Was discussing SE today with Shao-Ning Huang. We were lucky to spot it in 2017/8, and bought our usual bite. The position quickly grew to be our top holding by far. We sold on the way up and closed out position at 344 last year not due to any timing brilliance but because needed the funds.
When we spotted it, SE was trading at $10-20 or just 4-5 times sales, mostly profitable gaming and growing revenue 100+% per annum. we felt was a no brainer to buy! moreover, the gaming and e-commerce space are both huge. Sweetener is lots of Chinese high alumni working in SE.
So what do I think of SE now at 138? At 138, it’s trading at 7-8 times forward sales and the growth is slowing esp at gaming side. Gaming revenue also more fickle and hits can lose favor. Also now composition of revenue is a lot of loss making ecommerce. Add on the rising ir environment which bashes down all growth valuations and the picture is not rosy for stock price.
So we will correspondingly adjust our bite sizing and expectation. Recently sold some puts from 100-145. Aiming to build a normal sized position at anything below $120 blended. Won’t go crazy to buy beyond normal bite unless it plunges irrationally below $80. And If plunge for good reason also won’t add.
Bottom line: easy money made on SE for foreseeable future. Likewise for many loss making growth stocks. Be very careful everyone.
Side note: results coming out in Feb will say a lot on direction. Likewise for grab coming results must see before doing any big move on it. Also it’s not all rosy for us in this downdraft too. Caught by surprise by the depth of Chinese tech sell down. Easily lost 0.5m there since Jan 2021 to now. Lucky kept to bite sizing discipline and did not add. Falling knife can keep falling.
HOW ABOUT TECH STARTUPS?
So how about unlisted tech startups valuations. If listed side falls to 5-10 times forward sales, how much you think a much smaller and also loss making startup should be worth? Quite concerned here as we have big positions in tech startup space. Looks like we have to be even more disciplined to make sure don’t overpay for new and follow on funding.
A sure test ahead will be the various spac attempts and loss making unicorns trying to fund raise and/or create exits. Will they have large down rounds coming up or will they be able to still list or sell out at decent valuations?
And for founders, better build something profitable which gives you infinite runway or at least make sure you plan for poor funding climate where there may still be VC money or trade sales or IPOs but investors want much lower valuations.
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