SRS Investment's 26 Stock Portfolio: Top 10 Holdings Analyzed - Sure Dividend

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SRS Investment’s 26 Stock Portfolio: Top 10 Holdings Analyzed


Updated on March 30th, 2021 by Nikolaos Sismanis

SRS Investment Management, LLC was founded in 2007 by a group of partners, including Edwin M. Stanton, Nicholas J. Rhodes, Danial K. Carr, and Richard D. Baier, who are all still with the company today.

The firm is employee-owned with Karthik Sarma currently having the majority ownership. Mr. Sarma’s current title is Managing Partner of SRS Investment Management. The firm operates six private funds.

Mr. Sarma earned a bachelor’s degree in mechanical engineering from the Indian Institute of Technology in 1996. He later earned a Master’s degree in operations research from Princeton University. He first was a consultant at McKinsey & Company for almost three years. He then found another position as a managing director for Tiger Global Management. He worked there for five years. At that point, he found SRS Investment Management.

He now oversees $7.7 billion in total Assets under Management (AUM) of which around $6 billion is invested in public equities.

Investors following the company’s 13F filings over the last three years (from mid-February 2018 through mid-February 2021) would have generated excellent annualized total returns of 33.8%. For comparison, the S&P 500 ETF (SPY) made annualized total returns of 12.5% over the same period.

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

Click the link below to download an Excel spreadsheet with metrics that matter of SRS Investment Management’s current 13F equity holdings:

 

Table Of Contents

SRS’s Investing Strategy

SRS’s Investment strategy is to achieve high rates of return by investing in securities likely to generate long-term capital appreciation. The firm hopes to accomplish this by buying low, investing conservatively, and generating value through fundamental investment enhancements where possible.

The firm focuses on a bottom-up strategy, which means looking at each company fundamentally—making sure that earnings are growing at a substantial rate. Based on the respective performance of a company, the fund will increase or decrease its exposure to risk-adjust its portfolio. For example, the firm recently increased its position in Planet Fitness (PLNT) by over $80 million amid a better-than-expected outlook.

The strategy has allowed the firm to grow its AUM incredibly fast, despite its relatively concentrated portfolio, which has never included more than 30 individual stocks.

SRS’s Top Holdings

SRS’s portfolio comprises 26 individual holdings, the 10 largest of which account for 86.4% of the total weight.

Source: 13F filings, Author

Zillow Group (Z)

The fund’s largest holding is Zillow Group, accounting for 22% of its total holdings. While some real estate sub-sectors like malls and retail locations struggled during the pandemic, the demand for residential properties has remained robust. As a result, revenues for Zillow Group, which operates a leading marketplace for residential real estate, ended 2020 at all-time high levels, generating $3.34 billion.

The fund trimmed around 9% of its position during the quarter likely to book some profits.

It’s worth noting that while Zillow has been growing quite rapidly, the company has not managed to produce a profitable year. However, being a high-margin service, Zillow should eventually turn its bottom line positive.

In the meantime, its cash position of around $3.9 billion should easily sustain its short-term losses, as the company keeps reinvesting back into the business.

Netflix, Inc. (NFLX)

The fund’s second-largest holding, is Netflix, at a position weighting 18.9%, despite management trimming the position by around 11%, selling around 318,000 shares during the past quarter. Netflix has been the fund’s top holding for several quarters, with SRS apparently loving its long-term growth story. So far, they have been right, as Netflix’s stock is currently trading near all-time highs, beyond $500/share.

The company has achieved consecutive quarter-over-quarter revenue growth since 2012, with its global subscriber base continuously expanding. As a result, Netflix has been able to leverage its economies of scale and has increasingly been reporting more solid profitability levels. In FY2016, the company booked $186 million in net income. In just four years, that figure grew to $2.76 billion.

With COVID-19’s new daily cases remaining strong, companies operating in the staying-at-home economy like Netflix are likely to continue flourishing. Coupled with its ever-expanding net income margins, Netflix is likely to remain investable, even near all-time highs.

Avis Budget Group (CAR), Planet Fitness (PLNT)

These two stocks collectively account for around 20% of the fund’s holdings, in what we may call its high conviction distressed investment opportunities. These are companies in different sectors that have been adversely affected due to the pandemic.

The fund also holds significant positions in stocks such as Booking Holdings (BKNG) and MGM Resorts (MGM). As a result, it seems that it has selected what it believes to be the highest quality companies in sectors such as gaming, traveling, and gyms in hopes of a post-COVID resumption to normalcy.

These are some risky investments. For example, Avis was on the brink of bankruptcy just several months ago. The company has taken massive amounts of debt to stay solvent, which should hurt its long-term profitability prospects. Nonetheless, because SRS has managed to scoop-up shares on the cheap, these investments could pay off, if they can reverse the current negative sentiment.

SRS increased its positions in Avis and Planet Fitness by 2% and 20%, respectively.

Twitter (TWTR)

The social media company accounts for just over 8% of SRS’s holdings, and its fourth-largest holding. Twitter’s investment case is more volatile and less clear than Facebook’s (in which the fund is also long), as the company has struggled to monetize its user base, let alone deliver some profits. Still, SRS held its position stable, continuing to believe in Twitter’s long-term future prospects.

Fiverr International Ltd (FVRR)

Fiverr entered SRS’s portfolio as recently as Q3-2020. The fund increased its position by 14% during the quarter, now accounting for 5% of the total portfolio. Fiverr has been benefiting greatly from the online “gig” economy, as the pandemic increased the demand for services such as graphic and design, digital marketing, writing, translation, etc.

The company makes a fee out of its transaction, and as a result, it has seen its revenues skyrocket, growing by 76% year-over-year. Due to the company’s asset-light business, Fiverr has been able to rapidly expand its margins as its activity volumes grow. Gross profit margins currently stand at an impressive 82.5%.

Still, the company has only a short history in the public markets, so investors should preferably perform their own due diligence before jumping into Fiverr.

Dynatrace, Inc. (DT)

Dynatrace provides a software intelligence platform for enterprise cloud applications. The fund increased its exposure in the company by a massive 57%, pushing the portfolio’s exposure to the stock at 4.6%. It s now SRS’s 6th largest holding. Revenues have been growing quarterly since the company’s IPO, though profitability remains razor-thin.

The enterprise cloud industry is brutally competitive, with the likelihood to see serious consolidation over the next few years. While Dynatrace may be currently enjoying its underlying organic growth, investors should question the company’s competitive advantage and moat before allocating their funds in Dynatrace.

Microsoft (MSFT)

The tech giant is an unstoppable juggernaut with no signs of slowing down. Considering the stock’s prolonged rally, it’s one of SRS’s most profitable investments over the past couple of years. For FY2020, the company posted all-time high revenues and profits of $143 billion and $44.28 billion, respectively.

It’s SRS’s 8th largest holding, accounting for 3.2% of its total portfolio. Nonetheless, the fund trimmed its position by 20% during the quarter, likely for diversification reasons.

MongoDB, Inc. (MDB)

MongoDB is one of the fastest database platforms worldwide, enjoying recurring revenues which it grows by the quarter. As you can see in the graph below, losses have been widening along with revenues. However, growth remains rapid still, at 40% year-over-year.

The company is reinvesting everything back into the business, and with the high-margin business model that databases enjoy, it could easily turn its bottom line into a positive one when management decides to “flip the switch.”

MongoDB is a brand new position of SRS, initiated as of its latest 13F filing.

Altice USA, Inc. (ATUS)

Last but not least, the fund’s tenth-largest holding is Altice USA, which offers broadband, video, telephony, and mobile services to about five million residential and business customers. Due to the recurring nature of its cash flows, revenues have been extremely consistent over the past 16 quarters.

The company has not paid a dividend for years. Instead, management prefers to allocate much of the profits generated towards repurchasing and retiring the company’s shares. They have in fact repurchased 21% of Altice’s shares outstanding within just 2 years, which is utterly impressive.

The ongoing buybacks should also increase SRS’s total ownership in the company over time. The fund holds around 1% of the company as of its latest filing.


Final Thoughts

SRS Investment Management focuses on fundamental growth. Even during adverse economic times, SRS has been performing very well. Based on the firm’s 13F filings, the fund has been outperforming the market considerably.

If history is any indication, SRS Investment Management’s 13F filings make for compelling investment selections for investors looking for capital appreciation.

 

Additional resources:

Slate Path Capital’s 20 Stock Portfolio: Top 10 Holdings Analyzed

Appaloosa Management’s 35 Stock Portfolio: Top 10 Holdings Analyzed

Viking Global’s 75 Stock Portfolio: Top 10 Holdings Analyzed

Lone Pine Capital’s 37 Stock Portfolio: Top 10 Holdings Analyzed

Akre Capital’s 26 Stock Portfolio: Top 10 Holdings Analyzed

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