Google parent Alphabet Inc. reported big gains from searches on mobile phones, tight controls on expenses and its first stock buyback, sending its shares up 9% to a record.
The third-quarter results, released late Thursday, quelled, for now, two big concerns about the search giant, which recently reorganized and took on a new name: users' willingness to click on ads on the small screens of smartphones, and Alphabet executives' ability to rein in spending.
Along with strong results from Amazon.com Inc. and Microsoft Corp. , Alphabet's report suggested that technology giants had weathered global economic uncertainty, a strong dollar and a weak stock market over the summer.
Amazon posted a surprise profit on strong sales, sending its shares up 11% after hours. Microsoft's revenue fell, but it reported solid growth in a unit that offers cloud-computing services to other companies; its shares rose 7%.
Alphabet's plan to repurchase nearly $ 5.1 billion of its shares was a surprise. Alphabet has nearly $ 73 billion in cash and analysts and investors have been pushing the company for years to return some of that to shareholders.
"The buyback is a definite positive and shows that management is maturing and becoming more shareholder friendly," said Neil Doshi, an analyst at Mizuho Securities USA Inc., who said Alphabet had been the only "mega-large-cap tech company" that wasn't returning cash through buybacks or a dividend. "It's sitting on more than $ 70 billion of cash and can probably weather any storm at this point."
Earlier this month, Google restructured itself into the Alphabet holding company to separate its main online businesses like search, YouTube and Android from more speculative, longer-term businesses such as connected-home unit Nest. It will begin reporting results for the different units in January.
The change coincided with a new focus on cost controls from new Chief Financial Officer Ruth Porat and more disclosure for investors, which had propelled a 25% increase in Alphabet shares since the start of July. Shares rose an additional 9.5% to $ 745.75 in after-hours trading, pushing the company's market capitalization close to $ 500 billion. The previous record during regular trading was $ 713.33.
Alphabet said net income totaled $ 3.98 billion, or $ 5.73 a share, compared with $ 2.74 billion, or $ 3.98 a share, a year earlier. Excluding certain expenses, Alphabet said it would have earned $ 7.35 a share. Analysts had expected the company to earn $ 7.20 on that basis, according to Thomson Reuters.
Revenue rose 13% to $ 18.68 billion. Excluding money Google pays to other companies including Apple Inc. for sending it search traffic, Alphabet's revenue was $ 15.1 billion. On that basis, Wall Street was looking for net revenue of $ 15.04 billion, according to RBC Capital Markets.
Excluding currency fluctuations, Alphabet said third-quarter revenue rose 21% from a year earlier. That was faster than 18% year-over-year growth in the second quarter.
As the world's largest digital-advertising company Alphabet's Google business is benefiting from surging online activity. The Interactive Advertising Bureau said Wednesday that U.S. online-ad revenue rose 19% in the first half of the year. Search advertising accounts for the largest portion of this revenue and Google's dominant search engine helps the company scoop up the lion's share.
Thursday, Alphabet said the number of paid clicks on the websites it owns increased 35% over the year-ago quarter. The average amount advertisers paid for each click fell 16%, pushing revenue from company-owned websites up 16%.
During a conference call with investors, Ms. Porat said strong mobile search revenue was the "key highlight" of the third quarter. She said Google benefited from new ad formats that helped it overcome smartphone users' reluctance to click on ads on the phones' small screens.
Google recently increased the ad space at the top of mobile search results and showed more relevant ads in that area, she said. That appears to have boosted the number of clicks on those ads. Ad agency Merkle RKG said clicks on its clients' ads surged 106% in the third quarter, versus a year earlier. That compares to year-over-year growth of 56% in the second quarter.
While revenue climbed, Alphabet kept a lid on costs, boosting profit margins. Total costs and expenses rose 9% to $ 13.97 billion in the latest period. A year ago, costs and expenses surged 28%. That boosted the company's operating-profit margin to 25.2%, from 22.5% in the same period a year earlier.
Ms. Porat has been asking Google team leaders to better use existing resources before asking for new hires and other resources.
"What it really comes down to is looking at how to manage the rate of growth of expenses while still supporting our growth initiatives," she said on Thursday.
Write to Alistair Barr at alistair.barr@wsj.com
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