Apologies for the radio silence. Backpacking to the bottom of the Grand Canyon and back up (5000+ feet elevation down to the Colorado River) is not only good for the body, but also for the brain AND the soul! And doing it with your teenage son is even better! It also just goes to show that if you are invested in GREAT companies with solid fundamentals, going to sleep (metaphorically) without cell phone access for 10 days should not negatively impact your portfolio. In fact, it was quite liberating, encouraging and euphoric to come back to phenomenal quarterly earnings reports from both Docusign (DOCU) and Crowdstrike (CRWD) last week. I also listened to both of the quarterly calls, which were optimistic and re-confirming in almost every aspect.
In short, in case you don’t read all the details below:
- DOCU absolutely crushed it last quarter at scale (or at ANY scale) and deserved the +20% stock surge higher the following day on June 4th. I not only am maintaining my 12% position with both stock and leap options, I have added to my position today (June 7, 2021) and will continue to do so opportunistically.
- CRWD fired on all cylinders and absolutely did NOT disappoint. While they did not “surprise” me to the upside compared to DOCU (who admittedly had lower expectation), they continue to grow at a blistering pace and will remain my largest holding in the portfolio. I will not be adding to the position only because it has already ballooned up to a 22%+ position (and much larger if you consider the leverage I have with leap (call option) positions.
DOCU
If you thought of Docusign (DOCU) as a Covid-19 company who would start to slow down with the re-opening…you may want to reconsider your thesis. This company is my “freight train”. DOCU’s overall revenue growth q/q was higher than any during Covid, and higher than any prior for at least the past 9 quarters I have been tracking them. They continued to accelerate both their total and their subscription revenue growth for the 6th straight quarter, achieving an accelerated 61% Subscription revenue growth this Q1. What is also impressive is that unlike many of our smaller revenue companies, DOCU is already at about a $2B annual revenue run rate…and with no signs of slowing down.
Are they topping out? Do they have any more room to grow? Well, their CEO, Dan Springer indicated that their primary flagship product “eSignature” has penetrated just 6% of the total available market (TAM), indicating they have an incredible runway ahead of them, while boasting 96,000+ new customers this quarter and more than 11,000 of them new enterprise customers. Folks, they now have over $1 million customers!! While their secondary product suite called “Agreement Cloud”, comprising a mix of services including notary and Contract Lifecycle Management (CLM), was named a leader by the Gartner group in May and is already gaining traction, it is still in its relative infancy when compared to eSignature, and likely won’t start to contribute meaningfully this year to revenue growth. That said, Docusign is the whole enchilada!! They have maintained hyper growth, at scale, with incredible 85% gross margins, have achieved economies of scale, fantastic Free Cashflow (FCF) and have maintained an impressive and record NRR of 125%!! DOCU is a cash generating machine and their CEO and management team have their eye on the ball and are planning for the future growth of the company, whilst enjoying incredible growth domestically and abroad (84% y/y growth internationally this quarter!), inspite of the supposed “slow down” after the demise of Covid-19.
DOCUsign absolutely crushed it last quarter at scale (or any scale) and deserves every bit of the +20% surge of the stock on the day following their earnings call, as well as an additional 3.3% pop on top of that today, June 7th, 2021. I not only am maintaining my 12% position with DOCU stock and leaps (call option greater than 1 year until expiration), I have added to the position today. It is my third largest position in the portfolio and I am very happy to have it in the quiver of the 10 companies I am invested.
CRWD
Crowdstrike! I could write a novel on this cyber security company that I have been posting and blogging on since my original purchase below $50 in October 2019. They have been the beneficiary of not only Covid-19’s rocket booster for the digital transformation, but also from the major tailwinds produced by the almost daily headlines in the news of the Solarwinds breach, Colonial oil pipeline and other major criminal cyber attacks, combined with the US government’s enhanced adoption of their technology, partnerships with ZScaler (ZS) to provide the best possible solution for their combined customers, and the entire overarching atmosphere in today’s business and political environments that absolutely mandates every company upgrade and adopt Crowdstrikes solution, all of which is heavily supported and attested to by both the Gartner and the Forrester Research groups.
All that said, I admit I was expecting “more” this quarter and hoping to see the re-acceleration that I had been anticipating from the various tailwinds described above. I guess it is often the case when you fall in love with a superhero, but I couldn’t help but notice that the subscription revenue growth rate percentage q/q has been decreasing for the past 7 straight quarters now. It is not a trend I like to see, even when the numbers are this impressive and high:
| 98% |
| 90% |
| 89% |
| 89% |
| 87% |
| 77% |
| 73% |
I know, I know…it wasn’t 10 years ago any of us would have been ecstatic to find a single company that could continue to grow at these phenomenal q/q revenue growth rates for this long. And CRWD is probably still amongst the top 0.001% of all companies growing at this rate and already over a $1B in annual revenue run rate (~$1.3B actually!).
To be clear, I’m not worried at this point and am absolutely maintaining CRWD as my largest position, as this is still among the fastest growing companies in the portfolio, especially at this size in revenue. I can not but be encouraged by another great quarter that included a very solid ARR growth (74% q/q growth), continued blistering subscription revenue growth (73%), massive amounts of free cashflow (FCF), greater than 120% NDBRR, a very strong pipeline, almost $1.5B in RPO’s, 80%+ gross margins, great and budding partnerships, phenomenal customer growth and basically just executing on every level…and…and…and…oh, lets not forget their recent purchase of the company called Humio, which adds to their holistic and comprehensive cyber security solution. Begrudgingly, CRWD had a phenomenal quarter by almost any metric…but of course, we always hold superheroes to a somewhat higher standard!
“What have you done for me….lately” are the lyrics from a song by Janet Jackson that I recall from my childhood long ago.
By nature, I will always wish I’d been a bit more pleasantly surprised by their results, but it doesn’t change my feeling that they are firing on all cylinders and I can’t find (m)any chinks in their armor to really exploit or ridicule at this point. I am eager to see it all coalesce into some meaningful upside surprise over the next few quarters. I will maintain my entire and relatively oversized position in CRWD and am very happy to see the stock pop another 4% today. Any company that can grow this fast, at this scale, for this long deserves my investment in it and I am confident based on the results announced last week and the comments by their CEO, George Kurtz that they will continue to execute as they have proven so many quarter they can. And no, I’m not particularly worried about the SentinelOne IPO recently announced in this space…while the two companies compete, CRWD is the 800lb gorilla and firmly in the driver’s seat right now, while SentinelOne may be going public, but are the relative teenager in the room…in almost every metric…they think they know it all and may get a few good swings in the fight, but it will take them a fair while to prove themselves…assuming they can get there. I’m sticking with CRWD, but that entire comparison is a whole other post.
And that is all for this quarter’s earnings releases of our portfolio companies. I will post the 10 companies in my portfolio by percentage allocation in a few days, so please check back…and have a great summer!!
I HIGHLY recommend some time in nature, camping, mtn biking, hiking…whatever! Get out there and enjoy this amazing planet…and don’t take it for granted!!
Cheers!!
Poleeko
