Aside from the ruckus over the mysterious financial blogger who recently disclosed David Einhorn’s major long bet in Micron Technology, Inc. (NASDAQ:MU), we have another bit of news on the well-known hedge fund manager. Einhorn’s fund Greenlight Capital is betting against one of the UK’s largest online real estate portals Rightmove Plc (LON:RMV).David Einhorn Greenlight Capital
Einhorn’s first bet against an online company
The company operates an online portfolio of commercial and residential properties on its website, rightmove.co.uk. Companies which operate similar business include U.S.-based Zillow Inc (NASDAQ:Z) and SouFun Holdings Limited (NYSE:SFUN). Einhorn first disclosed his short position at the end of February, which has since been increased to 1.06% of Rightmove’s shares.
The $28 million bet against online real estate company is unique in the respect that it’s Greenlight’s first bet against a web-based business. The hedge fund has however shorted property developers before, his most celebrated such bearish bet is against The St. Joe Company (NYSE:JOE), Einhorn was still shorting the company as of November 2013.
Greenlight’s past record in shorting real-estate
It is interesting to note that in Greenlight Capital’s shareholder letter for the Apr-June 2013 quarter, the fund showed its disappointment at shorting real-estate trusts. The letter said that it was wrapping up the last of its shorts against REITS which the fund started in hopes that the market will revalue itself. Regarding its shorts against Boston Properties, Inc. (NYSE:BXP) and Essex Property Trust Inc (NYSE:ESS), Greenlight noted,
These are the last of the ill-fated idea to short a bunch of REITs into the real estate collapse, based on the view that the market would re-rate real estate to be a riskier asset than it had been prior to the collapse. One by one we have given up on these ideas, and now they are all gone. The first cover was the best cover.
It seems like the fund is once again smelling weakness in the real estate industry, albeit in a different country.
Analysts see rising momentum, higher growth
Rightmove released earnings at the end of February which met analyst expectations. In his note, Deutsche Bank’s Patrick Kirby said that the company is sitting on 81% market share among the top three of UK’s online property companies and remains poised to capture more as the housing market stabilizes. Deutsche rates the stock as a Hold and noted that even though the momentum remains strong for opertational performance, the stock is not cheap and it is difficult to give a short term valuation.
Nomura gave Rightmove a Buy rating in their research note, they said that with the 15% reported increase in traffic in January and 4 million new queries, the future looks positive for the company. Nomura further said that according to their forecast Rightmove will experience 17% earnings growth in 2014, resulting in an EPS of GBP92.8.
In their recent earnings call, the company reiterated its commitment to returning excess cash to shareholders via buybacks and dividends. All analysts estimate that Rightmove faces no threat from its competitors, Zoopla and Agents Mutual. The company estimated a £60-70 increase in ARPA (average revenue per advertiser) per month in 2014, which Barclays believes is an underestimation. While saying that in an attractive UK property market, Rightmove Plc (LON:RMV) (OTCMKTS:RTMVY) could experience 20% higher revenue growth than their 2014 estimates. Barclays increased their estimates for total customers to 20,370 and ARPA increase to £72 y-o-y in 2014.
Einhorn’s short versus Pegasus’ long in Rightmove
Other than being Einhorn’s brand new short bet, Rightmove Plc (LON:RMV) (OTCMKTS:RTMVY) takes the top honors as another hedge fund’s major holding. Rightmove is among the top holdings of one of last year’s biggest winners among hedge funds, Clareville Capital’s Pegasus Fund. Valuewalk has highlighted the long/short equity strategy of Pegasus a number of times, the hedge fund closed 2013 with a +63% gain, with handsome contribution from Rightmove whose shares rose 90% in last year. David Yarrow and Angus Donaldson, managers of Pegasus, like to put their money in companies that have been actively investing in difficult times. While speaking to Bloomberg in Dec 2013, Donaldson said of Rightmove,
“If you look across our companies, one theme across our best investments has been companies which invested large amounts of money throughout the downturn,” he said. “Ocado Plc, Booker Group Plc, Rightmove Plc, easyJet Plc, Ashtead Group Plc – all these names have one common denominator and, that is, they were actively investing in the market throughout the most difficult times. So consequently, when the markets started to recover, they had a good self-help story and started to take market share.”
We will have to wait and see if this short turns out differently for Einhorn or ends up like his unsuccessful bets against REITS.