Michael Burry has made a name for himself as the man who ‘shorted’ the housing market before the Global Financial Crash 2007/08. Since this moment, he’s remained vocal about his trades. For example, in 2020, he announced that he was shorting Tesla, claiming that the bubble would burst, and he also opened a short position on Cathie Wood’s ARKK ETF Innovation Index. At the moment, he is known to have placed a large short position on Apple. But this doesn’t mean that Burry doesn’t buy stocks, and in the recent first quarter, he added to his position in Alphabet (NASDAQ: GOOGL), the owner of Google. With this in mind, should I be adding more of this growth stock to my portfolio.
Recent results
The first quarter was slightly underwhelming for Alphabet investors, as the firm reported an 8% decline in quarterly profit. This was due to slowing growth for advertising, as well as a decline in the value of the company’s investments. This highlighted that the boom the company saw during the pandemic may be slowing. It also resulted in the Alphabet share price falling slightly.
Even so, there were still many positives to take away from the results. For example, revenues rose 23% year-on-year to $68bn in the first three months of the year. Income from operations, which excludes the decline in value of the group’s investments, totalled over $20bn, up from $16.4bn the year before. This meant that operating margins stayed flat at 30%, which is extremely strong for any company, especially a growth stock.
I am also very impressed at the company’s diversification. Indeed, alongside its Google Search revenues, the group also has revenue sources from YouTube and Google Cloud. Its Cloud ops grew particularly strongly in the first quarter of this year, with revenues rising over 43% year-on-year. This is a key area for growth over the next few years.
Other factors
There are some other factors that an investor like me must consider. For example, there are further signs that post-pandemic growth is starting to slow. Indeed, facing rising competition from TikTok and a pullback in time spent on digital entertainment, YouTube’s revenue growth slowed to only 14% in the first quarter. Further signs of this slowing growth may lead to further declines in the Alphabet share price.
But this doesn’t take away from the quality of this growth stock, a reason why I believe that Burry continues to invest. Further, in a bold sign of confidence, the company has authorised itself to purchase up to $70bn of stock. This should help boost metrics such as earnings per share, which may help the Alphabet share price soar.
What am I doing with this growth stock?
Despite macroeconomic pressures and fears of slowing growth, I feel that Alphabet is perfectly able to cope with these issues. As it continues to repurchase its own shares, and boost revenues, I believe there’s plenty more upside potential. I may follow Burry and add more Alphabet shares to my portfolio.
