The world's largest funds or mega funds, managing between $100 billion and over a trillion dollars, such as Fidelity Investments, Goldman Sachs, and Vanguard Group, together control almost a third of the assets invested in the U.S. equity markets, but number just over 30 out of the tens of thousands of funds that invest in the U.S. equity markets. Individually, and collectively, they pack enough firepower to move stocks based on their trading activities. In this article, we examine based on our research of their latest available Q3 institutional 13-F filings stocks in the social media group that they are most bullish and bearish about.
Taken together, these mega managers were bullish on the group, adding a net $1.01 billion in Q3 to their prior $58.09 billion prior quarter holdings in the group. However, taking out Google Inc. (GOOG), which dominates the group due to its size, mega funds were still bullish on the group, adding a net $224 million (ex-Google) to their $3.38 billion prior quarter position in the group (for more general information on these mega funds, please look at the end of the article).
The following are the social media group companies that mega fund managers are bullish about (see Table):
Google Inc.: GOOG is the Internet's premier search engine. Its social media businesses include video-sharing site YouTube and the new Google+ social networking service that is basically GOOG's answer to the Facebook threat. Although currently a small part of GOOG's revenues, social media should garner an increasing share going forward. Mega funds added a net $786 million in Q3 to their $58.09 billion prior quarter position, and together they hold 31.3% of outstanding shares, greater than their 27.3% weighting in the group. The top mega fund buyers in Q3 were Goldman Sachs ($1.49 billion), Wellington Capital Management ($724 million) and JPMorgan Chase & Co. ($627 million), and the top holders was Fidelity Investments ($10.12 billion).
Long-term, the stock is up almost six-fold since its IPO in 2004; however, recently the shares have retreated over 15% from its highs just three weeks ago, after the company reported a disappointing Q4 in which it missed on both revenue and earnings estimates. However, the stock is still within striking distance of its all-time highs, and trades at 11-12 forward P/E and 3.3 P/B, a discount compared to averages of 15.7 and 1.6 for its closes peer Yahoo! Inc. (YHOO), while earnings are projected to grow at a stellar (for a company this size) 17.3% annual rate from $36.06 in 2011 to $49.62 in 2013 compared to the sub-10% annual earnings growth rate for YHOO.
Zynga Inc (ZNGA): ZNGA develops, markets and operates online social games such as CityVille, FarmVille, FrontierVille, and others, making them available worldwide on various platforms, including Facebook, MySpace, and Yahoo, as well as the iPad, iPhone, and Android devices. The company went public at $10 on December 15th, just over a month ago, after the end of Q3. However, since the end of Q3, a number of institutional investors have filed SEC Forms 13D/G indicating that they have amended their ownership of company shares. This included mega fund manager JPMorgan Chase & Co. that reported holding a passive stake of 6.7 million shares in a filing earlier this week on Monday; mega fund managers T Rowe Price and Capital Research Global Investors that reported holding 11.5 million and 11.7 million shares respectively in a filing almost two weeks ago; and mega fund manager Morgan Stanley that reported holding 16.0 million shares just over two weeks ago.
ZNGA, which debuted at $10 and traded as high as $11.50 on the opening day, has spent much of its time below that price. The concern has been that the valuation of over $7 billion at the offer price was just too high, with most of the value having been captured by private investors prior to the IPO. Furthermore, there is also uncertainty as Zynga's business model is still evolving, as although it has over 150 million monthly users, it depends mostly on a limited number of big spenders ("whales"), with the rest paying nothing. However, just this week, with the quiet period lifted, a number of investment banks, including five that underwrote the offering have come out with buy ratings and price targets in the $12-$13 range.
Pandora Media Inc. (P): Pandora is a premier provider of internet radio in the U.S., offering listeners a streaming music based on analysis of user listening behavior. Its services are offered on traditional computers, and on smartphones such as Android phones, Blackberries and the iPhone. Mega funds added a net $86 million in Q3 to their $97 million prior quarter position. The top buyers were Fidelity Investments ($26 million) and AllianceBernstein ($20 million), which were also the top holders at $62 million and $30 million respectively. Pandora shares have been very weak since its IPO, and the company currently generating losses; its shares trade at an expensive 19.3 P/B and 8.6 PSR, expensive even compared to peer social media company ZNGA above that trades at comparable averages of 8.4 and 6.6 respectively.
Sina Corp. (SINA): SINA is a Chinese internet portal offering media content and services for China and global Chinese communities. Mega funds added a net $101 million in Q3 to their $1.17 billion prior quarter position, and taken together mega funds hold 29.5% of the outstanding shares, greater than their 27.3% weighting in the group. The top mega fund buyers were Morgan Stanley ($75 million), T Rowe Price ($67 million) and Capital Research Global Investors ($60 million), and the top holders were T Rowe Price ($403 million) and Capital Research Global Investors ($271 million). SINA trades at a premium 44-45 forward P/E and 4.1 P/B compared to averages of 26.1 and 3.3 for its peers in the internet content group.
Yandex NV (YNDX): YNDX is a Russian provider of internet search and web content, including news, mail and maps. Mega funds added a net $82 million in Q3 to their $369 billion prior quarter position. The top mega fund buyer in Q3 was Oppenheimer Funds ($40 million), and the top holder was Morgan Stanley ($269 million). YNDX trades at a 26 forward P/E and 7.4 P/B compared to averages of 26.1 and 3.3 for its peers in the internet content group.
The following are the social media group companies that mega fund managers are most bearish about (see Table):
LinkedIn Corp. (LNKD): LNKD operates an online professional network via its proprietary social networking platform that enables members to create, manage and share their professional identities online, build and engage with their professional network, access shared knowledge and insights, and find business opportunities. Mega funds cut a net $39 million from their $379 million prior quarter position, and the top sellers were MFS Investment Management ($44 million), T Rowe Price ($25 million) and Capital World Investors ($22 million). However, since the end of Q3, with the mania in social media stocks, a number of institutions including mega funds have filed SC 13G/A Forms indicating that they increased their LNKD holdings. This included T Rowe Price indicating that it increased its holding to 6.0 million shares from the 0.14 million shares it held at the end of Q3; Wellington Management indicating that it increased its holding to 2.0 million shares from the 0.4 million it held at the end of Q3, and earlier in the first week of January Morgan Stanley indicated that it increased its holding to 4.1 million shares from the 2.3 million shares it held at the end of Q3.
LNKD has not performed well since its IPO, and while prices are still well above the $45 IPO, most retail investors bought the IPO in the $80 to $120 range. However, unlike in the case of peer social media IPO ZNGA above that has also fallen off, LNKD arguably has a more refined business model and a more committed group of users that give it a strong competitive edge. Its shares trade at a premium of over 129 forward P/E compared to the 28.2 average for its peers in the internet services group; however, growth is also extremely strong, with revenues currently growing at over 100% and earning projected to almost double from 31c in 2011 to 57c in 2012.
Renren Inc. (RENN): RENN, often called the Facebook of China, is a Chinese operator of a social networking platform that enables users to communicate and share information via Renren.com. Mega funds cut a net $36 million from their $108 million prior quarter position, with the top sellers being Goldman Sachs ($24 million) and Fidelity Investments ($10 million). RENN is currently flirting near break-even, reporting 1c in earnings for the last two quarters, and it trades at 1.3 P/B and 19.5 PSR.
Other social media companies that mega funds are bearish on (see Table) include Netease Inc. (NTES), a Chinese provider of an interactive online gaming community, internet portal and wireless value-added services, in which mega funds cut $20 million from a $905 million prior quarter position; and online content and domain name registration services provider Demand Media Inc. (DMD), in which it cut $22 million from a $115 million prior quarter position. Also, additional social media companies that mega funds are bullish about include leading nationwide ISP United Online Inc. (UNTD), that is also a provider of online social networking, in which mega funds added $7 million to a $123 million prior quarter position; and real estate information marketplace Zillow Inc. (Z), in which mega funds added a new $63 million position in Q3. Furthermore, mega funds have a $2 million position, unchanged in Q3, in Rediff.com India Ltd Adr (REDF), an Indian provider of internet content, communications, and information services, that also has a lot of community features for the global Indian community.
General Methodology and Background Information: The latest available institutional 13-F filings of over 30+ mega hedge fund and mutual fund managers were analyzed to determine their capital allocation among different industry groupings, and to determine their favorite picks and pans in each group. These mega fund managers number less than one percent of all funds and yet they control almost half of the U.S. equity discretionary fund assets. The argument is that mega institutional investors have the resources and the access to information, knowledge and expertise to conduct extensive due diligence in informing their investment decisions. When mega Institutional Investors invest and maybe even converge on a specific investment idea, the idea deserves consideration for further investigation. The savvy investor may then leverage this information either as a starting point to conduct his own due diligence.
Credit: Historical fundamentals including operating metrics and stock ownership information were derived using SEC filings data, I-Metrix® by Edgar Online®, Zacks Investment Research, Thomson Reuters and Briefing.com. The information and data is believed to be accurate, but no guarantees or representations are made.
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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.