RiverPark Funds, an investment management firm, published its “RiverPark Large Growth Fund” second quarter 2021 investor letter – a copy of which can be downloaded here. The RiverPark Large Growth Fund (the “Fund”) returned 13.1% for the second quarter of 2021, while its benchmarks, the S&P 500 Total Return Index (“S&P”) advanced 8.5%, the Russell 1000 Growth Total Return Index (“RLG”) returned 11.9%, while the Russell 1000 Value Total Return Index returned 5.2%. You can view the fund’s top 5 holdings to have a peek at their top bets for 2021.
In the Q2 2021 investor letter of RiverPark Funds, the fund mentioned Zillow Group, Inc. (NASDAQ: Z), and discussed its stance on the firm. Zillow Group, Inc. is a Seattle, Washington-based online real estate marketplace company, that currently has a $25.7 billion market capitalization. Zillow delivered a -22.07% return since the beginning of the year, while its 12-month returns are up by 27.49%. The stock closed at $101.15 per share on August 06, 2021.
Here is what RiverPark Funds has to say about Zillow Group, Inc. in its Q2 2021 investor letter:
“Although Zillow’s 1Q results comfortably topped Street estimates across every major business metric, ZG shares were our final top detractor as 2Q guidance was mixed as the company plans to reinvest more aggressively, which will likely be a short-term drag on profitability. ZG’s total revenue grew 8% year over year and 54% quarter over quarter. IMT (the company’s media business, which currently delivers the majority of its cashflow) grew revenue
35% year over year and adjusted EBITDA increased 143% year over year to $209 million with 2,100 basis points of margin expansion to 47%. ZG management guided to second quarter revenue of $1.24 billion to $1.28 billion, representing 61%-67%, driven by 64%-68% IMT growth and $116 million to $140 million adjusted EBITDA, up from $16 million in 2Q20.With its number one ranking in real estate brand awareness, and more than 200 million monthly unique users and 10 billion visits last year to its mobile apps and websites, Zillow is the leader in online real estate. The company has historically focused on the $20 billion real estate advertising market through its IMT segment but is now also targeting the more than $2 trillion home transaction and related services market in its Homes and Mortgages segments. Just as the internet disrupted travel bookings, job search, home movie viewing, and car purchasing, among other industries, Zillow intends to disrupt residential real estate by radically simplifying real estate transactions, including inspections, appraisals, title insurance, mortgages, and buying and selling.
Zillow co-founder and CEO Rich Barton has deep experience in disrupting industries, having founded Expedia and co-founding Glassdoor (Rich is also on the board of Netflix). Zillow’s growing, high margin, high cash flow media business (its IMT segment generated $556 billion of EBITDA on $1.5 billion of revenue last year) is funding the explosive growth of its Homes and Mortgages sector, which has grown from zero in 2017 to $1.9 billion in revenue last
year. The two businesses work synergistically to provide Zillow with scale and data advantages, as well as low customer acquisition costs. We believe the company’s IMT segment will continue its high-margin, double-digit growth (last year IMT revenue and EBITDA grew 33% and 83%, respectively) and its Homes and Mortgages segment growth will accelerate post-COVID, with margins turning from negative to positive as the business scales.”
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Based on our calculations, Zillow Group, Inc. (NASDAQ: Z) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. Zillow was in 82 hedge fund portfolios at the end of the first quarter of 2021, compared to 83 funds in the fourth quarter of 2020. Zillow Group, Inc. (NASDAQ: Z) delivered a -10.06% return in the past 3 months.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 115 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
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Disclosure: None. This article is originally published at Insider Monkey.
