In this article, we discuss the top 5 tech stock picks of Amir Mokari’s Emerson Point Capital. If you want to read our detailed analysis of the topic, go directly to read the Top Tech Stock Picks of Amir Mokari’s Emerson Point Capital.
5. Microsoft Corporation (NASDAQ:MSFT)
Number of Hedge Fund Holders: 250
Insider Monkey’s Q3 data shows that hedge funds remained bullish on Microsoft Corporation (NASDAQ:MSFT), a multinational technology company. In Q3, 250 hedge funds tracked by Insider Monkey held stakes in the company, up from 238 in the previous quarter. The total value of these stakes is over $65.8 billion.
On October 29, Microsoft Corporation (NASDAQ:MSFT) announced its fiscal Q1 2022 results and reported revenue of $45.3 billion, up 21.8% from the prior-year quarter. Recently, Wells Fargo initiated its coverage on Microsoft Corporation (NASDAQ:MSFT) with an Overweight rating and a $400 price target. The firm’s analyst noted that the company still has a bright future ahead as it has continued growth opportunities in its IT sector.
As of Q3, Emerson Point Capital owns 72,202 shares in Microsoft Corporation (NASDAQ:MSFT), valued at over $20.5 million. The company accounts for 3.05% of the hedge fund’s 13F portfolio.
Polen Capital mentioned Microsoft Corporation (NASDAQ:MSFT) in its Q3 2021 investor letter. Here is what the investment management firm has to say:
“After modest Portfolio activity during the second quarter of 2021, activity increased during the third quarter. We would broadly characterize the various trades into two objectives: 1) managing risk, and 2) managing valuation. In both cases, we aimed to maintain the Portfolio’s growth profile. In aggregate, we believe we were able to increase expected earnings growth while reducing risk and the overall portfolio valuation… We also trimmed Microsoft, which had grown to nearly 10% of the Portfolio. At an 8% weighting, it still represents one of our largest positions.”
4. ServiceNow, Inc. (NYSE:NOW)
Number of Hedge Fund Holders: 87
ServiceNow, Inc. (NYSE:NOW) gained investors’ attention recently as the company posted upbeat Q3 earnings and sales. The company reported subscription revenue of $1.42 billion versus the estimates of $1.41 billion. ServiceNow, Inc. (NYSE:NOW) gained 20.47% in 2021.
Of the 867 hedge funds tracked by Insider Monkey, 87 hedge funds held positions in ServiceNow, Inc. (NYSE:NOW) in Q3, compared with 91 in the previous quarter. These stakes are valued at over $7.5 billion, up from $7.01 billion in the previous quarter.
In Q3, Emerson Point Capital increased its stake in ServiceNow, Inc. (NYSE:NOW) by 18%, which now represents 4.39% of the hedge fund’s 13F portfolio. Recently, both Credit Suisse and Deutsche Bank initiated their coverage on ServiceNow, Inc. (NYSE:NOW) with an Outperform and a Buy rating, respectively.
Palm Capital released its Q1 2021 investor letter and mentioned ServiceNow, Inc. (NYSE:NOW) in it. Here is what the firm has to say:
“ServiceNow provides software solutions to structure and automate various task and processes for large businesses. The company began in 2004 with a solution to help businesses manage the IT services they offer employees and customers. Unlike the existing solutions in the market, ServiceNow’s offering was built using modern architecture that was flexible, modular, and user-friendly. And it left the incumbents – large companies such as BMC, IBM and MicroFocus – playing catch up.
As the company grew to dominate this market, it saw the opportunity to expand its offering to include the broader task of IT Operations Management – or the monitoring and control of an entire business’s IT infrastructure. And over time its success in improving productivity and user experience in IT resulted in customers asking the company to expand its offering into other business workflows including HR Management and Customer Services – which it has since done.
All ServiceNow’s applications (including those built by customers and third parties) are built on its ‘Now’ platform. This allows the company and its customers to innovate and deploy new solutions quickly. And it helps ServiceNow gather a large amount of data to gain insights into and use machine learning to build solutions to meet customer needs in other areas. Crucially, this platform can interface with other SaaS and legacy software services used by its customers. Not only does this allow an IT department to manage all the myriad software services used by a business from a single point of control, it also reduces the operational disruption risk for those transitioning from legacy software systems to the cloud.
Aside from the ease of use of ServiceNow’s offerings, the other factor driving its growth is that its ‘land and expand’ strategy starts in the IT department of customers – the very department whose task it is to recommend other software solutions for businesses. It is therefore no surprise that more than 75% of ServiceNow’s customers use more than one of its products and 80% of its new business is from existing clients.
The company now serves almost 400 of The Fortune 500 companies and counts 6,900 of the largest enterprises globally as customers. Since listing in 2012, its sales have grown 18-fold from $0.2b to $4.5b – yet another illustration of the pace with which the internet enables businesses to grow and the pace at which digitization is occurring.
Importantly, ServiceNow has a strong switching cost advantage. IT Operations Management is mission critical as businesses cannot afford to risk the failure of IT equipment or software given the growing dependence on digital systems. Furthermore, these services tend to have long lifecycles as change involves an investment of time and money as well as operational disruption. And this lock-in is strengthened as customers build more and more solutions on the Now platform. As evidence of the switching cost advantages, ServiceNow’s retention rates – the percentage of existing customers who are still customers a year later – have never fallen below 97% since listing.
ServiceNow has a long runway of growth ahead. Not only are its existing markets growing in the high single digits as businesses digitize, it is disrupting its existing markets and entering new markets as it develops new products. Furthermore, its customers are also upgrading to premium versions of products. Management estimate that its total addressable market is in the hundreds of billions. Our conservative estimates point to a number comfortably north of $100b. This is significant relative to its current revenue and given the superiority of its products and entrenchment with its customers’ businesses.
What is remarkable about ServiceNow is that it is able to sustain such strong growth while still generating high free cashflow margins – currently above 20%. And these margins will only expand over time as its operating expenses of product development, distribution and marketing decline as a percentage of sales. For example, its marketing spend is currently 40% of sales but according to our calculations, this is yielding returns well above 300%.
ServiceNow is run by a highly rated management team. Its founder is still Chairman. And while its CEO and CFO have recently changed, the new CEO, Bill McDermott left enterprise software titan, SAP, to join the company. Furthermore, the company has substantial management depth.
The company has a net cash position of $1.5b on its balance sheet and generated $1b of free cashflow in 2020 that we expect to grow above 20% per annum over the next five years. Based on the price we paid for the business, we expect to earn more than 8% per annum in US$ from our investment and it is the type of business we would like to own for a long time.”
3. PayPal Holdings, Inc. (NASDAQ:PYPL)
Number of Hedge Fund Holders: 123
PayPal Holdings, Inc. (NASDAQ:PYPL) is an American financial technology company that mainly operates an online payments system around the globe. The company recently announced to facilitate the Venmo users to pay with Venmo apps on Amazon from 2022.
Fundsmith LLP was the largest shareholder of PayPal Holdings, Inc. (NASDAQ:PYPL) in Q3, holding a roughly $3.2 billion worth of stake. Overall, at the end of Q3, 123 hedge funds in Insider Monkey’s database reported owning stakes in PayPal Holdings, Inc. (NASDAQ:PYPL), compared with 143 in Q2. The total value of these stakes is over $12.8 billion.
Alger mentioned PayPal Holdings, Inc. (NASDAQ:PYPL) in its Q3 2021 investor letter. Here is what the firm has to say:
“PayPal Holdings, Inc. was among top detractors from performance. PayPal is a pure play on e-commerce and electronic payments which is driving the company’s high unit volume growth. As a digital payments company, it is helping to facilitate the shift to a cashless society. The coronavirus pandemic has significantly accelerated the adoption of e-commerce and the utilization of digital payments platforms. In our view, PayPal is currently positioned to benefit the strength in e-commerce trends, including increasing net new active users and increased engagement per user. PayPal also has launched a service enabling its customers to buy, hold and sell cryptocurrency directly from their PayPal account. PayPal’s vision is to become a Super App that integrates payments, commerce and financial services, as well as crypto capabilities. After outperforming earlier in the year, the performance of PayPal shares weakened in the third quarter with the company facing potentially higher transaction expenses and credit losses. The higher transaction expenses are driven by a shift by consumers to the higher cost travel and entertainment categories which skew toward less profitable credit transactions.”
2. Square, Inc. (NYSE:SQ)
Number of Hedge Fund Holders: 98
In Q3, Emerson Point Capital owns 135,434 shares in Square, Inc. (NYSE:SQ), valued at over $32.4 million. The company constitutes 4.87% of the hedge fund’s 13F portfolio. Square, Inc. (NYSE:SQ) announced its Q3 results on November 4 and reported a 55% year-over-year growth in its subscription-based revenue at $695 million. The company’s total net revenue for the quarter stood at $3.84 billion, up 27% from the prior-year quarter.
Recently, Tigress Financial appreciated the company’s innovation and development of new products. The firm lifted its price target on Square, Inc. (NYSE:SQ) to $310, while maintaining a Buy rating on the shares. With a $1.46 billion worth of stake, Catherine Wood’s ARK Investment Management was the company’s largest shareholder in Q3.
RiverPark Funds mentioned Square, Inc. (NYSE:SQ) in its Q1 2021 investor letter. Here is what the firm has to say:
“We established a position in leading Financial Technology provider Square during the quarter. Through one integrated system, SQ is a hybrid of two businesses: its Seller Business (charging small and medium-sized businesses about 3% for transaction payment processing, plus other services such as instant funds access, and software for everything from customer engagement to payroll), and its Cash App (originally for person-to-person cash transfers and now a growing digital financial services provider for consumers).
The combined business has grown gross profit at a 37% CAGR over the past five years to $2.7 billion (due to pass through costs, gross profit is more reflective of top-line growth) and we believe that the company has an enormous long-term runway, as it has less than a 2% share of a more than $160 billion market. It is our view that the company’s Cash App (which has grown
from nothing in 2015 to $1.2 billion gross profit last year) has a particularly large opportunity with its powerful ecosystem of digital financial services including digital wallets, direct deposits, stock trading, bitcoin trading, and business and tax services, which are all relatively new. The vast majority of Cash App’s more than 36 million users are younger and, importantly, are willing to replace their bank and other financial services accounts with the app.We estimate that the company can grow its gross profit more than 30% and EBITDA more than 50% annually for the foreseeable future, and while most of the company’s current profit is from its Seller Business, we believe most of Square’s future value will be from its Cash App business.”
1. Airbnb, Inc. (NASDAQ:ABNB)
Number of Hedge Fund Holders: 58
Airbnb, Inc. (NASDAQ:ABNB) is an American tech company that operates an online marketplace for lodging. In its recently announced Q3 results, the company posted a GAAP EPS of $1.22, beating the consensus by $0.52. Tom White, an analyst at DA Davidson, expects Airbnb, Inc. (NASDAQ:ABNB) to benefit from the economic reopening post-Covid. Recently, he lifted the price target on the stock to $230, while keeping a Buy rating on the shares.
At the end of Q3, 58 hedge funds tracked by Insider Monkey held stakes in Airbnb, Inc. (NASDAQ:ABNB), the same as in the previous quarter. These stakes are valued at $2.71 billion.
Emerson Point Capital increased its activity in Airbnb, Inc. (NASDAQ:ABNB) significantly by 160% in Q3 and now holds a $36.7 million worth of stake in the company. Airbnb, Inc. (NASDAQ:ABNB) is the sixth-largest holding of Amir Mokari’s hedge fund and represents 5.52% of its 13F portfolio as of Q3.
Worm Capital LLC recently released its second-quarter 2021 investor letter and mentioned Airbnb, Inc. (NASDAQ: ABNB). Here is what the firm has to say:
“Throughout the quarter, you may have noticed that we averaged into a significant position in Airbnb (ABNB). Though the stock has been a relative underperformer since its February highs, we are highly confident about the company’s prospects and its ability to generate meaningful compounded returns over time.
Some history: We have been following Airbnb’s journey for several years, long before the company went public earlier this year. (In fact, nine years ago, in November 2012, Eric profiled the company for Inc.: “Airbnb Is Changing Travel.”)
Whenever we underwrite a new investment, we look for a few key attributes that help us determine the potential long-term value of a business, as well as its risks. In particular, we focus on management (Are they founders? Do they have skin the game? Are they playing the long game?), addressable market size (How big is the opportunity?), its relative growth and creativity to expand (Are they constantly innovating to make the product better for their customers?), margin expansion (Where can we find operating leverage in the model?), its status in the industry (Are they the dominant player? Can they take market share from incumbents?), business risks (What are we missing? Are customers dissatisfied? What do employees say?) and probably a dozen more elements that are critical to our process. It’s only then do we take out the pencils do the valuation work.
In short, ABNB fulfills pretty much every element of a business model we’re attracted to: First, it’s highly scalable marketplace-based business model that unites buyer and seller with observable flywheel effects. (This is an important observation, in that the platform creates significant economic value for millions of hosts who rely on Airbnb, which in turn attracts new hosts who identify the opportunity, which creates more inventory, which turn attracts more travelers, which attracts more hosts, and soon.) Second, it has a global focus with significant opportunities to expand its operating leverage; Third, its management—which is still founder-led—stands out to us as long-term thinkers capable of handling crisis, which the team demonstrated throughout the pandemic by dropping operating costs and turning the business into a more efficient, lean organization. (Like Churchill said: “Never let a good crisis go to waste.”)..”
You can also take a look at 15 Biggest Tech Hardware Companies In The World and 20 Fastest Growing Tech Cities In The World
