A billion-dollar fine imposed by the EU Commission has pushed the Google parent Alphabet record a big drag on its earnings. In the second quarter, the net income fell by 28 per cent to $3.5 billion, the Internet giant reported on Monday after the closing bell. Analysts had, however, expected an even stronger decline. Sales also surpassed expectations by 21 percent to $26.0 billion.
Nevertheless, investors reacted negatively. The stock initially moved down by around 3 per cent on a short-term basis, followed by a decline of 2.8 per cent. In the course of the year, however, the price has already increased around 30 percent.
ADVERTISING IS CONTINUOUSLY STRONG
In June, the EU commission imposed a fine of 2.4 billion euros for allegedly illegal use of its market power for product advertisements in search results. Although the US company had reserved its right to appeal against the fine, billions had already been taken into account as a precaution in the quarterly balance sheet.
Without the EU’s record-breaking fine, Alphabet would have earned $6.3 billion. However, in the figures, there were also a few details, which did not arrive well on the stock market, independently of this special factor. Google’s advertising business, Alphabet’s main source of income, continued to grow strongly, but ads on computer and, more recently, more often, smartphone screens are no longer making so much money.
PAY PER CLICK SINK
The number of paid clicks on advertisements rose by 52 percent, but revenue per click dropped by 23 percent. Already in the previous quarter, there had been a drop of 19 percent. In addition, the adjusted sales, which are particularly critical in the market, where royalties on partner websites are deducted, is significantly more modest than absolute revenues, at $20.9 billion. However, CFO Ruth Porat was still satisfied and highlighted the strong growth in mobile advertising.
In other areas of the Alphabet, such as home networking and the robotic company Waymo, revenues rose year-on-year from $185 to $248 million. At the same time, the operating loss was reduced from $855 to $722 million. Experts had expected a much higher drop in the division, which is called “other betting”, which partly bundles very expensive forward-looking initiatives.