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Google’s new parent, Alphabet, has a s-t-e-l-l-a-r quarter

October 22, 2015

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(Reuters) – Alphabet, known until recently as Google, reported better-than-expected revenue and profit in the third quarter, boosted by strong advertising sales driven by YouTube and mobile search.

Alphabet, whose shares (GOOG) were up 10% in after-hours trading on Thursday, said its board has authorized a stock buyback of up to $5.09 billion of Class C shares.

The results are the first since Google officially changed its name on Oct. 2 as part of an overhaul of its operating structure, with Alphabet acting as a holding company. However, the reporting structure won’t change until the fourth quarter.

The company said advertising revenue increased 13% to $16.78 billion in the three months ended Sept. 30, while the number of total paid clicks rose 23%.

With paid clicks, advertisers pay only if a user clicks on an ad. Cost-per-click, or the average price of online ads fell 11% in the quarter.

Alphabet’s ad revenue has been under pressure as consumers increasingly access its services on mobile devicessuch as smartphones and tablets, which typically command lower ad rates.

Expenses rose 9.1% to $13.97 billion, reflecting new Chief Financial Officer Ruth Porat’s tight rein on spending.

Consolidated revenue rose to $18.68 billion, from $16.52 billion a year earlier. Net income rose to $3.98 billion, or $5.73 per Class A and B share, from $2.74 billion, or $3.98 per share in the same quarter last year.

Excluding one-time items, the company earned $7.35 per share.

Analysts on average were expecting earnings of $7.21 per share and revenue of $18.53 billion, according to Thomson Reuters I/B/E/S.

Under the restructuring, search, advertising, maps, YouTube and Android will remain part of Google.

Alphabet’s businesses will include connected home products maker Nest, venture capital arm Google Ventures, and Google Capital, which invests in larger tech companies along with other “moonshot” ventures such as driverless cars.

The overhaul was designed to provide greater visibility into Google’s core Web advertising business, while allowing the company to focus on its more creative and ambitious projects.

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