PayPal has announced that it is acquiring Xoom Corp (NASDAQ:XOOM), a San Francisco-based money transfer company for $890 million, or $25 per share. PayPal’s acquisition of Xoom Corp (NASDAQ:XOOM) comes just weeks before its expected spin-off from eBay. PayPal’s President Dan Schulman said that his company envisions international expansions to facilitate people around the world in international money transfers. Xoom’s presence in 37 countries will help PayPal in those plans. After the acquisition announcement, Xoom shares surged 25% in after-hours trading to $25.55, pushing Xoom Corp (NASDAQ:XOOM) up by 43.33% over the last three months. Most interestingly, investors are clearly betting on a better offer for Xoom coming along and a resultant bidding war between PayPal and the new entrant(s), judging by the shares pushing past PayPal’s offering rate. The company reported a loss of $1.3 million in the first quarter. However, Xoom Corp (NASDAQ:XOOM) reported $44.4 million in revenue for the quarter, beating the Zack Consensus Estimate of $43.9 million. Let’s have a detailed look at the current hedge funds sentiment and latest insider transactions for the money transfer company to get a more holistic and clear picture.
12 of the hedge funds tracked by Insider Monkey held long positions in Xoom by the end of the first quarter of 2015, whereas 13 hedge funds were bullish on the company three months prior, which shows a decrease of 8% in the hedge funds’ holdings in the company. The total value of hedge funds’ investment in Xoom was valued at $104 million on March 31, whereas the total ownership value was $169 million on December 31, which shows a large decrease in hedge funds’ ownership, even factoring in that shares dipped by 16% during the first quarter.
We at Insider Monkey strongly believe in the importance and value of tracking hedge funds’ positions in companies because hedge funds spend large amounts of resources, time, and money to decide their bets on companies. Our experts analyzed the historical stock picks of small-cap companies made by hedge funds and found out that the funds performed far better betting on these companies than they did on large-cap stocks, which is where most of their money is invested and why their performances as a whole have been poor for a number of years. A portfolio of the 15 most popular small-cap stocks among funds outperformed the S&P 500 Total Return Index by 95 basis points per month between 1999 and 2012 in backtesting. The exceptional results of this strategy got even better in forward testing after the strategy went live at the end of August 2012, returning more than 135% and beating the market by more than 80 percentage points since then, and by 4.6 percentage points in the first quarter of this year. (see more details on this).
Our experts take both hedge funds’ activity and insider transactions into account while making investment decisions regarding a company. As for the insider transactions for Xoom, John Kunze, CEO of Xoom, sold 18,750 shares of the company at $18.76 per share on May 19. He also sold 18,750 shares of the company at $17.84 on May 12. There were no insider purchases recorded for the company in 2015.
Let’s now have a detailed look at the hedge funds’ activity around Xoom.
Details of Hedge Funds’ Activity in Xoom
According to hedge fund intelligence website Insider Monkey, Quincy Lee‘s Ancient Art (Teton Capital) has the largest position in Xoom Corp (NASDAQ:XOOM), worth close to $32.8 million, which is 9.3% of its total 13F portfolio. Mario Cibelli of Marathon Partners has the second-biggest stake in the company, worth $29.2 million.
Peter S. Park‘s Park West Asset Management, Glen Kacher‘s Light Street Capital, and Sam Peters’ Legg Mason Capital Management are some of the other notable hedge funds having stakes in Xoom.
Last month, Ancient Art L.P., managed by Quincy J. Lee sold 336,514 shares of Xoom Corp (NASDAQ:XOOM) in a series of transactions between May 20 and June 8.
Naturally, the big stock gain by Xoom is an innate response by the market to the acquisition announcement. However what isn’t expected is the push by investors past the offered sale price. Given that speculatory push, the rapidly declining growth at Xoom, and the bearish hedge fund sentiment of late, we don’t recommend buying Xoom at this time.
Disclosure: None
