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Alphabet, formerly Google, posts better-than-expected profit

Shares jump a little over 8%

Alphabet, known until recently as Google, reported better-than-expected revenue and profit in the third quarter, boosted by strong advertising sales driven by YouTube and mobile search.

Alphabet, whose shares were up a little over 8% in after-hours trading on Thursday, also said its board has authorised a stock buyback of up to $5.09 billion of the company’s Class C shares.

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

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% to $13.97 billion, 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.”

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

“It’s definitely encouraging to see aggregate paid clicks accelerate again this quarter,” said Cakmak.

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.

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