Alphabet Inc. , the new holding company for Google, introduced its first share buyback and beat Wall Street’s profit forecast on Thursday, helped by solid progress in mobile and video advertising, sending the stock to its highest-ever level in after-hours trading.
Revenue and profit well above analysts’ average forecasts, along with the unexpected buyback, was welcomed by Wall Street, which is now betting on further growth.
“They’re in a great position in the overall advertising space, whether it’s search, display or mobile,” said Kerry Rice, a Needham & Co. analyst. “They’ve got the right programme to continue to grow at a solid pace and be dominant in those spaces.”
The results come at a pivotal time for the company as it navigates the transition from desktop to mobile, where ads are generally less profitable, while facing growing competition from rivals like Facebook Inc.
At the same time, it is moving into a new corporate structure that will put more visibility on parts of Alphabet such as its secretive research arm, Google X. Next quarter will be the first in which it reports results under that structure.
Company executives touted strength in mobile search for the strong results. “Search traffic on mobile phones have now surpassed desktop traffic worldwide,” said Sundar Pichai, Chief Executive of Google Inc.
Shares of Alphabet rose almost 9 per cent in after-hours trading to $741, easily a record. At that level, the company’s market value would be around $500 billion, making it the second-most valuable company in the S&P 500 after Apple Inc.
On a strong day for technology companies, Amazon.com Inc and Microsoft Corp shares also rose sharply after hours, following better-than-expected results.
“They seem to have a better hold on mobile and are navigating the transition to mobile usage better than expected,” said James Cakmak, an analyst at Monness, Crespi, Hardt & Co.
Still, Cakmak questioned how Google’s internet-based business will fare in the long term in an app-based world. “Their primary strength in apps is YouTube and that’s pretty much it,” he said.
Investors have been pressing the company to return more of its $72 billion cash pile, but the announcement that Alphabet would buy back up to $5.09 billion of its Class C shares came as a surprise.
Mature technology companies such as Apple Inc and Microsoft Corp have come under intense pressure in recent years to give back more cash to investors.
Third-quarter revenue rose 13 per cent to $18.68 billion, above the $18.53 billion that Wall Street expected, according to Thomson Reuters I/B/E/S. Excluding one-time items, the company earned $7.35 per share, up 17.6 per cent from the year before. That was ahead of analysts’ average estimate of $7.21 per share.
Expenses rose 9.1 per cent to $13.97 billion but were 74.7 per cent of total revenue, compared to 77.4 per cent in the same quarter last year, reflecting new Chief Financial Officer Ruth Porat's tight rein on spending. “It’s strong top and bottom line results,” said BGC Partners analyst Colin Gillis. “It’s great to see not only expense control - which is the new CFO - but also upside on the top line.”
