News of the Week (November 30 - December 3)
SoFi Technologies; CrowdStrike; GoodRx; Teladoc Health; Nanox; JFrog; Revolve; Boeing; Tattooed Chef; My Activity
1. SoFi Technologies — Leadership Interviews
a. CEO Anthony Noto Interviews with Morgan Stanley
On SoFi Relay:
SoFi Relay is an entirely free product where members can gain insights and tips on how to get their money right. This is an example of SoFi being there every step of the way for the consumer, not just when it’s most profitable for SoFi. This serves as a powerfully efficient top-of-funnel consumer acquisition tool for members not yet ready to take financial action but who will be soon.
On the notable member growth acceleration this last quarter:
Noto told us that the current membership growth trends continue to be very positive into this quarter.
“It’s about building unaided brand awareness. Going into 2020, I said to the board that it’s a matter of when not if. The reasoning is that we had all the products on 1 digital platform and we were leveraging data across all products to create the best experience. In Q3 2021 we saw an inflection point from the combination of SoFi Stadium, Money Moves campaign, referral program re-vamping & more.”
On the customer acquisition cost (CAC) trend:
“Each product team is given a target CAC relative to what we forecast for the lifetime value (LTV) of that customer (with SoFi’s unique cross-selling abilities considered) so that we get a 1 to 2 year payback period. All of our businesses are in line with our benchmark of best-in-breed CAC and unit economics which have both been steady or improving for our products.”
SoFi now boasts roughly 1.5 products per member vs. 1.2 when it went public which is also helping to improve its LTV/CAC ratio. Noto expects that its product growth will continue to greatly outpace member growth as cross-selling momentum builds.
On Where SoFi is on the Product Roadmap:
“SoFi’s long term 5 year forecast does not anticipate any new products. It doesn’t include things like becoming a principal in insurance — today we are just a partner. It doesn’t include tax products or auto-refi. It doesn’t include new money products like high yield savings accounts if we get our banking license or adding new credit cards to attract different consumers. We will add more things over time.”
On mortgage growth:
“In our 5 year forecast we laid out a plan to get to 1% mortgage origination market share vs. 0.1% today. I would be hugely disappointed if we only got to 1% market share.”
On Galileo — SoFi’s business to business (B2B) technology platform:
Growth opportunities for Galileo:
Galileo is experimenting with new credit/secured credit processing application programming interfaces (APIs) to enhance its value to customers beyond debit/ACH. This is a natural extension.
The company is pursuing new opportunities with large banks.
“Throughout 2022 you will start to see us getting into new product areas with Galileo. There’s a lot of demand for credit processing as well as the reward and fraud capabilities and lending as a service that we’ve built at SoFi.” — CFO Chris LaPointe
Galileo just finished on-boarding Toast as a new enterprise partner.
Galileo has signed the 4 largest neo-banks in Mexico and is gearing up for an expansion into Columbia.
“We are innovating here faster than everyone else.”
b. CFO Chris LaPointe Interviews with Credit Suisse
On interest rates:
“The beauty of our model is the diversification both holistically and within each segment. In different interest rate cycles different products benefit and others are hit. Our platform will enable us to withstand credit and interest rate movements.”
On home loans:
The vast majority of home loan origination is agency refinancing. SoFi plans to aggressively grow its purchase loan business which has expanded from a low single-digit % of originations to about 10% of originations today. This should rise further with the launch of jumbo-loans.
The segment has more demand than it can supply due to bottlenecks with third parties. The bottlenecks all vanish with a banking charter.
Home loan NPS score has grown from near-0 to a “mid-thirties range” today.
On the revenue mix:
LaPointe highlighted how early on SoFi is in the monetization process for its financial services products. The company plans to now shift more aggressively to monetizing that segment as it has appropriate scale and unit economics (the 2 initial focuses here).
On the customer acquisition cost (CAC) trend:
“We are now at the CAC level for all of our products that will get us to our long term 30% EBITDA margin target. We feel like we are at the point where we can aggressively scale these businesses. The financial services segment which has a lower CAC will place more downward pressure on our overall CAC going forward.”
On the bank charter’s impact:
The lending business relies on $6B in warehouse credit capacity and pays 175-400 basis points in incremental cost of capital because of it. The bank charter allows them to use their SoFi Money deposits to offer a higher interest rate while still lowering cost of capital. LaPointe generally quantified this cost savings for SoFi at 200 basis points (or 2%). Less reliance on warehouse capacity will also allow it to more aggressively originate loans.
SoFi will also now be able to hold loans on its balance sheet for 6-9 months vs. 3-4 months which will allow it to generate more consistent net interest income.
C. CEO Anthony Noto Interviews with Wells Fargo
On key advantages over traditional banks:
“On a macro-level, we have better, more vertically-integrated technology. Many of the large banks have been formed through consolidation and their core banking technologies are still on-premise with very siloed data. We are building one consumer-facing experience so that when you use our product it’s like shopping on Amazon. You will not need to fill out a new application for every product you want to use. You can’t have that progressive on-boarding with different data architectures.”
“When we launched SoFi Brokerage, the world thought all of the new neo-brokerage members had been captured by Robinhood. People doubted how SoFi would capture market share. Well, we created a product that was differentiated as the fastest place to open an account and the fastest place to get free certified financial planning help. We needed to allow members to open up an investment account in seconds after they opened up a money account with no new application.
On the outlook:
“I would be very disappointed if we didn’t achieve our 5 year plan to get to 10 million accounts on SoFi
Click here for my broad overview of SoFi.
2. CrowdStrike (CRWD) — CFO Burt Podbere and CTO Mike Sentonas Interview with Wells Fargo & Accolades
CrowdStrike also reported earnings this past week. For my full review of the report click here.
a. Leadership Interview
Podbere on the CISA win and federal government opportunity:
Joe Biden’ executive order to support endpoint detection and response (EDR) earmarked funds for the Cybersecurity and Infrastructure Security Agency (CISA) to support this endeavor. CISA obsessively compared CrowdStrike with all of its competitors and selected CrowdStrike as a major partner.
“The CISA win was a big deal for us — it’s one of the biggest deals we’ve ever consummated. The government did an incredibly thorough job evaluating us and all of our competition and figured out we were the right ones for them. It was extremely competitive.”
“The Falcon platform is tailormade for Biden’s executive order — and that’s not by chance. Our efficacy and ease of deployment and use all matter. I have no doubt that this will lead to more public sector deals for us. It’s just the beginning.”
Burt told us that CISA is the key inroad to the federal government. All of the intricate work and research and testing CISA did to pick CrowdStrike will be shared and used with other agencies needing to fortify their security solutions.
Podbere on a 10X increase in ransom wear attacks year over year:
“The old ways of doing things just simply aren’t good enough. A better solution is needed and that’s where we come in. We are winning customers at a rapid pace as the threat landscape proves alternative solutions don’t work.”
Sentonas on how more module additions have impacted CrowdStrike’s win rate vs. its competition:
“Our strategy is to collect data once and re-use it across our cloud platform. Our architecture allows us to rapidly innovate and create new capabilities and we will continue to grow our module offering without growing complexity or the size of our agent. This drives stickiness.”
Sentonas on Humio:
“We’ve had wins across the board thanks to our better price point and offering.”
Humio is now realizing the majority of its customer wins outside of security use-cases in areas like devops and log management.
Podbere on cloud workloads:
“We think this entire opportunity is greenfield for us.”
With CrowdStrike’s new Google Cloud contract, Falcon Horizon is now partner with all 3 major cloud vendors.
Podbere on incident response:
Around the time of the IPO, every $1 in CrowdStrike incident response services sold translated into $3 in new product sales for the company. That is now $5.50 per $1 to highlight continued cross-selling momentum.
“We come in, clean up the mess from the product that didn’t work and then we often replace it with our own. It’s a small part of our business but continues to be a great lead generator.”
On Wells Fargo’s 2022 cash flow estimates for CrowdStrike:
The bank expects CrowdStrike to generate $500 million in 2022 free cash flow.
b) Top Dog
Fortune Magazine unveiled the top ten from its “Future 50 2021” list. The list aims to identify companies with the most compelling long term potential for growth and innovation. CrowdStrike took the top spot on the list offering yet another sign of its superior offering and bright future.
As a side note, The Trade Desk took 27th place overall.
3. GoodRx (GDRX) — CFO Karsten Voermann Interviews with Credit Suisse
On why Doctor’s Love GoodRx:
Voermann highlighted 3 things:
GoodRx helps patients get on and stay on medication. Without GoodRx, doctors are extremely limited in their access to pricing information on drugs — generally something is prescribed without fully considering a patient’s propensity to pay. GoodRx provides pricing information right at the point of prescription to drive better information and adherence. Keep in mind that doctors spend 14.6 hours per week on drug prescribing, administration and adherence.
Beyond better affordability, GoodRx Health’s repository of healthcare information on things like taking injectable drugs helps save doctor time by limiting rudimentary inquiries & boosts consumer convenience.
Its branded manufacturers solution gives doctors a trusted resource for comparing the utility of 2 close drug substitutes while also granting them aggregated access to discount programs. This form of advertising is quickly replacing in-office medication selling from pharma reps to avoid workplace disruptions for doctors.
25% of GoodRx platform visits are now from healthcare professionals vs. just 17% at the IPO last year.
On the product roadmap:
Voermann again reiterated Hirsch’s hint from last quarter on GoodRx entering the health insurance space at some point in the future. Its partnership with GoHealth will likely be a large part of this. GoodRx won’t be an insurance principal but will host a marketplace for comparing insurance plans like it does with prescriptions in the future.
“We partnered with GoHealth to explore the insurance space more deeply and we will continue to do so by leveraging the data we already have to help consumers make better decisions.”
This is why GoodRx’s massive cohort of monthly active consumers and the sky-high net promoter scores are both so important. GoodRx can lean into all of this trust it has built to seamlessly expand into new healthcare adjacencies with little incremental operating costs — just like it did with the pharmaceutical manufacturers segment.
On Business to business (B2B) partnerships:
“When we started out, the focus was building direct relationships with consumers and providers. Now our brand has become so big that other entities are looking to partner with GoodRx for ways to leverage our brand. This helps us aggregate larger groups of consumers and will help us grow more quickly.”
Reminder of recent B2B deals signed:
Rite-Aid (for its subscription offering)
On Apple’s Identifier for Advertisers (IDFA) Changes:
GoodRx’s massive user base and its angle to use its own platform as a marketing vehicle for branded manufacturers insulates it almost entirely from tracking/privacy changes from Apple. GoodRx does not lean on 3rd parties or external website to fortify its data treasure chest — it has all it needs internally.
4. Teladoc Health (TDOC) — BetterSleep/Ipnos
Teladoc’s acquisition of Ipnos has officially been re-branded to BetterSleep — a name that hints at Teladoc’s objective to aggressively cross-sell this product with BetterHelp. Ipnos was founded in 2009 and owns the Relax Melodies — the top-rated sleep app. The assets mark the combined entity’s formal entrance into the sleep and meditation space expected to grow at a rapid compounded clip for the next several years.
The rebrand coincides with a new app update where Teladoc added features like sleep tracking, hypnotherapy and more. As part of the combination, Dr. Russell Foster — sleep expert and Oxford University Professor — will join BetterSleep as its new “Chief Sleep Advisor to develop more science-backed content.” BetterSleep’s founder — Alex Berube — will be staying on as a key member of the team going forward. Just like BetterHelp, BetterSleep will continue to operate as a separate company under the Teladoc umbrella.
5. Nanox — RSNA 2021
a. Highlights from the Arc tour — filmed from the Shamir Medical Center in Israel
Nanox highlighted/reiterating a few things that I found encouraging:
Highlighted how the 3D tomographic system can mimic some CT use cases with a lower dose of radiology.
“The Nanox digital chip can maintain low energy and power.”
The company unveiled 6 new Nanox.Arc uses cases at the event and highlighted 2 procedures specifically:
Chest scan. The radiologist department head from the University of Arizona went through (and praised) the quality of the imaging calling it “an intriguing advancement for identifying subtle lesions on the chest not visible with legacy alternatives.” Keep in mind this doctor is a member of Nanox’s advisory board.
Pelvis Scan. Nogah Shabshin — who is also involved with Nanox — interpreted the image and again praised its quality.
Nanox.AI (Zebra acquisition):
Nanox.AI has a 9th FDA clearance pending.
Nanox.AI will (for now) focus on chest CT scans as these scans feature biomarkers for speeding up diagnosis for a bevy of diseases in other organs (cardiovascular, liver etc.).
b. Highlights from the Investor Briefing
On resubmitting the multi-source application:
The company continues to expect to provide a response to the FDA’s request for more information for its multi-source application within the expected timeframe. This means it should be coming very soon.
On use cases outside of healthcare:
“Usage of Xray in other industries is available for Nanox. We are focusing on healthcare, but through our OEM partners Nanox is looking to expand into security, semiconductor manufacturing and battery inspection.” — Founder/Outgoing CEO Ran Poliakine
On global approval:
“We have already begun the regulatory processes for units outside of the FDA’s domain. As planned, we think we will be able to distribute units to these countries in 2022.” — Incoming CEO Erez Meltzer
c. My take
This event did have more meat and substance to it vs. last year’s RSNA presentation. Still, this is all about evolving from development to commercial distribution. The product can be amazingly groundbreaking — and I believe it is. Still, it’s up to the company to execute. The event did not make more or less excited about owning shares in the company. The company remains on my hot seat — I have paused any share accumulation and am simply holding what I own.
Click here for my broad overview of Nanox.
6. JFrog (FROG) — CFO Jacob Schulman Interviews with Credit Suisse + AWS News
a. Schulman Interview
“We play in a very large market and are in the very first inning of adoption of devops practices. The majority of the market remains greenfield.” -- Schulman
On the company’s focus:
“We primarily focus on automated binary management because binaries are the primary asset that a company needs to manage their software supply chain. Devices don’t speak English or Spanish, they speak in 1s and 0s meaning every company building software has to go through the process of building, maintaining, distributing and securing binaries. That’s what our platform does.”
JFrog Artifactory (its binary repository) today has the largest install base of any package manager.
“When we think about competition, the largest group is home-grown tools and today the majority of customers joining us are replacing home grown solutions. We are merely at the beginning of replacing these solutions.”
“We compete with cloud vendors like Google, Microsoft and Amazon but these cloud vendors are also great partners for us. Their key performance indicator (KPI) is traffic while our KPI is to help release software. But we do generate a lot of traffic and that’s part of the reason they partner with us.”
“The depth of the technology of our end to end platform focusing on binary and software package management differentiates us. We are by far the leader in this space and set the standard.”
Note: There are 3 core areas/niches of devops: monitoring/observability, source code and binaries. JFrog exists in the binaries niche while newly public companies like GitLab focus in the source code niche. These 2 players are largely complementary at this point.
On multi-product adoption:
“More than half of our 6000 customers are using multiple products. About 5% of our customers have adopted platform capabilities (so JFrog Artifactory, Xray and Distribution) which already represents roughly 33% of total revenues. It’s a significant growth opportunity even within our current install base.”
b. AWS News
JFrog and Amazon announced a new hybrid-cloud solution for Amazon’s Elastic Kubernetes Service (EKS) Anywhere.
Kubernetes definition per Kubernetes.io: A portable, extensible, open-source platform for managing workloads, endpoints and services which facilitates declarative configuration and automation.
The solution is a new software package repository and manager to augment and extend Artifactory’s utility. This new collaboration will allow joint users to benefit from JFrog’s repository know-how in an easy to use, secure fashion. The hybrid solution will now allow JFrog to extend its devops niche to Kubernetes-based platforms from anywhere.
EKS Anywhere is a new usage option for Amazon EKS to allow AWS users to “create and operate Kubernetes clusters on customer-managed infrastructure” on-premise or in the cloud. The two companies have closely worked together for some time — this merely enhances the relationship.
JFrog highlighted the follow benefits of the rollout in the press release:
Same interface for Amazon EKS regardless of running it on the cloud, on premise or both.
Centralized licensing management thanks to users only needing to buy 1 AWS Marketplace license for usage of Artifactory and Amazon EKS Anywhere.
Simplified operational complexity for running Kubernetes.
Click here for my broad overview fo JFrog’s business.
7. Revolve Group (RVLV) — Leadership Interviews
a. CFO Jesse Timmermans Interviews with Credit Suisse
On a breakdown of Revolve’s 2 e-commerce sits (per the company’s slideshow):
The company’s two sites (Revolve and FWRD) are extremely complementary with Revolve focusing more on clothing and FWRD more so on shoes and accessories. This allows for seamlessly successful cross-selling which Revolve is in the very early stages of tapping into — roughly just 5% of FWRD customers shop on Revolve.
Revolve has 20 owned brands, and augments that selection with carefully selected 3rd party brands. 6 out of its top 10 brands are owned despite its owned brands actually being more highly priced on an apples to apples basis vs. comparable 3rd party items — this is why the company can sport a 55% gross margin.
On FWRD’s performance:
Revolve broke out gross margin for the FWRD segment for the first time. It has expanded from 40% in 2019 and 2020 to 48% this year.
FWRD’s 1 and 2 year growth rates are well beyond competition like Farfetch, Real Real and Mytheresa.
While the company can purchase 3rd party items extremely granularly, for acceptable unit economics it must produce its owned brands in larger quantities. The pandemic made Revolve extremely cautious with keeping large amounts of inventory (it primarily sells going out clothing) and so it shifted to more 3rd party sales. This hit margins. In 2022, the company is expected to return to its historical owned-brand and 3rd party mix which should be a powerful margin tailwind next year.
“IDFA had an impact on our retargeting marketing channel. We are able to redeploy those dollars into other marketing channels and stay at the same marketing efficiency as we were before. One reason we were able to do this is the brand and the promotions we do with influencers which is roughly 25% of marketing.”
Word of mouth remains the primary traffic driver for Revolve which greatly helps as well.
b. Co-Founder/Co-CEO Mike Karanikolas Interviews with Morgan Stanley
On the opportunity:
“We are very confident in our ability to grow over 20% going forward.”
On the loyalty programs and the brand ambassador program launched this year:
“This Brand Ambassador program allows us to do a few key things. First, it allows us to deepen our relationship and work more directly with our influencers while now getting all of the data from each engagement with much more scale than we’ve able to do before. We’ve always been very focused on the key influencers and this makes it easier to work with smaller influencers. The response has blown us away with 10,000 sign-ups for the program within the first 24 hours of its launch. I think that’s incredible.”
Revolve launched a loyalty program for Revolve.com around the beginning of 2020. It just recently extended that program to FWRD.com:
“Bringing the Revolve loyalty program to FWRD will connect these 2 brands in a big way. Revolve has a huge customer base vs. FWRD and we believe we can bring the majority of those customers onto FWRD. Since we’ve launched the loyalty program, each month we’ve seen increased shopping overlap between Revolve and FWRD.”
On Hiring Kendall Jenner as FWRD’s new Creative Director:
“What’s incredible about this is how organically it happened. We did not reach out to her, she recached out to us with Kendall already loving FWRD. On our side we felt the same, she’s probably the biggest fashion icon in the world.”
“She has been very involved with contributing to FWRD with brand input and more. We think this is going to be huge — Kendall helps us in every single way. Our brand partners were blown away by the news and ecstatic. As soon as they heard, they were wanting to partner with FWRD in an even bigger way.”
“In terms of what can she do for the brand? What can’t she do for the brand. This is a match made in heaven.”
On the use of data with inventory management:
“Our ability to automate so many parts of the inventory process and to make decisions in such a quick and data-driven way is a huge differentiator especially in an environment like this. We made sure we were well-positioned going into this quarter with supply chain disruptions.”
On categories that were positively impacted by the pandemic:
“Post pandemic, the category mix shift back to dresses and other going out clothing has been very sharp… Still we’ve maintained the share gains we enjoyed for categories that benefitted from the pandemic.”
On Revolve’s long term gross margin target of 55% already being reached:
“The long term target continues to be 55%. We are there now, but it’s about doing it consistently. We also hope to exceed that 55% but we will continue to do what’s right for our customers.”
Factors like a focus on full priced sales, owned brands and largely sitting out of heavily promotional times like Cyber Monday is how a retailer like this has such a strong margin profile this early on in its growth curve.
8. Boeing (BA) — 737 MAX and China
China’s aviation regulator published formal steps for The Boeing Company to return its 737 MAX to service in the country. China is the 2nd largest aviation market in the world and is a key piece of the MAX’s demand fully recovering. This is an expected — but still good — sign.
9. Tattooed Chef (TTCF) — Leadership Shake-up
Tattooed Chef announced that it promoted Gasper Guarrasi as the company’s new COO. Stephanie Dieckmann — who had been COO and CFO — will keep the role of CFO. With Tattooed Chef’s multiple accounting blunders in the last year, this is a welcomed move in my view. Not to sound rude, but Dieckmann was struggling to adequately perform in both roles. Now she can focus on one.
I would have preferred to see the company hire a seasoned, external operator but this is better than nothing. Guarrasi has over 30 years of operating experience. He founded Certi-Fresh Foods in 1994 and has served as a senior financial executive for Randall Farms. We will see how he does.
The company remains on my hot seat — I have paused any share accumulation and am simply holding what I own.
10. My Activity
This week was my most active week of adding in over a year. I took my cash position down from roughly 15.7% to 14.5% and while that doesn’t seem significant, it is very much so significant for my approach. I’m generally adding a few basis points of my cash position at a time — this week I added 120.
I added to the following companies:
JFrog — click here for my broad overview of JFrog
SoFi (twice) — click here for my broad overview of SoFi.
Duolingo — click here for my Duolingo deep dive.
Olo — click here for my Olo deep dive.
Ayr Wellness — click here for my broad overview of Ayr.
Lemonade (twice) — click here for my broad overview of Lemonade.
Progyny — click here for my Progyny deep dive.
Upstart — click here for my broad overview of Upstart.
CuriosityStream — click here for my broad overview of CuriosityStream
My GoodRx deep dive will be published next week.