The Razor’s Edge

#27: Atlassian Mafia Part 2 - The Competitive Dynamics in SaaS

We continue our discussion with Jens Schumacher and Justen Stepka, long-time Atlassian vets who have seen the software sector inside and out. We take a broader focus in this discussion, looking at SaaS competition, the importance of integrated cloud stacks, and the broader COVID and macro set-up. This leads to us diving in on Atlassian, on PagerDuty, on Zoom, and on Snowflake, among other topics.

Topics Covered

• 2:30 minute mark - The onset of competition - Asana for Atlassian, Microsoft for Twilio, and writ large
• 10:00 - The market's roving eye, excitement over IPOs or hot tickets vs. steady growing behemoths - Zoom vs. Cisco, Snowflake vs. Box vs. Salesforce, and the ongoing runroom for cloud growth and small/mid-caps like PagerDuty
• 14:00 - The value of having multiple revenue streams, and the importance of Rundeck to PagerDuty as a first step
• 17:00 - Microsoft's power move and Zoom's taking advantage of their position
• 20:00 - The commitment to your cloud stack for a decade, and the challenge for incumbents of diversifying - Hipchat vs. Slack and Bitbucket vs. GitHub
• 26:00 - Data Center redundancy and setting up your network
• 32:00 - Snowflake dive, and the echo with VMWare; its competitive position vs. Redshift, Teradata, etc.
• 46:15 - COVID-19 Status update around the world

#26: The Atlassian Mafia Part 1: Enterprise Search And Sajari W/Former Head of Jira Product

We speak with a couple of Atlassian alums on this week's episode, as the first of a two-parter. Our guests are Justen Stepka, co-owner of Enterprise Fund, Atlassian alum, and previous The Razor's Edge guest (episode #16); and Jens Schumacher,  employee number #12 at Atlassian, and the Head of Product for Jira Service Deck, who is now Chief Product Officer at Sajari, a search technology company. In today's episode, we talk about the Atlassian mafia effect and go more into focus on Sajari. This leads to a lot about Elastic Search, about the e-commerce market, and about SaaS development and machine learning that should be of interest.

Topics Covered

• 3:00 – Jens's background and the emergence of the Atlassian mafia
• 10:00 – What does it mean that a cohort of former colleagues keep working together?
• 13:30 – Atlassian roots and background
• 16:00 - Snowflake digression
• 18:00 – The challenges in search
• 26:00 – Breaking down machine learning vs. algorithmic search
• 35:00 - What stage of the e-commerce rush are we in?
• 42:00 – How much of this will stick for e-commerce

 

 

 

 

 

#25: WallStSaasBro With An Up Close View On The SaaS Market

In a growth-y market, it pays to have a fresh perspective. We interview WallStSaaSBro, a notorious member of fintwit who has firsthand experience on what's going on in the software sector. As an account executive in New York who has seen one sector - healthcare - go beyond acceleration into actual soup to nuts adoption of modern technology in 2020 - he has a value-added take on what's going on in the sector. He also has an interesting story and we have a wideranging conversation on his background, the state of New York, and the state of SaaS.

This call was recorded August 28th. 

Topics Covered

• 4:45 minute mark – Background and setting the NYC scene
• 12:45 – The changing expectations for sales hires at the big SaaS firms.
• 14:45 – Learning from unlikely sources – Martin Shkreli.
• 18:45 – AT&T as the jumping off point.
• 23:15 – The home healthcare market opportunity.
• 28:45 – Communications as a service.
• 32:45 – Parallels to past bubbly markets.
• 37:00 – CRM and WDAY stepping up – a beat?
• 40:15 – The 20-something tech perspective both personal and professional - ZoomInfo.
• 55:45 – Sales climate.
• 58:45 – WFH Impact.
• 1:03:15 – What does New York look like?
• 1:07:15 – Is New York dead?
• 1:20:15 – How could sales change, and automation.
• 1:25:15 – SaaS Bro’s top career investments.
• 1:34:15 – Explaining Coupa Software and Spend Management.
• 1:36:15 – The cybersecurity challenge.
• 1:40:15 – Covering Slack.
• 1:49:15 – The value of sales as a career path.

#24: Another PagerDuty Earnings Alert - Mission Critical, Or A Bubble Pop?

The end of summer often serves up surprises for the market, and this year was no different. The cadence of Zoom reporting and setting the market ablaze towards the end of earnings season, followed by PagerDuty reporting just as the euphoria faded is an all too familiar one for PagerDuty shareholders.

We discuss the smaller SaaS company's report and why, for all the talk of billings, net retention, and everything else, this was a solid fundamental report. And why, amidst a September 1st that could be a market turning point and a bunch of crazy factors, it didn't matter at all. We also preview Slack's report, talk SaaS consolidation, get meta about the investing podcasting boom, and talk about why an IPO matters for more than a company's initial trading.

Topics Covered

• 4:00 minute mark – The laggards rally, with CRM as a stand-in.
• 13:00 – Bull market philosophies.
• 18:20 – Long-term outlook for PD.
• 21:30 – The expectations and comp set for SaaS names.
• 27:45 – Breaking down PagerDuty’s report – what about the billings matter.
• 37:00 – How to look at a SaaS, and the differences between companies in the sector.
• 41:30 – PD’s expansion, and telling their story.
• 45:00 – Pager Duty maintaining their competitive lead.
• 51:15 – Leftover damage from the 2019 IPO, and net dollar-based retention rate. 
• 56:00 – The broader market pullback. 
• 1:02:00 – COVID-19 vs. Y2K.
• 1:07:00 – PD’s runway going forward, how it is not a COVID play, and the competitive bounds on all players here.
• 1:12:45 – Consolidation and the parallels to streaming or semiconductors.
• 1:19:00 – Slack Earnings call preview.
• 1:23:00 – September 1^st – Euphoria peak?
• 1:31:00 – The podcast boom as a sign of the market.
• 1:34:00 – Last notes on PagerDuty’s earnings.
• 1:38:30 – The importance of storytelling and the narrative, and the market context.

#23: F5 Networks' Transformation, Or What Makes A Compelling Growth (Or Value?) Pitch

We flip the script. Daniel pitches Akram on a new idea - f5 Networks - and Akram plays the role of portfolio manager, hearing out and testing the thesis. While Daniel might hope you like the idea itself, this episode should be a little more educational, as we break down what makes it a good or not-so good pitch, what's missing, and what could go into the thesis next. It also highlights a lot of the challenges in both growth and value investing.

We do get into other ideas, including Dropbox, and into the state of the market and whether the Alteryx report is a warning sign.

Topics Covered

• 3:30 minute mark - What brought us to f5?
• 6:30 - The long case for F5
• 10:30 - How the ADC market used to size up 7:00
• 13:45 – The inflection point for f5
• 16:00 – What is the future of the ADC
• 21:00 – What is the competition
• 24:30 The nature of service revenues
• 28:30 – What is it exactly that f5 does here
• 33:00 – Revisiting value and what does a low multiple mean, and the Alteryx report
• 39:00 – When the numbers aren’t enough
• 42:45 – The research process
• 47:30 – The limits of value investing
• 49:30 – Dropbox as another example
• 55:30 – Growth vs. value, or story vs. numbers
• 59:30 – Studying Tesla
• 1:04:30 – Alteryx – exception or warning?
• 1:10:45 – The hunt for the coming inflection
• 1:15:30 – Covid-19 Bull market geniuses and the market climate
• 1:22:30 – IPOs vs. SPACs and what that says about where we are

Reading materials:

Full pitch on Seeking Alpha: https://seekingalpha.com/article/4369321

What Makes Stocks Go Up: https://dubra.substack.com/p/the-anatomy-of-stocks-that-go-up

Life Magazine - "New Kid On The Street" (scroll to 62a):  https://books.google.es/books?id=bU8EAAAAMBAJ&printsec=frontcover&hl=es&source=gbs_ge_summary_r&cad=0#v=onepage&q&f=false

Dropbox: The First Dead Decacorn - https://alexdanco.com/2015/08/24/dropbox-the-first-dead-decacorn/

The Razor's Edge #22: Scott Norton of Sir Kensington's on Recessionary Dislocation And Adaptation

With the economy working through a recession - though certainly a unique mix of crosswinds - we thought it would be good to get out of the software space. Scott Norton, co-founder and CEO of Sir Kensington's, joins the Razor's Edge to talk about what he's seeing in this macro environment, both as someone who started out in finance and as the CEO of the condiments maker. He shares insights from the company's founding in the last recession and what makes the modern consumer goods company different from the big brands (though the big brands can still win, he points out). And since this is the Razor's Edge, we still talk a little bit of SaaS.

Topics Covered

• 3:00 minute mark – Sir Kensington’s calling its shot, but also missing out on another big startup
• 11:00 – How did the last recession shape the firm, and Scott’s career?
• 15:00 – The market’s liquidity rush and does the bill ever come due?
• 21:30 –Past recessions and Japan as models to keep an eye on as we work through this period
• 30:00 – What does 2020 look like for Sir K both in terms of work from home and changing habits?
• 37:00 – The feedback loop for the modern consumer goods company
• 40:30 – Cross pollination in the Unilever family
• 43:00 – What this period means for habit dislocation
• 46:00 – Planning amidst uncertainty
• 51:00 – New software tools?

A few links referenced in the conversation:

• Premium Pete interview with Scott: https://www.youtube.com/watch?v=Ds01YpbWfRE
• Healthyish's Toum Recipe: https://www.bonappetit.com/story/toum-recipe
• Sir Kensington's social media group: https://tastebuds.socialmedialink.com/members/sign_in#/

 

The Razor's Edge #21: Captain Twilio On His Only Position, Twilio

Today’s episode continues our conversation with Captain Twilio. Our guest, a financial professional and a friend of Akram’s, invests personally in a very concentrated fashion. Last time, we spoke about his previous position, Netflix. This time, we cover his current position, that’s a single position, Twilio. Akram and he talk about why he’s so confident in the stock, the risks of such concentration, and how to think about SaaS companies or really any sort of company in the current market.

 

Topics Covered

- 5:00 minute mark – The initial TWLO long case and the inherent risks from the start 

- 12:30 – The Uber ‘gift’ and the shift to selling to firms; and Flex 

- 15:30 – The value of new technologies – cost savings – and do they really deliver? 

- 18:15 – Uneconomic end markets for Twilio – a risk? 

- 21:00 – The dynamics of pricing models, and Twilio’s competitiveness 

- 28:00 – The relative value of valuation vs. focus 

- 31:45 – What cost savings means for TAM analysis, and the importance of TAM analysis (or its limits) 

- 36:00 – Wild IPO pricing and what it means 

- 40:15 – Why the concentration 

- 45:40 – Survivorship bias and growth investing 

- 49:00 – Market multiples and the importance of company culture 

- 53:30 – Revisiting the macro element, and what sort of 100-year events are happening 

- 59:00 – Echoes of 2000 

- 1:01:00 – If things go back to normal, what happens to SaaS 

- 1:07:00 – Risk to Q2 earnings season and guidance

 

 

 

The Razor's Edge #20: Captain Twilio on Netflix's Dominant Position And The Streaming Wars

We're joined by friend of The Razor's Edge and professional investor Captain Twilio, as he's known. As someone who has only owned two stocks in his portfolio since 2012 - Netflix from 2012-2017 and Twilio in the three years since - he has a laser focused approach to growth investing, and it's worked.

 

In the wake of Netflix's most recent, pandemic-fueled earnings report, we brought him on to see where he thinks the company sits, and what we all make of the report and Netflix's positioning. We also cover Captain's Twilio position at length, though that will be part two of this episode, coming out around Twilio's earnings. 

Topics Covered  

• 3:30 - Background on the Captain's positioning  
• 7:30 - Understanding the old Netflix long case and the growth investor mindset 
• 12:30 - Why swap out? 
• 14:30 - Attention span issue and the new threat of Tiktok 
• 21:00 - The competitive landscape 
• 27:00 - The old distribution vs. content question 
• 30:00 - The streaming wars and what attrition looks like 
• 34:30 - The most recent earnings call, and what lands are left for Netflix to conquer? 
• 43:00 - Peak Hollywood and our changing viewing habits 

Relevant Links:

Akram's Razor - Netflix: This Stock's Story Is Over

Vox - Land of the Giants Podcast Season 2

The Razor's Edge #19: Superhuman Founder/CEO Rahul Vohra On Email's Enduring Role In Modern Workplace Collaboration

We've gone to some length covering Slack, Zoom, and other software companies, as the 2020 work from home environment has accelerated and amplified business's rush to the cloud. But what about email, that old standby? Where does it fit in?

We got the chance to speak with Rahul Vohra, someone whose career has been built on optimizing email. He founded Rapportive, a Gmail plug-in, before selling that to LinkedIn for what was reported to be $15M. He is now the founder and CEO of Superhuman, a service that also builds on gmail and is dedicated to providing the fastest email experience ever. He filled us in on what Superhuman is seeing in the 2020 market, whether a $360/year product is consigned to a niche, what the entrant of a new competitor - Hey, from Basecamp - portends, and how gamification goes right or wrong. He also shared his thoughts on the recent Apple app store arguments that Hey prompted, and what his favorite video games were growing up.  

Topics Covered:

• 2:30 minute mark - The role of email in the modern collaboration landscape: Is Email dead?
• 7:30 – Initial impact of asynchronicity, work from home, COVID
• 10:30 – Superhuman user experience
• 16:30 – The onboarding process, that Verge review, and unit economics
• 23:30 – The niche question
• 29:30 – Competition, Hey’s entrance into the market
• 42:30 – The Communications bundling/unbundling
• 46:30 – Demographic questions
• 52:30 – Among the giants
• 54:30 – App Store controversy
• 57:30 – Gamification
• 1:02:30 – Public SaaS valuations and what is possible for start-ups

Sources worth checking out in context of this conversation:

• Walt Mossberg: Yes, You've Still Got Mail
• The Smart but Scattered Guide to Success: How to Use Your Brain’s Executive Skills to Keep Up, Stay Calm, and Get Organized at Work and at Home (Book)
• Verge: Superhuman's email app is overhyped and overpriced
• Churn FM: How Superhuman avoids churn by systematically increasing product-market fit (Podcast)
• First Round: How Superhuman Built An Engine To Find Product/Market Fit
• TheInformation: The Tech Entrepreneur Who Loves To Troll Silicon Valley

The Investing Edge Announcement

A quick update about the programming on this channel - this channel will be only featuring the Razor's Edge going forward. To get new Value Investor's Edge Live podcasts, subscribe to the Marketplace Roundtable Podcast channel, available here: iTunes/Apple Podcasts Spotify Stitcher Seeking Alpha

The Razor's Edge #18: The Bankruptcy Market With Sam Zughayer

One of the stranger dislocations in 2020 has been the behavior of stocks that are bound to or have already filed bankruptcy, with Hertz's offering of new equity this week as the biggest example of the phenomenon. We speak with Sam Zughayer, managing director of Berenson & Company, about what might explain this, what he's seeing, and where this may end up. Topics Covered 4:00 – Where Sam gets involved in the process normally 8:00 – What makes this time different 14:00 – What the government learned in 2009 and how that affects things 18:30 – Rule of contract law in the current climate 21:00 – The implication of the Hertz ruling 27:00 – The capital structure component and the structural effects for business 32:00 – The Hertz precedent and effect on other bankruptcies 35:00 – The longer-term legacies of this period 38:30 – The problem with shale oil 45:00 – Is this unhealthy? The Zombie element of sustaining firms. 47:00 – And the formerly healthy companies that fall, what of them? 50:00 – Looking back at stock buybacks 53:00 – Will behavior change?

The Razor's Edge #17: The Guidance Question For SaaS - Zoom vs. Slack and PagerDuty

We visit the software as a service sector for the third time in a row, as the earnings week we were waiting for came to pass. Zoom reported the so-called 'greatest quarter ever in software', and skewed expectations for peers like PagerDuty and Slack. So, does the market have the reaction right, and where do we go from here? Akram's Razor and Daniel Shvartsman break it down. Topics Covered 2:00 minute mark – Digging into Zoom's guidance 6:00 – The timing of PagerDuty and Slack's earnings (two days after Zoom's). 8:00 – What about the expansion in large clients for Zoom and potential new verticals 13:30 – How did Zoom's report affect PagerDuty/Slack's reports 18:00 – Why isn’t guidance going higher for some of these SaaS names? 28:00 – The longer onboarding cycle for Slack/PagerDuty 33:00 – The convergence of the attention economy 36:00 – The Dropbox angle 42:00 – Ramping up of adoption curves 48:00 – Macro and sector context to keep in mind

The Razor's Edge #16: Talking SaaS With Investor and Tech Veteran Justen Stepka

We continue to follow the software as a service sector and the impact of the work from home world, but this time with an outside perspective. Justen Stepka, the founder of Authentisoft and then a longtime product management executive at Atlassian and Docker, joined us to talk about his positions in Slack and Atlassian and what makes the companies stand out. Currently the co-CEO/co-founder of Enterprise Fund, a private equity firm, he also shares his views on the work from home environment we're in and its potential knock-on effects, as well as what he's seeing in private markets. Topics Covered 2:30 minute mark - The importance of R&D in retention 6:00 - Product stickiness vs. ease of use 11:30 - Evaluating R&D as a competitive edge 15:00 - The importance of dogfooding 18:00 - Okta's position 23:30 - How can a software company really be on sale in this market? 28:45 - ServiceNow's position 30:00 - What's next in the industry, where is Justen watching, and what does the private market look like? 36:30 - The change in perspective from being an insider to an outside investor 41:00 - Work from Home and its broader effects 52:00 - Commercial real estate

Value Investor's Edge Live #20: Torm PLC's Management Team On The Product Tanker Market

With attention still focused on the tanker segment, J Mintzmyer speaks to underfollowed Torm PLC about what they're seeing in the wake of a solid Q1 earnings report and Q2 outlook. Topics Covered 1:15 minute mark - Overview of current product tanker markets: 3:15 - Differences between LR & MR markets? 7:00 - How many of your LR2s are trading dirty vs. clean? 9:15 - How long is the destocking period likely to last, impact to rates? 14:00 - Capital allocation priorities at this time? 17:00 - Nearly 25 ships aged 15+, how are these performing? Plans to sell? 21:15 - Any levers available to close NAV discount? 24:00 - Free float is very thin, is there an ability to boost this without dilution? 30:15 - Crew replacements ongoing or still stuck on water? 35:00 - Current newbuild environment: Shipyards aggressively discounting yet? 37:45 - What differentiates Torm from peers and competitors?

The Razor's Edge #15: SaaS Earnings And Work From Home Vs. Work From Everywhere Plays

The software as a service sector has passed its first recession test in flying colors, as the nature of the coronavirus market has led to a increased business for these companies. With two of the most popular names - Slack and Zoom - due to report in a couple weeks, Akram's Razor and Daniel Shvartsman check in on the state of the sector and whether work from home is a benefit or a liability. Topics Covered: 3:00 minute mark – What explains a big move like Twilio's 7:00 - The broader valuation context 15:00 - The prevailing dynamic of competition 21:00 - Valuation pair mismatches – DDOG/NEWR, PD/EVBG, WORK/ZM 36:30 – Leaving the 10x EV/sales barrier in the past 46:00 – Where does Slack go when the light bulb turns on? 55:30 – the NFLX parallel for Zoom and the search for a pivot 1:03:00 – Slack earnings preview

Value Investor's Edge Live #19: Post-Earnings Discussion With Ardmore Shipping CEO Anthony Gurnee And CFO Paul Tivnan

J Mintzmyer speaks with Ardmore Shipping management about Q1 and the fast-moving product tanker section. Topics Covered 1:00 minute mark - What’s the underlying trade in the product tanker markets? 2:30 - Thoughts on broker rates versus actual ‘market levels?’ 5:30 - Difference in voyages in progress versus completed QTD? 6:30 - Thoughts on chemical side of the business, rates coming in lower? 8:45 - Shift in dividend policy, shift to deleveraging? 12:00 - Is Ardmore aligned? Can we trust you not to blow money on ships? 16:00 - At what point do you have to repurchase shares? 18:30 - Repurchases versus secondhand vessel acquisitions. 22:00 - Review of normalized ROA and ROE? 23:15 - Review of normal average MR product market? 27:00 - How do you communicate a ‘normalized value’? 30:15 - Visibility and thoughts on product floating storage volumes? 32:00 - Indications from customers/markets regarding terminal capacity? 34:30 - Parting thoughts for investors in Ardmore or product tankers?

The Investing Edge: Akram's Razor Interviews J Mintzmyer On The Tanker Trade

In the most ambitious crossover event in Seeking Alpha podcast history, we turn the tables around. J Mintzmyer joins Akram's Razor and Daniel Shvartsman to talk the tanker trade, which is a hotly discussed topic in the markets these days. While the tanker rates and industry set up would seem to align with a generational shift, share prices have yet to pick up. Recorded at the beginning of a busy week for shipping sector earnings, it should provide some interesting background for people looking at this trade and the sector more generally. Topics Covered 2:00 minute mark - The endurance of the shipping cycle 12:00 - Mean reversion for Value? 18:00 - The oil crash and commodity ETFs 22:00 - The abnormalities in this cycle 27:00 - How supply and demand have lined up 31:00 - Investor reactions 35:30 - The Macro context 46:00 - Dry bulk woes 49:30 - Talking the downside in the tanker trade 54:00 - The management and capital allocation question 58:00 - Getting down to some picks

Value Investor's Edge Live #18: On The Water In The Tanker Markets With Frontline's CEO

J Mintzmyer spoke with Frontline's CEO, Robert Hvide Macleod, last week about how the tanker market is shaping up amidst a lot of commodity price moves and investor interest. Topics Covered 1:00 minute mark - What has changed in the market YTD compared to initial setups? 3:00 - Have we seen something like this in the market before? 4:30 - Preferable data source or metric for global storage balance? 6:30 - Discussion of ‘oil on water’ metric 10:30 - What is LR2 clean/dirty split? What is driving LR2 spike? 11:45 - What time charter offers are available in the markets? 15:00 - Fixtures available anywhere for FRO? Indexes accurate? 18:45 - Comments on Saudi flotilla? What happens if destinations change? 21:00 - How does cash payment flow work for spot vs. TC? 23:30 - Any concerns with CP risk? Precedent for this? 25:15 - Chance of shifting terms of spot market payment? 26:45 - Risk factor of ‘famine’ on the other side of the curve? 31:00 - IMO 2020: Spreads are down, will they come back? 36:30 - Capital allocation priorities now? Any newbuildings? Consolidation? 41:15 - Formally swearing off newbuilds? Yes! 42:30 - What is holding back the tanker stocks in these markets?

The Razor's Edge #14: Snap's Crackling Earnings Pop and The Internet Advertising Space

We break down Snap's upside earnings report and what it means for the internet advertising space, coronavirus plays, the effects of stimulus, and a lot more. Topics Covered 2:30 minute mark: Setting the scene 7:30: Attention Costs 10:00: The Hollywood effect 14:00: Snap's international growth 18:00: The filter issue 23:00: Relative valuation 27:00: Amazon's perfect storm 30:00: Other advertisers' prospects 33:00: The demographic questions 37:00: Stimulus effects 53:00: Shifting spending 59:00: Differing audiences 1:01:00: Twitter digression 1:07:00: How to interpret this earnings season 1:12:00: The Tiktok threat 1:17:00: Recovery risks 1:24:00: Second level effects

The Razor's Edge #13: Zoom And The Harsh Spotlight

Zoom (ZM) was a go-go momentum stock in its first year of trading, with revenue multiples and performance outpacing most of its SAAS (software as a service peers). That was to a degree deserved due to the company's profitable business model and competitive advantages as a smooth, easy-to use video communications platform. With the advent of lockdowns, quarantines, and social distancing to combat the spread of COVID-19, Zoom has transcended from growth stock favorite to widely known consumer brand and almost an inverse ETF of the bear market. While value investors like to grumble about the market getting irrational about growth stocks, there are some reasons to be optimistic about Zoom's prospects at least as compared to where they stood on January 1st. The increased usage of the product - while costing Zoom more to support - should both accelerate adoption for the long-term and potentially open up new avenues and use cases. On the other hand, the increased focus on Zoom has also highlighted issues the company has, most primarily with security, something hardwired into the company's fantastic success to date. We discussed the cross-currents at play here and where Zoom might be headed next. Topics Covered 2:30 minute mark - The Zoom setup 6:00 - Zoom's origin story and its advantage 14:15 - Zoom's killer app 16:30 - Questions that are beginning to arise 21:15 - The security issues 26:30 - Enterprise vs. consumer business model, and being thesocial distancing play 33:00 - Overall market description and Zoom's rise 38:15 - The competition 47:00 - Justifying the valuation? 55:00 - What sort of revenue upside is there 1:04:00 - Sorting out temporary from permanent 1:14:30 - The Zoom production studio angle 1:19:00 - China backlash 1:23:00 - Regulation 1:28:00 - A final macro note