Google shares rally as profit beats forecasts

After Google’s chief finance officer signals boost in spending and profit points higher than expectations, search engine’s shares rise

Photo by: Reuters
Photo by: Reuters

Updated Jul 28, 2015

Google’s shares rose nearly 12 percent after the Web search leader's profit beat forecasts for the first time in the last six quarters, boosted by strong advertising revenue and comments by its new chief financial officer on disciplined spending.

Google rallied to $673.50 in extended trading after closing at $601.78 on Nasdaq. That would mark an all-time high for the stock in regular trading if it closes at that level on Friday, adding roughly $40 billion to its market value.

Google remains the most valuable publicly traded US company after Apple.

Google's expenses rose 10 percent to $12.9 billion in the second quarter ended June 30 from the same quarter a year ago, and remained at 73 percent of revenue, the company said on Thursday. But expenses only grew by $91 million from the first quarter, and as a percentage of revenue declined by 1 percentage point.

"The decline in quarter-over-quarter operating expenses reflects, in part, discipline in expense management and, in part, lower legal expenses than in comparable periods," CFO Ruth Porat told analysts during a conference call.

Google's stock rally also appeared to reflect Porat's comments. The stock was up a little over 7 percent after the close of regular trading and steadily rose during the call as she talked about keeping expenses under control.

Advertising revenue grew 11 percent to $16.02 billion from the same quarter last year, while the number of ads, or paid clicks, rose 18 percent, the company said.

Advertisers pay Google only if a user clicks on one of its ads. "Cost per click," or the average price of online ads, fell 11 percent, but was more than offset by the increase in ad volume.

Google's ad revenue has been under pressure as consumers access the company’s services on mobile devices such as smartphones and tablets, whose ad rates are typically lower.  The company's consolidated revenue rose 11 percent to $17.73 billion in the quarter.

Excluding one-time items, Google earned $6.99 per share.