David Einhorn’s $10 billion Greenlight Capital fund just reported a disappointing 2.6% loss in Q2. According to Einhorn’s letter to investors, Apple Inc. (NASDAQ:AAPL), Amazon.com, Inc. (NASDAQ:AMZN) and Macy’s, Inc (NYSE:M) all played major roles in another tough quarter for Einhorn.
Einhorn called AAPL a “material loser” in Q2. From the end of March to the end of June, AAPL shares declined 12.3%. Einhorn reported an $895.14 million stake in AAPL as of March 31, which would imply potential losses of $110 million on the quarter.
However, there are two reasons why Einhorn investors and followers shouldn’t feel so bad about the AAPL losses. First, according to Einhorn’s letter, Greenlight was able to mitigate much of the potential Q2 losses by “trading AAPL well.” He didn’t provide further clarification on just how well.
Second, although AAPL lagged in Q2, those of us living in Q3 now know that AAPL delivered a huge earnings beat for Q2. The stock is now up roughly 15%, since the end of June.
Assuming Einhorn is still holding a core position in AAPL and hasn’t traded the stock poorly as of late, his Q3 letter may paint a much prettier picture.
Einhorn Throws In The Towel On M Stock
While Greenlight investors still have hope that they can recoup their Q2 AAPL losses on a strong Q3, Einhorn’s Macy’s losses are now officially in the books. Einhorn reports that Greenlight unloaded all of its $311.12 million stake in Macy’s in Q2 at a “material” loss.
He reportedly changed his mind about the struggling retailer after the company slashed its 2016 guidance.“This announcement invalidated our thesis that 2016 earnings would benefit from easy comparisons later in the year,” Einhorn wrote in his letter.
Macy’s stock plummeted 24% on the quarter. Assuming Greenlight dumped its shares shortly after the guidance reduction on May 11, the hit may have been closer to 30%. However, even a 20% loss would amount to roughly $62 million.
Last year, Einhorn reported that Greenlight began taking its stake in Macy’s at an average price of around $45.69 per share. The stock finished Q2 at a share price of $33.61.
Einhorn Somehow Manages a Large AMZN Loss
After doubling in 2015, AMZN shares are up another 14.2% in 2016. In Q2, AMZN shares spiked an incredible 20.5%. So how in the heck did AMZN end up one of the major contributors to Greenlight’s Q2 losses? You guessed it — Einhorn was short.
In 2016, Einhorn was short both AMZN and Netflix, Inc. (NASDAQ:NFLX), the two top-performing stocks in the entire S&P 500. This year, NFLX is down 17.2%, but AMZN continues to eat away at Greenlight’s bottom line.
Einhorn believes that stocks like NFLX and AMZN are so far disconnected from reasonable traditional stock valuation metrics that they are reminiscent of tech stocks during the Dot Com Bubble. However, back in 2014, he acknowledged the risks of shorting stocks during a bubble.
“We have repeatedly noted that it is dangerous to short stocks that have disconnected from traditional valuation methods. After all, twice a silly price is not twice as silly; it’s still just silly,” he wrote.
Unfortunately for Einhorn, his short position in AMZN is looking sillier and sillier by the quarter.
As of this writing, Wayne Duggan did not hold a position in any of the aforementioned securities.