I did some trimming today:
Sold 15% of my Lemonade stake
Sold 10% of my Shopify stake
I continue to be optimistic about the futures of both companies. I continue to be excited about holding these.
Lemonade is on a wonderful path, with its underwriting algorithms performing admirably last quarter. That’s despite a historically poor backdrop. It proactively shed catastrophic event risk, and that paid off handsomely. The team makes me more confident in them by the quarter. But? This is the only name I own that doesn’t even generate positive EBITDA yet. They still have a lot to prove on durably delivering income statement profitability, which isn’t helped by financing partners. These financing partners do help artificially make cash flow look better for now, as they fund growth spend. Worth noting. I’m confident that it will get to income statement profitability on (or ahead of) schedule, but not already being there always creates more risk. I’m just not comfortable with this being my 5th largest holding and I wanted to lighten up. I expect robust financial targets to be offered at its November 19th Investor Day and I expect this company to keep executing while it remains a material part of my portfolio.
The Shopify trim is solely a reaction to recent multiple expansion. I expect its quarter tomorrow to be fantastic and for the long term story to remain very compelling. But? Everyone expects that. Risk/reward always inherently deteriorates as valuations become more stretched and sentiment soars higher. The bar for outperformance and success rises. Just like for The Trade Desk last week, if there is any company that can deliver perfection when that is required, it is this one. I just don’t like counting on perfection as a certainty when I’m sitting on large profits for a somewhat volatile name. This remains a core holding. I’d love to add back the proceeds from this trim into any material multiple contraction.
I used some of the proceeds to boost my CPNG stake by 20%. Also as a reminder, I boosted my DKNG stake early this morning as I said I would in this past weekend’s article. Here’s how things look:
