Greenhaven Road Capital, an investment management firm, published its first quarter 2021 investor letter – a copy of which can be downloaded here. A commendable net return of 14% was recorded by the fund for the Q1 of 2021, outperforming the S&P 500 Index that delivered a 6.17% return for the same period. You can view the fund’s top 5 holdings to have a peek at their top bets for 2021.
Greenhaven Road Capital, in their Q1 2021 investor letter, mentioned Twitter, Inc. (NYSE: TWTR), and shared their insights on the company. Twitter, Inc. is an San Francisco, California-based social network company that currently has a $43.5 billion market capitalization. Since the beginning of the year, TWTR delivered a 0.79% return, extending its 12-month gains to 94.44%. As of May 03, 2021, the stock closed at $54.58 per share.
Here is what Greenhaven Road Capital has to say about Twitter, Inc. in their Q1 2021 investor letter:
“I think there are many elements of Greenhaven Road that are contrarian, including the previously mentioned willingness to invest in SPACs and having a fund of funds (the Partners Fund). However, we don’t have to be contrarian all the time; often, the consensus is correct. There is a wisdom in crowds. I think our investment in Twitter (TWTR) falls into the category of “the crowd has this one right.” I have been a Twitter user for seven years. For several of them, I was puzzled by the fact that the company was spending hundreds of millions of dollars per quarter on research and development with no evidence of improvement. Allowing users to go from 140 to 280 characters did not seem like it should require billions of dollars of engineering. Twitter struggled to recreate community with poor monetization and lackluster growth. It fell into the category of “love the product but not sure about the management or the investment prospects.” In fact, one could have purchased Twitter shares at or below their IPO price just last year, seven years after their 2013 IPO.
There are a number of reasons for the dearth of innovation at Twitter, the seeds of which were laid in their growth strategy. Twitter was built by bolting on acquisitions. Over time, products focused on cell phone SMS technology became an advertising-supported social network. It’s not an easy feat to fix technical issues while running a product that has almost 200 million daily users sending over 500 million tweets per day. Rebuilding the airplane while flying takes a long time. In the case of Twitter, it took years, but we are finally on the other side of the effort. While resolving technical debt sounds mundane, it is enabling innovation with positive business implications. In fact, Twitter has a wave of improvements that substantially enhance the user experience and monetization opportunities. Company leadership laid many of these out in their recent investor day presentation, where they also promised a dramatic acceleration in the introduction of new features.
The headline is that the Twitter of next year looks much different than the Twitter of 2020, which should drive engagement and monetization. Changes include allowing users to follow by area of interest vs. just following people, which will both improve engagement and monetization, and improving monetization of content creation through “tipping” and subscription products. Twitter is supporting live audio events through Spaces, and is rolling out new ad formats and tools for advertisers. The company also is likely to enable e-commerce, which will encourage collecting of payment information as well as verifying users. The monetization options are nearly endless and, to date, have solely consisted of advertising.
Personally, I have found Twitter to be a valuable tool on the investment research front, connecting me with content that I never would have found otherwise. I can see the thoughts of investors I respect in real time. Often when a stock “moves,” I can get a better understanding of why it happened on Twitter than by using Bloomberg or other purpose-built tools. Twitter has the combination of network effects (the more people use it, the better it is) and user-generated content. The new technology stack offers many opportunities to improve engagement and monetization. Combined with activist investors, new board members, and a management team that has taken steps in the right direction, Twitter has the opportunity for continued revenue growth, earnings growth, and multiple expansion. Elliot Turner of RGA Investment Advisors was generous with his time and incredibly patient explaining the possibilities presented by the rebuilt backend technology at Twitter. As sometimes happens (not often enough), we had rapid appreciation in our Twitter shares and have sold the position. I suspect we will revisit Twitter as there are many attractive elements.”
Our calculations show that Twitter, Inc. (NYSE: TWTR) does not belong in our list of the 30 Most Popular Stocks Among Hedge Funds. As of the end of the fourth quarter of 2020, Twitter, Inc. was in 78 hedge fund portfolios, compared to 75 funds in the third quarter. TWTR delivered a 1.07% return in the past 3 months.
The top 10 stocks among hedge funds returned 231.2% between 2015 and 2020, and outperformed the S&P 500 Index ETFs by more than 126 percentage points. We know it sounds unbelievable. You have been dismissing our articles about top hedge fund stocks mostly because you were fed biased information by other media outlets about hedge funds’ poor performance. You could have doubled the size of your nest egg by investing in the top hedge fund stocks instead of dumb S&P 500 ETFs. Here you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.
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Disclosure: None. This article is originally published at Insider Monkey.
