a. Updated Performance vs. the S&P 500
b. Portfolio Changes & Thoughts
As I've spoken about frequently in Discord over the last few weeks, I have been considering some portfolio consolidation. If you can read this article, you have access to the Discord where I've shared these thoughts for no additional charge. Sign up here.
Consistently underwhelming quarterly performance from both Duolingo and SentinelOne has shaken my conviction in both names. I don't think either are suddenly bad companies, I just think other companies are better investments. I want incremental room to own more of those other holdings. I'm not seeing data brighten for SentinelOne, as we hear mumblings of CrowdStrike taking their partner relationships. And social media data that powers Duolingo's growth continues to look poor. Both could turn things around, but I want to focus on my best ideas where I see more compelling risk/reward.
There's a lesson I'm taking from this Duolingo exit. I made a lot of money on this name. My overall cost basis was around $100 and I did plenty of trimming in the $300-$400 range. This was a successful investment, but it should have been much more successful. My trims should have been larger at the top, as I saw the valuation zoom higher while social media and competitive risks loomed. The 10%-30% trims should have been more like 30%-60%.
This brings me down to 18 holdings, which I still feel provides adequate diversification while focusing more on my best ideas.
Finally, I trimmed another third of my PayPal stake today. I don't think the most recent trim was aggressive enough given how discouraged I am with their fundamental execution. It should've been bigger and now I've fixed that. We've spoken about it a lot lately. Branded checkout is moving too slowly; their reliance on customer incentives is proving too large; the investor day schedule set less than a year ago that they've already walked back was disappointing. Venmo and Braintree health aren't enough to overcome those negatives. I want this to be at the very bottom of my portfolio until they show me more signs of turning things around. I am not ready to exit, as I still think they have great assets at a dirt cheap multiple (and giant buyback). But I need to see more evidence of them effectively using those assets in a way that delivers sustainably profitable growth. If that doesn't happen... dirt cheap will stay dirt cheap. They'll at least get one more quarterly report for me before I consider a full exit.
I don't see myself re-entering SentinelOne but I will keep tracking Duolingo. I do want to own shares in that company again at some point; things simply don't look good enough for me to keep waiting today.
Some of those proceeds were left in cash, some of the proceeds were used to boost my Coupang stake by 15% and the rest were used to boost my Zscaler stake by 20%. I was very tempted to again add to ServiceNow following today's downgrade based on seat growth risks and federal government headwinds. I see the agent-based growth tailwind as far stronger than any seat-based compression and the federal government segment was a standout for them last quarter. They expect that momentum to continue. I didn't find this KeyBanc note to be concerning, but the name is just a few percent from my average cost basis and I've already added a few times. I'm staying patient for now.
My Holdings that are performing & compellingly priced where I'd accumulate into modest multiple contraction:
- Amazon
- Meta
- Mercado Libre
- Coupang
- Zscaler
- DraftKings
- Starbucks
- Cava
- On
- ServiceNow
- Nu
My holdings that are performing & expensive where I'd accumulate into meaningful multiple contraction:
- SoFi
- Lemonade
- Shopify
I like what I own in Uber right now. I want it to be sized right where it is. That balances my optimism in their AV positioning with my respect for all the uncertainty and how rapidly things are evolving.
My Hot Seat – holdings that are NOT performing & need to do better if I'm going to stick around:
- PayPal
- The Trade Desk
c. Updated Holdings
