Fastly TikTok Opportunity (FSLY, DDOG Q2 Highlights)
Weekly summary to keep you updated on the world's most innovative founder-led companies
Let’s get ready for a great week. Trying a new format for a once a week update that includes the most important information about the Founder-led stocks I follow and also a new “Book Blast” section where I’m going to attempt to read and review one book a week. I’m starting with Crossing The Chasm which is a great read on marketing and selling disruptive products. More info on that at the end of the email, and I’ll keep the comments section open (also linked below) in case anyone wants to discuss the book each week.
Founder-Led Stock News
Fastly (FSLY) Q2 2020 Highlights
Fastly reported one of the strongest quarters of any company I follow. I am more bullish than ever on this company’s future. Almost to the point that I’m worried I have confirmation bias. The stock sold off because it had gotten ahead of itself and because the market is focused on the fact that they could lose up to 12% of their revenue if they lose TikTok as a customer. I personally don’t think this will happen, but even if it does nothing about my thesis for investing in Fastly will change. The company wouldn’t be losing one of its largest customers because the customer wasn’t satisfied or moved to a better solution. This is completely unrelated to Fastly. The fact that TikTok uses Fastly and has grown so fast is extremely bullish for Fastly long-term. Why wouldn’t the next app choose Fastly?
Year-over-year revenue growth was 62%, up from 38% in Q1. The company guided for 50% growth in Q3 and 50% growth in Q4 which was a VERY strong quarter in 2019 meaning it’s a tough comparable. This is even with the TikTok risk.
This sell off and TikTok fear is a buying opportunity in my opinion.
And a look at their customers which are some of the most innovative companies in the world. Also, they have Google and Microsoft listed with * as “Partners”. That’s great because they are two of the largest cloud providers. I’m digging into why Amazon is not listed on this page as a customer or partner and whether that’s bullish or a yellow-flag.
Datadog (DDOG) Q2 2020 Highlights
Datadog turned in a strong quarter. Especially considering we were in the middle of a pandemic. There were two yellow flags. The company guided for 50% and 40% revenue growth in the next two quarters and Dollar-Based Net Expansion stayed above 130%, but ticked down. This is to be expected in this type of environment, but the stock had gotten a bit ahead of itself and sold off after earnings. This company is in as strong of a position as ever, the only question is whether the stock is “priced for perfection”. It’s impossible to know what will happen to any stock over the short-term, but if we expand our time horizon to 3 years+ I believe this company will be a market beater.
Year-over-year revenue growth was 68%, down from 87% in Q1. The company guided for roughly 50% growth in Q3 and 40% in Q4. This is probably what sparked the post-earnings sell-off. I believe they’ll beat guidance, but I think this company’s days of growing revenue 70%+ are behind it.
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I had the pleasure of interviewing Jamin Ball from Redpoint Ventures about his framework for investing in private and public Software as a Service (SaaS) companies. We also talked a bit about current SaaS valuations and earnings reports. Please take a moment to subscribe to our YouTube channel! All of our podcasts & YouTube videos are also available on our website with a full transcript. Here is a link to this episode on our website.
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In our team’s Advisor Updates this week, Matt covered the power of buying and holding one of his favorite companies, Steve covered the roller-coaster that investing through COVID-19 has been, Simon talked about SPACs vs traditional IPOs, and I shared how I use course of action analysis (something I learned in the military) in my investing process.
I’ve decided to spend less time aimlessly browsing Twitter and other stuff and focus on reading real books. In the past, I’ve gone back and forth about whether I liked the idea of speed reading/listening to books or not. After watching some of Ali Abdaal’s thoughts on this, I’m going to give it a shot. Speed listening is fine too!
So with that, I’m going to go on a Geoffrey A Moore reading binge. Moore has focused his work on the market dynamics surrounding disruptive innovations and authored Crossing the Chasm, The Gorilla Game, and other great books on innovation. Check out all of his books at his website.
Starting this week, my goal will be to read one book a week. I’m starting with his first: Crossing the Chasm and I’ll share my summary with you each week.
Reading widely is one of the most common traits shared by great investors and leaders of all types. So join me if you’d like. I’ll make the comments open for everyone on these newsletters so we can share our learnings/thoughts.
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