Google parent Alphabet jumps 5 per cent as earnings beat expectations

Google parent company Alphabet on Monday posted earnings and revenue that topped analysts' expectations, as advertising drove strong sales growth.

The technology giant reported fourth-quarter earnings of US$8.67 per Class A share on US$21.33 billion in revenue. Total sales rose 18 per cent from the previous year, as advertising revenue climbed 17 per cent. Earnings per share rose from US$6.76 the previous year.

Analysts expected Alphabet to post earnings of US$8.10 per Class A share on US$20.77 billion in revenue, according to a consensus estimate from Thomson Reuters.

"Our very strong revenue growth in Q4 reflects the vibrancy of our business, driven by mobile search as well as YouTube and programmatic advertising, all areas in which we've been investing for many years," said Alphabet Chief Financial Officer Ruth Porat in a statement. The company's board also authorised a buyback of an additional 514,000 shares.

Its shares jumped as much as 9 per cent in after-hours trading before giving up some gains. It reached a level at which it would surpass Apple as the most valuable US company by market cap if it opened there on Tuesday.

Alphabet began a new reporting method Monday, breaking out results for its main Internet products from those of its newer ventures. The tech giant reported two segments: "Google" and "other bets."

The Google segment included core products like search, cloud software, video platform YouTube and Android software. The other portion is comprised of early stage projects such as the Fiber Internet service, life sciences business Verily and X, a research and development arm. Last week, Alphabet said the changes would "bring increased focus, accountability and transparency to all of our efforts."

For full year 2015, the segment comprised of its newer businesses posted US$448 million in sales and an operating loss of US$3.57 billion. Its loss widened from US$1.94 billion in the previous year.

Still, Google's advertising business drove its sales strength in the fourth quarter. Revenue from advertising climbed to $19.08 billion, up 17 per cent from the previous year, as sales for Google websites specifically rose 20 per cent.

The Internet giant's aggregate paid clicks, a key advertising metric, increased 31 per cent from the previous year, beating consensus expectations of about 22 per cent, according to StreetAccount. Aggregate cost per click, though, fell 13 per cent year over year.

Total traffic acquisition costs rose to $4.06 billion, slightly higher than analysts expected. However, costs as a percentage of advertising revenue fell to 21 per cent from 22 per cent in the prior-year period.

Alphabet's operating margin was 32 per cent, up slightly from 31 per cent in the previous year. Wall Street expected a margin of about 33 per cent.

Free cash flow came in at US$4.32 billion, up from US$2.81 billion in the prior-year quarter.

On Alphabet's earnings call, Google unit CEO Sundar Pichai highlighted growth in the company's Android operating system and hardware as well as software and mobile search. He said Google's Gmail service surpassed 1 billion monthly active users during the fourth quarter.

He also touted advertising spending on YouTube. The company did not report sales numbers for the YouTube business specifically.

"I think at some point investors will put enough pressure on them to release YouTube's results because I think, if you look at the estimates across the Street, they vary across just about every single analyst," said Victor Anthony, an Internet media analyst at Axiom Capital Management, in a CNBC "Closing Bell" interview on Monday.

Alphabet's stock is among the best performers in the S&P 500 over the last year, rising about 40 per cent.

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