By Jack Nicas 

Google parent Alphabet Inc. rode strong advertising demand to a 24% increase in profits, as it continues to capture users and advertisers shifting to mobile.

Alphabet's growth continued in the second quarter as companies bought more ads on its search engine and other products, while users increasingly clicked on those ads. Alphabet revenue, fueled almost entirely by Google's advertising business, rose 21% to $21.5 billion in the second quarter from a year ago. Excluding payments to advertising partners, revenue was $17.5 billion, beating analysts' estimate of $16.86 billion.

Net profit for Alphabet rose to $4.88 billion, or $7 a share, from $3.93 billion, or $4.93 a share, a year prior. Excluding certain items, Alphabet earned $8.42 a share, beating analysts' estimates of $8.04 a share.

Google is maintaining such growth partly because the company has been able to capture advertisers and users as they shift to mobile devices from traditional desktop computers. Google's Android smartphone software gives its search engine and other services top billing on more than a billion devices, while the company also pays Apple Inc. to make Google the default search engine on iPhones.

Google has said more than half of its searches now come on mobile devices, and some analysts estimate more than half of its revenue comes from mobile. Advertisers' spending on mobile search ads increased 63% in the second quarter over a year prior, while overall search-ad spending rose just 10% over the period, according to marketing-technology firm Kenshoo Ltd.

Alphabet stock has had a sluggish year, sliding 1.6% in 2016, partly because the company has struggled to meet expectations. Alphabet earnings have missed analysts' estimates in eight of the past 12 quarters.

In after-hours trading Thursday, Alphabet shares rose 4.7% to $802.

Meanwhile, Google's chief rival, Facebook Inc., is gaining strength. Facebook said Wednesday that its second-quarter profit nearly tripled to $2.1 billion over a year ago, easily beating Wall Street estimates. Mobile also has fueled Facebook's growth, accounting for 84% of its $6.2 billion in second-quarter advertising sales.

While Google still controls about 31% of the roughly $187 billion world-wide digital-ad market, Facebook has stolen about 3 percentage points of market share from Google, rising to 12% from 8.6% in 2014, according to research firm eMarketer.

One downside to mobile's rise for Google has been a simultaneous decline in the average amount that advertisers pay Google per ad click. Mobile ads are generally less expensive than desktop ads, so as the number of mobile ads has increased, Google's cost per click has declined.

But analysts say there are some signs ad buyers are bidding more for mobile ads, and on Thursday Google said its cost per click decreased 7% in the second quarter over a year prior, compared with a 9% decline in the first quarter.

Thursday's results are the third time the firm reported as Alphabet, a parent company created in October to house Google and a series of "other bets," from home-automation firm Nest to the research lab X. While the Google unit accounts for virtually all of Alphabet's revenue, analysts and investors have closely watched financial results of the other initiatives for a sense of how much money they are losing. Revenue for those other bets increased to $185 million from $74 million a year ago, and the operating loss widened to $859 million from $660 million.

Cost controls have also been a recent focus since the arrival of former Morgan Stanley executive Ruth Porat as finance chief last year. Investors cheered Ms. Porat's hire, hoping she would step up scrutiny of Alphabet's costs. Second-quarter total expenses increased 20% to $15.53 billion, a slightly slower pace than revenue grew.

Write to Jack Nicas at jack.nicas@wsj.com

 

(END) Dow Jones Newswires

July 28, 2016 16:47 ET (20:47 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.
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