What We're Reading ~ Analytical Links 3/13/13

The truth about market timing [The Big Picture]

Here's what happens when rates rise [Reformed Broker]

7 big questions to help you invest better [Fool]

Advice from a contrarian: when running with the herd, it's easy to trip [Globe & Mail]

The paper world of Brookfield Asset Management (BAM) [SIRF]

Greed is Groupon (GRPN): can anyone save the company from itself? [Verge]

NYSE Net Margin debt: most important chart of last six years [Aviate Global]

Nu skin (NUS): ladders, losers and direct-marketing schemes [Caixin Online]

No Kodak moment for Hewlett Packard (HPQ) [II]

Sidetracked: why our decisions get derailed [Simoleon Sense]

In spinoffs, a time to jettison undesirable liabilities [NYTimes]

A pitch on Northbridge Industrial Services (NBI.L) [Octomore]

Gold is the worst investment of 2013 [Quartz]

Quantitative easing: the greatest con ever sold [Minyanville]

7 investment principles for entrepreneurs [Inc]

Offshore cash hoard expands by $183 billion at companies [Bloomberg]

Amazing shift in US fuel consumption trajectory [FT Alphaville]

Tiger Global Reveals New Groupon (GRPN) Stake

Chase Coleman's hedge fund firm Tiger Global Management has revealed a new position in Groupon (GRPN).  Per a 13G filed with the SEC yesterday after market close, Tiger Global has disclosed a 9.9% ownership stake in the company with 65 million shares.

According to Tiger Global's most recent 13F filing, the firm actually started their position in the third quarter as they owned 1.3 million shares as of the end of September.  However, they've obviously ramped their stake up considerably since then.  The 13G disclosure was filed due to portfolio activity on November 9th.


Groupon's Struggles

Shares of Groupon (GRPN) have been targeted by short sellers ever since its IPO as the company has struggled to gain footing.  Shares are down 87% since it came public.  And, with good reason.

The company originally started out in the "daily deals" space offering consumers deals on various products and services in local areas (an industry that has practically no barriers to entry).  Amazon.com invested in fellow-daily-deal-site LivingSocial and recently had to write off $169 million of their $175 million investment.

Groupon has amassed a large audience, but as the company has matured, they've flailed around with other ideas, trying to grasp on to a business model.

For instance, Groupon also entered the highly competitive payments industry when it launched 'Breadcrumb,' a point-of-sale system targeted at restaurants to allow them to run their business smoother.

They also expanded with "Groupon Goods" where they acquire physical items, hold the inventory, etc.  This segment has boosted revenues, but not necessarily profits.

Additionally, the company recently opened a physical concept store in Hong Kong as it attempts to provide a place for customers to buy and redeem products.

Some investors have called for founder & CEO Andrew Mason to step down.  Short sellers, on the other hand, love him as he doesn't seem to care about profitability.  Insiders currently own just under 56% of the company.


Why Buy Groupon Now?

The main question here is why is Tiger Global buying now?  Did it finally become too cheap?  As of the end of September, the company had $1.2 billion in cash and a market cap of only $2.2 billion.  Keep in mind that Google once offered $6 billion for Groupon a long time ago.

But as MicroFundy pointed out recently (his whole piece is worth reading), if you focus on the details, Groupon has $1.2b in cash and equivalents, but "$573m of that is owed to merchants and another $245m is set aside for things like refunds & subscriber awards.  All in all, when you look at the company's balance sheet, their current assets only exceed their current liabilities by a little more than $300M (or .47 per share)."

Tiger Global is known for making savvy internet investments (buying a stake in Facebook back when it was private being their most notable).  Perhaps they see GRPN as cheap?  Perhaps it's a potential takeover target?  Who knows, this is all speculation on our part.


A Few Other Hedgies Bought GRPN Too

John Thaler's hedge fund JAT Capital also purchased shares of GRPN in the third quarter.  According to their most recent 13F filed with the SEC, JAT bought over 9.4 million shares.

Even if JAT managed to buy GRPN at its lowest point in the third quarter (and assuming they still own it), they're still down on this position.  The news of Tiger's entrance, though, has boosted shares over 9% today.

Soros Fund Management also disclosed a position in GRPN in their Q3 13F filing: 2.5 million shares.  While these funds owned GRPN as of September 30th, there's no way to know if they still do.

There's also no way to know exactly how many hedge funds are short the stock since they're not required to disclose this.  However, in our conversations with various portfolio managers, there have been quite a few shorts in this name for some time.  And looking at Groupon's short interest, it appears as though 36 million shares were short as of October 31st, with that number peaking at 55 million back in July of this year.  

So as shares of Groupon have slid continuously, will Tiger Global's new big stake stop the bleeding?  It has, at least for today.  What happens in the future remains to be seen.

Why do you think Coleman bought GRPN?  Let us know in the comments.

Coatue Management's Philippe Laffont on Facebook, Apple, Equinix, Virgin Media & His Portfolio

Coatue Management's hedge fund founder Philippe Laffont gave his first-ever interview to Bloomberg Television yesterday and talked about Facebook (FB), Apple (AAPL), Equinix (EQIX), Virgin Media (VMED) and his portfolio in general.


On Facebook's IPO (FB)

"It is clearly an incredible company and it also has an incredible management team. One of the things to respect about Mark [Zuckerberg] is that he has surrounded himself with great executives. The tough part about an investment is you are looking for good businesses, good management team, but it is different if you buy a stock at 30 or at 100." 

"I would like to get as many shares as possible. That's what probably everyone wants to do.  I'm sure the stock is incredibly oversubscribed. The real decision is what will happen.  We have lots of previous examples (of risks), both in the year 2000, 1999, but even as recently as LinkedIn. LinkedIn had a small float. The stock started at a low IPO price. The stock moved all the way up, came all the way back down, and in a few months later it's back to where it started. It is possible the same happens to Facebook. I do not know.  It is a great business. Not only do they have the potential to grow their advertising a lot, but in addition they are making money with mobile games. They have a lot of new potential growth products."


On Apple (AAPL)

"[We invested in Apple] 2003. When we got involved with Apple, the stock was at $10. We did not get involved until maybe it was at $100. We missed the whole iPod. When the iPhone came in, we thought it would be a repeat of the iPod. Today you still have the iPhone 5 coming out, which I think will be an incredible product and then potentially Apple TV. This is an amazing company. They have so much growth going on. They represent 5-10% of the market and they can get a much bigger market share."


On His Concentrated Portfolio

"Concentration is a problem over the short-run, but it sort of goes away over the long run. We try to invest over the long-run and are willing to take the volatility. The less concentrated you are, the more your returns will look like the S&P or the Nasdaq. If you want to try to outperform, you have to focus on your best ideas. it is something we transmitted to investors from day one. They understand the risk. It puts a premium on being right."


On Equinix (EQIX)

"We pitched it at the Ira Sohn conference yesterday Equinix. It's a great story.  Basically, if I am Bloomberg, I want to get my news feeds from the NASDAQ and the New York Stock Exchange very close to me so I have the prices immediately.  By putting my servers right next to them, I can get those prices and send them out to all of my customers. Bloomberg needs to have their servers right next to the servers of these other companies, and that is what Equinix allows you to do." 

"I think the demand for the internet will continue to grow. We are in the early innings.  The company is growing 25-30% revenues and EBITDA. It should continue to do that…We started buying it years ago really and have just been adding on to the position. I think right now we might be the largest shareholder of the company."

MarketFolly note: What's interesting here is how Laffont mentions "we started buying it years ago really and have just been adding on to the position."  However, EQIX has only just now shown up as a 'new' position for them in the first quarter of 2012.  They did not disclose owning a stake in the fourth quarter of 2011.  

So, we searched through their previous 13F's filed with the SEC.  Going back a few years, we found that the last time they disclosed owning a stake in Equinix was in the first & second quarters of 2010.  EQIX then disappeared from their filings in the third quarter of 2010 as they apparently sold the stake.  And it hasn't shown back up in their 13F's. Until now.  

As such, Laffont's statement is a bit puzzling as his filings show they just re-entered the position.  The reason we bring this up is because there's a big difference between buying a position "years ago" versus establishing an entire stake in the first quarter.  

Maybe he simply meant to say that they've been involved in the name in the past and have recently acquired it again.  We've asked Coatue for clarification and will update if there's a response.


On Virgin Media (VMED)

"Virgin Media, whereas Equinix solves the problem at the core, Virgin Media solves the problem at the edge. Right now wifi enables many people to share the internet together in a household. Virgin Media has that pipe from the home back to the core back to Equinix.  It's the fastest pipe out there and with HD streaming and online games, you just need to have this fast pipe."


Coatue's Current Exposure

"Right now we have a conservative exposure to the market. It's sort of hard to dissociate. We have great equity valuations in the U.S. in some of the big tech names. But I can't ignore what is going on in Europe and China and elsewhere. I would say we are reasonably conservatively positioned.  It would be done though a combination that just in the way that we're looking for winners, we are also looking for losers, and we're hoping that our portfolio of winners and losers balances itself out. We also have some options of tail risk protection."



Embedded below is the video from Bloomberg TV's interview with Laffont:




For more from this manager, be sure to check out Laffont's presentation from Ira Sohn Conference two days ago.