Margate Capital Management is a very young hedge fund, founded at the beginning of 2016 by its current Managing Partner and Chief Investment Officer, Samantha Greenberg. The launching of the fund was enabled through a collaboration with Ramius LLC, the investment management business of Cowen Inc Class A (NASDAQ:COWN), which donated $130 million of seed money in April 2016, making a three-year commitment. Prior to founding Margate Capital Management, Samantha worked at Paulson & Co., where she was in charge of event-driven equity investments in the Consumer and Media Sectors. Before heading to Paulson & Co., she was a Vice President in the Special Situations Group of Goldman Sachs. She holds an M.B.A. from Stanford University’s Graduate School of Business and graduated summa cum laude with a B.S. in Economics and dual concentration in Finance and Strategic Management from the Wharton School at the University of Pennsylvania. Samantha Greenberg was ranked by Ernst & Young as one of the “50 Leading Women in Hedge Funds”.
Margate Capital employs a catalyst-driven long/short equity strategy with a primary focus on three sectors: technology, consumer, and internet/media. From its inception through the end of 2016, Margate Capital Management returned 5% net of fees, versus 4% for the S&P 500.
During the second quarter of 2017, the fund delivered a return of 2.4%, beating the HFRX Equity Hedge Index by 2.8%, but trailing the S&P 500’s Total Return Index by 6.1%. The fund underperformed the S&P 500 because its biggest exposure was to the tech sector, which had a big sell-off in June. As of January 2018, Margate Capital Management manages about $165.2 million in assets.
At the Delivering Alpha conference in July, Ms. Greenberg revealed her best idea: Take-Two Interactive Software, Inc. (TTWO). She said that aside from the company’s current revenue growth (its earnings have grown by over 70% during the last year), there are many other features that make it a very attractive investment. First of all, Samantha holds the opinion that gaming is the most engaging form of social media out there, owning the biggest share of minutes per day spent by users. With 60% of teenagers hooked on video games and spending around 3.5 hours a day on their obsession, this is an industry that shouldn’t be ignored.
We’ll check out more of her thoughts on Take-Two and video games on the next page.
One of the things that made Margate Capital Management even more bullish on gaming is the fact that its “business model is undergoing a transformation to a recurring model that creates significant value”. The change she talked about at the conference is happening thanks to the growing online presence of gaming, which compels gamers to buy extra content for their online, participate in tournaments, stream game play, and more. In that manner, “the initial purchase of the game [is] just the beginning of the game’s monetization”.
Furthermore, video games are cheaper than similar forms of entertainment such as movies and sporting events and e-sports are becoming more popular each day. Ms. Greenberg thinks that in the near future, video gamers won’t even have to buy consoles, that there will be live streaming platforms for video games similar to Netflix, which will have so much addictive content that users will happily fork out monthly subscriptions for. To make the gaming world even more interesting, many colleges now offer video game scholarships.
While that explains Ms. Greenberg’s enthusiasm for the sector, she further revealed why Take-Two Interactive Software, Inc. (TTWO) was her fund’s number one stock pick. Some reasons for that include the stock’s price, as it was trading at a discount relative to its peer group, the company’s “best in class content creation”, and the fact that it holds “the highest average game score” and “the biggest upside”. She is confident in the success of the company’s upcoming games such as “Red Dead Redemption 2” and believes that Take-Two Interactive Software Inc. (TTWO) is also “a logical takeover target”.
Ms. Greenberg has estimated a base case price target for Take-Two Interactive Software, Inc. (TTWO) of $176, representing 42% upside from its current price, while her upside surprise target stands at $202, or 62% greater than the current share price. The worst-case scenario in her opinion would be a price target of $100 per share, representing a 20% drop.
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