You may not have realized it, but this past Friday, Aug. 14, was one of the most important days of the third quarter. That's because it marked the filing deadline for Form 13F with the Securities and Exchange Commission.
For those unfamiliar, 13Fs are required for companies with more than $100 million in assets under management. They provide a look under the hood, so to speak, to see what the brightest and most successful minds on Wall Street were up to during the previous quarter. Given the heightened volatility we've witnessed in 2020 due to the coronavirus disease 2019 (COVID-19) pandemic, understanding how top money managers are putting their money to work has certainly been of interest.
With the second quarter featuring the strongest rally for the broad-based S&P 500 since 1998, it's no surprise that we saw some active buying. But what might catch investors off guard is how billionaire money managers simply couldn't stop buying the following four high-growth stocks during the second quarter.
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Social media site Pinterest (PINS 0.43%) is the first stock that billionaire investors simply couldn't stay away from. Larry Fink's BlackRock gobbled up more than 10.1 million shares during the second quarter, with Melvin Capital Management's Gabriel Plotkin initiating a new position of 4.4 million shares. As a whole, all management companies required to file a 13F increased their aggregate ownership in Pinterest by 17.7% from the sequential first quarter.
Why Pinterest? Look no further than the company's stellar user growth. Whereas most social media sites see user growth stall out after a few years, Pinterest has continued to gather steam, especially in international markets. Through June 2020, Pinterest had 416 million monthly active users (MAUs), with 106 million of the 116 million MAUs added over the trailing 12 months located outside the United States. Although international users generate lower average revenue per user (ARPU), there's an incredible long-term growth opportunity from overseas ARPU.
Additionally, Pinterest is a burgeoning e-commerce play. It only makes sense to connect small businesses with users who are literally telling the world about products and services that interest them. By partnering with Shopify, improving accessibility and product lookup, and focusing on video content to boost member engagement, Pinterest appears to have a winning formula that should translate into long-term double-digit growth.
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Innovative Industrial Properties
Surprise! Billionaire money managers also couldn't keep their hands off of marijuana stocks. In particular, cannabis-focused real estate investment trust (REIT) Innovative Industrial Properties (IIPR 0.28%) was quite popular. Steven Cohen's Point72 Asset Management added more than 229,000 shares during the second quarter, with BlackRock tacking on nearly 235,000 shares as well. All told, aggregate ownership from 13F filers was up 22.7% from the sequential first quarter.
Though marijuana should be one of the fastest-growing industries this decade, most pot stocks are undergoing growing pains. That's not the case for Innovative Industrial Properties, which is the most profitable pure-play cannabis stock on a per-share basis. Beyond large upfront costs to buy new cultivation and processing assets, REITs tend to have a low-cost operating model conducive to healthy operating profits and substantive dividend payments.
Innovative Industrial Properties owns 61 properties in 16 states, which is up considerably from the 11 assets it owned at the beginning of 2019. These properties sport a weighted-average lease length of 16.1 years. The company is on track to recoup its invested capital in about six years, based on the company's last reported average return on invested capital of more than 13% during the first quarter. In other words, Innovative Industrial Properties offers consistency in a highly unpredictable space.
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Fastly
Perhaps it comes as no shock that work-from-home cloud darling Fastly (FSLY -1.12%) is another stock that billionaires couldn't stop buying in the second quarter. Jeff Yass' Susquehanna International added close to 256,000 shares of Fastly in Q2, with Ken Griffin's Citadel Advisors scooping up a little over 142,000 shares. In total, share ownership by 13F filers rose by almost 45% from the sequential first quarter.
The interest in Fastly by billionaires makes complete sense. This is a company whose sole purpose is to make content delivery fast and secure. Over the past five months, consumers have had little choice but to avoid crowds and do more of their shopping than ever online due to the pandemic. This growing reliance on e-commerce plays right into Fastly's hands, as it's had little trouble becoming the preferred edge cloud platform for Shopify and Pinterest, among other prominent internet-focused companies.
Fastly is also growing at a lightning-quick pace. The company's latest quarterly report showed 62% year-on-year sales growth with a dollar-based net expansion rate of 137%, up from 133% in the sequential quarter. Not only are existing clients continuing to spend more with Fastly, but total customer count grew at its fastest pace in Q2 since the company's IPO. All signs point to Fastly's growth rate potentially accelerating in the years to come.
Image source: Zoom Video Communications.
Zoom Video Communications
Billionaire money managers also couldn't stop pressing the buy button when it came to cloud-based communications platform Zoom Video Communications (ZM 1.46%). Jim Simons' Renaissance Technologies added close to 4.5 million shares to its existing position during the second quarter, with BlackRock upping its stake by nearly 3.8 million shares. As of June 30, aggregate ownership in Zoom's stock had grown by 30% among 13F filers.
Similar to Fastly, connecting the dots has become really easy with Zoom because of the ongoing pandemic. With the standard office mostly dead for now, work meetings are being conducted virtually. Cloud-based communication, voice, and audio platform Zoom has been a prime beneficiary.
Back in early June, Zoom Video reported its fiscal first-quarter operating results through April 30 and completely obliterated even the most robust Wall Street expectations. The number of customers contributing over $100,000 in trailing-12-month revenue surged 90% year over year, while clients with at least 10 employees grew a cool 354%, signifying a surge in small and medium-sized business use. Total sales were up 169% from the prior-year period, with free cash flow catapulting to $251.7 million from $15.3 million in the prior-year period.
Zoom is crushing it, and billionaires are rightly riding its coattails.
