Hedge Funds' Hail Mary: Bet on Tech

It’s been a brutal year for some big Internet stocks: Shares of Facebook are down 28 percent, Zynga has dropped 76 percent, and Groupon has plunged 82 percent as of Dec. 4. Yahoo! struggled, and even Apple saw a rough stretch eat a quarter of its market value in recent months. Along the way, some began to look like steals to hedge funds. “In technology, you can hit home runs,” says Donald Steinbrugge, a managing partner at consulting firm Agecroft Partners. “That’s always been the case. What has not always been the case is that technology, from a [price-earnings ratio] standpoint, is fairly inexpensive relative to what it’s been over the last 15 years.”

While hedge funds have long held big investments in tech giants such as Apple, Google, and Microsoft, these recent moves look more like bottom-feeding. Among the latest examples is a 9.9 percent stake in Groupon announced on Nov. 20 by Tiger Global Management, the $8 billion hedge fund run by Chase Coleman and Feroz Dewan. The firm declined to comment. Groupon, which has disappointed investors since it went public in November 2011, is up 43 percent since Nov. 13. Facebook, Zynga, and even Research In Motion, the struggling BlackBerry maker, have gained, too, making any fund that bought low this year look smart. (Nasdaq is up 14 percent so far this year.) Tiger Global’s aggressive move on Groupon came a month after Carl Icahn, the billionaire activist investor, disclosed a similar size position in Netflix, which had lost one-fifth of its value through Oct. 1. The company has risen 25 percent since Icahn’s purchase.