Google Inc (NASDAQ:GOOGL) reported after-hours Thursday diluted EPS of $6.99 per share on revenues of $17.73 billion for the second quarter of 2015, falling below estimates of $17.75 billion in revenues, but topping estimates of earnings of $6.70 per share. Revenues grew by 11% year-over-year, or 18% year-over-year on a constant currency basis. The company reported a currency exchange impact of $1.57 billion on revenues as well. According to the internet search and technology giant, Google websites accounted for $12.4 billion in revenue and Google Network Members’ websites for $3.62 billion in revenue, for total advertising revenues of $16.02 billion. Other revenues were reported to be $1.7 billion. Google Inc (NASDAQ:GOOGL) reported that total paid clicks increased by 18% but aggregate cost-per-click decreased by 11% year-over-year. The firm appears to have been weighed down by increased capital expenditure of $6.99 billion, compared to $5.63 billion in the same quarter a year ago. GAAP costs and expenses were $12.9 billion, compared to $11.7 billion in the prior year quarter. As a percentage of revenues, GAAP costs and expenses were 73%, the same as last year’s figure. Free cash flow was reported to be $4.47 billion while operating cash flow stood at $7.0 billion. GAAP operating income and operating margin were $4.83 billion and 27% respectively. Shares of Google are up by an impressive 11% in after-hours trading and by nearly 25% since July 8.
Ruth Porat, the new chief financial officer at Google, said during a conference call that their “strong Q2 results reflect continued growth across the breadth of our products, most notably core search, where mobile stood out, as well as YouTube and programmatic advertising.” In the conference call, Porat mentioned a significant increase in YouTube’s revenue growth. She also highlighted the closing of the gap in monetization between desktop and mobile search. Google, at the time of writing, did not divulge more specific numbers about mobile, or its divisions such as YouTube.
The earnings beat is in line with how hedgies have been trading the stock in the first quarter. Hedge funds, put simply, are betting on Google Inc (NASDAQ:GOOGL). The total value of holdings of hedge funds among those Insider Monkey tracks who held long positions by March 31 increased by 20.33% to $7.36 billion in the first quarter. The stock appreciated by just 4.53% in the first quarter. Moreover, at the end of the first quarter, a total of 121 of the hedge funds tracked by Insider Monkey were long in this stock, one more than the previous quarter. The same could be seen in the company’s Class C GOOG shares, as aggregate holdings increased to $6.88 billion from $5.68 billion, while the number of hedge fund shareholders we track increased to 108 from 105.
General opinion is that hedge funds under perform the S&P 500 based on net returns. But we are missing something very important here. Hedge funds generally pull in strong returns from their top small-cap stocks and invest a lot of their resources into analyzing these stocks. They simply don’t take large enough positions in them relative to their portfolios to generate strong overall returns because their large-cap picks underperform the market. We share the top 15 small-cap stocks favored by the best hedge fund managers every quarter and this strategy has managed to outperform the S&P 500 every year since it was launched in August 2012, returning over 139% and beating the market by more than 80 percentage points (read the details). Because of this, we know that collective hedge fund sentiment is extremely telling and valuable.
Furthermore, Insider Monkey tracks insider transactions such as buying or selling of shares. This tells us whether insiders are also bullish on their firms’ shares. There have been no recorded purchases by Google insiders this year. The latest sale of shares by an insider was by Director Ann Mather, who sold 6,000 shares on July 14. She sold another 2,000 shares on July 13.
Keeping this in mind, we’re going to take a glance at the latest key smart money activity surrounding Google Inc.
How are hedge funds trading Google Inc (NASDAQ:GOOGL)?
According to hedge fund experts at Insider Monkey, Andreas Halvorsen‘s Viking Global had the most valuable position in Google Inc (NASDAQ:GOOGL), owning 1.64 million Class A shares worth close to $908.8 million on March 31, accounting for 3.5% of its total 13F portfolio. Sitting in the second spot was Ken Fisher of Fisher Asset Management, with 822,275 Class A shares, a $456.1 million position; 0.9% of its 13F portfolio was allocated to the stock. Other peers that were bullish comprise Boykin Curry’s Eagle Capital Management, David Blood and Al Gore’s Generation Investment Management, and William B. Gray’s Orbis Investment Management.
Consequently, some big names have been driving this bullishness. Point State Capital, managed by Zach Schreiber, created the most valuable position in Google Inc (NASDAQ:GOOGL) in the first quarter. Point State Capital had a $217.4 million position in the company at the end of the quarter, acquiring 392,000 Class A shares. Larry Robbins’ Glenview Capital also made a $183.1 million investment in 330,060 Class A shares during the quarter. The other funds with brand new Google holdings were Doug Silverman and Alexander Klabin’s Senator Investment Group, Thomas E. Claugus’ GMT Capital, and Dinakar Singh’s TPG-AXON Management LP.
Due to the very bullish sentiment from hedge funds and the outstanding performance of the stock, we recommend a long position in Google Inc (NASDAQ:GOOGL).
Disclosure: None
