Comment Updates: Prologis, Bill.com and Cloudflare
The MyWallSt analyst team is constantly monitoring the stocks on our shortlist and reassessing our investment theses. Over the past few days, we’ve updated our comments on the following companies:
Like much of e-commerce, Prologis has experienced outsized demand for the better part of two years. While this demand has subsided in recent times and conditions have returned to somewhat normal, the company is still seeing healthy demand that rivals past peak cycles.
That being said, the macro environment paints a grim picture at the minute for all things discretionary spending, and much of e-commerce certainly falls into this category. Thankfully the company is “entering this uncertain economic environment in a position of financial strength” according to CFO Timothy D. Arndt. The company has continued to increase its dividend, expand its portfolio, and further entrench itself into the global supply chain. While it may face an uncertain near-term future, long-term it is a business here to stay.
We must also take into account the blockbuster acquisition of Duke Realty for $26 billion in an all-stock deal, greatly expanding Prologis’ portfolio across a number of key geographies in the U.S. While large acquisitions like this are usually risky, they are much more common in the real estate industry and the combined entity will result in hundreds of millions of dollars in synergies and cost savings, as well as a more extensive and diversified portfolio of assets.
Having gone public in late 2019, Bill.com’s atmospheric rise encapsulated much of the headiness of the late-stage bull market in technology stocks. It grew more than 8-fold in less than two years thanks to investors piling into high-growth names as a favorable interest-rate environment facilitated a much riskier investment style. Fast forward to now and the macro environment paints a very different picture. Down more than 60% from recent highs, much of this downturn can be attributed to valuation compression as sentiment has soured.
Thankfully, this means that its recent slide is down to factors outside of its control. The company is still firing on all cylinders, it's growing like gangbusters, and most importantly, it made hay while the sun was shining. Last year when its stock was at much higher levels, the company managed to complete two key cash-and-stock acquisitions in Divvy and Invoice2Go that have greatly expanded the company’s addressable market. While it is still unprofitable, the majority of its losses are down to stock-based compensation which means the company is much more in control of its expenses than at first glance.
Bill.com remains the great business it was this time last year, just at a much more palatable valuation.
Putting Cloudflare’s stock chart next to Bill’s is almost a carbon copy as it has gone through a similar journey of multiple expansions and contractions. In fact, Cloudflare’s was even more extreme, up more than eleven-fold from IPO to all-time highs in two years, at one point it was trading at roughly 100-times sales. That kind of hype machine is not going to be sustainable in any kind of market. Its subsequent downturn should be looked at favorably among investors as it gives us the opportunity to enter at a much more reasonable price point.
While Cloudflare the stock has had a rough year so far, Cloudflare the business continues to innovate, expanding its product capabilities and customer base, while maintaining high levels of revenue growth. Recent acquisitions have expanded the functionality of its zero trust platform, while recognition from the likes of Forrester Wave and Gartner indicates that it is a favorite amongst its clients — no wonder it posted a dollar-based net retention rate of 127% in its most recent quarter.
Like Bill.com, the company is still unprofitable, and in this market, this is sure to lead to some short-term volatility. However, long-term this remains a business we really like at MyWallSt and one of the best ways to play the cybersecurity trend.
Read the updated comment for Cloudflare.