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Why Tiger Global Traded Groupon Inc (GRPN) For Inc (PCLN)

Tiger Global, whose co-founders and managers include billionaire and Tiger Cub Chase Coleman, recently filed its 13F for the second quarter of 2013. We have been going through these 13Fs for a variety of purposes. First, we’ve found that it’s possible to use these filings to develop profitable investment strategies: the most popular small cap stocks among hedge funds earn an average excess return of 18 percentage points per year (learn more about our small cap strategy) and our own portfolio based on this finding outperformed the S&P 500 by 33 percentage points in the last 11 months. It can also be useful to look at filings from individual managers to see what they are trading and if any of their investment ideas seem interesting. Read on for our thoughts on some trades we noticed in Tiger Global’s 13F for the end of June or see a history of the fund’s stock picks.

Liking the News Corp breakup. At the end of June, Tiger Global’s new top pick was News Corp (NASDAQ:NWSA); the media and entertainment company has since split into “New” News Corp (NASDAQ:NWSA) and Twenty-First Century Fox Inc (NASDAQ:FOXA). Many hedge funds like to invest in spinout opportunities because management becomes better able to focus on core operations (learn more about investing in spinouts) and some market watchers had applied a similar logic to the breakup of News Corp (NASDAQ:NWSA). Currently Twenty-First Century Fox Inc (NASDAQ:FOXA), which focuses on the production of news and entertainment content as well as filmed entertainment (News Corp retains ownership of publishing assets, including the Wall Street Journal and New York Post) is valued at 16 times forward earnings estimates, in line with other media and entertainment stocks. As such improved operations would be an upside for the company. News Corp features lower earnings compared to the current valuation, and in that case investors might want to wait for a better picture of how it is performing as an independent company.

TIGER GLOBAL MANAGEMENT LLCRedeeming Groupon. The investment team had moved heavily into Groupon Inc (NASDAQ:GRPN) in the first quarter of the year, but then sold most of its shares between April and June. This looks like a profit-taking move for Tiger Global, as the daily deals company popped 45% during the quarter as CEO Andrew Mason- who many shareholders had not considered professional enough to run the company- departed. the valuation at Groupon Inc (NASDAQ:GRPN) is still quite speculative, with analysts expecting adjusted earnings per share to double next year and yet with the forward P/E still being rather high at 36. Recent results show only moderate revenue growth.

Priceline. Inc (NASDAQ:PCLN) has been a favorite of many Tiger Cub funds, and during Q2 Tiger Global increased its holdings of the online travel services company from about 380,000 shares to about 470,000- making it the fund’s third largest 13F holding by market value. In the second quarter of 2013, Inc (NASDAQ:PCLN) recorded increases of about 25% in both sales and net income. While markets have already priced in quite a bit of future growth at a trailing P/E of 31, this sustained high growth rate is impressive. Billionaire- and Tiger Cub- Stephen Mandel’s Lone Pine Capital had over $1 billion invested in Inc (NASDAQ:PCLN) at the end of March (find Mandel’s favorite stocks), and other funds with a significant stake included John Griffin’s Blue Ridge Capital and Philippe Laffont’s Coatue Management.

We’d be interested in looking into Inc (NASDAQ:PCLN); we’d be wary due to the high valuation, but signs that the company has the potential to continue its high growth rates would be interesting. We agree with Tiger Global’s decision to sell Groupon Inc (NASDAQ:GRPN), and actually don’t think it makes sense as a long position at all at this time. As for the pieces of the former News Corp, we’d consider Twenty-First Century Fox Inc (NASDAQ:FOXA) an interesting prospect: its valuation is in line with that of industry peers, it owns some good assets, and there is potential for more efficient management and therefore higher margins. We would keep an eye out for further results from the company.

Disclosure: I own no shares of any stocks mentioned in this article.

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