Zillow Inc (NASDAQ:Z)‘s shares sunk in the after-hours trading on Thursday and are currently trading down by over 6% in afternoon trading today, as the real estate website’s Chief Financial Officer (CFO), Chad Cohen revealed that he would leave the company. Cohen will be departing from his position in Zillow Inc (NASDAQ:Z) effective August 7. The stock dropped around 2% in the after-hours session on Thursday and plunged further (more than 5%) as it started trading today. The real estate stock has dropped more than 17% of its value year-to-date. The resignation comes amid a transition year for the firm, with it posting weaker-than-anticipated guidance for the fiscal year in April, followed by a disappointing earnings report for the first quarter in May.
Despite the current volatility in the company, the smart money appears to like the underlying value of the company. At the end of the first quarter, a total of 36 of the hedge funds tracked by Insider Monkey held long positions with a total investment of $975.2 million in Zillow Inc (NASDAQ:Z). There were only 32 hedge funds holding long positions three months earlier, though the value of their positions was 3% higher at that time. Taking into account that the stock had lost around 3% during the January-March period, we can say that the total investment has not changed a lot despite an increase in the number of hedge funds holding the stock. This stat shows that some hedge funds opened fresh positions in the stock, but a few other hedge funds sold some of their larger positions.
Most investors don’t understand hedge funds and indicators that are based on hedge fund and insider activity. They ignore hedge funds because of their recent poor performance in the long-running bull market. Our research indicates that hedge funds underperformed because they aren’t 100% long. Hedge fund fees are also very large compared to the returns generated and they reduce the net returns enjoyed (or not) by investors. We uncovered through extensive research that hedge funds’ long positions in small-cap stocks actually greatly outperformed the market from 1999 to 2012, and built a system around this. The 15 most popular small-cap stocks among funds beat the S&P 500 Index by more than 80 percentage points since the end of August 2012 when this system went live, returning a cumulative 135% vs. less than 55% for the S&P 500 Index (read the details).
Likewise, other research (not our own) has shown insider purchases are also effective piggybacking methods for investors. That’s why we believe investors should pay attention to what hedge funds and insiders are buying and keep them apprised of this information. Looking at the insider activity on Zillow Inc (NASDAQ:Z), there have been no insider purchases of the stock this year. CEO of Zillow Inc, Spencer Rascoff sold around 5,000 shares in January. Departing CFO, Cohen also sold around 2,000 shares in January.
Keeping this in mind, let’s take a look at recent hedge fund activity encompassing Zillow Inc (NASDAQ:Z).
What does the smart money think about Zillow Inc (NASDAQ:Z)?
Among the funds tracked by Insider Monkey, Chase Coleman‘s Tiger Global Management had the largest position in Zillow Inc (NASDAQ:Z) at the end of March, with around 3.5 million shares worth close to $359.3 million, amounting to 3.9% of its total 13F portfolio. Coming in second was OZ Management, led by Daniel S. Och, which held around 950,000 shares estimated at $95.4 million at the end of the first trimester; 0.3% of its 13F portfolio was allocated to the stock. Philippe Laffont‘s Coatue Management, David E. Shaw’s D E Shaw, and Robert Pitts‘ Steadfast Capital Management also held valuable positions in the stock on March 31.
As one would reasonably expect, key smart money managers opened up fresh positions in Zillow Inc (NASDAQ:Z). John Thaler‘s JAT Capital Management led the bull’s race by buying around 430,000 shares of the company during the first trimester. On the contrary, John Burbank‘s Passport Capital sold all of its 430,000 shares of the company during the same period. A few hedge fund managers, like Daniel S. Och of OZ Management, sold a small part of their holding in the company during the January – March period.
Hedge fund interest has been relatively neutral of late, and that is consistent with a company going through a transition phase; some will stick by it, while others will jump ship. However, as the stock is trading lower due to the news about its CFO’s departure, which we feel may be slightly overblown, we recommend buying Zillow on the dip.