In a new public filing with the Securities and Exchange Commission (SEC), Parag Vora‘s HG Vora Capital Management disclosed acquiring a new equity stake in eLong Inc. (NASDAQ:LONG). Vora’s fund reported ownership of 1.3 million American Depositary Shares (ADS) which represent 2.6 million ordinary shares, with one ADS being equal to two common shares. The newly revealed stake represents 6.8% of the company’s outstanding common stock.
We follow hedge funds like HG Vora Capital because our research has shown that their stock picks historically managed to generate alpha even though the filings are up to 45-days delayed. We used a 60-day delay in our back tests to be on the safe side and our research showed that the 15 most popular small-cap stocks among hedge funds outperformed the S&P 500 Total Return Index by an average of 95 basis points per month between 1999 and 2012. After adjusting for risk, our calculations revealed that these stocks’ monthly alpha was 80 basis points. We have also been sharing and tracking the performance of these stocks since the end of August 2012, during which time they have returned 144%, outperforming the S&P 500 ETF by nearly 85 percentage points (see more details here).
HG Vora Capital Management is an event-driven and value-oriented hedge fund founded by its current portfolio manager, Parag Vora. Vora also takes responsibility for the fund’s investment, strategic and administrative decisions. Vora’s experience in advising and investing is quite impressive as he has previously worked at the multi-strategy hedge fund, Silver Point Capital, as well as acted as a Vice President in Goldman Sachs’ Real Estate Investment Banking Division prior to launching his own fund. According to his fund’s latest 13F filing, the value of Vora’s public equity portfolio stood at $801.47 million. In the meantime, some of the largest equity holdings of this hedge fund when measured by the value of shares held include Pinnacle Entertainment Inc. (NYSE:PNK) and Macy’s Inc. (NYSE:M).
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Moving on to eLong Inc. (NASDAQ:LONG), the stock has skyrocketed by over 21% since the beginning of the current year, which was mainly triggered by Expedia Inc. (NASDAQ:EXPE)’s recent announcement that it was selling off its entire equity stake in eLong. Expedia sold its stake of 62.4% in the Chinese company for $671 million to a few major shareholders including Ctrip.com International Ltd. (NASDAQ:CTRP), which acquired a 37.6% stake in eLong from Expedia. eLong is a leading travel service provider in the Chinese market and it assisted Expedia’s development and growth in China, one of the most important markets for the company, throughout their ten-and-a-half-year cooperation. However, as eLong has been struggling recently from the fierce competition in China, Expedia’s strong performance has been reduced significantly by eLong’s losses. Hence, Expedia’s decision of divesting its stake in eLong represents a new starting point for both companies.
The Shanghai-based Ctrip.com International, an online consolidator of hotel rooms and transportation tickets in China, purchased a 37.6% stake in eLong from Expedia for $400 million, which marks a new beginning for these companies. Vora opened a position in Ctrip.com International Ltd. (NASDAQ:CTRP) during the first quarter and is clearly backing the latest move of the company by doubling down on its newly-acquired stake in eLong. The profit margins of these companies have suffered throughout the last years as they increased marketing expenses dramatically so as to gain more market share in the Chinese travel industry. However, the two companies currently dominate the market share for top-notch hotel booking at 75%, which will give them more bargaining power when negotiating with vendors. Analysts believe that the cooperation between Ctrip and eLong will be quite handy as they become more powerful in battling the tough competition in the Chinese market. Ultimately, the recently announced deal undoubtedly improves the outlook for pricing and profits of these two companies in the above-mentioned increasingly competitive market.
Let’s take a brief look at eLong’s recent financial performance so as to assess the company’s stand-alone financial health. The company has no debt at all on its balance sheet, yielding a debt-to-equity ratio of zero, which is definitely a sign of strong financial health. During the first quarter of the year, eLong reported revenues of RMB211.9 million (US$34.2 million), which marks a 14% decrease year-over-year. At the same time, the gross margins for the same quarter decreased to 29% from the 73% figure reported in the first quarter of the prior year. However, the domestic hotel coverage network expanded by an enormous 180% year-over-year, reaching almost 280,000 domestic hotels as of March 31. Although eLong’s recent financial performance is not entirely satisfactory, the company’s cooperation with Ctrip.com International Ltd. (NASDAQ:CTRP) might spur additional revenue streams and boost its financial results in the upcoming months and years.
The largest shareholders in eLong Inc. (NASDAQ:LONG) from the pool of hedge funds we track include Paul Reeder and Edward Shapiro’s PAR Capital Management, Brad Gerstner’s Altimeter Capital Management and Daniel Gold’s QVR Financial. All of the above-mentioned hedge funds increased their holdings in eLong during the first quarter, with PAR Capital Management previously owning the largest equity stake, of 873,573 shares.
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