ALPHABET DROOP
Google parent’s profit falls short of forecasts amid record $2.7-billion fine from EU,
SAN FRANCISCO—Alphabet Inc. reported second-quarter revenue that met analysts’ projections, falling short of the most-optimistic estimates, and said the cost of its Google ads declined.
The company’s profit was also hammered by a record antitrust fine from the European Union.
Sales, minus partner payouts, were $20.92 billion (U.S.), in line with analysts’ consensus forecasts, but below some more bullish expectations. Estimates ranged from $20.55 billion to $21.61 billion, according to data compiled by Bloomberg.
Google also reported a 23 per cent decline in the average price of its ads, compared to a year earlier. That was bigger than the first quarter’s 19 per cent year-over-year drop.
Alphabet shares fell 2.8 per cent in after-hours trading. The stock closed up 0.5 per cent at $998.31 in New York trading earlier on Monday.
The total number of Google ads users clicked rose quickly, skewed heavily toward Google’s own properties, such as Search and YouTube.
“The biggest contributor to growth was mobile search and it’s clearly an area where we continue to grow from our underlying engineering strength,” chief financial officer Ruth Porat said on a call with reporters.
Antitrust fine
Alphabet can easily afford the $2.7 billion writedown it’s taking to cover a big antitrust fine in Europe. But it might find it harder to shrug off the rest of the European regulatory assault that’s headed its way.
In June, a European Commission ruling slapped down Google for abusing its market dominance in search by unfairly directing visitors to its comparison shopping service, Google Shopping, to the detriment of its rivals. The regulators not only imposed a huge fine, they also insisted that Google change the way it provides search results in Europe.
Alphabet is still mulling an appeal of that ruling. But it could take years to get a ruling at the European Court of Justice. And that case is only the first of several such investigations that have embroiled Google in Europe, a situation that raises uncertainty about its ability to operate freely on the continent in the future.
Google faces the prospect of additional fines if it doesn’t change the way it displays Google Shopping results in Europe by late September.
“These things tend to hobble a company’s behaviour, even if there isn’t a decision,” said Jonathan Taplin, a former professor at University of Southern California and author of Move Fast and Break Things: How Google, Facebook and Amazon Have Cornered Culture and Undermined Democracy.
“I don’t think it’s the end, I think it’s the beginning.”
Google has offered to make concessions on multiple occasions in an attempt to settle Europe’s seven-year- old antitrust probe. But previous offers were still considered to drive the vast majority of clicks toward Google’s services — its key source of revenue from advertisers.
That’s what makes the current negotiations over what it can do to avoid further fines confusing, says Mark Ballard, head of research for Merkle, an ad agency that represents Gap, Crate&Barrel and other big online ad spenders.
“There’s a lot of uncertainty,” he said. “Until we see that plan it’s going to be hard to predict what kind of impact this will have.”
The company accounted for the fine as a one-time dent on profit during the quarter, bringing net income to $5.01 per share. Analysts were expecting $4.45 per share, including the EU fine, according to figures compiled by Bloomberg.
Spending on Alphabet’s “Other Bets” fell sharply during the quarter. Porat attributed this to an ongoing retreat in the expansion of its Google Fiber fast internet service.