A $4.9 billion profit for Google parent

Alphabet's chief financial officer, Ruth Porat said the results reflect the successful investments made over many years. Photo / Getty Images

Alphabet, the parent company of Google, reported a massive jump in profits Thursday from strong advertising revenue growth on both desktop computers and mobile devices.

Analysts once feared what the smartphone revolution would mean for the company's core advertising business. But Alphabet appears to be handling the transition to mobile devices well, thanks in part to its presence on Android and iOS devices. The company said about half of all searches are now done on mobile gadgets. Advertisers continue to buy more ads across devices to serve the enormous audience of its largest division, Google.

Profit grew 24 per cent overall in the second quarter over the same time last year. Shares climbed nearly 5 per cent in after-hours trading, up from the company's close of $745.91 a share.

Google itself reported revenue of $21.3 billion, up from $17.7 billion at the same time last year. Alphabet as a whole reported revenue of $21.5 billion and $4.9 billion in profit. The firm reported earnings per share of $8.42. That beat analyst expectations of $20.8 billion in revenue and profit of $3.9 billion, or $8.04 per share.

Ruth Porat, Alphabet's chief financial officer, said in a statement that the results "reflect the successful investments we've made over many years in rapidly expanding areas such as mobile and video."

She also said the company continues "to invest responsibly in support of our many compelling opportunities."

Porat was brought in from Morgan Stanley after Google missed a string of earnings expectations in 2015 and shareholders criticized the company's undisciplined spending.

Many analysts credit her with keeping expenses in line and for giving shareholders more visibility into Google's spending. On an earnings call Thursday, Porat stressed repeatedly that Alphabet thinks it can balance fiscal responsibility with investment in innovation.

But some of those innovative opportunities are still not close to paying off.

Alphabet's unit called Other Bets, which includes Nest and Fiber, saw revenue double to $185 million but is operating at a larger loss than it did last year.

Alphabet reported that Other Bets had an $859 million operating loss, compared with a $660 million loss at this point last year, when it was not broken out into its own segment.

Alphabet executives have made clear that they view Other Bets, which includes X, as a mixture of a research-and-development lab and a venture capital firm.

Once again, the primary driver was increased use of mobile search by consumers, benefiting from our ongoing efforts to enhance the mobile search experience.

Therefore, the company doesn't expect everything to pay off in a big way - and isn't bothered that they are, in Porat's words, "pre-revenue."

And with Google at its core, Alphabet seems to be in good position to grow its main business and pursue its crazier ideas. Google controls the largest section of the digital advertising market, with roughly 30 per cent of share, according to the analysis firm eMarketer.

Facebook, which reported better-than-expected earnings this week because of strength in advertising, is the second largest.

Yet even with a growing move to smaller, less lucrative ads, Google has managed to increase its ad revenue. That's despite the fact that it continues to get less money per click - down 7 per cent from this time last year.

Google doesn't break out explicitly how much of its revenue comes from mobile advertising. But Porat reaffirmed the company's mobile strength.

"Once again, the primary driver was increased use of mobile search by consumers, benefiting from our ongoing efforts to enhance the mobile search experience," she told investors, adding that desktop and tablet search, YouTube and programmatic advertising were also strong.