Updated March 30, 2021 by Nikolaos Sismanis
SRS Investment Management, LLC was founded in 2007 by a group of partners including Edwin M. Stanton, Nicholas J. Rhodes, Danial K. Carr, and Richard D. Baier, all of whom are still with the company today.
The company is owned by the employees, with Karthik Sarma currently owning the majority. Mr. Sarma’s current title is Managing Partner of SRS Investment Management. The company operates six private funds.
Mr. Sarma earned a bachelor’s degree in mechanical engineering from the Indian Institute of Technology in 1996. He later earned a Masters Degree in Operations Research from Princeton University. Initially, he was a consultant at McKinsey & Company for almost three years. He then found another position as managing director for Tiger Global Management. He worked there for five years. That was when he found SRS Investment Management.
He currently oversees total assets under management (AUM) of $ 7.7 billion, of which approximately $ 6 billion is invested in public stocks.
Investors who filed the company’s 13F filings over the past three years (from mid-February 2018 to mid-February 2021) would have had an excellent total annualized return of 33.8%. For comparison: the S&P 500 ETF (SPY) achieved an annualized total return of 12.5% over the same period.
Note: The 13F filing performance is different from the fund performance. See here how we calculate the 13F filing capacity.
Click the link below to download an Excel spreadsheet of metrics relevant to SRS Investment Management’s current 13F stock holdings:
SRS investment strategy
SRS investment strategy is to achieve high returns by investing in securities that can achieve long-term capital appreciation. The company hopes to do this by buying cheap, investing conservatively, and creating value through fundamental investment improvements where possible.
The company focuses on a bottom-up strategy that looks fundamentally at every business to ensure that profits grow significantly. The Fund increases or decreases its risk adjustment risk for its portfolio based on the performance of a company. For example, the company recently increased its position in Planet Fitness (PLNT) by more than $ 80 million, with a better-than-expected outlook.
The strategy has allowed the company to grow its AUM incredibly quickly despite its relatively concentrated portfolio that never exceeded 30 individual stocks.
Top Holdings from SRS
The SRS portfolio includes 26 individual holdings, the 10 largest of which account for 86.4% of the total weight.
Source: 13F documents, author
Zillow group (Z)
The fund’s largest holding is the Zillow Group, which accounts for 22% of its total holding. While some real estate subsectors like shopping malls and retail locations struggled during the pandemic, demand for residential real estate remained robust. As a result, sales for the Zillow Group, which operates a leading residential real estate marketplace, reached an all-time high by 2020, reaching $ 3.34 billion.
The fund trimmed around 9% of its position during the quarter to generate profit.
It’s worth noting that while Zillow grew quite quickly, the company failed to produce a profitable year. However, since Zillow is a high-margin service, it should ultimately get its positive result.
Meanwhile, the roughly $ 3.9 billion cash position should easily withstand the short-term losses as the company keeps reinvesting in the business.
Netflix, Inc. (NFLX)
The fund’s second largest holding is Netflix with a position of 18.9%, although management trimmed the position by around 11% and sold around 318,000 shares in the past quarter. Netflix has been the fund’s top position for several quarters, with SRS apparently loving its long-term growth story. So far, they’ve been right, with Netflix stock currently trading near all-time highs above $ 500 / share.
The company has had consecutive quarter-on-quarter revenue growth since 2012, with the global subscriber base growing steadily. As a result, Netflix was able to capitalize on its economies of scale and increasingly reported more solid levels of profitability. In fiscal 2016, the company posted net income of $ 186 million. In just four years, that number rose to $ 2.76 billion.
With the new daily cases of COVID-19 remaining strong, staying-at-home companies like Netflix are likely to continue to thrive. Coupled with the steadily growing net profit margins, Netflix is likely to remain investable near all-time highs.
Avis Budget Group (CAR), Planet Fitness (PLNT)
These two stocks together make up around 20% of the fund’s holdings. These are companies from various industries that have been hit by the pandemic.
The fund also has significant positions in stocks such as Booking Holdings (BKNG) and MGM Resorts (MGM). As a result, it appears to have picked companies that it believes are the highest quality companies in sectors such as gaming, travel, and gyms in hopes of a return to normal after COVID.
These are some risky investments. For example, Avis was on the verge of bankruptcy just a few months ago. The company has taken on massive debt to stay liquid, which is likely to hurt its long-term profitability prospects. However, since SRS has managed to buy stocks cheaply, these investments could pay off if they can reverse the current negative sentiment.
SRS increased its positions in Avis and Planet Fitness by 2% and 20%, respectively.
The social media company makes up just over 8% of SRS’s holdings and the fourth largest holding. Twitter’s investment case is more volatile and less clear-cut than Facebook’s (where the fund is also long) as the company struggles to monetize its user base, let alone make a profit. Even so, SRS held its position stable and continued to believe in Twitter’s long-term future prospects.
Fiverr International Ltd (FVRR)
Fiverr didn’t join SRS ‘portfolio until the third quarter of 2020. The fund increased its position 14% over the quarter to represent 5% of the total portfolio. Fiverr has benefited greatly from the online gig economy as the pandemic increased the demand for services such as graphics and design, digital marketing, writing, translating, etc.
The company is charging a fee on its transaction and as a result has seen sales jump 76% year over year. Because of the company’s asset-light business, Fiverr has been able to grow margins quickly as activity increased. The gross profit margins are currently at an impressive 82.5%.
Still, the company has only a short history in the public markets. Therefore, investors should preferably do their own due diligence before getting into Fiverr.
Dynatrace, Inc. (DT)
Dynatrace offers a software intelligence platform for cloud applications in companies. The fund increased its exposure to the company by a massive 57% and increased the portfolio’s exposure to the stock to 4.6%. It is now the sixth largest holding from SRS. Revenues have grown quarterly since the company’s IPO, though profitability remains razor-thin.
The enterprise cloud industry is highly competitive and there is likely to be some serious consolidation over the next few years. While Dynatrace may be seeing the underlying organic growth right now, investors should question the company’s competitive advantage and moat before reallocating their funds in Dynatrace.
The tech giant is an unstoppable juggernaut with no signs of slowing down. Given the stock’s ongoing rally, this is one of SRS’s most profitable investments in recent years. For fiscal 2020, the company posted all-time highs in sales and profits of $ 143 billion and $ 44.28 billion, respectively.
It is the eighth largest holding by SRS and represents 3.2% of the total portfolio. Still, the fund trimmed its position 20% over the quarter, likely for diversification purposes.
MongoDB, Inc. (MDB)
MongoDB is one of the fastest database platforms in the world and has recurring revenue that increases every quarter. As you can see in the graph below, losses have increased along with income. However, growth remains fast at 40% year over year.
The company invests everything back into the business. With the high-margin business model that databases have, it could easily lead to a positive outcome if management chooses to flip the switch.
MongoDB is a brand new position from SRS initiated from the last 13F login.
Altice USA, Inc. (ATUS)
Last but not least, Altice USA is the fund’s tenth largest holding, offering broadband, video, telephony and cellular services to around five million private and business customers. Due to the recurring cash flows, sales have been extremely constant over the last 16 quarters.
The company has not paid a dividend in years. Instead, management prefers to use a large part of the profits generated to buy back and redeem the company’s shares. In fact, they bought back 21% of the outstanding Altice shares in just 2 years, which is extremely impressive.
The ongoing buybacks should also increase SRS’s overall stake in the company over time. The fund holds around 1% of the company at the time of the last filing.
SRS Investment Management focuses on fundamental growth. Even in economically difficult times, SRS has developed very well. Based on the company’s 13F records, the fund has significantly outperformed the market.
If history is any clue, SRS Investment Management’s 13F filings offer a compelling selection of investments for investors looking for capital appreciation.
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