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Google shares rose about 12% to the equivalent of $672.88 at 8.47am in Frankfurt. Photo: Bloomberg
Google shares rose about 12% to the equivalent of $672.88 at 8.47am in Frankfurt. Photo: Bloomberg

Google earnings beat estimates, shares soar

Profit and sales topped analysts' estimates in the second quarter and operating expenses rose at the slowest pace since 2013

San Francisco: Google Inc.’s stock rallied in Europe trading after new chief financial officer Ruth Porat signalled plans to bring more restraint to spending at the Internet search giant.

Profit and sales topped analysts’ estimates in the second quarter, and operating expenses rose at the slowest pace since 2013. On a conference call after the results were released Thursday, Porat—who joined the company in May from Morgan Stanley—said she was focused on cost controls. As the company seeks ways to boost revenue growth in its main Web search-advertising business and beyond, chief executive officer Larry Page has been investing in new—and sometimes expensive—projects, from driverless cars to fast Internet service. Porat has bolstered investor confidence that the company will balance spending on such initiatives with the need to keep a tighter rein on expenses.

“People are realizing it’s a new era," said Colin Gillis, an analyst at BGC Financial LP. “She’s coming in and she’s expressing what investors wanted—that’s there’s going to be cost rationalization, a degree of discipline."

Google shares rose about 12% to the equivalent of $672.88 at 8.47am in Frankfurt. The stock gained 3.1% to $601.78 at the close in New York Thursday, and has soared 11% since the start of July.

Profit before certain items in the recent period was $6.99 a share, the company said in a statement. Sales, minus revenue passed on to partners, rose 13% to $14.4 billion.

Analysts on average projected $6.73 a share in profit on $14.3 billion in sales, according to data compiled by Bloomberg.

“The priority is revenue growth," Porat said on the call, her first at Google, after the report. “We have a breadth of opportunity, but pursuing revenue growth is obviously not inconsistent with expense management."

Second-quarter net income was $3.93 billion, compared with $3.35 billion a year earlier, Mountain View, California-based Google said. Revenue would have been $1.1 billion higher had foreign-exchange rates stayed constant, the company said.

Porat said Google is still investing in new businesses, just as it always has under co-founders Page and Sergey Brin. Pursuits have included the introduction of a new wireless-phone service and tests of delivery drones and Google Glass wearable computer, as well as forays into products like contact lenses that can track glucose levels and kites designed to deliver clean energy.

“The founders are still in control and that dynamic still exists, so she’ll have to deal with that going forward," said Josh Olson, an analyst at Edward Jones & Co. “The fact that she was hired indicates that Larry and Sergey are looking for a change in the approach around expenses."

Google also has devoted money to improving its core advertising services, including new tools to enable purchases directly from ads and features that aim to make the buying process simpler for marketers. The company has a wide lead in the digital-advertising market over rivals such as Facebook Inc., Apple Inc. and Twitter Inc.

In the recent quarter, the number of clicks on ads rose 18%, compared with a 13% increase in the first quarter, while the average cost per click fell 11% after dropping 7% in the prior period. Google’s mobile cost- per-click is climbing, helping to close the gap with desktop ads, Porat said on the call.

Watch time on YouTube, the company’s video-sharing site, was up 60%, with mobile watch time more than doubling, she said. Bloomberg

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