Which Little-Known Tech Company Was This Tiger Cub Buying Last Quarter?
Meena is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Facebook (NASDAQ: FB) isn't loved by hedge funds nearly as much as other major players in the tech sector like Apple or Google, and rightfully so, but the social media giant still has its fair share of bulls. Fresh from its third quarter 13F filing with the SEC, billionaire Chase Coleman and his investment team at Tiger Global Management have reported holding a significantly larger number of Facebook shares than we originally had thought. Coleman, the infamous 'tiger cub,' is the original founder of Tiger Global Management, while Lee Fixel and Scott Shleifer are both managing directors and co-portfolio managers of the firm’s venture capital/private equity funds.
You'll recall that at the end of Q2, Tiger Global reported holding a little over $60 million worth of Facebook's class A stock. One quarter later, this position on its 13F has risen by nearly 500% and is now worth more than $250 million. Coleman and his team converted their private shares into public ones, thereby forcing them to report the new total on their 13F.
With the updated figures, we can see that Facebook is the tenth largest holding in Tiger Global's 13F portfolio and is worth approximately 4.2% of its total value. Here's a complete look at Tiger Global's holdings, but we're going to take a close look at Facebook and four other major moves initiated by the hedge fund.
In Facebook's case, the stock lost over 30% of its value in the third quarter, and hit an all-time low of $17.55 in early September. Even though it has gained roughly 27% since this low, Facebook still sports a moderately attractive 31.0 times five-year expected earnings, which is far below the forward P/E of primary peer LinkedIn (79.4X). On the back of the company's impressive third quarter mobile ad performance, sell-side analysts predicting strong EPS growth of 26.0% a year over the next half-decade, meaning that now may not be a bad time to "monkey" Coleman and his team into Facebook if you haven't already.
Another stock Tiger Global was buying last quarter is Amazon.com (NASDAQ: AMZN), which now accounts for $122 million worth of the fund's 13F portfolio, a price-adjusted increase of 38.7% from Q2. Amazon has been in the doldrums over the past month, losing close to 8% of its value after missing the Street's earnings estimates. Excluding the effects of LivingSocial, Amazon posted a loss of 23 cents a share versus consensus of -$0.08. It was also reported that the company's daily deal acquisition has lost 95% of its original value since being purchased in 2010.
From an efficiency standpoint, the online retailer's operating margins have stayed below 2% in each of the past five quarters, and its tablet line is facing more competition from the likes of Apple (NASDAQ: AAPL) and Google, in addition to traditional e-reader suppliers like Barnes & Noble. Now, it's likely that Coleman and his team were expecting better third quarter results and whiffed, or if not, it's also possible that the fund is attracted to the company's ever-omnipotent growth. Sell-siders expect EPS growth to actually speed up over the next five years by ten percentage points, to 35.7%. While an astronomical earnings valuation is obviously a concern, Amazon actually trades at a 7.4% discount in relation to its five-year average book value, so it's not all doom and gloom.
Speaking of Apple, you could probably guess that Tiger Global held shares of the tech giant, but what you may not have known is that the fund chose to downsize its holdings in the third quarter. At the end of Q2, Coleman and his team had elected to hold 1.4 million shares, but now report a long position that is over 7% smaller. While we cannot see Tiger Global's moves in the fourth quarter, Apple has lost nearly 20% in the past two months, so we don't know how the fund is behaving on the dip, so to speak.
We still like Apple due to the fact that it trades at a meager 9.3 times forward earnings, and sports a lowly PEG ratio of 0.59. Many Cupertino bulls have been making the valuation case over the past month to no avail, but the pessimists must be reminded that the company has a number of events on its horizon that can vault AAPL to a fairer valuation, most notably a potential deal with China Mobile and first quarter financials.
Aside from Facebook, Apple, and Amazon, two other interesting plays we've noticed in Tiger Global's 13F are newly reported stakes in 3D Systems (NYSE: DDD) and Groupon (NASDAQ: GRPN). You may remember that 3D Systems is the iconic three-dimensional printing company, with the power to give consumers the world's first easy-to-use 3D content creator. The company isn't the only player operating in the 3D printing space, but it does provide the most usable, streamlined version of the technology in comparison to primary competitors like Stratasys, MakerBot, and Solidoodle.
Now, 3D Systems also has Hewlett-Packard lurking in its backyard, but HP's first entry into the market sells for a whopping $17,500, more than ten times as expensive as 3D Systems' Cube 3D printer. The markets have responded favorably to the company's accessibility, as shares are up nearly 190% since the start of 2012 alone. Despite these gains, 3D Systems trades at an attractive forward P/E of 26.7X, far below Stratasys (39.8X). With the potential to be a perennial high-flier as its technology becomes more available to the masses, 3D Systems might turn out to be the most rewarding stock in Tiger Global's entire portfolio.
On the flip side, though, Coleman and his team also initiated a new position in Groupon, which has seemed to set a new all-time low each and every week. Shares of the daily deal website now trade below $3 a share, just one year after they were above the $25 mark. Much of Groupon's decline can be attributed to ever-present accounting concerns, as well as consistent earnings disappointments. In its most recent quarter, the daily deals site reported flat earnings as the Street was expecting a profit of 3 cents a share. The most troubling aspect of Groupon's Q3 financials was that coupon billings abroad, which make up close to half of its overall revenues, shrank.
We speculate that Coleman and his team were attracted to Groupon's bargain bin valuation, in addition to the company's plan to increase automation, but it's still a risky endeavor for the individual investor. As competitors in the daily deal space continue to spring up like weeds in Groupon's once pristine marketplace, it doesn't seem reasonable to expect a major bounce back anytime soon. If you're looking to add one of Tiger Global's positions, it would be best to consider Apple, 3D Systems, or Facebook. Each stock has game-changing potential over the intermediate term, and all trade at an attractive valuation.
This article is written by Jake Mann and edited by Meena Krishnamsetty. Meena has a long position in AAPL. The Motley Fool owns shares of Apple, Amazon.com, 3D Systems, and Facebook and has the following options: short JAN 2014 $55.00 calls on 3D Systems, short JAN 2014 $30.00 puts on 3D Systems, and long JAN 2014 $20.00 calls on Facebook. Motley Fool newsletter services recommend Apple, Amazon.com, 3D Systems, and Facebook. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!