I’ve gotten a pile of new questions about Stansberry Venture Value this week, all relating to their pitch for some cloud SaaS stocks — and I found the first pitch about these stocks pretty compelling back in February, and even ended up buying two of them, so I thought it would be worth digging in a bit on this one.
The basic spiel is very similar to the one we saw back in February, when they were really ginning up interest in this “cloud-stock seeking” service from Bryan Beach, Mike DiBiase and Porter Stansberry… here’s a little taste:
“These are technology businesses.
“But probably not the type that would jump to mind when you hear that word.
:They’re not the kind fighting to be the next Apple and get the next exciting gadget into your hands…
“Instead, these companies have harnessed a massive shift in how people interact, analyze data, and do business. A shift that’s been accelerated – big time – by the coronavirus crisis… pushing dozens of stocks higher at a breakneck speed….
“They’re reliable, cash-generating, “meat and potatoes” businesses – that also happen to occupy a skyrocketing corner of the technology industry.”
And they also say that they’re “extremely rare,” with only about 150 “cloud SaaS” companies in existence (I assume that means “public” companies — there are tons of SaaS startups out there in the world). And that they’re looking for “hidden” stocks in this sector, cloud stocks that nobody else realizes are cloud stocks… but there is some post-pandemic talk in here as well, so this is not just a repeat. More from the ad:
“And then, the pandemic hit. Everything changed – including our search for these ‘hidden’ 10x stocks….
“In 2018, 55% of companies in the U.S. were using some form of SaaS.
“Worldwide revenues were projected to reach almost $160 billion this year.
“But that’s nothing compared to what’s happening in the wake of COVID-19.
“In a short few months, the crisis indirectly got the biggest employers in the world ‘hooked’ on SaaS companies…
“And created a buying frenzy that is only just getting started.”
We’ve certainly all seen the news about the huge winners of the pandemic — and most of those are SaaS stocks that offer a cloud-delivered service (which just means you don’t buy the software or store it on your machine, you access it as a service, usually paid by subscription, over the internet). DocuSign (DOCU), Zoom Video Technologies (ZM), Shopify (SHOP), Twilio (TWLO), etc. — all these are Cloud stocks that benefitted from the “work from home” and “e-commerce” explosions that hit the world in March, and if you’ve been actively watching the market during these past six months you can probably name at least a handful of others.
There’s a little spiel in the ad, too, about how the Software as a Service sector began — crediting Salesforce.com for creating this model in 2004 and giving birth to the “cloud” stocks in the years that followed — which is at least a sign that Porter has some mental flexibility, since he was ranting about Marc Benioff being “The Next Corporate Psychopath” and seemingly pitching a short bet on CRM back in 2013. (That seemed logical at the time, if you recall, Salesforce was trading at a crazy valuation then at 7X sales and almost 40X free cash flow, and Marc Benioff has been probably the most consistent insider seller in the world over the past 15 years, selling CRM shares almost every month… but still, a short bet on CRM would have been a disaster, it has never dipped below the price it was trading at seven years ago, and investors who bought at that time have seen 500%+ gains. The sales and cash flow have continued to rise, and it now trades at 12X sales and 60X free cash flow).
But the next winners, we’re told, are not going to be as “obvious” …
“As the most obvious winners of the “work from home” revolution, their biggest, fastest gains are likely behind them…
“Before the virus, SaaS was something companies could “get around to doing” whenever they had the time and money.
“Today, it’s not an option – you either get on board, or you get left behind.
“That’s why the SaaS market is expected to nearly DOUBLE by 2026..
“But with less than 150 ‘true’ SaaS stocks, you haven’t remotely missed this trend.”Are you getting our free Daily Update
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And, as they did back in February, they pitch this idea of software/service subscriptions as being something like a “tech royalty” … which always perks up my ears, but is, at least, a good way to visualize the compounding return potential…
“The numbers show that once a company gives it a try, 9 times out of 10, they stick around – paying a locked-in subscription fee, year after year after year.
“You may recognize the business model this most resembles:
“Royalties, one of the most lucrative investment themes of our firm’s 20-year-history
“Simply put, royalties mean you own one asset — a mine… a piece of land… or even something like a book or a song — and you collect payments over and over from folks who want to use it.”
Then we get into the direct teasing about the stock they like…
“The first and most important of these opportunities is a stock Bryan says is the most exciting discovery of his career.
“A way to get into a SaaS phenom before anyone else realizes what’s going on and drives up the price.
“See… even if you were to go out and identify every one of the 150 software as a service stocks in the world today…
… your research still wouldn’t turn up this stock.”
OK, that’s starting to sound awfully familiar… might this be a repeat of one of those February ideas?
“Wall Street doesn’t see this as a SaaS company — yet. But that’s exactly what it is.
“And that fact is going to become crystal clear in 2021.
“See this company also makes a type of hardwar