Alphabet's Q2 profit triggers rally, despite $5.1B European Union fine

Margrethe Vestager1

European Competition Commissioner Margrethe Vestager. Reuters

In the same quarter past year, Alphabet reported earnings of $8.90 per share, excluding a $2.7 billion regulatory fine the European Union imposed on the tech giant.

Alphabet confirmed that it took a $5.1 billion charge to cover the cost of a record fine from the European Commission, which wiped out almost two thirds of its profit. Google is appealing the ruling. Diluted earnings per share came to $11.75 or $4.54 after the fine; in Q2 2017, EPS was $8.90 and would have been $5.01 had the fine been taken into account.

"There is more work to be done and I think it will become clearer as we go along", he said.

The EU said Google had used the mobile operating system to illegally "cement its dominant position" in search.

Even including the record fine, the company generated US$3.2 billion in net income during the second quarter.

The bulk of Alphabet's revenue continues to come from advertising, which amounted to $28bn for the quarter, or roughly 88 per cent of sales.

On average, Wall Street was looking for Q2 earnings of $9.54 per share with $32.2 billion in revenue.

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The sums Google pays out to websites and mobile partners to distribute its search engine and ads - called Traffic Acquisition Costs - also rose to US$6.4 billion for the quarter.

Both Alphabet's headcount and taxes increased. Its enterprise value, or market capitalization and debt minus cash, trades at 13 times expected earnings for the next 12 months, compared with about 14 times for Facebook, 24 times for Twitter and 26 times for Amazon, according to TR data.

The rise in spending on capital projects didn't stop the tech giant from posting huge numbers for the quarter, beating analyst expectations and sending its stock soaring in after-hours trading.

Alphabet has also branched out into a range of other areas, including cloud computing, YouTube and driverless cars.

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

Alphabet's "other bets", investments in less established ventures like Calico, Fiber, Nest, Verily, and Waymo, posted an operating loss of $732m, about $100m more than the year-ago quarter, on revenue of $145m.

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