Google’s EU fine drags down parent company’s profits 28%

Alphabet Inc reported a 27.7 per cent drop in quarterly profit as the company recorded a previously announced charge related to a record €2.4 billion (€2.06bn) fine imposed on its Google unit by the European Commission.

EU antitrust regulators last month hit Google with a record fine for favouring its own shopping service, taking a tough line in the first of three inquiries of its dominance in searches and smartphone operating systems.

The California-based company’s shares, which closed marginally up in regular trading on Monday, fell nearly 3 per cent to $969 after the bell.

On a consolidated basis, revenue rose about 21 percent to $26.01 billion (€22.34bn) in the quarter ended June 30th, beating the analysts’ average estimate of $25.65 billion (€22.03bn) , according to Thomson Reuters.

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Revenue was boosted by robust demand for advertising on mobile and the company's popular video service YouTube.

Google’s ad revenue, which accounts for a lion’s share of its business, rose 18.4 per cent to $22.67 billion.

Advertising dollars

The company faces intensifying competition from social media giant Facebook for advertising dollars. The companies together dominate the online ad market.

This year Google is expected to generate about $73.75 billion (€63.35bn) in net digital ad revenue worldwide, a 17.8 per cent jump from a year earlier, according to research firm eMarketer.

Paid clicks, where an advertiser pays only if a user clicks on ads, rose 52 per cent. Analysts on average had expected a rise of 35.2 per cent, according to data and analytics firm FactSet. Paid clicks rose 44 per cent in the first quarter.

Revenue from its Google Other unit, which includes Pixel smartphone, Play Store and cloud business, rose 42.3 per cent to $3.09 billion.

The company changed the method it reports earnings in the first quarter, focusing on Generally Accepted Accounting Principles (GAAP) earnings instead of non-GAAP results.

Competition rules

In late June the European Commission fined Google for breaking EU competition rules by abusing its monopoly over internet search to unfairly promote its own shopping comparison service.

Google was given 90 days to put its search engine right or face daily fines of up to 5 per cent of the average daily turnover of Alphabet.

Separately, Google's chief executive Sundar Pichai was added to the board of Alphabet on Monday. The appointment is another signal of his rising importance at the company.

He joins the company's founders, Larry Page and Sergey Brin, its chairman Eric Schmidt and nine other veterans of technology, finance and automotive industries.

Outside of Google, Alphabet hosts several early-stage companies in a variety of sectors, including its self-driving car unit Waymo, and two healthcare efforts.

"Sundar has been doing a great job as Google's CEO, driving strong growth, partnerships, and tremendous product innovation," Mr Page said in a statement. – Bloomberg and Reuters