Google on a high as cost cutter eyes 'moonshots'
Published 18/07/2015 | 02:30
Google's stock reached a high yesterday after new chief financial officer Ruth Porat signalled plans to rein in spending.
Google shares rose as much as 14pc to $685.73 (€632.00) in early trading in New York, marking the biggest intraday gain since October 2008. The stock had increased 11pc since the start of July.
Profit and sales came at the top of analysts' estimates in the second quarter, and operating expenses rose at the slowest pace since 2013. Ms Porat, who joined the company in May from Morgan Stanley, said she was focused on cost controls.
As the company seeks ways to boost revenue growth in its main web search-advertising business and beyond, chief executive officer Larry Page has been investing in new - and sometimes expensive - projects dubbed "moonshoots" that range from driverless cars to faster internet service.
Ms Porat has bolstered investor confidence that the company will balance spending on such initiatives with the need to keep a tighter rein on expenses.
"People are realising it's a new era," said Colin Gillis, an analyst at BGC Financial. "She's coming in and she's expressing what investors wanted - that's there's going to be cost rationalisation, a degree of discipline."
About 15 brokerages raised their target prices for Google yesterday. The 12-month average target of 38 analysts is $718.76. Second-quarter results "are likely the beginning of an Apple moment for Google's shares," wrote Victor Anthony, an analyst at Axiom Capital Management, which raised its rating to buy from hold.
Profit before certain items in the recent period was $6.99 a share, the company said in a statement. Sales, minus revenue passed on to partners, rose 13pc to $14.4bn. Analysts on average projected $6.73 a share in profit on $14.3bn in sales.
"The priority is revenue growth," Ms Porat said on a conference call after the report, her first at Google. "We have a breadth of opportunity, but pursuing revenue growth is obviously not inconsistent with expense management."
Second-quarter net income was $3.93bn, compared to $3.35bn a year earlier, Google said. Revenue would have been $1.1bn higher had foreign-exchange rates stayed constant, the company said.
Ms Porat said Google is still investing in new businesses, as it always has under co-founders Page and Sergey Brin.
"The founders are still in control and that dynamic still exists, so she'll have to deal with that going forward," said Josh Olson, an analyst at Edward Jones & Co. "The fact that she was hired indicates that Larry and Sergey are looking for a change in the approach around expenses."
Google also has devoted money to improving its core ad services, with new tools to enable purchases directly from ads and features that aim to make the buying process simpler for marketers. The company has a wide lead in the digital-advertising market over rivals such as Facebook, Apple and Twitter.
In the recent quarter, the number of clicks on ads rose 18pc, compared to a 13pc increase in the first quarter, while the average cost per click fell 11pc after dropping 7pc in the prior period. Google's mobile cost-per-click is climbing, helping to close the gap with desktop ads, Ms Porat said.
Viewing time on YouTube, the company's video-sharing site, was up 60pc, with mobile watch time more than doubling.