Two of the market’s more aggressive activist hedge funds have disclosed new positions in shares of
Alphabet,
parent of Google and YouTube.
Pershing Square
Capital Management, run by Bill Ackman, finished the March quarter with an Alphabet stake worth about $1.1 billion, while Third Point, headed by investor Dan Loeb, disclosed a $492 million stake. Both have notched nice gains on their holdings for the quarter to date: as of Monday’s close, Loeb’s stake was worth $553 million, while Ackman’s stake was worth about $1.2 billion, gains of about 12% each, since March 31, the last possible day they could have bought the stock per the filings.
This does not seem like a company under siege by activists, though. More likely it’s two smart investors that saw a clear buying opportunity and pounced.
Most of Pershing’s stake consists of the company’s non-voting Class C shares (ticker: GOOG) with the smaller portion in the Class A shares (ticker: GOOGL)—a non-voting stake would be inconsistent with a serious move to pressure the board.
Alphabet’s capital structure also includes non-trading Class B stock held by founders Sergey Brin and Larry Page and a few other insiders, which carry 10 votes per share. Brin and Page together continue to hold about 51% voting control of the company. In short, no one (other than Brin and Page) can make the Alphabet board do anything—activist investors can’t stage a coup, and they can’t win a proxy fight.
Meanwhile, remember that Alphabet shares suffered a steep selloff in February after
Microsoft
(MSFT) unveiled a new-and-improved version of its Bing search engine, including generative artificial intelligence software from ChatGPT creator Open AI. In the period from Feb. 7 (the day the new Bing was unveiled) through Feb. 24, Alphabet shares dropped 17%. Investors worried that Microsoft might be ahead of Alphabet in the push for AI software, which could help Bing eat into Google’s commanding position in search, and search ads.
But investors that bought the stock on Feb. 24, when it closed at $89.13, have done quite well, with Alphabet shares up 34% since then. The 13F filings that disclose Pershing and Third Point’s positions don’t give purchase prices, but it’s conceivable that their interest was sparked by the post-Bing selloff. In any case, this would appear to be a case of smart investing, rather than 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 stock repurchase program.
But there are a couple of issues that continue to rankle Alphabet investors. The company ended the March quarter with more than $100 billion in net cash, and it pays no dividend, unlike other big cash generators Microsoft and
Apple
(AAPL).
And Alphabet continues to rack up substantial losses in its “Other Bets” business segment, which includes the company’s Waymo driverless car business, among other efforts. In the March quarter, Alphabet suffered an operating loss of $1.2 billion in its Other Bets, reducing overall operating income by about 7%.
Pershing Square declined to comment on its stake in Alphabet. Alphabet and Third Point did not immediately respond to requests for comment.
Alphabet shares were trading 2.9% higher on Tuesday at $119.90.
Write to Eric J. Savitz at [email protected]
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