Dec 19, 2023
As we head into year end, we elected to initiate a new position in auto wholesaler ACV Auctions (ACVA) in our Opportunities strategy. We also took the opportunity to add to a variety of holdings including Confluent (CFLT), General Electric (GE), and Xpel Inc. (XPEL) while trimming Elastic (ESTC) and Okta Inc. (OKTA) in an effort to control risk around the edges.
The results of the trade increase our net exposure and decrease our strategic cash weight.
Let’s dive in.
ACV Auctions (ACVA) operates a digital marketplace, connecting buyers and sellers of wholesale vehicles nationwide. With 24/7 auctions and value-add services like Transportation, Financing, and Data Services, ACVA ensures an efficient experience for dealers on its platform.
Despite strong underlying fundamentals to date, ACVA’s recent performance has been partially overshadowed by the macro-induced slowdown in the automotive sector.
While these macro challenges persist, there are some signs that wholesale markets may be improving: new car production is inching higher, manufacturing incentives are on the rise, and a steady buildup of inventory should encourage dealers to increase their wholesale transactions.
Although the potential wholesale recovery and the industry's secular growth provide us with optimism, our conviction centers around the company’s fundamentals. ACVA presents compelling unit economics and competitive advantages compared to peers that we believe should amplify its network effects in a “winner take most” market.
This, combined with the company’s strategic digital advantage could present a favorable long-term investment opportunity as macro headwinds normalize.
We elected to initiate a position in Confluent (CFLT) in early November and the stock is up an impressive ~25% since. Secular adoption of data streaming is a fast growing industry and Confluent sits at the center of this innovation story. Industry commentary remains strong and we added to the stock despite the recent run-up.
General Electric (GE) provided a very strong earnings print that reiterates a steady recovery in commercial traffic volumes. This in combination with increasing market share with its Next-Gen LEAP engine confirms that our thesis is tracking. We elected to add ~1% to the aerospace conglomerate.
We spoke with Xpel’s (XPEL) CEO and CFO last week and have become incrementally more confident in management’s ability to grow its Auto business and successfully expand into adjacent markets. Rumors of new competitive products and Tesla attempting to perform some of Xpel’s services in house have led to recent underperformance, but the weakness allowed us to opportunistically add to the stock.
Elastic (ESTC) smashed their earnings report after showcasing meaningful improvements in consumption trends alongside an impressive beat on profitability. Cloud consumption is moving in the right direction across the industry but with the stock up ~125% year-to-date, trimming here allows us to take some chips off the table as we approach year-end.
Okta (OKTA) has been at the center of a negative news cycle as a security breach has thrown off investor and consumer confidence. Management has reassured consumers that the impacts of the breach are under control but the overhang may be a drag on the stock over the near-term. Trimming here allows us to control the potential downside risk moving forward.
As always, let us know if you have any questions about the recent trades; we’re happy to assist.
– Your Titan Team
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