Alphabet, formerly Google, sets share buyback, shares jump
Alphabet Inc (GOOGL.O), 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.
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 (FB.O).
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 percent 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 (AAPL.O).
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 (AAPL.O) and Microsoft Corp (MSFT.O) have come under intense pressure in recent years to give back more cash to investors.
Excluding one-time items, the company earned $7.35 per share, up 17.6 percent from the year before. That was ahead of analysts’ average estimate of $7.21 per share.
Expenses rose 9.1 percent to $13.97 billion but were 74.7 percent of total revenue, compared to 77.4 percent in the same quarter last year, reflecting new Chief Financial Officer Ruth Porat’s tight rein on spending.
The company said the number of paid clicks, in which advertisers pay only if a user clicks on the ad, rose 23 percent, compared to an 18 percent increase in the previous quarter.
Cost-per-click, or the average price of online ads, fell 11 percent in the quarter. (bit.ly/1M8LA5l)
Under the Alphabet structure, search, advertising, maps, YouTube and Android will remain part of Google.
Alphabet’s businesses will include connected home products maker Nest, venture capital arm Google Ventures, Google X, the company’s secretive research arm, and Google Capital, which invests in larger tech companies.
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Source:Reuters
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