Often called the “father of hedge funds,” legendary investor Julian Robertson (Trades, Portfolio) is not only known for his leadership of Tiger Management, but also for mentoring many young investors who later opened their own practices. The fund managers mentored by Robertson are referred to as the “tiger cubs.”
Managers who studied with the same mentor often have similar investing strategies, so it comes as no surprise that some of the same stocks appear in tiger cubs’ portfolios.
In their 13F filings for the fourth quarter of 2021, two of the tiger cubs, Chase Coleman (Trades, Portfolio) and Lee Ainslie (Trades, Portfolio), both reported owning shares of two companies that recently went public: Rivian Automotive Inc. (RIVN, Financial) and HashiCorp Inc. (HCP, Financial). Let’s take a look at these companies to see what might have drawn these investors’ attention.
Rivian Automotive
For those who keep up with news on electric vehicles, Rivian Automotive (RIVN, Financial) needs no introduction. The company is building electric sport utility vehicles and pickup trucks on its "skateboard" platform, which can be used for future vehicles as well. It has its headquarters in Irvine, California.
The company went public on Nov. 10, 2021 at a price of $78 per share, rising to $100.73 by the end of the day’s trading and spiking to over $172 on Nov. 16 before beginning a steady decline to $43.43 as of the time of writing for a market cap of $39.02 billion.
Coleman’s Tiger Global Management ended the fourth quarter with 751,000 shares of Rivian, while Ainslie’s Maverick Capital had 500,000 shares.
By the end of December 2021, Rivian announced it was producing approximately 50 units of its R1T electric pickup truck per week, ramping up to 200 units per week by February. The original plan was to produce 150,000 EVs per year by 2023, which would be around 3,000 units per week. After that, the capacity would be increased to 200,000 units per year.
However, supply chain bottlenecks and the need for process improvements have reportedly slowed down production, so while progress is being made, the production outlook for 2022 remains uncertain. The company still aims to build 10,000 delivery trucks for major customer and shareholder Amazon (AMZN, Financial) in 2022, which will be produced on a separate line.
Short-term headwinds may be present, but Rivian has begun production and seems to have a clear path to growth and profitability, which is a lot more than can be said for many cash-burning tech stocks. In December, Rivian also announced it would build a second electric vehicle plant in Georgia, which should be able to produce as many as 400,000 units per year after it is completed in 2024. Since it’s backed by Amazon, it is unlikely that the company will run into funding issues.
In terms of valuation potential, the closest reference point we have is Tesla (TSLA, Financial), the only U.S.-based pure-play EV company that is consistently producing vehicles for sale. Tesla has a market cap of $954.66 billion and delivered 308,600 vehicles in 2021 for earnings per share of $4.90.
It seems unlikely that Rivian can achieve this kind of valuation, since it does not have Tesla’s first-mover advantage, customer “share of mind” or various other businesses (solar energy, energy storage, automated manufacturing equipment, etc.), but the upside potential for when it someday meets its unit sales goals and turns a profit is still considerable.
HashiCorp
HashiCorp (HCP, Financial), based in San Francisco, is a provider of open-source tools and commercial products for developers, operators and security professionals to provision, secure, run and connect cloud-computing infrastructure.
The company had its initial public offering on Dec. 9, 2021, pricing shares at $80 apiece. The stock closed the day’s trading at $85.19 and surpassed $97 on Dec. 27 before declining to $48.44 as of the time of writing, resulting in a market cap of $8.82 billion.
Coleman’s Tiger Global Management ended the fourth quarter with 303,937 shares of HashiCorp, while Ainslie’s Maverick Capital had 325,000 shares.
Marketing mainly to business customers, HashiCorp’s software and services help engineers set up computing infrastructure in public clouds and physical data centers, from development and testing to deployment and operations. These kinds of things are increasingly necessary to bring businesses into the cloud-based era.
Founded in 2013 to enable IT cooperation and automation, HashiCorp has grown to have 36,000 user group members in more than 50 countries. Its tools have been downloaded by 80% of Fortune 500 companies, and its open-source solutions were downloaded over 100 million times in 2021 alone. Its ecosystem incorporates more than 700 partners.
So if it’s open-source, how does HashiCorp earn money? It operates a “freemium” business model, making money by selling bolt-on features to complement the open-source offerings. Most of the company’s revenue currently comes from subscriptions, with only 7% coming from cloud-based services, though it is the cloud-based services that the company taps as its fastest-growing segment.
More specifically, according to HashiCorp’s corporate overview, the company expects the total addressable market for its infrastructure provisioning segment, Terraform, to grow at a compound annual growth rate of 42% from 2021 to 2026, while the TAM for the security segment has an expected CAGR of 5%, the networking segment’s TAM has an expected CAGR of 6% and the application delivery segment, Nomad, is expected to see a CAGR of 66% for its TAM.
This works out to a 12% CAGR for HashiCorp as a whole, which may seem a bit disappointing compared to the company’s fourth quarter of fiscal year 2022, which saw 56% revenue growth year over year. I find it encouraging that a newly-public tech company isn’t being misleadingly optimistic in its guidance, and while profitability is nowhere in sight just yet, the company has a huge opportunity to monetize its user base once it solidifies a dominant market position.
