After wagering against the maker of Keurig single-serve coffee machines for three years, the hedge fund manager David Einhorn has settled his bet at a loss. But the investor had tough words for an even bigger potential target: Amazon.com.
In a letter sent on Wednesday to investors in his firm, Greenlight Capital, Mr. Einhorn disclosed that he had ended his gamble that shares in Keurig Green Mountain would fall. The short-sale position, which the hedge fund manager unveiled with much aplomb in October of 2011, was by his own account “ultimately unsuccessful.”
Greenlight entered into its bet at an average price of $47.59 a share, hoping that the company’s stock price would fall below that level. But it eventually covered its wager at an average of $67.02.
Mr. Einhorn wrote to his investors that although he believed some elements from his initial thesis — a claim that the company had used misleading accounting for some acquisitions and a prediction that sales would slow — have never been disproved or have turned to be true, other parts of his bet haven’t quite come through.
Keurig hasn’t yet lost its strong grip on the so-called “K-cup” single-serve coffee market, even as the patents relating to the design expired two years ago. The company fought back by introducing a new design for its latest generation of coffee makers that rejects K-cups made by other manufacturers.
“The result is that GMCR’s monopoly is largely restored and our core thesis is defeated,” Mr. Einhorn wrote, referring to Keurig’s stock ticker. “The company recently announced a 9 percent price increase on Nov. 1. We congratulate the bulls.”
Yet the hedge fund magnate already seemed to have moved onto other potential short-sale targets. Among them are technology companies that he feels are overvalued — but intriguingly, he used Amazon as an example. The e-commerce giant’s stock price has fallen more than 5 percent since reporting a bigger-than-expected loss and smaller-than-predicted sales growth two weeks ago. In his letter, Mr. Einhorn wrote that while the company’s growth is slowing, it hasn’t turned its attention to making profits.
“One of the principal bullish assumptions supporting many bubble stocks is, ‘The company is growing too fast to be very profitable.’ We think AMZN is just one of many stocks for which this narrative will ultimately prove false,” he wrote, using Amazon’s ticker symbol.
Still, the hedge fund manager never explicitly says that he has bet against Amazon.
Another interesting disclosure by the Greenlight chief’s letter is his firm’s investment in the EMC Corporation, the data storage company under pressure from another hedge fund. In the letter, Mr. Einhorn writes that the company’s collection of businesses, known internally as its “federation,” has led to its stock price trading at a discount to the computer conglomerate’s intrinsic value.
That was in line with arguments by Elliott Management, the activist investor that is pushing EMC to break itself up. Elliott’s chief argument is that the company should spin off its 80 percent stake in the virtualization software provider VMware, whose value makes up much of EMC’s own market capitalization.
Mr. Einhorn never mentions Elliott by name, but he does add that his firm’s average purchase price is $25.79. EMC’s shares closed at $29.04 on Wednesday.
A spokesman for Greenlight declined to comment.