Betting on the Internet
Marshall is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The Internet has been a miraculous growth story over the years and it's only getting bigger. Part of this includes the rising number of websites and domain names, both of which are big positives for VeriSign (NASDAQ: VRSN). A number of billionaires are also betting on the Internet, where Verisign has significant hedge fund backing.
Billionaire Stephen Mandel of Lone Pine Capital owns 11.9 million shares, which is 8.2% of the company. Mandel touted Verisign back in November when he laid out his investment thesis: 5% to 7% in dot-com and dot-net registrations over the long term, and a 7% increase in prices over the next four years.
Behind Lone Pine is Peak6 Capital, with 11.5 million shares, 8% of Verisign. Peak6's position in Verisign makes up 9.4% of the fund's public equity portfolio. Mega-billionaire Warren Buffett's Berkshire Hathaway owns 8.1 million shares, 5.6% of the company. Another major hedge fund owner is activist investor Jana Partner. Jana owns 4.8 million shares, 3.3% of Verisign. As you can see, Verisign has no shortage of famous hedge funds backing it.
As I said, Verisign is the leading provider of Internet domain name registry services and infrastructure-assurance services. Over the years, the company has sold its other businesses to focus on core operations. It is now a primary provider of Internet domain name registries.
Revenue is expected to be up 11% in 2013 and the company recently renewed its six-year contract for managing dot-com registries. The business is highly cash generative, with a near 7.5% free-cash-flow yield.
Back in July, in conjunction with its 2Q earnings announcement, Verisign announced it was increasing its registry fee for dot-net domain names by 10%. The company has been using its cash flow to return value to shareholders. In 2012, the company bought back some $315 million in shares; this trend should continue and I like Verisign for its high exposure to the broad Internet.
Mandel's other bets
Billionaire Stephen Mandel, one of Verisign's biggest evangelists, also loves other major Internet stocks Priceline.com (NASDAQ: PCLN) and Google (NASDAQ: GOOG). These two stocks are Lone Pine's first- and second-largest positions, respectively, with 6.3% of its public equity portfolio invested in Priceline and 5.7% in Google.
Both are up over 25% year-to-date. I still think that Priceline is the all around best play in the travel industry, where it snatched up Kayak for some $1.8 billion earlier this year. This deal will help give the online-travel site a greater presence in the mobile space -- Kayak's mobile engagement and mobile app is second to none. What's more is that some 50% of Priceline's bookings and revenue comes from overseas, i.e. Europe, meaning the company should be a big benefactor of any rebound in the European economy.
Organic revenue is expected to be up nearly 20% for 2013 and 2014 as the company continues to snatch up market share. As well, the company is turning to Asia as its next major growth avenue. Priceline also has a strong balance sheet, with net cash of some $3.2 billion.
Sticking to Internet, Google is one of the all around great bets on the Internet over the past few decades. Google made one of its big forays away from the Internet with its 2012 acquisition of Motorola Mobility for $12.5 billion. And, finally, Google released its first phone, the Moto X smartphone, which appears to be a big hit.
Google is not only the Internet search leader, but it has a presence in a variety of other businesses -- not just hardware. This includes YouTube, DoubleClick and AdMob. But back to hardware, Google also offers its Nexus tablet and Chromebook netbook.
These products and various innovations, such as Google Glass, are expected to help drive revenue higher by between 15% and 20% in both 2013 and 2014.
Verisign has little-to-no competition and is a solid cash-flow-generating company. It is also compelling at 22.5 times earnings, compared to Akamai's 34 times.
Google is still a solid investment opportunity, with a vast presence in various markets. And while we're on the Internet kick, mind as well snatch up the online travel leader Priceline for around 30 times earnings, well below major peers.
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Marshall Hargrave has no position in any stocks mentioned. The Motley Fool recommends Google and Priceline.com. The Motley Fool owns shares of Google and Priceline.com. 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!