We saw earlier in August 2014 that Google had dethroned Parag Parikh’s all-time favourite stock, Noida Toll Bridge, and emerged as the largest holding in the PPFAS Mutual Fund. At that stage, Google lorded over 8.21% of the AUM.
Now, in October 2014, Parag Parikh has gone ahead and bought more of Google stock. PPFAS now holds 13990 “C” Class shares of Google, worth a whopping Rs. 47.24 crore. The stock now lords over 9.42% of the AUM, which stands at Rs. 501 crore as of 31st October 2014.
Google appears to be facing the heat of increased mobile usage, which curbs the display of advertisements on a webpage. In Q3CY14, the revenue surged 20% YOY to $16.52B but the operating income declined 1% to $3.72B. The pricing power appears to be weak because the “cost per click” declined 4% YOY.
Google faces intense competition from Facebook & Twitter for a slice of the internet advertisement revenue.
Google is sitting on a mountain of cash ($61B) and has made several mega investments in recent times like the acquisition of Nest Labs, Titan Aerospace (drone maker), Skybox imaging, self-driving cars etc. Google has paid top dollar for these investments and they will take a long time (between 5 to 10 years) to deliver returns.
Google’s market cap at the CMP of $551 is a whopping 370.67B (INR 22,24,020 crore). It is in the top 5 most-valuable companies in the World. The stock price has remained quiet on a YOY basis.
Now, while there is no denying that Google is a top-quality company and that it plays, and will continue to play, a vital role in our lives, we have to ask ourselves a few questions:
(i) Given Google’s mammoth market capitalisation, how much bang for the buck can we expect the stock to deliver?
(ii) In how much time?
(iii) Is the return going to be that much superior that we cannot expect domestic companies to deliver the same or even more?
(iv) What about the risk of currency fluctuation and the cost paid to hedge it?
(v) While investing in mammoth giants like Google makes sense for multi billion dollar funds seeking to invest large sums of capital in a liquid stock, does it make the same sense for a micro-fund with an AUM of only Rs. 500 crore?
At this stage, we must stand back and quietly observe future events. We cannot second-guess a veteran value investor of the caliber of Parag Parikh. Who knows, later events may prove that the investment in Google is much better than the investment one could have made in domestic stocks.
For the moment, the PPFAS Mutual Fund is also facing the heat. With a YOY return of 39.65%, it has managed to keep pace with the CNX 500 (39.15%) though it has under-performed its peers, Reliance Equity Opportunities (68.9%), HDFC Equity Fund (64.1%), Reliance Growth Fund (62.4%) and Franklin India Prima Plus (54.4%) by a heavy margin. Also, in the NAMO mania, several small-cap and mid-cap funds have given mind-blowing YOY returns like Reliance Small Cap Fund (118%), Sundaram SMILE Fund (113%), DSP-BR Micro Cap Fund (111%), UTI Mid Cap (104%), Can Robeco Emerging (103%), HSBC Mid-cap (102%) etc. Of course, these small-cap and mid-cap funds have their own set of risks that one must be aware of. The gains can disappear as fast as they came in.