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JAT Capital Adds New Position in Alliance Data Systems

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JAT Capital and Alliance Data Systems

JAT Capital revealed a new position in Alliance Data Systems (ADS) in the fund’s fourth-quarter 13F filing. John Thaler’s long-short fund purchased roughly 254,000 shares of ADS. In dollar value, this position stands at $73 million, which translates to 2.79% of the fund’s overall US long portfolio size.

As noted earlier, JAT Capital has more than 50% of its portfolio invested in companies belonging to the technology sector. JAT’s holdings include Apple (AAPL), Google (GOOGL), AOL (AOL), Facebook (FB), Twitter (TWTR), FleetCor Technologies (FLT), LinkedIn (LNKD), and Akamai Technologies (AKAM). These companies are part of the Vanguard Information Technology ETF (VGT).

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Alliance Data Systems in brief

With annual revenues of $5.3 billion, ADS is a leading provider of customized marketing and loyalty solutions. The company operates in three business divisions:

  • Alliance Data Card Services
  • Epsilon
  • LoyaltyOne

These business divisions provide credit card programs, data-driven marketing services, and loyalty programs across multiple touch points.

ADS makes up 0.42% of the Vanguard Information Technology ETF. Investors can also gain exposure to ADS through the iShares Morningstar Mid-Growth ETF (JKH), in which ADS has a portfolio weighting of 1.29%.

Acquisition of Conversant

In December 2014, ADS acquired Conversant, Inc., in a deal worth $2.3 billion. Both cash—approximately $991.5 million—and stock components financed this transaction. ADS funded the cash component with borrowings from its credit facilities.

One of the main motives behind the acquisition was the expansion of offerings in mobile, display, video, and digital channels. The business combination should also diversify the revenue mix of ADS and complement the company’s existing business model at the same time. ADS expects to operate Conversant as part of the Epsilon segment.

Impressive fourth-quarter results

Alliance Data Systems posted a revenue increase of 30% YoY (or year-over-year) to $1.5 billion in 4Q14. Favorable growth in North American digital marketing spend and acquisitions drove this increase.

Operating profitability as measured by adjusted EBITDA (or earnings before interest, tax, depreciation, and amortization) was up 32% to $383 million during the fourth quarter. On a per-share basis, core earnings excluding acquisition-related charges were up 44% to $3.45.

In the next part of this series, we’ll discuss JAT Capital’s new position in DISH Network (DISH).

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