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Google Reaches Record After CFO Signals Tight Rein on Spending

Friday, 17 Jul 2015 10:07 AM

Google Inc.’s stock reached a high after new Chief Financial Officer Ruth Porat signaled plans to bring more restraint to spending at the Internet search giant.

Google shares rose as much as 14 percent to $685.73 at 9:37 a.m. in New York, marking the biggest intraday gain since October 2008. The stock advanced 3.1 percent to $601.78 at the close in New York Thursday, and had increased 11 percent since the start of July.

Profit and sales topped analysts’ estimates in the second quarter, and operating expenses rose at the slowest pace since 2013. On a conference call after the results were released Thursday, 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, from driverless cars to fast Internet service. 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 realizing it’s a new era,” said Colin Gillis, an analyst at BGC Financial LP. “She’s coming in and she’s expressing what investors wanted — that’s there’s going to be cost rationalization, a degree of discipline.”

About 15 brokerages raised their target prices for Google on Friday, according to data compiled by Bloomberg. 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.

Porat’s Priorities

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 13 percent to $14.4 billion. Analysts on average projected $6.73 a share in profit on $14.3 billion in sales, according to data compiled by Bloomberg.

“The priority is revenue growth,” 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 $3.93 billion, compared with $3.35 billion a year earlier, Mountain View, California-based Google said. Revenue would have been $1.1 billion higher had foreign-exchange rates stayed constant, the company said.

Porat said Google is still investing in new businesses, just as it always has under co-founders Page and Sergey Brin. Pursuits have included the introduction of a new wireless-phone service and tests of delivery drones and Google Glass wearable computer, as well as forays into products like contact lenses that can track glucose levels and kites designed to deliver clean energy.

“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.”

Advertising Business

Google also has devoted money to improving its core advertising services, including 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 Inc., Apple Inc. and Twitter Inc.

In the recent quarter, the number of clicks on ads rose 18 percent, compared with a 13 percent increase in the first quarter, while the average cost per click fell 11 percent after dropping 7 percent in the prior period. Google’s mobile cost- per-click is climbing, helping to close the gap with desktop ads, Porat said on the call.

Watch time on YouTube, the company’s video-sharing site, was up 60 percent, with mobile watch time more than doubling, she said.

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Google Inc.'s stock reached a high after new Chief Financial Officer Ruth Porat signaled plans to bring more restraint to spending at the Internet search giant.Google shares rose as much as 14 percent to $685.73 at 9:37 a.m. in New York, marking the biggest intraday gain...
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2015-07-17
Friday, 17 Jul 2015 10:07 AM
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