Discipline Worth $60 Billion? Google's Market Value Jumps as New CFO Promises to Rein In Costs

The relationship between tech and finance has always been closer than either side acknowledges (especially tech), but it has never been more apparent than now, with Google, Amazon and even Apple signalling their acquiescence to Wall Street's demands. JL

Richard Waters reports in the Financial Times:

"The priority is revenue growth, but pursuing revenue growth is not inconsistent with expense management."
Google's new finance chief promised to bring greater discipline to the company’s cost controls, as well as to its ballooning capital spending on its most ambitious “moonshot” projects.The comments came as shares in the internet search company jumped almost 12 per cent in after-market trading, adding more than $60bn to its market value, after it topped most analysts’ earnings forecasts and met expectations for net revenues in its latest quarter.
Financial analysts have looked to Ruth Porat, a former Morgan Stanley CFO, for a more Wall Street-friendly approach from Google, which pledged at its IPO more than a decade ago that it would keep its sights firmly set on the long term rather than on quarterly earnings.Besides keeping a closer eye on how the company prioritises its spending, Ms Porat said she was looking into extending Google’s financial disclosure. The company’s refusal to give more information about its ever-widening range of new businesses, even as its costs have risen and its growth slowed, has become a source of frustration on Wall Street.

However, Ms Porat stopped short of setting targets that limit cost growth and expressed strong support for the financial objectives set by chief executive Larry Page, who has repeatedly brushed aside Wall Street’s concerns and stressed the growth potential in new markets ranging from life sciences to the “smart home” of the future.

“To be clear, the priority is revenue growth, but pursuing revenue growth is not inconsistent with expense management,” Ms Porat said on a call with investors on Thursday.

Google’s after-market bounce, taking the stock above its previous record close, extended a rally that had already added 10 per cent to the share price in the past week, amid a wider rebound in internet stocks. The advance has enabled Google’s shares to show a slight gain over their level of a year ago, though over that period the company has lagged behind jumps of more than a third at Facebook and Amazon.

Google reported pro forma earnings per share of $6.99, up from $4.99 a year before, and higher than the $6.74 analysts had been expecting, amid signs that the inflation in its operating costs was moderating after recent quarters. Capital spending, at $2.5bn, also fell to its lowest level in three quarters and new hiring slowed.
However, Ms Porat suggested that short-term factors lay behind these changes and hinted that hiring and capital spending were likely to pick up again later this year. Instead, she indicated that her sights were set on 2016, with internal negotiations about next year’s budgets about to start with the company’s senior managers.

Google used its latest earnings call to fight back against recent fears on Wall Street that YouTube has been losing ground to Facebook in online video. Total views on the site were up 60 per cent, the highest growth rate in two years, with mobile views doubling, Ms Porat said.

Google’s gross revenues, at $17.73bn, came in slightly below analysts’ consensus view. However, the traffic acquisition costs it pays out to other websites that carry its search results also fell below expectations, leading to a 13.3 per cent advance in net revenue, to $14.35bn.
The latest figures reflected a re-acceleration in the number of “paid clicks” on Google’s adverts during the second quarter after a period of steady declines. The growth rate rose to 18 per cent, from 13 per cent in the first quarter of the year.
However, the average cost per click, or price that Google charges, fell faster than expected, declining by 11 per cent, compared to a 7 per cent fall in the first quarter