Alphabet Stock Skyrockets on Stellar Earnings Despite $5 Billion E.U. Fine

Margrethe Vestager1

The shares surged to a record high. Several analysts lifted their price target on the stock. "That's down from 24 percent last quarter, and aligns with Alphabet CFO Ruth Porat's advisement last quarter that the TAC as a percentage of revenue would slow beginning in Q2".

The results topped Wall Street expectations.

Last week, the European Commission (EC) fined Google a record €4.3 billion for abusing its dominance in search by illegally tying together its search facilities and other mobile apps with the Android mobile operating system. Excluding that, Alphabet said profit was US$11.75 a share. But some analysts believe Google and its partner in the digital-advertising duopoly, Facebook, stand to benefit from the rules because they can afford to comply while smaller competitors might not.

Google's parent company, Alphabet, said it had absorbed the cost of the European Union fine and made $3.2 billion in profit in its latest quarter.

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Google CEO Sundar Pichai said in a call with investors that the company now has 17 cloud regions, with three more on the way. Pichai's comments suggest the company will continue the approach. Europe's new General Data Protection Regulation, which oversees consumers' privacy and strictly limits how internet firms use their data, also came into force during the quarter, but had no noticeable effect.

Google has continued to give search ads more prominent space on mobile phones and bundle more of its ads products together, helping to fuel the brisk sales growth.

Google has said it will appeal the European fine but Alphabet accounted for it on its books nonetheless. The average estimate of 13 analysts surveyed by Zacks Investment Research was for earnings of $9.45 per share.

Advertising revenue for the quarter rose almost 25 percent to $28.1 billion in the second quarter.

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Google's cost-per-click, which is how much it makes off each advertising click, decreased 22 percent year over year and 10 percent quarter over quarter. That leap reflects a recent push by Google to get marketers buying across more of its advertising channels.

While second-quarter sales jumped, so did costs for the technology giant. Google's capital spending climbed to $5.3 billion, up 87 percent from the same period in 2017.

Pichai was also circumspect about the company's cloud business, so as not to spoil expected announcements at Google Cloud Next '18, a conference focused on the Google Cloud Platform that opens in San Francisco on Tuesday. This quarter, ads represented just 84 percent of Google's overall revenues. Google has been given 90 days to change these business practices. Google's Other revenues -which now includes the smart thermostat business Nest - were $4.23 billion.

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