The large bulk of e-commerce is business-to-business (B2B), with the more commonly recognized business-to-consumer (B2C) segment accounting for just about a tenth of the overall total. While only a small share of retail and service activity occurs online, with online retail sales accounting for 4.9% of total retail sales in Q1, their share of the overall pie keeps rising every year. This trend is expected to accelerate worldwide with the growing popularity of smartphones and apps that make it easy to comparison shop and get "social" opinions and reviews.
For those wishing to take advantage of this trend, we present here our analysis of the investments of 25 of the world's largest or mega fund managers in the e-commerce group (our prior-quarter analysis can be found here). These mega fund managers together account for almost 40% of the assets invested in the U.S. equity markets and manage between $100 billion and over $1 trillion each. Also, together, they are bullish on the e-commerce group, adding a net $660 million in Q1 to their $99.13 billion prior-quarter position in the group.
Among well-known e-commerce companies, Expedia Inc. (EXPE) is the favorite pick among the world's largest or mega fund managers. It is one of the largest online travel companies in the world, and provides travel products and services to leisure and corporate travelers, offline retail travel agents, and travel service providers. Mega funds together added a net 9.52 million shares (or $443 million) in Q1 to their 42.83 million share prior-quarter position in the company, and taken together mega funds held $2.43 billion or 41.2% of the outstanding shares.
The top buyer was JPMorgan Chase, with $1.4 trillion in assets under management, which purchased 5.53 million shares. Other large mega fund purchasers included Los Angeles-based Capital World Investors (1.73 million shares), with over $294 billion in 13-F assets, and the world's largest and most prominent asset manager, BlackRock (1.13 million shares), with over $3.5 trillion in assets under management. Overall, institutional investors loaded up heavily on EXPE in Q1, adding 16.8 million shares to their 102.5 million share prior-quarter position.
In its latest Q1 (March), EXPE delivered blow-out results, handily beating analyst revenue and earnings estimates (26 cents vs. 16 cents), driven by worldwide travel demand that continues unabated despite the macroeconomic backdrop, as well as a gradual shift to online purchasing for travel services. The stock gapped up strongly after the report, and has since continued higher, up over 60% YTD, and trading at a 14-15 forward P/E compared to the average of 24.3 for its peers in the Internet services group. Earnings, meanwhile, are expected to continue their trajectory higher, rising from $2.75 in 2011 to $3.25 in 2013, at an 8.7% annual rate.
We believe that EXPE is in a multiyear growth trend, and that conditions will be even more favorable once the macroeconomic picture improves, and leads to a resurgence in personal travel spending. However, with the stock up about 50% since the Q1 report, the shares are a little too rich for our taste. As such, we would wait and take advantage of any dips below the $40 range to load up on this mega fund favorite.
Other e-commerce companies that mega fund managers are bullish about include:
- Amazon.com Inc. (AMZN), a leading online retailer in North America and internationally, in which mega funds together added a net 2.17 million shares to their 166.57 million share prior-quarter position in the company;
- 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 added a net 0.38 million shares to their 22.06 million share prior-quarter position in the company;
- 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 added a net 6.98 million shares to their 158.31 million share prior-quarter position in the company; and
- China-based consolidator of hotel accommodations and airline tickets Ctrip.com International Ltd. (CTRP), in which mega funds together added a net 4.94 million shares to their 43.87 million share prior-quarter position in the company.
The following are e-commerce companies that mega funds are bearish about (see the table below):
- Online movie rental subscription services provider Netflix Inc. (NFLX), in which mega funds together cut a net 1.57 million shares from their 22.00 million share prior-quarter position in the company; and
- Travelzoo Inc. (TZOO), which provides online travel offers from airlines, hotels, cruise lines, and vacation packages via Travelzoo.com for the North America and Europe markets, in which mega funds together cut a net 1.31 million shares from their 3.32 million share prior-quarter position in the company.
Furthermore, the following are additional notable holdings of mega funds in the e-commerce group:
- 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;
- 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 hold 25.51 million or 32.6% of the outstanding shares;
- 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 hold 0.90 million or 1.1% of the outstanding shares; and
- Mercadolibre Inc. (MELI), that is a marketplace services provider in Latin America, in which mega funds together hold 12.47 million or 28.2% 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 1% 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 or her 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 have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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.