Alphabet shares rise by 19 percent to $38.9 billion, driven by sales of mobile ads

For the Alphabet Inc shares, analysts estimated 16.8 percent growth and $38.2 billion in revenue.

Alphabet Inc shares rose nine percent after the company reported quarterly results that eased investors' concerns about the growth challenges facing its Google advertising business.

Second-quarter revenue and earnings beat analysts' expectations, helping Alphabet dismiss a revenue miss in the first quarter as a blip. In addition, the company offered no worrisome guidance even as it faces increasing regulatory scrutiny.

It announced a $25 billion stock buyback authorization.

Total quarterly revenue rose 19 percent to $38.9 billion, driven by gains in sales of mobile ads, YouTube ads and cloud computing services, Alphabet said. Analysts on average estimated 16.8 percent growth and $38.2 billion in revenue, according to IBES data from Refinitiv.

Revenue of the cloud business jumped to about $2 billion, from $1 billion at the end of 2017.

The jump in shares to $1,240 in after-hours trade put them on track for their biggest single-day increase in four years. Still, shares are down about 4.3 percent since a fall in late April sparked by the first-quarter results.

The latest results brought Alphabet closer to the 20 percent revenue growth it had generated for several years before posting 17 percent growth in the first quarter this year.

"Investors were anticipating revenue deceleration, but Alphabet delivered a reacceleration," Atlantic Equities analyst James Cordwell told Reuters in an email. "An increased buyback and greater disclosure around cloud revenue also suggests that management cares about stock performance, which will be a relief to shareholders!"

Alphabet generates about 85 percent of its revenue from tools used in online advertising or the ad space itself.

In the first quarter, company executives said results were affected by exchange rates for foreign currency, competition and an unspecified product change that had boosted results in the year-earlier period. On Thursday, Alphabet's chief financial officer, Ruth Porat, appeared to dispel some analyst concerns, saying that enforcement actions against objectionable content on YouTube had "virtually no impact" on ad sales.

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Image: Reuters.

The second-quarter results showed greater revenue than analysts had anticipated from both Google's advertising and non-advertising businesses.

Ad clicks on Google's properties rose six percent compared to the first quarter, when they had fallen nine percent. The number of ads shown on websites and apps with which Google partners held steady compared to last quarter.

Alphabet’s quarterly costs at $29.764 billion were about flat with the same period a year ago. Alphabet last year began spending more on hiring for its cloud computing division, acquiring and policing content, developing artificial intelligence capabilities and adding facilities.

The second-quarter operating margin was 24 percent, up from 18 percent in the first quarter.

Net income for the second quarter rose to $9.95 billion, or $14.21 per share, from $3.2 billion, or $4.54 per share, a year earlier, when it recorded a $5 billion charge related to a fine by European antitrust regulators for abusing its dominance in mobile software. Analysts’ average estimate for quarterly net income was $8.024 billion, or $11.32 per share.

Shares of the company have lagged its peers this year, rising about 10 percent, compared to about 20 percent growth for the S&P 500 members broadly.

Intensifying regulatory scrutiny has been a major concern for investors, according to financial analysts. On Thursday, the Texas attorney general's office announced that a bipartisan group of state attorneys general is weighing a range of antitrust actions against big tech companies.

Reuters reported last month that the US Federal Trade Commission was gearing up to investigate Google over complaints of anti-competitive behaviour.

Facebook Inc , along with the release of its earnings on Wednesday, said the FTC had informed it last month that it was under antitrust investigation. The social media giant also acknowledged a broad US Department of Justice antitrust review of large internet companies.

Alphabet in its earnings release on Thursday did not mention any investigations.

Google Chief Executive Sundar Pichai told analysts on Thursday "we understand there will be scrutiny" and "we will engage constructively."

Antitrust complaints lodged against Google by rivals and other critics span its advertising, app store, search and other businesses.

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