Altimeter Capital Management's 16 Stock Portfolio: Top 10 Holdings Analyzed - Sure Dividend

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Altimeter Capital Management’s 16 Stock Portfolio: Top 10 Holdings Analyzed


Updated on September 3rd, 2021 by Nikolaos Sismanis

Altimeter Capital Management is a Boston-based multi-billion dollar technology-focused investment firm managing a long/short public equity fund and private growth equity funds. The firm was initially founded by Brad Gerstner in 2008, in Menlo Park, California, and currently has around $13.2 billion worth of Assets Under Management (AUM).

Investors following the company’s 13F filings over the last 3 years (from mid-August 2018 through mid-August 2021) would have generated annualized total returns of 17.51%. For comparison, the S&P 500 ETF (SPY) generated annualized total returns of 18.09% over the same time period.

You can download an Excel spreadsheet with metrics that matter of Altimeter Capital Management’s current 13F equity holdings below:

 

Note: 13F filing performance is different than fund performance. See how we calculate 13F filing performance here.

Keep reading this article to learn more about Altimeter Capital Management.

Table Of Contents

Altimeter Capital Management’s Holdings

Altimeter has achieved satisfactory annualized returns over the past few years, though slightly underperforming the S&P 500. The fund’s success has been attributed to management’s superior skills in identifying and investing in companies in the ever-growing tech sector. Its holdings are allocated in major public equities and highly promising private companies before they eventually IPO.

Overall, while Altimeter is one of the largest hedge funds we have covered so far, in terms of assets, its public-equities portfolio is highly concentrated with a total of 16 holdings. The portfolio is almost exclusively focused on the technology and consumer discretionary sectors.

Source: 13F filings, author

During the quarter, Altimeter initiated or sold its position in the following stocks:

New Buys:

New Sells:

Altimeter’s top 10 holdings weigh around 92% of its total portfolio and consist of the following equities:

Source: 13F filings, author

Facebook Inc. (FB):

Altimeter Capital CEO Brad Gerstner has been long on Facebook for years, with his fund doubling down on the stock on occasional dips, including the stock’s plunge during 2018’s scandal involving Cambridge Analytica. The company has not sold any of its 3,753,400 shares since, which has greatly paid off.

Facebook is a tremendous cash cow, but with a problem. On the one hand, with strong financials, one of Wall St.’s healthiest balance sheets, and the best platform for advertisers to utilize, Facebook has been dominating the social media industry. The company has reported an all-time high bottom line of $38.9 billion over the past four quarters, amid great user growth, notwithstanding now decelerating to the single digits.

For these reasons, it would not be a complete surprise if Facebook paid a dividend at some point in the future.

On the other hand, the stock has failed to attract a higher multiple, as the steep scrutiny it has faced over the past few years have had an impact on the valuation. The stock is only trading at around 25.9 times its underlying earnings, despite its rapid growth.

With its ARPU (average revenue per user) still very strong, Facebook’s financials are more than likely to continue expanding rapidly. Facebook’s investment case today does not only include the potential for a significant upside but also comes with a great margin of safety.

If such a valuation expansion never appears, and Facebook continues to trade at a forward P/E of around 26, at an EPS growth rate of 20%-30% in the medium term (which the current user and APRU growth trajectory could easily sustain), investors should achieve equally satisfactory returns with a constant valuation multiple.

Facebook is currently the fund’s largest position.

Uber (UBER):

Uber is Altimeter’s second-largest holding, occupying around 19.4% of the fund’s portfolio. The fund has been invested in the transportation disruptor before the company went public in May of 2019. The ongoing pandemic has reduced demand for constant transportation, scrapping Uber’s plans for becoming profitable. Revenues took a significant hit, while Uber has lost more than $1 billion over the past 4 quarters. Uber’s forward P/S multiple has now retreated to lower levels, with investors valuing the company at 3.7 times its forward sales.

Altimeter trimmed its Uber position by 13% based on its latest 13F filing, pausing its continuous buying.

Altimeter’s faith in Uber through such a large stake is remarkable, considering that the company is frequently facing regulatory setbacks. At the same time, management has failed to convince the market of a clear profitability roadmap. It’s also striking that Altimeter does not hold a single share in Uber’s rival Lyft (LYFT), in an effort to hedge its large bet.

Peloton Interactive, Inc. (PTON):

What makes has made Peloton successful over the past few years is its management’s spot-on execution, which has elevated the fitness company’s brand value greatly. Peloton, from early on has been offering an end-to-end experience that begins from its high-end fitness products all the way to the supplementary accessories and video-streaming catalog, which is subscription-based.

In Q2, connected fitness subscription workouts increased 75% to 134.3 million, averaging 19.9 monthly workouts per user, versus 24.7 in the prior-year period. Revenues grew 54.3% to $936.9 million.

Altimeter initiated a position in Peloton in Q1 and hiked its stake by 511% during Q2.

Microsoft (MSFT):

Found amongst the top holdings of the majority of the funds we have covered, Microsoft is Alitmeter’s fourth-largest holding, occupying comprising ~9.9% of its portfolio. The fund left its position unchanged during the quarter.

Microsoft is a mega-cap stock with a market capitalization of $2.2 trillion.

Supported by the company’s strong profitability, management has been consistently raising buybacks over the past decade to further reward its shareholders. The amount allocated to stock repurchases has reached new all-time highs over the past four quarters, at nearly $27.3 billion.

Revenue growth remains in the double-digits, so it’s likely to see capital returns accelerating moving forward. The company is also growing the dividend at a double-digit rate, though at the current yield, which stands below 1%, investors should expect the majority of their future returns in the form of capital gains.

Despite that, Microsoft’s cash position has been growing continually, with the company currently sitting on top of a massive $130 billion cash pile.

Further, while many companies have chosen to utilize the current ultra-low interest rates to raise cheap debt and buy back stock, Microsoft’s approach has been prudent and thoughtful. Not only are current earnings extensively covering buybacks (59% buyback “payout ratio”), but long-term debt has been substantially reduced from $76 billion in mid-2017 to around $50 billion as of its last report.

It is impressive that a stock with a market capitalization of $2.2 trillion still has such a strong growth momentum. Shares are also trading a P/E ratio of around 34.4, which is quite reasonable for a dominating tech behemoth.

Zoom Video Communications, Inc. (ZM)

Zoom has massively benefited from the ongoing pandemic, which encouraged the work-from-home economy and greatly grew the demand for the company’s product. Revenues have been snowballing along with profitability.

Specifically, in Q2 revenues jumped by 53.7% to $1.02 billion – a new all-time high. Concerns that the company’s success would not last and that revenue growth would slow down as the economy emerges from the pandemic have faded away.

The company is also highly profitable, boasting net income margins close to 30%. Combined with its underlying growth, the stock’s rich valuation multiple could likely be justified.

Altimeter hiked its position by 30% during the quarter, boosting the stock to its fifth-largest position.

Shopify (SHOP):

Shopify is Altimeter’s sixth-largest holding, comprising 5.7% of the total value of its portfolio. Shopify provides a cloud-based commerce platform, which enables merchants to adapt to the e-commerce era. The company clearly benefits from a secular trend, which has decades to run, namely the shift from brick-and-mortar purchases to online purchases. The pandemic has caused this long-term trend to accelerate at an enormous pace.

As a result, Shopify saw its revenues grow by 85.6% last year. Due to the company’s recurring revenues, accelerated growth, and positive catalysts surrounding e-commerce, the stock is currently trading a forward price/sales of 36.2 which is one of the highest valuation multiples in the industry.

Thanks to the tremendous growth potential of its business, Shopify is expected to keep growing its revenues and its earnings at a breathtaking pace for several more years. Nonetheless, the market has already priced in a large portion of future growth in the stock price. To provide a perspective, the stock is currently trading at 42 times its expected earnings in 2025.

CrowdStrike Holdings, Inc. (CRWD):

CrowdStrike offers a groundbreaking cloud-delivered solution for next-generation endpoint and cloud workload protection that offers 19 cloud modules as well as its Falcon platform via a software as a service (“SaaS”) subscription-based model. The company has achieved tremendous growth over the past few years, though the bottom line remains in the red as all operating cash flows are reinvested back into the business.

The fund did not make any changes to its position in Q2. CrowdStrike is now Altimeter’s seventh-largest holding.

Alibaba Group Holding Limited (BABA):

Alibaba, the Chinese tech behemoth, has been in Altimeter’s portfolio since Q2-2017 and has since grown to its eighth-largest position. The company recently reported its Q2 results, smashing estimates by delivering revenues of $31.81 billion, a 33.8% growth year-over-year.

While Alibaba remains a highly profitable company, displaying net income margins that often surpass the 30%+ levels, its shares have been recently lagging due to the ongoing concerns surrounding Chinese equities. Jack Ma’s prolonged and mysterious disappearance, for example, was an unacceptable event for one of the largest publicly-traded companies in the world. Further, the Chinese government’s involvement in steering the company’s direction, combined with the ongoing crackdown in Big Tech, has also been raising questions among investors.

Hence, while those who are interested in investing in China’s tech world are likely to find Alibaba one of the most attractive investments out there, they should also consider the underlying risks involved. Altimeter trimmed its Alibaba position by 7% during the quarter.

Farfetch (FTCH):

The U.K.-based online marketplace for luxury goods is a company Altimeter has been holding since its early IPO. Over the past year, the fund has tripled its position, but shares have yet to occupy more than 3.1% of the total holdings.

While the company is technology-focused, considering its innovative online marketplace, its investment into Virgil Abloh’s Off-White has given it direct exposure to the fashion world by operating actual retail locations. Farfetch has yet to turn a profit (its positive bottom-line was a one-off event), but its sales are strengthening, as Off-White is becoming a cultural phenomenon, exploding in popularity.

Despite the rapid revenue growth (43.5% YoY in Q2), and the stock’s prolonged rally, the stock’s valuation is not entirely crazy at 5.9 times its forward sales. That is, assuming the current growth rate does not take a nosedive moving forward.

Altimeter trimmed its position by 13% quarter-over-quarter. Farfetch is now Altimeter’s tenth-largest holding.

United Airlines Holdings, Inc. (UAL):

Holding the stock for nearly a decade (initially bought in Q4-2011), United Airlines is Altimeter’s seventh-largest holding. Airlines were one of the adversely impacted companies by COVID-19, while traveling remains restricted in many parts of the world even as vaccinations advance.

Revenues remain depressed, and the company is still unprofitable. Thankfully, United has a $21.07 billion cash position on its balance sheet, which is likely to temporarily sustain losses, by which time the company hopes traveling volumes will improve.

United Airlines is Altimeter’s tenth-largest holding despite the fund trimming its position by 30% during the quarter.

Final Thoughts

Altimeter has been delivering robust returns amongst its hedge fund peers, underperforming the overall market indices by a slight margin. Its concentrated portfolio of high conviction equities has been greatly paying off and proven to be a viable strategy. That said, investors looking to tap into Altimeter’s holdings should be wary of the fund’s lack of diversification and the tech sector’s sky-high valuations.

 

Additional Resources:

Alkeon Capital Management’s 121 Stock Portfolio: Top 10 Holdings Analyzed

Appaloosa Management’s 40 Stock Portfolio: Top 10 Holdings Analyzed

Viking Global’s 69 Stock Portfolio: Top 10 Holdings Analyzed

Lone Pine Capital’s 32 Stock Portfolio: Top 10 Holdings Analyzed

Pershing Square: Bill Ackman’s 7 Stock Market-Beating Portfolio

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