EU's anti-trust fine on Google weighs on parent Alphabet's profits

Google parent Alphabet on April 29 reported that profit in the first three months of this year sagged under the weight of a hefty anti-trust fine in the European Union. Alphabet said that profit in the first-quarter fell 29% to USD 6.7 billion on revenue that climbed 17% to USD 36.3 billion.

The earnings took a hit from a European Commission fine that amounted to USD 1.7 billion at the end of March, according to the quarterly update. Google shares were down 6.1% to USD 1,208.50 in after-market trades that followed release of the earnings report. Although profits excluding the one-time costs were better than expected, revenue growth was below forecasts for the technology colossus which is the dominant internet search company and operator of the ubiquitous Android mobile operating system. Chief financial officer Ruth Porat said in the release the results showed “robust growth” led by mobile search, ad revenues from YouTube videos and cloud computing. “We remain focused on, and excited by, the significant growth opportunities across our businesses,” she said.

Google’s lucrative advertising platform remained the largest revenue driver for Alphabet, delivering more than USD 30 billion of revenues, but costs rose sharply as well. The California giant showed widening losses for its “other bets” including the Waymo self-driving car project, Verily life sciences and services for internet for remote parts of the world and drone delivery. “Other bets” showed an operating loss of USD 858 million, up from USD 571 million a year ago while revenues rose modestly to USD 170 million. Some of the projects are moving closer to fruition: Wing became the first drone delivery company to receive air carrier certification from the US Federal Aviation Administration. Waymo has begun a limited rollout of its robotaxis in Arizona in partnership with automakers. It is seeing growth in cloud computing for businesses, a market where Google is competing against Amazon, Microsoft and others. “Google Cloud Platform remains one of the fastest growing businesses in Alphabet with strong customer momentum reflected in particular in demand for our compute and data analytics products,” Porat said in a call with analysts.

However, Google continues to face pressure around the world from regulators, notably in Europe amid multiple investigations over alleged abuse of its dominance in internet search, advertising and its mobile system. The latest fine imposed by Brussels cited Google’s AdSense advertising service, saying it illegally restricted client websites from displaying messages from ad service rivals. Google is separately working to satisfy EU regulators investigating its hugely popular Android devices following a USD 5 billion fine last year. This month, Google said it would offer smartphone users five browsers and search engines as part of the company’s effort to meet EU competition concerns. Brussels accused Google of using the Android system’s dominance of smartphones and tablets to promote the use of its own Google search engine and Chrome browser and shut out rivals. In the United States, Google has been a target of President Donald Trump and his allies, accusing the search giant of “bias” and silencing conservative voices, claims denied by the Silicon Valley firm.