Yahoo Finance Google rallies as Q2 results top expectations
Google shares jumped in extended action Thursday to the highest level ever, after the search giant revealed better-than-expected second-quarter profits and adjusted revenues.
The search giant logged adjusted per-share earnings of $6.99, handily topping expectations of $6.70. Meanwhile sales, excluding so-called traffic acquisition costs, came in at $14.35 billion, also topping views of $14.26 billion.
Profits were aided by a greater focus on expense discipline, a strategy reportedly championed by new Chief Financial Officer Ruth Porat, according to the Wall Street Journal. After struggling to justify its strategic choices to investors and Wall Street analysts over the past few years, and seeing its stock price stagnate, Google brought in Porat, the former CFO of Morgan Stanley (MS), in May to improve communications.
Expenses other than the cost of sales, a category which includes everything from office space to marketing programs, increased 13% from a year earlier, down from a 21% rate of increase in the first quarter. And Google cut the amount it spent on capital expenditures, mostly to build new data centers, by 5% from a year ago -- the first year-over-year decline in three years.
Shares of Mountain View, Calif.-based Google jumped as much as 13% to $680 in extended trading, adding to an advance of 8.2% this week, as of Thursday's close. The stock's previous highest close, adjusting for last year's stock split, was $608.41 on February 28, 2014, according to FactSet Research Systems. The stock's highest intraday level ever was $615.02 hit on that same day.
Until this week and the leak about cost discipline, Google's stock had barely budged over the past year as investors grew concerned about spending on all manner of projects that didn't bring in revenue yet, ranging from self-driving cars to Internet balloons. And Google's capital costs to build datacenters seemed to be constantly rising, as well.
Porat sought to quell those concerns in a statement accompanying the second-quarter earnings release.
"We are focused every day on developing big new opportunities across a wide range of businesses," she said. "We will do so with great care regarding resource allocation.”
On a call with analysts, Porat repeatedly hit the expense discipline theme, though she emphasized that the effort had begun before she joined in May. "A key focus is on the leverage within our control to manage the pace of expenses while still ensuring and supporting our growth," she said. Regarding the slowdown in capital spending, Porat said the company was going through "a bit of a digestion period."
Porat's answers seemed to please investors, as the stock price added to its gains as the call with analysts wore on. The stock jumped about 7% when the results were initially announced. By an hour into the analyst call, the shares were up 13%.
Google said the aggregate number of paid clicks it recorded increased 18% from a year earlier, more than the 14% gain Wall Street analysts expected on average, according to FactSet. But the average amount paid per click declined by 11%, much worse than the 4.5% declined analysts expected.
That has been a long-running trend at the search behemoth. Newer areas like mobile search and YouTube videos have been growing much faster than desktop searches but generate less ad revenue per transaction. The net result, at least so far, has been click volume growth outpacing the decline in the dollars generated per click.
Google officials emphasized three areas of strength in the second quarter: YouTube, mobile and programmatic advertising. The amount of time users spent watching videos on YouTube increased 60% from a year ago, the highest rate of increase in two years, Google Chief Business Officer Omid Kordestani said on the call with analysts. Google users conducted more searches on mobile than on traditional desktop computers in 10 countries including the United States and Japan, he added.
