The Razor’s Edge

Twilio has had an exciting fall. First, Microsoft announced Azure Communication Services, viewed as a shot across the bow at Twilio in the developer driven communications space. Then, Twilio had its first investor day in three years, refreshing investors on their trajectory. Lastly, Twilio announced the purchase of Segment, a customer data platform that signals Twilio’s climbing of the value chain.

To break it all down, we bring on Captain Twilio, an experienced investor whose portfolio features one stock, Twilio, and Justen Stepka, our frequent guest and an Atlassian and, more relevant to today’s conversation, Docker alum who has firsthand experience with Segment as a user. This is a fun conversation for anyone following Twilio, and it also adds interesting perspective on business strategy and SaaS valuations.

• 3:15 minute mark - The Segment value proposition

Segment blog on gross margins: https://segment.com/blog/the-10m-engineering-problem/

Jeff Lawson interview with Ben Thompson: https://stratechery.com/2020/twilio-acquires-segment-what-is-segment-an-interview-with-twilio-ceo-jeff-lawson/

This week’s The Razor’s Edge goes back out to the streets. We speak with Ali Naqvi, owner of a ride-share car supplier in New York, about his experience with the COVID lockdown, what he’s hearing from his customers – rideshare drivers – and the state of New York. While a few work from home comments pop up hear and there, this is more focused on the state of Uber and Lyft’s end markets and what that might mean for a broader economy. Ali is a lifelong New Yorker and has a rolodex of celebrity encounters and Al Pacino quotes to pull from, and this is a fun conversation.

• 2:15 minute mark - Background on the business

We continue our discussion with Jens Schumacher and Justen Stepka, long-time Atlassian vets who have seen the software sector inside and out. We take a broader focus in this discussion, looking at SaaS competition, the importance of integrated cloud stacks, and the broader COVID and macro set-up. This leads to us diving in on Atlassian, on PagerDuty, on Zoom, and on Snowflake, among other topics.

• 2:30 minute mark - The onset of competition - Asana for Atlassian, Microsoft for Twilio, and writ large

We speak with a couple of Atlassian alums on this week's episode, as the first of a two-parter. Our guests are Justen Stepka, co-owner of Enterprise Fund, Atlassian alum, and previous The Razor's Edge guest (episode #16); and Jens Schumacher,  employee number #12 at Atlassian, and the Head of Product for Jira Service Deck, who is now Chief Product Officer at Sajari, a search technology company. In today's episode, we talk about the Atlassian mafia effect and go more into focus on Sajari. This leads to a lot about Elastic Search, about the e-commerce market, and about SaaS development and machine learning that should be of interest.

• 3:00 – Jens's background and the emergence of the Atlassian mafia

In a growth-y market, it pays to have a fresh perspective. We interview WallStSaaSBro, a notorious member of fintwit who has firsthand experience on what's going on in the software sector. As an account executive in New York who has seen one sector - healthcare - go beyond acceleration into actual soup to nuts adoption of modern technology in 2020 - he has a value-added take on what's going on in the sector. He also has an interesting story and we have a wideranging conversation on his background, the state of New York, and the state of SaaS.

This call was recorded August 28th. 

• 4:45 minute mark – Background and setting the NYC scene

The end of summer often serves up surprises for the market, and this year was no different. The cadence of Zoom reporting and setting the market ablaze towards the end of earnings season, followed by PagerDuty reporting just as the euphoria faded is an all too familiar one for PagerDuty shareholders.

We discuss the smaller SaaS company's report and why, for all the talk of billings, net retention, and everything else, this was a solid fundamental report. And why, amidst a September 1st that could be a market turning point and a bunch of crazy factors, it didn't matter at all. We also preview Slack's report, talk SaaS consolidation, get meta about the investing podcasting boom, and talk about why an IPO matters for more than a company's initial trading.

• 4:00 minute mark – The laggards rally, with CRM as a stand-in.

We flip the script. Daniel pitches Akram on a new idea - f5 Networks - and Akram plays the role of portfolio manager, hearing out and testing the thesis. While Daniel might hope you like the idea itself, this episode should be a little more educational, as we break down what makes it a good or not-so good pitch, what's missing, and what could go into the thesis next. It also highlights a lot of the challenges in both growth and value investing.

We do get into other ideas, including Dropbox, and into the state of the market and whether the Alteryx report is a warning sign.

• 3:30 minute mark - What brought us to f5?

Reading materials:

Full pitch on Seeking Alpha: https://seekingalpha.com/article/4369321

What Makes Stocks Go Up: https://dubra.substack.com/p/the-anatomy-of-stocks-that-go-up

Life Magazine - "New Kid On The Street" (scroll to 62a):  https://books.google.es/books?id=bU8EAAAAMBAJ&printsec=frontcover&hl=es&source=gbs_ge_summary_r&cad=0#v=onepage&q&f=false

Dropbox: The First Dead Decacorn - https://alexdanco.com/2015/08/24/dropbox-the-first-dead-decacorn/

With the economy working through a recession - though certainly a unique mix of crosswinds - we thought it would be good to get out of the software space. Scott Norton, co-founder and CEO of Sir Kensington's, joins the Razor's Edge to talk about what he's seeing in this macro environment, both as someone who started out in finance and as the CEO of the condiments maker. He shares insights from the company's founding in the last recession and what makes the modern consumer goods company different from the big brands (though the big brands can still win, he points out). And since this is the Razor's Edge, we still talk a little bit of SaaS.

• 3:00 minute mark – Sir Kensington’s calling its shot, but also missing out on another big startup

A few links referenced in the conversation:

• Premium Pete interview with Scott: https://www.youtube.com/watch?v=Ds01YpbWfRE

Today’s episode continues our conversation with Captain Twilio. Our guest, a financial professional and a friend of Akram’s, invests personally in a very concentrated fashion. Last time, we spoke about his previous position, Netflix. This time, we cover his current position, that’s a single position, Twilio. Akram and he talk about why he’s so confident in the stock, the risks of such concentration, and how to think about SaaS companies or really any sort of company in the current market.

- 5:00 minute mark – The initial TWLO long case and the inherent risks from the start 

- 12:30 – The Uber ‘gift’ and the shift to selling to firms; and Flex 

- 15:30 – The value of new technologies – cost savings – and do they really deliver? 

- 18:15 – Uneconomic end markets for Twilio – a risk? 

- 21:00 – The dynamics of pricing models, and Twilio’s competitiveness 

- 28:00 – The relative value of valuation vs. focus 

- 31:45 – What cost savings means for TAM analysis, and the importance of TAM analysis (or its limits) 

- 36:00 – Wild IPO pricing and what it means 

- 40:15 – Why the concentration 

- 45:40 – Survivorship bias and growth investing 

- 49:00 – Market multiples and the importance of company culture 

- 53:30 – Revisiting the macro element, and what sort of 100-year events are happening 

- 59:00 – Echoes of 2000 

- 1:01:00 – If things go back to normal, what happens to SaaS 

- 1:07:00 – Risk to Q2 earnings season and guidance

We're joined by friend of The Razor's Edge and professional investor Captain Twilio, as he's known. As someone who has only owned two stocks in his portfolio since 2012 - Netflix from 2012-2017 and Twilio in the three years since - he has a laser focused approach to growth investing, and it's worked.

In the wake of Netflix's most recent, pandemic-fueled earnings report, we brought him on to see where he thinks the company sits, and what we all make of the report and Netflix's positioning. We also cover Captain's Twilio position at length, though that will be part two of this episode, coming out around Twilio's earnings. 

Relevant Links:

Akram's Razor - Netflix: This Stock's Story Is Over

Vox - Land of the Giants Podcast Season 2