Worm Capital LLC, an investment management firm, published its “Longleaf Partners Small-Cap Fund” second quarter 2021 investor letter – a copy of which can be downloaded here. A portfolio quarterly return of -15.18% net of fees, was recorded by the Worm Capital’s long/short equity growth strategy for the second half of 2021, and -1.49% for its long-only equity strategy, while its benchmark, the S&P 500 Index, by comparison returned 15.25% over the same period. You can view the fund’s top 5 holdings to have an idea about their top bets for 2021.
In the Q2 2021 investor letter of Worm Capital, the fund mentioned Airbnb, Inc. (NASDAQ: ABNB), and discussed its stance on the firm. Airbnb, Inc. is a San Francisco, California-based vacation rental company, that currently has a $92.6 billion market capitalization. ABNB delivered a 2.17% return since the beginning of the year, while its 3-month returns are down by -0.81%. The stock closed at $149.99 per share on August 05, 2021.
Here is what Worm Capital has to say about Airbnb, Inc. in its Q2 2021 investor letter:
“Throughout the quarter, you may have noticed that we averaged into a significant position in Airbnb (ABNB). Though the stock has been a relative underperformer since its February highs, we are highly confident about the company’s prospects and its ability to generate meaningful compounded returns over time.
Some history: We have been following Airbnb’s journey for several years, long before the company went public earlier this year. (In fact, nine years ago, in November 2012, Eric profiled the company for Inc.: “Airbnb Is Changing Travel.”)
Whenever we underwrite a new investment, we look for a few key attributes that help us determine the potential long-term value of a business, as well as its risks. In particular, we focus on management (Are they founders? Do they have skin the game? Are they playing the long game?), addressable market size (How big is the opportunity?), its relative growth and creativity to expand (Are they constantly innovating to make the product better for their customers?), margin expansion (Where can we find operating leverage in the model?), its status in the industry (Are they the dominant player? Can they
take market share from incumbents?), business risks (What are we missing? Are customers dissatisfied? What do employees say?) and probably a dozen more elements that are critical to our process. It’s only then do we take out the pencils do the valuation work.
In short, ABNB fulfills pretty much every element of a business model we’re attracted to: First, it’s highly scalable marketplace-based business model that unites buyer and seller with observable flywheel effects. (This is an important observation, in that the platform creates significant economic value for millions of hosts who rely on Airbnb, which in turn attracts new hosts who identify the opportunity, which creates more inventory, which turn attracts more travelers, which attracts more hosts, and soon.) Second, it has a global focus with significant opportunities to expand its operating leverage; Third,
its management—which is still founder-led—stands out to us as long-term thinkers capable of handling crisis, which the team demonstrated throughout the pandemic by dropping operating costs and turning the business into a more efficient, lean organization. (Like Churchill said: “Never let a good crisis go to waste.”)..”
Based on our calculations, Airbnb, Inc. (NASDAQ: ABNB) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. ABNB was in 52 hedge fund portfolios at the end of the first quarter of 2021, compared to 68 funds in the fourth quarter of 2020. Airbnb, Inc. (NASDAQ: ABNB) delivered a 0.23% return in the past month.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 115 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, pet market is growing at a 7% annual rate and is expected to reach $110 billion in 2021. So, we are checking out the 5 best stocks for animal lovers. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage.
Disclosure: None. This article is originally published at Insider Monkey.