ValueAct takes stakes in Recruit and Expedia, says they are poised for strong growth

Alarm.com Holdings

15/11/2023 14:00

By Svea Herbst-Bayliss
       NEW YORK, Nov 15 (Reuters) - ValueAct Capital Management
has bought stakes in job search site Indeed's parent Recruit
Holdings  6098.T  and in online travel services provider Expedia
Group  EXPE.O  and believes both are poised for strong growth.
    The investment firm announced the new positions, without
saying how big they are, in a Nov. 15 letter to clients which
was seen by Reuters. Recruit is valued at roughly $49 billion
while Expedia has a market value of about $17 billion.
    It said the two firms were set to benefit from smarter
pricing, better cost management and shrewd modernization of the
services used to run websites. 
    A ValueAct spokesman could not be reached for comment.
    ValueAct said it believes Recruit's assets are already worth
double the company's share price. But it feels investors have
not been fully aware of the investment opportunity because the
parent company is listed in Tokyo. It noted that Indeed, which
contributes 45% of earnings, is based in Austin, Texas.
    "We believe Recruit's management team is driving hard at
improving monetization and profit margin of the internet
platforms to levels far above its current state," the letter
said. "With smart capital allocation we can see a path to
per-share annualized return above 30%."
    At Expedia, whose stock price has rocketed 25% higher since
it reported earnings earlier this month, investors are seeing an
acceleration in growth and margins climbing to their highest
levels in a decade, ValueAct wrote.
    "The excess engineering costs that the company has been
carrying have already begun to be re-allocated, and accordingly,
overhead expenses will not need to grow for the next few years
providing an additional boost to margins," ValueAct wrote.
    Unlike other investment firms that routinely push for change
publicly and often ask for board seats at target companies,
ValueAct prefers to work with management behind the scenes.
    It praised leaders at Recruit, noting management is already
focusing more sharply on costs, and at Expedia, where the CEO
focused on rebuilding many aspects of its business when the
pandemic shut down travel.
    The firm also said it was ready to help each company, noting
it has experience in Japan and has been involved with technology
companies like Microsoft  MSFT.O  and Salesforce  CRM.N ,
working to improve the way they do business.
    But it also said there is work to be done, pointing to the
need for better pricing and ongoing cost management.
    ValueAct CEO Mason Morfit was invited onto Salesforce's
board this year and the stock price has surged 64% since
January. 
    ValueAct has also been investing more frequently in Japan in
recent years, including at Seven & i  3382.T  where it tried but
failed to oust four directors this year.
    On Tuesday, ValueAct said in a regulatory filing that it
established new positions in Illumina  ILMN.O , Danaher Corp
 DHR.N , Roblox Corp Class A shares  RBLX.N  and Alarm.com
Holdings  ALRM.O  during the third quarter.
    There was no mention of Recruit or Expedia.

 (Reporting by Svea Herbst-Bayliss; Editing by Edwina Gibbs)
 ((svea.herbst@thomsonreuters.com; +617 233 2138; Reuters
Messaging: svea.herbst.thomsonreuters.com@reuters.net))