JAT Capital Management is a New York based hedge fund that reported $1.528 billion of long U.S. equity positions as of March 31, 2011. The company was founded in 2007 by John Thaler, after leaving Shumway Capital Partners. Following the closing of Shumway Capital to outside investors, many former investors have moved assets to JAT Capital Management.
Sina Corp (SINA)
JAT Capital recently filed a Schedule 13G with the SEC disclosing that they doubled their stake in the Chinese Internet company to 3,384,385 shares, or 5.6% of SINA. This increased stake makes Sina Corp the fund's biggest position. It was a bold bet because the stock price has jumped from around $80 on March 31, 2011 to more than $140 recently. On top of that, the company is not cheap based on trailing financials. The company trades at an expected forward P/E of 55.72, a PEG ratio of 6.59 and a price/sales of 16.87.
As of April 2011, Sina Weibo had 140 million users. Sina Weibo's rapid growth is likely the reason that the stock has spiked from around $40 in mid-2010 to more than $140 in 2011. This could also explain why JAT Capital would be willing to purchase more shares despite the massive stock price rise since their last institutional ownership filing.
There is not a consensus stand alone way to value SINA. Most analysts and market watchers like to think of its value relative to that of its only true competitor, Twitter. While SINA Weibo will almost certainly receive a discount to Twitter's valuation because of Twitter's large user base and more globally base network, the size of the discount will depend on the relative growth rates in the ensuing months or years as well as the demand for Chinese stocks.
Baidu, Inc (BIDU)
Chinese based Internet company is often known as the "Chinese Google." BIDU is the fund company's second largest holding. BIDU trades with a trailing P/E of 71.5, a forward P/E of 32.63 and a PEG ratio of 0.89. The company's growth opportunities in China and Japan are large, but the company is not cheap at a price/sales ratio of nearly 32.5.
BIDU generated $534 million of income on $1.2 billion of revenues. After revenue growth slowed to around 40% in 2009 because of the financial crisis, sales in 2010 grew by around 80% year over year.
In early 2009, the stock traded around a split adjusted price of $11, but rebounded and soared to almost $160 earlier this year. Considering that they are already heavily exposed to the Chinese Internet industry, JAT's stake in Baidu, Inc is a gutsy bet that revenues and investor demand will catch up to valuations. We can understand the appeal of investing in the "Google of China" especially when there are structural barriers that protect BIDU from outside companies, but considering that Google trades at a trailing P/E of 20.18, a forward P/E of 13.1, and a price/sales of 5.38 it may be time for JAT Capital to consider the real thing.
Netflix, Inc (NFLX)
The video rental company has been one of the hottest stocks on the market. As both a rejection of traditional cable content and a derivative play on Apple's iPad, Netflix's revenues have surged. Particularly popular is the $7.99/month package that allows customers to instantly stream unlimited TV shows and movies on their PC, Mac or other computing device.
More recently, the stock jumped 4.8% after Facebook's CEO Mark Zuckerberg announced that the popular Internet company had been in talks with NFLX about increasing the integration of social-networking tools. While this does not seem like a substantive enough development to justify a roughly $650 million increase in market capitalization, the companies in this industry receive high valuations and as such, even modest revenue opportunities can have outsized effects.
To be fair, investors predicting an imminent Netflix stock decline have been consistently wrong. Still, this is a bold bet by JAT Capital Management as NFLX trades with a trailing P/E of 74.5, a forward P/E of 39.8, a price/sales of 5.7 and a profit margin of 7.91%.
OpenTable, Inc (OPEN)
The Internet restaurant reservation network was founded in 1998 and went public in May 2009. Since then, the company has risen from around $30 to $115 per share. While the stock trades at rich valuations, there are also tremendous growth opportunities in the fragmented restaurant industry. OPEN's business model is also lends itself to high returns on capital. The website charges an upfront fee to become a part of the network and then a monthly variable subscription fee tied to seated online reservations.
Domestically, the company still has plenty of room to grow as it builds its network of restaurants and its user base. Perhaps more existing is the opportunity that exists abroad. In 2010 and 2009, only 9% and 6% of revenues came from outside of North America.
Still, despite the 33% annual revenue growth rates, the company trades at a trailing P/E of 132.6, a forward P/E of 51 and a price/sales of 18.1. These pricey valuations leave little (if any) room for business execution risks along the way. For this reason, we view their position in OPEN as gutsy.
SIRIUS XM Radio (SIRI)
This is not a large position for a $1.5 billion hedge fund, but considering their relatively concentrated portfolio, there is headline risk and career risk associated with all positions. Even when positions only result in minor nominal losses, there is a stigma attached to owning high profile failed names.
The satellite radio company has come a long from the abyss, and we are actually bullish of the company's prospects. We even speculated that the company could be added to the S&P 500 Index, but it is not cheap based on trailing earnings. SIRI has an expected forward P/E of 38.75 and a price/sales of 3.19.
EMC Corp (EMC)
The technology company information infrastructure through its information storage segment and content management segments. A large portion of EMC's nearly $57 billion market value is attributed to the company's stake in VMWare (VMW). EMC's 33,517,237 class A shares and 300,000,000 class B shares in the virtualization company. Through their stock ownership, EMC's aggregate position represents 97.26% of total vote.
This position is a gutsy bet because of the tremendous reliance on the valuation of VMWare, which despite the growth potential, has a trailing P/E of 103.15, a forward P/E of 41.26 and a price/sales of 13.26.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in SINA, SIRI over the next 72 hours.