November has been busy for Wall Street and investors. The first half of the month was spent digesting the outcome of the U.S. election, with coronavirus disease 2019 (COVID-19) vaccine results dominating the conversation over the past two weeks. There have been so many headlines that it's been easy to overlook important news or events.
Monday, Nov. 16, was arguably the most important day of the month for the investing community. That's when investment firms with more than $100 million in assets under management were required to file Form 13F with the Securities and Exchange Commission. In simple terms, 13Fs provide an under-the-hood look at what the brightest money managers have been up to in the most recent quarter.
This 13F round showed that billionaire money managers remain very much captivated by growth stocks. Here are four that billionaires can't stop buying.
Image source: Getty Images.
Datadog
Software-as-a-service (SaaS) stock Datadog (DDOG 3.58%) saw 13F filers and billionaires pile in for the ride. Aggregate ownership among 13F filers increased by more than 11 million shares (8.8%) from the sequential quarter, with Gabe Plotkin's Melvin Capital Management opening a 2.88-million-share position and Larry Fink's BlackRock adding over 3 million shares to its existing stake.
Why the love for SaaS stocks like Datadog? The answer boils down to post-pandemic changes. With consumers shopping online and many businesses operating remotely, the reliance on cloud-based applications, especially when it comes to sharing and overseeing data, has grown exponentially.
Datadog, which provides cloud-based application monitoring services, delivered 61% sales growth in the third quarter, and more importantly had over 1,100 customers generating $100,000 or more in annual recurring revenue. Datadog's solutions are resonating with growing businesses, pushing the company firmly into the adjusted profitability column.
Datadog is pricey, but looks to be well worth the premium billionaires are paying.
Image source: Pinterest.
The social media space may be competitive, but up-and-comer Pinterest (PINS 0.89%) has certainly caught the attention of billionaire money managers. By the end of the third quarter, 13F filers had added almost 40 million shares from Q2 2020, with Melvin Capital tacking on 7.62 million shares to an existing position and Dan Loeb's Third Point initiating a 3.58-million-share stake.
What continues to stand out about Pinterest is the company's ability to tack on new monthly active users (MAU). Whereas most social platforms eventually run into a user growth wall, Pinterest was growing its MAUs at a 30% clip prior to the pandemic, and an even more robust rate with folks stuck in their homes. While a majority of these new users are from international markets and therefore generate much lower average revenue per user when compared to U.S. MAUs, these overseas pinners are the company's key to sustainable double-digit growth.
The Pinterest growth story is also about its emergence as a budding e-commerce play. Since pinners are willingly sharing the products, places, and services they like, Pinterest can provide small businesses with precise audience targeting. It's simply up to Pinterest to keep its user base engaged and growing.
Image source: Getty Images.
Innovative Industrial Properties
Perhaps surprisingly, billionaires are also attracted to the ongoing cannabis revolution in the U.S. Although marijuana-focused real estate investment trust (REIT) Innovative Industrial Properties (IIPR 2.21%) only saw its aggregate ownership by 13F filers increase by 2% (about 360,000 shares) in the third quarter, BlackRock upped its stake by 573,754 shares to 3.56 million. Jim Simons' Renaissance Technologies also initiated a 72,000-share position.
Most money managers aren't comfortable buying over-the-counter-listed stocks -- which is where you'll find many U.S. marijuana stocks. Innovative Industrial Properties, which is listed on the NYSE, offers a solution for those who want an ancillary presence in the industry. Ongoing acquisitions, coupled with modest organic growth via rental increases and management fees, have allowed IIP to grow like a weed while offering highly transparent and predictable cash flow.
It's unlikely that we'll see marijuana legalized at the federal level anytime soon, which includes cannabis banking reform. That's important, because IIP's sale-leaseback agreements have been driving growth for the company. With limited access to basic banking services, multistate operators (MSO) have turned to IIP for help. IIP acquires cultivation and processing assets for cash, and immediately leases these properties back to the seller for 10 or 20 years. It's a win-win for all involved.
Image source: Getty Images.
Snowflake
Rounding out the list of growth stocks is cloud data warehousing company Snowflake (SNOW 2.69%), which only made its public debut in September. In aggregate, 13F filers scooped up almost 66 million shares before the end of the third quarter, with Warren Buffett's Berkshire Hathaway adding a little over 6.1 million shares and Philippe Laffont's Coatue Management buying more than 4 million shares.
Snowflake isn't your traditional cloud services provider that leans on subscriptions to drive growth. Rather, Snowflake's operating model is based on usage. The more data stored, and the more Snowflake Compute Credits used, the higher the charge to its customers. This pay-as-you-go model is exceptionally transparent, and has apparently been well-received by its customers.
Furthermore, since Snowflake is built atop other cloud infrastructure services, such as S3 and Azure, it works around one of the biggest issues at the infrastructure level: sharing information. Competing infrastructure services make this difficult, but Snowflake's software breaks this barrier by incorporating S3, Azure, and other platforms.
Billionaires buying into Snowflake are counting on high double-digit growth for years to come, and they're paying one heck of a premium for this performance: 67 times next year's sales. If you ask me, it's perhaps a bit too aggressive a premium to pay.
