In the last quarter hedge fund manager Glen Kacher’s Light Street Capital Management fund upped its holding in controversial automaker Tesla Inc (NASDAQ:TSLA), but cut back its exposure to Amazon.com, Inc.(NASDAQ:AMZN) and Facebook Inc (NASDAQ:FB), 13F forms filed with the SEC reveal. The $781.8 million fund focuses on the tech, media and telecom (TMT) sector – the very areas in which Kacher specialized prior to founding the fund in 2010.
Kacher has an impressive background in the hedge fund industry. He gained an MBA from Stanford University while working at Julian Robertson’s legendary Tiger Fund- giving him the “Tiger Cub” nickname i.e. one of the top Tiger Fund traders who went on to found their own successful funds such as Lee Ainslie, Philippe Laffont and Steve Mandel. Kacher is also known for his 13 years as managing director at venture capital firm Integral Capital Partners. While at Integral, he led successful investments including in Agile Software (acquired by Oracle), Arcsight (acquired by HP), BlueNile (IPO) and OpenTable (IPO).
From these experiences, he founded Light Street Capital- a global, fundamentally driven, long/short equity fund based in Silicon Valley. Light Street tries to identify technological innovations that could lead to significant secular change and specifically researches disruptive product cycles. How does it do this? Part of Light Street’s methods include keeping in close contact with industry innovators, founders and thought leaders as well as venture capitalists and industry veterans. A more top down analysis then reveals the business, management and financial standing of a potential investment.
Now let’s see how this strategy played out in Q4 by looking at three of the fund’s key moves:
Kacher ramped up the fund’s Tesla exposure by a whopping 313%. The fund now holds 165,000 shares in Tesla worth $35.25 million. In fact, Tesla shares now make up close to 5% of the fund’s total portfolio, making one of the fund’s 10 biggest stocks. If we consider the fund’s strategy this is not a surprising move. Tesla has set out to disrupt the traditional auto industry both in terms of its vehicles (like the Model 3 due for limited production in July) and its business strategy (cutting out car dealers).
And now it looks like this plan might actually be working for Tesla- with share prices at $298 Tesla has a market cap at over $47.8 billion, easily surpassing Ford’s $45.2 billion. Shares rose by 6% on April 3 following the news that Tesla delivered just over 25,000 vehicles in Q1- a 69% leap since the previous quarter. Tesla delivered 13,450 Model S and 11,550 Model X vehicles. It also set itself a new production record with 25,418 vehicles produced in Q1.
Morgan Stanley’s Adam Jonas had four thoughts on the stock following the news: 1) Tesla is ‘underselling’ the safety features of the upcoming Model 3 sedan which appears to have as many as 19 sensors according to an Autopilot update image; 2) safety will be the primary differentiator for the Model 3 both for consumers and for the possibility of reduced insurance premiums 3) Tesla’s luxury SUV Model X drove the surprising results; and 4) Morgan Stanley had not expected a single quarter of 2017 to surpass 25,000 units including Q4 (when the Model 3 will start deliveries).
Jonas has a buy rating on Tesla with a $305 price target (2% upside from the current price). TipRanks reveals that Jonas is a top-rated analyst with a success rate of 54% and an average return per recommendation of 11.1%. The analyst consensus rating on TipRanks for Tesla is hold with 4 buy, 5 hold and 5 sell ratings published on the stock in the last three months.
In contrast to the fund’s Tesla move, Kacher trimmed Light Capital’s Amazon holding by 7% to 75,000 shares worth $56 million. Following the cut the stock still remains the fund’s third biggest stock at close to 8% of the total portfolio.
Ecommerce giant Amazon has just announced that it is expanding its successful cloud business Amazon Web Services (AWS) with the launch of Amazon Connect, a cloud contact center service. Virtual cloud-based call centers can be set up very quickly and operate faster and more efficiently than traditional brick-and-mortar options. With no upfront payments required, customers benefit from a pay-as-you-go model based on phone number type and country. Amazon Connect will now be competing with names like Salesforce, Oracle and SAP for a share of the customer service industry- but Connect has the advantage of incorporating AWS functionalities including Amzon Kinesis for metrics data and Amazon QuickSight for data analytics and graphics.
The market as a whole is very bullish on Amazon with 29 out of 30 analysts publishing buy ratings on the stock over the last three months. TipRanks calculates the average analyst price target as $967- an 8% upside from the current share price of $898. Only today, five-star BMO Capital analyst Keith Bachman published a record breaking price target of $1,200 for the stock.
Kacher sliced the fund’s holding of the social media giant by 16% to 235,000 shares worth $27 million (3.7% of the portfolio). Barclays’ top analyst Ross Sandler has just initiated coverage of Facebook with a buy rating and $154 price target (9% upside). The 4-star analyst has a 61% success rate and 6.9% average return according to TipRanks. He is bullish on the stock’s fundamentals calling Facebook the “best pure play in consumer internet” in terms of mobile advertising. Sandler believes that Facebook will benefit from the “golden era” of mobiles with serious advertising budgets allocated to the space for at least the next 3-5 years. In particular, he sees “ample growth” for FB and photo app Instagram with Messenger and WhatsApp adding $11 billion to FB’s revenue by 2020.
However, Sandler adds a cautious note when he acknowledges the risk to Facebook of users deserting the social media platform when a new, more exciting social media option- be it Snapchat or something else- comes along. He also points out that core newsfeed adds are no longer in their easy ramp-up phase and consequently operating margins are likely to decline as with Google in the mid-2000s.
Overall, the market sees Facebook as a strong buy opportunity with TipRanks showing that the average analyst price target of $161 is a 14% upside from the current share price.