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Asana

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-$80.78 -78.25%
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Very hard to have any sort of productive discussion on twitter, I give up, Long $ASAN
I posted a comment similar to this last week here. Twitter sucks absolutely terrible now. I use Commonstock way more lately
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A Pair Trade Concept
Disclaimer: This post might only appeal to investing nerds like myself. It's more of a philosophical rant with little practical value.

In Tech, winners take most or all in an emerging growth opportunity

So theoretically, it makes sense to go long the perceived winner, and short the losers for some purer, market uncorrelated, alpha. A similar idea has manifested in the famous "long disruptors, short disrupted" as a generalized hedged investing strategy.

The problem with the generalization is that it can occasionally crush you as styles of stocks deviate from long-term trends and go in and out of fashion. For example, long renewables, and short oil & gas. Or long any high-growth software, short boring old $IBM in the software space (that would have truly sucked this year). For the disruptor/disrupted trade, one has to often go long a traditionally expensive stock and short a traditionally cheaper stock - hoping that the valuation spread would widen as the disruptor further takes over the disrupted. The market is often efficient in this way of thinking in my opinion.

So here's a crazy idea:

Go Long #1 leader, and Go Short #2 leader in a narrow tech industry space - Instead of going long #1 and short #5 or something else for instance. After all, only one usually takes most or all.

Leader #1 and #2 in a closely related disruptive space often trade in a highly correlated manner, with multiples that are not that far apart. Often, the valuation is not working deeply against you, and thorough research might provide you with a trading opportunity that brings on lower risk, and purer alpha. I say purer because the closest competitors move very similarly in various macro paradigms. The soul-crushing deviations in value/growth we saw this year wouldn't be nearly as prominent.

On June 8, I wrote a post here stating that I liked $MNDY in the workflow space where it was a winner for me against $ASAN and $SMAR. In my view, the three were #1, #2, and #3 leaders in the hotly contested Workflow Software space. ASAN was the closest competitor, and it was trading at a minor discount on sales multiples to MNDY at the time. I also mentioned that going short $ASAN would make a good hedge. I personally was only long $MNDY throughout this period.

Here's how that long-short trade would have evolved (about +18% so far):

Now, this is just one example, and it doesn't prove anything. Furthermore, Asana is yet to report on earnings while Monday already did with strong results. To add to the complexity of it, the discipline of entering and exiting positions is a whole different game of skill. But to me, good areas to double down on the trade are when the purple and yellow lines trade closely or surpass each other, such as June 10th, or mid-August. I say this with the comfort of hindsight bias, of course. At the current spread, I'd reduce the trade exposure.

I imagine firms like Citadel play such games and amp up the leverage on these spreads. Super hard to do, but for those that like the purest equity-based alpha available without macro pain, the strategy is really worth exploring. If you can push a 10% CAGR annually on such a strategy pre-leverage, you have my respect. For the kind of pension funds that invest in the Citadel types, this is incredible from a risk management standpoint. As it happens, Citadel's flagship fund was 20%+ YTD as of July end.

Unfortunately, my country's laws don't let me go short or use leverage on (foreign) US market stocks. For now, I'm long $MNDY and pretty happy with my cash long-only position.
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Are there any other examples of where LONG (1) and SHORT (2) would have worked?

And would this tactic be a short term trade or a medium to long term one?
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$MNDY Monday.com Q2 Earnings Crushed It
In my last post on Monday(dot)com, I made the case for the "Workflow Software" trend, and reasons to go long $MNDY against $ASAN and $SMRT. That post can be found here.

Today, the company reported an impressive earnings beat on sales consensus and raised their FY guidance. See the Q2 shareholder letter here.

Q2 Results Highlights
  • Revenue of $123.7m, which grew 75% YoY, and 14% QoQ
  • # Customers with over 50k contracts grew 147% YoY
  • -$19.4m in Free Cash Flow implying a -16% margin
  • FY Guide was raised by $10m to $502m in the high range, implying 62% YoY growth

The company remains with a whopping $830m in cash on its balance sheet so the current burn is relatively minor in the scheme of things and the fat market opportunity at hand.

Source: Koyfin

With a 20%+ bump in stock price today, and the increase in valuation, my thesis remains unchanged. Monday and its closest peers are making software that is theoretically applicable to every moderate to large enterprise on the planet by quantifiably increasing efficiency and productivity. The company has been outperforming on growth vs peers and is financially in a better space to keep spending on sales and marketing. The platform, going by all the review sites, is consistently #1 or #2 for customer satisfaction.

It helps to see this business against a really long growth runway. It will now trade at ~11.3x NTM EV/S on consensus if I have to account for their forecasts, but this is perfectly fine for a high-growth category leader that offers immense promise. It's a little more expensive than before, but the recently dark clouds of macro appear less threatening, while Monday's market share gains stand strong against the category. So for now, I'm letting this winner run. I'm long $MNDY.

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My user experience: Just got started on their CRM a few months ago. Liking it so far, customizability is fantastic once you learn what you really need, makes it more applicable to customers with specific circumstances.
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