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The Morning Brief: Facebook Soars as Apple Falls
Hedge fund favorite Facebook came to the rescue of tech and Internet-heavy long-short managers who have been reeling from many of their slumping holdings this year. The social-media giant Wednesday night reported strong revenues and profits and announced plans to create a new class of stock. In response, its shares rose more than 8 percent in after-market trading, setting up a strong day for Facebook’s stock on Thursday, and perhaps the tech-oriented market indexes. The stock was the second most widely-held issue among hedge funds at year-end. Facebook (along with Alphabet) was also the second most widely held stock among managers with roots to Julian Robertson, Jr.’s Tiger Management. It was the largest holding of New York–based Tiger Eye Capital and the second largest of Tiger Management itself. It was also a top-five holding of three other New York-based Tiger Cubs—Tiger Global Management, Blue Ridge Capital and Coatue Management.
On the other hand, shares of another hedge fund favorite, Apple, fell more than 6 percent in the regular Wednesday trading session, to close at $97.82, after the company announced its first decline in revenues in a decade and its first-ever fall in iPhone sales. Apple’s shares were the fourth most widely held stock among hedge funds at the end of the fourth quarter. In response, several banks lowered their price targets on the stock, including Goldman Sachs, Bank of America Merrill Lynch and Piper Jaffray. Their new targets now range between $120 and $153. Other firms reduced their estimates but retained their price targets. These include Credit Suisse, which maintained its $150 price target and Outperform rating. Interestingly, Apple was not a popular Tiger stock at the end of the year. However, it was Tiger Global’s fourth-largest holding.
Shares of another hedge fund favorite—Mondelez International—also had a strong day Wednesday. Shares of the activist favorite jumped 3.25 percent to close at $43.88 after the snack-foods company reported first-quarter results that beat Wall Street estimates. Two of the five largest shareholders at year-end were New York activists Trian Fund Management and Pershing Square Capital Management, although the latter cut its stake in March. The stock is up more than 9 percent this month, which will help hedge funds when they report April results. But, it is down slightly for the year-to-date.
In activist news, Yahoo and New York-based Starboard Value reached a compromise agreement. However, the deal looks like Starboard was the big winner. Yahoo agreed to add four new independent directors, including Jeffrey Smith, Starboard’s CEO and chief investment officer, effective immediately. Smith will also join the strategic review committee. Starboard, in turn, agreed to withdraw its director nominees for Yahoo’s board. However, the other three new directors—along with Smith—had been nominated earlier by Starboard, which proposed nine new directors altogether. They include Tor Braham, former managing director and global head of technology mergers and acquisitions for Deutsche Bank Securities; Eddy Hartenstein, a veteran media executive who held the top position at the Tribune Co., DirecTV and the Los Angeles Times Media Group; and Richard Hill, who has served as chairman of chipmaker Tessera Technologies since 2013. Tessera is a former Starboard activist target.