Asset Manager Investing in Global Technology Sector

We're an asset management firm allocating our capital into asset classes benefiting from technological innovation and applications globally. We serve as a family office of a tech professional who has spent over a decade as an entrepreneur, operator, and venture investor across Asia and the US.

Our small team is made up of diverse investment professionals who research, identify, and execute relevant opportunities. We occasionally share some of our investment memos, insights, and analysis here.

Friday, July 3, 2020

Q2.2020 - Opera: Attractive Exposure To Africa's Fintech Landscape

  • Upon a $600 million takeover by the new Chinese owners in 2016, Opera has shifted its focus to emerging fintech opportunities in Africa and Asia.
  • Both owners have core competencies in the emerging market, having successfully launched two unicorns in China. We believe that Opera can crack Africa's market potentials.
  • Opera grew ~94% in 2019, upon launching its fintech offering in Africa. The fitting approach and business model should allow Opera to sustain its growth.

Opera (NASDAQ:OPRA) is one of the most interesting turnaround growth stories we have come across. Driven by the ambitious vision of the new Chinese owners, it went from being a less successful browser maker to being a fast-growing microfinancing lender in Africa and Asia. Over the last year alone, revenue doubled to ~$335 million upon the launch of the fintech unit in Kenya and India. In this note, we take a closer look at Opera's new Chinese owners' motivation and the micro-financing business potentials in these emerging markets, which we think offer a uniquely attractive long-term outlook.

Q2.2020 - Sprout Social: Owning The Social Media CRM Space

  • Social Sprout has a deep moat in the social media management space, effectively deterring even the well-resourced competitors.
  • It has not only fast-growing but also high-quality revenue. 99% of revenue is subscription-based, with 41% organic growth.
  • Growth will slow down to ~25% this year. However, we think that the continuing investment in go-to-market will reaccelerate growth beyond 2020.

In our view, Sprout Social (SPT) presents an interesting investment opportunity due to its deep moat in the social media management space. Alternatively, we also view Sprout Social as a social media CRM (Customer Relationship Management) play. Founded in 2011, the company has expanded its offering and acquired a strong brand reputation globally over time. In this first coverage, we take a closer look at Sprout Social’s competitive positioning and revenue model, in conjunction with its go-to-market.

Q2.2020 - MongoDB: Consistent Enterprise Market Share Gains

  • MongoDB has an unrivaled leadership as the only evolving standalone player in the attractive NoSql and DBaaS spaces.
  • The EA offering proves to be reliable as an enterprise-grade solution. We expect stronger market share gains. Total customers with at least $100k ARR up by 30% in Q1.
  • Atlas will continue to benefit from the expected increased investment in the self-service channel in Q2 and beyond. We expect Atlas to make +50% of MongoDB's business at year-end.

We have a bullish long-term view on MongoDB (MDB), the provider of cross-platform document-based database solutions. The company has been relatively consistent in maintaining an exceptional +50% growth over the last few years, driven by its disruptive offering and the secular trends for NoSql and DBaaS (Database as a Service) adoptions across potential customers of all sizes.

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Q2.2020 - Workday: Resilient Business Model And Sustainable Growth

  • Workday is an attractive investment opportunity, given its deep moat in the enterprise HCM and Financial Management, steady growth, and strong cash flow generation.
  • The sticky client base and its high-quality licensing business model will help in weathering the ongoing uncertainty.
  • We expect a sustainable +20% growth with potential operating margin expansion above its 16% target in the near term.

We believe that Workday (WDAY), the SaaS Finance and HR giant, presents an attractive long-term growth investment opportunity. Workday is one of the most disruptive players in the enterprise SaaS HCM (Human Capital Management) and Financial Management market. Over the last five years, revenue and FCF (Free Cash Flow) have grown by ~5x and ~9x consecutively. Despite being a +$3.6 billion-a-year business, Workday also still maintains a +20% growth with steady FCF profitability. In this first coverage of Workday, we will take a closer look at its high-quality business model and strategic go-to-market approaches, which we believe should allow the company to maintain its resilience and outperformance. We assign the stock an overweight rating.

Q2.2020 - New Relic: AIOps And Edge Will Drive Client-Base Expansion

  • We see growth opportunities through client-base expansion, driven by the adoption of New Relic Edge and AI in FY 2021 and beyond.
  • New Relic also onboarded four new executives, demonstrating a full commitment to fixing the sales execution issue in Q1 2020.
  • As we see potential growth and margin expansion opportunity in the medium term, we are upgrading our neutral rating to overweight.

In our recent note on New Relic (NEWR) in Q1 2020 last September, we highlighted the potential investment risk considering the management shakeup in the company. We rated the stock neutral at the time as we continued to believe in the business's potential and strong positioning in the attractive APM (Application Performance Monitoring) and observability spaces. New Relic has since continued to perform above our expectations, which increases our conviction in the stock further.

Friday, June 26, 2020

Q2.2020 - Vroom: Disruptive Model With Proven Profitability Potential

  • Vroom planned to get listed at ~$22 IPO price target. Upon the opening, the stock soared to ~$+47, which at ~4.2x P/S looks a bit overvalued to Carvana's ~1.4x.
  • It is still well-positioned to disrupt the ~$840 billion used car market with its eCommerce business model, whose revenue grew by ~5x in the last four years.
  • Demand has been strong, while variable vehicle expenses have also been in downward trends in recent times, further proving its profitability potential.

We believe that Vroom (NASDAQ:VRM) should be an interesting technology IPO opportunity this year. The company provides an end-to-end eCommerce platform for buying and selling vehicles, which was a +$800 billion market last year alone. In our view, the frictionless transaction, data-driven, and asset-light model are highly disruptive and more profitable at the same time. The company already filed for IPO earlier this June, and we had initially expected to assign an overweight rating on the stock upon its listing. As the shares price exceeded the expectation and soared to ~$47 on the first trading day, we will switch to neutral, for now, leaning towards overweight once we found a more attractive entry point.

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Q2.2020 - Cerence: Secular Growth Opportunity In Automotive AI Market

  • With AI-based virtual assistants becoming more mainstream, Cerence will continue to benefit from the secular demand from the automakers across all tiers.
  • The company has a deep moat and leadership in the automotive AI industry, having spent 20+ years building relationships with major automakers. BMW, Audi, and Ford are all customers.
  • Its fundamentals are rock-solid. Revenue grew 23% YoY in Q2, with operating and EBITDA margins at ~30%.

We believe that Cerence (CRNC), the market-leading provider of automotive AI technology, will continue benefiting from the secular growth of automotive AI-based virtual assistants and maintain its leading position for the foreseeable future. Despite being founded in 2019 as a result of a spin-off from Nuance (NUAN), the conversational AI company we have also rated highly, Cerence has spent over 20 years in the automotive industry as a combined entity, perfecting its technology solutions and developing relationships with the major automakers. At present, we see two medium-term key catalysts in the business as we initiate our coverage with an Overweight rating.

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Q2.2020 - Eventbrite: Tough Outlook Even After Financing Boost

  • Having been severely hit by COVID-19, Eventbrite should expect very little to no growth in 2020, even after the recent shift to online events.
  • The $225 million financing from Francisco Partners will allow Eventbrite to test the monetization strength of its online event program.
  • However, we remain skeptical of the overall Eventbrite's long-term growth prospect.

Towards the end of last year, we discussed how Eventbrite (EB) would need to have a more attractive risk/reward profile for investment consideration. As the COVID-19 pandemic has significantly weakened the company's fundamentals and also threatened its long-term prospects, we found it hard to justify a bullish position on the stock. Upon the pandemic, Eventbrite laid off ~45% of its employees to save $100 million for the year. As it entered a distressed situation, it also received a $225 million funding from a PE firm, Francisco Partners. The shares are currently down ~40% from December when we published our first coverage on the stock. In our view, Eventbrite will be in a distressed situation for some time, even beyond 2020. Given the tough outlook, we think the price needs to drop a lot more to justify the risk/reward. We will maintain our neutral stance, leaning more towards underweight.

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Q2.2020 - Domo Looks More Convincing Now

  • Domo saw a strong Q1. Revenue grew by 19% despite 9% opex cut, highlighting a solid go-to-market execution and a proven offering.
  • The better-than-expected renewal rates despite the $35 million cost-cutting plan mean there is room for more margin expansion.
  • Domo is fairly priced. We will upgrade the stock to overweight with a price target of $37.

Domo (DOMO) looks much more convincing today than last August when we covered the stock the first time. Since then, shares price has been up ~36% as fundamentals have improved. The solid growth despite the decrease in cash burn in Q1 is a sign that the company has fully overcome the go-to-market issue. Given the potential upsides this year driven by the margin expansion and the seemingly successful go-to-market revamping, we will upgrade Domo from neutral to overweight.

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Q2.2020 - LivePerson: Still Difficult To Draw A Conclusion

  • A strong increase in messaging volume will translate to higher revenue, given the company's mix of usage-based and license-based pricing.
  • The disciplined approach in expense management will also drive EBITDA margin expansion by ~100-200 bps.
  • The overall long-term outlook remains mixed, considering the challenging landscape and the limitation of its AI-based offering.

The near-term outlook for LivePerson (LPSN), the conversational commerce AI company, looks a lot better than we expected despite the COVID-19 situation. The company beat the Q1 revenue guidance while top-line growth accelerated to 18%, ~100-200 bps higher than the TTM growth at the end of last year. The company's commitment to achieving more cost-saving by leveraging automation, coupled with the increase in demand for a messaging-based solution, further suggests that there may be a near-term upside opportunity. On the other hand, we still have a mixed long-term view. The business model scalability and the competition are still long-term risk factors that concern us. Since our first coverage on the stock last November in which we discussed some of these concerns, the stock has been down ~4.5%. We will maintain a neutral stance on the stock for now.

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