Portfolio Update 5/6
I post portfolio updates on Twitter regularly but I wanted to publish a weekly summary of my buys/sells. This has been a hectic week with several companies I own reporting earnings. My general strategy around earnings season is to sit on my current cash until I am able to dig into earnings transcripts and results. I do this because I want to 1) confirm that my thesis is still intact and 2) avoid buying during earnings volatility. For a long-term investor, it doesn’t make a huge difference if I buy at $50 or $55, but it’s better for my mental health if I don’t buy and immediately experience a 20% loss on my purchase. Unfortunately, this has been an exceedingly brutal week to report earnings, so even post-earnings purchases have seen a lot of downside. With that being said, here are my moves for the week ending 5/6:
Bought ZoomInfo (ZI)
After spending several weeks doing some preliminary research on this company, I finally opened up a starter position (roughly .5% of overall portfolio). They reported strong earnings on Monday, highlighted by:
58% YoY revenue growth
Non-GAAP net income of $.18 per share
$126 Million in free cash flow
1,623 customers over $100k ACV (65% growth YoY).
The earnings report was great, but I had several other reasons for opening a position. ZoomInfo offers a platform of four core products, with many various solutions. Each of these solutions has competition in some capacity, but there isn’t an entire platform on the market that matches ZoomInfo. To demonstrate the value and stickiness of the ZoomInfo platform, net annual retention grew from 108% to 116% in 2021. In addition, 75% of customers are now using advanced platform functionality. The 65% YoY increase in customers with over $100k ACV also suggests that ZoomInfo is growing with their customers.
A few other notes: this is a founder-led company with roughly 9% insider ownership. They are going after a $70 billion market opportunity, which is an impressive number considering the company’s TAM was estimated to be $24 billion just a few years ago when ZoomInfo went public. This means that the company is expanding its product offerings to increase their addressable market. I also like that this young company has very little customer concentration (no customer accounts for more than 1% of total revenue). I’ll continue to research and evaluate, but I am happy to be a shareholder today.
Added to Paycom (PAYC)
Paycom (PAYC) reported strong earnings on Tuesday, prompting me to add to my position. Here are the highlights of the quarterly report:
Revenue grew 30% YoY to $354 Million
Non-GAAP EPS of $1.90
Cash position grew 29% YoY to $360 Million
86.6% Gross Margins
Sales and Marketing expense as percentage of total revenue dropped from 21.8% to 20.4%
Raised full year guidance to $1.33 Billion
As of this writing, Paycom has crept up to around 4.5% of my overall portfolio. I’m probably done adding for now, but I continue to be encouraged by this company’s execution. I go into more detail in this article, where I discuss why I have such a high level of conviction in Paycom’s growth story.
Added to Airbnb (ABNB)
Airbnb also reported earnings on Tuesday, highlighted by:
Nights and Experiences booked: 102.1 Million (59% YoY growth)
Gross Booking Volume: $17.2 Billion (67% YoY growth)
Revenue grew 67% YoY
$1.2 Billion free cash flow
Net loss improved from $273 Million to $19 Million
In addition to strong earnings, Airbnb’s new features are starting to show signs of paying off. The “I’m Flexible” feature was used over 2 billion times and long term stays doubled from Q1 2019. The host network has grown as well - U.S active listings grew 21%, while international listings increased 15%.
As a result, I added to my position, which has grown to about 5.4% of my portfolio. I will not be adding anymore as it has exceeded my 5% threshold, but I am very excited about what management has done to keep this company on track through a very difficult time. Airbnb was severely impacted by Covid, but they have come back stronger than ever. Overall, the thesis is still on track so I will be happy to sit on my position.
Added to Datadog (DDOG)
The last move I made this week was adding to my position in Datadog (DDOG). Here is a summary of Q1 earnings:
Revenue growth of 83% to $363 Million (8% beat)
Non-GAAP operating margins of 23%
Non-GAAP EPS of $0.24 (beat by $0.13)
$130 Million free cash flow
2,250 customers over $100k ARR (60% increase YoY)
The numbers from the report were great and the company continues to expand their product offerings. Datadog launched Application Security Monitoring and expanded the Watchdog AI engine with new root-cause analysis and log anomaly detection. They continue to invest in growing the platform, expanding the total addressable market as customers adopt more products. After recent additions, DDOG is now around 2% of my portfolio. I’ll continue to monitor and will most likely look to buy more as market conditions stabilize and cash infusions arrive.
Other Earnings Reports
Several other companies from my growth portfolio reported earnings this week, including Shopify (SHOP), Hubspot (HUBS), Twilio (TWLO) and Confluent (CFLT). Results were mixed - SHOP was somewhat disappointing, while HUBS, TWLO and CFLT all produced good results. I’m not going to detail my thoughts on these earnings reports here, as I have not bought additional shares this week (and don’t immediately intend to). However, I have posted my thoughts on Twitter.