Sequoia Fund 1Q18 Letter: Viviendi, Naspers, Liberty Broadband, Facebook

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  • In 1Q18, generated 1.28%, net of fees, vs. -0.76% return for the S&P 500
  • During the quarter, added four new investments, trimmed several holdings and exited two positions. We owned 22 businesses at the end of the first quarter, with top 15 holdings comprising roughly 80% of the Fund’s net asset value
    • Trimmed Berkshire Hathaway, Constellation Software, Jacobs Engineering, MasterCard, TJX and Wells Fargo
    • Exited Chipotle, Dentsply Sirona, O’Reilly Automotive and Waters
    • Added Alphabet and Carmax
    • New positions include Viviendi, Naspers, Liberty Broadband, and Facebook
  • Viviendi
    • French media conglomerate whose crown jewel is Universal Music Group (UMG), the world’s leading record label
    • UMG is a major beneficiary of the global trend toward consumption of music via internet streaming services such as Spotify and Apple Music, and as this trend gathers pace, we believe UMG’s growth will make Viviendi an increasingly attractive business
    • Viviendi is controlled by Vincent Bollore, a renowned investor who we expect to support UMG’s growth while also maximizing the value of other assets
    • Paid less than 19x profits and expect the growth rate of those profits to accelerate from the high single digits into the double digits over the next several years as UMG becomes a larger contributor to Viviendi’s overall earnings
  • Naspers
    • Holding company listed and headquartered in South Africa
    • Owns and invests in a range of interesting internet and media businesses, but its principal asset is a large shareholding in Tencent, one of the most important companies in the world
    • Tencent operates China’s dominant social media platform, gaming portal and instant messaging services
    • Tencent also owns one of the two largest mobile payment platforms in the world, in addition to leading Chinese online video and music services
    • By investing in Tencent via Naspers, we believe we were able to purchase a stake in one of the world’s most impressive and fastest-growing franchises at a substantial discount to both its market valuation and intrinsic value
  • Liberty Broadband
    • Holding company with essentially one asset: a large interest in leading US cable company, Charter Communications
    • Long admired the management at Charter and view it as a competitively advantaged provider of what many describe as the essential utility of the 21st century: broadband internet service
    • Purchased our stake for a low price relative to the cash profit growth we expect in coming years
  • Facebook
    • Facebook controls four social media platforms with more than a billion global users each: Instagram, WhatsApp, Facebook Messenger, and Facebook (Blue App)
    • Though doing so will involve substantial cost, we believe the company will take necessary steps over the coming months and years to restore the damaged trust of its users and advertisers
    • After factoring these costs into our valuation, believe the recent controversy enabled us to purchase a very unusual business franchise riding several powerful secular trends at a P/E multiple only a little higher than that of the overall market
    • Facebook remains a far more competitively advantaged, economically attractive and faster-growing enterprise than the average American business

Sequoia Fund 1Q18 Letter (The Ruane, Cunniff & Goldfarb), April 5, 2018

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