Alphabet sees profit, revenue jump

Third-quarter profit of $5.1B is 25% increase over same period last year

MOUNTAIN VIEW — Google’s parent company, Alphabet, on Thursday reported third-quarter earnings that beat Wall Street’s expectations, pulling in $22.5 billion in revenue as the company tightened its hold on the digital advertising market.

Alphabet’s quarterly revenue represented a 20 percent jump over the third quarter of 2015 and a $1 billion increase from the second quarter of this year. Third-quarter profit was $5.1 billion, up more than 25 percent from last year’s third quarter.

“Mobile search and video are powering our core advertising business,” Alphabet’s chief financial officer, Ruth Porat, said in a statement.

Analysts had predicted $22.1 billion in revenue. Alphabet also exceeded per-share earnings expectations with $9.06 gained, compared with analysts’ forecasts of $8.63.

“They continue to see nice growth on the mobile side,” said Mizuho Securities analyst Neil Doshi. “As long as they continue to innovate on the ads front on mobile and as long as mobile queries continue to grow, I think you’ll see continued strength.”

By far the bulk of Alphabet’s revenue came from Google, with content distribution and cloud services pushing sales to $22.3 billion, Porat said.

“The big bright spot for the quarter was not only mobile but the cloud business,” Doshi said. “As they keep pushing on the cloud, that could be a nicely competitive moat they will have built.”

A moat might come in handy in the future. Google remains the world leader in search advertising, with market-intelligence firm eMarketer estimating it will own 57 percent of the global search-ad market by the end of

the year. But online ad prices on a cost-per-view basis have been dropping consistently, said analyst Joel Espelien of The Diffusion Group.

“People just pay less and less for the same amount of exposure,” Espelien said.

And the rapid and widespread proliferation of mobile devices and services, particularly in the developed world, does not leave room for the kind of growth in mobile advertising that Alphabet has seen in recent years, Espelien said.

“At some point, it seems like they’re gonna saturate the mobile market, and what’s going to happen when that occurs? If they hadn’t had mobile, their growth would have ended years ago,” Espelien said.

Alphabet’s “other bets,” which include projects such as self-driving cars and Google Fiber, brought in slightly more revenue than in the previous quarter, at $197 million compared with $185 million. Most of that income came from Google Fiber, life sci- ences startup Verily and smart-home device maker Nest, Porat said.

However, losses in that group were greater than in the previous quarter, rising to $865 million from $859 million.

Alphabet also ramped up hiring, bringing on 3,378 new workers in the quarter, compared with 2,460 in the previous quarter and 2,828 in 2015’s third quarter. The company now has nearly 70,000 employees worldwide, just a few thousand fewer than the entire population of Mountain View.

Hiring for the quarter focused on engineers and product managers, to support priority areas such as the cloud business, Porat said. Third quarters typically see an uptick in hiring as the company brings on recent graduates, Porat added.

Alphabet stock closed at $817.35 on Thursday, then rose slightly more than 1 percent in afterhours trading, to $826.90.

Alphabet also announced it plans to buy back $7 billion in Class C capital stock, the nonvoting shares created when Google split its stock in 2014.