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Published 05 September 2013 10:23, Updated 12 September 2013 00:46
James Packer will never be allowed to forget One.Tel but he has plenty of runs on the board as a tech investor. Photo: Louise Kennerley
It has been a tumultous week for James Packer. After making one of his biggest investments in the past few years, Packer announced his divorce from Erica, his wife of six years.
Reports suggest that the Packers had a pre-nuptial agreement in place, meaning the divorce will have little effect on James Packer’s fortune.
But the investment in online property portal Zillow, one of the United States’s hottest tech stocks, could take Packer towards the $7 billion mark, from his 2013 Rich 200 valuation of $6 billion.
The stock has enjoyed an incredible run in the past 12 months, but there are questions as to whether Packer – who ranks at No. 3 on the BRW Rich 200, with a $6 billion fortune – has got his timing wrong.
Zillow, which has market capitalisation of $US3.5 billion ($3.8 billion), is a property classifieds site similar to Australia’s realestate.com.au.
The business was started in 2005 by Rich Barton and Lloyd Frink, former Microsoft executives.
Packer’s investment vehicle Cavalane Holdings spent $330 million to buy a 9.35 per cent stake in the group.
That makes him the second-biggest shareholder after Australian fund management firm Caledonia Investments, which has 16 per cent of Zillow and is believed to have been the driving force behind Packer making his play.
While Packer may never be allowed to forget the One.Tel disaster, his record as a tech investor is impressive.
He has made hundreds of millions of dollars buying early stakes in online classifieds sites Carsales.com and SEEK. He has enjoyed strong returns from an investment in tech group PC Tools, which was sold in December 2005.
But unlike those investments, where Packer invested at a relatively early stage, his investment in Zillow comes after the stock has enjoyed an amazing run.
While the Nasdaq Composite Index has risen about 21 per cent since the start of 2013, Zillow’s stock has more than trebled. That performance has seen commentators in the US raise doubts about whether the incredible run the company has enjoyed can continue.
US columnist John Shinal was definitive in a piece written on Zillow on August 21, arguing that the smart move was to sell Zillow, not buy it.
“When you combine the technical view of Zillow’s stock chart with the fundamental view of its business, it’s a good bet the stock isn’t about to go on another sustained tear . . . not taking some profits here falls somewhere between stupid greed or greedy stupidity.”
The catalyst for Shinal’s column was a big sell-off by the company’s management and founders.
Co-founders Barton and Fink sold $US30.75 million between them, while chief executive Spencer Rascoff sold $US12.03 million of shares. The company’s chief technology officer and chief revenue officer also sold stock, with the total sold roughly $US205 million.
Shinal points out that Fink and Barton still have the vast majority of their shares; Barton’s sale reduced his stake from 14 per cent to 11.8 per cent, while Fink’s stake is down from around 12 per cent to around 10 per cent.
He also says the total size of the insiders’ sales is relatively small compared with insider sell-offs at Facebook and Zynga.
But Shinal says stock sales by a company’s management are a strong “sell” signal.
“There’s a vast body of academic research showing that insiders know when to sell, so when you see them selling that much, you may want to think twice about backing up the truck as a buyer. Given its technicals and fundamentals, it’s a fairly safe bet that the shares can be bought back cheaper sometime later this year.”
Of course, Shinal’s concerns are more short term, focusing on where the share price might go in the next few months. It’s a fair bet that Packer and Caledonia Investments are betting on the longer-term prospects for the company.
According to The Australian Financial Review’s Street Talk column, Caledonia pitched Zillow to Packer with a presentation that suggested that Zillow had the chance to build a market position similar to what REA’s realestate.com.au had done in Australia. The presentation highlighted the $US69 billion pool in real estate agent commissions that Zillow and other online businesses, including a group called Trulia, could tap into.
It’s that pool Packer is trying to tap, and his record in the tech sector suggests you’d be silly to doubt him.