Last week, I shared Part 1 of the 2021 review. Another prediction I made at the beginning of 2021 was that companies will heavily invest in their digital transformation. As you may have noticed the amount of data that companies has access to has exploded over the last couple of years. Everyone is sharing more pictures, more information and we need new tools to manage these large amounts of data. Companies that are good at managing their customers’ data are performing better and are able to retain their customers.
The companies that I had picked in this sector are Crowdstrike (CRWD), Okta (OKTA), DataDog (DDOG) and MongoDB (MDB). Let’s see how they have done in 2021.
|Stock||Jan 1, 2021 Price||
So as a basket, this group was up 104.03% in the last year or so but as I said at the beginning of 2021 that I plan to hold these stocks for a minimum of 5 years so this story is just getting started. I also shared the 52 weeks high and low for these stocks to give a picture about how volatile these stocks are. As is always the case, when you have a basket of stocks, there will be one or two star performers that will carry the portfolio returns and the rest will either be losers or just market performers. This has been the same story for my portfolio, where a few winners (NFLX, AMZN, TSLA) have carried my portfolio over the last decade).
As you know, that stock price only tells half the story. I also follow the business execution as well. Let’s see how these four businesses have done.
CRWD Revenue Growth and Year-Over-Year Growth
|2020||$96m (103%)||$108m (94%)||$114m (98%)||$152m (89%)||$601m (92%)|
|2021||$178m (85%)||$199m (84%)||$233m (86%)||$265m (74%)||$1.05B (75%)|
|2022||$303m (70%)||$338m (70%)||$380m (63%)|
So, this company was growing its revenues almost at 100% two years ago has now slowed down to 63% growth rate and the market is penalizing them because their growth rate is slowing down. This is now a $46B business at a revenue run rate of $1.3B over the last twelve months. That is a Price/Sales ratio of 35. Even if the revenue growth slows down to 50% over the next two years, they will still be at about $5B revenue run rate by the end of 2026. As I mentioned in my article, I plan to hold these companies until at least 2026. At 20 Price/Sales Ratio over $5B sales, I am expecting at least a double on CRWD by 2026. That is a 15% Compounded Annual Growth Rate and I am happy with that.
Let’s look at Okta next. I have written about Okta in the past here.
This is how Okta has done.
|Year||Q1 (Growth Rate)||Q2 (Growth Rate)||Q3 (Growth Rate)||Q4 (Growth Rate)||Total (Growth Rate)|
|FY 2020||$125m (50%)||$141m (49%)||$153m (45%)||$167m (45%)||$586m (47%)|
|FY 2021||$183m (46%)||$200m (43%)||$217m (42%)||$235m (40%)||$835m (43%)|
|FY 2022||$251m (37%)||$316m (57%)||$351m (61%)|
Okta made a big acquisition in May 2021 of another company called Auth0. That is why you see a revenue re-acceleration for this company. As I wrote last week with Teladoc, whenever a company makes a large acquisition, the revenue growth becomes lumpy and it becomes harder to see how the company is performing organically. So, I am not surprised that Okta is an underperformer this year. It usually takes 12-18 months for a company to digest an acquisition and start growing meaningfully. At present Okta is about a $34B business at a revenue run rate of $1.15B over the last twelve months. That is a Price/Sales ratio of about 30 which is pretty low for a company growing at this pace. I expect good things for Okta going forward.
Next, let’s see how DataDog has done.
DDOG Revenue Growth and Year-Over-Year Growth
|2019||$70m||$83m||$96m (88%)||$114m (85%)||$363m (83%)|
|2020||$131m (87%)||$140m (68%)||$155m (61%)||$178m (56%)||$604m (66%)|
|2021||$199m (51%)||$234m (67%)||$270m (75%)|
As the name implies, DataDog provides observability infrastructure for Data. The star performer of this basket went through an interesting transformation. The revenue growth rate for DDOG fell down from the high 80s to mid-50s in 2020 and the stock was an underperformer in 2020. In 2021, the revenue growth re-accelerated to mid-70% and the management is guiding for a 64% growth in Q4 2021. They have a history of under promising and over delivering so I am pretty sure that revenue will grow by at least 70% in Q4 2021. To summarize, this is a $54B business with last twelve months revenues at $881m. That is a Price to Sales Ratio of 61 which is pretty high but the market has a history of rewarding companies with hypergrowth. Again, I plan to hold this stock until 2026 and there will be periods when this stock is an underperformer so I am prepared for those periods as well.
The final company that I want to talk about in this thread is MongoDB.
MDB Revenue Growth and Year-Over-Year Growth
|2020||$89m (78%)||$99m (67%)||$109m (52%)||$124m (44%)||$422m (58%)|
|2021||$130m (46%)||$138m (39%)||$151m (38%)||$171m (38%)||$590m (40%)|
|2022||$182m (39%)||$199 (44%)||$227 (50%)|
Check out the article that I linked above about MDB. That article provides a good description about what MDB does. As with DataDog, you may notice the same trend with MongoDB. Revenue growth slowed down from high 70% to high 30% and the re-accelerated to 50%. They are guiding over 41% growth for the next quarter and once again, we can expect a little sandbagging in there.
This is a $33B business with last twelve months revenues of $779m. That is a Price/Sales ratio of 42 which is in the medium range as compared to other three companies that I am talking about in this article. The growth story for MDB is their product Atlas which is growing at above 80% and now contributes more than half of their revenues. At this pace, pretty soon Atlas will make up a more than three-fourths of the revenues of MDB by 2026. So I am excited about that and I expect good things for MDB going forward.
To summarize, this basket of four companies continued to execute flawlessly over 2021. Even through two of these companies were trailing the market in 2021 that does not bother me at all. I continue to hold these companies and will look to add at better value points in 2022 and beyond