Once a quarter, institutions, hedge funds, and investors with over $100 million in assets under management file Form 13F with the Securities and Exchange Commission (SEC). A 13F provides a snapshot of what a fund manager or wealthy investor has been buying, selling, and holding over the previous quarter.
In one respect, 13Fs are dated. By the time we get a look under the hood, a minimum of 45 days has passed. However, we're getting an inside look at the stocks and trends that are intriguing the most successful money managers on Wall Street.
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Back in mid-February, when the latest round of 13Fs became due for the fourth quarter of 2021, it was readily apparent that billionaire money managers had a thing for innovative, high-growth stocks that were getting beaten down from their highs. In fact, you could go so far as to say that billionaires absolutely love the following three beaten-down growth stocks.
Airbnb
The first fast-paced company wealthy money managers can't seem to get enough of is stay-and-hosting platform Airbnb (ABNB -3.18%). Shares of the company have fallen 27% since hitting an all-time high in November.
A quick look at 13F filings shows sizable purchases from Jim Simons' Renaissance Technologies, John Overdeck and David Siegel's Two Sigma Investment, and Ken Griffin's Citadel Advisors during the fourth quarter. On a combined basis, these billionaires' funds own around 5.5 million shares of Airbnb.
The allure of Airbnb seems to be the company's ability to disrupt the traditional hotel industry, as well as infiltrate the $8 trillion travel industry. Most people are familiar with Airbnb for its hosting marketplace. The platform currently has around 4 million hosts but will likely see this figure grow substantially as homeowners become aware of the cash-flow potential of renting their properties.
The most interesting aspect of the Airbnb marketplace is where the growth is coming from. According to the company, long-term stays, defined as stays of 28 or more days, are its fastest-growing category. With the COVID-19 pandemic altering the traditional workplace, more people than ever are finding it easier to work remotely. Airbnb is catering to this surge in remote workers by allowing them to mix work with pleasure. Per Airbnb, stays of 28 days accounted for 22% of gross nights booked, up from 16% of gross nights booked during the fourth quarter of 2019.
Beyond providing more convenient and secure stay options, Airbnb is also looking to gobble up more travel dollars with its Experiences segment. This operating segment partners with local experts to lead travelers on adventures. It's likely a matter of time before Airbnb explores other partnerships in transportation and/or food to garner a larger percentage of travelers' vacation spending.
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Upstart Holdings
A second beaten-down growth stock billionaires clearly love is cloud-based lending-platform Upstart Holdings (UPST -1.97%). Shares of Upstart have crumbled more than 81% since hitting their all-time high in October.
Based on the February 13F filings with the SEC, Jeff Yass of Susquehanna International, Jim Simons' Renaissance, and Ken Griffin's Citadel were all big buyers. Susquehanna and Citadel more than doubled their existing positions, relative to where each ended the third quarter of 2021.
What likely makes Upstart so attractive in the eyes of billionaire money managers is its artificial intelligence (AI)-driven lending platform. Approximately 70% of all loan applicants are getting an immediate approval with Upstart's lending service, which is saving banks and credit unions time and money.
Additionally, Upstart's AI-lending platform is opening the door for applicants with lower credit scores who might not otherwise be approved in a traditional vetting process. Yet in spite of these lower credit scores, approved applicants via Upstart haven't had higher delinquency rates than traditionally vetted loan applicants. In my view, this makes it even likelier that financial institutions will lean on Upstart's technology as lending rates rise and loan applications slow down.
Something else to note is that Upstart doesn't have any credit exposure. During the fourth quarter, 94% of its revenue derived from fees and services. Even if loan delinquencies rise, Upstart won't be any worse for the wear because of it.
Billionaire fund managers are probably also excited about Upstart's potential to push into AI-based auto-loan originations. The auto-loan market is many multiples larger than the personal-loan market, which gives Upstart a long runway in which to deliver double-digit growth.
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Sea Limited
The third beaten-down growth stock billionaires absolutely love is Singapore-based conglomerate Sea Limited (SE -2.20%). Shares of Sea have sunk 76% since hitting a record high six months ago.
During the fourth quarter, three prominent billionaire investors piled into Sea, including Tiger Global's Chase Coleman, Viking Global's Ole Andreas Halvorsen, and Israel Englander's Millennium Management. Sea is a new position for Viking Global. Meanwhile, Tiger Global increased its stake to almost 11.4 million shares.
The reason these billionaires jumped on the Sea Limited bandwagon seems to be the company's supercharged growth prospects for all three of its operating segments.
At the moment, only its gaming division, known as Garena, is generating positive earnings before interest, taxes, depreciation, and amortization (EBITDA). What's particularly impressive about this mobile-gaming segment is that 11.8% of its 654 million quarterly active users were paying to play. The pay-to-play conversion rate for mobile gaming is typically in the low single digits. Even if mobile-gaming growth slows, Sea can generate healthy cash flow from a pay-to-play conversion rate that's many multiples higher than the industry average.
The company's digital financial-services segment, known as SeaMoney, is also coming on strong. With Sea operating in a number of emerging markets where consumer access to basic banking services is limited, the company's digital-wallet services could quietly become a significant profit driver. Sea ended 2021 with 45.8 million quarterly digital wallet users (up 90% from the comparable quarter in 2020).
Lastly, there's rapidly growing e-commerce platform Shopee. In the fourth quarter, gross orders grew 90% to 2 billion, while gross merchandise value (GMV) transacted on the platform increased to $18.2 billion. To put this into context, Shopee's GMV annual run rate is now nearly $73 billion. In all of 2018, Shopee saw $10 billion in GMV cross its platform.
Although Sea is expected to lose money for the foreseeable future, there's no denying the moat it's building.
