News of the Week (December 6-10)

Upstart; CrowdStrike; GoodRx; Revolve Group; The Trade Desk; CuriosityStream; Cannabis News; My Activity

1. Upstart (UPST) — Two Updates

a. First National Bank of Omaha (FNBO)

Upstart announced that FNBO — an existing partner of the company since 2019 — is expanding this relationship (following a successful pilot program) to cover the bank’s entire loan business nationwide. This test allowed Upstart to shine once more with approval and loss rates both handsomely exceeding FNBO’s initial expectations. Impressively, 78% of the pilot program loans were approved instantly which helps explain the elite +83 net promotor score (NPS) that these loans sported.

FNBO is a top 100 bank in the United States with more than $25 billion in assets under management (AUM) and primary banking offices in 7 states. This bank was already counted in the 31 partners Upstart currently works with (vs. 10 when it went public in 2020).

b. National Bankers Association (NBA)

Upstart also inked a new partnership with the NBA (not basketball) to bring its inclusive, artificial intelligence (AI) powered loan practices to minority-owned banks. NBA members will also gain access to Upstart’s referral network and the coinciding incremental volume. Optus Bank became the NBA’s first member to offer Upstart-powered loans through its website using the company’s application programming interfaces (APIs).

• Application programming interfaces (APIs) defined: Blocks of code enabling software to perform tasks. APIs act as the language that empower access to data services, operating systems and other applications to create an end product. A user interface (UI) is what the customer sees and APIs are what the enterprise uses to build the platform’s UI and user experience (UX)

Optus is growing quickly but is quite small with just a couple hundred million in total assets vs. roughly $50 million in 2017. Still, NBA members in aggregation are far from small and Upstart now has an inside track on working with them all. Thanks to Upstart’s loan algorithms raising approval rates by 30% and lowering APRs by 11% for African-American borrowers — this is a perfect fit.

Click here for my broad overview of Upstart.

2. CrowdStrike (CRWD) — Leadership Interviews & The 2021 CrowdStrike Global Security Attitude Survey

a. Founder/CEO George Kurtz and CFO Burt Podbere Interview with UBS

Kurtz on competition:

“The bulk of endpoint replacements will come from legacy players over a multi-year journey. With next generation players, we’ve called them out because you have to have technology that actually works. You can’t just make a PowerPoint.”

Kurtz & Podbere on why module cross-selling continues to be so strong:

“There’s a massive need for agent consolidation and we’ve been able to do that. On average, IDC says large enterprises are using 13 different security agents. If we can consolidate 4, 5 or 6 of those agents or more, that’s a great opportunity for total addressable market (TAM) expansion for us and a chance to remove cost and complexity for our customers.” — Kurtz

“We have 21 real modules. Our competitors have 2 and a half real modules if they’re lucky.” — Kurtz

“We give out metrics on users with 4, 5 & 6 modules — very soon that will be 5, 6 & 7 and then 6, 7 & 8 as we are at a point when most of our customers have 4 modules. We have a tremendous opportunity to continue cross-selling just within our existing customer base.” — Podbere

Podbere on the value proposition:

“We bring greater efficacy to solve a breach at a lower cost. The differentiation that we provide is simply more value to customers.”

Wonderfully simple.

Kurtz on Humio’s Community (free) edition:

“We got as many sign-ups in 6 weeks as we thought we’d get in 6 months.”

On identity and the Relationship with Okta — a Next Generation Identity Security Company

“I want to reiterate that our identity solution is complementary to Okta and not competitive. Our identity solution is specifically tailored to the endpoint. We actually freely share information with Okta.” 

“We have no plans to be in the identity access market. We know endpoints and workloads better than everyone else out there — our goal is to tie in the machine identity to the user identity and data. We will continue to work with partners like Okta.”

On Humio and Extended Detection and Response (XDR):

• Extended Detection and Response Defined: This is an evolution and expansion of Endpoint Detection and Response (EDR) beyond the endpoint by utilizing partner data sources to paint a more complete picture of risk across the entire security stack. Great EDR (CrowdStrike believes it’s best in breed here) is a vital prerequisite for great XDR.

Humio’s ability to conduct index-less log management greatly bolsters the data compression and scalability of CrowdStrike’s Falcon platform. This upgrade is a vital piece of building out an effective XDR solution that is able to efficiently pull from, digest and analyze absurd amounts of data from partners within every piece of the security stack.

“We’ve taken some of Humio’s technology and added it to the XDR module to help us plug into partner data architectures. Humio allows us to efficiently map and use all of this information and to advance and broaden our threat detection.”

CrowdStrike continues to heavily invest in Humio as a standalone log platform and also integrate its know-how into CrowdStrike’s suite of modules.

“Humio customers are using the technology not just for security but to connect the technology to literally everything they have. Humio allows you to collect as much data as you want to answer any questions you have in real-time.”

Podbere on customer adds:

“Fluctuations on net customer adds in any given quarter could simply mean that we had bigger deals and more expansions like we saw this quarter vs. last quarter.”

Kurtz on cloud security competition:

“We feel very good about competing with any of the agentless technologies with Falcon Horizon (the cloud security module). Most of our competition has no workload protection. The reality is, you can have as much agentless technology as you want but you still need to combine that with workload protection to get full coverage. Customers don’t just want one, they want both — we are in rare air.”

Kurtz on SecureCircle (its most recent acquisition) and data protection:

“Data loss prevention (DLP) we feel is broken. There isn’t a customer that I’ve talked to that likes their DLP solution. It reminds me of the customers I talked to about anti-virus when starting CrowdStrike. The DLP market (CrowdStrike calls it data protection) is a $3 billion market. Since we did the acquisition, we have been overwhelmed by Symantec DLP customer interest.”

b. CFO Burt Podbere Interviews with Barclays

Podbere on CrowdStrike’s Success:

“We continue to expand our lead on legacy and next-generation vendors due to our scalability, efficacy and differentiated offerings like Falcon Complete.”

“Win rates have increased over legacy and next-generation vendors as our net new ARR lead grows without more discounting. We had a record number of displacements and boomerang deals where a client starts somewhere else and boomerangs back to us for efficacy and ease-of-use.

“We’re seeing a very similar path to what we saw with Salesforce and ServiceNow. The larger they became, the more successful they became. We think we are on that path in a winner take most market.”

On cash flow and margins:

“We will continue to prioritize growth. We see an opportunity to invest more aggressively in the future to capture more share and will do so.”

It’s remarkable to me that CrowdStrike sports the cash flow margins that it does while featuring this mentality.

On more M&A:

“We’ve been successful with M&A and will continue to look at more opportunities with great technology and great people. It is more likely than not that we will continue the path of M&A.”

c. The 2021 Attitude Survey

CrowdStrike hired Vanson Bourne — a 3rd party market research firm — to survey 2,200 “senior IT decision makers and security professionals” from around the globe over the last few months. The respondents came from entities with 100+ employees and was split evenly between decision makers and professionals in the field.

Here are the paraphrased key findings from the report:

• 63% said their organization is losing trust in suppliers due to frequent incidents.

• 84% believe software supply chain attacks could be a main cyber threat within the next 3 years.

• 36% have vetted all new and existing suppliers for security purposes over the last 12 months.

• 45% of organization have experienced 1+ software supply chain attack over the last 12 months vs. 32% in 2018.

• 32% of respondent firms have experienced frequent software supply chain attacks in the last 12 months vs. 16% in 2018.

• Average ransom payments from breaches rose 63% this year to $1.79 million with another $792,493 in mean incremental extortion fees.

• 67% of respondents have experienced 1+ ransomware attack over the last 12 months and 33% of respondents have experienced 2+ ransomware attacks over the last 12 months vs. 24% last year.

• 57% of respondents didn’t have a plan in place to respond to ransomware attacks.

• 69% of respondents have experienced cybersecurity incidents due to working remotely.

• 40% of respondents work for firms they feel lack the cybersecurity skills to cope in this evolving environment (great for CrowdStrike’s Falcon Complete, fully-managed offering).

• Respondents now feel it would take their firm 146 hours on their own to detect a breach vs. 117 hours last year.

The software supply chain attack data simply re-emphasizes the need for a zero trust system that doesn’t grant horizontal authorization into an entire ecosystem with the penetration of only the most vulnerable access point. Fragmented, disparate enterprise solutions within the security stack are a key contributor to this headache; CrowdStrike’s single agent actively works against this issue with better cohesion and efficacy.

More generally speaking, all of these statistics highlight what we already know — cybersecurity is a real and increasingly daunting threat to combat.

3. GoodRx (GDRX) — Co-founder/Co-CEO Doug Hirsch and CFO Karsten Voermann Interview with Barclays

Hirsch and Voermann on the core prescription price comparison competition:

“Our competition is made up on small, fragmented competitors lacking the breadth and relationships that we have. We’ve seen other players in consumer brands, health plans and well-funded start-ups that have all tried to replicate our business. They haven’t had much success — we’ve seen no impact on our business.” — Hirsch

“Our take rate continues to rise and that’s a reflection of the strength of our competitive moat.” — Voermann

Other competitors have seen their takes rates shrink in recent quarters. This divergence offers direct evidence of the superior value proposition GoodRx provides.

Voermann on partnerships and demand aggregation:

“We’ve reached a point where large entities have begun to ask GoodRx to partner and leverage our brand. We’ve always gone direct to consumer in the past, but we now feel there are ways to aggregate bigger groups to grow more quickly and efficiently through deals like with USAA.”

“RxNXT (a company GoodRx recently bought) sits at the intersection of insured payer healthcare and the cash pay market to integrate those two businesses more closely. This allows employers to offer a free benefit in their health plan to reduce the cost of coverage by using GoodRx. “

“Employed Americans covered by health plans is one of the biggest areas to aggregate demand and we are moving very aggressively in that direction with some pilot programs going on right now.”

Voermann on GoodRx Gold (the subscription service):

“We’ve added more benefits to GoodRx Gold and we continue to expect to add even more as this business yields higher value and a deepening relationship with consumers to expand the footprint of how much we cover of the consumer’s healthcare journey.”

“A subscription program pays for itself for an individual with just a single prescription taken monthly.”

Voermann on the pandemic and the cold & flu season:

With 80% of all physicians recommending GoodRx to patients and these visits driving the bulk of prescriptions, the pandemic halting social interaction (so therefore cold/flu spread) and elective care severely impacted the company’s core business segment.

on elective care:

“We are eagerly looking at the continued resurgence of healthcare utilization to unwind the billion-visit backlog.”

on cold & flu season:

“It looks like this season will not be great from a cold & flu perspective which will drive demand for us. We previously talked about how the light 2020 cold & flu season cost us about $5 million in revenue. A more normalized season this year contributes to potential revenues looking forward. Our anticipation right now is that this season will be more virulent than in the past unfortunately for Americans.”

Hirsch on GoodRx Health:

“I just want to emphasize, that I see this this as next generation healthcare content in a sea of noise. We give you one, concise answer written by a healthcare professional.”

“We’ve seen a 60% year over year increase in our content traffic.”

Hirsch on the product roadmap:

“What I spend most of my day on is additional healthcare pain points. There are so many exciting opportunities for us to help more Americans and to spawn new businesses.”

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My GoodRx Deep Dive will be published tomorrow.

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4. Revolve Group (RVLV) — Co-Founder and Co-CEO Michael Mente Interviews with Barclays

On competition:

“If you look at our growth rates, Revolve and FWRD (its 2 websites) have clearly taken share from our competition over the last 2 years. Our top-line growth for FWRD is outpacing really everyone that we know of. We are positioned awesomely for many years to come.”

On post-pandemic:

“Our main going-out segment was severely hit during the pandemic and that has now come back with a vengeance. For categories that accelerated during the pandemic — it’s now clear that we are holding onto the gains we made.”

On owned brands and gross margin:

Revolve greatly pulled back on owned-brand focus during the pandemic as holding inventory got riskier. As a reminder, it can purchase 3rd party goods in very granular quantities but the capital requirements to produce an individual owned-brand stock keeping unit (SKU) are much higher.

The company was on an extremely aggressive owned brands trajectory pre-pandemic — some category price point sales were 50-70% owned brand — that it was already beginning to pull back on before Covid-19 struck which accelerated that process.

“If we make a sweatshirt we have to make — let’s say — 100 units. If we were to buy a sweatshirt from a 3rd party we’d only have to buy 5-6 units for example. 3rd parties helped us to maintain great selection while remaining light on inventory. As we come out of the pandemic with owned brands, the revenue concentration is steadily climbing in a much healthier way with more diversity in price point and categories than pre-pandemic.”

“Gross margins are already awesome and still our owned brand penetration is down a little bit from historic highs. There is an even higher gross margin ceiling than we originally thought.”

On supply chains:

“This was a masterful example of how we approach business with technological roots and why we are better. It was a few quarters ago when we saw from a technology and systems standpoint that it was time to plan for the next phase and re-build inventory knowing supply chains would be a challenge. This was crystal clear to us 9 months ago so we were more aggressive with bringing in inventory. Looking at us now it really is showing in our performance and our consumer offering.” (this quote brought a large smile to my face)

“We air everything in and air costs haven’t increased as much as shipping from a time or a money perspective. This issue doesn’t structurally impact the profitability of our business in a macro way. We weathered this challenge and are positioned well.”

On international:

“Ultimately to get to the tens of billions of revenue I think we can do in the long term we have to be a global company. I think that’s great because our brand and marketing are both already global. We have a massive international following and we are now building the consumer experience to be on par with the domestic consumer experience.”

Things like automatically refunding duties when an international consumer returns an item vs. previously the consumer having to do so manually is one of the big projects Revolve is working on across the world. It has to go country by country here.

5. The Trade Desk (TTD) — More UID2 Adoption

The Trade Desk (TTD) announced support for its internally-built UID2 solution from leading over-the-top (OTT) platforms in Southeast Asia. “Vidio” — the largest streaming platform in Indonesia — boasts 60 million monthly active users (MAUs) and signed on along with several platforms in Vietnam like iQIYI and its hundreds of millions of MAUs globally. This simply continues to trend of immense support and enthusiasm for the endeavor.

Click here for my deep dive into The Trade Desk’s business (and to learn what UID2 is).

6. CuriosityStream (CURI) — New Investor Presentation

CuriosityStream released a new investor presentation this week — here were the highlights:

• Over 85% of subscribers are on annual plans vs. over 75% at the beginning of the year

• Over 3500 titles vs. over 3000 at the beginning of the year

• Reiterated the $71 million revenue guidance for 2021

Click here for my broad overview of CuriosityStream.

7. Cannabis News

a. Company-specific:

• Cresco Labs opened its 12th dispensary in Florida (vs. 8 when it purchased Bluma) to bring it to 44 stores across the country.

• Green Thumb opened its 67th dispensary in the country with the debut of its “Rise Reno” store in Nevada.

• Ayr Wellness gained approval to start operations in its new 86,000 square foot Arizona cultivation and production facility. The first harvest is expected to be this March.

b. Industry-specific:

• SAFE Banking — a provision that would significantly cut cost of capital, allow for multi-state operator (MSO) up-listing and enable institutional ownership — was not included in the National Defense Authorization Act (NDAA). Prominent senators like Ed Perlmutter vowed to continue aggressively pushing for its passage which — in my view — is a matter of when, not if. We shall see when it finally gets done.

• A politician in New York published a new piece of legislation that would allow cannabis companies to deduct ordinary taxes from their effective rate at the state level — something that 280E currently prevents. Hopefully this turns into a trend across the country.

• Rhode Island should have its final cannabis reform bill passed early next year.

• South Dakota voters disapprove of their Governor’s handling of cannabis due to her push to overturn voter-approved cannabis legalization. This is just another sign of how truly bi-partisan this issue is — South Dakota is deeply conservative.

• A study based on 8 years of data in Colorado revealed what most of us probably already knew — legalization boosts employment.

Click here for my broad overview of American Cannabis legislation.

8. My Activity

This week I took my cash position down from 14.5% to 14.35%. I added to the following names:

• SoFi Technologies — Click here for my broad overview of SoFi

• Revolve Group

• Lemonade — Click here for my broad overview of Lemonade

• Upstart