On Monday, Google-parent company Alphabet (NASDAQ:GOOG) delivered its second-quarter earnings report. Despite meeting most analyst expectations for its earnings and revenue, Google shares were down during the after-hours trading on Monday after Google posted that its net profits were down by almost 29% due to the massive $2.6 billion fine from the European Union.
Antitrust Fine
Last month, European Union regulators fined the U.S. tech giant a record breaking antitrust fine of €2.4 billion or $2.7 billion. According to the regulators, the American company reportedly denied users a “genuine choice” by abusing the use of its search engine to lure them into its personal shopping sites and businesses compared to its competitors. The European Commission also warned the company to change its terms within ninety days or more penalties will be imposed upon them.
Google denied the claims and stated that they disagree with the announcement from the EU and that they will review the decision of the regulator in detail. The company also announced that they are considering an appeal.
The fine only forms around 2.5% of Alphabet’s total revenue in 2016. According to other analysts, the European Union could have imposed a fine almost 10% of the company’s annual sales or as much as $9 billion.
Earnings Report
Due to the EU antitrust fine, Alphabet’s net profits have lost around 28% with their second quarter earnings coming in at $3.5 billion for the quarter that ended last June 30. Not including the fine, the profits of the company are expected to have been $6.3 billion year on year.
However, the company was still able to post an earnings beat of $5.01 compared to consensus analyst estimates of $4.46 earnings per share. The company also delivered a revenue of $26.01 billion exceeding both analyst forecasts and its revenue from the same quarter a year ago of $25.64 billion and $21.5 billion respectively. This represents a 21% rise in their revenue compared to last year still exceeding most analyst forecasts of a 19% rise in their revenue.
The company who also owns YouTube has recently reached 1.5 million users on a monthly basis last month. The company’s other businesses such as its cloud business has also been growing and now houses more than 75,000 employees.
Alphabet Inc also announced that its traffic acquisition expenses jumped to $5.09 billion for the quarter compared to most analyst estimates of $4.75 billion. According to Google CFO Ruth Porat, their traffic acquisition costs are expected to rise. This is due to more people transitioning into mobile searches which would require more research for the company resulting into higher costs.