Alphabet's net income in Q2 hit by hefty EU fine

Alphabet, the owner of Google and YouTube, said it made US$3.5 billion (S$4.76 billion) in net income on sales of US$26 billion. This year, Google is expected to have US$73.75 billion in net digital ad revenue worldwide.
Alphabet, the owner of Google and YouTube, said it made US$3.5 billion (S$4.76 billion) in net income on sales of US$26 billion. This year, Google is expected to have US$73.75 billion in net digital ad revenue worldwide.PHOTO: REUTERS

SAN FRANCISCO • Alphabet reported a 21 per cent jump in second-quarter 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 US$3.5 billion (S$4.76 billion) in net income on sales of US$26 billion. The profit would have been much larger but for a record US$2.7 billion European Union anti-trust fine.

Still, the company noted that costs were rising faster than sales and warned that expenses would remain high as more searches shift to mobile devices.

The squeeze on expected future profit appeared to weigh on Alphabet's share price, which fell 2.8 per cent to US$$969.98 at 9.30am in New York yesterday. Shares had closed up in regular trading and have gained 26 per cent for the year.

Get The Straits Times
newsletters in your inbox

Alphabet's cost of revenue, a measure of how much money the company must spend to keep its platforms running before added costs such as research, rose 28 per cent, well above the growth in revenue itself. The rising costs, including what Google pays to drive traffic to its search engine, hurt operating margins more than most people had expected, said president of Seabreeze Partners Management Doug Kass."This could be problematic going forward."

Alphabet chief financial officer Ruth Porat said the company was focused on getting bigger. Increasing costs, she added, are a result of more money going into high-growth products that she said would create value for shareholders.

With its latest profits, Alphabet reported US$15.7 billion in cash and cash equivalents, and another US$79 billion in marketable securities. Alphabet and social media rival Facebook, which together dominate the online ad market, compete for advertising dollars.

This year, Google is expected to have US$73.75 billion in net digital ad revenue worldwide, while Facebook is expected to take in US$36.29 billion, according to research firm eMarketer. Together they will have about 49 per cent of the market, eMarketer said.

REUTERS

A version of this article appeared in the print edition of The Straits Times on July 26, 2017, with the headline 'Alphabet's net income in Q2 hit by hefty EU fine'. Print Edition | Subscribe