The share price of Google parent Alphabet surged 11% in after-hours trading after better-than-expected financial results for the third quarter driven by advertising sales and cost savings.
Revenue was up 15% to $15.1bn, compared with analysts’ average estimate of $15bn, while profit was $7.35 a share, beating predictions of $7.20.
Third-quarter net income was $3.98bn, compared with $2.74bn in 2014, representing an increase of 45%.
Analysts said the strong growth, plus a cash balance of $72.8bn, gave Google’s board enough confidence to authorise $5.1bn in share buybacks.
The strong results were driven by a 23% increase in clicks on ads, making up for a 16% decline in the average price for ads on Google’s websites.
Ruth Porat, Alphabet chief financial officer, said that global upward trends around mobile ads were helping boost the company’s bottom line, reports the Guardian.
“We regularly adjust the way we present ads, so we expanded ad space in some queries with particularly high commercial intent to display more relevant, mobile-friendly ads,” she said.
The shares of Alphabet shot up to $756.19 in extended trading after closing at $681.14in New York, near the record of $699.95 reached on 19 October 2015.
Analysts said all this shows that chief executive Larry Page and Porat are bringing more operational and financial discipline to the sprawling web enterprise.
Under Alphabet, Google’s search-ad business sits alongside other businesses that include computers, fast Internet services, drones, wind turbines and self-driving cars.
While these non-search-related businesses have yet to rival Google’s core operations, revenue from these businesses rose 11% to $1.89bn, but the new structure is not expected to be reflected in results until 2016.
The switch to the Alphabet structure took place officially on 2 October 2015, the first day of Google’s current fiscal quarter.
Analysts said that means the first indication of how well each of the various Alphabet entities is performing will come only when Alphabet reports its fourth-quarter financial results in January.
Although Porat is credited with controlling costs and limiting the rise in operating expenses for the past quarter to just 14%, she said capital expenditures are likely to increase in 2016.
One of the main areas of investment is machine learning and artificial intelligence, which Google’s leadership sees as a point of differentiation from its competitors, according to the Seattle Times.
They said Alphabet Inc will replace Google Inc as the publicly traded entity and Google will become a wholly owned subsidiary of Alphabet.
Analysts said that by separating the exploratory projects from Google’s core internet operations, Page can show investors that the core business remains highly profitable even if other ventures fail to show a profit for years.