News and Views

The Official Blog of

Activision Blizzard, Inc. (ATVI) underperformed the S&P 500, rising by about 32.7% compared to the S&P 500’s gain of around 33.4%. Hedge funds have been actively buying shares despite recent performance fluctuations, and the stock was added to the WhaleWisdom Index 100 on November 17, 2021.

Activision develops and publishes interactive entertainment content and services appealing to consumers of varying ages, from core gamers to casual players. Activision operates through several subsidiary developers, each producing different video games to form a portfolio of entertainment-related revenue. Activision’s three main segments include Activision Publishing, Inc., Blizzard Entertainment, Inc., and King Digital Entertainment. The Activision Publishing segment delivers online games through digital online channels and retailers; consumers can play the games on their personal computers or mobile devices. Blizzard Entertainment offers subscription-based multiplayer online gaming via personal computers and third-party consoles. Activision’s King Digital Entertainment segment produces and distributes digital games on multiple platforms.

The video game developer experienced growth through much of the coronavirus pandemic, during a time when consumer habits shifted more to home-based entertainment with increased media consumption and virtual interaction. However, Activision faced challenges in recent months over accusations of a toxic work environment and related litigation. On the heels of negative PR, the gaming company recently received some positive attention and a substantial boost to its stock when Microsoft Corp. (MSFT) announced plans to acquire them. The acquisition is part of a bigger focus on the metaverse, the next-generation version of the internet.

Mixed Responses from Hedge Funds and Institutions

Hedge funds were buying, in contrast to institutions. Looking at third-quarter activity by hedge funds, the aggregate 13F shares held increased to about 137.4 million from 118.0 million, an increase of approximately 16.4%. Of the hedge funds, 44 created new positions, 99 added to an existing holding, 54 exited, and 88 reduced their stakes. Institutions sold shares and decreased aggregate holdings by about 1.5% to approximately 655.2 million from 655.3 million. The company saw a substantial rise in 13F metrics between 2015 and 2022, indicating improved investment potential.


Acquisition Announcement Draws Attention

Activision stands to benefit from a future acquisition by Microsoft. Analyst Kash Rangan of Goldman Sachs valued Activision at $95 per share, acknowledging the value the company could bring to Microsoft as it pushes further into the gaming market. Activision is well known for its Candy Crush, Call of Duty, and World of Warcraft games. Gaming is viewed as a critical component for companies to gain ground in the metaverse, as the virtual worlds and avatars within online games offer opportunities for interaction by consumers all around the world.


Fair Outlook

Despite year-to-date growth and the positives that could arise from Activision’s pending acquisition by Microsoft, the interactive entertainment developer remains, at this time, an independent company navigating lawsuits and workplace improvement plans amid gaming content development. Existing stockholders may choose to hold onto shares and regain their investment following dips in value in November and December 2021. New investors may be cautious but also encouraged by Activision’s track record of successful gaming content and strong demand for entertainment products and services.

Charter Communications, Inc. (CHTR) experienced growth across most of 2021, peaking in September 2021 and then declining until January 2022. Charter has underperformed the S&P 500, with the stock rising by about 18.9% compared to the S&P’s gain of approximately 41.8%. The stock slid on the WhaleWisdom Heatmap to a ranking of 30 from 31, and hedge funds have been actively selling shares.

Charter provides broadband communication services through its Spectrum brand, serving customers throughout the United States. Charter offers a range of residential and business services: internet, cable television that also includes original programming, mobile phones, and WIFI connectivity, and voice services that range from hosted voice solutions for remote workers to hosted call centers with call analytics. Charter’s business services are catered to support a variety of sizes and types of companies to deliver broadband products and services that support workforce productivity with highly customizable fiber-based solutions. Charter also sells tailored advertising and production services through Spectrum Reach.

While Charter’s growth over the past two years has been impressive, Charter experienced a slow-down in recent months. As part of the telecommunications industry, Charter saw increased demand for services that support remote and hybrid workforces during the coronavirus pandemic. However, this industry is also people-intensive and subject to productivity burnout and supply chain disruptions for its equipment and mobile technology. These are all challenges that Charter is likely to continue to navigate in addition to fluctuations in internet subscriber growth. Charter’s management will host a webcast on January 28, 2022, to share thoughts on financial and operating results for the year ended December 31, 2021.

Hedge Funds Adjust Portfolios

Hedge funds were selling in the third quarter of 2021, and the aggregate 13F shares held decreased approximately 3.6% to about 43.2 million from 44.8 million. Of the hedge funds, 31 created new positions, 76 added, 18 exited, and 113 reduced their stake. Institutions also sold and decreased their aggregate holdings by about 3.5% to approximately 124.1 million from 128.6 million.


Positive Estimates

Analysts anticipate that earnings will rise through 2022, with an estimated $22.90 for December 2021 and $31.09 by December 2022. Revenue estimates also include healthy year-over-year growth that could bring revenue to approximately $54.4 billion by December 2022. The 13F metrics trend between 2010 and early 2022 shows that Charter has generally followed an upward trend.


Analysts Apply Caution

Analyst John Janedis from Wolfe Research, LLC. lowered Charter to an Underperform rating from a Peer perform rating, anticipating only modest growth across the next few years. Janedis lowered the firm’s price target to $621 from $712. KeyBanc Capital Markets, Inc. analyst Brandon Nispel also lowered the price target to $847 from $869 while maintaining an Overweight rating on shares. Jeffrey Wlodarczak of Pivotal Research Group lowered their firm’s price target to $800 from $1000 but kept a Buy rating on shares. Citigroup Global Markets, Inc. analyst Michael Rollins gave Charter a $643 price target, down from $710. Rollins noted the slowdown in new cable broadband customers and competition in the industry.

Optimism for Future

While 2021 concluded with slower growth for Charter, analysts are optimistic for improved estimates to finish 2022. Investors should stay tuned for the fourth quarter and 2021 year-end financial and operating results. At this time, Charter may have more appeal as a long-term investment.

TransDigm Underperforms Despite Growth

Posted on January 10th, 2022

TransDigm Group, Inc. (TDG) saw slow growth over the past year and slid on the WhaleWisdom Heatmap to a ranking of 25 from 3. The company underperformed the S&P 500, with the stock rising by about 11.5% compared to the S&P’s gain of approximately 44.5% over the past 2 years. Despite its uninspiring performance, hedge funds have been actively adding TransDigm’s shares to their portfolios.

TransDigm is an aerospace company that designs and manufacturers engineered aerospace components, systems, and subsystems. The company is organized into three segments: Power & Control, Airframe, and Non-aviation. The Power & Control and Airframe segments include major customers such as airlines, third-party maintenance suppliers, subsystem suppliers, military buying agencies, and repair depots. Non-aviation products are marketed primarily to child restraint system suppliers, off-road vehicle suppliers, subsystem suppliers, mining and construction equipment suppliers, and satellite and space system suppliers.

The aerospace industry, like many others, was negatively impacted by the coronavirus pandemic in 2020 and 2021, and this is visible when tracking TransDigm’s long-term growth. Airlines saw passenger traffic dramatically lowered, but overall, the aerospace industry has proven resilient. TransDigm also faced the challenges of a multi-year Pentagon investigation into the pricing of its aerospace parts. Fortunately, the investigation results do not appear to have impacted TransDigm’s military contracts, and these remain a future revenue source.

Hedge Funds Are Buying

TransDigm has the attention of hedge fund managers and institutions. Looking at activity by the top hedge funds in the third quarter, the aggregate 13F shares held increased to about 18.0 million from 17.6 million, an increase of approximately 2.7%. Of the hedge funds, 28 created new positions, 58 added to an existing holding, 19 exited, and 49 reduced their stakes. Institutions were buying, and aggregate holdings increased mildly by about 0.3% to approximately 53.2 million from 53.0 million. The long-term 13F metrics between 2006 and 2022 suggest that TransDigm remains on an upward trend.


Encouraging Multi-year Figures

Analysts expect to see earnings rise over the next two years, with increases in growth estimated to bring earnings per share to $16.14 by September 2022 and $21.07 by September 2023. Year-over-year estimated increases could also bring revenue to close to $6.0 billion by 2023, up from a predicted $5.4 billion in 2022.


Favorable Price Targets

Many analysts appear to be encouraged by third-quarter results and raising price targets. Analyst Michael Ciarmoli of Truist Financial Corp. raised TransDigm’s price target to $786 from $600 and upgraded the company to a Buy. Ciarmoli noted that TransDigm would benefit from increased demand in commercial aerospace aftermarket parts. Morgan Stanley analyst Kristine Liwag is bullish on the stock and its growth potential, naming TransDigm her top pick in aerospace in North America for 2022. Liwag gave the aerospace company an Overweight rating and a $762 price target. Seth Seifman of JPMorgan Chase & Co. expressed optimism about TransDigm and raised the firm’s price target to $670 from $665 and kept a neutral rating on shares.

Favorable Outlook

The future holds promise for TransDigm, as the company continues to weather the pandemic and slowly rebound with the aerospace industry. With optimistic estimates from analysts, in addition to institutions and hedge funds buying, investors may be encouraged to view TransDigm as an investment opportunity.

Okta Faces Slower Growth

Posted on January 3rd, 2022

Okta Inc. (OKTA) saw deceleration in growth over the past year after some healthy gains in 2020. Hedge funds were actively selling the stock in the third quarter of 2021, though the company still rose on the WhaleWisdom Heatmap to a ranking of 23 from 24. Overall, the stock outperformed the S&P 500, increasing by approximately 95.3% compared to the S&P’s gain of about 47.9% over the past 2-years.

Okta is an access management company that provides identity management solutions for businesses, enterprises, educational institutions, and government agencies. Okta’s cloud software helps its customers manage and secure user authentication while allowing developers to build identity controls into applications. Amidst the coronavirus pandemic, there has been an increased need for identity management services. The pandemic helped shift work habits so that a more significant number of employees now work remotely on a permanent or hybrid basis. With a switch to more home offices, some employees may not have the same level of security as their prior corporate office firewall provided, bringing more appeal to access management services.

Mixed Results from Hedge Funds and Institutions

Okta’s third-quarter activity included hedge funds selling. The aggregate 13F shares held by hedge funds decreased to about 25.9 million from 26.2 million, a change of approximately 1.4%. Of the hedge funds, 40 created new positions, 61 added to an existing one, 24 exited, and 48 reduced their stakes. In contrast to hedge funds, institutions were buying and increased their aggregate holdings by about 3.0%, to approximately 114.2 million from 110.8 million.


Favorable Revenue Estimates

Analysts expect to see losses narrow in 2022 and 2023, bringing earnings per share down to $0.52 by January 2022 and $0.49 by January 2023. Additionally, estimates are encouraging for revenue with an anticipated rise by January 2022 to approximately $1.3 billion; this momentum may continue into 2023, with revenue estimated at $1.8 billion by January 2023. Okta’s 13F metrics show slowed momentum for its stock value despite revenue growth.


Conservative Price Targets

Analysts cut price targets, believing that Okta’s stock was valued too high following third-quarter results. Deutsche Bank analyst Patrick Colville lowered the firm’s price target to $250 from $270 while maintaining a Buy rating on shares. Rudy Kessinger of DA Davidson also kept a Buy rating but gave Okta a price target of $260, down from $315. Kessinger noted that the company had better than expected revenue growth and referenced that Okta’s recent acquisition of Auth0, the adaptable authentication platform, appeared to be going well. JP Morgan lowered their price target on Okta to $230 from $295, with analyst Sterling Auty maintaining a Neutral rating on shares following Q3 results. Jonathan Ruykhaver of Baird & Co. lowered the firm’s price target to $230 from $265 and kept a Neutral rating on shares. Ruykhaver acknowledged positive management commentary while remaining cautious about Okta’s growth.

Fair Outlook

Okta’s performance has waned over recent months, but predictions for continued revenue growth remain encouraging. As businesses seek to assure the public that secure cloud services and digital transactions are the way of the future, Okta’s products and services are likely to see increased demand. The technology stock holds long-term potential for patient investors.

Snowflake, Inc. (SNOW) has begun to gain ground after a rocky start to the year. Snowflake unperformed the S&P 500 over the past 2-years rising by approximately 37.5% compared to the S&P’s gain of about 39.6%. While hedge funds were selling, its overall growth has helped its ranking on the WhaleWisdom Heatmap rise to 20 from 37.

Snowflake is a technology company that provides a cloud-based data software platform to consumers worldwide to enable consumers to store, consolidate, and analyze information. Snowflake was known initially as Snowflake Computing, Inc. before being renamed to Snowflake, Inc. in 2019. Snowflake offers customers a flexible usage-based model to buy only what they need, allowing Snowflake to grow its revenue as its customers require more capacity. Overall, the technology sector saw a decline in early 2021, and Snowflake was caught in those winds of volatility. However, Snowflake ultimately began to rebound and navigate a steady upward climb.

Mixed Results from Hedge Funds and Institutions

Hedge Funds were actively selling the stock in the third quarter, and the aggregate 13F shares held by hedge funds decreased to approximately 99.5 million from 104.6 million, a change of about 4.9%. Overall, 35 hedge funds created new positions, 67 added to an existing one, 26 exited, and 51 reduced their holdings. In contrast, Institutions increased their aggregate holdings by about 9.7%, to 204.9 million from 186.8 million. Also, since going public in 2020, Snowflake’s 13F metrics showed slow momentum while its closing stock price fluctuated.


Optimistic Revenue Outlook

Analysts predict an initial dip in earnings through to 2022, with an estimated loss of $0.08 in 2022, followed by some forward movement that would bring earnings per share to approximately $0.06 by 2023. Revenue estimates are very encouraging at roughly $1.2 billion by January 2022 and rising to about $2.0 billion by January 2023.


Favorable Price Targets After Third Quarter Results

Analysts appear encouraged by the recent third-quarter results and have been raising price targets. Phil Winslow of Credit Suisse raised the firm’s price target to $465 from $455 and kept an Outperform rating on shares. Winslow noted that third-quarter results exceeded his expectations, and he believes Snowflake will continue to play an important role in the cloud-native data value chain. Morgan Stanley analyst Keith Weiss is encouraged by Snowflake’s potential for expansion and raised the firm’s price target to $344 from $295, maintaining an Equal Weight rating on shares. Joel Fishbein of Truist Securities raised his firm’s price target on the stock to $400 from $350 and kept a Buy rating on shares. Citi analyst Tyler Radke upgraded Snowflake to a price target of $470 from $299 following favorable third-quarter results.

Optimism Beyond 2021

While 2021 has had its share of challenging months for Snowflake, analysts appear optimistic for the future. The cloud computing industry has had opportunities for growth and expansion that Snowflake can leverage. Snowflake has already gained some upward traction in recent months, with the potential for more positive gains beyond 2021. The stock may not be a good fit for everyone at this time but could represent an excellent opportunity for patient investors.