By Narottam Medhora and Julia Love
(Reuters) - Google parent Alphabet Inc
Alphabet, along with Facebook Inc
Shares of Alphabet, the world's No. 2 company by market value, were up 1.6 percent in after-hours trading.
The company posted third-quarter adjusted earnings per share of $9.06 on revenue of $22.45 billion. Analysts expected earnings of $8.63 a share and revenue of $22.05 billion, according to estimates on Thomson Reuters I/B/E/S.
Google has been dogged by concerns about how it would nudge its vast web advertising business towards mobile, but the company's recent performance has reassured Wall Street that the transition is well underway, said analyst Kerry Rice of Needham & Co.
"They are just one of the best positioned companies for the future of the internet," Rice said.
Google's ad revenue rose 18.1 percent to $19.82 billion in the third quarter, accounting for 89.1 percent of Google's total revenue, compared with 89.8 percent of revenue in the second quarter.
Paid clicks rose 33 percent, compared with a rise of 29 percent in the second quarter. Paid clicks are those ads on which an advertiser pays only if a user clicks on them.
Cost-per-click, or the average amount advertisers pay Google, fell 11 percent in the latest period after dropping 7 percent in the second quarter.
Analysts on average had expected a decline of 7.9 percent, according to FactSet StreetAccount.
Per-click costs have been falling as people shift to mobile devices from desktops. Because of the limited space, advertising on mobile devices is generally cheaper.
Investors are willing to forgive the falling cost-per-click for now as it suggests strong mobile growth, Rice said.
"Over the last few quarters it seems investors have worried less about that as long as paid clicks are also going up," he said.
Research firm eMarketer has estimated that Google will capture $52.88 billion in search ad revenue in 2016, or 56.9 percent of the global market.
Google's Other Revenue, which includes the company's increasingly important cloud business, jumped 38.8 percent after rising 33 percent in the second quarter.
The cloud business competes with services offered by market-leader Amazon.com Inc
Alphabet's Other Bets generated revenue of $197 million, primarily from Nest, Fiber and Verily units, Chief Financial Officer Ruth Porat said on an earnings call. Other Bets capital expenditure was driven by fast-internet service Fiber.
Alphabet said this week it was pausing roll out of Fiber in some U.S. cities.
"Our revenue growth reflects our sustained investment in innovation," Porat said. "Within Google, this relentless focus has led to innovations across our advertising platforms that have driven continued strong growth on a very large base while, at the same time, we're building new businesses to serve as sources of future revenue growth."
Other Bets reported an operating loss of $865 million. In the year earlier period, revenue was $141 million and the loss was $980 million.
Other Bets includes broadband business Google Fiber, home automation products Nest, self-driving cars as well as X, the company's research facility that works on "moon shot" ventures.
The narrowing loss suggested Chief Financial Officer Ruth Porat is instilling the kind of financial discipline investors have long hoped to see from the company, said analyst Colin Gillis of BGC Partners.
"Everybody loves Ruth," he said.
The company's consolidated revenue rose to $22.45 billion in the three months to Sept. 30 from $18.68 billion a year earlier.
Net income rose to $5.06 billion, or $7.25 per Class A and B share and Class C capital stock, from $3.98 billion, or $5.73 per share, a year earlier. (http://bit.ly/2eWsu9Y)
Up to Thursday's close of $817.35, Alphabet's shares had risen 5.1 percent since the start of the year.
(Reporting by Narottam Medhora in Bengaluru and Julia Love; Editing by Savio D'Souza and Andrew Hay)
Disclaimer: No Business Standard Journalist was involved in creation of this content
