Alphabet Inc, , the parent company that owns Google reported its third quarter (Q3 2015) earnings yesterday and it is obvious that the firm is now playing nice with Wall Street. Alphabet, in its Google days has not really given Wall Street much respect – earning itself a name as a firm that just didn’t cooperate. However, the restructuring that gave birth to Alphabet seems to have brought a change of heart as Google announced its first-ever buyback program.
Google says its board has authorized it to spend $5.1B on a stock buyback program in a move that will return some money to shareholders. Wall Street has been clamoring that the firm consider paying a dividend or buying back its shares without much success. Google sits atop a $73B pile of cash and the strong cash position has been the reason the firm has been spending money on various moonshot projects.
A fiscally responsible Alphabet
Alphabet is no longer the wayward cash-burning firm that doesn’t give a hoot about what Wall Street thinks. The firm has been taking series of steps that shows it as a serious firm with a long-term focus for doing business profitably. All thanks to the works of its CFO, Ms Ruth Porat who has spent considerable time at a Wall Street firm Morgan Stanley. In August, the firm said it would take a stricter approach to costs as it began to court Wall Street.
Before now, Wall Street has taken issue with Google’s “wasteful” spending and investors have insisted that Google must show a concerted effort to cut costs going forward. Analyst Collin Gillis of BGC notes that “If shareholders feel this is a privately run fiefdom and they have no say or vote you have only one way you can vote, and that is with your feet… And now they have people coming back.”
Analysts note that Alphabet is no longer the firm we used to know because “they’re growing up,” BGC Financial analyst Colin Gillis notes that the success being recorded at Google shows that “The business is strong. It outperformed both the top and bottom line,” He also notes that the gains should continue going forward because “It’s not just an expense management story.”
Strong third quarter results
Alphabet reported a 13% increase its in Q3 revenue to $18.7B – it would have been a 21% increase without currency headwinds. The firm saw its net income increase from $2.7 in Q3 2014 to a massive $4B in Q3 2015. Sundar Pichai, Google’s new chief executive says its core business continues to defy the critics of its growth prospects.
In his words, “Products like Search, Android, Maps, Chrome and YouTube each have over a billion users already, and Google Play crossed that milestone this quarter as well… But what’s most exciting is that we’re just beginning to scratch the surface.” Following the strong third quarter results, the shares of Alphabet climbed 9.38% in pre-market trading today.