In this article, via an analysis based on the latest available Q4 institutional 13-F filings, we identify the e-Commerce group companies that are being accumulated and those being distributed by the world's largest fund managers, managing between $50 billion and over $700 billion in 13-F assets. Taken together these mega fund managers control over 35% 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.
Also, taken together, they are slightly bearish on the e-Commerce group, cutting a net $127 million in Q4 from their $100.00 billion prior quarter position (for more general information on these mega funds, please look at the end of the article).
The following are the e-Commerce group companies that these mega fund managers are most bullish about (see Table):
Groupon Inc. (GRPN): GRPN is a provider of discount deals from local retailers, that went public in Q4. Mega funds together initiated a new $1.56 billion position in Q4, and taken together mega funds hold 15.8% of the outstanding shares. The top buyers were T Rowe Price ($411 million) and Fidelity Investments ($366 million).
GRPN shares plunged 15.7% on Monday after the company revised downwards last Friday, after the market-close, its previously reported Q4 revenue by $14.3 million and EPS by 4c. Per the company, the downward revision was in response to inadequate refund reserves, and the company reiterated its revenue guidance of $510-$550 million for Q1. However, the revision has highlighted concerns among investors about its business model, as well as its management and accounting.
A number of brokers, including Bank of America Merrill Lynch, Stifel Nicolaus, and The Benchmark Company, have downgraded the stock following the downward revision. We believe that with GRPN's lofty valuation of 6xSales and 13xBook, and the stock threatening to dip below its lows, it is wise to stay on the sidelines for now, at least until more positive news. which could take more than a couple of quarters of outperformance before management can regain the confidence of investors.
Netflix Inc. (NFLX): NFLX is a provider of subscription based Internet services for watching online movies and TV shows in the U.S. and internationally via Netflix.com, and for subscribers in the U.S. it also has a service to deliver DVDs and Blu-ray discs to their homes. Mega funds together added a net $382 million in Q4 to their $2.20 billion prior quarter position in the company, and taken together mega funds hold 40.9% of the outstanding shares. The top buyer was T Rowe Price ($558 million), and the top holders were T Rowe Price ($566 million), Vanguard Group ($324 million), and Morgan Stanley ($306 million).
NFLX shares have been a disaster lately, off by more than 60% from its highs in July last year, on a series of missteps from Management. Furthermore, the company faces a myriad of challenges including heated competition from retailers such as Wal-Mart (WMT), from cable operators, from other online sites such as Hulu.com, and from industry stalwarts such as Amazon (AMZN), Google (GOOG), and Apple (AAPL). Moreover, the company's DVD-by-mail business is declining, and the content acquisition costs for its streaming business are expected to ride up going forward. Its shares currently trade at 45-46 forward P/E and 9.9 P/B, while earnings are projected to drop from $4.16 in 2011 to $2.52 in 2013.
Youku.com Inc. (YOKU): YOKU, China's largest video-streaming company, is more popularly known as the YouTube of China. But in reality, it is more a combination of Netflix and YouTube; Netflix, because it offers mostly professionally-generated content licensed from movie studios and TV companies, and YouTube due to its reliance on advertising as a main source of revenue.
Mega funds together added a net $63 million in Q4 to their $508 million prior quarter position in the company, and taken together mega funds hold 21.9% of the outstanding shares. The top buyers were Janus Capital Management ($70 million) and T Rowe Price ($33 million), and the top holders were Morgan Stanley ($175 million), Janus Capital Management ($167 million), and T Rowe Price ($141 million).
YOKU shares have retreated almost a third from the $32.75 high they hit on the afternoon following its March 12th announcement of a definitive agreement to combine with rival Tudou Holdings (TUDO), an online video company in China that allows users to upload, share, watch, rate and comment on videos, in a 100% stock-for-stock transaction. The retreat maybe accounting for the Q4 miss that it announced on the same day as the merger, but that was over-shadowed by the excitement around the merger news.
The merger of rivals YOKU and TUDO is being heralded as a game changer for the Chinese online video market, with Beijing-based research firm T.H. Capital predicting that the deal would change it from a content-centric to a distribution-centric market, so that eventually content providers may have to pay for distribution. Moreover, post-merger, the new YOKU will strengthen its leadership, gaining the dominant market share, and well ahead of peers Sohu.com (SOHU), a leading Chinese internet portal, and Baidu Inc. (BIDU), a leading Chinese provider of internet search, targeted online advertising and other internet content services. YOKU shares currently trade at 3.9 P/B and at 18.5 PSR versus averages of 1.7 and 3.3 for its peers in the internet content group.
Mercadolibre Inc. (MELI): MELI is marketplace services provider in Latin America. Mega funds together added a net $153 million in Q4 to their $1.11 billion prior quarter position, and taken together mega funds hold 29.3% of the outstanding shares. The top buyer was Morgan Stanley ($141 million), and the top holders were Fidelity Investments ($271 million), Morgan Stanley ($214 million), and Wells Fargo & Co. ($212 million). MELI shares currently trade at 32-33 forward P/E and 19.7 P/B, while earnings are expected to grow at a strong 32.1% annual rate from $1.73 in 2011 to $3.02 in 2013.
Mega funds based on their Q4 trading activity indicated that they are bearish on the following e-Commerce group companies (see Table):
- Amazon.com Inc. (AMZN), a leading online retailer in North America and internationally, in which mega funds together cut a net $1.27 billion from their $34.45 billion prior quarter position;
- Priceline.com Inc. (PCLN), a pioneer of name-your-own price service, and a diversified online travel services company providing airline ticket, hotel room, car rental, vacation package, and cruise services through Priceline.com, in which mega funds together cut a net $904 million from their $16.74 billion prior quarter position;
- Express Scripts Inc. (ESRX), a provider of pharmacy benefit management services to managed care organizations, employers, insurers and administrators. in which mega funds together cut a net $33 million from their $12.38 billion prior quarter position;
- online travel services booking company Expedia Inc. (EXPE), in which mega funds together cut a net $963 million from their $2.23 billion prior quarter position;
- Liberty Interactive Corp. (LINTA), a holding company engaged in a broad range of electronic retailing, media, communications and entertainment businesses and investments, in which mega funds together cut a net $37 million from their $3.62 billion prior quarter position; and
- E-commerce China Dangdang (DANG), a Chinese online retailer offering books and other media, personal care and general merchandise via Dangdang.com, also often called the Amazon of China, in which mega funds together cut a net $17 million from their $28 million prior quarter position.
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