In this article we take a look at why Brazilian Billionaire Jorge Paulo Lemann Loves These 5 Tech Stocks. To take a look at the other side of the coin, check out why Brazilian Billionaire Jorge Paulo Lemann Has Lost Faith in These 5 Tech Stocks.
Sea Limited (NYSE:SE), DoorDash, Inc. (NYSE:DASH), and ZoomInfo Technologies Inc. (NASDAQ:ZI) are some of the tech stocks that billionaire money manager Jorge Paulo Lemann has lost faith in. In contrast, he still loves the following five tech stocks.
Jorge Paulo Lemann’s 3G Capital is a Brazilian/American global investment firm that manages $18.5 billion in assets as of March 31. The firm was founded in 2004 by five men, including 82-year-old billionaire Jorge Paulo Lemann, and is currently run by Co-Founder and Co-Managing Partner Alex Behring alongside Co-Managing Partner Daniel Schwartz.
Lemann, who has a personal net worth of $14.7 billion according to Forbes, down from over $29 billion in 2017, received a bachelor’s degree in economics from Harvard in 1961. From there he went into investment banking and eventually became a controlling shareholder of Anheuser Busch, the world’s largest beer maker.
That was a sign of things to come for 3G Capital, which alongside Warren Buffett’s Berkshire Hathaway, has orchestrated some of the biggest deals in the hedge fund industry in recent years, including their $45 billion takeover of Heinz, which they later merged with Kraft. The two parties also took over Burger King, Tim Hortons, and Popeyes and merged them under the Restaurant Brands International Inc. (NYSE:QSR) label.
In 2016, Anheuser Busch completed a $100 billion deal to buy SABMiller and a year later, 3G tried but failed to execute a $143 billion takeover of Unilever PLC (NYSE:UL). Following the latter failed takeover, Mr. Behring stated that the investment firm would only pursue friendly deals in the future, which could limit its options. Heading into the coronavirus pandemic, 3G Capital took a wait-and-see approach given the uncertain market conditions and sky-high valuations.
3G Capital massively restructured its 13F portfolio in the first quarter of 2022, selling off half of its former long positions while replacing them with just one new portfolio addition. The firm remains heavily invested in tech stocks, which account for the bulk of its exposure to the U.S equity market. Its 13F portfolio was valued at $260 million on March 31, down from $471 million on December 31.
In this article, we’ll look at the five tech stocks that 3G Capital loves even as it was massively paring down its portfolio.
Our Methodology
The following data is gathered from 3G Capital’s latest 13F filing with the SEC. We follow hedge funds like 3G Capital because Insider Monkey’s research has uncovered that their consensus stock picks can deliver outstanding returns.
All hedge fund data is based on the exclusive group of 900+ funds tracked by Insider Monkey that filed 13Fs for the Q1 2022 reporting period.
Brazilian Billionaire Jorge Paulo Lemann Loves These 5 Tech Stocks
5. Snowflake Inc. (NYSE:SNOW)
Value of 3G Capital‘s 13F Position: $12.6 million
Number of Hedge Fund Shareholders (as of March 31): 81
Sea Limited (NYSE:SE), DoorDash, Inc. (NYSE:DASH), and ZoomInfo Technologies Inc. (NASDAQ:ZI) were among the tech stocks that Jorge Paulo Lemann was selling in Q1. 3G Capital also cut its position in Snowflake Inc. (NYSE:SNOW) by 32% to 55,000 shares during the quarter and the fund has far less exposure to SNOW than to any of the other stocks in its 13F portfolio. Nonetheless, SNOW is one of just six stocks that 3G Capital was long as of March 31, which certainly says something about its conviction in the cloud computing company.
Snowflake Inc. (NYSE:SNOW) got a big vote of confidence from JP Morgan last week, whose survey of CIO’s found strong intent to spend money on Snowflake’s software platform, particularly among those customers who already use it. Two-thirds of existing customers that were surveyed expressed the desire the spend more on Snowflake’s offerings this year.
JP Morgan’s Mark Murphy raised his recommendation on Snowflake Inc. (NYSE:SNOW) to ‘Overweight’ from ‘Neutral’ in light of the survey results, with a $165 price target on SNOW shares. He further noted that Snowflake is currently trading close to its IPO levels even as the company’s quarterly revenue run-rate has more than tripled to $1.7 billion since then.
4. Amazon.com, Inc. (NASDAQ:AMZN)
Value of 3G Capital‘s 13F Position: $32.6 million
Number of Hedge Fund Shareholders (as of March 31): 274
3G Capital built a new position in ecommerce and cloud services giant Amazon.com, Inc. (NASDAQ:AMZN) during Q1, buying 10,000 shares to build 12% exposure to the stock in its 13F portfolio. Amazon topped the list of the 30 Most Popular Stocks Among Hedge Funds: 2022 Q1 Rankings, with 274 of the funds that are tracked by our exclusive database being long AMZN on March 31.
UBS cut its price target on Amazon.com, Inc. (NASDAQ:AMZN) to $167 from $209 in late-June, citing near-term risks to the company’s 2022 and 2023 financial outlooks given the macroeconomic environment. The firm lowered both its 2022 and 2023 revenue expectations for Amazon to $523.2 billion and $598.7 billion respectively. On the plus side, UBS does anticipate Amazon’s margins improving thanks in part to Prime price hikes and fuel surcharges, and generally likes the long-term outlook for an investment in the company.
Hayden Capital analyzed some of Amazon.com, Inc. (NASDAQ:AMZN)’s impressive history and stock market performance in its Q1 2022 investor letter:
“Amazon reached a peak by the end of 1999, at a valuation of over $30BN. Considering that the company only generated $1.64BN in revenues that year (growth of 169% y/y), this equated to a valuation of 18x Price / Sales at the peak.
More notably though, was that Amazon was a pure 1P retailer at the time, meaning that they owned the inventory that they sold. Long-term margin assumptions under this business model were low, at just ~5% expected operating margins (365x implied structural operating profits).
By the time the stock bottomed in September 2001, shares were trading for ~0.7x P/S or 14x structural operating profits.
During those years, Amazon worked to reduce its operating losses and dialed back its growth investments as a result. In 2000, Amazon grew revenues by 68% y/y and reduced its cash burn from -26% operating margins to -6% by the end of the year. In its year-end 2000 earnings release, Amazon indicated that it targeted profitability by the end of 2001.
While the stock continued to decline throughout the first 9 months of 2001, the company reiterated on its 3Q 2001 earnings that it would achieve its profitability target within the next quarter. They had to dial back growth from its previous ~68% y/y in 2000 to just ~13% y/y growth in 2001, in order to cut costs and achieve this.
However, with investors focused on profitability, this period marked the turning point for the stock price, with a bottom ~$6 per share (equating to the aforementioned ~0.7x P/S or ~14x structural operating profits). Notably, based on this, the stock was able to bottom a full year before the NASDAQ index found a bottom in September 2002.
Over the next few years, Amazon’s fundamentals remained strong, with sales growing ~26% y/y in 2002 and proving to investors that the company could be profitable in such an environment. By 2003, the company was generating $5.2BN in sales and reported its first full year of profits.
Within a little over a year of bottoming, by the end of 2002, the share price had recovered 240% to ~$21 per share (equating to 1.8x P/S). By the end of 2003, the stock had recovered to a 4x P/S multiple or $21BN valuation. This equated to a ~8.5x return on the stock price in just a little over two years.”
3. Microsoft Corporation (NASDAQ:MSFT)
Value of 3G Capital‘s 13F Position: $38.5 million
Number of Hedge Fund Shareholders (as of March 31): 262
Microsoft Corporation (NASDAQ:MSFT) remains near all-time highs in terms of hedge fund ownership and ranks as one of the most popular stocks among hedge funds every quarter. 3G Capital further solidified its own stake in the tech giant during Q1, raising it by 79% to 125,000 shares.
Microsoft Corporation (NASDAQ:MSFT) shares have tumbled by 22% this year despite the company’s solid revenue growth and stellar returns on equity. Microsoft is expected to grow revenue by mid-double-digits over the next half-a-decade. Combine that with returns on equity that approach 50% and it’s no wonder Microsoft has easily blasted earnings estimates over each of the past four quarters and is expected to grow earnings by 15.5% year-over-year.
The Baron Opportunity Fund believes, as do many other investors and analysts, that Microsoft Corporation (NASDAQ:MSFT) can compound revenue at a double digits clip for the next three years, saying this about the company in its Q1 2022 investor letter:
“Shares of mega-cap software company Microsoft Corporation (NASDAQ:MSFT) pulled back with the broader software sector. The company posted another solid quarter, highlighted by total revenues increasing 20% and Microsoft Cloud revenues, now 45% of total revenues, growing 32%. These results were driven, in large part, by strong demand for large Azure contracts. We believe Microsoft can compound revenue in the low double digits for the next three years, underpinned by its expansion in its total addressable market and market share gains.”
2. Bill.com Holdings, Inc. (NYSE:BILL)
Value of 3G Capital‘s 13F Position: $49.9 million
Number of Hedge Fund Shareholders (as of March 31): 58
Bill.com Holdings, Inc. (NYSE:BILL) ranked as 3G Capital’s top tech stock pick heading into 2022, but the fund unloaded 42% of its stake in the company during Q1, leaving it with 220,000 shares. Given that it still has 19% exposure to the stock in its 13F portfolio, 3G Capital still appears to have plenty of conviction in the company.
Bill.com Holdings, Inc. (NYSE:BILL)’s cloud-based business management platform is approaching 150,000 clients and the company is continually looking to expand into other verticals, most notably raising its invoicing and payment capabilities with its recent acquisitions of Invoice2go and Divvy. Those acquisitions grew Bill.com’s customer count more than two-fold to 386,000.
Bill.com Holdings, Inc. (NYSE:BILL)’s revenue is projected to follow suit, with the company guiding for a 162% surge in revenue for its 2022 fiscal year, to $624 million. And though the company is on track to lose about $35 million in its current fiscal year, it has a sizable amount of cash and short-term investments, $2.7 billion in all, to easily absorb those losses and to fuel further growth.
1. TaskUs, Inc. (NASDAQ:TASK)
Value of 3G Capital‘s 13F Position: $65.3 million
Number of Hedge Fund Shareholders (as of March 31): 21
Other hedge funds were selling out of TaskUs, Inc. (NASDAQ:TASK) in droves during Q1, as there was a 30% decline in hedge fund ownersh.ip of the stock. 3G Capital on the other hand is a huge believer in the content moderation company, having 25% exposure to the stock in its 13F portfolio.
TaskUs, Inc. (NASDAQ:TASK) grew revenue by 57% to $239.7 million in Q1, topping its own estimates by $6.5 million on the high-end of its guidance. The firm failed to raise its full-year revenue guidance however, which caused investors to further sink the stock after its earnings report was released. TASK shares are now down by 68% in 2022, pushing the stock down to just 2x the company’s projected 2022 sales.
The Alger Mid Cap Focus Fund thinks 2022 could be a good year for TaskUs, Inc. (NASDAQ:TASK), having this to say about the company in its Q4 2021 investor letter:
“TaskUs is a modern customer care company that manages digital customer experience exclusively for highly innovative “technology Disruptor” clients. The company’s services include managing end-consumers’’ needs for its clients, such as sales, after sales-support, complaint management, trust and safety and transaction processing. It also provides content security and operations services driven by artificial intelligence.
The stock underperformed in the final three months of 2021 despite the company providing a strong third quarter earnings report. We think the underperformance resulted from the company issuing 25% year-over-year earnings growth guidance for fiscal year 2022, which implies a meaningful deceleration. Additionally, an agreement preventing certain insiders from selling shares expires in the middle of January. The company’s shares, furthermore, have significant ownership by hedge funds, making them subject to year-end rebalancing. Despite the recent weakness, we think the fiscal year 2022 guidance is extremely conservative and the company is currently well positioned for future upward revisions to its earnings estimates.”
We’ve seen which tech stocks Jorge Paulo Lemann likes. In the follow up to this article, we’ll check out some of the tech stocks the billionaire money manager got rid of during the first quarter, including Sea Limited (NYSE:SE), DoorDash, Inc. (NYSE:DASH), and ZoomInfo Technologies Inc. (NASDAQ:ZI).
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Disclosure: None. Brazilian Billionaire Jorge Paulo Lemann Loves These 5 Tech Stocks is originally published at Insider Monkey.
