In case you missed it, one of the most important data releases of the quarter occurred last week -- and it had nothing to do with inflation or the Federal Reserve.
Feb. 15 marked the filing deadline for fund managers with over $100 million in assets under management to file Form 13F with the Securities and Exchange Commission. A 13F provides a snapshot of what the brightest minds on Wall Street have been buying and selling in the most recent quarter (in this instance, the fourth quarter). Even though 13Fs have their drawbacks (they provide a 45-day-old snapshot of a fund's holdings), they can still cue Wall Street and investors into story stocks and trends that the most successful money managers are eyeing.
The one trend that was undeniable with the latest round of 13F filings was billionaire money managers' love of growth stocks. In fact, billionaires couldn't stop buying the following four growth stocks in Q4.
The first growth stock billionaire investors bought hand over fist in the fourth quarter is payment processing giant Visa (V -0.65%). Philippe Laffont's Coatue Management and Viking Global Investors' Ole Andreas Halvorsen respectively added 2.25 million shares and 1.33 million shares.
Investors' love for Visa effectively boils down to its market share dominance in the U.S., long runway for global expansion, and cyclical ties.
As for the former, Visa controlled 53% of all credit card network purchase volume in the U.S. in 2018. The U.S. is the leading market for consumption in the world, and Visa was the only payment processor to significantly expand its market share domestically following the Great Recession -- a nine-percentage-point increase in nine years (2009-2018).
However, a vast majority of global transactions are still being conducted with cash. This is especially true in underbanked emerging-market regions, such as Africa, the Middle East, and Southeastern Asia. Visa has a multidecade opportunity to expand its reach organically, and via acquisition (such as the purchase of Visa Europe in 2016), to reach new merchants.
Visa also benefits from its cyclical ties. In other words, it does well when the U.S. and global economy are growing, and it struggles a bit when recessions materialize and consumers/businesses spend less. Thankfully, periods of expansion last for years, whereas recessions usually stick around for a few months or a couple of quarters. Since Visa solely acts as a payment processor and not a lender, it's able to quickly bounce back from economic downturns and take advantage of long periods of expansion.
Billionaire money managers also couldn't get enough of cloud-data warehousing company Snowflake (SNOW 0.45%) in the fourth quarter. Stephen Mandel's Lone Pine Capital and Chase Coleman's Tiger Global Management respectively bought close to 1.65 million shares and nearly 849,000 shares.
Snowflake's popularity among successful investors has a lot to do with its competitive advantages and differentiation within the cloud space, as well as its superior growth rate.
For instance, Snowflake's cloud infrastructure is built atop many of the most popular cloud services. Generally speaking, it can be very difficult for companies or individuals to share cloud-stored data if they're not using the same cloud infrastructure service provider. Snowflake makes this data sharing seamless for its users.
The company isn't big on the subscription-driven model, either. Whereas most cloud-oriented companies seek to lock their clients into recurring subscriptions, Snowflake charges its customers based on the amount of data they store and the number of Snowflake Compute Credits used. This method allows its clients more control over their expensing.
But what billionaires really seem to love is Snowflake's supercharged growth rate. The company is expected to have more than doubled sales in fiscal 2022, with Wall Street forecasting 67% consensus revenue growth in fiscal 2023. By fiscal 2029 (calendar year 2028), the company anticipates hitting $10 billion in annual sales.
The big question mark is: How much of a valuation premium will Wall Street tolerate with the company already at a multiple of 42 times fiscal 2023 estimated sales?
A third growth stock billionaires bought hand over fist in Q4 is stay-and-hosting platform Airbnb (ABNB -0.41%). John Overdeck and David Siegel of Two Sigma Investments and Jim Simons of Renaissance Technologies respectively added about 360,000 shares and nearly 814,000 shares.
As is the case with Visa and Snowflake, billionaires have been piling into Airbnb because it offers clear-cut competitive advantages and a long runway for sustained double-digit growth.
For example, the company's hosting marketplace has more than 4 million households worldwide participating. That might sound like a lot, but it's really just the tip of the iceberg. Globally, there are more than 1 billion households. Once homeowners realize the revenue potential of their property, the number of available hosts should soar.
What's particularly intriguing about Airbnb is where the company is seeing its most robust growth: Long-term stays (defined as 28 or more days). Over the past two years, the average stay has increased by 15%, with long-term stays representing 22% of all bookings in the fourth quarter. The pandemic has placed an emphasis on remote work, which has given rise to a workforce that no longer needs to be tied down to a specific location. This all bodes well for Airbnb's long-term prospects.
What's more, the company is angling for a larger piece of the travel industry's pie. Airbnb's Experiences segment, which currently partners with local experts who lead travelers on adventures, could easily broaden its reach via partnerships to include restaurants and transportation in the future.
A final growth stock billionaires couldn't stop buying in the fourth quarter is e-commerce behemoth Amazon (AMZN -0.16%). Lone Pine Capital added more than 256,200 shares of the company, while Ken Griffin's Citadel Advisors nearly quadrupled its position with the purchase of over 234,000 shares.
As you're likely aware, Amazon is best known for its dominant online marketplace. A report from eMarketer last August estimated it would account for 41.4% of all online spending in the U.S. in 2021, up about 100 basis points from the previous year.
But what makes Amazon's retail segment such a powerhouse is the 200 million people with a Prime subscription. The annual revenue Amazon collects from Prime members helps to buoy its razor-thin online retail margins and allows it to undercut other retailers on price. It also doesn't hurt that Prime members spend far more than non-Prime members on an annual basis.
However, Amazon's true secret sauce is its cloud infrastructure service operations, Amazon Web Services (AWS). AWS accounts for close to a third of global cloud infrastructure spending. That's important, because cloud spending is still in its very early innings, and it provides for considerably higher margin than what Amazon generates from retail. Last year, AWS brought in 75% of Amazon's $24.9 billion in operating income despite only accounting for 13% of the company's net sales.
Over the next four years, Amazon's higher-margin segments, such as AWS, subscription services, and advertising, have the potential to more than double the company's operating cash flow.