Alphabet Posts Stronger Revenue as Ad Sales Beat Forecasts

Alphabet Inc. reported another strong quarter this year, as Google LLC’s online advertising power drive the firm’s revenue higher, despite encountering a costly regulatory trouble with the European Union (EU).

The US conglomerate group brought in $32.66 billion in revenue in the second quarter ending in June, adding 26 percent from the $26.01 billion recorded in the same quarter in 2017. Analysts expected revenue of $32.17 billion.

About 80 percent of the revenue came from Google’s advertising business, which climbed 23.9 percent from last year’s $22.67 billion to $28.09 billion in the quarter. Mobile and automated ads mainly contributed for the sales boost, according to Alphabet Chief Financial Officer Ruth Porat.   

The online search giant’s non-advertising business, which includes its cloud business and hardware sales, accounted for the rest of the revenue, hitting $4.4 billion, or increasing 36.5 percent from $3.2 billion posted in the previous year.

Overall, Alphabet’s revenue growth should be able to help ease concerns about an immediate impact from Europe’s General Data Protection Regulation (GDPR), a law designed to provide users more control of their data.

The new privacy legislation, which took effect on May 25, left investors worried over how Google’s advertising business will be affected by the rule.

Google Chief Executive Sundar Pichai stated that it was too early to say what changes the GDPR is creating in the company’s business.

Shares of Alphabet gained 3.6 percent to $1,254.70 in after-hour trading, following the report.

Alphabet’s Net Income Drops after Google’s $5 Billion Fine

While Alphabet’s revenue came out stronger than expected, its net income of $3.2 billion for the second quarter, or diluted earnings per share (EPS) of $4.54, ended lower than the $3.5 billion or $5.01 per share presented in the same quarter in 2017.

The drop in profits came as a result of the European Commission’s decision to charge the company a hefty fine of €4.34 billion or $5 billion during the second quarter for Google’s use of its Android mobile operating system to illegally restrain competition.

The EU regulators ruled that Google used its Android software, which powers more than 80 percent of the world’s smartphones, as a means to bolster its dominance by pushing users to its search engine, leaving rival search providers and app makers in a weak state.   

Without the fine, Alphabet’s net income would have been $8.3 billion or $11.75 per share, surpassing the previous year’s second quarter.

On the surface, the Commission’s substantial fine appears to have little impact on Alphabet, but if Google fails to appeal the ruling, simply paying the fine might not resolve the matter.

The institution has requested the firm to make significant modifications to its Android platform, which could have wide implications on Google’s advertising business, once their applied.

It is still too early to say how the changes demanded by the regulators would affect the firm’s business over the long term, as there is more work to be done, according to Pichai. He believed that the situation will become clearer as they go along.

HQBroker is here to give you a daily news roundup about the forex, commodities, technologies, automobiles, and economies. You can open an account now and make yourself updated with essential news in the market. Share your thoughts and experiences with us by commenting your HQBroker reviews.