Ray Dalio (Trades, Portfolio) is the founder of one of the world's largest hedge funds, Bridgewater Associates, an investment firm with $150 billion in assets under management. While Dalio is now in an advisory role, the firm’s investment strategy still focuses on vast diversification and opportunities which have an “asymmetric risk-reward profile.”
In the fourth quarter of 2022, Bridgewater increased its holdings of two leading technology companies that have been producing roaring financial results, Uber Technologies Inc. (UBER, Financial) and Snowflake Inc. (SNOW, Financial).
Uber
Uber (UBER, Financial) is the most popular ridesharing company in the world and has a solid 72% market share in the U.S. In addition, the company owns an 11% stake in the leading ridesharing provider in China, DiDi Global Inc. (DIDIY, Financial).
The company faced a challenging period during the lockdown of 2020 as its core ridesharing business was vastly reduced. However, it did have a saving grace in the form of its Uber Eats business, which boomed during the Covid-19 pandemic as more people ordered food online. Fast forward to today and Uber’s ridesharing business has rebounded, and its Uber Eats business is solid. Therefore, the company has developed two core growth engines. In addition, Uber has a third potential growth engine its logistics business, Uber Freight, which was bolstered by the acquisition of Transplace for $2.25 billion in the fourth quarter of 2022.
A study by IRU indicates there is a shortage of large truck drivers, which has been driven by the rise in e-commerce and general labor constraints. Therefore, Uber is in a prime position to help meet this demand as its inventory can easily scale. In addition, Uber Freight has scored partnerships with Volvo (OSTO:VOLV A, Financial) and Alphabet Inc.'s (GOOG, Financial) Waymo for a range of autonomous trucks, which could mitigate the need to train drivers at all.
As an extra bonus, Uber also developed its own EVOTL (electric vertical takeoff and landing) division, called Uber Elevate, which it then sold to Joby Aviation Inc. (JOBY, Financial). The good news is Uber invested $75 million into Joby and thus is still poised to benefit when flying taxis finally take to the skies.
Roaring financials
Uber reported strong financial results for the fourth quarter of 2022 in early February. Its revenue grew a blistering 49% year over year to $8.6 billion.
This was driven by strong gross bookings of $30.7 billion, which increased by 19% year over year. In addition, the company received a $1.2 billion benefit from the restructuring of its U.K. business.
Uber's mobility business also received a benefit from growth in emerging markets, with Brazil reporting a 16% increase in penetration (on a weekly basis) since 2019. If we compare that to the U.S. which reported a -0.30% growth rate, the difference is substantial.
Uber has always struggled with profitability, as it has run a low-margin business that paid vast sums out in driver incentives to compete with other ridesharing services like Lyft Inc. (LYFT, Financial). However, as Uber has now scaled and management has pivoted its focus on margins, profitability has improved substantially.
In fact, Uber is getting extremely close to profitability on a GAAP basis. In the fourth quarter of 2022, its operating income was -$142 million, which was up substantially from a loss of $550 million in the prior-year quarter.
Uber also has a healthy balance sheet with $4.3 million in cash, cash equivalents and short-term investments. The company does have fairly high long-term debt of $9.26 billion, but it is not due within the next two years.
Valuation and guru investors
Uber trades with a price-sales ratio of 2.48, which is over 51% cheaper than its five-year average.
The GF Value Line also indicates a fair value of around $74 per share and thus, the stock is undervalued at the time of writing based on its historical ratios, past financial performance and analysts' future earnings projections. GuruFocus does warn of a possible value trap, but I believe this is unjustified.
In terms of guru investors, 13F filings show Dalio's Bridgewater Associates increased its position by 1,193.51% for a total holding of 654,755 shares in the fourth quarter of 2022. The stock traded for an average price of $27 per share, which is approximately 23% cheaper than its five-year average.
Tiger Management (Trades, Portfolio) and Louis Moore Bacon (Trades, Portfolio) also loaded up on the stock.
Investors should be aware 13F filings do not give a complete picture of a firm’s holdings as the reports only include its positions in U.S. stocks and American depository receipts, but they can still provide valuable information. Further, the reports only reflect trades and holdings as of the most-recent portfolio filing date, which may or may not be held by the reporting firm today or even when this article was published.
Snowflake
Snowflake (SNOW, Financial) offers a software solution in the big data industry. The company was rated by G2 as the leading data warehouse provider with 4.5 stars out of five. This was above Amazon's (AMZN, Financial) Redshift, which only had 4.3 stars.
Large companies generally have an issue with siloed data across multiple departments and platforms. The beauty of a data warehouse or data lake solution is all the information can be put into one place and then derive insights from it.
Super financials
Snowflake reported solid financial results for the third quarter of fiscal 2023 in November. Its revenue of $557 million increased by 67% year over year and beat analysts' forecasts. Based on its growth rates, the company can be considered a true growth stock, especially against a tough macroeconomic backdrop.
The results were driven by solid growth in its customer base, which increased by 34% year over year to 7,292. Its enterprises have also continued to grow with 28 of its Global 2000 customers added in the three-month period.
The business has also grown its larger customers (with over $1 million in contract value) by a blistering 94% year over year to 287. This is a positive sign as large enterprises tend to be more “sticky” as customers and offer account growth potential.
In terms of earnings, the company reported earnings of 11 per share, which beat analysts' forecasts by 139%. This was driven by operating leverage improvements as the business has scaled.
For example, Snowflake has reduced its general and administrative expenses from 17% of revenue in fiscal 2021 to just 9% in fiscal 2023.
Valuation and guru investors
Snowflake has been widely considered an overvalued stock since its monster IPO in September 2020. The positive is its share price has corrected down by roughly 36% since then and its revenue has still been growing. Therefore, the valuation gap has closed somewhat. In fact, Snowflake trades at a price-sales ratio of 26, which is 51% cheaper than its five-year average.
In terms of guru investors, quarterly filings show Bridgewater Associates purchased 18,863 shares in the fourth quarter, which increased its position by 144% to a total of 31,942 shares. The stock traded for an average price of around $153 per share during the quarter, which is close to where shares trade at the time of writing. Thus, this could be an indication of fair value.
During the quarter, Steven Cohen (Trades, Portfolio) established a 156,800-share holding, while Ron Baron (Trades, Portfolio) and Jim Simons (Trades, Portfolio)' Renaissance Technologies also increased their positions.
Final thoughts
Both Uber and Snowflake are fantastic growth stocks. Uber is a more well-known brand that has turned around its business since the lockdown of 2020. The company is now stronger and more diverse than ever, with improved profitability. Snowflake is also a great company that has continued to execute roaring growth despite a tough economic environment. In addition, the company is poised to benefit from many major trends in the big data space.
