Stanley Druckenmiller (Trades, Portfolio) is a legendary investor with a net worth of approximately $6.4 billion, according to the Bloomberg index. He is most famous for shorting the British pound in 1992, which was pegged against the German currency at the time, the Deutsche Mark (Germany later switched over to the Euro in 2002). Upon bringing the idea to his boss George Soros (Trades, Portfolio), the duo decided to bet huge on this idea and made ~$1 billion in a single day at the Quantum Fund.
These days, Druckenmiller runs Duquesne Capital Management, an investment firm that recently reported ~$2 billion worth of U.S.-listed common stock holdings in its 13F filing for the fourth quarter of 2022. According to the latest 13F, Druckenmiller loaded up on 16 stocks during the quarter, but in this article, I'm going to focus on two of his major tech purchases - Meta Platforms Inc. (META, Financial) and a little-known technology company called Samsara Inc. (IOT, Financial). Let’s dive in.
1. Meta Platforms
Meta Platforms (META, Financial) is the world's largest social media company and owns the popular platforms Facebook, Instagram, Messenger and Whatsapp.
The company reported solid growth during the lockdowns of 2020 as user numbers spiked across its platforms. However, since the first quarter of 2022, Meta has faced a series of headwinds, as the business reported a slowdown in user growth and revenue. This was driven by a series of factors, from increased competition (such as TikTok) to the macroeconomic environment which impacted the advertising market (which is where Meta makes the majority of its revenue).
Meta's stock price fell by as much as ~73% when the company announced its new focus on the Metaverse as investors worried this might be an admission that the company's traditional business model was on a death spiral. Additionally, Meta has not yet managed to make the Metaverse profitable. However, for investors that still believe in Meta's long-term plans, this could be a value opportunity. Meta’s stock price bottomed in November 2022 and has since increased by over 90%.
On Feb. 21, the company announced it is rolling out a new paid verification subscription service for Facebook and Instagram users. The idea is for between $11.99 and $14.99 per month, users will be able to submit their government ID and be awarded the sought-after “blue tick” or verification badge. This follows in the footsteps of Twitter.
In a comment, Meta's CEO Mark Zuckerberg stated the new service was about “increasing authenticity and security." However, I believe it is also an attempt to diversify revenue away from the struggling advertising business, which is cyclical by nature.
Financial turnaround
Meta Platforms reported solid financial results for the fourth quarter of 2022. The business reported $32.17 billion in revenue for the quarter, which increased 16% year over year and surpassed analyst forecasts by $475 million. This is a positive improvement for Meta, despite its revenue still being down ~4.5% for the full year of 2022.
A recessionary environment generally acts as a catalyst for advertisers to reduce spending. Additionally, one report by Search Engine Land forecasts Meta and Alphabet's (GOOG, Financial)(GOOGL, Financial) market share in the advertising industry will drop to ~44.9% by the end of 2023. This is expected to be driven by increased competition from the likes of TikTok and Netflix (NFLX, Financial).
In the quarter, Meta's net income was impacted substantially, declining by over 54.7% year over year to $4.6 million. Meta has also struggled to fully monetize its “reels” content, which is the short format video format made to competet with TikTok.
A positive for Meta is the advertising market tends to be cyclical by nature so it should recover someday. In addition, Meta has continued to increase its number of active users with its Family of Apps. Daily Active People increased from 2.82 billion in the fourth quarter of 2021 to 2.96 billion by the fourth quarter of 2022.
The company also has a major opportunity to monetize its Whatsapp chat service, which has ~2 billion monthly active users. Then of course we have the Metaverse, which is an unproven concept but does offer huge potential to become the "3D version of the internet."
Valuation and guru investors
Meta has a forward price-earnings ratio of 18.33, which is ~23% cheaper than its five-year average.
The GF Value chart indicates Meta Platforms is “significantly undervalued” with a fair value of $376.54 per share.
Druckenmiller's firm purchased 741,315 shares of Meta in the fourth quarter of 2022. Other gurus buying shares included Richard Pzena (Trades, Portfolio), Tom Gayner (Trades, Portfolio) and Bestinfond (Trades, Portfolio). During the quarter, shares traded for an average price of ~$172.
2. Samsara
Samsara (IOT, Financial) is an “Internet of things” company that specializes in GPS tracking and fleet management solutions for logistics. Its platform basically uses vehicle “telematics” which track driving routes to optimize fuel efficiency. In addition, the company offers wireless in-vehicle diagnostics and even an AI-powered cab that combines dash cameras and automated alerts for drivers to help them stay safe by avoiding accidents.
Strong financials
Samsara reported strong financial results for its third quarter of fiscal year 2023. Its revenue was $169.8 million, which beat analyst expectations by $14.4 million and increased by a rapid 49.18% year over year.
This was driven by strong growth in its “larger customers” ($100,000+), which increased by 120 quarter over quarter. Samsara now has ~1,100 of these larger customers which include many Fortune 1000 companies.
The company also continues to showcase strong products. According to Samsara, its driver coaching service decreased speeding by ~58% year over year and accidents by over 50%. On a dollar basis, this results in estimated savings of ~$500,000 in annual insurance premiums, thus the return on investment is strong.
In terms of profitability, the company reported a loss per share of $0.11 for the quarter, which beat analyst expectations by $0.03. The company has also continued to scale its operating leverage, with a huge operating margin increase. In 2021, the company reported a non-GAAP operating margin of -26%. By 2022 this was -10%, so while not yet profitable, at least it is moving in the right direction as losses are narrowing.
Samsara also has a solid balance sheet with $738.9 million in cash and short-term investments vs. total debt of ~$127.9 million, which is manageable.
Valuation and guru investors
Samsara trades at a price-sales ratio of 9.16, which is higher than its historical median of 7.76.
Druckenmiller's firm purchased 810,713 shares of Samsara in the fourth quarter of 2022, during which shares traded for an average price of ~$11.39. Two other gurus were buying shares during the quarter: Jefferies Group (Trades, Portfolio) and Jim Simons (Trades, Portfolio)' Renaissance Technologies.
Final thoughts
Stanley Druckenmiller (Trades, Portfolio) is a legendary investor and is still immensely active in the markets. In the fourth quarter, his purchase of Meta was particularly interesting in my opinion. This stock plummeted to such a low valuation on uncertainty about its future. Meta is not out of the woods yet, but the company still has a strong leadership position in online advertising and addictive products in the social media industry which should not be overlooked. Samsara is more of an interesting growth stock. It is less well known but could offer lucrative growth potential for the logistics/trucking market.
