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

By Svea Herbst-Bayliss

NEW YORK (Reuters) – ValueAct Capital Management has bought stakes in job search site Indeed’s parent Recruit Holdings and in online travel services provider Expedia (NASDAQ:) Group 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 (NASDAQ:) and Salesforce (NYSE:), 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 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 (NASDAQ:), Danaher Corp (NYSE:), Roblox Corp Class A shares and Alarm.com (NASDAQ:) Holdings during the third quarter.

There was no mention of Recruit or Expedia.