Eashwar Krishnan’s Tybourne Capital Management has recently revealed its latest move involving Yelp Inc (NYSE:YELP) in a filing with the Securities and Exchange Commission (SEC). The Hong Kong-based hedge fund, which is the largest shareholder of the Silicon Valley company among the funds that we track, has increased its position in the company even further. The filing revealed Tybourne now has a position of 3.42 million shares, amounting to 5.3% of Yelp’s common stock. That was a large increase from the 2.65 million shares the fund owned at the end of 2014.
Tybourne Capital Management is a relatively young fund, whose first 13F filing with the SEC was for the last quarter of 2012. As of the end of last year, the fund maintains a small equity portfolio, valued at $1.21 billion that contains 11 long positions, the majority of which are in large-cap stocks. In fact Yelp is one of just two small-cap stocks the fund holds, the other being in Kate Spade & Co (NYSE:KATE).
This is relevant because we add funds to our database specifically to track and collate their small-cap picks, as through extensive research, we found that the a portfolio of top 15 small-cap stocks among a select group of funds (which now numbers more than 700) routinely beat the market. In backtesting of our small-cap strategy for the years 1999 through 2012, our strategy outperformed the S&P 500 Total Return Index in 11 out of the 14 years analyzed. Furthermore, since we launched the system back in August 2012 and began real-time testing, our strategy has outperformed the market every year, including through the first 10 weeks of 2015. In total, the cumulative returns have amounted to 132% in the last 2.5 years, compared to 52.6% for the S&P 500 ETF (SPY) during the same period (see the details here).
Tybourne has been a major shareholder of Yelp Inc (NYSE:YELP) since the beginning of 2013, when it disclosed a 6.3% stake in the business search and review company, in its first SEC filing. The investment has paid off well, with shares rising by more than 100% since the date of the filing. However, things were even better in early 2014 when shares were up by nearly fivefold at that point. Since then the stock lost over 50% as Yelp faced criticism (and was hit with several lawsuits) over allegations that the company extorts businesses, and punishes those who don’t pay up with fraudulent negative reviews that often have a dramatic impact on the business for that company. The recent documentary “Billion Dollar Bully” sheds light on the company’s alleged practices, though Yelp has denied any of the stories as being truthful and told Business Insider that the director of the documentary also has a conflict of interest and a history with Yelp Inc (NYSE:YELP) which included trying to mislead consumers.
However, it’s not just public perception that is sinking Yelp Inc (NYSE:YELP)’s shares; the company’s most recent financial report showed a worrisome decline in unique visitors during the fourth quarter of 2014, compared to the third quarter. When coupled with a 1-year forward P/E ratio of 88, investors have some major concerns about the valuation of the company. Regardless, Tybourne is still a believer at the current price, as evidenced by the increased stake on top of an 86% increase of the holding during the fourth quarter. Columbus Circle Investors, managed by Donald Chiboucis is also bullish on the company, owning an 808,900 share stake as of the end of 2014.
Let’s move on to Tybourne’s next top three long positions in terms of value, which are represented by Liberty Global plc (NASDAQ:LBTYA), Amazon.com, Inc. (NASDAQ:AMZN), and Mastercard Inc (NYSE:MA).
