Alphabet & Google Profits Fall As Billion Dollar EU Penalty Bites

Google’s parent Alphabet has suffered a setback to its recent strong fiscal performance after it revealed a decline in second quarter net profits.

Until now Google had been delivering stunning growth in both profits and revenues, helped by its principle cash cow, namely the advertising market, but also other ventures including its growing cloud business and revenue from its hardware (i.e Pixel smartphone) and Google Play Store.

But in the last quarter (June to be exact) Google was slapped with a record-breaking fine of 2.4 billion euros (£2.1bn) by the European Commission for abusing its monopoly on Internet searches within the European Union.

European Fine

This fine has notably impacted Google’s second quarter financial performance, after Alphabet for the month ending 30 June, posted a net profit down at $3.5bn (£2.7bn) from $4.9bn (£3.7bn) in the same year-ago quarter.

The profit would have been much larger had it not been for the EC penalty.

But the EU fine did little to dent Alphabet’s sales, after revenues impressively rose 21 percent to $26bn (£19.9bn) from $21.5bn (£16.5bn) a year earlier.

Alphabet’s share price reportedly fell about 3 percent to $967 (£741) in after-hours trading, but it seems that Wall Street remains positive about the firm, and shares rose again the following day.

Divisional Performance

So where did Alphabet and Google make most of its money?

Well it is little surprise that advertising is the core money maker, and Google’s ad revenue rose 18.4 percent to $22.7bn (£17.4bn) in the quarter. Google dominates the digital ad market, alongside Facebook.

Revenue from other Google products, which includes its Pixel smartphone, the Google Play Store and Google’s cloud business, rose a hugely impressive 42.3 percent to $3bn (£2.4bn) from $2.2bn (£1.7bn) a year earlier.

This shows that Alphabet is competing hard with its bigger cloud rivals namely Amazon (AWS) and Microsoft (Azure).

And Google’s restructuring of its “other bets” division seems to be paying off as operating losses here narrowed to $772m (£591m) from $855m (£655m) a year earlier. Other bets sales rose to $248m (£190m) from $185m (£142m) a year ago.

Google’s other bets division includes the Waymo self-driving car company, Google Fiber, thermostat-maker Nest and the life sciences firm Verily.

In June Japanese telecommunications and Internet business Softbank purchased Boston Dynamics from Alphabet for an undisclosed sum.

Alphabet had been seeking a buyer since March 2016, as part of its strategy on extracting revenue streams from its so called “moonshot” projects.

Quiz: How much do you know about Google and Alphabet?