In the past few months the competition in the e-commerce space has become intensified, with eBay Inc (NASDAQ:EBAY) spinning off its payment subsidiary Paypal Holdings Inc (NASDAQ:PYPL) to focus on its online retailing business, as well as the launch of new entrants like Jet.com, which some believe was a prime reason behind Amazon.com, Inc. (NASDAQ:AMZN)‘s recent Prime Day. That coupled with the recent IPO’s of Etsy Inc (NASDAQ:ETSY) and Alibaba Group Holding Ltd (NYSE:BABA) has renewed investors’ interest in the e-commerce sector. Since e-commerce still continues to be a high-growth space, a lot of investors want to allocate some part of their investment capital into it. We at Insider Monkey aim to help our readers choose which of these stocks to invest in by analyzing the data from the latest 13F’s filed for the quarter ending June 30, by the over 700 hedge funds that we track in an effort to find the top e-commerce stocks the smart money is betting on. Read on to find out which stock topped all others.
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Most investors don’t understand hedge funds and indicators that are based on hedge funds’ activities. They ignore hedge funds because of their recent poor performance in the 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 experienced by investors. We uncovered that hedge funds’ long positions actually outperformed the market. For instance the 15 most popular small-cap stocks among funds beat the S&P 500 Index by more than 60 percentage points since the end of August 2012. These stocks returned a cumulative of 118% vs. a 57.6% gain for the S&P 500 Index (read the details). That’s why we believe investors should pay attention to what hedge funds are buying (rather than what their net returns are).
4. Etsy Inc (NASDAQ:ETSY)
Investors with Long Positions (as of June 30): 9
Aggregate Value of Investors’ Holdings (as of June 30): $156.791 Million
After almost doubling on its debut in the secondary market in April, shares of online retailer Etsy Inc (NASDAQ:ETSY), which previously used to deal only in handmade goods and craft items, have fallen hard and are currently trading below their IPO price of $16. The two quarterly results that the company has reported after going public didn’t sit well with investors. For the most recent quarter the company posted a revenue beat, but the loss it declared was more than what the Street had estimated. Some analysts also pointed out that even the sales growth the company reported came on the back of increased advertising spending, which is unsustainable. John Griffin‘s Blue Ridge Capital was among the nine hedge funds tracked by us that disclosed a stake in the company. At the end of June, the fund owned 695,122 shares of Etsy Inc (NASDAQ:ETSY).
3. Alibaba Group Holding Ltd (NYSE:BABA)
Investors with Long Positions (as of June 30): 85
Aggregate Value of Investors’ Holdings (as of June 30): $4.76 Billion
Another e-commerce company that reported worse-than-expected results for the second quarter and has seen its shares collapse as a result is Alibaba Group Holding Ltd (NYSE:BABA). It seems hedge funds had already anticipated this, having trimmed their stakes in the company during the second quarter. If one only looks at the decline in hedge fund ownership of the company during the April-June period, which was one, that conclusion may not be apparent. However, if one looks at the aggregate value of hedge funds’ holdings, which came down by 17.83% during the quarter compared to just a 1.2% drop in Alibaba Group Holding Ltd (NYSE:BABA)’s stock price during that same period, it becomes clear that smart money had started moving out of the stock well before the 18% drop in its stock price in the third quarter. A major factor that has contributed to the decline in Alibaba’s stock price apart from weak results in the past few weeks has been the growing concern that the Chinese economy is slowing down. Among the few hedge funds that increased its stake in Alibaba Group Holding Ltd (NYSE:BABA) during the second quarter was Boykin Curry‘s Eagle Capital Management, which at the end of June owned slightly over 6.0 million shares of the company.
2. eBay Inc (NASDAQ:EBAY)
Investors with Long Positions (as of June 30): 99
Aggregate Value of Investors’ Holdings (as of June 30): $11.73 Billion
eBay Inc (NASDAQ:EBAY)’s popularity among hedge funds saw a slight increase during the April-June period as the date of the spin-off of Paypal Holdings Inc (NASDAQ:PYPL) approached. Though the aggregate value of investors’ holdings in the company came down slightly, by 1%, during the second quarter, the number of hedge funds who owned stakes in eBay Inc (NASDAQ:EBAY) rose by nine during the same period. The gradual uptrend that the stock of eBay Inc (NASDAQ:EBAY) has experienced since the Paypal Holdings Inc (NASDAQ:PYPL) spin-off was announced continued during the second quarter, as it ended the quarter with gains of 4.4%. Activist investor Carl Icahn, who was instrumental in pressuring eBay Inc (NASDAQ:EBAY) to spin-off Paypal Holdings Inc (NASDAQ:PYPL), was the largest shareholder of the company among the hedge funds we track. His hedge fund Icahn Capital LP owned over 46.27 million shares of eBay Inc (NASDAQ:EBAY) at the end of June.
1. Amazon.com, Inc. (NASDAQ:AMZN)
Investors with Long Positions (as of June 30): 103
Aggregate Value of Investors’ Holdings (as of June 30): $104.58 Billion
With its immense 66.54% year-to-date rise, 16.7% of which was in the second quarter, it’s not difficult to understand why Amazon.com, Inc. (NASDAQ:AMZN) was the favorite e-commerce stock of hedge funds at the end of the quarter. Hedge funds lapped up Amazon.com, Inc. (NASDAQ:AMZN)’s shares in droves during the quarter, with the number of hedge funds in our database who own the stock going up by seven and the aggregate value of hedge funds’ holdings seeing a 23.80% increase during the April-June period. The company has managed to beat the Street’s estimates for the last three quarters, including with its second quarter numbers in July by reporting a profit, which for a long time was the major concern investors had regarding the company. Among the funds which initiated a position in the company during the second quarter was Jim Simons‘ Renaissance Technologies. As of June 30, the quant fund owned over 1.15 million shares of Amazon.com, Inc. (NASDAQ:AMZN).
Disclosure: None
