“If something’s not a fast yes, then it’s a quick no.”
Brad Gerstner - Founder & CEO of Altimeter Capital
Brad Gerstner founded Altimeter Capital in the midst of the 2008 Financial Crisis with just $3 million in initial funding. Before Altimeter, Gerstner received his MBA from Harvard University, a J.D. from Indiana University, and an undergraduate degree from Wabash College. Gerstner confessed in an interview that he only went to law school because his grandfather insisted, but he always knew that he wanted to be an entrepreneur and businessman. Gerstner was also was the co-founder and CEO of Openlist, a local search start-up, which he sold to Marchex (MCHX) in 2005. Altimeters employs a long/short public equity investment strategy and invests in private equity as well.
So why exactly did Gerstner start his fund during one of the worst financial crises in history?
“You take somebody like Tiger Global and Chase who started in 2000 right after the dot-com blowup. So there was plenty of examples in my world of folks who started small during periods of duress driven by deep conviction and their own capabilities. And so, for me, it seemed from the outside looking in like I was crazy, but it made perfect sense to me.”
Essentialism best describes Altimeter’s investing strategy, which is the idea of doing less, better. Altimeter is a high-conviction fund and their top 10 public holdings account for 88.02% of their equity portfolio.
Altimeter’s Private Investments
Altimeter has had a crazy year. Gerstner has seen private investments, like Snowflake and Roblox, go public on the NYSE. Altimeter has also invested in several private companies with massive potential, such as Plaid and Epic Games (the creators of Fortnite). Let’s not forget that they manage 2 SPACs as well: AGC and AGCB. Altimeter announced earlier this year that AGC was merging with Grab, a food-delivery and fintech company headquartered in Singapore, at a $40 billion valuation. Grab stated that the deal is expected to close in Q4 of 2021.
Investors have eagerly been waiting for Plaid to go public since early 2020 and Altimeter is a major investor. In April, Altimeter led Plaid’s $425 million Series D funding round at a $13.4 billion valuation. Earlier this year in January, Altimeter participated in Roblox’s $520 million Series H funding round and purchased shares at $45.00 before Roblox IPO’d in March. Roblox is currently trading at $77.55, rewarding Altimeter a 72% gain in roughly 8 months. Other current private investments include StockX and DataRobot; past private investments include Zillow and Okta.
Performance & Holdings Value
Altimeter has returned a cumulative gain of 523.1% since 2012, compared with the S&P 500’s return of 268.3%. The average hedge fund returned 130.7% during the same period, underperforming both the S&P 500 and Altimeter.
Circled Blue Line: Altimeter Cumulative Returns (523.1%)
Purple Line: S&P 500 Cumulative Returns (268.3%)
Orange Line: Average Hedge Fund Cumulative Returns (130.7%)
Altimeter increased their holdings value to an all-time-high in Q1, signaling a bullish stance. Their holdings value increased by $3.17 billion, or 29.4% more compared to Q4 of 2020. Since March 2020, their holdings value has increased in a parabolic-like trend.
Current Portfolio
Snowflake is Altimeter’s largest holding and accounts for a hefty 49.30% of their portfolio. In regards to Snowflake’s massive weighting, Altimeter didn’t intend for that to happen; the position appreciated on its own. Altimeter was the lead investor for Snowflake’s $79 million Series C funding round in June of 2015.
Snowflake 2015 Valuation: $262 million (estimated)
Snowflake 2021 Valuation: $79.42 billion
Return in 6 years: 30,213%
With SNOW currently trading at $265/share, the $262 million investment in 2015 is now worth more than $9 billion. Altimeter owns 8.7% of all SNOW shares outstanding and decreased their position by 6.4 million shares last June, likely cashing out on large gains to fund other ventures.
Altimeter’s second largest position is Uber, which accounts for 11.90% of their portfolio. Altimeter first purchased Uber shares in Q2 of 2019 and their cost basis is estimated to be $30.90. Uber trades at $46.70 today, giving Altimeter an estimated 51% gain.
Altimeter purchased shares of Uber the day of the IPO, and Gerstner was quoted that day in a CNBC interview:
“If you don’t believe in Uber’s long-term story, then sell your shares today”
Shares of Uber IPO’d at $45.00 and closed down 8% at $41.57 that day. Uber has reported 9 earnings reports since inception, beating revenue estimates 5/9 times and EPS estimates 4/9 times. Altimeter is obviously investing in Uber for the long term, as these numbers aren’t spectacular. In fact, Uber has missed revenue estimates for the past 3 quarters.
Facebook is Altimeter’s third largest holding and reported earnings today (July 28th, 2021). Facebook grew revenues at their fastest pace since 2016.
Revenue: $29.08 billion, up 56% YoY
Operating Margin: 43%
DAU (Daily Avg. Users): 1.91 billion, up 7% YoY
MAU (Monthly Avg. Users): 2.90 billion, up 7% YoY
Facebook has now beaten consensus revenue estimates for 11 consecutive quarters; the last time they missed on revenue was in 2018. Since 2016, Facebook has only underperformed revenue estimates 2 times.
A point of concern is the new Apple iOS privacy feature, which prompts users with a popup asking whether they would like an app to track their external activity or not. This may alarm some users and hamper Facebook’s ad-matching algorithm if a user prompts out of external activity tracking.
Facebook stated in their Q2 2021 earnings report:
“In the third and fourth quarters of 2021, we expect year-over-year total revenue growth rates to decelerate significantly on a sequential basis as we lap periods of increasingly strong growth.
We continue to expect increased ad targeting headwinds in 2021 from regulatory and platform changes, notably the recent iOS updates, which we expect to have a greater impact in the third quarter compared to the second quarter.”
Significant Portfolio Changes
Significant additions included FTCH, ZM, and SE. Altimeter increased their existing ZM position by 317% at an estimated average price of $329.31 in Q1. Square’s portfolio weight was increased by 700%, although it still only carries a 0.35% overall weight.
Altimeter slashed their PDD position by 93% at an estimated price of $155.78. This was a smart move in hindsight, as PDD has plunged in recent weeks to $92.30 due to the threat of Chinese government regulation policies, which in the worst case scenario would lead to Chinese equities being delisted on US exchanges (possible, but not likely). Altimeter also decreased their CRM position by 50% and their BKNG position by 92%.
Brad Gerstner falls into the class of new-age top-performing fund managers. It’s not surprising after all that his investment idol is Warren Buffett. Much of Gerstner’s success comes from investing early in innovative private companies and holding through the IPO.
For Your Eyes Only - Hedge Fund Insights
Disclosure: Of the equities mentioned above, I am long SNOW, FB, CRM, SE, BABA, MSFT, and SQ.
Source 1 - Snowflake VC Investors
Source 2 - Altimeter Private Deals
Source 3 - Grab Merger with AGC
Source 4 - Uber Earnings History