Early this morning, train stations, airports, hospitals and stores across the globe experienced a software outage. Sky News has been off-air all day, 1,300 flights have been canceled and some general surgeries have been postponed. Emergency services in the UK were even down for a bit. This was CrowdStrike’s fault. The company pushed an update to its systems today, which contained a defect that led to the outages for Windows-based devices. A fix is in place, many customers are again up and running, and many more aren’t. This will likely take a few days to be entirely resolved, and is considered one of the most broad-based, global IT incidents in recent memory.

All of this sounds bad, but there are a few other things to mention. First, this was not a security breach. This was a defect anomaly in a software update. It’s not a good look, but it does not offer evidence of any vulnerability within CrowdStrike’s core technology. Just really bad press and annoyed people. Next, the response from CrowdStrike has been quite brisk, with the CEO also going on NBC today to apologize for the mistake and remediation commencing. No software company is perfect. CrowdStrike’s massive reach, endpoint niche and mission-critical products make any of its mistakes more visible than for other players, but all of these companies stub their toes sometimes. Considering CrowdStrike’s customers are large enterprises on long term contracts (and that there was no security breach), I don’t see this impacting churn levels or pricing power. Still, it could be a small boost to SentinelOne and others in future competitive bidding environments.

This is also yet another reason why I think it’s important to own both of these best-in-class names in the space, rather than just one. To me, CrowdStrike and SentinelOne have the best tech in the space by a wide margin. We have no control over how these teams will continue to execute and go to market, so why not make sure we own a significant chunk of the biggest winner in what is the most attractive bucket in software? That’s my plan.

As you know, I sold 20% of my CrowdStrike stake on June 18th. This was not in anticipation of an event like this one, but simply worsening risk/reward as the multiple continued to expand. I have zero interest in selling any more shares. I am growing slightly more interested in accumulating, but I’d still like to see a bit more multiple compression to do that. I’m eyeing $280/share. I’m not confident that I’ll get the opportunity, but it is possible. This was a very large incident, and fall-out could easily last beyond a single session. This company’s stock has also been on a historic run and still trades for 70X forward earnings and a 2X PEG. I’m going to be patient. I’m fine with not adding more shares.

I trimmed about 10% of my TTD stake amid significant multiple expansion to lock in some profits. I used that chunk of cash and a small deposit to start a new 2% position in Celsius. This investment case is wonderfully simple. I’m going to provide a very brief version of it here, and put together something more detailed after peak earnings season. 

Celsius is a rapid grower and a rapid market share taker in a compelling energy drink sector that has temporarily seen overall growth slow. You can see that in recent Nielsen scanner data and also within other affordable luxury players like Starbucks and Nike. Whether it’s Amazon, convenience stores, big box stores or food service, this company is rapidly taking a larger slice of the pie. Its opportunity in the USA remains compelling, and its runway outside of the USA is in the first inning (with a strong start in Canada). While we can argue about how much better its sugar substitute is vs. other players, it has successfully tapped into sugar-free taste changes and a fit lifestyle culture that has served it extremely well. That’s tough to debate.

But? A combination of Pepsi inventory resets, delays to retailer inventory resets, worsening macro and maybe some negative press on effects of drinking excess amounts of Celsius have all weighed on this company. Pepsi is wrapping up its own right-sizing with inventory depletion rates remaining very strong. Retailer inventory resets also eventually went very well for Celsius, they just took a bit longer for whatever reason. Considering how much incremental space it’s winning annually, these resets impact it more than anyone else. Macro will take some time to brighten and consumer discretionary spend will take some time to bounce-back, but I think spending a few dollars on an energy drink will surely come back before buying a $600 dress or a new luxury car. After all, caffeine is addictive

The stock has been cut in half, the forward multiple is finally reasonable and its PEG ratio (using next 12-month EPS and a 2 year EPS CAGR) is 1.34x. I view risk/reward as highly favorable, see it moving into a significant volume shelf, and will remain patient in building out the rest of the position.

Its Pepsi distribution partner provides the systems and muscle to seamlessly expand (like it’s beginning to do now) and its newer drink lines should cater to more tastes, such as those not wanting any carbonation.

Due to the same CrowdStrike issue, I am unable to make any transfers in the portfolio at this time. All I could do was use the proceeds from my TTD sale to add the first piece of my CELH position. I plan to deposit funds for the remaining chunk as soon Schwab lets me.