The Global X Funds Social Media Index ETF (SOCL) has done a round-trip this year, rising by over 20% in Q1 in anticipation of the Facebook (FB) IPO, and subsequently falling over disappointment and in sympathy with the botched Facebook IPO. In an article prior to the Facebook IPO, we warned about over-exuberance in the social media sector, and feel vindicated given the dismal performance of the sector since March.
In this article, via an analysis based on the latest available Q1 institutional 13-F filings, we identify the social media companies that are being accumulated and those being distributed by the world's largest fund managers. These mega fund managers, such as Fidelity Investments, Goldman Sachs, BlackRock Inc., Vanguard Group, and 22 others, manage between $100 billion and over $1 trillion each, and together control about 40% of the assets invested in the U.S. equity markets.
Together, these mega fund managers are bearish on the social media group, cutting a net $1.43 billion in Q1 from their $67.00 billion prior quarter position in the group. However, taking out Google (GOOG), mega funds actually added $993 million to their $9.24 billion prior quarter position in the group. Furthermore, overall ex-GOOG, they are under-weight in the group by a factor of 0.35; that is, taken together, the 25 mega funds have invested 0.14% of their assets in the social media group (ex-GOOG), significantly less than the 0.38% weighting of the social media group (ex-GOOG) in the overall market (for more general information on these mega funds, please look at the end of the article).
The following are social media companies that these mega fund managers are most bullish about (see Table):
Zynga Inc (ZNGA): ZNGA develops, markets and operates online social games, making them available worldwide on various platforms, including Facebook , MySpace and Yahoo (YHOO), as well as the iPad, iPhone and Android devices. Mega funds together added a net 93.38 million shares in Q1 to their 0.45 million share prior quarter position in the company, and taken together mega funds held $490 million or 12.8% of the outstanding shares.
The top buyer was Morgan Stanley, with $186 billion in 13-F assets, that purchased 32.85 million shares. Other large mega fund purchasers included Los Angeles-based Capital Research Global Investors (16.52 million shares), with over $240 billion in 13-F assets, Denver, CO-based mutual fund powerhouse Janus Capital Management (12.51 million shares), with over $96 billion in 13-F assets, and T Rowe Price Associates (12.24 million shares), with $520 billion in assets under management.
In its latest Q1 (March), ZNGA beat analyst revenue and earnings estimates (6c v/s 5c), and guided FY 2012 EPS in-line. Its shares, already weak prior to the report, have dropped even more steeply following the report, mostly in tandem with the decline in FB shares, as it derives most of its revenue from FB. At its current sub-$5 price, ZNGA shares look particularly attractive, trading now at 13-14 forward P/E and 2.1 P/B, while earnings are projected to grow at a strong 41.4% annual rate from 2011 to 2013.
With shares trading at near all-time lows, a cadre of brokers have come out in support of the stock recently, with the most notable being Morgan Stanley, JP Morgan, Robert W. Baird, Stifel Nicolaus, Piper Jaffray, and Lazard, among others. Overall, Wall Street analysts are also bullish on the stock, with a mean price target of almost $12, more than twice current prices in the sub-$5 range.
Other social media companies that mega fund managers are bullish about include:
- LinkedIn Corp. (LNKD), that operates an online professional network via its proprietary social networking platform, in which mega funds together added a net 5.24 million shares to their 16.56 million share prior quarter position in the company;
- Yandex NV (YNDX), that is a Russian provider of internet search and web content, including news, mail and maps, in which mega funds together added a net 6.49 million shares to their 19.36 million share prior quarter position in the company;
- real estate information marketplace Zillow Inc. (Z), in which mega funds together added a net 1.98 million shares to their 2.71 million share prior quarter position in the company;
- Yelp Inc. (YELP), that operates an online urban city guide enabling users to find restaurants, shopping, nightlife, financial services, health, and other services, based on the informed opinions of a community of locals in the know, in which mega funds together added a new 2.59 million share position in the company;
- Netease Inc. (NTES), a Chinese provider of an interactive online gaming community, internet portal and wireless value-added services, in which mega funds together added a net 0.57 million shares to their 17.22 million share prior quarter position in the company;
- Pandora Media Inc. (P), that is a premier provider of internet radio in the U.S., offering listeners a streaming music based on analysis of user listening behavior, in which mega funds together added a net 2.76 million shares to their 26.43 million share prior quarter position in the company; and
- Youku.com Inc. (YOKU), China's largest video-streaming company, and more popularly known as the YouTube of China, but more a combination of Netflix and YouTube, enabling users to view, share and search user-generated and professional high-quality videos, in which mega funds together added a net 0.63 million shares to their 24.88 million share prior quarter position in the company.
The following are social media companies that mega funds are bearish about (see Table):
- Google Inc., the Internet's premier search engine with an expanding social media presence including video-sharing site YouTube and the new Google+ social networking service, in which mega funds together cut a net 4.13 million shares from their 102.70 million share prior quarter position in the company;
- TripAdvisor Inc. (TRIP), that is an online travel research company, aggregating reviews and opinions of members about destinations and accommodations such as hotels, resorts, restaurants, vacation packages and travel guides, in which mega funds together cut a net 5.95 million shares from their 40.07 million share prior quarter position in the company; and
- Sina Corp. (SINA), the Chinese internet portal offering media content and services for China and global Chinese communities, in which mega funds together cut a net 2.93 million shares from their 14.83 million share prior quarter position in the company.
Furthermore, the following are additional social media companies that are among the top holdings of mega funds in the group (see Table):
- Groupon Inc. (GRPN), a provider of discount deals from local retailers, in which mega funds together hold 100.73 million or 15.7% of the outstanding shares; and
- Renren Inc. (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, in which mega funds together hold 6.18 million or 2.4% of the outstanding shares.
General Methodology and Background Information: The latest available institutional 13-F filings of the largest 25 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.
This article is part of a series on institutional holdings in various industry groups and sectors, and other articles in the series for this and prior quarters can be accessed from our author page.
Disclosure: I am long ZNGA.
Disclaimer: Material presented here is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusion. Further, these are our 'opinions' and we may be wrong. We may have positions in securities mentioned in this article. You should take this into consideration before acting on any advice given in this article. If this makes you uncomfortable, then do not listen to our thoughts and opinions. The contents of this article do not take into consideration your individual investment objectives so consult with your own financial adviser before making an investment decision. Investing includes certain risks including loss of principal.