Google s parent Alphabet beats expectations despite European Union fine

Anna Jefferson
July 24, 2018

The quarterly growth rate of what the company pays ad partners, called traffic acquisition costs, fell for the first time in three years, which Atlantic Equities analyst James Cordwell described as the "most impressive" piece of the results.

Google's results follow those of Microsoft, which reported a record quarter last Thursday, with a net income of $8.9 billion on revenues of $30.1 billion for the quarter ending June 30.

Profit dipped 9.3% to $3.2 billion in the second quarter after accounting for the European Union fines, the company said.

Alphabet shares also have been lifted, according to analysts, by a forecast that expense growth would level off in the second quarter because the company entered the second year of a costly deal to make Google the default search provider on iPhones.

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European Competition Commissioner Margrethe Vestager told Bloomberg that Google began trying to resolve the investigation a year before the fine was imposed.

Alphabet's $32.66 billion in second-quarter revenue, 86 percent of which came from Google's advertising business, beat an average estimate of $32.17 billion. The headlining story of this release is that the market was surprised by Google acheiving far stronger ad sales than expected.

"Alphabet also breaks out the revenues and losses for its 'Other Bets, ' like healthcare company Verily, internet service provider Fiber, and self-driving vehicle company Waymo".

Google also appears to be emerging from a period of doubt surrounding the transition to mobile, where advertising revenue is harder to come by. Without the fine, net income would have been $11.75 a share.

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

Google CEO Sundar Pichai says the company would take a "constructive approach" to the European Union ruling that slapped the search giant with a multibillion dollar fine.

The newer businesses are sucking up investments as Google adds data centers and employees to support them. Alphabet has said it will appeal the order. In the last quarter, Google opened regions in Los Angeles and Finland and announced a new region in Zurich. "There is regulatory risk, though we have yet to find evidence that regulations will adversely impact the usefulness of Google for consumers or advertisers".

Alphabet trails Facebook, Amazon and Twitter Inc in valuation as measured by the ratio of enterprise value to expected earnings.

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