My Favorite Stocks in Charts: Part 2

We were thrilled by the positive feedback on Part 1 linked here. As we see valuation multiples compress across the market, it’s increasingly important to understand the companies in which we invest. By being able to visually see revenue growth, margin expansion, and free cash flow — we’re able to forget the noise around us and focus on the fundamental progress of our favorite companies.

If you’re new around here, this post on building an investing strategy might be a good place to start. Then this post further explains my investing philosophies. Finally, this post shares the type of analysis I share around here.

Estimated Read Time: 9 minutes

My Favorite Stocks in Charts

To bring everyone up to speed, this is going to be more of a ‘once-every-3-months’ series, where I clearly detail how the companies in my coverage universe are performing fundamentally.

This means their underlying business results — revenue growth, customer growth, international expansion, etc. It might make more sense to just walk through an example together!

Monday.com (MNDY)

Monday is a company I’ve been a customer of for several months now. To be completely honest, when I launched my business in late-2020 — Asana was my go-to platform. I was able to neatly organize my projects, tasks, and timelines.

Not until I began working more intimately with larger organizations did I begin playing around on Monday. In my opinion, what sets Monday apart from other workflow management tools is its low-code / no-code configurability. I’ve shared a helpful YouTube video below that explains exactly what I’m talking about.

I first introduced you to Monday last month. Here’s a few of the main callouts:

• Insanely fast revenue growth

• Narrowing their GAAP operating loss quickly

• High net dollar retention rate

• Expanding profit margins

Let’s now spend some time further understanding their progress over the last 12 months.

Our first major call out is revenue growth — without a growing top line, any business is set to fail. What’s incredibly interesting is how much faster this workflow management tool has been able to grow its revenue in relation to Asana (a direct competitor). Not only is that a clear ‘up and to the right’ trend, but it’s also parabolic.

2019

• Asana: +54%

• Monday: +140%

2020

• Asana: +86%

• Monday: +102%

2021

• Asana: +59%

• Monday: +95%

It’s also important to consider the amount of revenue trickling down to support the company’s operating margin — their gross profit margin. Above, we can see this figure is 90% — which is par for the course (Asana’s is 89%).

Continuing on this theme of margins, the company’s ability to shrink their operating loss over the last few years has been impressive.

During their 2019 hyper-growth, all of their revenue (and more) was going to marketing their business to other enterprises. This trend continued throughout 2020.

As we entered 2021, the company began to back off on the marketing (while still growing revenue by nearly triple digits). As we closed the year, less and less revenue was being spent on marketing — allowing it to flow down their operating income (loss).

The company has clearly shown their ability to narrow their operating loss throughout the years. Despite this being a great thing, I don’t see them printing free cash flow before 2027-2029. This is assuming they continue to grow north of +40-60% compounded annually (catalyzed by marketing spend).

Now let’s talk about why they’re spending all of this money — to attract enterprise customers. These are hopefully customers that spend a lot of money to have access to their software AND have a low churn rate. The beautiful thing about enterprise operations is that they often yield the ‘stickiest’ customer bases.

As shown above, the amount of customers that actually spend a meaningful amount of money with Monday ($50K or more annually) has continued to increase exponentially. In case you’re wondering who some of these folks might be, I’ve dropped a few logos below.

The company began trading on the stock market during June 2021 for ~$170 / share — or ~$7.5 billion. This would assume the company was valued around ~17X 2022 revenue expectations. The stock quickly traded up to $450 / share before falling -57% to the $193 / share it’s trading at today.

Looking forward, I have no doubt that Monday will continue to see momentum as they continue to expand service offerings. According to their investor presentation, more than 70% of their customers aren’t even fellow tech companies — instead, they’re folks who just want better tools to operate organizations.

Monday launched their “Apps Marketplace” during Q4 of 2020 — allowing developers to build their own plug and play applications. Today more than 16,000 external developers are building customer applications (as shown in the YouTube video mentioned earlier).

More apps and use cases = broader customer acquisition funnel (below).

I hope this helps give you an understanding of how I fundamentally assess companies’ investor reports. Moving on to the next!

Roku (ROKU)

Up next is a company I’ve been very vocal about — sharing my most recent thoughts during a Twitter Spaces with Sylvia Jablonski of Defiance Investments. Roku was one of the original over-the-top (OTT) streaming services — founded in 2002, before reincorporating in 2008 as the company we know today.

Roku is everywhere.

Unfortunately, Roku doesn’t offer us the sexy charts of their fundamental progress as a company. However, I’m going to cleanly ‘illustrate’ these figures below:

2015 — $320M

2016 — $399M (+25%)

2017 — $512M (+29%)

2018 — $743M (+45%)

2019 — $1.13B (+52%)

2020 — $1.78B (+58%)

2021 — $2.80B (+57%)

2022E — $3.75B (+35%)

I don’t know about you, but I see a clear trend of +40-60% growth compounded annually throughout their time as a publicly traded company.

The best part?

Throughout this time, the company has expanded gross profit margins from 28% in 2015 to 51% in 2021.

That’s not the only thing the company has expanded. Let’s think for a moment about how the company makes the bulk of its money — advertising to active accounts. Below is the number of active accounts throughout their ecosystem since 2017:

2017 — 19.3M

2018 —27.1M (+40%)

2019 — 36.9M (+36%)

2020 — 51.2M (+39%)

YTD 2021 — 56.7M (+11%)

Another clear trend up and to the right. But what are these active accounts worth if you’re not actively monetizing against them through advertising? The statistics below are what make me most excited — Roku’s annual average revenue per user (ARPU):

2017 — $10.04

2018 — $17.95 (+79%)

2019 — $23.14 (+29%)

2020 — $28.76 (+24%)

YTD 2021 — $40.10 (+39%)

Not only has Roku tripled the amount of users within their ecosystem, they’ve quadrupled the revenue derived from each user — allowing them to grow revenue exponentially.

At $145 / share, Roku is now trading at ~5X forward 12-months revenue. Weirdly enough, this is the lowest revenue multiple Roku has traded at .. ever.

1Q18 — 8.0X forward revenue expectations

1Q19 — 5.5X forward revenue expectations

1Q20 — 6.3X forward revenue expectations

1Q21 — 15.0X forward revenue expectations

Now I’m not saying we’ll trade anywhere near 15X forward revenue again soon… but it’s very weird to me that a company who has onboarded tens of millions of new users while quadrupling its ARPU is trading at its lowest valuation since going public in 2017.

Heck, they’re even free cash flow positive.

Affirm (AFRM)

I actually just picked up a few more shares of this company this week (shown in portfolio buy / sell tab) for about $50 a pop. Lucky for us, they post incredible illustrations to their investor relations website — feel free to follow along.

Starting at the top, revenue.

You might be asking yourself “How exactly does Affirm make its revenue?" Let’s quickly answer that. If you want an in-depth answer, here’s a link to my pre-IPO post about the company.

Long story short, Affirms generates revenue from two main sources — consumers and merchants.

Starting with merchants — if you’re selling something rather expensive, chances are only a select number of folks can afford it. Let’s take home & furniture for example.

There’s a bunch of Williams Sonoma’s kitchen electronics that cost a pretty penny. Below is a coffee maker that’s $700. I don’t know about you, but most Americans aren’t comfortable forking over 700 beans for an espresso machine. However, Affirm can make that coffee maker “only” $64 / month with 0% APR for 11 months.

If the customer chooses to checkout with Affirm’s 0% APR payment plan — Affirm will capture 3-4% of the overall purchase price, paid to them by the merchant they just helped make a sale.

Also — the customer doesn’t always pay 0% APR on these payment plans. Sometimes they’re as high as 18%, widening the money funnel for Affirm.

Regardless, Affirm’s revenue is trending in the right direction. Next is probably the more important fundamental characteristic of Affirm’s business model and that’s their gross merchandise volume (GMV) — the amount of money transacting within their ecosystem.

For example, if I purchased the above coffee maker through Affirm — I would be adding $700 to their GMV.

It’s interesting to see the clear quarter-over-quarter bump once the pandemic struck in March of 2020 and folks were getting their stimulus checks. A beautiful, clear trend up and to the right.

I have a hunch this will continue to climb by +50-70% YoY, especially after their recently announced Amazon and Target partnerships.

The last two charts fundamentally tell this company’s revenue story — active consumers and merchants. Right? These are the two most important variables for Affirm as it continues to grow — adding more consumers and more merchants to the family.

Consumers are growing at a rapid pace, with the number of transactions per active consumer increasing as well. The real jaw dropper is the number of active merchants — 3.5X growth quarter-over-quarter.

You might be confused, but Affirm partnered with Shopify to allow all Shopify merchants the ability to sell within their ecosystem and offer their payment plan services. This is what caused the massive spike.

The most exciting part? The active merchants chart above doesn’t include their Amazon or Target partnership numbers. Here’s a link with more info.

At the time of posting, Affirm is trading at $55 / share — about a $20 billion market cap. This assumes ~10.5X forward revenue multiple. It’s hard to offer any sort of additional clarity on this multiple in relation to past averages because the stock is so new to the market.

I ultimately believe buy now pay later (BNPL) will meaningfully compete with credit cards, especially as Affirm rolls out their Debit+ card. To what degree? I’m not certain.

But at only ~10X forward revenue, the risk / reward ratio seems ideal.

Disclaimer: This is not financial advice or recommendation for any investment. The content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice.