Maverick Capital starts new positions 3Q 2013 (Part 3 of 8)
Maverick Capital is a $9 billion long-short equity hedge-fund firm, founded in 1990 by Lee S. Ainslie and Sam Wyly. In 2005, Maverick launched a long-only fund and two market-neutral funds with longer than usual investment lockups. The firm is headquartered in Dallas and has an additional office in New York.
The fund bought new positions in Charter Communication (CHTR), Autodesk Inc (ADSK), Facebook Inc (FB), and Yandex NV (YNDX) in 3Q 2013. It sold its positions in Macy’s Inc. (M), F5 Networks Inc (FFIV), Cognizant Tech Solutions (CTSH), and Mastercard Inc (MA).
Abbreviated financial summaries and metrics for these securities are included below. Detailed analysis and recommendations require a subscription (more information at the bottom of the article).
Why buy Facebook Inc (FB)?
Maverick Capital acquired a 1.28% position in Social networking giant Facebook in 3Q 2013.
The stock has recently hit a high after it was added to Standard & Poor’s 500, considered the best representation of the U.S. stock market and a bellwether for the U.S. economy. It also announced a secondary stock offering of 70 million shares priced at $55.05 a share. It said it intends to use the net proceeds of the offering for working capital and other general corporate purposes.
The company posted robust results in 3Q 2013, with revenue up 60% to $2.02 billion, compared to $1.26 billion in 3Q 2012. Net earnings per share was $0.17 from a loss of $0.02 in the year-ago quarter. It continued to see strong growth in its advertising business, especially mobile advertising. The total ad revenue for 3Q grew 66% year-over-year to $1.8 billion and 49% of its total ad revenue came from mobile. The primary drivers of ad revenue growth were an increase in the number of and the strong performance of newsfeed ads and an increase in
the number of marketers using Facebook and increased demand in its system. Mobile ad revenue also grew sequentially from 41% in 2Q due to an increase in the average price per mobile ad, an increase in the number of mobile users and an increase in ads shown per mobile user.
In terms of key growth drivers, it said the first driver is the continued growth of mobile engagement globally. It said it has benefited from this shift, and that mobile represents 12% of consumer media time, but is only 3% of the ad budget. The second driver of its performance is an increasing number of marketers spending their ad dollars on Facebook. The third driver is product development. It is investing in features like custom audience and partner categories to improve targeted ads. It is also making changes to make it simpler for marketers of all sizes to buy ads and measure their impact.
Its daily active users (DAUs) were 728 million on average for September 2013, an increase of 25% year-over-year. Mobile MAUs were 874 million as of September 30, 2013, an increase of 45% year-over-year. Its monthly active users (MAUs) were 1.19 billion as of September 30, 2013, an increase of 18% year-over-year. Mobile DAUs were 507 million on average for September 2013.
Despite the impressive results, the company provided a cautious outlook. It said it believes that improving the quality and relevance of news feed ads provides it with a big long-term opportunity, and it will not increase the quantity of ads as a percentage of news feed stories, as seen earlier. It also expects payments revenue to decline in 4Q on a year-over-year as it had recognized four months of revenues in the year-ago quarter. Analysts also consider the falling enthusiasm among teens for Facebook as a headwind. Facebook said on its earnings call that although the overall usage of Facebook among U.S. teens was stable in 3Q from 2Q 2013, it did see a decline in daily users specifically among younger teens. The company’s recent efforts of rolling out video advertising is also expected to boost revenue.
The fund practices a long/short equity investment philosophy with a fundamental, bottom-up approach with great emphasis on the quality of management teams. According to hedgefundletters.com, instead of trading bonds, currencies, commodities or options, the fund depends on old-fashioned stock picking to generate profits. It is a pure stock picker hedge fund buying what it reckons will beat the market and selling what it thinks will underperform. Even though the fund picks both long and short positions, it does not deploy pair trades. Its
goal is to preserve and grow its investors’ capital.
Founder Lee Ainslie holds a bachelor’s degree from the University of Virginia and an MBA from the University of North Carolina at Chapel Hill Kenan–Flagler Business School. Before starting Maverick Capital, Ainslie was a managing director at Tiger Management Corporation. Similar to mentor, Julian Robertson, Ainslie tests his conviction by gauging whether the name is a buy or a sell; there is no such thing as a hold. While Ainslie is the leader and face of the firm, he views his management team as peers and values the team culture at Maverick.
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