David Nierenberg, founder of D3 Family of Funds, recently completed his speech at the Value Investing Congress. Here are our unedited notes from the presentation, entitled Not Dead Yet: Surviving Today to Triumph Tomorrow.
About Investment Risk
- Risk is not associated with volatility; risk is a chance of permanent capital loss. Risk is not a quotational loss.
- Permanent loss can be caused by: leverage (D3 does not use leverage to magnify returns), redemptions when illiquid, counterparty risk, custodial risk, legal and regulatory risk, execution: investments, portfolio, cash and fraud.
Investment Idea: Move, Inc. (MOVE)
- Leading online network of websites for residential real estate search, with the most comprehensive and up to date database of existing homes for sale on the web. Largest shareholder of the company. Main asset is relator.com.
- Serves three primary constituents: 1) Consumers, 8.1 million average users/month 2) Real estate agents and brokers 3) General advertisers. Online ad penetration has not penetrated the real estate brokerage industry compared to other industries. D3 believes that this trend is not likely to last. Dollar advertising by US real estate agents in newspapers is down 71% over the past few years. He believes this represents a great opportunity for web based advertising and will benefit MOVE. Revenues have remained stable from 2006-2009, and is the most visited website for real estate brokerage advertising.
- Recent Changes: The company has closed underperforming businesses, and took $20 million out of annualized operating costs. New CEO Steve Berkowitz named CEO in JAN 2009, company is currently searching for a new CEO.
- D3 has a “punch list” for MOVE. 1) Continue to improve product and grow site traffic 2) Hire new CFO 3) Continue expense reduction 4) Monetize ARS 5) Establish relationship with “The Street “ 6) Eliminate 100 mil shares to drive EPS, EPS growth and ROE. D3 just filed a 13D Monday.
- Bottom Line: MOVE basically has no leverage, ~$1.00/share in net cash. Believes that 2013 EPS could grow to $.58/share. He thinks it could appreciate 5x based on a 17.5x to 20x multiple.
About D3 Family of Funds
- Long-term investors that invest in a concentrated portfolio of undervalued, domestic, micro-cap growth companies.
- Average market cap ~300M, tries to establish 15%+ positions.
- We believe in activism in some circumstances.
About David Nierenberg
David Nierenberg is the Founder of the D3 Family of Funds, which manages $350 million in four private investment partnerships. Mr. Nierenberg serves on the Washington State Investment Board, which manages $80 billion of public employee retirement funds. He is a graduate of Yale College and Yale Law School.
Disclosure: No positions