Two of the most active hedge funds in the market have revealed new positions in Alphabet shares
And
The father of Google and YouTube.
Pershing Square Capital Management, run by Bill Ackman, ended the March quarter with an Alphabet stake worth about $1.1 billion, while Third Point, headed by investor Dan Loeb, disclosed a stake of $492 million. Both have had decent gains on their holdings for the quarter so far: As of Monday’s close, Loeb’s stake was $553 million, while Ackman’s stake was about $1.2 billion, gains of about 12% each, since March 31, the latest possible day. They could purchase inventory according to deposits.
However, this company does not appear to be under siege by activists. Most likely a couple of smart investors saw an obvious buying opportunity and pounced.
Most of Pershing’s stake consists of the company’s non-voting Class C shares (stock ticker: GOOG) with the smaller portion in Class A stock (stock ticker: GOOGL) — a non-voting stake would not conflict with any serious move to pressure the board.
Alphabet’s capital structure also includes Class B non-commercial shares held by founders Sergey Brin, Larry Page and a few other insiders, who own 10 votes per share. Together, Brin and Page continue to control the 51% voting power in the company. In short, no one (except Brin and Page) can make the Alphabet board do anything — activist investors can’t stage a coup, and they can’t win a proxy battle.
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Meanwhile, remember that Alphabet shares suffered a sharp sell-off in February after Microsoft (MSFT) unveiled a new and improved version of its Bing search engine, including generative AI software from Open AI’s ChatGPT creator. From February 7 (the day the new Bing was unveiled) through February 24, Alphabet shares fell 17%. Investors are concerned that Microsoft may be ahead of Alphabet in pushing for artificial intelligence software, which could help Bing eat up Google’s lead in search and search advertising.
But investors who bought the stock on February 24, when it closed at $89.13, did well, as Alphabet shares are up 34% since then. The 13F filings revealing the Pershing and Third Point centers do not offer buy prices, but it is conceivable that their interest was triggered by the post-Bing sell-off. Anyway, this seems to be a case of smart investing, not activist investing.
Alphabet has become more responsive in recent months to investor concerns about capital management and cost concerns. The company cut 12,000 jobs in January and in April announced a $70 billion share buyback program.
But there are some issues that continue to worry Alphabet investors. The company ended the March quarter with more than $100 billion in net cash, and it doesn’t pay any dividends unlike other large cash-generating companies Microsoft and Apple.
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(AAPL).
And Alphabet continues to take heavy losses in its “other bets” business, which includes Waymo’s self-driving car business, among other efforts. In the March quarter, Alphabet suffered an operating loss of $1.2 billion in other bets, which reduced total operating income by about 7%.
Pershing Square declined to comment on its stake in Alphabet. Alphabet and ThirdPoint did not immediately respond to requests for comment.
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Alphabet shares were trading up 2.9 percent on Tuesday at $119.90.
Write to Eric J. Savitz at [email protected]
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