What Hedge Funds Think About e-Commerce in 2016

Last year was rather confusing for investors in the e-commerce space. While some stocks from the industry saw an unprecedented rise over the course of the year, others got beaten down aggressively. The wild moves registered by e-commerce stocks during 2015 was also one of the reasons why several hedge funds saw the value of their portfolios either rise or plummet throughout the year. However, despite the turmoil, there was no dearth of investors backing e-commerce stocks. Nevertheless, there were a few names that were more popular among smart money investors and, in this article, we are going to focus on five e-commerce stocks that funds from our database are most bullish on.

At Insider Monkey, we track nearly 800 hedge funds, whose 13F filings we analyze as part of our small-cap strategy. Our research has shown that imitating a portfolio that includes the 15 most popular small-cap stocks among hedge funds can outperform the market by as much as 95 basis points per month on average (see more details here).

#5 Vipshop Holdings Ltd – ADR (NYSE:VIPS)

– Investors with Long Positions (as of December 31): 34

– Aggregate Value of Investors’ Holdings (as of December 31): $1.62 Billion

Vipshop Holdings Ltd – ADR (NYSE:VIPS)’s stock saw a rally between 2013 and early 2015, but has gone through an equally drastic fall since then, losing nearly 60% of its market capitalization in the last 10 months. Naturally, hedge funds were not too keen to go long the stock amid this heavy decline and the number of funds holding shares of the company, among the funds covered by us, declined by six during the fourth quarter. However, the aggregate value of their holdings in the company went up by $186 million during the same period. For its fiscal fourth quarter, the company declared a 60% year-over-year increase in its gross profit to $517 million and a 65% annual increase in its revenue to $2.15 billion. On Though the stock has suffered a year-to-date decline of 27%, most analysts who cover it are still bullish on it. On February 29, analysts at Morgan Stanley upgraded the stock to ‘Equal Weight’ from ‘Underweight’ while maintaining their price target of $13 on it.

#4 eBay Inc (NASDAQ:EBAY)

– Investors with Long Positions (as of December 31): 72

– Aggregate Value of Investors’ Holdings (as of December 31): $2.8 Billion

The number of hedge funds covered by us that were long eBay Inc (NASDAQ:EBAY) slid by 9 and the aggregate value of their holdings in the company decreased by $883 million during the fourth quarter. So far, this year, eBay’s stock has lost almost 14% with more than half of this decline registered after the company reported its fourth-quarter results. On February 22, the company announced the pricing of its 6.00% Notes due 2056 at $25 per note plus any accrued interest. Through this offering, it plans to raise $750 million. According to eBay’s last 10K filing, it had $6.78 billion of total debt on its balance sheet and its debt-to-equity ratio was 103. Though analysts are happy with the growth of eBay’s ticket auction subsidiary StubHub and expect it to be a major revenue driver in the future, they are still concerned about the tepid growth of its core business. Jacob Rothschild‘s RIT Capital Partners reduced its holding in the company by 28% to 1.26 million shares during the October-December period.

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#3 Alibaba Group Holding Ltd (NYSE:BABA)

– Investors with Long Positions (as of December 31): 77

– Aggregate Value of Investors’ Holdings (as of December 31): $6.74 Billion

Amid a 37.8% rise in its stock during the fourth quarter, Alibaba Group Holding Ltd (NYSE:BABA) saw a notable rise in its popularity among hedge funds. The number of funds bullish on Alibaba went up by 17 and the aggregate value of their holdings saw a 78% increase during the same period. Though Alibaba Group Holding Ltd (NYSE:BABA)’s stock has lost 12.4% year-to-date, it has performed relatively well compared to other Chinese stocks. According to analysts, trading at a trailing P/E of 17.39, Alibaba Group Holding’s stock is undervalued considering the company’s projected growth over the next few years. After the company recently disclosed a 5.6% stake in Groupon Inc (NASDAQ:GRPN), rumors started circulating that Alibaba might be interested in acquiring the company. Those rumors have intensified in the last few days after The Wall Street Journal reported that the company is in talks with several banks to raise $4 billion for expansion and M&A. Rob Citrone‘s Discovery Capital Management upped its stake in Alibaba Group Holding by 62% to 10.6 million shares during the fourth quarter.

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#2 JD.Com Inc (ADR) (NASDAQ:JD)

– Investors with Long Positions (as of December 31): 78

– Aggregate Value of Investors’ Holdings (as of December 31): $10.84 Billion

Alibaba Group Holding’s main competitor JD.Com Inc (ADR) (NASDAQ:JD) emerged as the second favorite e-commerce stock among hedge funds going into 2016, with net seven more funds disclosing a stake in the company as of the end of the fourth quarter and the aggregate value of investors’ holding in the company jumped by $1.74 billion during the quarter. The 78 investors from our database that were long the stock amassed 38% of the company at the end of December. While the company may have managed to beat Alibaba in popularity, its stock rose by 23.5% during the fourth quarter and has fallen by 17.62% year-to-date, underperforming Alibaba. For its fourth quarter, JD.Com reported a loss of $0.07 per share on revenue of $54.60 billion, versus Street’s expectation of a loss of $0.12 on revenue of $51.90 billion.

#1 Amazon.com, Inc. (NASDAQ:AMZN)

– Investors with Long Positions (as of December 31): 141

– Aggregate Value of Investors’ Holdings (as of December 31): $17.32 Billion

With its shares more than doubling in 2015, there is no surprise that Amazon.com, Inc. (NASDAQ:AMZN) is the favorite e-commerce stock among the investors we follow. In addition, the company also emerged as the fourth most popular stock among the funds we track. Though Amazon.com, Inc. (NASDAQ:AMZN)’s stock has lost 14% so far this year and it failed to beat analysts’ expectations in its last quarterly results, investors and analysts remain confident that the stock will move higher going forward. The main reason for their optimism is the strong growth registered by the Amazon Web Services segment, which saw net sales increasing by 69% year-over-year and contributed $1.86 billion in operating profits in 2015 with an operating margin of 23.64%. On March 1, Cowen analyst John Blackledge released a survey, which showed that customers are subscribing to the company’s Prime Now service at a rapid rate. Michael Sidhom‘s Immersion Capital initiated a stake in the company during the fourth quarter by purchasing 236,256 shares.

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Disclosure: None