July 2021 Month End & Some Earnings Recaps

Another solid month for the portfolio as we start moving into earnings season. I made a few changes to my portfolio that I will detail towards the end of this post, but basically, I am continuing to consolidate my portfolio to higher conviction companies and investing less in speculative plays. After reviewing some realized losses this year that I incurred due to meme stocks and the insane start to the year, I’ve learned my lesson on spending too much capital on speculative plays.

Crypto Rebound

Crypto rebounded towards the end of July after bottoming around July 20th due to fears of further regulation and China’s continued crackdown on cryptocurrency mining and trading. However Elon Musk and Jack Dorsey came to save the day with further endorsements of bitcoin, with Jack Dorsey saying bitcoin will be a big part of Twitter’s future. I added slightly to my crypto investments in July and I continue to mine Ethereum. My current crypto holdings are: Bitcoin, Ethereum, Stellar and Chia.

Economic News

COVID continues to be a headwind in our overall economic recovery but despite the uptick in COVID cases due to the Delta variant, the economy seems to be recovering. The US economy grew 6.5% in Q2 and the June jobs report came in stronger than expected. June PMI data was also really strong, hitting 63, where anything over 50 means expansion. Finally, earnings have also been strong with a large chunk of S&P 500 companies beating analyst expectations which helps reduce market valuations.

The July jobs report comes out this Friday and it will be interesting to see what it says. There has been a lot of discussion on the Fed tapering its bond purchasing program but they will only do that if the economic data shows the economy strongly recovering which means several months of strong jobs reports. Given that the market likes low interest rates, I suppose a “Goldilocks” type of report would be ideal.

Raising Cash & Stock Valuations

I’m still finding opportunities to raise cash, either by selling covered calls, writing puts on down days or selling/trimming positions that I’ve lost confidence in (i.e. Pinterest). I think tech stock valuations are pretty stretched right now. Especially Cloudflare ($NET):

It seems the market just loves Cloudflare but there are definitely a lot of high expectations going into this earnings release this coming Thursday. It will be interesting to see how the stock reacts to the report. My position in Cloudflare remains at just 3% given my valuation concerns.

Moving on, this earnings season should definitely help improve tech valuations, but either way, I wouldn’t be surprised if we saw a 10% pullback soon given the huge rally we’ve seen since mid-May. I’m definitely reserving some dry powder just in case.

Also, I wouldn’t necessarily say I’m “timing the market” since I’m basically fully invested, but I’m trying to be mindful of deploying new cash besides my weekly buys on Robinhood.

Portfolio Update

S&P 500 return YTD: +17.0%
My portfolio YTD: +23.5%

My portfolio hit +28% earlier in the month but Amazon’s “meh” earnings beat the tech sector up the last day of the month.

Portfolio Breakdown

DOCU11.6%
CRWD11.1%
ROKU8.1%
ZM7.5%
FVRR7.0%
DDOG6.0%
ETSY5.7%
UPST5.2%
SNAP5.2%
PTON4.6%
MELI4.0%
ENPH3.8%
TWLO3.6%
NET3.0%
TEAM3.0%
NVDA3.0%
CROX2.7%
ZI1.9%
SHOP1.3%
LSPD1.2%
< 1% Positions0.4%

Portfolio & Position Notes

Roku ($ROKU) – This position got bigger than I expected and I’m likely going to trim just given my confidence in the position vs. my other positions. Specifically, I don’t like advertising plays as much as SaaS plays just given the volatility in advertising spend. Also, Netflix’s Q2 earnings report showed us a pretty big slowdown in subscriber growth rates and the reaction to Pinterest’s earnings report with slowing MAU growth is also concerning. While Roku is obviously a different company, I just don’t think it deserves to be a top 3 position since there are stronger companies out there purely from a business fundamentals perspective.

Pinterest ($PINS) – Pinterest reported Q2 earnings last week and while they beat revenue expectations, their Monthly Active Users (MAUs) slowed down dramatically, going from +30% YoY in Q1 to +9% YoY in Q2 and -5% sequentially! US MAUs which are worth 14x more than International MAUs for Pinterest were down 5% YoY and 7% sequentially. The Pinterest investment thesis relies on continued MAU growth and increasing ARPU. While ARPU grew materially, in fact it grew incredibly well, with US Average Revenue Per User (ARPU) up 103% YoY and 27% sequentially, there is only so much you can do with increasing CPMs and ad load before revenue starts to slow down without MAU growth. 

While I expect MAUs to rebound from this doozy of a quarter, it appears the US market is starting to plateau and it may take a few quarters for International ARPU to catch up to its US counterpart which means slowing revenue growth. Already we’re seeing revenue drop from 125% YoY to “low-40s” which obviously they’ll beat, but it’s still a pretty big slow down YoY and sequentially.

Per management in their earnings press release:

“Engagement headwinds on Pinterest have continued in July. As of July 27, 2021, U.S. MAUs have declined approximately 7% and global MAUs have grown approximately 5% year over year*. The evolution of the COVID-19 pandemic and related restrictions remain unknown, and we are not providing guidance on Q3 2021 MAUs given our lack of visibility into certain key drivers of engagement.”

I was already a little skeptical of Pinterests’ growth prospects in 2021 after their Q1 earnings release which made me trim the majority of my position back in May/June and after this earnings release, I decided to close out the remainder of my position and move on. It pains me to take the tax hit, but after my ride with Fastly where I held on far too long due to tax concerns despite misgivings with the stock, I saw the stock go from $136 to $60. Ouch. I’ve learned that when you invest in tech stocks with sky-high valuations, any missteps can result in the stock tumbling 20%+, especially multiple missteps.

While I do believe Pinterest will eventually become a $100 B company (currently valued around $37 B), I think that with slowing revenue growth and the fact that their EV/S multiple will likely stay muted until they can demonstrate additional growth drivers, I think I’d rather invest my dollars elsewhere or continue to raise cash.

Atlassian ($TEAM) – Atlassian reported Q4 earnings (Their FY ends in June) and apparently the market really liked it since their stock surged 20%+. Honestly, I haven’t kept up with Atlassian as much as I should the past year or so despite the fact it’s now grown into a 3% position. I initially invested in Atlassian because I noticed JIRA was being used by everyone I spoke with and this was back in March of 2017 when the stock was around $30 and it just seemed to skyrocket shortly after that. After trimming the bulk of my position, when it was in the $150 range, I guess I kind of forgot about it. Now looking back, that was pretty dumb since Atlassian has chugged along and is now a 10-bagger for me.

Diving into the numbers this recent quarter, Atlassian grew revenues by 30% and is guiding for 28% growth in Q1 ‘22, but will crush those estimates based off historical estimates. In addition, their subscription revenue continues to accelerate with 50% YoY growth (10% sequentially) and now makes up 69% of revenue. Moreover, Atlassian continues to put up mindblowing FCF margins, finishing Q4 with nearly 30% FCF margins and 36% FCF margins for FY ‘21.

I’ll need to review this most recent earnings release a bit more since I only did a quick review but based on their subscription revenue growth and the acceleration in revenue they are seeing there (plus strong guidance), it seems their cloud migration is doing quite well. Per their management: Q4 was a great quarter – a ripper, as we Aussies would say..

Crox ($CROX) – I already reviewed Crox’s Q2 2021 earnings in a previous write-up but this is definitely a stock I’m actively following. It’s amusing now that I’m invested in the company, I’ve been noticing Crocs everywhere.

Upstart ($UPST) – I added a lot to my Upstart position in July largely because I think they are going to absolutely crush earnings based on their historical performance and the new partnerships they’ve lined up. Also, LendingClub ($LC) announced their Q2 earnings just a few days ago and skyrocketed 40%+ with a HUGE increase to their FY 2021 guidance ($500-530 M to $750-780). Upstart from everything I’ve read seems to have superior tech with their AI and ML algorithms and seems to be doing way better than LendingClub. Also, just looking at it from an EV/S multiple perspective, assuming Upstart simply hits the high end of their guidance (which they’ll absolutely crush based on LC’s results), they’ll have a TTM EV/S of 23.5 (down from the mid-30s) largely due to a super easy comparison due to COVID and TTM revenues will go from $291 to $433 M. They will also have a forward EV/S of 16 which is ridiculously cheap for a company that will likely triple their revenues this year.

Pubmatic ($PUBM) – I think this adtech company is incredibly undervalued (8.x EV/S for a 30% grower) and I made a small purchase ahead of earnings. I expect they will absolutely crush earnings since most advertisers have so far in Q2 but it will be interesting to see what kind of guidance they offer.

< 1% Positions – I’ve continued to trim my total holdings and my < 1% positions only make up 0.4% of my entire portfolio, down from 5.3% back in January 2021. I now have 25-30 positions (vs. 50+ I believe) and I’m planning on trimming that down to 20-25. I’m trying to have more concentrated positions since I’ve been pretty good at identifying strong stocks but their overall returns are being diluted by the sheer number of positions I have. Not to mention, it’s a lot easier to manage a smaller portfolio of positions.

Zoominfo ($ZI) – ZoomInfo announced their earnings last night and WOW did they impress:

  • Revenue was up 57% YoY and 13.5% sequentially! Solid 6% beat and revenue accelerated vs. Q1 and is the highest sequential revenue growth since 2019
  • Gross margins remained strong and was up YoY 88.9% vs. 88.7%
  • Adj. operating margins were 43.6% of revenue which is pure insanity. How can a business like this be so efficient?!
  • Free cash flow (FCF) margins were 52.8% which even beats Atlassian’s ridiculous FCF margins
  • Adjusted Net Income continues to be solidly in the low-mid 30s range
  • > $100k customers grew 69% YoY and 15.8% sequentially, a solid acceleration in growth both YoY and sequentially
  • Q3 guidance was $182-184 M in revenue which is 49% YoY at the top end of guidance, but they’ll likely do around $195 M which is 58% YoY revenue growth. They also raised FY ‘21 guidance to $703-707 M which was above the $675 M consensus.

I didn’t get a chance to review the earnings transcript yet, but I’m not surprised the company is up 11% PM. I just wish I had bought more shares since I’ve been looking to add.

Stocks on my Watchlist

Doximity ($DOCS) – This is a < 1% position right now but I plan on building it up after I get a chance to review their Q2 earnings report. Their overall fundamentals look great and my partner says her company uses it a lot.

LightSpeed ($LSPD) – I’m still learning about this company but it seems they are growing rapidly and are in the payments space for ecommerce. I have a small starter position and would like to add to it but I just haven’t had enough time to do enough DD to build up my position.

Snowflake ($SNOW) – I think Snowflake is a great company but I haven’t bought them largely due to valuation, but I may pull the trigger soon. I wrote a $240 put expiring in October 2021 for income and with the hopes that Snowflake heads to around $230-$240/share after their earnings release, but I doubt this will happen. If there are any material pullbacks in the coming days, I’ll likely initiate a small starter position.

Global E International ($GLBE) – I don’t know much about this company but a bunch of people on Twitter love this stock and it seems to have tripled since its IPO, so I am intrigued.  Supposedly this is the next Shopify in the making. I guess I need to bust out the spreadsheet and do some reading.

Earnings on Tap

Sprout Social ($SPT), Roku ($ROKU), DataDog ($DDOG), Etsy ($ETSY), LightSpeed ($LSPD), Cloudflare ($NET) all announce earnings this week. I suppose I’ll be reviewing a lot of earnings reports this weekend.

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