An attraction of the Nasdaq Composite index is that it goes back to the 1970s so it’s great for a long-term perspective. It started with a massive sell-off in 1974, which saw a deep bear market in the US and the deepest bear market in UK history. Since then there have been two major sell-offs. The first came in reaction to a frenzied Internet bubble in 1999, made worst by the terrifying attack on the World Trade Centre. The second came with the 2008 financial crisis. On a long-term perspective it is clear that these are aberrations. The normal trend for the index is up to such effect that it has risen around 220 times from its 1974 low point. This alone makes an outstanding case for building a portfolio of the sort of shares (growth and technology), which have played such a key role in helping this index climb so far. The nine stocks featured below are just those kind of stocks. Most but not all are already in the QV for Shares portfolio.
Applied Materials AMAT Buy @ $82 MV: $72bn Next figures: 17 February. New entry. Applied Materials describes itself as the leader in materials engineering solutions used to produce virtually every new chip and advanced display in the world. “Our expertise in modifying materials at atomic levels and on an industrial scale enables customers to transform possibilities into reality. Our innovations make possible the technology shaping the future.” This key role in creating the semiconductors that stand at the heart of the technology revolution immediately give it a great story. Latest results were strong. “For the fiscal year, we grew revenues 18pc and earnings 37pc while making significant strategic investments in new technologies and products to address the industry’s highest value problems and position the company for sustained long-term success. These results are all the more impressive considering the unprecedented disruptions we’ve navigated this year.” What CEO, Gary Dickerson, had to say on prospects was even more exciting. “As we adapt to the challenges created by COVID-19 and prepare for the post-pandemic era, we are seeing fundamental changes in many areas of our lives, and the world is depending on semiconductors more than ever. Investments in IT and communications infrastructure, combined with the accelerated digital transformation of companies and the economy as a whole, are driving very robust semiconductor and wafer fab equipment demand.” Dickerson clearly thinks something big is happening. “As the benefits of traditional 2D Moore’s Law scaling slowdown, leading companies are describing how the industry is transitioning to a new playbook to drive performance, power, area cost, and time to market of new devices. This PPACt playbook includes new architectures, new structures, new materials, new ways to shrink geometries, and new packaging technology. Applied is uniquely positioned to accelerate this playbook. The breadth of our product portfolio is a key advantage because it allows us to combine technologies in innovative new ways.” It just gets better. “We’re outperforming the market overall and have strong momentum in key growth areas like etch and inspection. The demand for semiconductors remains very strong, driven by IT infrastructure, digital transformation of businesses, and an acceleration of longer-term technology trends, especially AI. Our future opportunities have never been better. We’ve been investing in next-generation technologies that are critical for the AI ecosystem and laying the groundwork for Applied’s future growth. Our strategy to accelerate the PPACt playbook is already yielding results for our customers and Applied. And as I look ahead, I’m very excited about the innovative new products and integrated solutions we will bring to market in 2021 and beyond.”
BiliBili BILI Buy @ $62.50 MV: $14.7bn Next figures: 3 March 2021 New entry BiliBili is another in a group of explosively growing Chinese technology companies exploiting the opportunities created by China’s huge, connected, increasingly affluent middle class. This is how BiliBili describes itself. “Bilibili represents the iconic brand of online entertainment for young generations in China. With our website first launched in June 2009 and officially named ‘‘bilibili’’ in January 2010, we provide high-quality content and an immersive entertainment experience, and have built our platform based on the strong emotional connections of our users to our content and communities. Our mission is to enrich the everyday life of young generations in China. We started as a content community inspired by anime, comics and games, or ACG, and have evolved into a full-spectrum online entertainment world covering a wide array of genres and media formats, including videos, live broadcasting and mobile games. We have now become the welcoming home of diverse cultures and interests and destination for discovering cultural trends and phenomena for young generations in China. We believe China will become the world’s largest online entertainment market in the future and our brand recognition and market leadership among the young generations in China position us well to capture the significant opportunities. We have a young and culturally aspirational user base willing to invest in a high-quality entertainment experience. According to QuestMobile, the majority of our user base are Generation Z, individuals born from 1990 to 2009 in China. They typically receive quality education and are technology savvy, with strong demand for culture products and avenues for self-expression and social interaction. We believe our users will be the driving force and trend-setters of entertainment consumption in China as they grow with us.” The business is on fire as illustrated by quarterly figures reported on 18 November. “Total net revenues reached RMB3,225.7m (US$475.1m), a 74pc increase from the same period in 2019.•Average monthly active users (MAUs) reached 197.2m, and mobile MAUs reached 183.5m, representing increases of 54pc and 61pc, respectively,from the same period in 2019.•Average daily active users (DAUs) reached 53.3m, a 42pc increase from the same period in 2019.•Average monthly paying users (MPUs) reached 15.0m, an 89pc increase from the same period in 2019. “We are excited to announce another great quarter with exceptional growth in both user numbers and our top line,”said Mr. Rui Chen, CEO and founder of Bilibili. “Our effective user growth strategy and expanding content library helped us to reach an even broader audience. In August, our MAUs exceeded 200m, marking a new monthly record. This milestone is just the beginning. We envision that the inevitable video-lization trend will lead to great opportunities for Bilibili to grow and expand as the go-to platform for online content in China. As we leverage our core capabilities in providing engaging content and community experience, we are committed to further improving our brand equity and capturing this market opportunity. We believe the investments we are making now to increase our stronghold in China’s entertainment market will yield considerable and sustainable return in the long run.”
Fair Isaac Corporation FICO Buy @ $477 MV: $14bn Next figures: 4 February 2021 Number of times recommended: 4 First recommended: $210 Fair Isaac is best known for a credit scoring system called a Fico score. The business has broadened beyond this base on the general premise of helping its customers use data and analytics to improve their decision making. “Fair Isaac Corporation provides products, solutions and services that enable businesses to automate, improve and connect decisions to enhance business performance. Our predictive analytics, which includes the industry-standard FICO® Score, and our decision management systems leverage the use of big data and mathematical algorithms to predict consumer behavior and power hundreds of billions of customer decisions each year. We were founded in 1956 on the premise that data, used intelligently, can improve business decisions. Today, we help thousands of companies in over 100 countries use our decision management technology to target and acquire customers more efficiently, increase customer value, reduce fraud and credit losses, lower operating expenses, and enter new markets more profitably. Most leading banks and credit card issuers rely on our solutions, as do insurers, retailers, telecommunications providers, automotive companies, pharmaceutical companies, healthcare organizations, public agencies and organizations in other industries.We also serve consumers through online services that enable people to purchase and understand their FICO® Scores, the standard measure in the U.S. of consumer credit risk, empowering them to manage their financial health.” In a world where data is playing an increasingly critical role you can see why a data analytics business would prosper. Business is strong. “In our fourth quarter, we posted exceptional results that capped off a very successful fiscal year. We reported record revenue of $374m, an increase of 23pc over the same period last year. For the full fiscal year, we recorded $1.29bn of revenue, up 12pc from fiscal 2019. We delivered $59m of GAAP net income and GAAP earnings of $1.98 per share, even after taking a large charge in restructuring and impairment losses. On a non-GAAP basis, the $3.25 earnings per share was up 62pc from last year. And we’re delivering strong free cash flow growth as well. Q4 free cash flow was $135m, up 51pc from last year. Total fiscal year ’20 free cash flow was $343m, up 45pc from fiscal ’19.” Prospects look exciting. As CEO, William Lansing, says, “We’re committed to becoming the pre-eminent platform player in decisioning analytic.” In course of doing this they are winning some very large deals and he added this about one segment of the business. “In our Decision Management segment, we continue to prove that we are gaining traction with our new technology. We again delivered our largest DMS revenue quarter ever, up 36pc from last year’s fourth quarter. And the segment was up 22pc for the full year versus fiscal ’19. Our bookings were even more impressive. We signed $99m in new DMS deals this quarter, up 62pc from the same quarter last year. For the full year, we signed $199m of new DMS deals, up 27pc versus last year.”
Fiverr International FVRR Buy @ $190 MV: $6.9bn Next figures: 24 February 2021 Number of times recommended: 3 First recommended: $65 Fiverr operates a platform to buy and sell freelance services. As they put it “Our mission is to change how the world works together. We started with the simple idea that people should be able to buy and sell digital services in the same fashion as physical goods on an e-commerce platform. On that basis, we set out to design a digital marketplace that is built with a comprehensive SKU-like services catalog and an efficient search, find and order process that mirrors a typical e-commerce transaction.” Lockdowns have put a rocket under growth. “We are excited to deliver another quarter of record-setting growth as revenue, active buyers, and spend per buyer all further accelerated from the prior quarter. Revenue grew 88pc year-over-year, active buyers grew 37pc year-over-year to over 3.1m, and spend per buyer increased 20pc year-over-year to $195.” CEO and founder, Micha Kaufmann, says “Our success underscores the tremendous growth potential of our business.” There is a lot going on at Fiverr. “Over the last few months, we have continued to make exciting progress towards our key strategic initiatives: that is going upmarket, international expansion, and expanding Promoted Gigs. Fiverr Business was officially launched in September, after running a beta with select partners. We introduced a brand-new onboarding flow and started to make top-of-the-funnel marketing investments in both awareness and acquisition. One of the major value propositions for Fiverr Business is to allow us to land more buyers with our initial touch points within larger organizations, and we are encouraged by the fact that nearly 50pc of new registrations so far have invited other members to join their Fiverr Business account. Over the past ten years, we have built the world’s largest marketplace for freelancers with a proprietary digital service catalog, a sophisticated matching, quality and liquidity engine powered by a decade of transaction data, a highly efficient and scalable marketing infrastructure, a global brand and a global community with millions of buyers and sellers. These allowed us to execute and grow with tremendous momentum in 2020, and expand our leadership position during a time when businesses and freelancers needed us the most in terms of digital transformation and income opportunities. We are excited to be in a position to finish out the year strong, and even more excited about what lies ahead in 2021.” The business is changing as using freelancers becomes the norm across ever larger businesses. “So our long view on what’s going on right now is that, in the past decade, that started with 2010, when we started was a decade of freelancing becoming mainstream. We think that this decade that started with 2020 is going to be the decade in which businesses are going to figure out how to integrate freelancers into their workflow, and Fiverr Businesses is exactly designed to do that. So we’re seeing smaller businesses continue to work on an increasing pace using freelancers to get themselves off the ground as they start the business, and the more mature businesses are figuring out how to integrate those freelancers into their existing workflows.”
Lam Research Corporation LRCX Buy @ $445 MV: $64bn Next figures: 27 January 2021 New entry Lam Research Corp. is a global supplier of innovative wafer fabrication equipment and services to the semiconductor industry. Today, nearly every advanced chip is built with Lam technology. “Since 1980, we’ve unlocked new ways for the world to make progress. From today’s smart devices to tomorrow’s autonomous world,our semiconductor breakthroughs are setting the pace for the future and changing reality at its core. And for us, that’s just the beginning.” Lam Research Corp. generates a great deal of cash and uses this to drive future value and immediate shareholder returns. “Innovation requires investment, and from a use-of-cash perspective, our top priority has been to fund the growth of our business. We spent $1.3bn in research and development in fiscal 2020, representing approximately 65pc of operating expenses. Even with high levels of investment in our technology roadmap, we have been able to enhance value creation for our stockholders with a strong capital return program. Our stated plan is to return 75 to 100pc of Lam’s free cash flow in the near term. In the 2020 fiscal year, we performed in line with this plan by repurchasing $1.4bn in shares and paying $657m in dividends.” These are exciting times across the semiconductor industry. “We are excited about the opportunities for sustainable growth for Lam and are squarely focused on outperforming the markets we serve. Notwithstanding the near-term uncertainties brought about by the COVID-19 pandemic, it is truly an outstanding time to be part of the vibrant semiconductor industry.” Lam is in very good shape as witnessed by the latest quarterly results. “The September quarter marked record revenue and diluted earnings per share for the company and was also the first quarter in which we have exceeded $1bn in revenue from our Customer Support Business Group. At the midpoint of our December quarter guidance, we will be growing EPS more than 35pc year-over-year in 2020. Investments we are making in manufacturing and supply chain resilience are enabling us to meet customers’ critical needs in a period of strong demand and are preparing us for the continued growth we see ahead.” The group also sees great longer term prospects. “From a market perspective, we see positive momentum in the underlying drivers of semiconductor growth and believe this translates into a healthy outlook for Lam’s business. Work and learn from home trends continue to drive demand in key electronic categories, including PCs, storage and networking. Third-party data suggests that growth in PC, notebook and workstation shipments in the calendar third quarter surpassed a 10-year high to reach record levels. Moreover, some memory manufacturers have noted shipping record levels of consumer solid state drive bids in their most recent quarter. We believe that many of the changes brought about by this year shift to remote working and learning environments will be structural. The net result will be a pull forward of key long-term secular growth themes for the semiconductor industry, including accelerated build-out of cloud data centres and expansion of high-speed communication networks.”
MongoDB MDB Buy @ $262 MV: $15.6bn Next figures: 8 December Number of times recommended: 9 First recommended: $74 Databases are a critical part of most businesses and for years the solution provider was Oracle, a company now valued at $168bn. MongoDB has come up with an alternative approach, which many developers prefer and is growing rapidly as a result. MongoDB was founded in 2007 by Dwight Merriman, Eliot Horowitz and Kevin Ryan – the team behind DoubleClick. At the Internet advertising company DoubleClick (now owned by Google), the team developed and used many custom data stores to work around the shortcomings of existing databases. The business served 400,000 ads per second, but often struggled with both scalability and agility. Frustrated, the team was inspired to create a database that tackled the challenges it faced at DoubleClick. “MongoDB is the leading modern, general purpose database platform, designed to unleash the power of software and data for developers and the applications they build. Headquartered in New York, with offices across North America, Europe, and Asia-Pacific, we are close to where you do business. MongoDB has more than 22,200 customers in more than 100 countries. The MongoDB database platform has been downloaded over 125m times and there have been more than 1m MongoDB University registrations.” MongoDB’s growth has been extraordinary. In the year to 31 January 2015 sales totalled $40.8m By 2020 this had reached $422m and is forecast to reach $921m by the year to 31 January 2023. The group is still firing on all cylinders. “Looking quickly at our second-quarter financial results, we generated revenue of $138.3m or 39pc year-over-year increase and above the high end of our guidance. We grew subscription revenue 41pc year over year. Atlas revenue grew 66pc year over year and now represents 44pc of revenue, and we had another strong quarter of customer growth, ending the quarter with over 20,200 customers.” Atlas is MongoDB’s database software offered as a service from the cloud and payable by subscription. It has been growing even faster than the core database service. The technology behind the software continues to improve and MongoDB has also strengthen its marketing strategy delivering its third successive quarter of record customer growth. The group’s growth has been affected by lockdowns but has remained strong and prospects remain outstanding.
SolarEdge Technologies SEDG Buy @ $264 MV: $13.6bn Next figures: 24 February Number of times recommended: 5 First recommended: $147.75 SolarEdge Technologies is an exciting business with proprietary technology in the new energy field and has been growing rapidly. Sales of its key products, power optimisers and inverters, which help make the production of solar energy more efficient, more than doubled between 2017 and 2019. Many investors were optimistic ahead of recent quarterly figures that strong growth would continue and that prospects would also look strong. In the event there was some disappointment, particularly with the more recently emerging commercial business, as opposed to residential, which has been recovering strongly from any Covid-19 effects. In particular investors were shocked by the comments on high inventories of unsold product in commercial. “Initially, there was an expectation that commercial will overcome the pandemic at a faster pace, and as such, distributors and EPCs [energy performance certificates] increased inventory during the first months of the pandemic. In actuality, commercial installations both in Europe and the U.S. and even in Australia are recovering slower than residential and inventories in the channel are still high.” The shares, which had most recently been recommended in QV at $301 plummeted to below $200 before starting to recover. My view is that the problems are temporary and lockdown related and that the long-term case for SolarEdge Technologies as a key and fast-growing provider in the alternative energy field remains as strong as ever. I also believe that alternative energy across the board has reached a tipping point creating a strong following wind for all businesses in this sector.
Square SQ Buy @ $201 MV: $91bn Next figures: 3 March Number of times recommended: 15 First recommended: $39.51 When you read how Square describes what it does both for merchants and for individuals you can see that it is using technology to replace banks and do what they do more effectively and with much less friction. “We believe everyone should be able to participate and thrive in the economy—so we’re building easy tools to empower and enrich everyone. Square is a cohesive commerce ecosystem that helps sellers start, run, and grow their business. We combine sophisticated software with affordable hardware to enable sellers to turn mobile and computing devices into powerful payment and point-of-sale solutions. Our tools help sellers make informed business decisions through the use of analytics and reporting. Sellers can manage orders, inventory, locations, and employees; engage customers and grow their sales; and gain access to business loans. Our approach is the same with Cash App: we see an opportunity to build a similar ecosystem of services for individuals, providing financial access to all and allowing anyone to send, spend, and save money all from one app.” It is easy to imagine that in an increasingly technology dominated and connected world that a finance system built from the ground up on technology is going to grow rapidly and disrupt the existing banking arrangements. It is a bit like Tesla v traditional car manufacturers. Their legacy makes it hard for them to adapt so they struggle to compete. Most companies that report start by telling you how they are doing. Square doesn’t do this. Instead they tell you what they are doing, which covers all the innovations they are introducing like business debit cards for their seller [merchant] ecosystem. “Adoption of Square Card has increased each quarter since launch. And in the third quarter, sellers spent more than $250m on their cards.” They are also busy on the Cash App front [targeting individuals]. “With Cash App, we’ve continued to find ways to make financial services more relatable and accessible for individuals. We have seen strong adoption across the Cash App ecosystem, including our stock brokerage products, which have seen the fastest adoption of any product to date. Since launching it less than a year ago, more than 2.5m customers have bought stocks using Cash App, and billions of dollars have been traded by the end of the third quarter. With the stock products, we’re focused on expanding access to investing for more customers, many of whom likely have never purchased stocks before. This quarter, we launched Auto Invest, which allows for dollar-cost averaging from recurring daily or weekly purchase of Bitcoin or stocks.” Square CEO and founder, Jack Dorsey, is a big fan of bitcoin. “The second [of two initiatives] was a $50m investment into Bitcoin, which we believe will be the native currency of the Internet and help people around the world better participate and thrive in the economy.” Quarterly results were excellent even though the seller ecosystem was hit by lockdown. “In the third quarter, gross profit was $794m, up 59pc year over year, or 63pc growth excluding Caviar [a business that has been sold]. Net income was $37m and adjusted EBITDA was $181m. Cash App delivered incredible gross profit growth of 212pc year over year. The $385m in gross profit Cash App generated was more than triple what it did in the third quarter of 2019.”
Xero XRO Buy @ A$135 MV: A$18.6bn Next figures: 14 May Number of times recommended: 12 First recommended: A$38.10 ANZ-based, Xero, pioneered accounting services from the cloud for SMBs [small and medium sized businesses} for a highly affordable monthly subscription and with the convenience of linking directly into your bank account so cutting out much of the book-keeping. What they do is brilliant and has driven extraordinary growth. The business launched in 2007, some time in 2012 it crossed 100,000 customers, topped 1m in 2017 and the last reported figure was 2.45m. Turnover has grown from A$24,000 in 2007 to A$410m for the first half of the year ending 31 March 2021 and is projected to reach A$1.24bn by 2023. If you look at a share price chart yo will see that the price soared in 2013 after the IPO, peaked over A$40, fell back to around A$12 and then began climbing again. A key factor in the price fall was that after starting in New Zealand and conquering Australia, investors thought the same thing would happen in North America but there Zero encountered a strong incumbent in Intuit, which rapidly adapted its business model to offered accountancy as a service like Xero. The group has grown in the US but maybe not as fast as hoped. It is doing well elsewhere though, which is what has driven the great subscriber growth figures. Another factor in the strong performance since 2016 is that in April 2018 a highly experienced tech executive, Steve Vamos, became CEO having worked closely with the Xero leadership for 18 months previously. My broad assessment is that Intuit [also in the QV portfolio] is the company to beat in the USA but Xero is shaping up as top dog in the rest of the world, especially, so far, the English speaking rest of the world. Not only are that plenty of SMBs, who would benefit from being on the cloud and using Xero’s services but as the numbers of self employed grow dramatically potential Xero customers are also growing fast. Despite the adverse impact of Covid-19 Xero reported surprisingly strong progress in its Q2, reported in early November. “We are pleased to report continued revenue growth of 21pc and subscriber growth of 19pc versus the prior year period. Xero’s total subscribers grew by 396,000 year-on-year to reach almost 2.5m subscribers globally, and all our geographies recorded positive net subscriber additions over the half. Operating revenue increased to just under $410m during the half. A 15pc increase in annualized monthly recurring revenue, or AMRR, to $878m was an outcome of the 19pc subscriber growth offset by a small fall in ARPU [average revenue per user], or average revenue per user, of 4pc.” An exciting pointer for the future is the way invoice payment activity is growing. “The third chart shows monthly invoice payment activity, measured in total payment value, where subscribers have attached a payment service such as Stripe or GoCardless, Invoice payment value for the second quarter of the financial year was up 33pc. In the month of September, invoice payment value increased by 44pc from the low seen in April.” Xero’s three strategic priorities also point to an exciting long-term future. “These are to drive cloud accounting, which is about increasing the penetration of small business cloud accounting software; secondly, to grow the small business platform, which is about extending and enriching Xero as a platform to help small businesses run their business. And then third to build for global scale and innovation, which is about preparing Xero for realizing our aspirations to become the most insightful and trusted small business platform.”
