January 2020 Portfolio Review

Total Return: +14.8% YTD (+15.0% vs S&P)

Well, if nothing else the decade seems to be off to a promising start. In fact, most of my companies kicked off 2020 in very fine fashion. Could this be The Roaring 20's Redux? Yeah, yeah…I’m well aware that’s a bit overzealous only 31 days into a 3,653-day stretch. However, I’m hoping you’ll chalk it up to some tongue-in-cheek enthusiasm for a strong start to the new year. In the big picture there’s nothing wrong with acknowledging a bright green month. After all, it sure as heck beats the alternative…

2020 Results:

January Portfolio and Results:

Past recaps for anyone who’s interested:

December 2018

December 2019

Stock Comments:

I entered 2020 fully invested with 10 positions. After making quite a few adjustments during December’s earnings rush, there wasn’t much to do in January except let things settle in. My only changes were minor tweaks to bring a couple allocations more in line with my conviction levels entering the year. Details below.

AYX – My largest position exiting 2019 (18.0%) and biggest gainer by a landslide so far in 2020 (+39.4% !!!). While overconfidence can be very costly, it’s hard not to be excited about Alteryx’s future. Heck, even the CEO recently stated a failure to maintain their current culture is the only thing they can see stopping them. Credit where credit’s due, I don’t know of any other company even remotely close to AYX’s present combination of revenue growth, gross margins and profitability. Do you? As they say, it ain’t braggin’ if you can back it up.

On a more serious note, Alteryx has become my largest holding. It’s easy to understand why since AYX checks just about every box for exploring your risk limit on an individual holding. In my case AYX’s spectacular month made it my first ever 20%+ holding by closing at exactly 20.00% on 1/16 and touching a high of 21.88% on 1/29 before finishing at 21.79%. I enter February exactly 50/50 on whether to lock in some of these gains and pare back to 18%-20% before 2/13 earnings. To be crystal clear, this quandary has absolutely nothing to do with my Alteryx conviction or playing earnings. It’s 100% about figuring out my maximum comfort level for a single stock. Thinking…thinking…thinking…

COUP – Coupa’s on a solid run, increasing 10.2% in January while setting new all-time highs along the way. From a business standpoint, the main news was Coupa’s acquisition of Yapta. Yapta specializes in price optimization for corporate travel. Their software monitors costs with the capability to instantly rebook an airfare or hotel at a lower price “without impacting the traveler experience”. The company already serves over 100 of the Fortune 500 and should be a very nice tuck in for COUP’s overall offering.

One things to be cognizant of here is staying on top of Coupa’s organic vs acquisitional growth. You always want to see more of the former, but in this instance I’m trying not to overthink things. Each of COUP’s acquisitions seems to have fit snugly into their larger platform while ultimately leading to revenue increases and a stronger bottom line. Until the numbers suggest differently, I’m giving management the benefit of the doubt for the strategy they’ve chosen. The longer I follow this company, the more I’m picking up a boringly effective vibe. That’s perfectly fine by me. Carry on, Coupa!

CRWD –

Me last month:  “I have no idea when market sentiment will come around again on CrowdStrike, but the fundamentals are just too good to think it won’t happen at some point.”

Me this month: “Boy, that escalated quickly.”

Even though I had already more than doubled my CRWD stake in December, I made two additional purchases this month. First, I added ~0.7% in early January by swapping out some Mongo. That move scratched two itches for me, one for a bit more CRWD exposure and the other for a bit less MDB. The second buy was another ~1.6% when I decided to trim TTD mid-month. CrowdStrike rewarded me by posting a hefty +22.5% gain this month. That’s a pretty sexy number even when acknowledging most SaaS stocks seemed to benefit from the January effect in 2020. CRWD’s volume has picked up significantly post lockup expiration. Fortunately, buyers have clearly outnumbered sellers. Here’s hoping that trend continues.

DDOG – Despite its high-priced reputation, Datadog posted a terrific +22.3% month. I trimmed ~0.4% this afternoon to lock in some of this run and add a bit to Roku. The rest of my shares are a hold.

MDB – Mongo’s slowing growth and frequent reference to tough Q4 comps sent me into 2020 looking to lighten up. I followed through by selling ~1.25% in early January to add to CRWD and SMAR. Even though the stock had an awesome +24.5% month, I’ve decided I’d like a bit less exposure to MDB over the next couple quarters. There’s a chance I trim a percent or two further if something else grabs my attention before their next report. We’ll see.

OKTA – A sneakily quiet double-digit month (+11.0%). Okta just keeps on keepin’ on.

PLAN – Pretty much OKTA, except Anaplan only snuck up 9.9%. Meh. I guess I can find a way to live with that.

ROKU – Roku kicked off the year with three interesting pieces of news. The first was an announcement that 15 brands will be rolling out Roku-powered TV’s in the US, UK, Mexico and Canada during 2020. Those brands now include ATVIO, Element, Hisense, Hitachi, InFocus, JVC, Magnavox, onn., Philips, Polaroid, RCA, Sanyo, TCL and Westinghouse. The second was a release detailing a new verification program which “allows third-party consumer electronics products to work seamlessly with Roku TV’s”. These products will be specifically labelled “Roku TV Ready” on packaging and marketing materials to identify they are certified to work with Roku’s operating system. This will “make it super easy to setup and control soundbars and audio/video receivers using just a Roku TV remote”. Finally, the company expanded its long-awaited international push by debuting its platform in Brazil. This includes an OS deal with TV manufacturer AOC as well as a content partnership with Globoplay, Brazil’s largest streaming service. This deal potentially benefits all involved, and Globoplay will be prominently featured with a shortcut button on Brazilian Roku remotes in the coming months. I like this move and view local partners as a smart, measured way to increase the odds of a successful rollout.

Unfortunately, these positives were overshadowed by a piece of negative news on 1/31. It appears Roku and Fox are in a contract dispute which caused Fox’s apps to be removed from Roku just two days before the Super Bowl. Even though both companies supplied alternatives for accessing the game, it’s not a good look for either before such a premier event. While fee disputes between carriers and content providers are fairly common in the cable world, this looks like the first major disagreement of the streaming era. Considering the unrelenting shift of viewers from cable to streaming, it almost certainly won’t be the last. As with most of these squabbles I’d expect an eventual resolution reestablishing the partnership. In the meantime, I view this drop as FUD (fear, uncertainty, doubt) and nibbled at another ~0.4% this afternoon. Welcome to the big leagues, Roku. Please be smart and don’t overplay your hand.

The end-of-month stumble notwithstanding, I view the earlier pronouncements as excellent examples of Roku’s burgeoning popularity. The company is continually finding innovative ways to worm into more and more home entertainment systems. In addition, these releases suggest third parties are becoming quite eager to access Roku’s platform and customer base. The more the merrier as far as I’m concerned. Despite the stock zigging down 9.7% this month while literally everything else I own zagged higher, I have no reason to think the overall business or thesis has faltered. Roku’s 2/13 report on their traditionally large Q4 should go a long way toward clarifying just how well-positioned they are for continued success. I plan on holding tight at least until then.

SMAR – As mentioned above, I increased Smartsheet slightly (~0.4%) in early January with some funds rotated out of MDB. Despite SMAR being my smallest position, I saw enough positives in the company’s December earnings to feel comfortable tacking on a few more shares. My long-term logic is SMAR’s thesis remains strong enough to deserve the tail-end spot in my portfolio as its story unfolds. My short-term emotion is wondering whether I shoulda picked ZM last month…

TTD – The main news around TTD was apparent momentum for programmatic advertising coming out of the 2020 CES Conference. CES is a huge event focusing on the latest trends and innovations in consumer technology. This year’s gathering saw 175,000+ attendees with 4,500+ exhibiting companies and 1,000+ speakers. I’d say that’s a chance for a lot of exposure.

We all know CEO Jeff Green is an unabashed cheerleader for programmatic ads and Connected TV. He’s recently been joined by executives from NBC and General Motors. It appears the ad market is firmly moving in TTD’s direction, and the stock has responded by touching new highs. The question now becomes how quickly these tailwinds will enhance The Trade Desk’s revenues and bottom line.

These recent developments have gotten me thinking about TTD’s prospects. I felt last quarter’s big post-earnings jump was more about Green selling the company’s future than its actual results. That dynamic is likely to continue in 2020 as the market digests the Disney and Amazon partnerships to start the year while awaiting the Olympics and US elections in the second half. As always, China remains a tantalizing wildcard. We know Green always takes full advantage of every opportunity to push his message. It’s reassuring to know other execs are starting to hum the same tune.

How long will the market allow the story to drive the stock before demanding this potential become results? I’m not sure, but there are three things TTD seems to have in its favor: CAP, TAM and present profits. You must admit that’s a pretty powerful combination. We’ve seen Shopify hold its premium an awfully long time based on market potential. We’ve also seen Paycom receive much love due to strong profitability at comparatively “lower” growth. Is TTD finding a similar niche? I guess we’ll find out as 2020 progresses, starting with upcoming February earnings.

As far as my holdings, TTD’s late run put it at 17.6% of my portfolio to end 2019. That was a bit too high for my liking, so I entered the year looking to trim when I could. As detailed earlier I ended up selling ~1.6% mid-month to purchase additional shares of CRWD. I’m content for now but am thinking my target allocation might be more 10%-12% longer term. Fortunately, I don’t see a need to rush any sells since the story appears intact and the stock continues to perform (I’m admittedly biased with this strategy because it worked well with SHOP in 2019). In the meantime, I’ll keep my antennae up for other opportunities.

My current watch list in rough order is ZM, DOCU, LVGO (gaining momentum but still researching), PAYC, ZS, SHOP (Old Faithful!) and AVLR. Avalara could climb once I see 2/12 earnings to get a better feel for its 2020 prospects. Twilio, Zendesk, Slack, Everbridge and Elastic are second tier.

In addition, I did a fairly deep dive on FSLY but came away ambivalent. While I like the recent revenue acceleration and guide for more, I can’t help but question whether 40% growth will be enough to offset the consistent losses and poor FCF at only mid-50’s gross margins. If nothing else, this story might take a long while to pan out. I plan on hanging around at least through upcoming earnings to take another look.

And there you have it. This was an excellent month for my portfolio in what turned out to be a flat market. As opposed to the seemingly relentless revaluation of 2019’s second half, growth stocks now appear to be back in sync with the daily gyrations of the broader index. These companies continue to outperform, and January marked my fifth double-digit gain in the last 13 months. That’s nothing short of amazing to me, though maybe I shouldn’t be so surprised since many others here have experienced similar or even better results over a much longer timeframe.

In the big picture I saw my portfolio hit an all-time high last July (7/26 to be exact). Sadly, I saw a significant decline from that point to year’s end. Luckily, larger positions in TTD and ROKU – along with no options exposure – softened my drop slightly compared to some others I know. Dare I say it, but January’s strong start has me entering February needing a gain of just 8.51% to reclaim that high-water mark (adjusted for contributions, of course). While 8.51% is certainly no cakewalk, that number seems remarkably attainable given where I was just a few months ago. Will I get there any time soon (or even at all)? I have no earthly idea 🤷. However, history has proven successful companies inevitably move up and to the right if given enough time. I’m just glad my portfolio has started 2020 by tellin’ me there’s a chance.

Thanks for reading. I’ll gladly take any feedback and hope everyone has a great February.