Running a hedge fund isn’t easy and most people close within the first five years. At the same time, it is a profession that can make people billionaires. Billionaire hedge fund managers generally become billionaires because of good stock picking.
Therefore, it may be a good idea to pursue some ideas about what these billionaire hedge fund managers are investing in and perhaps follow suit.
The Motley Fool recently analyzed 16 top hedge funds to find out which tech stocks these billionaire fund managers have put their money into. Although it’s not the most common stock on the list, one name caught my eye Pinterest (NYSE:PINS).
Billionaire investor Paul Singer of Elliott Management made the stock his top tech holding and third-largest stock position, accounting for over 10% of his stock portfolio. Known as an activist company, Elliott Management often engages in helping companies improve their operations.
Pinterest’s big opportunity
Pinterest is known for its eponymous online vision board, which users visit to find inspiration for things like shopping, home design, travel, and other interests. The company’s website attracts nearly 500 million monthly active users from around the world, the majority of whom are women.
The company’s biggest opportunity is to better monetize its large user base, which simply means finding ways to generate more revenue from its users. Like other social media companies, Pinterest derives a majority of its revenue from advertising. Because users are often actively looking for ideas for specific styles or activities, much of the company’s advertising revenue is performance-based, meaning its ads directly lead to clicks or a purchase, as opposed to brand advertising, which aims to spread the awareness of a brand and its products .
In recent years, the company has invested in innovations to generate additional revenue from its user base. This includes the introduction of features such as in-app checkout, augmented reality and a Shop the Look feature that is used AI and computer vision recommend similar purchaseable items to the retailer Catalog. Pinterest has really focused on making their website a personalized shopping experience.
Ultimately, this all serves to improve the company’s average revenue per user (ARPU). In the fourth quarter, Pinterest saw a global ARPU increase of just 2% to $2.00. However, that is not the whole story as ARPU varies greatly across regions. ARPU in the US and Canada rose 6% to $8.07, while European ARPU rose 23% to $1.23. ARPU in the rest of the world was just 15 cents, but that was up 7% from 14 cents.
Pinterest still has plenty of room to grow its ARPU numbers. For example, MetaplatformGlobal ARPU in the fourth quarter was $13.12 and ARPU in the US and Canada was $68.44. Partially closing this ARPU gap would lead to major growth for Pinterest.
Partnerships with Amazon and Google
In addition to innovation, Pinterest aims to increase ARPU through partnerships with other companies Amazon and Google, which is owned by alphabet.
Amazon, the e-commerce giant, helps bring shoppable content to the Pinterest platform, both with its own products that it sells and with third parties that use the Amazon platform.
With Google, Pinterest, meanwhile, is looking to the search giant to help it better monetize international markets where Google has greater reach. About 80% of Pinterest users are outside the US, but only about 20% of its sales come from international markets. This is a big breakup and another big opportunity for Pinterest. Other major social media platforms often have a 50/50 revenue split between the US and foreign countries.
A great opportunity in the long term
With 500 million monthly active monthly users, which is comparatively under-monetized compared to other social media sites, especially in international markets, the opportunity ahead of Pinterest is clear. If the company can close some of the ARPU gap in the coming years, it will make a lot more money and the stock will be much more valuable than it is today.
Pinterest has been making progress, as shown by European ARPU growth in the fourth quarter. The commitment of Elliott Management, which sits on Pinterest’s board, shows that the company is in good hands.
At just over six times sales and a forward price-to-earnings (P/E) ratio of under 25, the stock appears attractively valued given the opportunity.
Pinterest seems to be an attractive investment in the long term. Therefore, it is not too late to follow billionaire Paul Singer and buy this technology stock.
Should you invest $1,000 in Pinterest now?
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Geoffrey Seiler has positions at Alphabet and Pinterest. The Motley Fool has positions in and recommends Alphabet, Amazon, Meta Platforms, and Pinterest. The Motley Fool has a disclosure policy.
This stock has a billionaire buy-in. Is it time to add it to your portfolio? was originally published by The Motley Fool