Q3 2021 Investor Newsletter
Dear Investors,
Sorry for not informing on time. But I have decided to provide portfolio updates quarterly as compared to monthly in the past. More things happen in a quarter rather than monthly and plus, more earnings update are available quarterly for me to assess the companies in the portfolio.
For the past 9 months in 2021, the portfolio has achieved a 30.24% return beating last year’s return of 27.73%. As you can see from the chart above, there were some ups and downs but overall, the portfolio grew very well thanks to CEOs leading the companies in our portfolio. They have done well making the companies bigger and better as well as communicating with investors. However, do remember that we still have Q4 of 2021 to go through. So do prepare yourself for more volatility ahead.
For August, the portfolio grew very well this quarter thanks carried by several companies, namely Sea Limited, Crowdstrike, and AMD Technologies. These 3 companies also recently reported stellar results which probably helped to increase demand for their shares.
Take SEA Limited for example, the company released their Q2 2021 results and revealed to investors that their revenues grew by 158.6% compared to the same quarter last year. On top of that, gross profit grew by 363.5% hinting that the company is becoming more profitable as it grows larger. On top of that, it is revealed that the company’s flagship game, FREE FIRE, is no longer just popular in 3rd world countries. It is also picking up steam globally, even in wealthy countries such as the United States. What this means to me is that the game has a long runway of growth ahead of them. Let’s not forget that SEA’s gaming operations are profitable.
On top of that Shopee, SEA Limited’s E-commerce arm, has been growing significantly in Latin America, seriously challenging their local giants such as Mercado Libre. Overall, I continue to remain confident on SEA Limited’s long term growth potential which is also why it takes up one of the highest allocation in the portfolio.
Crowdstrike also recently released their Quarterly reports for FY 2022. As usual, the company is progressing and growing healthily. Their number of customers grew by 81% to 13,080. Revenues on the other hand, grew by about 70% with about 93% of them recurring in nature.
Crowdstrike is one of the few cloud-native cybersecurity companies available in the market. They have been ranked consistently at the top together with Microsoft. But I have experienced Microsoft’s cybersecurity systems before whilst working in my ex-company. It is extremely tedious and it also slows down the computer significantly.
Compared to other Cybersecurity companies out there, Crowdstrike is also one of the most aggressive in terms of their urge to conquer the market. This is proven by their growth rates being one of the highest in the industry. Their revenues grew by 70% this quarter. Compared that to competitors such as Fortinet, Qualys and Tenable which all only grew by less than 30%. Growing above industry average simply means that you are taking market share more aggressively than your competitors. Even Palo Alto’s CEO, Nikesh Arora, admitted that in his earnings call:
Lastly, one of the best performing companies in the portfolio is AMD Technologies. AMD, under the leadership of Lisa Su, has come a long way from the brink of bankruptcy in 2014 to a global leader in high performance semi-conductor manufacturer today. Below is the latest quarterly result released by the company:
The company grew their revenues by 99% whilst gross profit grew by 116% and Operating income grew by about 300%. It is very unusual for a semiconductor company, with the revenue size of AMD to grow by 99% but it is understandable for 2 reasons; the semiconductor shortage as well as the ability to increase price due to them now producing really high quality, desirable processors. Personally, it will take a while for the semiconductor shortage to be relieved but as long as Lisa Su is at the helm, I am very comfortable betting on AMD.
One of my favourite companies in the portfolio, Digital Turbine has also recently released their quarterly report. Revenues grew by more than 100% and the company has made several key acquisitions such as Fyber, AdColony and Appreciate which not only strengthened their competitive position in the industry, but also makes their revenue a lot more recurring in nature. With their latest acquisitions, Digital Turbine is no longer just an on-device application advertiser, they are also a Demand-Side Platform, Supply-Side Platform as well as a Advertising Network which access to premium advertising inventories. This makes them a more attractive destination of App developers to market their apps and that, in turn, make them more valuable in their relationship with OEMs and mobile phone networks.
On top of that, Digital Turbine has recently been added to the S&P MidCap 400 index. This will push more institutional investors to invest in the company as well, increasing the demand for their shares.
The market seem to dislike the company for some unknown reason, but thats the reason why I choose to add more position into the company. But I had to be careful not to overexpose the portfolio to avoid the mistake of increasing the risk score unnecessarily.
Another key reason why the portfolio grew quite a lot is because Unity Technologies has recovered back about $120 a share thanks again to a wonderful quarterly report. That has helped to push up the value of the portfolio further.
During this quarter, I unfortunately also have to let go of 2 companies : Alibaba and JD.com at about a 20% loss. This have nothing to do with the company’s competitive position, but the decision was made because of the government they serve. I believe strongly in China. They are the one of the very few countries in the world which managed to keep the Covid-19 virus under control. And trust me, controlling 1.3 billion people is no easy feat. Companies such as Alibaba have proven their dominance in the Chinese market and some of you probably thought it is ridiculous to sell them especially at a loss. But the trick of investing in China, at least based on my experience, is that the company needs to be on the side of the China Communist Party (CCP). Imagine if Facebook and Amazon were listed in China. The US government wouldn’t be very happy with them dominating their domestic market and industries. But the US have a strong association to freedom and that makes enforcing policies quickly difficult. However, in China, the government can simply flip a switch and turn off Ant Financial’s IPO. Flip another switch, they can rip out Alibaba’s exclusive contracts with sellers which have been giving them competitive advantages. Flip a different switch, they can also ban companies profiting from education and completely alter the business model of the New Oriental Education & Technology Group Inc. (EDU).
Normally, government interventions are just noises to me but when government policies can quickly change business models, then thats where my conviction are shaken. There are many other companies in this world. Why pick the one that you can’t sleep on. My personal policy when it comes to investing is that I must have conviction. Without conviction, there can be no holding power. Without conviction, I wouldn’t dare to buy more. And if I can’t do those two, then I won’t bother holding the stock at all.
The proceeds from the sale I have allocated to QQQ until I find a better opportunity. No point keeping cash. It will depreciate over time.
That’s pretty much all I have to share for now. I hope it gives you some understanding about the portfolio and its components.
As usual, remember, if your portfolio is experiencing a red day, remember to just average down. That will allow your portfolio to recover even faster than mine. Don’t bother timing the market. It is a fool’s game. Trust me, I used to be that fool. That’s all I have for you guys for now. Have faith in the process and see you again next quarter.
-Atomic Samurai-
