Q1 2022 Portfolio Results & Commentary

1 Corinthians Chapter 1 verse 10 states, "I appeal to you, brothers and sisters, in the name of our Lord Jesus Christ, that all of you agree with one another in what you say and that there be no divisions among you, but that you be perfectly united in mind and thought."

I love this Bible verse as it is a great example of God's love for us. He desires that I agree in what I say and how I live with my fellow Christians. This isn't meant to control me, but rather is for my benefit. For if I become divided, I can become less focused on God's will for my life. This can lead to a terrible example of Christianity if I am contradicting what God's word stands for. Being united is a strong position and is meant to be protective.

Unfortunately in the U.S., the nation is not united, let alone united under God. This has led to extreme violence, confusion, and a lack of hope for the future. But with every difficult situation, through Jesus Christ there is always hope. The markets are in turmoil right now, and like the division within the U.S., investors are conflicted on how to trade, invest and move forward. These times are the times to look for the opportunities for the future versus mainstream culture's desire to do otherwise and rely on instant gratification, pessimism, anger, hatred, among other emotions.


Portfolio Inception is January 2020

(2019 is the aggressive growth baseline from a prior portfolio that was liquidated entirely - December 2019)

(Prior to 2019, I managed a portfolio for 7 years, blended with value/growth/dividends - 15% average return)

It's been a rough 2022 for investors holding aggressive growth oriented companies. The talk of recession is intensifying and many now believe that we are entering into one. The portfolio is focused on selecting the strongest potential aggressive growth winners. As is typically the case for aggressive growth winners, they continue to grow and take market share regardless of economic cycles, and outperform their competitive markets. This has been a key indicator for successful stock picking over the past 20+ years.

The portfolio is expected to achieve substantially strong returns over time, and I'll be providing quarterly review updates to see how holdings are performing, in the midst of today's challenging events.

Key Takeaways

The portfolio has evolved with a lot of turnover during the past couple years. This is not concerning as when I look back at the thought of initiating an entirely new portfolio, focused solely on aggressive growth during the past couple years, it's no wonder that turnover has been much higher than my typical portfolio management history. The 14 holdings reflect the leanest portfolio I've ever had under management, and I don't expect to see the number of holdings grow substantially higher over time - perhaps 30 or so over time.

That being said, only 6 holdings were a part of the portfolio's performance during 2020, while all were a part of 2021. 2021 was a standout year as the portfolio substantially outperformed its comparable aggressive growth investment options, despite doing very poor against broader indices (the fake rotation effect). 2022 is clearly a terrible year across the board, but I remain encouraged on the future potential, and see parity building as it should, with aggressive growth leaders poised to lead the stock market recovery.

Q1 2022 Portfolio Summary

For the summary of each holding, I'm going to focus on Revenue as Revenue is of the utmost importance for aggressive growth market takers. Revenue performance is based on YoY comps. I'll provide some short commentary on Cash Flow performance and expectations as investment valuation is crucially dependent on this metric.

AFRM: Revenue performance 62% (9-month through Q3 FY 2022), LTM Revenue stands at $1.2 billion. AFRM Cash Flow is currently negative with management guiding for profitability by mid-2023. Cash Flow inflection towards 20-30% is the key mid-term and long-term play.

ABNB: Revenue performance 70% (Q1 2022), LTM Revenue stands at $6.6 billion. ABNB Cash Flow Margin is at 42% based on the Q1 2022 results and LTM. Even with Cash Flow margin contraction towards 30%, market share growth can support robust investment returns.

COIN: Revenue performance (35%) (Q1 2022), LTM Revenue stands at $7.2 billion. COIN Cash Flow Margin is at 36% based on the Q1 2022 results and LTM. Revenue performance should be viewed on a two-year stacked basis due to COIN's rapid market growth. Crypto is highly volatile and mid- and long-term potential for COIN remains massive.

CPNG: Revenue performance 22% (Q1 2022), LTM Revenue stands at $19.3 billion. CPNG Cash Flow is currently negative, but Q1 2022 did witness improvement. Expectations are for increasing Cash Flow inflection over the mid-term as CPNG continues to expand services and takes market share with the e-commerce transition in South Korea.

LCID: Revenue performance 18,326% (Q1 2022), LTM Revenue stands at $84 million. LCID Cash Flow will be negative over the short-term as the company substantially ramps up EV production and corresponding Revenue. A key catalyst for LCID to see robust performance will be meeting the revised 12,000-14,000 units in 2022, and re-establishing the formerly guided nearly 50,000 in 2023.

MELI: Revenue performance 63% (Q1 2022), LTM Revenue stands at $7.9 billion. MELI Cash Flow Margin is at 13% based on the Q1 2022 results and LTM. MELI has witnessed some choppy Cash Flow performance, but mid-term there is potential for inflection towards 20% as multiple services continue to grow.

OPEN: Revenue performance 590% (Q1 2022), LTM Revenue stands at $12.4 billion. OPEN Cash Flow Margin is at 2% based on the Q1 2022 results and LTM. Cash Flow results were a pleasant surprise, but it remains likely that OPEN will see a reversion back to negative results in 2022. That being said, for a company on a mid-term trajectory towards $60 billion in Revenue, Cash Flow inflection will be a massive investment opportunity.

PLTR: Revenue performance 31% (Q1 2022), LTM Revenue stands at $1.6 billion PLTR Cash Flow Margin is at 15% based on the Q1 2022 results and LTM. PLTR is poised to track towards $5 billion in Revenue with strong potential for Cash Flow inflection.

PLUG: Revenue performance 96% (Q1 2022), LTM Revenue stands at $572 million. PLUG Cash Flow is currently negative. As the company continues to execute on its many partnerships and further build out infrastructure and vehicles based on its technologies, substantial Cash Flow inflection is on the horizon.

RIVN: Revenue performance N/A (Q1 2022), LTM Revenue stands at $150 million. RIVN like LCID has a negative Cash Flow Margin that is likely to continue over the short-term. As the company scales production and Revenue substantially over the mid-term, Cash Flow inflection potential is huge.

ROKU: Revenue performance 28% (Q1 2022), LTM Revenue stands at $2.9 billion. ROKU Cash Flow Margin is at 8% based on the Q1 2022 results and LTM. ROKU is currently going through supply chain issues and is managing it very well. As the company benefits from substantial AVOD growth, robust Cash Flow inflection is on the horizon over the mid-term.

SE: Revenue performance 64% (Q1 2022), LTM Revenue stands at $11.1 billion. SE Cash Flow Margin has turned negative based on the Q1 2022 results and LTM. This is a result of the company's massive growth for e-commerce and is expected to be a short-term impact. That being said, the company's mid-term potential remains robust, albeit that Cash Flow Margins will be lower based on Revenue mix.

SHOP: Revenue performance 22% (Q1 2022), LTM Revenue stands at $4.8 billion. SHOP Cash Flow Margin is at 7% based on the Q1 2022 results and LTM. SHOP is a great example of a major pandemic winner - 192% Revenue growth from 2019 through 2021, and yet the company is still growing north of 20%. This is massively stronger than much larger peers and retailers looking to transition to e-commerce independently. Mid-term potential for SHOP is highly robust.

TSP: Revenue performance 140% (Q1 2022), LTM Revenue stands at $8 million. TSP Cash Flow is negative as the company is at a very low Revenue base and looking to further rapidly scale its technology through direct OEM vehicle sales and its own capacity through its AFN. Revenue potential remains robust as partnerships and customer deals continue to grow, monitoring Cash Flow as the business models scales will be key as inflection potential will be strong.

Why it Matters

This is quite simple. I own the companies I do in the portfolio for the core reason that I am taking the risk that they will be tomorrow's major innovative leaders, market takers, and investment winners. Q1 2022 has been rough as many Big Tech and legacy incumbent peers struggle. I view the portfolio's performance as a major win versus the broader status quo results.

Risk has become an upside down focus where companies that are risk-averse are viewed as a "safer" bet. I disagree strongly as companies looking to play it safe in many cases are more risky than those growing robustly with pristine financial strength.

I will continue to gauge performance each quarter as if the trend from Q1 2022 continues through the recession that is unfolding, once we get closer to the perceived bottom, the market will push valuation for these companies quickly from today's depressed levels. Essentially, market takers and innovators are always the best investments during any economic cycle. The irony is that they always get punished much worse than companies whos perceptions are safer, and yet they are the ones losing market share to these competitors. It's not always easy, but picking these winners is where the strongest investment returns will be made.

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