JOHANNESBURG — It’s extremely difficult to halt an oncoming juggernaut, and it seems Alphabet fits into this category. Google’s advertising machine beat analyst estimates helping the group offset a $5 billion fine levied by the European Union. Revenue for the year was up 25 percent to $26 billion, against expectations of $20 billion. And despite eMarketer predicting Google’s control of the global ad market this year to fall slightly to 31 percent, from 31.7 percent in 2017, Alphabet’s underlying businesses seem mightier than ever. Google is held in the Biznews Global Share portfolio, and hit a new all-time high in after hours trading. – Stuart Lowman
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Google Earnings Hit by European Fine
By Douglas MacMillan
(The Wall Street Journal) Google’s advertising machine keeps racing ahead even as regulators try to construct new guardrails to curtail the internet giant’s global dominance.
Alphabet Inc., Google’s parent, reported sales and profit surpassing analysts’ estimates on Monday, a sign the company’s strength in online ads will help offset the impact of sweeping new European regulations for online privacy and perceived abuses of its position in the market.
The results highlight how even while Silicon Valley’s leading tech firms are ensnared in a range of controversies, the underlying businesses are mightier than ever.
Shares of Google rose 3.9% to $1,267 in after-hours trading, reaching an all-time high.
Advertisers have shrugged off negative headlines surrounding Google and tech rival Facebook Inc., which for months has grappled with criticism about its data privacy practices. Facebook is expected to report a sharp increase in revenue when it reports second-quarter results Wednesday as companies continue to buy ads on the social-media site and its Instagram unit.
“Between Google and Facebook, the two of them keep taking share of an industry that doesn’t grow as much as they are,” said Pivotal Research analyst Brian Wieser.
Google is expected to control 31% of the global ad market this year, down slightly from 31.7% in 2017, according to estimates from eMarketer.
The company on Monday said its second-quarter profit fell 9% to $3.2 billion because of a $5 billion fine levied last week by the European Union, which said Google has abused the dominance of its Android mobile operating system. Android is used by more than 80% of the world’s smartphones. Google said it is appealing the charges.
Excluding the impact of the fine, the company reported per-share earnings of $11.75, compared with a year-earlier figure of $8.90 and the consensus analyst estimate of $9.66, according to analysts polled by FactSet.
Revenue, excluding traffic costs paid to partners, rose 25% from a year earlier to $26.24 billion. Analysts were expecting $20.9 billion, according to a poll by FactSet.
“Google continues to be an online ad business that’s a fantastic business,” said Sean Stannard-Stockton, a portfolio manager at Ensemble Capital, which owns shares in Google. “It is unbelievably steady for a business of this size.”
One closely watched measure in the company’s earnings reports is how much Google is paying to maintain its leadership position in the ad market, especially as more users shift to mobile phones.
Google pays fees to smartphone partners, such as Apple Inc., AAPL 0.09% to be the default search engine on smartphones. Payments to distribution partners rose 49% in the second quarter, and now account for 13% of the revenue generated by the company’s website traffic. That is down slightly from 13.2% in the first quarter, marking the first sequential decline for this important measure in three years.
Google’s capital expenditures nearly doubled to $5.5 billion from a year earlier, as the company spends on workers and infrastructure to maintain its lead in emerging technologies. Those expenses have risen the past four consecutive quarters.
The biggest increase in spending was on research and development and on boosting the ranks of technical workers, Chief Financial Officer Ruth Porat said Monday on a call with analysts. Alphabet has 89,000 employees, an increase of 4,000 from the first quarter.
As Google faces more pressure from regulators seeking to rein in the power of the internet giant, investors are worried that new laws and restrictions will impede its growth. In addition to the fine related to Android, European regulators this year began enforcing a new privacy regulation forcing Google and other internet companies to get consent from web users to collect their data and target ads to them.
The privacy law may have even benefited Google by making its offerings more appealing than those by smaller players in the market.
“It was a safe choice to buy [advertising] using Google’s tools and inventory,” Mr. Wieser said.
There have also been increasing calls from U.S. lawmakers to curtail Google’s dominance but no legislation is imminent on Capitol Hill.
It’s too early to tell whether the EU’s charges against Google’s use of Android will force the company to change its business deals. The regulator ordered Google to stop forcing Android handset makers to bundle Google’s Search and Chrome apps on devices that also include the Google Play store for third-party apps, a ruling which could give handset makers leverage to extract payments from Google to pre-install those apps.
Asked about whether Google sees any changes to its Android business, Chief Executive Sundar Pichai said he is working “to find a solution above all that preserves the tremendous benefits of Android to users.”
Android, which is free to handset makers, “creates more choice for everyone, not less,” Mr. Pichai said.
Write to Douglas MacMillan at [email protected]
