There's no question that the amount of data thrown at investors can, at times, feel overwhelming. Cramming thousands of earnings reports into a span of eight weeks, along with a constant barrage of economic data, can make it tough to weed out what's important.
Less than two weeks ago, one of the most important data releases of the quarter occurred -- and there's a real possibility you missed it. Monday, May 15 marked the deadline for institutional money managers to file Form 13F with the Securities and Exchange Commission for the first quarter.
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A 13F is a filing that provides an under-the-hood look at what money managers with a minimum of $100 million in assets under management purchased, sold, and held in the latest quarter. Although 13Fs can be filed 45 days following the end of a quarter and therefore contain dated material, they can still provide clues as to what sectors, industries, trends, and stocks are piquing the interest of Wall Street's most successful investors.
During the first quarter, 13Fs show that billionaire money managers were quite active in their trading activity in a number of high-profile growth stocks. What follows are two magnificent growth stocks billionaires can't stop buying, as well as one fast-paced company they're pretty clearly avoiding.
Magnificent growth stock No. 1 billionaire investors can't stop buying: Alphabet
The first phenomenal growth stock billionaires haven't been able to get enough of is Alphabet (GOOGL 0.88%) (GOOG 0.84%), the parent company of familiar internet search engine Google, as well as streaming platform YouTube and autonomous-vehicle company Waymo.
Take a deep breath (even if you aren't reading out loud), because the list of billionaire buyers for Alphabet during the first quarter is long. It includes:
- Dan Loeb's Third Point
- Philippe Laffont's Coatue Management
- Chase Coleman's Tiger Global Management
- Bill Ackman's Pershing Square Capital Management
- Steven Cohen's Point72 Asset Management
- Ray Dalio's Bridgewater Associates
- Israel Englander's Millennium Management.
In the order listed above, these seven billionaires respectively purchased approximately 4.75 million shares, 4.64 million shares, 4.64 million shares, 2.19 million shares, 2.15 million shares, 1.56 million shares, and 1.56 million shares of Google Class A stock (GOOGL) in the first quarter.
The bullishness surrounding Alphabet more than likely has to do with the company's competitive moat and ongoing innovation. In terms of the former, Google has accounted for no less than 90% of global internet search share since April 2015. Advertisers understand that their best chance of getting their message in front of consumers is using Google, which is what gives the company such impressive ad-pricing power.
However, innovation is what'll power Alphabet's operating income and cash flow higher over the long run. A perfect example would be the rapid growth of cloud infrastructure service segment Google Cloud. Tech analysis company Canalys estimates Google Cloud accounted for 9% of worldwide cloud infrastructure spending in the first quarter. This makes Google Cloud No. 3 in cloud service spending worldwide.
More importantly, enterprise cloud spending is still in its early stages. Between the long-term, double-digit growth potential offered by cloud spending and the fact that Google Cloud reversed a year-ago loss and generated an operating profit in the first quarter, this segment has the potential to be the company's leading cash-flow driver by the end of the decade.
The icing on the cake for billionaires is Alphabet's valuation. Since the company tends to reinvest a lot of its operating cash flow, the price-to-cash-flow ratio tends to be a better measure of value than the traditional price-to-earnings ratio. Alphabet is nearly as cheap as it's ever been as a publicly traded company, relative to consensus future cash-flow estimates from Wall Street.
Magnificent growth stock No. 2 billionaire investors can't stop buying: Datadog
A second glorious growth stock that captivated the attention and wallets of billionaires during the first quarter is cloud-based software-as-a-service (SaaS) observability company Datadog (DDOG 1.56%).
While the list of billionaire buyers for Datadog isn't quite as long as Alphabet, there are a number of well-recognized, high-profile investors on this list. Datadog's billionaire investors include:
- Chase Coleman of Tiger Global
- Ken Griffin of Citadel Advisors
- John Overdeck and David Siegel of Two Sigma Investments
- Jim Simons of Renaissance Technologies
- Jeff Yass of Susquehanna International
In order, these billionaires respectively added roughly 1.68 million shares, 1.18 million shares, 1.04 million shares, 996,000 shares, and 200,000 shares of Datadog stock.
There seems to be both macroeconomic and company-specific factors that attracted billionaires to Datadog during the first quarter.
On the macro front, Datadog is benefiting from a seemingly permanent shift in the labor market following the COVID-19 pandemic. Although some people have returned to the office, more workers than ever before are choosing to stay remote. This has dramatically increased the need for application monitoring and public/private cloud protection.
But in a similar fashion to Alphabet, one of Datadog's biggest company-specific growth drivers is growth in enterprise cloud spending. According to Gartner, enterprise cloud spend as a percentage of global infrastructure technology spending is forecast to grow from 8% to 20% between 2021 and 2026. Datadog is an SaaS-driven business, so increased enterprise cloud spending/usage plays right into the company's growth strategy.
Another factor that likely tempted billionaires to buy shares of Datadog in the first quarter is the company's ability to attract high-dollar clients and improve add-on sales. Although total customer count has nearly quintupled since the end of 2017, Datadog's big clients are what's moving the needle. Since the end of 2017, the number of customers accounting for at least $100,000 in annual recurring revenue jumped from 236 to 2,910.
Furthermore, the percentage of customers using four or more products has jumped 18 percentage points to 43% over the trailing-two-year period, ended March 2023.
Image source: Getty Images.
The high-profile growth stock billionaires are avoiding: Airbnb
However, not all magnificent growth stocks were buys for billionaires during the first quarter. Hosting and travel platform Airbnb (ABNB 2.34%) is the perfect example of a fast-paced company that billionaires are clearly avoiding.
Based on 13F filings, five billionaire fund managers reduced or completely sold out of their positions in Airbnb. This includes:
- Jim Simons of Renaissance Technologies
- John Overdeck and David Siegel of Two Sigma Investments
- Israel Englander of Millennium Management
- Steven Cohen of Point72 Asset Management
In order, these billionaires sold around 2.55 million shares, 2.1 million shares, 1.16 million shares, and 315,000 shares of Airbnb stock. Cohen exited his fund's position completely, while Overdeck/Siegel and Englander cut their respective fund's stakes by close to 90%.
Why are billionaires booking the exit instead of focusing on Airbnb's bookings growth? One answer could be the company's somewhat rich valuation. Airbnb bounced back nicely from the COVID-19 pandemic and finds itself valued at 35 times trailing-12-month earnings and roughly 8 times the $8.4 billion in sales generated last year.
While this might not sound all that pricey for a company expected to grow sales by 13% in 2023 and 2024 (per Wall Street consensus estimates), it's concerning when accounting for the growing likelihood of a U.S. recession. The Federal Reserve is forecasting a "mild recession" for later this year, and multiple indicators and metrics seem to concur that a recession is likely. The travel industry tends to be highly cyclical, which is a fancy way of saying that consumers would be expected to reduce their travel spending if a U.S. recession materializes.
But there's another side to the Airbnb growth story these billionaires may have missed. Specifically, the growth in long-term stays (bookings of 28 nights, or longer) can be a game changer for Airbnb.
The aforementioned shift in the labor market that's seeing more people work remotely means fewer workers are tethered to a particular city or country. I suspect this change is fueling the uptick in long-term stay growth, and we're just witnessing the tip of the iceberg.
Likewise, Airbnb is just scratching the surface with its Experiences segment. At the moment, the company is working with local experts to lead travelers on adventures. It seems only logical that we'll see the company form broader partnerships with transportation and food companies to get a bigger piece of the $8 trillion pie that is the global travel industry.
