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Alteryx (AYX) Stock Recommendation

December 18, 2019 / poffringa

Date of Recommendation:       December 17, 2019
Closing Stock Price:          $97.40

Alteryx (AYX) stock should be considered for long term investment. Based on my characteristics for a successful software stack company, I expect the price of Alteryx’s stock to grow significantly over the next 5 years. This will be driven by their expanding product offering in an enormous addressable market. Their data analytics platform is deeply embedded and highly valued by major enterprises, particularly in the global 2000. The product is often described as a “must have” by data analysts with clear ROI tied to business outcomes. The leadership team is strong, led by a long-time founder and CEO. I expect the stock price to more than triple and exceed $325 within the next 5 years.

MongoDB (MDB) Q3 2020 Earnings Results

December 10, 2019 / poffringa

MongoDB (MDB) reported Q3 2020 earnings results after the market closed on December 9th. Overall, the results were strong and exceeded expectations. This drove an initial spike in share price, which has receded through the day. This performance provides a great example of why investors need to maintain a long term perspective with software stack companies. Let’s dive into the results.

Why I Like High DBNERs

December 6, 2019 / poffringa

Dollar Based Net Expansion Rate (DBNER) is a critical metric to track for software stack companies. Companies with consistently high DBNER’s will grow revenues faster than their counterparts and experience significant stock price appreciation. DBNER also provides insight into a software stack company’s competitive moat and its pricing power.

What can Stackshare tell us about software stack investing?

November 25, 2019 / poffringa

Stackshare is a community-driven web site with a strong technology angle. It allows engineering teams within companies to post information about the software components and business tools that they use internally to power their software applications and run their online operations. The content is self-reported by members of the company’s technology organization. The purpose is to share knowledge across companies and socialize best practices. Analysis of the content posted on Stackshare provides insights into real-world use of these software components at large enterprises. This intelligence could influence our investing decisions into the stock of software stack provider companies.

MongoDB (MDB) Stock Recommendation

November 20, 2019 / poffringa

Date of Recommendation:     Nov 19, 2019
Closing Stock Price:        $140.99

MongoDB (MDB) stock should be considered for long term investment. Based on my characteristics for a successful software stack company, I expect MongoDB to grow significantly over the next 5 years. This will be driven by their rapidly expanding product offering in an enormous addressable market. Their database product is developer friendly and represents a popular choice for start-ups. MongoDB has strong developer evangelism and is the default database component in the introductory software stack taught at most coding bootcamps. Their cloud-first Atlas product is rapidly gaining share and provides a vendor-agnostic solution. The pace of enterprise migrations is increasing as MongoDB expands into adjacent use cases. I expect the stock price to exceed $490 within the next 5 years.

Investing Implications of Low Code Development

November 15, 2019 / poffringa

Traditional software development is performed by software engineers with formal training in computer science. This involves writing volumes of customized code in a particular language and pushing that onto a software infrastructure stack. The code writing process is getting more efficient every year through improvements in higher-level languages and the creation of new open source libraries that can be easily imported to address almost any common function. However, even with these productivity improvements, application development output is still constrained by the number of software engineers.

Enter low code development tools, which allow non-engineers with some basic technical skills to produce reliable applications that address common, repeatable functions. This is accomplished through graphical user interfaces and configuration, versus programming. Several companies have emerged that have built their entire product offering and business around this trend. Low code development is a rapidly evolving space that has implications for our software stack investing strategy.

Twilio (TWLO) Stock Recommendation

November 13, 2019 / poffringa

Date of Recommendation:  Nov 13, 2019
Closing Stock Price:     $98.34

Twilio (TWLO) stock should be considered for long term investment. Based on my characteristics for a successful software stack company, I expect Twilio to grow significantly over the next 5 years. This will be driven by their maniacal focus on developers and delivering solutions within a large and growing addressable market. Twilio is led by a technical founder who espouses customer-centric values. The company is continuously innovating its product offerings, often launching new products based on direct customer feedback. They run an annual conference that is developer-centric and choc full of hands-on, problem solving sessions.

Why I Won’t Invest in Security Stocks

October 25, 2019 / poffringa

Security is an area of IT spending that has been getting a lot of visibility over the past couple of years. This has been primarily driven by headlines associated with successful hacks and data breaches. In response to this opportunity, many new companies have been entering the space, several of which have fetched high valuations (ZS, CRWD as examples). However, I will not invest in security stocks for a more fundamental reason. At the end of the day, dollars allocated by a company to security protection represents spending they would prefer not to make.

Characteristics of Winning Software Stock Selection

October 11, 2019 / poffringa

As I consider the companies that provide software stack solutions for long term investment, I generally look at several criteria to influence my stock selection decisions. These might surprise you, as none are traditional financial metrics. I do consider financial metrics in making final selections, but focus more time on analyzing the company’s products, market opportunity, team and strategy.

Some traditional stock analysts would consider this approach to be backwards. They may start with a set of financial indicators (like P/E, P/S, ROE, etc.), establish ranges for these and then filter out the majority of companies. This approach may work in more mature industries. However, in the evolving software stack space, I think that qualities more closely associated with the company’s product offerings, competitive positioning, total addressable market, developer evangelism and leadership are predictors of long term success. These forces will ultimately drive financial metrics (assuming an experienced CFO is in place) and translate into stock price growth over the long term.

First Principles

September 30, 2019 / poffringa

First principle thinking has gotten a lot of coverage recently. Popularized by luminaries such as Elon Musk and Ray Dalio, first principles provide a framework for breaking down a complex space into a working model from which decisions can be made. In its simplest terms, a first principle is a basic assumption that cannot be deduced from other assumptions. First principles can then be combined to form a working model for making decisions.

I thought it would be useful to kick off this blog with an outline of my basic tenets. These will provide the foundation for the coverage, scope and conclusions that readers can draw from the coverage of software stack companies.

Software Stack Investing