Google’s new principal, Alphabet, has on Thursday set its first ever share buyback – encouraged by the successes recorded in mobile and video ads, a move which caused the prices Google’s stocks to spike and jump up in after-hours trading activities.
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The sudden rise in profits for the world’s largest search engine exceeded what Wall Street experts had forecasted, and they think the company is poised to drive its profits and revenues higher if it’s only going to make the push.
"They're in a great position in the overall advertising space, whether it's search, display or mobile," said Kerry Rice, a Needham & Co analyst. "They've got the right program to continue to grow at a solid pace and be dominant in those spaces."
The unexpected buyback has shot the company beyond what it predicted in stocks gains, and the success came when the internet organization is just shifting attention from desktop ads to mobile ads, while newly having Facebook as a strong rival to reckon with in digital ads.
"Search traffic on mobile phones have now surpassed desktop traffic worldwide," said Sundar Pichai, chief executive of Google Inc.
This success is also making Alphabet a force to reckon with since it took over Google, trying to form a new corporate structure that should bring attention to Google X, the secret research arm of the new parent company. By the end of the coming quarter, earnings will be reported under Alphabet own name.
Alphabet’s shares rose nearly 9% on Thursday in after-hours trading to $741, giving the new group a market value of about $500 billion and the second-most valuable company after Apple in the S&P 500. The stocks of Amazon and Microsoft also spiked and exceeded results in after-hours trading.
"They seem to have a better hold on mobile and are navigating the transition to mobile usage better than expected," said James Cakmak, an analyst at Monness, Crespi, Hardt & Co.
Investors have urged Google to return part of its $72 billion cash pile, but the news that Alphabet is buying back about 5.09 billion Class C shares caught everyone unaware.
Meanwhile, Google announced that paid clicks increased by 23% this quarter than the 18% recorded for the past quarter. But the cost-per-click or average price of online ads dropped by 11% this quarter.
"Our value proposition to markets of all sizes is simple. Google can help you show the right ads to the right people at the right moment," Pichai said.
Under the Alphabet structure, search, advertising, maps, YouTube and Android will remain part of Google.
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Alphabet's businesses will include connected home products maker Nest, venture capital arm Google Ventures, Google X – the company's secretive research arm, and Google Capital, which invests in larger tech companies.