On Dec. 29, 2015, I bought some stock. It was a bet on DevOps that my wife kindly tolerated. Since then, the S&P 500 has risen 31 percent and my DevOps portfolio is up 113 percent. This blog is a retrospective on a bet that worked out.
I was inspired by Nicole Forsgren’s talks and the “State of DevOps Report,” whose data showed better profitability, market share and stock price performance among companies claiming to do DevOps well. DevOps, after all, exists to help the business win, and as digital transformation sweeps industry after industry, technologists increasingly are in a position to make that difference.
My process has been very, very simple: Companies whose talks at DevOps conferences convincingly convey a passion for DevOps are ones that I would consider buying. Would I do deep research on each one? Nah—whatever I could research aside from DevOps would already be priced in by people who understood that content better than me.
At the one-year mark, I summarized the results. The crazy project was up 12 percent against an S&P that was up 8 percent—a nice little win. The first six months of 2018 have been tremendous, though: The S&P is up almost 2 percent and the portfolio is up 42 percent.
A key disclaimer is that I am trying to read corporate culture from the outside. For insiders, I am sure I will have some of this comically wrong.
Remixing the Strategy (and Portfolio)
Over the past year and half, I’ve made a handful of trades based mostly on two triggers.
The first trigger is a signal that a company is losing its commitment to DevOps. I did this with Nordstrom: Its DevOps leaders all moved on to different companies. For example, Courtney Kissler went to Starbucks and Suzanne Conniff was off to T-Mobile. About the same time at a meetup, a Nordstrom employee told me that DevOps had fizzled. I was out. In the last year, Nordstrom is up 7.5 percent while retailers I kept are up: Target 46 percent and Amazon 74 percent. That said, Target is a bit of a difficult case.
The second trigger is silos. I worry about an either IT-centric view of DevOps or DevOps in just a small slice of the business. Before I invest in a new stock, I want to know the transformation is taking root enterprise-wide.
Barclays for Bank of America is an example of chasing the all-in company that didn’t work out: negative 8 percent growth versus 25 percent at BoA. Overall though, shifting toward all-in and unicorns has been solid.
Who’s in Today
- Amazon: 121 percent
- Barclays: -15 percent
- Capital One: 26 percent
- Cisco Systems: 52 percent
- Etsy: 340 percent
- Live Nation: 93 percent
- Netflix: 235 percent
- Nike: 20 percent (since December 2017)
- Target: 0 percent
Amazon: Amazon’s net gain at 121 percent looks a lot like the portfolio as a whole (113 percent). The shares I purchased in 2015 are up 150 percent. The company is a natural fit, given that its CEO wrote the “two pizza rule” and demands microservices. It is also a hedge, as the company directly competes with much of this list including Target, Netflix and Etsy. With cloud and DevOps often joined at the hip, Amazon’s cloud revenue is also a rough proxy for DevOps growing overall.
Barclays: Did I invest in a British bank shortly after the Brexit vote? Yeah. It was a bit of a test of the “Everything except DevOps is already priced in” rule. This one hasn’t panned out, but from the outside Barclays is among the banks doing best at DevOps.
Capital One: Has performed about average among banks that I looked at this morning. I adore its start-up attitude and how the company goes about getting talent and contributing to the community.
Cisco Systems: Cisco has had some great talks and is undergoing a digital transformation of sorts of its own. The company is doing fine.
Etsy: Holy cow, Etsy. Etsy is an interesting case in that it has been a DevOps darling for many years. With the stock flagging a bit, the CEO and the CTO (our DevOps hero, John Allspaw) were shown the door and the perception was the grown-up business types were taking over. I increased my bet based on the thought that technical foundations pointed ruthlessly at business problems might work out. When the stock price doubled, I cashed out my original investment.
I’d be better off had I not sold any, but with as volatile as Etsy is, I was happy to route some of the winnings over to a bet on Nike.
Live Nation: I saw a great talk from a Live Nation guy at DevOpsDays Rockies, and the company’s stock has paid off nicely since, nearly doubling. Live Nation gets it, and shows a passion for satisfying customers. Being Ticketmaster, it has had a risk of digital disruption knocking it down for years and has built up a strong innovation capacity—exactly what incumbents need to do.
Netflix: DevOps skills? Check. Good at using data to delight customers? Check. Worth twice what I bought them for? Check. I wrote most of this analysis in early July. Since then, Netflix has had a bad earnings call. It’s still a massive winner so far.
Nike: I loved Nike’s talk at DOES 2017. But what really struck me was DOES London. In the morning the company spoke about a one-team culture and engaging digitally—good stuff. In the evening a colleague complained his kid was spending $200 on sneakers. A week later, Nike’s stock spiked 10 percent. Yup.
Target: Oh, Target. Target has done some great DevOps work, but word on the street is that too much of what it did at first lacked a connection back to the business. However, since the security fiasco with stolen credit cards, that has turned around. While its stock is right around where I bought it 2.5 years ago, the last year has shown strong momentum: Target is up 45 percent in the last 12 months.
2018 Has Been Great
Over the project’s first two years, I had a nagging worry: I was beating the market, but was I just picking riskier stocks and being rewarded in a bull market? So far the market has been flat in 2018, showing modest 1.7 percent growth through June 30. The DevOps Portfolio, however, is up 42.2 percent.
Only the banks are trailing the S&P.
So What Have We Learned?
- It’s about customers and the business: There appears to be a moment of DevOps backlash when alignment to business outcomes isn’t quite strong enough. When the DevOps culture is strong but redirected back to catering to the business, things can go better. That’s one way to read Target and Etsy’s recent performance. When the transformation fizzles … see you, Nordstrom.
- Banks may be different: This system really hasn’t worked out terribly well for me in the banking space. I suspect that is because most banks are undergoing similar transformations and may not be as able to differentiate as retailers do. At DOES London we heard similar stories from RBS and Barclays while Lloyd’s is winning DevOps awards at other conferences. I also lacked representation from the digital disruptors—PayPal would have been a good balance to CapOne or Barclays.
- DORA should be a hedge fund: I hope they have a secret one.
I’m thankful my that my wife was on board with this little project and I’m very happy that we can take our winnings here as we plot our second honeymoon.
Of course, professionally I’ve been betting on DevOps a long time, working on UrbanCode continuous delivery tools the last 15 years. That worked out with an acquisition by IBM as it beefed up its DevOps solutions portfolio.