After missing Wall Street revenue estimates for the first quarter of fiscal 2015, Alibaba Group Holding Ltd (NYSE:BABA)’s stock has lost as much as 7% of its value at the start of trading today. The Chinese electronic commerce behemoth reported revenue of 20.25 billion yuan (about $3.27 billion), 28% higher than last year, but below the consensus estimate of $3.39 billion. The sales growth is also slower from the average of 56% year-over-year growth in revenue for the company’s previous 12 quarters. Nonetheless, Alibaba clinched a narrow beat on the bottom line with earnings of $0.59 per share, a cent more than what analysts were expecting. The slowdown of revenue growth was attributed to slower growth in gross merchandise volume (GMV), which amounted to $109 billion for the quarter. The GMV advanced by 34% on the year, but missed the 38% growth expected by the Street and is the slimmest GMV growth figure the firm reported for the last three years. Meanwhile, Alibaba Group Holding Ltd (NYSE:BABA) has also revealed a $4-billion stock buyback program that it will implement in the next two years. The firm’s stock has declined more than 23% since its market debut in September, 2014.
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Money managers that we follow give the impression that they anticipated the downtrend of Alibaba Group Holding Ltd (NYSE:BABA)’s stock. However, before we take a closer look at the hedge fund sentiment surrounding the stock, let’s first discuss why Insider Monkey tracks hedge funds. We pay attention to hedge funds’ moves because our research has shown that this group of investors is extremely talented at picking stocks on the long side of their portfolios. It is true that hedge fund investors have been underperforming the market in recent years. However, this was mainly because hedge funds’ short stock picks lost a ton of money during the bull market that started in March 2009. We have been tracking the performance of hedge funds’ 15 most popular small-cap stock picks in real time since the end of August 2012. These stocks have returned 123.1% since then and outperformed the S&P 500 ETF (SPY) by 66.5 percentage points (see more details here). That’s why we believe it is important to pay attention to hedge fund sentiment. With all of these in mind, let’s take a glance at the new hedge fund activity regarding Alibaba Group Holding.
Hedge fund activity in Alibaba Group Holding Ltd (NYSE:BABA)
By the end of March, 86 of the hedge funds among those we track were long in Alibaba Group Holding Ltd (NYSE:BABA), down from 90 at the end of the previous quarter. There was a slight inflow of capital into the stock, however, as the total value of investments declined by 18.38% quarter-over-quarter, while the stock lost almost 20% of its value in the first three months of the year. It should be noted, however, that only 2.8% of Alibaba’s outstanding stock are owned by hedge funds we follow, an indication that, overall, hedge funds are underweight on Alibaba.
Rob Citrone’s Discovery Capital Management had the largest position in Alibaba Group Holding Ltd (NYSE:BABA) by the end of the first quarter, owning 8.77 million shares worth close to $730.36 million. Meanwhile, Andreas Halvorsen of Viking Global ended the first quarter with 6.94 million Alibaba shares. There were certain hedge funds, however, that were over the glitz brought by Alibaba’s IPO. Dan Loeb’s Third Point, the hedge fund with the largest stake in Alibaba at the end of 2014, said goodbye to all of its 10 million shares worth about $1.04 billion. James Dinan of York Capital Management also dumped 2.81 million shares in the first quarter.
As hedge funds look elsewhere to get more returns for their capital, we also recommend not going long on Alibaba Group Holding Ltd (NYSE:BABA) at the moment.
Disclosure: None
