Alphabet’s earnings keep investors in black despite EU fine

8 years ago - Published in Finance, Fundamental Analysis

Alphabet reported a 21% jump in quarterly revenue on Monday, maintaining a growth rate that is rarely seen among companies its size and suggesting the big sales gains enjoyed recently by the other Internet firms are not done yet.

Alphabet, the owner of Google and YouTube, said it made $3.5 billion in net income on sales of $26 billion. The profit would have been much larger but for a record $2.7 billion European Union antitrust fine.

EU regulators had fined Google $2.74 billion in June for giving its own shopping results preference on its search engine. Google at the time said that it was considering to appeal the ruling, but Alphabet nonetheless decided to account for the entire fine as a separate operating charge in Q2.

The drop in cost per click, the amount advertisers are paying each time a user clicks on an ad served by Google, was much higher than the 15% analysts expected, according to StreetAccount, due to more search traffic coming from mobile devices.

Traffic acquisition costs amounted to $5.09 billion, higher than analyst estimates of $4.75 billion.

Google, the world’s biggest advertising company, dominates the digital-ad landscape with fellow tech giant Facebook. The two firms captured about 77 per cent of the $12 billion increase in spending on online ads in the US last year, according to eMarketer. Given Google’s size, if it continues to earn less per ad click, it could depress online-ad prices across the internet.

On YouTube, Google often shows ads at the beginning of videos that companies buy using an automated auction system. That system of programmatic advertising caused a problem for Google earlier this year when a series of news stories in late March showed Google was running some brands’ ads alongside videos with content that could be considered racist or hateful. That caused some major advertisers to pull their spending on YouTube ads.

As of last month, many major companies, including Wal-Mart Stores, AT & T Inc, and JP Morgan Chase & Co, still hadn’t resumed spending on YouTube ads. Others, including General Motors, Coca-Cola Co. and Lyft had returned to the site. There was little sign of an impact from those spending cuts in the second quarter sales growth.

Alphabet announced earlier on Monday that it had given one of its board seats to Pichai. Including this new seat, Alphabet now has a total of 13 board members, with other notable directors including Google’s co-founders Larry Page and Sergey Brin, as well as former Google CEO Eric Schmidt.