Hope everyone is having a good week.
We held a webinar on Tuesday reviewing our long-term buy and hold positions. You can access the webinar here. We recommend listening as it’s more of an annual review and includes information on how to best use our site.
Below, I follow up on the remaining ten or so positions in our portfolio. Our blog on the first half was published last week and can be accessed here.
When creating the presentation, I overlooked our long position on Docusign! We are long Docusign and I’ve included the notes below. This blog covers: DOCU, ROKU, ZM, SNAP, UNITY, FUBO, MGNI, BAND, SHOP, TDOC, AMWL and TWLO.
DocuSign:
The reason we don’t think Docusign is a temporary covid stock is that it’s hard to go back to paper for the real estate, legal and finance industries at this point. Not only are e-signatures easier but they create a digital file. These particular industries have been slow to convert to digital tools. (Anyone who has closed a house at a title company can tell you it’s long overdue).
We like DocuSign as we also don’t believe these industries will shop an endless number of competitors or creative solutions. Universal acceptance is key here. Real estate is a great example – once the lenders, the title company and the real estate professionals use DocuSign (which many of them do now), each of them benefits from having a seamless experience and won’t want to break course unless necessary. In this way, the fact these industries are not the most innovative in terms of technology helps DocuSign in its quest to become the universal standard.
We will keep you updated if the competitive landscape changes or if these industries revert back to paper in droves J
Roku, Magnite and FuboTV:
We are always scanning for areas of tech that the market is underestimating. Last year around this time it was cloud. This year, we think one of the trends underestimated is connected TV and OTT. We covered where we are in the hype cycle from Gartner with 2021-2024 being the years when this trend takes off. We believe Gartner is perfectly on target with ad dollars migrating as we speak.
Notably, we had mentioned that Roku would likely have a strong second half of the year as Pay TV ad budgets are re-negotiated in the Fall. If you’re long Roku or interested in hearing more, then I recommend reading this blog update on Roku from June where I note Roku mgmt talking about increased financial commitments in the fall.
In the blog post, I said the years between 2022-2023 but am bumping that up now for a few reasons (Gartner’s hype cycle has always stated 2021-2024 but I see more confirmation that Gartner is right about the real start date for the bigger years)
Here are some updated thoughts on why we are leaning heavily into this trend and taking some key risks:
- The hype cycle is a powerful thing and we are fully aware that we are not in the cord-cutting trend – we are in the ad budget migration trend
- The signs we are seeing are not only in the fundamentals of companies like Roku and TTD’s CTV ads but also Disney’s very big moves this year. We think Disney going all-in on CTV ads and OTT live streaming is being under-reported.
- Disney is the world’s most influential media corporation. By Disney giving this trend the green light, we think bigger yet more traditional brand dollars will follow.
- Remember, we didn’t see as many ad dollars migrate to mobile, Google and Facebook, as you would think. Even with all of their data scientists and behavioral targeting for higher ROI – they only could get 50% of the budgets to migrate after a decade of dominance. It’s now around 60%. That leaves 40% for CTV ads and potentially back to 50% with the data CTV ads offer.
- Hopefully, you caught the importance of my last bullet point — there is roughly $10 billion being spent on CTV ads right now and about $70 billion on Pay TV ads.We believe cable may not exist by 2025. Therefore, this is minimum 7X growth if this occurs. However, there will also be some share taken from mobile because CTV first-party publishers have data that competes with mobile on behavioral targeting. So, let’s say minimum 9X growth in front of us when/if cable no longer exists. That’s 7X today but I’m asserting a larger market share than Pay TV today as CTV ads compete with mobile on data.
While I’m on this point, let me reiterate why I like Magnite. Google and Facebook became mobile powerhouses because they leveraged their first-party data. This is exactly what Disney is doing with Magnite and Roku is doing with DataXu.
Feel free to choose whichever CTV first-party ad company positions you’d like to choose. In the past, I have pointed out trends that I’m bullish on and provided our picks (cloud last year was an example of a trend we were bullish on despite extreme red days). However, our readers made excellent gains in other picks, as well – with many cloud stocks to choose from. We have a limited portfolio and we can’t own every company in a space. Therefore, please remember that I am highlighting a strong trend where there will be many winners.
We are also comfortable taking on more risk with MGNI and FUBO as these two companies have messy financials coming out of the ad industry issues during covid (FB, GOOGL and TWTR had their worst quarter on record). We understand (and fully comprehend) this affected smaller companies and are forward-looking. Fubo was especially hard hit with the pause to live sports in Q2.
However, a case can be made for TTD which is perhaps safer. Feel free to chat about that on the forum as many of our subscribers own this stock and can lay out why they are bullish. On that note, feel free to bring up any stocks you think fit this trend for the mutual benefit of the group.
One reason I have been tracking the deprecation of the IDFA closely is that any weakness to mobile/Facebook/Google will be a tailwind to our positions with first-party data in CTV ads. Roku – and even Magnite with Disney data – could be the winners here as this change on mobile rolls out. I cover the IDFA here and also here. Please note, both Roku and Magnite run omnichannel ads but leverage CTV data for this.
For Roku, we will be watching for international expansion. If you’ve been with me for any length of time, I’ve never doubted Anthony Wood despite the many ups/downs this stock has taken (we’ve even held through two 60% drops!!).
For Magnite, we will be watching for this company to quietly move onto the market’s radar. I say quietly because if Magnite does what it’s proposing, then we haven’t seen anything yet in terms of stock price. We feel good about our supply-side thesis – all earnings calls with MGNI and ROKU agreed with our thesis – and we remain bullish. Please always follow Knox for sentiment-driven price movements.
For Fubo, we look to audience growth first and foremost. They must deliver here on a year-over-year basis. We think the story of watching live sports and socially betting is investable and we see a path here to follow in Sky Media’s footsteps but to be potentially much larger on a global basis. We also see limited downside now as the shorts have shown the world all of Fubo’s weaknesses (i.e. fully priced in) and the company went through 6X liquidity. Essentially, we understand Fubo has hurdles to clear but we remain long and will update you if this changes.
Bottom line, we are heavily weighted in this trend! There are many opportunities and we have laid out the ones we have in our portfolio. We look forward to more discussion on any other opportunities our readers have dug up or any opportunities David or myself discover.
Most Likely to Be FAANGs — Shopify and Zoom:
When do you sell a stock that has performed well? The question of when to exit is equally as important as when to enter. These two could be tempting to sell because the story is so well known. However, I consider these two stocks to be opportunities that are hiding in plain sight.
We remain long Zoom Video for its historical product-market fit. We’ve never seen anything like this in tech – not with Apple, Google, Amazon, Facebook or Netflix. I understand the argument is that covid created unusual circumstances. Keep in mind, video conferencing was not without competitors. It’s a very crowded space – so, the question here is why Zoom Video instead of the various other apps? Citrix GoToMeeting, BlueJeans, Skype, MS Teams, Google Meets, etc.
Access the 2019 Zoom Report here.
This is what we mean by product-market fit – a product that overcomes all odds and sees breakthrough growth has met the demands of the market. You could say that perhaps every company with top-line growth has achieved this to some extent. However, when we see this kind of breakthrough it usually means there is something unique going on here at the product level.
We believe Zoom is preparing to do to cloud voice what it did to cloud video – and now email too. We are buckled in tight to see what arguably the best product design team of the decade can do to disrupt bigger markets in the productivity space.
However, please be aware that the market is unsure of how to price Zoom Video going forward. We’ve seen this in the nearly 40% pullback. As we navigate the uncertainty, we are willing to remain in the position even if there’s some kind of earnings issue (we don’t think there will be but want to clarify we are not fair-weathered as all tech companies eventually take a breather).
Shopify has a mission that makes perfect sense. We detailed why we were bullish on the merchant-side value proposition last year in our PDF. We are also bullish on the fulfillment center. I know it’s getting noisy with shiny-new IPOs and SPACs but we also don’t want to lose sight of what is tried and true.
I mentioned on the webinar that we think e-commerce could have a big Q4 with earnings because of the unprecedented amount of shopping that occurred. We’ve always liked SHOP and will remain long when the economy opens back up. About two weeks ago, we added BIGC to our momentum portfolio to see if Q4 comes in strong.
We also agree with Pinterest bulls (we’ve been a PINS investor in the past and written analysis since its IPO). We also agree with Square bulls (the one that got away from me last year!) – who doesn’t love Square’s SMS code for faster checkout? Many of our readers own these stocks and know them well so we look forward to hearing the community talk about these and others.
Unity and Snap:
We covered these two recently. Augmented reality and virtual reality are trends that we think will catch people off guard because AR/VR is seen as a hobbyist or gamer technology. What we find interesting here is not only the growth of the trend but how few beneficiaries there seems to be at the moment as to who can capitalize on the trend.
Unity’s lock-up period expires on March 17— look to Knox around this time. If we happen to trim, then we will add at a lower entry. Also, Unity has exposure to the IDFA … however, there’s a chance they overcome this as they have a concentrated group of gaming apps and this allows for category-level targeting for user acquisition, etcetera. We aren’t trading Unity based on IDFA weakness at this time but the risk is there. Management says it will not materially affect them and I’m hoping they also have a way to create publisher segments DSPs.
Teladoc and Amwell:
We haven’t budged on our telehealth thesis despite the market taking a breather. There’s only one way forward for health care — and AI should help accelerate both of these products. You can view the original thesis here on Telehealth. We continue to look for new opportunities in telehealth. Amwell is a choice of ours primarily based on Google and the synergy between Amwell and the AI data Google has.
Twilio:
I had covered Twilio at length recently in the Motley Fool podcast – we like the acquisition spree and pivot towards omnichannel marketing. This management team is super fun to watch because they are so visionary and developer-centric. They’re out to win! We think it’ll be the edge device market that catapults them, but in the near-term as the edge is being built out, the pivot towards being an omnichannel marketing/data company provides plenty of tailwinds.
My most recent Twilio PDF can be found here or the one from 2019 here.