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JAT Capital Significantly Reduces Position in Facebook

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JAT Capital and Facebook

In 4Q14, JAT Capital cut its stake in Facebook (FB) by selling close to 3.5 million shares. This brought the fund’s total holdings in FB to 862,610 shares. The position represented 2.58% of JAT Capital’s fourth-quarter portfolio.

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Overview of FB

Facebook is a worldwide social networking juggernaut that provides a platform for people to connect, interact, and share digital information through mobile devices and personal computers. The company delivers its services through Facebook.com, Instagram, Messenger, and WhatsApp.

FB generates revenues from marketers through selling advertisement placements and from developers through the company’s Payments infrastructure. In fiscal 2014, FB generated 92% of its $12.5 billion in revenues from advertising, while the remaining 8% came in the form of payments and other fees.

According to eMarketer, Google (GOOG) leads the worldwide digital advertising market. Analysts had expected GOOG to claim a market share of 31.5% by the end of 2014. FB ranks second with a market share of 7.8%. Microsoft (MSFT) and Yahoo (YHOO) are other prominent players with market shares in the low single digits.

Mobile is the primary driver of FB’s growth, as 1.19 billion people access the site on mobile devices. The company’s Instagram, Messenger, and WhatsApp crossed 300 million, 500 million, and 700 million monthly active users, respectively.

Investors can gain exposure to FB by investing in the Technology Select Sector SPDR Fund (XLK), which has a 4.02% weightage for the company. FB also makes up 4.60% of the iShares US Technology ETF (IYW).

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4Q14 revenues and earnings

In the fourth quarter, FB’s revenues came to $3.9 billion, topping analyst estimates of $3.77 billion. Fourth-quarter advertising revenue increased by 53% to $3.6 billion. Mobile advertising revenue doubled to $2.5 billion, showing 108% growth. Mobile ad revenue contributed 69% of total ad revenue compared to its contribution of 66% during the previous quarter. Desktop usage has slowed with the proliferation of mobile device usage, but desktop ad revenue saw a small increase of 1%.

Total GAAP (or generally accepted accounting principles) expenses for 4Q14 were up 87%. Significant stock-based compensation and amortization expenses related to the WhatsApp acquisition primarily drove this increase.

FB reported earnings per share of $0.54, beating analyst estimates by $0.06.

4Q14 developments

In the fourth quarter, FB expanded autoplay video ads, as seen by many clients during the holiday season. The company also rolled out Instagram ads in Australia and Canada. FB believes that “Instagram will become core to advertisers and mobile brand-building efforts.” The company expects great results from brand marketers across verticals from insurance and tax to retail and entertainment.

FB also improved its Ads Manager product and relaunched Atlas to help marketers reach real people and measure results across multiple devices. Plus, the company invested in Audience Network, which helps “marketers to extend their campaign off of Facebook and LiveRail, which provides publishers the video tools to monetize their inventory more efficiently.”

In the next article, we will discuss JAT Capital’s decreased position in Baidu (BIDU).

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