Value Investing Was cleaning up my inbox and found this old Mark Cuban blog post from 2004. Enjoy! |
- Was cleaning up my inbox and found this old Mark Cuban blog post from 2004. Enjoy!
- JP Morgan Guide to the Markets Q1 2021
- Deep Dive Research About a Collaborative Work Management Company Poised to Benefit off the Remote Work Trend. NYSE Listed.
- 2021 Will Be The Year of AI Hardware
- Federally Chartered Banks and Thrifts May Participate in Independent Node Verification Networks and Use Stablecoins for Payment Activities
- Brookfield Insights - The Future of Retail
- Interview with Sam Zell
| Was cleaning up my inbox and found this old Mark Cuban blog post from 2004. Enjoy! Posted: 04 Jan 2021 06:37 PM PST |
| JP Morgan Guide to the Markets Q1 2021 Posted: 04 Jan 2021 12:18 PM PST |
| Posted: 04 Jan 2021 06:24 AM PST TL:DR is at the bottom Hello, welcome to my second deep dive write up. My name's Mark and I'm an accountant with a passion for investing. About two years ago, I used to work as an auditor at a public accounting firm and have been behind the scenes at many different publicly traded and privately held companies in the U.S. My goal is to bring my unique perspective from that past experience, my current experience working in a new role at a large corporation, and my understanding of accounting to help break down some of the most exciting growth stocks on the market today. I'm a long-term investor. I am focused on finding great companies and holding them for a long time. I'm willing to endure volatility, crazy price drops, and everything that comes with this approach as long as the facts that led me to originally invest and believe in that company have not changed. If you want to learn more about this approach. I recommend reading the book "100 Baggers" by Chris Mayer. Introduction I'm excited to share with you all my stock pick for this month, Smartsheet. I'm always looking for investment ideas. I run stock screeners with different criteria (mostly focused on revenue growth), scan Twitter, talk to professionals in different industries, and try to observe what products or services are getting popular with my friends and family. One of the best investment decisions I've made to date came after I talked to my friend about a drink he was drinking on the golf course. Shout out to you Celsius (CELH)! With that being said, you never know where your next good investment idea is going to come from. In the case of Smartsheet, I became aware of the company through a stock screener. I was drawn to the relatively small market cap ($8.6B), strong revenue growth (roughly 35%), and the fact that it's a subscription business model (SaaS). Once I became aware of these facts, it cued me to take a deeper dive. The more I learned about Smartsheet, the more I liked. Management talks a lot about empowering people and that really struck a chord with me. In different roles I've had as a teacher, tutor, and supervisor, I've always found empowering people to be one of the most important keys to success. I will touch on this more later in the write up. Another positive signal I got about Smartsheet came unexpectedly one evening. I was sitting in the kitchen and my girlfriend was cooking dinner. I was watching an interview on my phone with Mark Mader, the CEO of Smartsheet. My girlfriend overheard the word "Smartsheet" mentioned in the video and said "Are they talking about the Smartsheet with the blue check mark?". I had to Google their logo but yes, it turns out we were thinking about the same Smartsheet. I asked her how she knew about it. She said "My company just transitioned all of our work onto Smartsheet. I really love it. Our marketing department is really excited about it because it makes their job way easier and more enjoyable." Hearing this just motivated me to learn more about Smartsheet. The Thesis Statement For every stock pick I make, I want to provide a quick thesis statement that can serve as a reminder for why I'm buying and holding that stock for the long term. I'll always aim to make it just a few sentences long so it can easily be remembered and internalized. This helps during times when the price may sporadically drop and you need to remember why you're holding this position. The thesis statement I have come up with for Smartsheet is as follows: "Smartsheet: A leader in collaborative work management (CWM) software. As the global workforce becomes more decentralized through remote work, managers and executives now more than ever need a tool to digitally consolidate their teams, projects and deadlines. Smartsheet is that tool and is innovating to offer businesses even more ways to get the most out of their teams." I think this thesis statement really captures the essence of what Smartsheet does. If you go to Smartsheet's website and look at the "About" page, you will find their "About" statement which says "Smartsheet is the enterprise platform for dynamic work that aligns people and technology so your entire business can move faster, drive innovation, and achieve more." Notice how their statement emphasizes helping businesses move faster, drive innovation, and achieve more. In my thesis statement, I mention that Smartsheet is a leader in the CWM software space. But how do I know this? Well, a highly reputable independent research firm named Forrester conducted a study on the CWM space based off different criteria including collaboration, enterprise capabilities, UI/user experience, planned enhancements and number of customers just to name a few of the factors considered. I put the companies that were identified from the study in the order of their ranking below. As you can see, Smartsheet is firmly planted as a leader in the space at 2nd place. Let's use our common sense for a second. At the beginning stages of a remote work revolution, do we want to invest in an up and coming SaaS company that focuses on providing firms with resources to digitally manage their teams, digitally manage work/projects, and digitally collaborate to get work done? I think the answer should be a resounding yes. But what about these other companies on the list. Let's break them down 1 by 1:
Now that we've established that Smartsheet is a leader in the CWM space and that they're arguably the best publicly available pure-play investment in this space let's understand why this is important. Other than the obvious reason that we're in the beginning stages of a remote work revolution, why is this important? Well, let's take a look at this quote from Mark Mader, Smartsheet CEO, during the last earnings call (Q3 FY21) that occurred on December 7th, 2020: "Leaders are recognizing they need to shift more workloads to asynchronous work, work that is documented, automated, tracked with dashboards, and where priorities are clearly defined. They understand that by empowering their teams with no-code solutions that facilitate asynchronous work, cycle times will be improved, a deeper sense of ownership will be created, and prioritization and accountability will be insured. Smartsheet is ideally suited to help enterprises work more asynchronously to derive the benefits from doing so." Key word here: Asynchronous. Asynchronous communication is different from Synchronous communication. Here is the difference: Asynchronous: email, message boards, dashboards, etc. Synchronous: video conferencing, chat, audio calls, etc. Any communication that doesn't require a real-time response can be considered asynchronous, like the examples in the picture above. Synchronous communication is any communication that happens in real time, thereby allowing for immediate responses, see examples above. As part of my research on Smartsheet, I read an E-Book that was written by the original co-founders of Smartsheet, Mark Mader the current CEO and Brent Frei who is no longer with the company. They wrote the E-Book in 2007 just a couple of years after the 2005 founding. The E-Book is called "The Power of Done". The moral of the book is that Mark and Brent noticed through their own experience, and through different research studies on work place productivity, that the rise in technology in the early 21st century was actually making employees less productive. This is a quote from their E-Book: "According to Basex, a research firm focusing on the knowledge economy, interruptions from email, cell phones, instant messaging, text messaging and blogs eat up nearly 30 percent of each day; on an annualized basis, this represents a loss of 28 billion hours for the entire U.S. workforce, or a $588 billion cost to the American economy." They mention in their book that although there has been a lot of advances in work technology such as email, word processing, and spreadsheets, there hadn't at that time been any great applications created for teamwork collaboration or task management. The fact that technology advances helped the world create tools to enhance productivity but also deterred productivity at the same time is what Mark and Brent referred to as the productivity paradox. They wanted to do something about it and thus they founded Smartsheet. How Smartsheet makes money At the very least, before you invest in a company, you better understand how they make money. In Chris Mayers' excellent book, 100 Baggers, that I mentioned above, he continually references top line revenue growth as one of the main common indicators of a possible 100 Bagger. This isn't to tell you that any stock I pick will be a 100 Bagger just because it has great top line revenue growth, but if I am looking at a growth stock to hold for the long term, revenue growth is one of the first things I look at. Before I talk about the revenue streams of Smartsheet, I want to share a little bit about the actual product that they sell to earn this revenue. Co-Founder/CEO Mark Mader realized that a lot of work in the corporate world was being done on spreadsheets such as Microsoft Excel. However, he realized that these spreadsheets were largely static and not necessarily used to their full potential. He wanted to help people get more out of their use of spreadsheets. As a result, we now have Smartsheets which is a cloud based platform that can be accessed by all employees of the company no matter where they are with live information about project statuses, meeting times and work that is assigned to each employee just to name a few uses. Users can choose their way of viewing this information with different views such as calendar view, grid view, card view, and Gantt view. The idea is that by enhancing the availability and quality of asynchronous information available to all members of a team about the status of a project, the tasks assigned, and the timelines, the less synchronous communication will be needed which allows employees to spend more time doing what they're hired to do – get work done. Think about how wasteful it is to hire a highly talented engineer but then make him spend half his day preparing for and doing status update meetings and hunting people down to see where they're at with their assignments. What if all this information was available for him, his managers, and his staff to see within Smartsheet without having to bother each other and waste precious work hours that could be used for coding, designing, and producing? That's what Smartsheet looks to achieve. For Smartsheet, their means of making money is quite simple. As I mentioned earlier, they are a Software as a Service (SaaS) company. Whenever you see SaaS, that means subscription revenue and in my opinion that's a very good thing. With a subscription business model, the revenue is going to be recurring every year and that type of reliability (combined with growth of course) is something you want as an investor. Smartsheet's primary source of revenue is the sale of subscriptions to their cloud-based Collaborative Work Management (CWM) platform. Customers and potential customers begin their engagement with the Smartsheet platform by either signing up for a free trial, purchasing a subscription on the Smartsheet website, going through a sales rep, or they are exposed to Smartsheet by collaborating with a Company/Individual that uses Smartsheet. For subscriptions, customers select the plan that meets their needs and can begin using Smartsheet within minutes. Smartsheet offers four subscription levels: Individual, Business, Enterprise, and Premier, the pricing for which varies by the capabilities provided. Customers can also purchase connectors, which provide data integration and automation to third-party applications. The Connectors part of the business is something I find really interesting. Basically, Smartsheet has made deals with most of the top work productivity and communication software companies in the world to allow their customers to use those applications within their Smartsheet user interface. This helps position Smartsheet as the true "command center" platform while the products of the other companies become ancillary pieces. You'll see this on the link above but some products that Smartsheet sells Connectors for include Adobe Creative Cloud, Microsoft Dynamics 365, Salesforce, Jira Software, Slack, and Skype just to name a few. I think that being able to sell these Connectors as ancillary pieces to the Smartsheet user experience is so beneficial to Smartsheet because a lot of these companies that people may perceive as "Smartsheet competitors" actually become a piece of the Smartsheet platform and can be sold by Smartsheet as a supplemental revenue stream. This neutral angle that Smartsheet is able to come from by selling Connectors to their perceived "competitors" reminds me a little bit of how Roku (ROKU) is able to earn revenue off of selling a Netflix subscription on their platform. I think just the fact that all these big companies like Adobe, Jira, Salesforce, etc. allow their products to be integrated into Smartsheet shows that there is a high value proposition in the Smartsheet platform and that they would risk alienating their customers if they didn't allow for their products to be integrated with Smartsheet. On top of the Connectors to third party vendors that Smartsheet is able to sell, Smartsheet is also able to sell upgrades to their own internal plug-ins. Smartsheet has some impressive proprietary plug-ins they can sell to their customers. For example, in May 2019, Smartsheet acquired 10,000ft which augmented their product portfolio by providing resource allocation and planning. The name "10,000ft" is meant to be analogous to having a high level view of your company and all resources available within your company and how to deploy them. Also, in September 2020, Smartsheet acquired Brandfolder, Inc. which provides a centralized platform to organize, discover, control, distribute, and measure all forms of digital content. Combining Brandfolder capabilities with Smartsheet allows them to create dynamic solutions that manage workflows around content and collaboration. This goes back to what I said earlier in the article about how my girlfriend had mentioned that her company's marketing team was "really excited about Smartsheet because it makes their job way easier and more enjoyable." She told me that before Smartsheet, her company's marketing team had to constantly hunt down members of the creative team (photographers, graphic designers) to receive the latest photos, videos, and digital designs they were working on. She said it was a big pain for them trying to share this content over email and SharePoint. Now, all of the content is inside of Smartsheet and the marketing team can access it at any time. They can leave comments on the content, route to appropriate individuals for approvals, and have better insight into the status of all digital content that is being worked on. The acquisition of Brandfolder is really what allows Smartsheet to stand out in this department. Nobody really talks about it, but digital content is so important these days for companies in terms of controlling their brand image, putting out quality advertisements, and presenting their product in as positive of a light as possible. The fact that Smartsheet has a strong proprietary plug-in for this with Brandfolder is very promising. During Smartsheet's FY21 Engage Customer Conference, Anna Griffin, Smartsheet Chief Marketing Officer said that the global annual marketing spend is $500B for companies around the world. She said the role of the marketing department is changing from sole content creator to Editor in Chief. All kinds of teams within companies these days are putting out content that effects the company's brand. Sales is running social media campaigns, product marketing is putting out blog posts and podcasts, and R&D is teasing new product experiences in app. It can get really difficult for the company's Marketing/Branding team to stay on top of all this without a centralized digital content collaboration platform like Brandfolder in Smartsheet. This is just one reason why I think Smartsheet has a lot of growth opportunities in the future. As you can see, Smartsheet has a lot to offer to companies with their core CWM platform, the Connectors they can sell, and the internal upgrades available such as 10,000ft and Brandfolder. On top of that, Smartsheet also provides WorkApps, a proprietary no-code platform that empowers users to build intuitive web and mobile applications that streamline business and simplify collaboration. There are so many instances within companies where an app needs to be built to streamline a workflow. Traditionally, companies need to engage their IT departments and the coders that sit within these departments to build these apps. This places a lot of strain on IT departments and takes away time they can be spending on more complex/mission critical projects. Mark Mader is aware of this and thus is heavily pushing no-code as a solution for companies now and in the future. He believes that everyday non-coder employees know their jobs/workflows best and thus if you empower them to build their own apps with a no-code platform they will produce better and more relevant apps to help get work done than an IT department employee who doesn't even do the job that the app is being built for. Also, he believes this will reduce strain on IT departments and allow them to focus on more complex and mission critical projects. Here is a quote from the Director of Sales (Hina Patel) at a Smartsheet customer, Cisco (NASDAQ: CSCO): "I have been waiting for a solution like WorkApps that can give us quick and easy access to the content we need, when and where we need it," said Hina Patel, Director of Sales Operations at Cisco. "The ability to take our Smartsheet assets, along with other tools we use, and package an entire solution in an intuitive app will make it even easier to drive active participation from everyone involved in the process, no matter their role." As you can see, the value proposition of WorkApps and the Smartsheet platform appears to be high. Lastly, Smartsheet also generates revenue from Professional Services which is essentially providing training and customized consulting to Smartsheet customers that want to get more out of the Smartsheet platform. In the most recent quarter, Q3 FY21, Professional Services accounted for 8.2% of revenue. Here is the breakout from the most recent quarter: Subscription revenue = $90,890M for 91.8% of total revenue Professional services revenue = $8,043M for 8.2% of total revenue This is the end of my first article about Smartsheet. My goal is to drop Part 2 within the next week. The focus of Part 2 will be an in depth answer of the question – "Can we 10x from here?" TL:DR
Disclosure: I have no position in Smartsheet. I do plan to initiate a long position when the markets open again in 2021. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. [link] [comments]  |
| 2021 Will Be The Year of AI Hardware Posted: 04 Jan 2021 02:33 PM PST |
| Posted: 04 Jan 2021 04:38 PM PST |
| Brookfield Insights - The Future of Retail Posted: 04 Jan 2021 04:42 AM PST |
| Posted: 04 Jan 2021 05:27 AM PST |
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