One the most underrated tools at the disposal of investors is Form 13F. This is a required quarterly filing with the Securities and Exchange Commission for institutional investors and hedge funds with over $100 million in assets under management.
In simple terms, a 13F allows Wall Street and Main Street to see what, exactly, the brightest investing minds were up to during the previous quarter. Even though 13Fs have their limitations (e.g., the data is, at minimum, 45 days old), these portfolio snapshots are exceptionally useful in helping professional and lay investors identify trends.
One big trend that's stood out for multiple quarters is billionaires' love for cloud stocks. Whether it's infrastructure, platform, or service-based cloud companies, institutional investors and hedge funds can't seem to get enough.
During the fourth quarter, billionaires couldn't stop buying the following four cloud stocks.
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Snowflake
Perhaps it's no surprise at all that hottest cloud IPO of 2020 has been attracting successful investors in droves. Aggregate ownership by 13F filers in cloud data warehousing company Snowflake (SNOW +2.66%) rose by 14.1% in the fourth quarter from the sequential third quarter, with Jeff Yass' Susquehanna International and Chase Coleman's Tiger Global Management each buying in the neighborhood of 504,000 shares.
Why Snowflake? For one, the company's operating model is unique. Its platform is layered atop the most popular cloud infrastructure services, which allows users to seamlessly share data, even if they're on competing clouds (e.g., S3 and Azure). Snowflake also shuns the popular subscription model in favor of a pay-as-you-go model. Snowflake's clients pay based on the storage and Snowflake Compute Credits they use. This makes for a more transparent pricing model that can save businesses of all sizes money.
Billionaires also seem to like Snowflake's exceptionally high growth rate. After reporting $592 million in full-year sales for fiscal 2021, Wall Street is expecting revenue to catapult to $2.8 billion by 2024. In other words, Snowflake's price-to-sales ratio, which topped 100 last year, could be down to a multiple of roughly 18 in three years.
It's far from a value stock, but it's got institutional investors' attention.
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Datadog
Another cloud stock garnering plenty of attention from billionaire money managers is application monitoring and security company Datadog (DDOG +2.50%). During the fourth quarter, 13F filers increased their aggregate holdings in the company by almost 18%. As for billionaires, Larry Fink's BlackRock added just over 2 million shares, while Israel Englander's Millennium Management scooped up around 410,000 shares.
The pandemic completely disrupted the traditional workplace, which coerced businesses big and small to create an online presence, push into the cloud, and get comfortable with remote work environments. Although this shift was underway before the coronavirus pandemic, it was the shot in the arm needed to really crank up demand for Datadog's application performance and monitoring solutions. After all, these solutions help its clients better understand user behavior, as well as stay on top of key business metrics.
Datadog has been particularly successful in courting larger clients. It ended 2020 with 97 customers that were generating at least $1 million in annual recurring revenue (ARR). That's up from 50 customers with $1 million in ARR at the end 2019.
Between organic growth opportunities and leaning on bolt-on acquisitions to expand its service offerings, Datadog should remain a favorite among successful money managers.
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CrowdStrike Holdings
Premier cybersecurity stock CrowdStrike Holdings (CRWD +4.55%) has also been fancied by billionaires. Though aggregate ownership by 13F filers rose by a relatively pedestrian 7.6% in the fourth quarter from the sequential third quarter, BlackRock added over 2 million shares, and Gabe Plotkin's Melvin Capital Management opened a 750,000-share position.
What makes CrowdStrike so special is the company's cloud-native security platform known as Falcon. Falcon oversees more than 5 trillion (with a 't') signals each week and leans on artificial intelligence to continually grow smarter at identifying and responding to threats. Since it was built in the cloud, Falcon's response time and overall cost are almost always superior to on-premises data protection.
Similar to Datadog, the proof is in the pudding that enterprises are in love with the product. CrowdStrike ended the January quarter with 63% of its customers having purchased at least four cloud module subscriptions. That's up from just 9% of its customers in under four years.
Furthermore, customer retention was 98% throughout fiscal 2021, with aggregate customer count up 82%. In short, CrowdStrike is having no issue scaling with its fast-growing clients, and it's bringing in a boatload of new customers each year.
CrowdStrike may well be the best name to own in the cybersecurity space.
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Zoom Video Communications
The fourth and final cloud stock billionaires can't get enough of is Zoom Video Communications (ZM +1.52%). Aggregate ownership by 13F filers in Zoom only rose by a little over 3% during the fourth quarter. However, this doesn't stop Blackrock, Susquehanna, or Ken Griffin's Citadel Advisors from buying 1.8 million, 1.19 million, and roughly 714,000 shares, respectively.
Zoom was a clear and obvious beneficiary of the pandemic. When offices closed, businesses big and small began turning to Zoom's leading cloud-based Web conferencing platform to stay in touch and move projects along. The $2.65 billion the company generated in full-year sales was almost three times what the company had originally forecast for sales in fiscal 2021 (i.e., before the pandemic hit).
This is a company whose conferencing solutions are unrivaled. As of April 2020, it had more than a 42% share of U.S. web conferencing. For context, that was about 24 percentage points higher than its next-closest peer. Even with an aggressive vaccination campaign underway in the U.S., Zoom isn't going away when things normalize. We've witnessed a somewhat permanent shift in how businesses operate, and Zoom's solutions can make companies more efficient.
According to Wall Street's consensus estimates, Zoom has the potential to nearly quadruple its sales to north of $10 billion over the next four years. If this figure proves accurate, shares of the company are still a bargain.
