Plans by Coatue Management to spend $70 million on research this year has so far yielded three themes for long-term investing in technology.
Philippe Laffont's hedge fund firm wrote in a letter to clients of its long-only fund—it does not short, or bet against, stocks—that it sees opportunities in three major areas:
- Companies with big "TAM." TAM stands for total addressable market and winners in the category often have innovative technologies that dominate competitors. "Not only is underlying revenue growing rapidly, but these platforms can also generate new revenue streams in the future," the letter said. Examples given by Coatue include social network Facebook and Chinese media giant Tencent.
- Companies with smart capital allocation. Even in mature, slower-growth markets, "astute management teams can enhance returns through capital allocation via share buybacks, dividends and acquisitions, offering the investor growth at a reasonable price." Examples include longstanding Coatue holdings in the cable TV industry such as Charter Communications and Liberty Global and chipmaker Avago Technologies.
- Companies for the "mobile Internet." The next generation of great Web-related companies will be outside the traditional technology, media and telecommunications sector. "There is every reason to believe that this disruption will eventually permeate all sectors of the global economy." Examples cited include Uber and Airbnb.