John Burbank presented his bullish thesis on Japanese company Digital Garage, Inc. (TYO:4819) in the 4th Annual Excellence In Investing Conference held in San Francisco in October. The third quarter letter of Burbank’s hedge fund Passport Capital, a copy of which was obtained by ValueWalk, also discusses this bet among others.
Passport Capital’s Passport Global fund netted a 7.2% return in Q3, however the fund was down 2.2% in October, trimming the total gain to +15% for the year.
Internet stocks recorded whopping returns
Two of the major themes in Burbank’s investment style are Chinese and Japanese internet companies, which make up 14% of the fund’s NAV. Passport Capital recently disclosed a 11.8% stake in 58.com Inc (NYSE:WUBA), a Chinese classified ads site. As we noted earlier, Burbank has recorded major gains in Qihoo 360 Technology Co Ltd (NYSE:QIHU) so far, stock is up close to 200% YTD. Burbank has high hopes for the company, as he notes in the letter,
“Revenues [at Qihoo] are driven by both PC and mobile search. We think significant potential upside may exist, as the smartphone install base is expected to exceed that of PCs next year, and believe Qihoo is very well-positioned in mobile.”
Burbank compared SouFun to Zillow
Another Chinese internet company that Passport Global added to its portfolio in last quarter was SouFun Holdings Limited (NYSE:SFUN), an online real estate portal. Burbank compared SouFun to Zillow Inc (NASDAQ:Z) and Rightmove Plc (LON:RMV) in terms of valuation, adding that SouFun trades far lower than these two based on enterprise value. Burbank expects SouFun to be valued at par with similar real estate portals in the United States. He thinks that despite slow growth in China, Qihoo and SouFun have a lot of potential and are leaders in their respective fields. Shares of SouFun are up 160% year to date.
Digital Garage holds a stake in Twitter
Regarding Passport Global’s position in Digital Garage, Inc. (TYO:4819), Burbank notes that Digital Garage holds an undisclosed position in Twitter Inc (NYSE:TWTR) which is an upside. Interestingly enough, in Twitter’s IPO filing last month, the social network failed to mention Digital Garage as an existing shareholder, plunging the Japanese company’s stock. So far DG is up 188% YTD, before its fall the stock compared to a +270% gain the stock had recorded till the end of Q3. Analysts at Macquarie Securities believed that Digital Garage had a 2% stake in Twitter.
Digital Garage, Inc. (TYO:4819) is a venture capital firm and an internet holding company. Other than a possible investment in Twitter Inc (NYSE:TWTR), Burbank also notes positives like a 20% position in Japanese internet company Kakaku and strategic stakes of three leading credit card companies in Digital Garage’s online payment business. Kakaku operates business similar to Yelp and Open Table in Japan and also works as a shopping comparison search engine.