September 2024 Portfolio Review
Total Return: +29.0% YTD (+8.2% vs S&P)
2024 Results:
2024 Monthly Allocations:
Key:
darker green: started during month
lighter green: added during month
yellow: trimmed during month
red: position exits
positions >10% in bold
*Please note: I rolled an old 401K worth ~2.5% into the cash balance of this portfolio to start 2024. I’ve shaded the January cash cell to make sure the new cash is represented accurately (and honestly to remind myself as well).
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)
December 2023 (contains links to all 2023 monthly reports)
Stock Comments:
And another earnings season comes to a close…
AXON 0.00%↑ – Axon issued no formal news this month, but CEO Rick Smith penned an interesting blog post on the company’s mission to create a less lethal public safety environment. If nothing else, the post gives a nice overview of Smith’s vision for moving beyond Axon’s flagship Taser product into other monitoring, recording, and safety areas. It’s definitely worth the skim for shareholders as the stock pushes all-time highs.
CELH 0.00%↑ – Ugh. At a September 4 investor conference Celsius delivered yet another piece of bad inventory news when it announced “rightsizing” from distribution partner Pepsi has continued and should total a ~$100-$120M decline from last year by the end of Q3. With $47M in decreased orders already on the books through the first half, this means another $53-$73M is on the way for Q3. As noted after CELH’s last earnings report, the unexpected slowdown in energy drinks has become a major issue. The category decreased 9% YoY last quarter and 14% YoY this one. These new comments suggest that headwind is still blowing quite strongly.
Here's the exact quote from CEO John Fieldly:
Now through the first half of this year, we did see roughly over a $47 million decrease in orders associated with them optimizing their inventory levels as they're gaining more efficiencies with their relationship. They were improving supply chain timing, logistics and just being more effective and efficient all around. That's out of our control. But what we can control is really that retail component, making sure they're maintaining those service levels. And that has continued in the third quarter of this year. What we're seeing year-to-date, roughly around 100 million to 120 million of -- really of orders being reduced from what they ordered last quarter. So we're still seeing these inventory levels being reduced. It has increased in the third quarter. That's something we can't control.
I’m sure neither Celsius nor Pepsi anticipated this rapid decline the last two quarters. That in turn has created a huge inventory glut Pepsi continues to work through. With CELH recognizing revenue when inventory is sold rather than when consumers buy its product, that’s not very encouraging. Yes, Celsius continues to show short-term YoY growth while competitors are seeing declines, but the data suggests it is also doing some deep discounting to keep things moving. Will inventories turn around at some point? Maybe. Is Celsius stuck in no-man’s land while waiting for it all to play out? Definitely.
Obviously, “maybe” and “no-man’s land” are not foundations for a very strong thesis. That being the case, I’ve decided to lick some deep wounds and cut this one loose as it has moved into the too hard/too uncertain pile.
CRWD 0.00%↑ – Our most relevant CrowdStrike update in recent weeks was a reasonable August 28 earnings report. Considering its lead role in a mid-July global computer crash, CRWD was 100% going to take a goodwill hit and deservedly so. The question was how much business credibility would be left over. After reviewing everything, management considers the incident a mostly short-term headwind with its long-term targets for TAM and market opportunity still intact.
We received a slew of secondary updates as CrowdStrike moved through its September 16-19 Fal.Con customer conference. First, it announced a record 97 partner sponsors for the event (so, it is at least not being abandoned by customers). Next, it expanded its product partnership with security firm 1Password. This joint program will provide enterprise-grade protection to 150,000 small and medium-sized business customers by integrating CRWD’s platform with 1Password’s Extended Access Management tool.
Then CrowdStrike launched its second annual Startup Accelerator program working jointly with Amazon Web Services and Nvidia. Under this program, selected startups are enrolled in an eight-week program offering mentorship and guidance from industry experts and executives. Winners also receive access to top-tier investors and up to $25,000 in AWS credits. Originally including only CRWD and AWS, this is the first year NVIDIA is involved. I’d call this strong validation of the program.
Next came a series of announcements at Fal.Con 2024 including:
The launch of CrowdStrike Financial Services, a wholly-owned subsidiary offering customers financing solutions for greater flexibility in funding platform consolidations.
The unveiling of AI Security Posture Management and general availability of Data Security Posture Management. These releases “make Falcon Cloud Security the only CNAPP to deliver comprehensive visibility and protection across cloud infrastructure, applications, data and AI models from a single, unified platform.”
Being named a category Leader in Attack Surface Management in the most recent Forrester Wave research report.
Further enhancements to unify security and IT functions through the Falcon platform.
In addition to the tech updates, CrowdStrike held an investor briefing in which management confirmed the anticipated $60M decline in net new ARR the remainder of the year due to the outage along with the $60-$70M revenue hit already accounted for in most recent guide. On the flip side, it also confirmed all long-term margin targets through FY29 and the company’s goal for $10B in ARR by the end of FY31. Of course, the possibility of significantly exceeding that timeline has likely evaporated with this misstep.
As a final note, I noticed the post highlighting incident and remediation details for July’s computer outage is no longer pinned to the top of the company blog. While the total fallout is still TBD, it’s mildly encouraging to see that post no longer needs to be so readily available.
DDOG 0.00%↑ – Datadog announced general availability of its monitoring product for customers managing cloud and traditional workloads through Oracle Cloud. This includes AI and machine learning inference workloads. This integration will improve visibility and monitoring capability for all joint customers.
IOT 0.00%↑ – I’d call Samsara’s September 5 report a strong showing. Whatever calendar-induced funkiness that might have affected Q1 looks like it dissipated entirely in Q2. Samsara was already on the verge of proving durable cash flows and profitability. The minor question was whether it could maintain growth at a high enough level to fully leverage its improving margins at scale. The returns from this report suggest the answer is yes. As a shareholder, that’s nice to hear.
We also received a couple post-earnings updates. First, Samsara earned a spot on Fortune Magazine’s 2024 Change the World list recognizing companies which drive positive social impact through their core business strategy. Exiting the month, IOT announced a new integration with Esri, an application for processing, visualizing, and analyzing real-time data. Designed for public sector customers, this integration will improve fleet management and real-time reporting for municipalities and government agencies.
In the big picture, Samsara enters October all systems go.
NVDA 0.00%↑ – OK. I finally broke down and bought some INVIDIA on the stock’s recent pullback from highs of $140+ to $105. The world’s foremost chipmaker, NVDA is the undisputed leader in powering the burgeoning global buildout of data centers by customers desperate to get a leg up in the AI race. Despite some “this time is different” claims decrying the usual cyclicality of microchips, I 100% view this as a cyclical purchase. Many moons ago, I made a profit riding the NVDA wave until the first mentions of excess inventory were the cue to hop off. I plan on doing similarly this time around. The bet is the current wave still has profitable room to run before crashing onto the shore. I’ll be keeping this one sized with that thought firmly in mind.
TMDX 0.00%↑ – We received a smattering of TransMedics updates this month. First, it presented at Morgan Stanley’s 22nd Annual Global Healthcare Conference. Next, TMDX purchased its eighteenth in-house aircraft. Lastly, the S&P announced TransMedics would join its SmallCap 600 index effective September 26. From a business perspective, everything seems right on track for our biggest position.
TTD 0.00%↑ – I saw nothing new from The Trade Desk, which is par for the course with our traditionally quietest holding. The stock though spent most of the month bouncing around new 52-week highs. Carry on then.
ZS 0.00%↑ – Overall, I saw Zscaler’s September 4 report as having more bad than good. As a standalone, Q4 was mostly another in a long line of Zscaler’s boring, non-sexy quarters. However, the initial guides for next year veer closer to unappealing as the company reworks its sales motion. Management has always emphasized billings as the key indicator of company health. Unfortunately, ZS’s billings beats have shrunk considerably the last few quarters making the initial FY25 guide of 19.5% uninspiring at best. Live by the billings sword. Die by the billings sword.
For those who have been around long enough, Zscaler had a prior self-inflicted sales misstep in late 2019 which took several quarters to work through. Unfortunately, this new round of initiatives feels, smells, and sounds similar. Being honest with myself, I probably didn’t take enough warning from all the upper management changes the last several months.
Despite strong cash flow and profit margins, Zscaler is looking more and more like a maturing company with limited leverage left to squeeze from its business model. That makes top line growth the biggest factor in any upside going forward. In that respect, its OK quarter is overshadowed by those disappointing FY25 guides. The market reaction suggests investors were expecting more. Being honest, so was I. I’ve lowered our allocation to match my lowered conviction.
My current watch list…
…remains just monday.com (MNDY) with some interest in MercadoLibre (MELI). I’ve also taken quick looks at Applovin (APP) and Shift4 Payments (FOUR). In APP’s case, I’m not seeing enough differentiation with The Trade Desk, which we already own. With FOUR, I’m still trying to piece together its relationship between organic and acquisition growth. I owned a similar company called Lightspeed in the past where acquisition-fueled growth looked great until it didn’t. I want to make sure it’s not similar math here.
And there you have it.
Hmm. There was quite a bit going on for what was basically a flat month for our portfolio. In addition to earnings season wrapping up, we finally received a long-awaited US rate cut. The market seemed to take it mostly in stride as the pundits quickly turned their attention to the next geopolitical and/or US election issue to start guessing about. From a portfolio standpoint though, most of our companies just keep plugging away and putting one foot in front of the other as we head into the home stretch of 2024. That’s fine by me.
As usual, thanks for reading, and I hope everyone has a great October.
Since we can't DM on the boards anymore is there a way to send you a direct message these days?
Keep up the great work. I don't comment on all the posts (usually read in e-mail) but I do read everything you write!