By Deborah Todd & Steve Trousdale
SAN FRANCISCO (Reuters) – Alphabet Inc, the new holding company for Google, introduced its first share buyback & beat Wall Street's profit forecast on Thursday, helped by solid progress in mobile & video advertising, sending the stock to its highest-ever level in after-hours trading.
Revenue & profit well above analysts' average forecasts, along with the unexpected buyback, was welcomed by Wall Street, which is now betting on further growth.
p> "They're in a tremendous position in the overall advertising space, whether it's search, display or mobile," said Kerry Rice, a Needham & Co analyst. "They've received the right program to continue to grow at a solid pace & 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 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.
On a strong day for technology companies, Amazon.com Inc & Microsoft Corp shares moreover rose sharply after hours, following better-than-expected results.
Analysts generally welcomed Alphabet's performance.
"They seem to have a better hold on mobile & 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 & that's pretty much it," he said.
Investors have been pressing the company to return more of its $72 billion cash pile, yet 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 & Microsoft Corp have come under intense pressure in recent years to donate back more cash to investors.
Third-quarter revenue rose 13 percent 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 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 yet 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 & bottom line results," said BGC Partners analyst Colin Gillis. "It's tremendous to see not only expense control – which is the new CFO – yet moreover upside on the top line."
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. (http://bit.ly/1M8LA5l)
"Our value proposition to markets of all sizes is simple. Google can assist you show the right ads to the right people at the right moment," Pichai said.
Under the Alphabet structure, search, advertising, maps, YouTube & 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, & Google Capital, which invests in larger tech companies.
(Reporting by Lehar Maan in Bengaluru & Deborah Todd in San Francisco; Writing by Stephen R. Trousdale; Editing by Ted Kerr, Savio D'Souza & Bill Rigby)
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