Buckle up, investors, because stock market volatility is back in a big way. Over the past two months, the benchmark S&P 500 and technology-dependent Nasdaq Composite have endured their steepest corrections since the pandemic-induced crash of February-March 2020.
Although periods of heightened volatility can be unnerving at times, history tells us that pullbacks represent the perfect opportunity to buy into high-quality, innovative businesses at a discount. It's a lesson that the most successful money managers know all too well.
Thanks to Form 13F filings -- 13Fs are a required filing with the Securities and Exchange Commission for money managers with more than $100 million in assets under management -- we can get a firsthand look at what the most widely followed billionaire fund managers have been buying and selling in the most recent quarter (in this instance, the fourth quarter).
One thing that really stands out about the latest round of 13F filings is billionaires' love of beaten-down stocks. In particular, billionaire fund managers have aggressively bought into the following popular, but downtrodden, stocks.
Perhaps one of the most surprising beaten-down stocks billionaires have been piling into is online investment-platform Robinhood Markets (HOOD 1.34%). Among companies with a minimum $2 billion market cap, Robinhood is the second-worst performer over the trailing six months (down 78%).
According to 13F filings, Jeff Yass and his Susquehanna International bought more than 1.07 million shares of Robinhood during the fourth quarter, which increased his fund's position over 16-fold from the end of September. Likewise, Israel Englander's Millennium Management increased his fund's stake to 835,458 shares from less than 20,000 shares in three months.
If you're looking for a good reason to explain this bullishness, the retail revolution is the most logical answer. Since the March 2020 sell-off, retail investors have seemingly piled into the stock market like never before.
Platforms like Robinhood have provided these retail investors with a commission-free platform to put their money to work. The company ended 2021 with 17.3 million monthly active users (up 48% from the prior-year period), as well as $98 billion in assets under custody (AUC). That compares to $63 billion in AUC on Dec. 31, 2020.
Robinhood has had success courting users with its cryptocurrency-trading platform, too. Aside from providing access to a handful of well-known digital currencies, the company anticipates rolling out crypto wallets this year. This comes after testing crypto gifting during the recently passed holiday season.
On the other hand, customers have had a love-hate relationship with the company. From a PR perspective, Robinhood has been facing backlash from the retail community for the trading restrictions that were put in place on select meme stocks during the historic volatility experienced in January and February 2021. Although these trading restrictions were tied to liquidity requirements, it hasn't stopped the company from taking heat over the incident.
Additionally, Robinhood's platform appears to be highly dependent on equity or crypto market volatility. If stocks or cryptocurrencies stop rising, or if interest in these assets wanes, we've seen that Robinhood's revenue generation can quickly trail off.
Despite billionaires jumping into Robinhood, my take on the company remains unchanged since early August: Avoid, avoid, avoid!
Another beaten-down growth stock that billionaire money managers have been buying hand over fist is online-services marketplace Fiverr International (FVRR 2.77%). Over the trailing half-year, shares of the company have retreated 62%.
Despite this decline, three billionaire money managers haven't been able to stop pressing the buy button. BlackRock's Larry Fink, Renaissance Technologies' Jim Simons, and John Overdeck and David Siegel's Two Sigma Investments gobbled up almost 525,000 shares, over 303,000 shares, and just shy of 268,000 shares, respectively, in the fourth quarter.
This love for Fiverr among billionaire investors looks to be a reflection of a potentially changed work environment in the wake of the coronavirus pandemic. With the traditional workplace disrupted, freelancers have discovered that they can contribute their innovation and services from anywhere in the world. That's where a platform like Fiverr, which allows freelancers to sell their services, has seen its roots grow.
What makes Fiverr so intriguing is its sales approach and the sheer amount of service revenue it gets to keep. Instead of simply allowing freelancers to price their services hourly, it has users price their services as a package. This creates far more price transparency for businesses looking to purchase the services of freelancers on the platform. Not surprisingly, spend per buyer continues to climb ($242 in Q4 2021, up from $205 in Q4 2020).
As noted, the company's take rate (i.e., what it gets to keep for facilitating freelancer-buyer arrangements via its marketplace) is truly impressive. Fiverr's year-end results pointed to a take rate of 29.2% in the fourth quarter, which was more than double the 14% take rate of rival Upwork in the same quarter. What's more, Fiverr's take rate has been expanding throughout 2021, while Upwork's was consistently flat or fell.
The biggest question mark isn't whether Fiverr can be successful -- it's growing take rate suggests it won't have any issues becoming a leading platform for freelance services. Rather, it's whether Wall Street can stomach a lofty valuation as interest rates are set to climb. While I do believe volatility will reign supreme in the near term (i.e., Fiverr could have more near-term downside), patient investors should be rewarded.
The third and final beaten-down stock billionaires aggressively bought during the fourth quarter is streaming-television platform Roku (ROKU 3.69%). Shares of the company are off 67% over the trailing six months.
Among billionaire money managers, two have taken a liking to what Roku has to offer. Simons' Renaissance Technologies upped its stake in the company to 322,000 shares from 28,100 three months prior, while Steven Cohen's Point72 Asset Management increased its holdings to 271,210 shares from around 47,000 at the end of September.
"Why Roku?" you ask? The likely reason successful money managers have piled into this stock has to do with cord-cutting. A 2021 report from NScreenMedia noted that over 21 million fewer U.S. households had traditional satellite, cable, or TelcoTV during the first quarter of 2021, relative to the comparable quarter four years earlier.
Similarly, the number of U.S. households without these traditional content providers surged above 50 million. In other words, the data has clearly demonstrated that users are fed up with cable providers' content bundles and want to be free to choose their own packages.
Enter Roku, stage left. Roku offers two ways of generating revenue while putting content control back in the hands of users. First, it offers devices that allow users to stream the free and paid content they want. This retail segment can have its ups and down, with supply-chain issues and inflation currently weighing on results.
Second, and far more interesting, is Roku's ability to monetize its users via programmatic ads. It's no secret that advertisers are shifting how they reach users, with digital avenues, such as connected TV and over-the-top channels, being core sources of ad-revenue-dollar growth. Even though active account growth has slowed a bit as coronavirus vaccination rates have picked up and some aspects of life return to normal, average revenue per user (ARPU) growth hasn't dropped off. The $41.03 in ARPU Roku reported in the fourth quarter represents a 43% year-over-year increase.
With shares of the company taking it on the chin following the release of its fourth-quarter operating results, Roku could prove to be a multibagger for investors patient enough to allow their investment theses to play out.