Aug 21, 2015

Dear Investor:
Amalfi Capital Fund I, Limited (ACFIL) returned 0.25% net of fees and expenses for the
quarter ending July 31, 2015. The fund returned 23.85% for the fiscal year.
In June and early July Shanghai-Hong Kong connect investment flow reversed: With two
thirds of companies listed on the Shanghai Stock Exchange suspended at one point, investors
scrambled to sell liquid offshore positions to meet margin requirements on the mainland. Our
portfolio held its ground but our long book fell with Chinese ADRs. We thought about
changing our voicemail message to, please take a deep breath and look at the front cover of
The Hitchhikers Guide to the Galaxy. Then we remembered that everyone uses Wechat.
The mobile phone is now the nexus of most consumers universe. Tencent [SEHK:700] has a
unique mobile application pedigree due to an early commercial relationship with China
Mobile. Netease might have arrived relatively late but a raft of venture-style investments in
mobile back in 2012 and 2013 have been paying off. Approximately 31% of Neteases revenue
came from mobile games in the second quarter versus 17% in the first quarter. Tencent and
Netease [Nasdaq:NTES] remain core holdings.
Over 60% of Taobao transactions are now completed on a mobile device. Alibaba
[NYSE:BABA] and Tencent are now gorillas in financial services and we expect to be able to
hear shrill whining from incumbent banks for regulation of these giant upstarts (Tencents
30% owned Webank launched iOS apps in mid-August, allowing users to make mortgage
payments and buy into funds).
We exited our investment in Netdragon [SEHK:777]. Were still huge Liu Dejian fans but
nothing had fundamentally changed and it hit our valuation.
Weve watched a lot of smart people go after data driven ad buying and fail. Rocket Fuel Inc.
[Nasdaq:FUEL] is another in a long line of companies to discover adtech economics work well
for gorillas and guerrillas but rarely midmarket players. We will continue to plumb this rich
vein for short opportunities.
We maintain a significant position in Renren Inc. [NYSE:RENN]. A take-private offer from the
CEO and COO undervalues the companys assets. See below for commentary.
Given this is our annual as well as quarterly update: To our investors who stuck with us over
a rocky year; to our advisors and friends who have shared their ideas and often brutally
unvarnished feedback; and to the entrepreneurs and management teams who answer reams
of questions. Thank you and well strive to do better this year.
Live long and prosper,
Paul Waide & Tristen Langley.
Amalfi Capital Management
Paul @ amalficapital.com | Tristen @ amalficapital.com

Confidential Investor Update quarter ending July 31, 2015

Portfolio Snapshot
Some of our investments and short positions held in the portfolio as at July 31, 2015,
included:
Company

Sector

Comment

Renren [RENN]

SNS/Investments

Netease [NTES]

Gaming

Tencent [0700]

Mobile / Internet /
Gaming

Naspers [NPSNY]

Internet/Media

Beijing-based SNS with interesting US and Japan exposures

China multi-player game developer & operator, World of
Warcraft.
China focused leading gaming, mobile, messaging
platform.
Owns 33.73% Tencent, 29% mail.ru, OLX, and other media
properties

LONG

SHORT
Tubemogul [TUBE]

Digital advertising

Inserts video ads into Youtube and other video platforms

Retailmenot [SALE]

Digital Coupons

Sina [SINA]

Web portal

Google dependent e-couponing business/ US-based.

Internet 1.0 portal. Owns majority of Weibo [WB]

Mobileiron [MOBL]

Enterprise software

Weak player in ultra-competitive mobile device

management niche

Rocket Fuel [FUEL]

Ad buying platform

Weak business model with massive cash flow risk

Investment Update
Renren (NYSE:RENN): Long
We wrote up Renren Inc. [NYSE:RENN] last quarter. There have been a couple of
developments since then:
On June 10, Joseph Chen (CEO) and James Liu (COO) submitted an offer of $4.20 per ADS to
take the company private. The companys board has stated that it intends to form a special
committee of independent directors to consider the proposal.
We suspect the delay in forming the special committee is due to financing activity around
what has become Renrens most valuable asset, its stake in SoFi. Softbank, which is Renrens
largest holder via SB Pan Pacific, has had an investment into SoFi approved. We dont know
how big the investment was but it required FTC approval, so was at least $76.3 million. As
mentioned in our previous update, SoFi is a marketplace for non-bank student loans in the
US. SoFis risk management is augmented by matching student borrowers with lenders who
are graduates from the institution that the student is using the loan to attend. Renren had
invested a total $92.1 million across SoFis B, C, and D rounds of financing and in Q1 of this
year owned 24.8% of SoFi. Our valuation of Sofi is a lot less than the $4 billion speculated on
in The Wall Street Journal and Forbes in August but Renrens stake in Sofi now looks like it
might be worth more than the market is paying for Renren.
Confidential Investor Update quarter ending July 31, 2015

Opportunities
Short investments
We value our dialogue and relationships with company managements and throughout our
history we have maintained a net-long portfolio. This is not because we like or dislike short
investments, it is because over the long-term stocks trend upwards and shorts face other
market headwinds.
That said, years of cheap debt mean that a number of companies in our universe now fit all
the criteria that famed 1980s short-sellers Feshbach Brothers used to screen their shorts1:
1.
2.
3.
4.

Stock prices overvalued by at least two times perceived valuation.

A fundamental problem at the company.
A weak financial condition working-capital problems or high long-term debt.
Weak or crooked management.

We expect to generate returns from our book of short investments. We dont enter short
positions just to hedge our long book.
This quarters reading list:
Get Smarter: Life and Business Lessons by Seymour Schulich (with Derek DeCloet)
The King of Oil by Daniel Amman
Elon Musk: Tesla, SpaceX, and the Quest for a Fantastic Future by Ashlee Vance
Dataclysm: Who we are (When We Think No Ones Looking) by Christian Rudder
Charlie Munger: The Complete Investor by Tren Griffin
Thanks for your faith and support over the past year.
Yours sincerely,
Paul Waide & Tristen Langley
Amalfi Capital Management
Paul @ amalficapital.com | +86 13661601210
Tristen @ amalficapital.com | +1 415 939 8537
Amalfi Capital Management, Limited
Suite 804 No. 233 Weihai Road
Shanghai 200040, China
+86 21 6358 1828
233 804

The Art of Short Selling by Kathryn F Staley

Confidential Investor Update quarter ending July 31, 2015