Why Would a $73 Billion Hedge Fund Company Sell Facebook?

See why you might want to sell it -- or buy it -- yourself.

Mar 12, 2014 at 5:00PM

The latest 13F season is here, when many money managers issue required reports on their holdings. It can be worthwhile to pay attention, as you might get an investment idea or two by seeing what some major investors have been buying and selling.

For example, consider D. E. Shaw & Co. Founded by David E. Shaw, the firm has a reportable stock portfolio totaling $73.3 billion in value as of Dec. 31, 2013. Shaw is known as a math wizard and a quantitative investing pioneer. His firm is extremely selective when hiring, reportedly accepting about one in 500 applicants -- Amazon.com CEO Jeff Bezos once made the cut.

D. E. Shaw's latest 13F report shows that it has reduced its position in Facebook (NASDAQ:FB) by 45%, though the stock remained its 25th-largest holding as of the end of the quarter. It's also notable that Shaw boosted its calls and puts on Facebook, with those options also constituting meaningful portions of its overall portfolio.

Why hold Facebook?
The company is clearly performing well in the eyes of investors, with its market capitalization recently near $180 billion. That's roughly on par with Toyota Motors, ahead of AT&T and Walt Disney, and not too far from the market values of IBM and Pfizer. That's kind of amazing for such a young company. 

Facebook sports an astonishing number of users worldwide -- more than 1 billion. But to justify its valuation, it needs to make money off all those eyeballs. Thus investors have cheered signs of pricing traction and a growing acceptance of the platform as a viable marketing channel. The company's new video ads are promising, too. In Facebook's last quarter, it reported more than half of its advertising revenue coming from the mobile realm. That's heartening, as investors increasingly see the mobile arena as the future of the Internet.

Savvy buys
Many were dumbfounded recently when Facebook spent $19 billion on the small WhatsApp company, but plenty saw logic in it, as WhatsApp specializes in mobile messaging and has a large international base of users.

It's worth remembering that Facebook has raised eyebrows before with its seemingly pricey acquisition of Instagram, which turned out rather well. Instagram has gone from about 15 million users to more than 150 million, and it has captivated lots of young users, many of whom have not been big users of Facebook. Instagram recently inked an advertising deal with Omnicom that some estimate may be worth as much as $100 million.

Many analysts remain bullish on Facebook, with the stock recently trading near $70 per share, recently getting its target upped by Citigroup to $85 and by UBS Securities to $90. Both rate the stock a buy, with Citigroup seeing Facebook as the Internet's best growth story and UBS liking the company's pricing power, among other things. (Its ad prices nearly doubled in the company's fourth quarter.) Interestingly, the stock has surged so quickly in recent months that though the vast majority of analysts have buy ratings on it, their target prices are below its current level. The stock has been a great thwarter of naysayers so far in its short history.

On the other hand...
Keep in mind, though, that past performance is not always indicative of future results. The WhatsApp acquisition is intriguing and exciting, but it might turn out to be an expensive blunder. There are viable substitutes to it, such as Telegram.

It's worth remembering, too, that if you're bullish on Facebook because of the powerful growth of social media, you have other companies to consider, such as Twitter. Many love it for its news and search potential, but others are wary, given declining ad prices.

Another networking giant, albeit one more geared toward the business world, is LinkedIn Corporation (NYSE:LNKD). Some worry about decelerating engagement, but others see robust overall growth and more potential from a move into China. Its recent purchase of Bright, a company with technology that can match employers to job hunters, is promising, too.

Then there's Sina (NASDAQ:SINA). If you like Facebook's prospects because it might eventually grow in China, you might consider Sina, which owns Weibo, an online network that's like both Facebook and Twitter and is already operational and growing in that populous nation. The company is reportedly planning to execute an IPO of Weibo soon. U.S.-based Yelp is another candidate, successfully attracting ad dollars and growing more efficiently.

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Selena Maranjianwhom you can follow on Twitter, owns shares of Amazon.com and LinkedIn. The Motley Fool recommends Amazon.com, Facebook, LinkedIn, Sina, Twitter, Walt Disney, and Yelp. It owns shares of Amazon.com, Citigroup, Facebook, International Business Machines, LinkedIn, Sina, and Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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