Insider Weekends: Jay Hoag Purchases Zillow Shares Despite Recent Run-up

The following was originally published on Inside Arbitrage

Welcome to edition 467 of Insider Weekends. Insider buying increased last week against the backdrop of a weak market with insiders purchasing $214.72 million of stock compared to $158.64 million in the week prior. Selling on the other hand decreased with insiders selling $1.25 billion of stock last week compared to $2.03 billion in the week prior.

Sell/Buy Ratio: The insider Sell/Buy ratio is calculated by dividing the total insider sales in a given week by total insider purchases that week. The adjusted ratio for last week dropped to 5.82. In other words, insiders sold almost 6 times as much stock as they purchased. The Sell/Buy ratio this week compares favorably with the prior week, when the ratio stood at 12.79.

Insider Sector Heat Map May 31, 2019 (click to enlarge)

Note: As mentioned in the first post in this series, certain industries have their preferred metrics such as same store sales for retailers, funds from operations (FFO) for REITs and revenue per available room (RevPAR) for hotels that provide a better basis for comparison than simple valuation metrics. However metrics like Price/Earnings, Price/Sales and Enterprise Value/EBITDA included below should provide a good starting point for analyzing the majority of stocks.

Notable Insider Buys:

1. Zillow Group, Inc. (Z): $43.02

Director Jay C. Hoag acquired 2,098,211 shares of this real estate information provider paying $41.80 per share for a total amount of $87.71 million. These shares were purchased indirectly by TCV Mariner Investor IX, L.P.

Mr. Hoag is back at it and is buying Zillow shares at significantly higher prices than his purchases in late 2018. Following his last set of purchases in November and December 2018, I decided to start a position in Zillow as well. We wrote the following about his purchases in November 2018,

Zillow has had a wild ride in 2018 with the stock trading all the way up to $65.70 by mid-June before losing more than half its value through last week. The selling accelerated last week after the company reported a 21.7% increase in third quarter revenue to $343.09 million, which missed estimates by a sliver and more importantly guided Q4 revenue below expectations. Investors were also unhappy that Zillow has gotten into the business of buying and selling homes, which unlike Redfin’s business model, requires Zillow to hold homes in inventory. Some investors referred to this new line of business as a “flipping business” and it comes at a times when the housing market is cooling.

Does this sharp decline in Zillow present a buying opportunity? Jay Hoag and the co-founder of Zillow Rich Barton certainly seem to think so. When Jay Hoag purchases shares of a company, I pay attention, as the timing of his purchases have been spot on in the past.

Incidentally Jay Hoag and Rich Barton are both currently on the board of directors of Netflix (NFLX). With rising interest rates and a cooling housing market, I believe investors are right that the new home buying business and the new mortgage business are going to be a drag on the company’s margins but in my opinion this vertical expansion of Zillow’s business model was inevitable. Despite Mr. Hoag’s recent buying, I believe the pressure on Zillow is likely to remain on the downside unless the Nasdaq starts bouncing back or the housing market stabilizes. I am going to move Zillow to the top of my watch list and will likely buy a starter position in coming days.

Investors that look at the form 4 filings for these purchases will notice that the purchases were classified as “Z and ZG”. Class C non-voting shares trade under the symbol Z, while class A shares with voting rights trade under the symbol ZG. Mr. Hoag purchases class C shares (Z), while Mr. Barton purchases both types. Oddly enough the class A shares with voting rights are trading at a small discount to the class C shares.

I also mentioned both Jay Hoag and Rich Barton briefly in summer 2017 when I wrote,

I was hiking through the Purisima Creek Redwoods Preserve this weekend while listening to a Masters in Business podcast where Barry Ritholtz interviews Rich Barton, the cofounder of Expedia (EXPE), Zillow (Z) and Glassdoor. The interview was as absorbing as the ones I mentioned last week and it was interesting to hear Mr. Barton bring up Jay Hoag, the founding general partner at venture capital firm TCV. Mr. Hoag’s track record of purchasing Netflix (NFLX) and Zillow (Z) in the public market has been excellent. You can read more about his purchases of both these companies in the February 26, 2016 edition of Insider Weekends.

 

Purisima Creek Redwoods

You can view the list of recent insider transactions for Zillow Group, Inc. here.

P/E: N/A	Forward P/E: -226.42	Industry P/E: 69.96
P/S: 5.91	Price/Book: 2.69	EV/EBITDA: -270.02
Market Cap: $8.8B	Avg. Daily Volume: 3,184,054	52 Week Range: $26.38 – $65.70

2. Eidos Therapeutics, Inc. (EIDX): $31.21

Chief Executive Officer Neil Kumar acquired 1,103,848 shares of this biotech company, paying $25.93 per share for a total amount of $28.62 million. These shares were purchased indirectly by BridgeBio Pharma LLC.

This was an interesting purchase because Mr. Kumar serves as the CEO of both Eidos Therapeutics as well as BridgeBio Pharma. Mr. Kumar’s background is from Third Rock Ventures, McKinsey and MIT. When I looked into both companies some more, I noticed that they were very young companies that were founded within a couple of years of each other. BridgeBio raised over $474 million in capital from a large number of institutional investors including Sequoia, AIG and KKR.

Eidos Therapeutics priced its IPO in June 2018 at $17/share and raised a little over $106 million in the offering. The last year has been a wild ride for Eidos investors as the company first lost more than 60% of its value before more than tripling from the lows. As of March 31, 2019 BridgeBio owned 62.3% of Eidos and this latest purchase should put them over 65%. BridgeBio also purchased over $42 million worth of Eidos stock last December at much lower prices and it is interesting to see them buy more at much higher prices. Both these purchases don’t appear to be open market purchases and are probably private placements. You can check out all their insider purchases here.

BridgeBio has also filed to go public BBIO and you can check out its S-1 filing here. From the filing, the company describes itself as follows,

We are a team of experienced drug discoverers, developers and innovators working to create life-altering medicines that target well-characterized genetic diseases at their source. We founded BridgeBio in 2015 to identify and advance transformative medicines to treat patients who suffer from Mendelian diseases, which are diseases that arise from defects in a single gene, and cancers with clear genetic drivers. Our pipeline of over 15 development programs includes product candidates ranging from early discovery to late-stage development. Several of our programs target indications that we believe present the potential for our product candidates, if approved, to target portions of market opportunities of at least $1.0 billion in annual sales. We have four product candidates in clinical trials that, if positive, we believe could support the filing of an application for marketing authorization. Two of these product candidates are in Phase 3 clinical trials, one is in a Phase 2/3 clinical trial, and one is in a Phase 2 clinical trial.

Birgir Magnusson has done a very good job of providing an overview of the company and its planned IPO on Seeking Alpha here.

You can view the list of recent insider transactions for Eidos Therapeutics, Inc. here.

P/E: N/A	Forward P/E: -16.6	Industry P/E: 69.3
P/S: N/A	Price/Book: 7.96	EV/EBITDA: -23.72
Market Cap: $1.15B	Avg. Daily Volume: 147,729	52 Week Range: $8.89 – $32.96

3. Coty Inc. (COTY): $12.34

Director Peter Harf acquired 1,268,982 shares of this cosmetics company, paying $12.95 per share for a total amount of $16.44 million. These shares were purchased indirectly by HFS S.a.r.l.

You can view the list of recent insider transactions for Coty Inc. here.

P/E: N/A	Forward P/E: 17.38	Industry P/E: 54.1
P/S: 1.05	Price/Book: 1.24	EV/EBITDA: 13.06
Market Cap: $9.27B	Avg. Daily Volume: 16,734,598	52 Week Range: $5.91 – $14.87

4. Kinder Morgan, Inc. (KMI): $19.95

Executive Chairman Richard D. Kinder acquired 300,000 shares of this oil & gas pipelines company, paying $19.68 per share for a total amount of $5.9 million. Mr. Kinder increased his stake by 0.12% to 241,179,496 shares with this purchase.

You can view the list of recent insider transactions for Kinder Morgan, Inc. here.

P/E: 28.83	Forward P/E: 18.14	Industry P/E: 19.95
P/S: 3.19	Price/Book: 1.34	EV/EBITDA: 13.04
Market Cap: $45.16B	Avg. Daily Volume: 14,457,719	52 Week Range: $14.62 – $20.57

5. Communications Systems, Inc. (JCS): $2.83

Director Steven Webster acquired 5,000 shares of this communication equipment company, paying $1113.50 per share for a total amount of $5.57 million.

You can view the list of recent insider transactions for Communications Systems, Inc. here.

P/E: N/A	Forward P/E: N/A	Industry P/E: 19.89
P/S: 0.4	Price/Book: 0.63	EV/EBITDA: -8.51
Market Cap: $26.37M	Avg. Daily Volume: 9,322	52 Week Range: $2.03 – $4.24

You can view the full list of purchases from this Insider Buying page.

Notable Insider Sales:

1. Plains All American Pipeline, L.P. (PAA): $22.61

Director John T. Raymond sold 8,179,284 shares of this oil & gas midstream company for $23.10, generating $188.94 million from the sale. These shares were sold indirectly by EMG Investment, LLC.

You can view the list of recent insider transactions for Plains All American Pipeline, L.P. here.

P/E: 6.41	Forward P/E: 11.25	Industry P/E: 19.95
P/S: 0.48	Price/Book: 1.57	EV/EBITDA: 9.25
Market Cap: $16.43B	Avg. Daily Volume: 1,667,017	52 Week Range: $19.34 – $27.7

2. Plains GP Holdings, L.P. (PAGP): $22.52

Director John T. Raymond sold 7,328,291 shares of this oil & gas midstream company for $23.10, generating $169.28 million from the sale. These shares were sold indirectly by EMG Investment, LLC.

You can view the list of recent insider transactions for Plains GP Holdings, L.P. here.

P/E: 9.01	Forward P/E: 16.2	Industry P/E: 19.95
P/S: 0.18	Price/Book: 1.84	EV/EBITDA: 8.29
Market Cap: $6.28B	Avg. Daily Volume: 1,379,098	52 Week Range: $19.17 – $27

3. The Lovesac Company (LOVE): $36.05

Director Andrew R. Heyer sold 1,564,740 shares of this home furnishings & fixtures company for $34.38, generating $53.79 million from the sale. These shares were sold indirectly by SAC Acquisition LLC.

You can view the list of recent insider transactions for The Lovesac Company here.

P/E: N/A	Forward P/E: 515	Industry P/E: 23.79
P/S: 3.16	Price/Book: 6.22	EV/EBITDA: -388.81
Market Cap: $523.58M	Avg. Daily Volume: 138,045	52 Week Range: $16.46 – $46.79

4. pdvWireless, Inc. (PDVW): $48.75

Shares of this telecom services company were sold by two insiders:

• 10% Owner Stephen Feinberg sold 477,602 shares for $49.89, generating $23.83 million from the sale. These shares were sold indirectly by Cerberus Institutional Partners V, L.P.
• Chairman of the Board Brian McAuley sold 36,000 shares for $50.26, generating $1.81 million from the sale.

You can view the list of recent insider transactions for pdvWireless, Inc. here.

P/E: N/A	Forward P/E: -18.61	Industry P/E: 65.8
P/S: 110.74	Price/Book: 3.98	EV/EBITDA: -21.79
Market Cap: $719.7M	Avg. Daily Volume: 81,008	52 Week Range: $22.5 – $51.33

5. Bruker Corporation (BRKR): $41.77

CEO, President Frank H. Laukien sold 400,000 shares of this scientific instruments company for $41.48, generating $16.59 million from the sale. These shares were sold indirectly by Mr. Laukien’s former spouse.

You can view the list of recent insider transactions for Bruker Corporation here.

P/E: 35.73	Forward P/E: 23.34	Industry P/E: 113.03
P/S: 3.4	Price/Book: 7.17	EV/EBITDA: 19.29
Market Cap: $6.55B	Avg. Daily Volume: 757,251	52 Week Range: $26.1 – $44.47

You can view the full list of sales from this Insider Sales page.

 

The list of all insider purchases and sales by management people is only available to InsideArbitrage Premium members.

 

Disclaimer: I hold a long position in Zillow (Z). Please do your own due diligence before buying or selling any securities mentioned in this article. We do not warrant the completeness or accuracy of the content or data provided in this article.