Alphabet profit hit by EU fine on Google

googleSAN FRANCISCO: Google parent Alphabet on Monday reported a quarterly profit of US$3.5 billion, in a sharp decline from a year ago, with a massive fine by the European Commission biting into earnings.

The technology giant reported that revenue grew to US$26 billion in the recently ended quarter, and that profit would have tallied nearly US$6.3 billion if it weren’t for a US$2.74 billion antitrust fine levied on search engine Google by the European Commission.

The earnings for the quarter fell 28% from the same period last year.

Revenue was up 21% from the same quarter last year.

Alphabet chief financial officer Ruth Porat said te report showed “strong growth with great underlying momentum,” as the company makes “focused investments in new revenue streams.”

Alphabet shares slid about 2.9% to US$969.03 in after-market trades that followed release of the earnings figures.

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.

Alphabet took in US$248 million in revenue and posted a narrowed loss of US$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.

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 just must be careful not to take advantage of its powerful position in online search to gain advantage, noted 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.