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This chart shows the perks of Google becoming Alphabet

The Ruth Porat effect.

A year after Google became Alphabet, the company's emphasis on financial discipline seems to be working — at least for Wall Street.

Wall Street veteran Ruth Porat has been seen as the architect of holding company Alphabet, living up to predictions that she would return cash to shareholders and reign in "moonshot" expenses after joining Google as chief financial officer in 2015.

"I think Ruth is also showing she's balancing out new investments with their core business in a much more predictable way," Kate Mitchell, co-founder of Scale Venture Partners, told CNBC's "Squawk Alley" on Friday. "They've really settled down, and they're consistent at delivering."

Google parent Alphabet's shares rose nearly 2 percent on Friday after announcing better-than-expected financial results and a $7 billion stock buyback. It traded in stark contrast to Amazon, which dropped 4 percent amid aggressive, widespread investment plans, a long-time philosophy of the company.


After better-than-expected earnings and a generous return to shareholders, Alphabet's stock is looking cheap compared to the overall market, said Eric Sheridan, managing director, UBS equity research, told CNBC's "Squawk on the Street" on Friday. The buyback is a message to Wall Street about Alphabet's confidence in the business, said Mitchell.

Co-founders Sergey Brin and Larry Page announced Google's new corporate structure last year, creating a collection of companies called Alphabet and adding transparency between core businesses — such as search, Android and YouTube — and its more creative endeavors: "smaller bets in areas that might seem very speculative or even strange."

"That core advertising business — that's doing super well for them. I don't think they should steer too far afield from that." -Mark Mahaney, Managing director at RBC

During the third quarter, Google's revenues rose to $22.25 billion, thanks in part to YouTube and mobile, while "other bets" revenue rose to $197 million, thanks to Nest, Fiber and Verily, said Porat.

"They're going to experiment for a while. Why shouldn't they? They've got a billion people that come to their site on a monthly basis," Mark Mahaney, managing director at RBC, said of YouTube on "Squawk Alley" on Friday. "That core advertising business — that's doing super well for them. I don't think they should steer too far afield from that."

Google hasn't completely shied away from new products, investing in marketing for its new Pixel handset, despite having limited success as a hardware company. But Pixel builds on the core competencies of artificial intelligence and mobile-first ads — an area where Google has "killed it," Mitchell said.

"The core advertising business — the real reason that we're still bulls on the stock — remains so consistent," Mahaney said. "This is now 19 quarters in a row of 20 percent year-over-year growth. For that reason, and almost for that reason alone, this thing remains a long for us. It's our number 2 pick in the space."

Ruth Porat
Joe Scarnici | Getty Images
Ruth Porat

Still, it's not all blue skies in Mountain View, some have reported. The company's modular phone, Project Ara, was scrapped, and smart home unit Nest underwent reorganization.

"With a focus on balancing costs vs. revenue opportunities under a new CFO, we think Alphabet will continue to climb a wall of worry that has persisted since early 2015," Sheridan wrote in a research note on Friday. "Longer term, achieving a balance between innovation (e.g., "Other Bets") & shareholder expectations will be key to the investment story."

Google's Fiber project was another ambitious project to stumble this year. The project aims to outfit whole cities with internet connections up to 1,000 megabits per second. In a blog post titled "Advancing our amazing bet," the project's CEO Craig Barratt announced that he would step aside, as the company had "paused its operations and offices" in potential expansion sites.

When asked about Fiber, Porat gave a long-winded answer.

"In terms of Fiber, the impetus for it was really about the opportunities that we see to focus on innovation. And what does that mean if the objective with other bets is really these 10x opportunities? When you go back to the original impetus for creating the business, it was the founders' view that there's a sizeable opportunity, given the need for abundant connectivity, and networks that are always fast and always open. And we do continue to be committed to that vision. The team had some important breakthroughs and new technologies….the most important in our view, all that we're doing with wireless, but also technologies that are key to implementation. We believe that both of those — a number of things they're doing — enhance both our effectiveness and efficiency. So we want to focus on the potential of these efforts before we accelerate redeployment. And it was about ensuring that we can take advantage of those before pushing forth."

Amid a flurry of key departures, one analyst pressed concerns that engineers were leaving the company to found breakout hits like Niantic (the firm behind Pokemon Go) and Otto, acquired by Uber.

Google CEO Sundar Pichai pushed back at any connection to the Alphabet structure.

"Overall when I look across Google and Alphabet, the number of areas where we've been able to build world-class products and achieve scale and success — we've had over 7 products that serve a billion users each — so I think our track record speaks there," Pichai said. "And we generally want to encourage a culture of innovation, and that's what we focus on. I think it is fine that some of them happen outside. So we don't view it as a zero-sum game and we're very comfortable with how we approach it."

Disclosure: UBS has more than 1 percent stock ownership in Alphabet, and Alphabet is an investment banking client of UBS. RBC Capital Markets has provided Alphabet with non-securities services in the past 12 months.