Breaking Down the EU's Antitrust Ruling Against Google

Breaking Down the EU's Antitrust Ruling Against Google

Google parent company Alphabet reported blockbuster second quarter earnings on Monday despite being hit with a major European antitrust investigation and $5 billion fine.

Alphabet confirmed that it took a $5.1 billion charge to cover the cost of a record fine from the European Commission, which wiped out almost two thirds of its profit. Today, Google's advertising business alone is responsible for 86 percent of Alphabet's revenues. Alphabet would have hit nearly $7.9 billion in profits this past quarter, up from the $6.9 billion it earned in Q2 2017 and the $4.9 it made in Q2 2016. That was a little hire than the Thomson Reuters consensus estimate of $32.17 billion.

Google has continued to give search ads more prominent space on mobile phones, helping to fuel the brisk sales growth. After subtracting Alphabet's advertising commissions, revenue was $26.24 billion U.S., also exceeding Street forecasts of $25.64 billion US. Its effective tax rate reached 24 per cent, up from 19 per cent during the same period past year.

The company's CEO Sundar Pichai said it was too early to understand the impact of the fines on Android's operations.

Including the fine, Alphabet still booked net income of 3.2 billion, which equals earnings of $4.54 per share.

"I'm confident we can find a way to make sure Android is available at scale to users everywhere", he said.

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Another good signーAlphabet also saw slowing growth in its so-called traffic acquisition costs, or how much the company pays to drive views to its sites. "Even though Google has struggled with the issue, and YouTube the end of the day Google offers very valuable advertising real estate and most, if not all, of their customers end up going back".

Areas such as cloud computing and "other bets" have also added to Google's spending.

Shares of Google were up significantly after hours, rising 5 percent immediately after the numbers were released. A new privacy law enacted by the European Union in May has had a minimal effect on Google's advertising business, and smartphone industry executives have described the European Union antitrust case over Android as too late to matter.

"We're investing for the long run", he said about the company's cloud business.

"Our investments are driving great experiences for users, strong results for advertisers, and new business opportunities for Google and Alphabet", said Ruth Porat, chief financial officer for both Alphabet and Google in a statement.