In this article, we take a look at the top 10 stocks that Kayak Investment Partners is buying.
Daryl Smith’s Kayak Investment Partners is a San Francisco-based long/short equity hedge fund that manages a fairly concentrated, tech-heavy portfolio. The fund, which was co-founded by Mr. Smith, traditionally devotes close to our greater than 50% of its 13F assets in the tech sector, while communications-related stocks are also among the fund’s favorites.
The fund’s 13F assets under management have ballooned in recent years, topping $700 million at the end of September 2021, an increase of more than $500 million since the end of 2019. The fund’s solid returns in recent years have surely helped it pull in more assets, as its Kayak Investment Partners Fund, L.P. delivered double-digit returns in both 2018 and 2019, which followed on the heels of 8.89% gains in 2017. From its inception in January 2013 through the first quarter of 2020, the fund’s compound annual return stands at 8.08%.
In the third quarter of 2021, Kayak Investment Partners made notable additions to several of its holdings as well as taking new stakes in several companies it sees great potential in. We’ll check out the fund’s biggest buys of Q3 in this article.
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We follow hedge funds like Kayak Investment Partners because Insider Monkey’s research has uncovered that their consensus stock picks can deliver outstanding returns.
Now then, let’s check out the top 10 stocks that Kayak Investment Partners is buying. Note that all hedge fund data is based on the exclusive group of 800+ funds tracked by Insider Monkey as part of our market-beating investment strategy.
Top 10 Stocks That Kayak Investment Partners is Buying
10. CrowdStrike Holdings, Inc. (NASDAQ:CRWD)
The first stock on our list is CrowdStrike Holdings, Inc. (NASDAQ:CRWD), which Kayak Investment Partners bought 22,700 shares of during Q3, opening a new position in the company. That position was valued at $5.58 million at the end of September. CrowdStrike shares had already risen five-fold from Q4 2019 until Q3 2021, but Kayak clearly believes more gains are in store.
Baron Funds agrees. In the Baron Opportunity Fund’s third-quarter 2021 investment letter, the firm believes that CrowdStrike Holdings, Inc. (NASDAQ:CRWD) has the potential to continue growing by 30% annually in the coming years even after already growing its addressable market five-fold since its IPO in the middle of 2019. Baron Funds believes that the ability for customers to try out CrowdStrike’s disruptive cybersecurity cloud tools for themselves through free trials has been a key feature driving CrowdStrike Holdings, Inc. (NASDAQ:CRWD)’s growth.
9. International Business Machines Corp. (NYSE:IBM)
Kayak Investment also opened a new stake in International Business Machines Corp. (NYSE:IBM) during Q3, buying 78,200 shares worth $10.86 million at the end of September. International Business Machines Corp. (NYSE:IBM) has largely fallen out of favor with hedge funds in recent years, sitting near 8-year lows in hedge fund ownership.
While it may be one of the oldest computing companies in the world, International Business Machines Corp. (NYSE:IBM) has done a good job at transforming itself in recent years, making big moves into disruptive and growing fields like blockchain, nanotechnology, cloud services, and AI. International Business Machines Corp. (NYSE:IBM) pulled in $2.52 in earnings per share during Q3, beating estimates by a single penny.
8. C3.ai, Inc. (NYSE:AI)
Kayak Investment Partners hiked its stake in C3.ai, Inc. (NYSE:AI), which has the enviable ticker AI, by 83% during Q3, giving it 318,398 shares of the company which provides cloud-based AI tools to the energy industry. That stake was valued at $14.76 million on September 30. 21 hedge funds were long AI at the end of Q3, down from 30 following C3.ai, Inc. (NYSE:AI)’s IPO in Q4 2020.
C3.ai, Inc. (NYSE:AI) shares ballooned following their IPO, soaring to over $140 as the market got overly excited about the latest hot tech stock. However the exuberance began to fade and reality to set in over the coming quarters, as shares have tanked all the way down to just under $31. C3.ai, Inc. (NYSE:AI) was slammed after the company’s high-flying revenue growth, which stood at 71% in its fiscal 2020, tumbled to just 16% in the first quarter of 2021. C3.ai, Inc. (NYSE:AI) was also been unprofitable throughout its history, losing over $100 million across its fiscal 2019 and 2020.
7. Uber Technologies, Inc. (NYSE:UBER)
Kayak Investment Partners more than doubled its stake in Uber Technologies, Inc. (NYSE:UBER) during Q3, giving it 369,214 shares of the transportation service provider, raising the value of its stake to $16.54 million. Uber Technologies, Inc. (NYSE:UBER) has become very popular with hedge funds over the past two years, as hedge fund ownership more than tripled between Q3 2019 and Q3 2021 even as Uber Technologies, Inc. (NYSE:UBER) faced regulatory challenges in some markets.
In its Q3 2021 investor letter, Tollymore Investment Partners explained why Uber Technologies, Inc. (NYSE:UBER) has been so successful at disrupting the taxi industry, noting that they better align monetization with value creation, while limiting externalities. The fund further added that Uber represented a good example of a rental business model that separated asset use from ownership, models which lend themselves well to expensive and durable assets like motor vehicles.
6. Netflix, Inc. (NASDAQ:NFLX)
Closing out the first half of our list of Kayak Investment Partners’ biggest stock buys is Netflix, Inc. (NASDAQ:NFLX). The fund raised its stake in the world’s most dominant streaming service by 208% during Q3, building its position up to 33,713 shares valued at $20.58 million on September 30. Hedge fund ownership of Netflix appears to have plateaued for now in recent quarters, topping out at 120 long positions in the middle of 2019. NFLX shares have gained another 50% since then however as Netflix, Inc. (NASDAQ:NFLX)’s valuation continues to balloon.
In its Q3 2021 investor letter, First Pacific Advisors declared Netflix, Inc. (NASDAQ:NFLX) one of its biggest winners of the quarter, but added that while the market takes a short-term view of Netflix, Inc. (NASDAQ:NFLX) based on subscriber counts, the fund is bullish on Netflix’s long-term potential. The fund believes that the market underestimates Netflix’s total addressable market by basing it on the number of pay TV households. The fund instead sees smartphone ownership as the more relevant figure, which would make Netflix’s market penetration outside China less than 4% compared to 30% based on pay-TV figures.
5. Okta, Inc. (NASDAQ:OKTA)
Kicking off the second half of our list of Kayak Investment Partners’ biggest purchases is Okta, Inc. (NASDAQ:OKTA), the identity and access management software company. The fund raised its stake in the company by 66% during the third quarter, which gave it 116,100 shares valued at $27.56 million on September 30. Hedge fund ownership of Okta has steadily risen since the company went public in 2017, rising six-fold while OKTA shares have risen ten-fold.
Hedge funds like Okta, Inc. (NASDAQ:OKTA)’s cloud workforce solutions and believe they could help Okta, Inc. (NASDAQ:OKTA) generate greater than 30% revenue growth annually over the next five years. Okta, Inc. (NASDAQ:OKTA) also appears to be facing minimal threatening competition as it successfully targets developers and IT managers with its suite of offerings.
4. Advanced Micro Devices, Inc. (NASDAQ:AMD)
Kayak Investment Partners raised its stake in chipmaker Advanced Micro Devices, Inc. (NASDAQ:AMD) by 28% during the September quarter, building the size of its holding to 351,716 shares worth $36.19 million at the end of Q3. 65 of the hedge funds tracked by Insider Monkey’s database were long Advanced Micro Devices, Inc. (NASDAQ:AMD) on September 30.
Advanced Micro Devices, Inc. (NASDAQ:AMD) shares have enjoyed an incredible ride over the last six years, gaining more than 5000% while hedge fund ownership of the stock has climbed by 500% during that time. AMD earned EPS of $0.73 excluding items during Q3, topping estimated by $0.06, while its revenue of $4.31 billion was $190 million greater than expectations.
3. Airbnb, Inc. (NASDAQ:ABNB)
Kayak Investment Partners added a further 60% of shares of Airbnb, Inc. (NASDAQ:ABNB) to its 13F portfolio during Q3, giving it 234,624 shares which were valued at $39.36 million at the end of the third quarter. The property rental platform has been fairly popular with hedge funds since its Q4 2020 IPO, with 58 long ABNB on September 30.
Airbnb, Inc. (NASDAQ:ABNB) has weathered the pandemic well and appeared poised to grow sales by an impressive 33% in Q4 compared to pre-pandemic levels even as its major competitors largely remain flat or even down. Airbnb, Inc. (NASDAQ:ABNB) will face tougher comps next year but hedge funds appear to believe that with the ongoing recovery in the travel industry, Airbnb is more than capable of meeting them head-on.
Tollymore Investment Partners, an investment management firm, published its third-quarter 2021 investor letter and mentioned Airbnb, Inc. (NASDAQ:ABNB). Here‘s what the fund said:
“Today disruptors are not typically seeking to replace incumbents entirely. Rather, they break the links in the customer journey, in doing so better aligning monetisation with value creation and minimising externalities. For example, Airbnb broke the link between staying in residential property and owning it. Airbnb is a specific example of a business model innovation which separated asset use from ownership. This is hardly a novel idea; it’s called renting. Rental models lend themselves to assets which are expensive and durable, and where usage is infrequent.”
2. Warner Music Group Corp. (NASDAQ:WMG)
The second-to-last stock on our list of Kayak Investment Partners’ most bullish Q3 buys is Warner Music Group Corp. (NASDAQ:WMG), which the fund owns 924,229 shares of after raising its share ownership by 38% during Q3. Its WMG holding was valued at $39.5 million as of September 30. 29 hedge funds were long WMG on September 30, being virtually unchanged over the previous three quarters.
Investment management firm Jefferies Group took an interesting angle on Warner Music Group Corp. (NASDAQ:WMG) in its Q3 2021 investor letter, saying that Warner Music Group Corp. (NASDAQ:WMG) could do well in the metaverse, the virtual/augmented reality vision of the future being pushed forward by Mark Zuckerberg. Noting the popularity of music on many social platforms and the financial benefits to rightsholders like Warner Music, Jefferies envisions a future where social platforms like the metaverse play an even more prominent role in our lives as being potentially lucrative for Warner Music Group Corp. (NASDAQ:WMG).
1. Snowflake Inc. (NYSE:SNOW)
Topping our list of Kayak Investment Partners’ most bullish stock buys of Q3 is Snowflake Inc (NYSE:SNOW). The fund now owns 146,842 Snowflake Inc (NYSE:SNOW) shares as of the end of September, adding 37% more shares to its holding in Q3 to build a stake valued at $44.41 million. A new high of 73 hedge funds was long SNOW at the end of Q3, up from just 54 at the end of 2020.
Snowflake Inc (NYSE:SNOW)’s capital expenditure-light model was praised by RiverPark Funds in Snowflake Inc (NYSE:SNOW)’s Q3 2021 investor letter, with the fund projecting that SNOW will grow FCF much faster than revenue and could comfortably grow by more than 50% for several years. The fund also projected Snowflake’s market to grow into a $100 billion one by this year and the majority of physical databases continue to migrate to the cloud.
Luca Capital, an investment management firm, published its third-quarter 2021 investor letter and mentioned Snowflake Inc (NYSE:SNOW). Here‘s what the fund said:
“You may notice that the majority of our filters are qualitative. While we do believe that any company can be overvalued, the market has historically valued companies with durable competitive advantages below their intrinsic value because it expects the ROIC to trend towards average over time. However, the best businesses can often earn returns far and above their cost of capital for much longer than can be reasonably expected. Therefore, these businesses tend to trade at multiples that would be considered expensive by traditional metrics. However, the market can realize this opportunity and apply a much higher valuation on these companies, hence discounting their future returns to a more average return.
One example of this is Snowflake (SNOW), which recently debuted at an EV/S of over 175x. Although future returns might still be attractive, a significant amount of upside has already been captured. If we assume P/S drops 83% over the next 10 years to 30x with modest share dilution of 3.5%, in order to achieve a 15% annual return, Snowflake would have to grow sales at a ~41% CAGR to a $13B run rate. Snowflake is an exceptional company in a massive market so it might prove to be undervalued even at today’s prices, but its future returns have been greatly muted. Coca Cola is another example of a company with a wide durable moat but was so overvalued in the late 90’s it provided poor returns over the subsequent decade.”
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Disclosure: None. Top 10 Stocks That Kayak Investment Partners is Buying is originally published at Insider Monkey.
