Alphabet's quarterly profits fall after $5 billion European Union fine

Sean Reid
July 24, 2018

However, the massive $5 billion fine (€4.3 billion Euro) levied by the European Union for forcing manufacturers to pre-install Google Search and other apps on Android devices was a major drag on the company's bottom line in the second quarter. When excluding the fine, earnings came to $11.75 U.S. per share, which topped the average estimate of $9.45 U.S. per share by analysts surveyed by Zacks Investment Research.

Alphabet's stock rose 3.5 percent in after-hours trading, and some analysts recommended the company's shares.

The future of the Android mobile operating system - which powers more than 85% of smartphones - has been clouded by the European Union action, which could forceGoogleto change its business arrangements with device makers. He said Google is exploring more ways to insert promoted slots and ads into its Maps service, which has had limited commercial applications to date.

Google has more than 95 percent of share of search in Europe, according to the European Commission's complaint against the company.

Alphabet reported revenues of $32.7 billion, up 26 per cent versus the second quarter of 2017. "There is regulatory risk, though we have yet to find evidence that regulations will adversely impact the usefulness of Google for consumers or advertisers". Last year, I wrote that the company doesn't expect to be paying such fines on a regular basis, but that's proven to be wrong this year.

"Google abused its market dominance as a search engine by promoting its own comparison shopping service in its search results, and demoting those of competitors", Commissioner Margrethe Vestager said at the time of the fine.

Googlechief executive Sundar Pichai said that it was too soon to speculate on how Android may be affected by the ruling but said the company would take a "constructive approach".

While second-quarter sales jumped, so did costs for the technology giant. Alphabet recently moved its Loon balloon internet project and Wing autonomous drone initiatives under the Other Bets group, alongside Waymo, Fiber, Verily and cybersecurity outfit Chronicle. The largest Ad Revenue-based 'Net business has now averaged 23% growth for 34 (count 'em) straight quarters & shows no signs of slowing.

In other parts of the Alphabet business, the ever-mysterious "other bets" segments pulled in $145 million, up 49 percent from a year ago - but losses have increased to $732 million (up 16 percent).

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