Google
parent Alphabet on Monday saw shares slide as the market reacted to a massive
fine by the European Commission and word that success in mobile, cloud and
YouTube is coming with higher costs.
Alphabet
reported a quarterly profit of $3.5 billion, in a sharp decline from a year
ago, with a $2.74 billion antitrust fine in Europe biting into earnings.
The
technology giant reported that revenue grew to $26 billion in the recently
ended quarter, and that profit would have tallied nearly $6.3 billion if it
were not for the fine levied on search engine Google by the European
Commission.
Earnings for
the quarter fell 28 percent from the same period last year.
Revenue was
up 21 percent from the same quarter last year.
Alphabet
chief financial officer Ruth Porat said the report showed “strong growth with
great underlying momentum,” as the company makes “focused investments in new
revenue streams.”
Alphabet
shares slid about 3.1 percent to $967.20 in after-market trades that followed
the release of the earnings figures.
Reasons for
the drop likely included the mixed blessing of Google use booming on mobile
devices, bringing in more revenue but also paying more to websites hosting ads.
Alphabet
also said it was spending more money on operating data centers, acquiring
YouTube content, and its line of hardware, which were cited as growing
businesses at the company.
Mulling
options
Investors
have been concerned about what the regulatory trouble in Europe means for
Alphabet, which gets most of its money from Google advertising while investing
in “other bets” such as self-driving cars and life sciences.
Alphabet
took in $248 million in revenue and posted a narrowed loss of $772 million in
its “other bets” category in the recently ended quarter.
Google and
the EU are gearing up for a battle that could last years, with the Silicon
Valley behemoth facing a relentless challenge to its ambition to expand beyond
search results.
Brussels has
already spent seven years targeting Google, fueled by a deep apprehension of
the company’s dominance of internet search across Europe, where it commands
about 90 percent of the market.
In a verdict
that could redraw the online map worldwide, the EU’s top antitrust sheriff,
Margrethe Vestager, in June imposed a record fine on Google for illegally
favoring its shopping service in search results.
The EU
accuses Google of giving its multitude of services too much priority in search
results to the detriment of other price comparison services.
The decision
— if it survives an expected appeal process — could prove to be momentous for
Google, as well as for competition law in general.
“We are
still early in our analysis of the decision,” Porat said in response to a
question about the fine during an earnings call with analysts.
“We do have
time to notify the commission for proposed remedies as well as to implement
changes.”
Porat said
Alphabet was reviewing its options and declined to comment further on the
ongoing legal matter.
The EU is
also examining Google’s AdSense advertising service and its Android mobile
phone software.
Finding a
balance
Alphabet
would be wise to diversify, but it must be careful not to take advantage of its
powerful position in online search to gain advantage, said Silicon Valley
analyst Rob Enderle of Enderle Group.
Investors
will also be watching to make sure this is a one-time fine, because not even a
behemoth like Google can take that kind of cash hit each quarter, the analyst
said.
“I don’t see
Google changing its behavior, which means the EU could continue to hit them
with excessive fines,” Enderle said.
“The EU does
not have a sense of humor when it comes to US companies telling them to take a
hike.”
The company
announced separately that Google chief executive Sundar Pichai would join
Alphabet’s board of directors.
Pichai is
responsible for Google’s product development and technology strategy, as well
as the company’s day-to-day-operations.
0 Comments