaranteed with this portfolio. I have used the recent drop to add to my holdings, which is focused on the long term.

What I’ve Listened to this Month (weirdly prescient in retrospect)

Other Twitter musings

Companies on my watchlist: $GSX, $EVBG, $ZM (the coronavirus trio of strength)

$TLRA: programmatic advertising SSP, merging with $RUBI. Smallish market cap. Nice CTV growth.

$NET/$FSLY: CDN/Edge computing / $ZS competition with Cloudflare for Teams product

$PLAN: Connected planning - 50% subscription revenue growth. Beaten down to a more reasonable valuation on billings growth concern

$PINS - Pinterest. 40%+ growth at run rate over $1B and attractive valuation

$TLND - data analysis company. Business model is in transition, but Cloud rev growth is over 100% at a run rate of $50M and an attractive valuation if purely looking at cloud revenues and growth rate, albeit from a small base.

Loan balance outstanding: £29,100

Loan to portfolio value (LTV) rate: 38.7%

Hoping for a calmer March, but I doubt it.

Thanks for reading! Any feedback is appreciated!