It’s a rough day today across the SaaS sector after 4 releases yesterday and one major fall from Grace…and when they fall, they do fall hard. To keep it short, I am selling half of my AYX position today. AYX has slowed down their revenue growth significantly to only 17%, lowered quarterly and annual guidance both last quarter and this quarter, and is one of the SaaS companies being impacted by Covid-19 as companies pick and choose where to spend their software dollars. The CEO said he expects it to “come roaring back”, but the numbers don’t lie and I’m reducing my position.
I listened to the NET call and they are incredible. Firing on all cylinders and with 48% growth again, strong customer demand, record new customers (65% customer growth y/y for customers over $100k), raised $562m in a convertible debt offering, announced a swing to positive CF of +$4m, and capped it off with raised guidance for both the next quarter and year…albeit not a huge raise. They are a very sticky product and are continuing to benefit from the Covid-19 WFH situation. I am adding to my position with the proceeds from sale of AYX.
User comment: That would lead me to expect a further decline in AYX. Thoughts?
User comment: FSLY is pretty cheap today. Buying more of that?
Victor: Hard to predict what is built into todays AYX drop, but I feel it could go lower. Regardless, I don’t like the slow down in growth, so I’m reduced half of my position.
User comment: Agreed.
Victor: FSLY is my third largest position and I am continuing to hold. I am not increasing the position because I already have a lot. How many companies do you know in this pandemic who just had 62% revenue growth q/q. I only know about 3 and I own them all. Some were hoping and expecting more and they are certainly getting hit by the overall sector drop today. If I did not already own as much, I might be buying today, but see the note above about NET also. I think NET will win the battle long term, though FSLY may in the short term.
User comment: Thanks Victor! Yes, if you were to create a portfolio starting today, which would you choose to invest in?
User comment: Good question, Vic. I’ll ask the same !
Victor: Fair question. I can’t and won’t tell anyone what to buy because I cant know your risk profile, financial situation or life plans the way I know my own. That said, first, I would reiterate that we are basically about where we were in the portfolio less than 10 days ago. I would also emphasize that I don’t buy my entire position in a company all at once. I “leg” into each stock in purchases (and often sales) of three transactions or more. I adjust my portfolio according to the fundamentals of the companies (earnings releases and quarterly calls) and try to hold the company with the highest percentage of my portfolio in the company that I have the most conviction in…(highest revenue growth, customer growth, ARR, Net Customer retention rate, strong balance sheet, at or rapidly approaching profitability, leader in their industry or niche, great management, etc) which right now remains CRWD. I am a bit limited by tax consequences in some of my holdings, which makes things difficult, but you asked what companies I would invest in TODAY, so the 5 companies at the top of my list currently are: CRWD, DDOG, NET, MDB & ZM. For each of you, it would depend on what you already own now, though. And I would not just place a blanket order to buy the entire position of those companies on Monday morning. It is hard to know where things are going from here and a worldwide depression could take even our high flying companies down for awhile. I would buy a third of your desired position and reassess. That is what I do. Look, today is a tough day, no doubt, but when you own these companies long term, you have to take days like this in stride. I bought a lot of my AYX at prices averaging around $25. Yes, its down 25% today. That hurts, but I’m still up 400% on the investment. Heck, AYX was at $81 a share on April 3…4 short months ago. So even after todays massive drop, it is up 50% in the past 4 months. Another example: I started buying CRWD in the 40’s (now up 150%) , DDOG in the 30’s (now up 150%)…all AFTER todays massive drop. The point is that I don’t encourage anyone to “day trade” these companies. I buy with the intention of holding them “forever”…meaning until I lose confidence in their story. I also discern between a huge disappointment in a particular company’s fundamentals (like AYX reduced growth) and an overall sector correction, like we experienced in SaaS and tech today. The only company I bought today was NET. I think they would have been up a lot more if not for the overall sector drop that happened. I am trying to keep it all in perspective and realize that while the overall 5 market indexes that I track (S&P 500, Russell 2000, IJS Small Cap, Dow, & Nasdaq) are DOWN ~5.0% YTD, our portfolio is now “only”
…our portfolio is “only” UP +90% YTD!!
Victor: One for the record books…
User comment: Thank you for sharing your perspective, knowing that it is not advice for anyone. Much appreciated!
User comment: Yes, that super helpful insights, thanks Victor!
