Shifting Narratives

Authored By Louis Stevens

While walking to get my morning Celsius (I've been drinking Celsius since I discovered it while serving in the army overseas almost a decade ago now), the thought that SentinelOne, Snowflake, and Sea Ltd. have experienced monumental shifts in narrative over the last half decade crossed my mind.

I thought that it was fascinating to consider that their narratives were so vastly different just three years ago than they are today.

When SentinelOne IPO'd, it grew 100%+, and analysts cited its best of breed technology and compelling product offering that were sure to capture market share within the multi-hundred billion dollar cybersecurity TAM. In recent months, however, the question was asked, "Should S1 be a standalone public company?"

The Shifting Narrative Of S1

When Sea Ltd. was riding high in 2020 and 2021, the prevailing narrative was that it should be valued at $100B+ because its growth and business model were so phenomenal, and this growth clearly illustrated that it had competitive advantages that poised it to become the next Amazon. Today, the prevailing narrative is that it has no moat, and it squandered its advantages by not vertically integrating fast enough.

Garena, its gaming platform business, was once seen through the rosiest of rose-colored glasses and referred to as Sea's crown jewel asset, but, today, some question if it's even worth anything at all.

The Shifting Narrative Of Sea Ltd.

When Snowflake was $200/share+, even just six months ago, but especially when it originally IPO'd in late 2020, it was seen as the Data Super Cloud™ in whom even the great Warren Buffett had invested. The company and its leadership could do no wrong as the clear leaders in a massive and growing data management TAM.

Today, Snowflake is seen as a 2nd place data warehouse company that's being beaten by its private market competitor, Databricks. Its recent CEO transition has provoked some to say its product roadmap execution is poor, with it lagging in AI product development.

The Shifting Narrative Of Snowflake

For those who've been around the growth investing universe over the period in which these shifts occurred, you can viscerally appreciate how incredible these shifts have been. These were seen as phenomenal businesses. The best of the best of the best. Everyone agreed. They could do no wrong when they were in the market's favor, but, today, they're only discussed in hushed whispers, lest those doing the discussing suffer the public embarrassment of mentioning these formally adored and universally beloved companies who've now, so the narrative goes, fallen on hard times.

Again, for those who have monitored these companies, you'll appreciate what I'm getting at here.

For those that have not, I have to emphasize that it's really wild just how much the narratives have shifted.

Perhaps this is an extreme likening, but the above-illustrated shifts would be akin to your teenager getting straight As, playing three sports, and being home for dinner at 6 pm every day; then, one day, embarking on a life of drugs, crime, and general malfeasance, seemingly out of the blue.

You would be astounded by such a shift, and these narrative shifts have been likewise astounding.

S1, Snowflake, and Sea Ltd. have been noteworthy examples of monumental narrative shifts, but they are not alone. Here are some other notable examples:

In the 2010s, Palo Alto Networks went from being a hypergrowth, innovative cybersecurity company to a directionless vendor of legacy tech.

The Shifting Narrative Of Palo Alto Networks

Okta went from being The Identiy Cloud™ to a commodity software who's prone to being hacked.

The Shifting Narrative Of Okta

(If you'd like to learn more about Okta, I'd invite you to read this brief.)

With these ideas in mind, I asked myself, "What other narrative shifts might occur in the years ahead?"

Specifically, I'm interested in identifying instances where narrative shifts occur such that beleaguered companies go from being seen as the troubled teens to the straight A students: an inverse of the above-mentioned examples.

"A great investment opportunity arises when a marvelous business encounters a one-time, huge, but solvable problem."

-Warren Buffett

I am looking for the Palo Alto Networks that were once seen in a gleaming light but have since been discarded by the market in favor of a new shiny object out there.

These are my favorite types of businesses, and they were one of the great Peter Lynch's favorite types as well:

(Second paragraph From The Below Excerpt; To be sure, I'm not referencing the entire excerpt, just the second paragraph)

And you'll notice that virtually all of LAS' ratings have been once popular companies that have fallen out of favor, e.g., Sea Ltd., S1, Tesla (far out of favor relative to 2020, 2021, and most of 2022), Coupang, and Adyen, just to name a few.

My belief is that building a basket of these types of companies can create exceptional outcomes over the long run.

To close, ask yourself: What companies were once adored but have since fallen out of favor? What narratives could shift in the future? What companies could fall out of favor? What companies could reclaim the good graces of the market?

Disclosures:

L.A. Stevens has rated SentinelOne, Tesla, Coupang, Adyen, and Sea Ltd. a "buy."

L.A. Stevens has not rated Palo Alto Networks, Snowflake, or Okta.