Since then, I just continued kind of diving headfirst into investing, learning about investing, and specifically investing in individual companies and trying to be a long term investor.

In 2018, I got off of active duty in the Air Force and kind of transitioned into a civilian job. I did some consulting for a year with a really amazing company. Around that time, I started kind of just getting more active on Twitter and meeting people like you and just sort of like growing my network intuit, unintentionally not realizing what those connections can do over time.

I started a little email newsletter and talked about investing. I sort of documented my journey. Then here we are today. Kind of through that I met Simon Erickson, who is the Founder and CEO of 7investing.

I’m now involved as a lead advisor on that team with 7investing. That’s something we just launched recently. That’s kind of where I’m at today.

Robert Leonard  3:28

That’s awesome. When you were just getting started back in 2012, as a brand new investor without much background in it, where did you start? There’s so much information out there. Where did you dive into to really start learning about investing?

Austin Lieberman  3:42

Actually, I lied a little bit in that story, unintentionally. I started investing in 2011. When you’re about to commission as an officer in these military training programs, it’s pretty clear that you’re going to have income because they know what you’re going to make as an officer.

USAA, the bank had a lot of military people and I used back then, I still use it, offered a cadet loan. You’re a cadet when you’re still in training. I got a $25,000 loan, my senior year of college, which was 2011. With that loan, you can use it to get started, like a 3% interest rate or something like that. You can use it to pay for things like your moving expenses and to do stuff.

I spent some of it on a cruise with my roommates. That was a great time. I bought a road bike for myself and my fiance at the time who’s now my wife. We’ve been married for nine years, a long time. She’s getting pretty old. Just kidding. Then I bought her engagement ring with that and then helped pay for the wedding. I had about $8,000 leftover and I decided that the best way to do it was to start investing, which is a great thing, right?

The way I started investing was watching Jim Cramer and CNBC. I remember what I owned, I owned Annaly, which is a real estate investment trust. I owned AT&T and  something that was involved with the VIX. It was one of those leveraged ETFs, where basically it’s guaranteed to go to zero if you own it for too long.

What happened was that $8,000 turned into $4,000. It quickly tainted everything. I I just thought investing was a big scam. That was in 2011.

Then in 2012, I got introduced to what real investing is, in my opinion. That’s where my mentor introduced me to the Motley Fool. Actually, I’ve spent some time just as a freelance writer for them over the years and just digging into their services. They’ve got some incredible services for investors to start learning about investing. The ones that I used to subscribe to were Stock Advisor and Rule Breaker Investing. That’s where I started to find ideas about investing back in 2012. It changed a little bit now, but we can probably get into that later.

Robert Leonard  6:00

You mentioned that you’re a long term investor, but what type of strategies do you follow these days?

Austin Lieberman  6:06

When you say these days, it feels like every day, these days in investor worlds, like 10 days or more? Just with how much volatility there is, such a really interesting question, and a really timely question. It’s something that I’m not really proud of right now, the way I’ve been acting as an investor. I’ll get to that in a second.

However, a couple things. Carl Richards is a financial visor. He’s on Twitter at @behaviorgap. I’m a huge fan of his. He’s just a super awesome person. I’ve had some kind of conversations with him through DMs. Follow him if you want to learn about finance and investing in general.

Carl has a book called “The Behavior Gap,” a fascinating book. What it talks about, and really, he’s talking not about individual companies necessarily, but more about index funds. The behavior gap is the difference between investor returns and investment returns. I don’t know exactly what the specifics are in the book.

However, in general, S&P 500 returns 8% a year or whatever, while investor returns… So the return of investors is actually 4%. The reason that gap is there is because of bad habits and tendencies that people have to trade in and out of investments. That’s the part that I’m not really proud of myself for lately.

I’m still invested very long term with most of my portfolio, but I’ve taken a percentage of my portfolio and tried to get smart, which is really silly. You know, buying puts on *inaudible* and the S&P 500, which means basically, you’re just trying to time whether this thing is going to go up or down in any given day or week or whatever. I’ve been doing that a little bit with a small percentage of my portfolio.

In general, 90% plus of my portfolio is invested in really the type of companies that I’m focused on, like enterprise software companies. When we say enterprise software, we mean companies that create software that big businesses use. If you think about some popular companies that are, like that Salesforce ticker is CRM, is an enterprise software company. They do customer relationship management software for huge organizations, and it helps them run their businesses really. Salesforce’s customers rely on Salesforce to improve their business.

So I mainly focus on enterprise software companies. You’ll also hear them kind of called SaaS companies, software as a service, and then keyword for the last few years has been cloud companies.

When you think about cloud computing, that’s things like Amazon Web Services, Google Cloud Platform, and Microsoft Azure. Those are big cloud providers that people can basically rent space from them, so they don’t have to have all their own servers and stuff like that.

I’m also kind of focused on just really companies with digital strategies. If you think about digital entertainment companies, what I like to call them. These are companies like Trade Desk, Spotify, Netflix… I don’t own Netflix, but I own Spotify. I used to own Trade Desk recently. So that and then even like Roku is another company.

I look for those types of companies and then I have a pretty concentrated portfolio. I’m generally holding between 10 and 20 companies.  I have right now, like 35% of my portfolio is invested in Alteryx, which is a data analytics company. That’s my largest holding.

Then I’m not sure, but around 15% or 16%, in my next two largest companies, which are I think it’s Datadog, ticker is DDOG, and then CrowdStrike, ticker is CRWD. Then the rest are kind of like 5%-ish positions. Right now it’s around 12, maybe 15? I have a generally concentrated portfolio, mostly software stuff, 10 to 20 companies.

Robert Leonard  9:49

Being so focused on just technology, I’d say, which are often high growth companies that sometimes have inconsistent earnings or cash flow, how do you think about value? When might a company deserve a bit of a premium because that company is just so good?

Austin Lieberman  10:05

That’s a really important question. It’s amazing. There are so many different opinions on this, right? You’ve got some of the best investors of all time like Warren Buffett, Mohnish Pabrai, Benjamin Graham, people who are in the value camp, right? They’re looking for things that are cheaper than what they’re worth, if you were to add up all their assets. That’s how they figure out what the best investments are.

You can’t argue with it, because they’ve done amazing things when you can look at their track record. I don’t invest that way at all. I look for and so this is kind of a trait of David Gardner, who is one of the founders of the Motley Fool. He has his own podcast called Rule Breaker Investing. It’s incredible. It’s my third favorite podcast.

Now, my first favorite is the 7investing Podcast, which is actually coming out. It’ll probably be out by the time you hear this. My second favorite is obviously The Millennial Investing podcast. Then my third favorite is Rule Breaker Investing by David Gardner.

I think David is one of the best investors of our generation. He puts so much stuff out there for free. One of the things he talks about as a trait of Rule Breaker stocks, he actually looks for companies that are considered to be overvalued. w

When you think about these companies, you’re thinking about companies like Amazon, Google, and Netflix, which throughout almost their entire history of existence, if you were to ever talk to a value investor about them, they would come back and say, “That company is overvalued. I don’t understand it’s too complicated. I can’t make sense of the value of it so I’m going to avoid it.”

But really, there are some companies and this is what I believe in and how I invest… There are some companies that because of their lead in either technology, talent, or data is another huge one, recurring revenue models… You mentioned that sometimes revenue can be a bit unreliable, or up and down.

However, one of the things I actually look for are companies with recurring revenue and so that revenue is actually very predictable. Because of that and because they’re creating software, which you don’t have to go order new materials to build the next vehicle or the next house, or have inventory of clothing that you need to pay for up front and then sell.

To create new software, literally, it almost cost nothing to sell another license for Salesforce to the next customer. The cost comes up front in the research and development, the hiring, and the technology.

Once they’ve got it and they’ve got the platform, it almost costs nothing to scale that infinitely and sell it to as many customers as possible. For that reason, I believe it’s kind of been proven over time that those types of companies deserve a higher multiple.

I really don’t even look at price to earnings multiple, because a lot of these companies don’t have earnings that are unprofitable. However, I won’t just invest in any unprofitable company. For example, Uber and Lyft. I’m not interested in those companies at all, because I can’t see how they’re making progress towards becoming what I believe are profitable companies or more valuable companies just because of how high their expenses are and their costs.

With a lot of these software companies, even though they’re currently unprofitable on a price to earnings basis, they’re growing sales. They’re growing their revenue at 40-60% year over year. For Alteryx, I think it was 75% year over year in their last report.

What that means is if they’re a little bit defensive right now on a price to sales ratio, then if the stock were to just not move at all for a year, they’re going to have 75%, more, almost 75% more revenue next year. That cuts that price to sales ratio down significantly, because their revenue is going to continue to grow.

So very quickly, these companies start to actually get cheap and so getting a little long winded here, but as long as we can find a company that has a reliable, a good product, good leadership, they continue to innovate, then they have recurring sales, it’s actually pretty predictable what their sales are going to look like in two years, three years, and four years.

If you start to multiply that out 75%, of course, it’s going to drop a little bit, but even down to 45%. If they can keep that up for a few years, then the revenue is 3-5 times higher than it was today in a few years. That’s how these companies have some of these outsized returns over time.

Robert Leonard  14:21

I’ve actually been pretty influenced by David Gardner myself. I’m pretty Warren Buffett through and through. I’m a value investor, but not just David Gardner, but also just the Motley Fool’s way of investing. I greatly enjoy all of their podcasts as well. I chat with a bunch of those guys frequently and they’ve had a big impact on how I invest.

I’m not fully to the point where I can invest in some of the high flying tech companies like David Gardner recommends. I need a little bit more on the valuation front and a little bit more on the earnings and cash flow side, but they’ve definitely got me a lot further and a lot closer to those types of things.

I definitely like that conversation that you just had and I’m moving into some of the technology places myself and even some of the FinTech, that not a lot of people would consider like a Warren Buffett style pick, but just for all the reasons that you just mentioned, I like those type of companies as well.

Austin Lieberman  15:09

And it’s talking about Square lately, right?

Robert Leonard  15:12

Yeah, I’m a big fan of the FinTech space. Three of my five biggest holdings are in the FinTech space: Visa, MasterCard, and Square.

Austin Lieberman  15:21

We’ll get you over to the growth side soon. All right, we’ll get you.

Robert Leonard  15:26

Yeah and it’s funny enough that my other two that round out my top… So the top five picks in my portfolio are about 80% of my portfolio. The other two are Adobe and Markel.

Markel is not necessarily as much of a growth play. Adobe is, but that’s just kind of how I’ve kind of progress.

I really like the FinTech space but when we talk about and I’m starting to like some technology, I have a position in Datadog, just like you mentioned. I really like that company as well. I’m slowly scaling into that and a couple other companies.

However, one of the things that I’m trying to still grapple with or learn as a relatively new investor in the software, or tech space is, how do you analyze a company’s competitive advantage with their software? How do you know that someone isn’t going to come along and just completely wipe out their IP or their software?

I guess that’s my biggest concern is, like you said, I mean, the marginal cost of a new customer is essentially zero, which makes their business models extremely attractive, which I like, of course, as an investor.

However, what concerns me is that that brings a lot of competition and software is one of those things that could be somewhat easily knocked off. How do you analyze that potential of happening?

Austin Lieberman  16:34

Good question. One of the most important things to be able to do and to get comfortable with to be a successful investor… Again, there’s successful investments and successful investors, right?

To be a successful investor, you have to find successful investments, but then you have to be able to hold them long enough to be successful.

Mohnish Pabrai, actually I’m a huge fan of his. It’s funny because I’m not a value investor, but I follow these people, because they’re just super smart.

I heard him in an interview talking about how he is… I forget what the quote is, but he said ge’s smart enough to find great investments, but he’s too dumb to hold them. It’s so true. So not about him but about me.  I feel that way a lot of times.

Okay, so getting to how to figure out how these companies are going to continue to have a competitive advantage. This is one of the things like, again, I’m a nobody. So who am I to question these people? But there’s a lot of people out there who talk about moats, and they want to find companies with competitive moats.

The old definition of a competitive moat was this company has built up some amazing manufacturing capability, or poll production capability, or whatever through a lot of times like capital expenditures, things that are expensive to build up over time. With that comes amazing scale, and they’re able to become more profitable over time.

What I think we’ve seen as technology has advanced, and you’re able to do more with software… We’ve actually seen a lot of our GDP, gross domestic product, switch over to… It’s even hard to figure out what GDP actually is, because so much of it is software and IP related now.

I actually think that the old model of a moat is a liability because things change so fast. The coronavirus is a perfect example, right? Everybody’s world just changed almost immediately and unexpectedly.

If you look at the companies that have been able to pivot and change their model and continue being successful, in most cases, they’re very capital-like companies. They don’t have car production lines, cruise ships, airplanes that they have to fly, right? So that’s where some of these old moats and competitive advantages are actually becoming liabilities.

Getting back to the question, how do you figure out if these software companies have sustainable advantages? A lot of ways it’s impossible to know. It’s impossible for me to look at Datadog and say in 10 years, they’re going to still have the lead that they do that they have now. However, I would argue that you don’t have to.

The reason I’m saying that is because if you’re only invested in 10 to 20 companies, and you’re able to pay attention to them, and then obviously, you’re going to pay more attention to your top five companies, which make up 80% of your portfolio, you’re obviously going to pay more attention to the top five companies in your portfolio, which are 80% of your portfolio. What I do is I watch quarterly reports. I watch investor presentations. I listen to earnings calls and read transcripts. I watch their metrics.

Then, if I’m continuing to see the companies I watch… A few big data points I look at: year over year revenue growth. If that’s continuing to either grow or stay as stable as I think it should, because it’s hard to continue growing revenue at the same rate as their revenue gets more. That’s the law of large numbers.

I look at gross profit margin, which is how profitable it is they are when they’re just selling their product. Sales and marketing. Expense as a percentage of revenue. I want to see that going down over time because with software companies, as they scale and they get better known, they shouldn’t have to spend as much on sales and marketing to effectively sell their product because people know them better. Then they’re able to get recurring sales from their existing customers.

Then I look at operating margins, just another way to tell if a company is making progress towards profitability. Then with software companies, especially with companies with recurring revenue, so that’s a customer that signs up for a monthly contract or an annual contract or whatever. There’s a term dollar based net expansion rate. What that means is you want to see that over 100%, and really, I look for companies that are about 120 to 130%. That’s like some of the best companies in the world.

What that means, if it’s 120%, that means existing customers, dollar based net expansion rate, if it’s 120%, that means that if you have a customer one year, the next year, that customer is spending 120% of what they spent the previous year. So 20% more. That’s a super efficient business model, if you think about it, because they’re not having to market to that customer, go out and sign up a new customer. That’s the same customer just growing their spend with the company. When you look at that, and the growth of new customers, it’s a pretty reliable business model.

That’s what I was getting at when I was talking about how some of these companies’ sales are actually kind of predictable and pretty reliable. So my argument to how we know if these companies will continue to be leaders is you don’t have to know right now.

You’ve got to know what numbers matter for the company you’re looking at. Then just make sure that those numbers are tracking in the right direction.

Another huge, huge thing is that as these companies get more successful, they become the place that everybody wants to work.When that happens, they’re going to attract more talent, better people and that is going to make the company a better place to work. They’re gonna have better employee retention. They’re going to have smarter individuals going to work there. And so, their product is going to continue to get better and better. I also kind of looked at management, culture, glassdoor ratings and CEO ratings.

Robert Leonard  22:03

Before you can look at any of those metrics, and all of the different things that you just mentioned, how do you even get these companies on your radar in the first place? Are you using a stock screener, or you may be using something else?

Austin Lieberman  22:16

I’m a huge fan of YCharts. It’s basically a data tool. You can pull up all kinds of data. I use YCharts to dig in and find out about companies. I use screens but very, very little. I almost never use a screen. It’s going to be looking for a company that’s over a billion dollar market cap below $50 billion in market cap, growing revenue 30-80%, year over year, with gross margins that are 60% or whatever.

Then I’ll kind of look at companies from there. However, again, I use screens very little.

Really where I get most of the ideas is just being out there on Fin twit, and looking for ideas and things like that. I use Feedly, which is a kind of an RSS feed. You can put in different sites and pull in RSS feeds, then it updates you with a feed of things to read.

I read Wired magazine to get ideas of what’s going on in the technology world, whether it’s AI, space industry or whatever. They’ve got just a lot of really cool articles. I really find specific companies from Wired, but it’s just more to have a  broad perspective on technologies.

I look at TechCrunch for the same thing, but TechCrunch talks more about individual companies. I might find a company there and dig into YCharts. I also dig into the company’s investor relations page to find more out about the company.

The third way that I find kind of interesting companies to investigate or invest in is, I want to be careful about saying this, because there’s a lot of really bad articles from some of these different magazines, clickbait-ish. But sometimes I look for articles every year, maybe it’s two years… I think Forbes came up with a list of 500 fastest growing technology companies. A lot of companies I’m invested in are on that list.

Then also just that list had spawned a lot of research. I basically saw that list, searched YCharts to see what companies on that list for public companies, because a lot of them are private, and then had a list of around 150 companies. I kind of just searched for the metrics that I like to look at, and then narrowed it down to 50 or so companies. I then started looking at the company’s investor relations pages. Is this a company that I’m even interested in investing in?

Mohnish Pabrai again, talks about how he looks at thousands of companies. He said with most companies, you know within 10 seconds if you want to invest in it or not.

So the whole idea is to just curate a lot of these different news sources. For me, it’s Twitter and Feedly to find different interesting blogs, websites and different companies and have their feeds come in and read them each day to learn about their products. Then looking for articles from some of these FinTech magazines to find technologies in different companies. Then filtering that down through studying YCharts or reaching out to people. I will post on Twitter and then really spend a lot of time looking at investor relations pages to find interesting companies.

If you look at companies as ones, and even on CNBC, you can see competitors of a company. So if I found a company in an interesting industry, sometimes I’ll look at their competitors too. That’s a way to find other companies in the same industry that might be good companies to look at for investments.

Robert Leonard  25:29

Once you found these companies, put them on your radar, and you’ve done some due diligence, you’ve researched them, at what point are you comfortable taking a position? When do you think that you’ve gathered enough information and conducted enough research that you’re ready to start investing in them?

Austin Lieberman  25:44

It’s different for different companies. In my mind, I have a framework and I need to get… This is one of those things where I want to become a better investor and become more disciplined. I think I’m pretty good at finding good investments. Where I can really improve is as an investor is being more disciplined. This is one of the ways I’m trying to do that.

This is how I think about it in my mind: I’ve got different tiers. I have what I would call a starter position or an entry position tier, around a 1% position. I have a medium position tier, that’s going to be around a 5% position. Then I have a large position tier, that’s going to be around at 10% position.

When I’m talking about size of position, I mean my capital. So if I have $100,000, in my account, a large position would be $10,000that I would be willing to invest in it. $10,000 of my own money.Then the key is if you believe in that company, and you’re tracking the metrics and letting it grow and not touching it. That’s how Alteryx has become a 35% position in my portfolio. I invested in a set amount, it was around 10% of my portfolio value. It literally just doubled from there and I should have left that alone.

So I set these initial tiers, if a company grows, becomes the largest position in my portfolio, I let it grow and I don’t touch it.

I’ve got these tiers: entry, medium, and large. If I found a company and a perfect example of this was Virgin Galactic ticker, SPCE. I saw their investor deck, and this time I found this company on Twitter. I saw somebody I followed tweeted something from *inaudible* or however you say his name, and he was talking about… It was a tweet about the merger. His company basically bought a major stake in Virgin Galactic. That’s how I found that company.

Then I dove in and saw their investor presentation. When I looked at their investor presentation, I was like holy cow! It basically lays out a plan to where their revenue could increase by something like 500%, over the next five years, something crazy. I believe it was a $1 billion company at the time, they didn’t IPO so there wasn’t the initial IPO pop. I thought this is the first publicly available space company. They’re going to get a great lead in data. I’m willing to make that a 1% position immediately.

I spent like 30 minutes looking at it and then decided that I was willing to make a 1% investment. The way I think about that is if I find a company that I don’t want to miss but it’s a little risky, I’ll just start a 1% position. Then learn more about it.

It takes more for me to increase that to 5%, and a lot more to increase it to 10%. In general, a company like Virgin Galactic, I would not make that 10% position just because there are too many risks associated with it, but totally happy to let a company like that to be a 1% position in my portfolio.

Another example, I own Luckin Coffee, a Chinese coffee company. It’s like a Starbucks in China. I owned that for a little while and I was happy to let that be a 1% position.

A 5% position needs to be a little bit more stable, more reliable, and then a 10% position, I have to have a lot more faith in it. In general, I will not just open a 10% position. I’ll start at one or five and learn more about it. Then build that up over time because most of the time except for lately, there have been some incredible opportunities. But most of the time, I don’t think that I’m smart enough. Even if you are smart enough, who knows what the markets are going to do?

I don’t know what the markets are going to do so I’m not going to fool myself into thinking I’m just going to start a 10% position in this company now. I’m going to give myself some time to learn about it and then invest over a little bit over time so that you’re not putting it all into a company that could potentially drop a lot just because of the market for no good reason.

Robert Leonard  29:17

Speaking of market drops, we couldn’t record an episode right now, which is March 25 2020, without at least briefly discussing the current economic environment that we’re in, which is of course the stock market crash of 2020 and COVID-19, also known as the coronavirus. How has this impacted the investing landscape? What long term impact do you see this having on stocks?

Austin Lieberman  29:42

I’ll get to that in a second. If I forget, just tell me…

But the first thing was this is where I’m not proud of the way I’ve been as an investor lately, right? I’ve been trying to like time these little things in and out here and it’s just silly, right? For me this has been a reminder of why do I invest?

The reason I invest is for eventually to have freedom over my time and my family’s time, and to be able to help other people outside of my family… Hopefully that’s what I want to be able to do over time.

However, in general, it’s because I want to optimize my life. What I found myself doing is trying to optimize my investments at the expense of optimizing my life, right? So I’ve been wasting time basically trying to play these little market moves that like nobody, except Bill Ackman, who comes on CNBC, crying and crushing the market and then making $2.5 billion. Only he knows what’s going on. The rest of us humans don’t know what’s going to happen day to day, right? So why try these silly little trades?

To answer part of your question, and it didn’t really ask that question but again, any investment return comes back to the investor. For me, it has been a stark reminder, remember why I’m investing. Also, to prioritize what’s important in my life, which is investing is not the most important thing. I shouldn’t be spending the most time doing it.

Then really making sure that my foundation for investing is in place and I stick to that process. For me, that means not investing any money I might need in the next three to five years, so that you can withstand times like this. You’re not going to need the money. That means living below my means and investing 10% or more of my income, so that if something unexpected happens, I have a little cushion there. If we were to lose our job, or temporarily lose our job, we had to stop contributing to our investments. That gives us 10% more income we could then apply to something else.

In addition, having an emergency fund and some expenses saved up. Again, that’s my foundation. This has been a reminder to never sacrifice that foundation, because everything was going great two months ago, and no one saw this coming. At least I didn’t see it coming. As a young investor, this has been a great reminder to keep all that stuff in place.

In terms of how it impacts the investing landscape, I think there’s going to be companies that go to business for sure so I’m avoiding any companies that have high debt, that are relying on some type of a government deal or bailout to be successful and survive that. I’m not interested in those companies, even though they’ve dropped a lot.

There are going to be some industries and some companies that go out of business and some industries that are changed forever. The dining industry is going to take a long time to come back. I don’t know if that model is ever going to be the same.

When I say that, I mean, these businesses I think are going to adapt. You’ve seen it happen already, like a lot of restaurants have started doing takeout and delivery. So I think that that is going to be a part of most restaurants’ strategy moving forward.

That’s kind of what I’m being mindful of is sticking to my process of finding strong companies. If I wasn’t interested in a company before this crisis happened, then I’m also not interested in it now during the crisis. I’m still only looking at companies that I was already interested in and it’s going to change some industries forever. It’s made me even more want to avoid oil and gas, cruise lines and airline companies, which I’ve never been interested in investing in.

Robert Leonard  32:55

Now I want to dive into one of your favorite stock picks. I know we’ve mentioned a bunch of different ones throughout the show, but we haven’t done a deep dive into it yet so I’d like to do that. Not so that the audience can run out and buy it just because you think it’s a good pick but because I think it gives us all myself and everyone listening a good understanding of the types of companies you’re looking at and how you think about investing.

If you don’t mind, please tell us one of your favorite picks right now and give us your stock pitch for that company.

Austin Lieberman  33:25

One of my top three holdings, and it’s a company that just recently reported a strong report. It’s also a company that I think is going to continue. Again, I was already very interested but with more people moving online and working from home, their model gets even more attractive. They even commented about this a little bit in their last earnings. So they just reported earnings a week or two ago.

CrowdStrike. What they do is they basically do endpoint security. What that means is, if you have users, again, I’m not a super tech guy. So if you have super tech listeners guarantee I’m going to get a little bit of this wrong. So you can attack me on Twitter, @7AustinL. I’ll happily learn from your critiques.

But basically, they do endpoint security. When you’ve got all these devices, and people working from remote all over the world, an endpoint device is a phone or a laptop, or a tablet. They’re connecting into all of these super important networks and programs. Those devices are vulnerable to attacks.

CrowdStrike basically just protects companies and users and their networks from malicious attacks. It’s especially important for small businesses, especially if they’re moving online.

It’s a company I’m interested in and their most recent results, they have $600 million in recurring revenue. This is where I was talking about how some of these companies have pretty reliable and easy to predict revenue models. 91% of their revenue is subscription revenue. So that means people that are on a monthly or annual contract. They have 5,431 subscription customers, and they had 92% in will year over year revenue growth, and then a 90% subscription revenue growth.

Again, back to that dollar based net retention rate, if it’s over 100%, that means current customers are spending more each year. Dollar basis net retention rate was over 120%. At a high level, those numbers came out and fantastic results.

The company is only getting stronger, I believe, as they scale. They made comments. I don’t have the quote in front of me, but basically, their CEO has said that they’ve seen a significant increase in malicious attack attempts, since the coronavirus thing has been going on because all of these bad actors know that these companies are at risk right now, as a lot of them don’t necessarily know how to work remote.

They’re moving systems away from poor infrastructure, maybe too remote, which just puts him at risk. So as more people come online, and work remote, their model is even more attractive.

Robert Leonard  36:03

When you look at a company like this, what is a big catalyst that you see on the horizon? I was looking at the stock chart, as you’re talking about, it seems like it’s been volatile, it’s gone up and down. But it’s more or less traded in a range, if you will. So what do you see for catalysts on the horizon, that’s going to really make the market understand or see the value that you see that they’re not currently pricing in?

Austin Lieberman  36:25

I think I’m either wrong about CrowdStrike, because it’s a huge position for me, or the market is just misunderstanding and it’s going to grow in value in terms of the stock at some point. However, I don’t think there’s necessarily a single catalyst for the company, because we talked about some of their growing revenue around 90% a year. They’re growing subscription revenue, dollar based net expansion is fantastic.

I think the company has sold off a lot of reasons that are unrelated to this specific company. When a company sells off for reasons that I believe are unrelated to the company, that’s where I’m willing to add a little bit more.

I’ve been adding to the company over time. If you remember, cloud companies and software companies have sold off a lot at different points this year, in 2019 and 2018. I think that’s part of the reason CrowdStrike has sold off and been so volatile is just because it has sold off with a lot of these software companies as that whole industry was just hated by Wall Street.

Most recently, it got crushed with everything else from the impacts of coronavirus. It’s interesting, because they just reported an outstanding quarter and we’ve seen it rebound a little bit since then. I think that that is going to continue.

Again, it’s a model that I think it’s a critical software and a critical platform for the companies that use it. So it’s not just they can’t just get rid of their endpoint security. If they’re going to stay in business, endpoint security is something that companies are going to keep. My belief is that their model is going to continue to get stronger. Eventually, the stock and Wall Street is going to catch up to how fast this company is growing.

Another thing is security and network security has been a tough industry, a competitive industry. Wall Street seems to not like a lot of security companies. I think that’s part of the issue with CrowdStrike as well.

Robert Leonard  38:10

I’m super passionate about all the stuff we talked about today. And I know you are too. So I’m sure we could keep this conversation going on for hours, but you mentioned your Twitter a few minutes ago. Where else can those listening to the show today go to learn more about you and connect with you?

Austin Lieberman  38:25

Thanks again, Robert, for having me on. I’ve learned a lot from you. I’ve learned a lot from We Study Billionaires. It was not the first investing podcast I ever listened to but it was one of the first and so I’ve learned a lot from that entire network. Thanks for everything you all are doing. I really appreciate anybody that’s trying to empower investors. I appreciate you asking me to come on. It’s been a lot of fun.

So on Twitter, @7AustinL. Then I’m part of 7investing.com. So if you want to come check us out, we recommend seven stocks a month. They come up on the first of every month and it costs $17 a month. I’m never going to upsell. There’s not going to be another product. That’s going to be what it costs. That’s going to be what we offer. Then we track our results for members. Once we figure out that none of us are developers.

So we’re still like learning how to get the web, everything up and running the way we want it. Eventually we’re going to be able to show our returns transparently to the public. Right now, we show it for members that sign up. They can see all of our picks and returns against the S&P 500 and stuff like that.

Robert Leonard  39:27

Awesome. I’ll be sure to put links to all those resources and ways people connect with you in the show notes. Everybody can go connect with you there. I’ll also put links to all the different things we talked about throughout the show. I’ll put links to a bunch of the different companies that you mentioned so people can go dive into those further as well, if they’re interested and read up on some of the things we talked about.

Austin, thanks again so much for coming on the show. I really appreciate it.

Austin Lieberman  39:50

Thanks, Robert. I had a blast.

Robert Leonard  39:52

Alright guys, that’s all I had for this week’s episode of Millennial Investing. I’ll see you again next week.

Outro 39:58

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