Hedge Funds Hated These Tech Stocks in Q1

Like the broader US stock market, technology stocks fell sharply during the first six weeks of 2016. Compared to the S&P500 index, which fell by 9%, the Dow Jones U.S. Technology Index fell by as much as 12.7% by mid-February, creating good opportunities to buy tech stocks on the cheap. Nonetheless, not all tech stocks attracted fresh investments during the slump, as some tech stocks registered notable declines in hedge fund ownership, despite some of them suffering severe drops in valuation, which should have theoretically made them more attractive. In this article we’ll take a look at five tech stocks that greatly lost their appeal in the eyes of the top hedge fund managers tracked by Insider Monkey.

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Operating Margins and Hedge Fund Support Shrinking at Proofpoint

A 45% depreciation in Proofpoint Inc (NASDAQ:PFPT) shares early in 2016 prompted hedge funds to distance themselves from the provider of data protection services. Whereas at the end of December 2015, 30 top hedge funds held the stock in their portfolios, by the end of March that number had fallen to 22, or approximately 3% of the funds tracked by Insider Monkey. Proofpoint Inc (NASDAQ:PFPT)’s revenue has been on the rise for the past four quarters, reaching $79 million for the three months ended March 31, 2016. The company also posted a loss of $31.7 million for the first quarter, or $0.09 per share when adjusted for one-time gains and costs. The other side of the coin shows decreasing operating margins amid growing revenue and increased competition in the segment. Ken Griffin‘s Citadel Investment Group dumped nearly 70% of its stake in Proofpoint Inc (NASDAQ:PFPT) during the first quarter, ending March with only 96,444 shares worth $5.18 million.

Security Solutions Provider Leaking Hedge Fund Support

The number of top hedge funds invested in Lifelock Inc (NYSE:LOCK) fell by nearly 50% to 16 throughout the first quarter, with those funds’ ownership amounting to 16.2% of the company’s common stock. The provider of security solutions has been on a good run lately, having posted solid growth numbers for the first quarter. Revenue rose by 18% year-over-year to $159.3 million, while membership increased by 11% to 4.3 million. An increase in marketing efforts led to a larger net loss however, with Lifelock Inc (NYSE:LOCK) having posted a loss of $11.7 million, or $0.06 per share on an adjusted basis. The company’s weak forward guidance has also put pressure on the stock. Lifelock said it expects second quarter earnings to range between $0.03 and $0.04 per share. Steve Cohen liquidated his investment in Lifelock Inc (NYSE:LOCK) during the first quarter, with his fund Point72 Asset Management selling off all 129,300 shares of the tech company that it held on December 31.

Turn the page to find out which three tech stocks hedge funds hated the most in the first quarter.

Investors Not Impressed with Imperva’s Weakening Guidance

Poor stock performance in the first quarter prompted hedge fund managers to limit their exposure to Imperva Inc (NYSE:IMPV). The stock ended the first quarter down by roughly 20% and at one point in time was 49% in the red. That prompted a 50% reduction in the number of funds in our database owning the stock, as the total  fell to 15 by the end of the first quarter, from 30 at the beginning of it. Jim Simons‘ Renaissance Technologies reduced its stake by 62% during the quarter, leaving it with 173,700 shares valued at $8.77 million. Imperva Inc (NYSE:IMPV) was a victim of weak forward guidance twice this year. After a bumper 2015, when demand for and spending on security solutions rose sharply, the company revised its growth outlook for 2016, contrary to analysts’ expectations. For the current quarter, Imperva projected revenue in the range of $65.5 million to $66.5 million and a loss of $0.04 to $0.02 per share, below analysts’ consensus estimates.

Software Developer with Monstrous P/E Loses Support

Atlassian Corporation PLC (NASDAQ:TEAM) is also among the tech stocks that fell out of favor with elite hedge funds. Out of 766 funds tracked by Insider Monkey, only nine reported being long Atlassian in their latest 13F filings, down from 22 reporting such positions three months earlier. Atlassian Corporation PLC (NASDAQ:TEAM) ended Friday’s trading session at $22.78 per share, down by 24% year-to-date. Shares are currently trading at a monster trailing P/E multiple of 530, while the industry average P/E stands at 21 according to Yahoo! Finance. Founded in 2002, Atlassian develops products for software developers, project managers, and content management, and is best know for Jira, a bug tracking tool. The company went public in December 2015 at $21 per share and raised $462 million in the process. As opposed to most hedge fund managers, Chase Coleman chose to keep his investment in Atlassian Corporation PLC (NASDAQ:TEAM) intact. In its latest 13F filing, his fund Tiger Global Management reported a holding of 500,000 shares of Atlassian worth $12.5 million.

Airline Battle Sends Qunar Crashing Down to Earth

Hedge fund ownership of Qunar Cayman Islands Ltd (NASDAQ:QUNR) fell the most among tech stocks during the first quarter, as the stock fell by as much as 37%. At the end of the first quarter, only nine of the funds followed by Insider Monkey had the stock in their portfolios, down from 25 a quarter earlier. Qunar Cayman Islands Ltd (NASDAQ:QUNR) found itself at loggerheads with nine Chinese airlines, who decided to suspend their collaboration with it after an increase in the number of complaints from customers. The airlines cited complaints about price discrepancies and refunds for tickets booked on Qunar as the main reasons behind the boycott. As it was unable to reach an agreement with those air carriers, Qunar decided to start its own budget airline. After having held some 8.52 million shares of Qunar Cayman Islands Ltd (NASDAQ:QUNR) at the end of the fourth quarter, Andreas Halvorsen‘s Viking Global liquidated its entire position during the first three months of 2016.

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