Billionaire Chase Coleman’s Tiger Global Management is still bullish on Etsy Inc (NASDAQ:ETSY), taking advantage of the recently-listed company’s post-IPO swoon to snatch up more shares of the online marketplace. According to a 13G filing from Coleman’s investment firm today, it now owns an even 10.0 million shares of the company, equal to 8.9% of its outstanding common stock. The billionaire’s firm is the first to make such a filing with the SEC concerning Etsy since that company’s IPO in the middle of April.
We don’t just track the latest moves of hedge funds. We are, in fact, more interested in their 13F filings, which we use to determine the top 15 small-cap stocks held by the funds we track. We gather and share this information based on 16 years of research, with backtests for the period between 1999 and 2012 and forward testing for the last 2.5 years. The results of our analysis show that these 15 most popular small-cap picks have a great potential to outperform the market, beating the S&P 500 Total Return Index by nearly one percentage point per month in backtests. Moreover, since the beginning of forward testing in August 2012, the strategy worked brilliantly and just as our research predicted, outperforming the market every year and returning 144%, which is more than 84 percentage points higher than the returns of the S&P 500 ETF (SPY) (see more details).
Follow Chase Coleman's Tiger Global Management LLC
Tiger Global Management was founded by Coleman in 2001 with $25 million in seed money from legendary investor Julian Robertson, with whom Coleman had worked under at Tiger Management. Today, the firm boasts $35 billion in assets under management and disclosed a public equity portfolio valued at $9.12 billion in its most recent 13F filing. The head of that public equity investing, Feroz Dewan, is leaving the firm some time this month to start his own investing firm according to Coleman in a recent letter to investors. The departure of Dewan has perhaps prompted Tiger Global Management to merge its two long-only funds, which it will do in July.
The firm’s interest in Etsy Inc (NASDAQ:ETSY) is not new. According to the company’s amended Form S-1 filing just before its IPO, entities affiliated with Tiger Global Management held just under 7.12 million shares, a 7.3% stake in the company at that time, which would dip to 6.4% following the initial public offering. That IPO was a roaring success at first, with shares jumping by 88% on day one to close at $30 from the initial offering price of $16, and hitting a high of $35.74 at one point on IPO day. However it’s been all downhill since then; Etsy has lost more than 50% since its day one close, and fallen 7% below its shares’ $16 initial offering price.
The dreary performance appears to fall on a number of factors, including IPO over-exuberance from investors, who are used to IPOs delivering strong returns in recent years and perhaps overlooking the fundamentals of this particular company, as well as an earnings report in the middle of May that threw up even more warning signs. Among them were rapidly increasing expenses, declining growth from product sales on its site, and warnings over second quarter earnings from management, which predicted that expenses would continue to grow while overseas sales may be negatively impacted by the stronger U.S dollar.
Etsy, which offers an online marketplace for the sale of handcrafted and unique items, is also at risk of potentially deadly competition from Amazon.com, Inc. (NASDAQ:AMZN), which teased in late May that it would launch its own Amazon Handmade service, and has even reportedly been wooing current Etsy sellers, some of whom make six-figure salaries selling highly popular, money-making items on the platform such as candles, clothing, and accessories.
The threat of Amazon.com, Inc. (NASDAQ:AMZN) is particularly worrisome given that Etsy’s revenue growth in the first quarter was largely fueled by selling services to the people who power the site, its sellers. Should Amazon come along with a superior (and cheaper) service, one that allows sellers access to an even wider audience of customers, it’s not hard to envision Etsy’s current revenue growth drying up quickly.
Despite all that, Tiger Global Management is not fazed, and seemingly believes that Etsy will continue to grow and that there is space for both it and Amazon.com, Inc. (NASDAQ:AMZN) in the handcrafted online marketplace. Whether other investors are as keen, only time will tell. Tiger Global Management is the only known shareholder of Etsy among the investment firms in our database at this time.
Disclosure: None
