This is the excerpt from the shareholder letter of Third Point Capital.
Going forward, we expect that the US will remain the best place to invest, credit opportunities will stay slim, and large cap opportunities with a constructivist angle will become more promising. Although consensus has shifted to lower growth, slower inflation, modest rates, and continued monetary expansion, we think the markets will resume an overall upward trajectory in the US through year”end.
Equity Position: Amgen (AMGN, Financial)
Since its founding in 1980, Amgen (“the company”) has been a pioneer in the biotechnologyindustry, successfully discovering, developing, and marketing therapeutic agents that havemeaningfully impacted human health. From 1989 to 2002, Amgen grew five revolutionarybiologic drugs into billion dollar blockbuster products in oncology, nephrology, and inflammation. Today, Amgen is a $105 billion market cap company with annual revenuesof nearly $20 billion and annual net income of over $5 billion.Considering this track record, Amgen’s long”term underperformance relative to its biotechpeers is surprising.
The company has a compelling mix of long”duration, high”marginmature products like Neulasta and Enbrel, and a number of exciting high growth assets,including recently launched blockbusters like Prolia and Xgeva along with innovative late”stage pipeline assets like evolocumab. Yet, using nearly any valuation metric, the Companytrades at a substantial discount to peers. Amgen even trades at a discount to the USpharmaceutical sector, despite superior revenue and earnings growth rates. Amgen’scurrent discount to fair valuation – and the lack of structural hurdles to closing this gap –make it an attractive investment opportunity. Third Point is now one of the company’slargest shareholders.
Equity Position: eBay (EBAY, Financial)
We established a significant position in eBay during the Third Quarter. While eBay's challenges were well”mapped – including multiple years of minimal value growth, a weak execution track record, and high employee turnover – we sensed it had arrived at a critical inflection point and gained new focus. A meeting with CEO John Donahoe this summer left us impressed by his process”driven approach to optimizing the business. We were pleased when Mr. Donahoe announced in September that eBay would split into two by spinning off its PayPal unit. Our work on Alibaba since 2011 had persuaded us of the power of the marketplace model in e”commerce and our work on AliPay convinced us that PayPal was an incredibly well”positioned global brand with the potential to become a leading player in mobile payments. Following the spinoff, eBay/PayPal will offer two appealing growth, relative value, and capital return profiles for investors.
Equity Position: Alibaba (BABA, Financial)
In our Quarterly Letter two and a half years ago, we argued "the Case for Alibaba." At the time, Alibaba held a leading market position that it was just beginning to monetize (the company had less than $75 million in LTM earnings). Today, the Company has continued its exponential growth, demonstrated significant margin leverage, and is expected to earn over $5 billion this fiscal year. Our enthusiasm for the Alibaba story has underpinned multiple investments at Third Point and now that the company is public, we have established a significant direct investment in Alibaba shares.
Third Point has met with management several times and is confident that Alibaba can generate long”term value in its core markets and compete in new ones, making it a compelling potential multi”year investment. The company has a substantial network effect that creates several large moats around its business, generating significant free cash flow for re”investment and expansion as well as an unrivaled amount of data on Chinese consumers. We see continued end market growth in Chinese consumer spending and e”commerce (as well as global e”commerce) and continue to believe that Alibaba has considerable additional monetization potential
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