June 2023 Portfolio Review
Total Return: +24.5% YTD (+8.5% vs S&P)
2023 Results:
2023 Monthly Allocations:
Key:
darker green: started during month
lighter green: added during month
yellow: trimmed during month
blue: bought and sold during month
red: position exits
positions >10% in bold
Past recaps:
December 2018 (the one that got things started)
December 2019 (contains links to all 2019 monthly reports)
December 2020 (contains links to all 2020 monthly reports)
December 2021 (contains links to all 2021 monthly reports)
December 2022 (contains links to all 2022 monthly reports)
Stock Comments:
There wasn’t much in the way of June earnings with Zscaler being our portfolio’s last straggler. However, there were plenty of other updates worth mentioning…
AEHR 0.00%↑ – Aehr began the month with new customer announcement on June 1. As usual, the customer is not identified directly, but the sale includes Aehr’s burn-in system along with a “long-term” agreement for supplies and support. The initial equipment is scheduled to ship within the next two quarters.
It followed up by presenting at the 43rd William Blair Growth Stock Conference June 7. Reviewing the presentation, management sounds extremely bullish on the potential for both its silicon carbide and silicon photonics business. Some additional takeaways from the conference can be found in this thread. Management’s next investor event is the CEO Investor Summit 2023 on July 12.
Aehr ended the month being formally added to the Russell 3000. If nothing else, that should increase the number of analysts and funds taking a deeper look at the company. The more the merrier as far as I’m concerned.
At such a small size, Aehr’s recent new business has a chance to really move the revenue and earnings needle. I haven’t seen a formal earnings date yet but expect something to hit the wire soon.
BILL 0.00%↑ – Bill’s main update was participation in the BofA Securities Global Technology Conference June 6 and the William Blair Growth Stock Conference June 8. Management delivered the same basic message as May’s quarterly report. While the overall economy might not be completely out of the woods, Bill’s small-and-medium sized customers seem to be finding their equilibrium. That should bode well over future quarters as long as Bill can maintain its recent operational leverage gains.
CRWD 0.00%↑ – After basically holding serve with its May 31 earnings, CrowdStrike began June with the release of its 1-Click XDR product to identify and secure unmanaged cloud assets. 1-Click XDR lets customers “consolidate multiple cloud security point products into a single, unified platform for complete protection across the cloud security lifecycle.” For those more familiar with the jargon, specific capabilities include:
1-Click XDR: Organizations can sweep their cloud environment with native agentless visibility to identify unprotected workloads and automatically deploy the CrowdStrike Falcon agent for end-to-end runtime protection.
Agentless Snapshot Scanning: When an agent can’t be installed, organizations can gain full visibility into cloud workload risk by detecting vulnerabilities and installed applications – starting with support for AWS.
Complete Cloud Attack Path Visualization: Organizations can see a unified view of the attack path, from host to cloud, to detect, prevent and remediate cloud threats, without the complexity of multiple consoles and agents.
Additional Updates Include: An updated Compliance Dashboard (now supporting CIS, NIST, PCI, SOC2 and custom frameworks), new Infrastructure as Code (IaC) Security, and an integrated Kubernetes Admission Controller.
I have no idea what most of that means but do know it increases the likelihood of increased module adoption and a continued streak of 120%+ net retention rates. That’s good enough for me.
Our final update was CRWD taking top honors as the Best Endpoint Security solution at the SC Awards Europe 2023. This recognition comes after winning the Best Emerging Technology Award at last year’s event. SC Awards Europe identifies “products and services that stand out by exceeding customer expectations to help defeat imminent threats and sophisticated cybersecurity attacks.”
There’s little doubt CrowdStrike has established a best-in-class product portfolio. All it needs to do now is keep executing.
DDOG 0.00%↑ – Datadog provided several June updates. First it moved its Workflow Automation product to general availability. Workflow Automation enables users “to automate end-to-end remediation processes – with out-of-the-box and pre-built templates – across all systems, apps, and services.” Next, DDOG announced new capabilities for its Cloud Cost Management product for optimizing cloud performance and spend.
Lastly, DDOG announced its annual Dash customer conference will be August 2 and 3 in San Francisco. Speakers from Google, AWS, and Airbnb will be among those presenting on Datadog’s products. As @hhhypergrowth astutely observed, this is much earlier than Dash’s usual October dates. Is this progressive or just playing catch up? I guess it depends on what is announced at Dash. If nothing else, it is nice to see Datadog keep innovating as it works through this recent period of customer usage optimization.
ENPH 0.00%↑ – Enphase just keeps on Enphasing. June saw it:
Expand its relationship with US distributor Blue Raven Solar. Blue Raven has outlets in 18 states crisscrossing the US.
Announce additional deployments in Austria.
Release its IQ Energy Router system in Germany and Austria enabling integration of some third-party electric vehicle chargers and heat pumps into its solar and battery system.
Announce additional deployments in Brazil, which also led me to Enphase’s nifty little Portugese website.
Launch the sale of its new microinverters in Germany.
Lastly, expand its relationship with European wholesaler 4blue to distribute microinverters and batteries in the Netherlands, Germany, Belgium, and Luxembourg.
Enphase continues to move toward being a comprehensive smart-home energy solution for both US and international customers. I’m looking forward to seeing if the company can pull it off.
IOT 0.00%↑ – Samsara makes its debut in our portfolio after its recent pullback. IOT sells sensors and software for customers to monitor physical equipment (trucks, machines, etc.) for efficiency and safety. Samsara’s main differentiator is delivering a tangible, measurable ROI from the moment customers install it. This can be in the form of less idling time, lower fuel costs, fewer accidents, reduced insurance premiums, and/or extended equipment life. As management often notes, being directly linked to equipment means Samara’s services fall under higher priority operational budgets rather than more discretionary budgets like IT. This hard ROI also makes it easy for customers to calculate the payback period before IOT’s accumulated benefits outweigh its costs. That means once Samsara is in, it is likely to stick around a while.
From a business perspective, IOT has some intriguing trends. On the top line, next quarter’s revenue growth has a strong chance to accelerate slightly from the current 43.2%. What I find more interesting though are these secondary numbers (oldest to most recent quarter):
New $100K+ Customers: 91, 92, 124, 124, 138 (a record)
Non-GAAP expenses as a percentage of revenue: 91.3%, 86.0%, 83.5%, 81.5%, 82.6%
Operating Margin: -17.9%, -13.2%, -9.8%, -7.9%, -9.3%
Net Margin: -18.4%, -12.2%, -6.9%, -4.4%, -5.4%
Operating Cash Flow Margin: -34.2%, -24.1%, -7.6%, -2.3%, 5.1% (IOT’s first positive showing)
Free Cash Flow Margin: -35.5%, -25.0%, -8.8%, -3.2%, -1.1%
While IOT doesn’t have a ton of history, the slight declines last quarter appear seasonal and are noticeably smaller than years past. Regardless, Samara seems to be on the verge of flipping to positive cash flows and profit as it scales. My experience suggests this is often a successful period to own a company, so I’m happy to put it on the board and see where things lead.
NET 0.00%↑ – I’ve sold my last Cloudflare during this run. I’m just not seeing what’s fundamentally driving it given NET’s most recent quarter. That being said, I hope it keeps going up for everyone who owns it.
TMDX 0.00%↑ – I’ve seen no business news to account for TransMedics’ recent slow and steady rise. No complaints here though.
TTD 0.00%↑ – June saw The Trade Desk launch Kokai, its new AI-driven buying platform for targeted digital marketing. In some ways this looks like an upgraded version of Koa, TTD’s initial AI platform released in 2018. With five years of additional data and enhancements, Kokai’s features include:
Added-value retail measurement data from pioneer retailers including Albertsons Media Collective, Walgreens Advertising Group, and others when audience data is turned on.
The Retail Sales Index – A new benchmark for measuring online and offline retail sales against retail ad spend – in one place.
The TV Quality Index – Measuring the quality of the ad experience that the viewer is having across all streaming platforms and streaming content, to ensure that every campaign targets the most relevant inventory for any specific audience group.
The Quality Reach Index – Helping marketers expand their loyal customer base by accurately targeting the most relevant customer profiles.
CEO Jeff Green has proven quite proficient in positioning The Trade Desk for the ever-evolving online advertising market. It appears Kokai is yet another step in that direction.
ZS 0.00%↑ – Zscaler began June with what I thought was a strong earnings report. Given management’s May 8 pre-announcement, we already knew the headlines would likely be good. ZS delivered a solid bottom line and outlook as well, which in turn produced a nice run for the stock.
The report was followed by Zscaler’s annual Zenith Live conference on June 15. Heading into that event, ZS made two additional product announcements. First was the debut of new services further extending the power of its Zero Trust Exchange. These upgrades “not only enhance the monitoring and remediation of sophisticated attacks but also deliver a fundamentally new approach to securely connecting branch offices – all while simplifying and streamlining the management process at scale for IT professionals.”
Next it announced a new suite of cyber solutions leveraging generative AI while still protecting data and intellectual property. Features include:
Data Protection for AI: Zscaler Data Loss Prevention (DLP) prevents potential data leakage and enables organizations to record and retain content, including prompts to generative AI queries and outputs of publicly available LLMs and AI applications, for security and audit purposes in their own environments.
AITotal™: A comprehensive risk scoring system for an exploding number of AI applications, taking into account the applications’ risk profiles and privacy policies.
AI Visibility and Access Control: A new URL category and cloud application specifically tailored for monitoring AI application usage. This innovative solution offers the versatility to establish a variety of disparate policies for different user sets and groups, granting organizations precise control over access to AI applications. By implementing cloud-based remote browser isolation, Zscaler provides an additional layer of security while restricting potentially hazardous actions, such as uploads, downloads, and cut-and-paste functions when accessing AI applications.
Security Autopilot™ with breach prediction: A proactive approach to securing data by enabling AI engines to continuously learn from changing cloud-based policies and logs. By recommending policies and performing impact analysis, Security Autopilot simplifies security operations while helping improve security posture control and preventing future breaches. This is currently piloted by ThreatLabz, Zscaler’s advanced threat research and incident response team.
Zscaler Navigator™: A simplified and unified natural language interface to enable customers to interact with Zscaler products and access relevant documentation details using a seamless, secure and user-friendly approach.
Multi-Modal DLP: Traditional DLP solutions are limited to understanding and managing text and image-based data, and the world has transitioned to a broader set of visual and audio multimedia formats. Zscaler will revolutionize the way DLP will operate by integrating generative AI and multi-modal capabilities into its DLP offerings to protect customers’ data from leakage across various media formats beyond text and images, such as video and audio formats.
Zscaler finished June by landing a large contract with solar technology firm Maxeon. A spinoff from SunPower Corporation, Maxeon was looking to install its own security systems. It chose Zscaler’s Zero Trust solution to protect over 5,000 employees in 100+ countries. Sounds like a win worth announcing to me.
My current watch list…
…in rough order includes Super Micro Computer (SMCI), monday.com (MNDY), Snowflake (SNOW), and MongoDB (MDB). I’ve also taken a cursory look at Celsius Holdings (CELH) but haven’t finished yet. I figure if I’m going to own another widget company, I might as well look at one where many customers drink multiple widgets a week.
And there you have it.
It was a slow and steady June bolstered by some relative strength the final week. On a micro level we exit the quarter having received a slew of perfectly reasonable earnings reports. On a macro level we are seeing more and more hints the worst might be behind us. It has certainly been a choppy 2023, but I can’t complain about how the first half ended. Here’s hoping the second half brings continued positive news.
Thanks for reading, and I hope everyone has a great July.
Hm... it's always a question of who copies whom, who chases the current favourites more and loses the most money in the end. You're late for SMCI, but buy while you can. After all, it would be by far the cheapest.
How is the performance since the start?
Is your spreadsheet until June 15 or June 30?