October 22, 2015 / 8:09 PM / 2 years ago

Alphabet, formerly Google, sets share buyback, shares jump

SAN FRANCISCO (Reuters) - Alphabet Inc, known until recently as Google Inc, introduced its first share buyback and beat Wall Street’s profit forecast on Thursday, sending its stock to its highest-ever level in after-hours trading.

A prototype of Google's own self-driving vehicle is seen during a media preview of Google's current autonomous vehicles in Mountain View, California September 29, 2015. REUTERS/Elijah Nouvelage

The company’s bottom line was boosted by strong gains in mobile search and YouTube advertising, while it kept a tight lid on expenses.

Investors have been pressing the company to return more of its cash pile, but the announcement that Alphabet would buy back up to $5.09 billion of its Class C shares came as a surprise.

“That is an unexpected development that is definitely encouraging given the company’s cash balance,” said James Cakmak, an analyst at Monness, Crespi, Hardt & Co.

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.

Alphabet’s shares rose 11 percent in after-hours trading to $722.53, their highest level ever.

Third-quarter revenue rose to $18.68 billion from $16.52 billion a year earlier, above the $18.53 billion, on average, that Wall Street expected, according to Thomson Reuters I/B/E/S.

Net income rose to $3.98 billion, or $5.73 per Class A and B share, from $2.74 billion, or $3.98 per share in the same quarter last year.

Excluding one-time items, the company earned $7.35 per share. 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.

“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.”

Porat said the revenue growth reflected “ongoing momentum in Google with acceleration in mobile search complemented by the strength of YouTube and programmatic” advertising, speaking on a conference call with analysts.

The company said advertising revenue increased 13 percent to $16.78 billion in the three months ended Sept. 30, while the number of total paid clicks rose 23 percent, compared to an 18 percent increase in the previous quarter.

With paid clicks, advertisers pay only if a user clicks on an ad. Cost-per-click, or the average price of online ads fell 11 percent in the quarter. (bit.ly/1M8LA5l)

“Mobile search revenue was up significantly and was an important catalyst in the quarter, but it’s important to note desktop remains a solid contributor,” said Porat.

The results are the first since Google officially changed its name on Oct. 2 as part of an overhaul of its operating structure, with Alphabet acting as a holding company. However, the reporting structure will not change until the fourth quarter.

Under the restructuring, 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, and Google Capital, which invests in larger tech companies.

Reporting by Lehar Maan in Bengaluru and Deborah Todd in San Francisco; Writing by Stephen R. Trousdale; Editing by Ted Kerr, Savio D'Souza and Bill Rigby

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