Daily Management Review

European Commission's fine knocks down Alphabet's finances


07/25/2017


According to the published financial results of the second quarter, net profit of Alphabet, the owner of Google, experienced the largest drop since 2008 - by 28%, to $ 3.5 billion. This drop is caused by a record fine of $ 2.7 billion, at the end of June imposed on Google by the European Commission for the abuse of the dominant position in the Internet search market.



Marcin Wichary via flickr
Marcin Wichary via flickr
A report published yesterday by Alphabet, which owns Google, notes that revenue for the second quarter grew by 21% to $ 26 billion, which indicates a "strong growth with high dynamics." The document contains a table that, in comparison with the results of the second quarter of 2016, "clearly shows the consequences of the fine of $ 2.7 billion imposed by the European Commission" on Google and included in the reporting of the second quarter of this year. Thus, the net profit of Alphabet in the second quarter of 2016 was $ 4.9 billion, and in the second quarter of 2017 - $ 3.5 billion, down 28%; the operating profit decreased from $ 5.97 billion to $ 4.1 billion.

Recall, a fine of $ 2.42 billion was imposed on Google for the fact that the company, according to the European Commission, abused its dominant position in the market, giving the advantage in the issuance of search results to its own products. Along with the payment of the fine, Google was ordered to eliminate the violations within 90 days, otherwise the company will receive new fines. This is the highest fine that the European Commission has ever imposed for violating antitrust laws. Before that, the record for American technology companies was a $ 1.1 billion fine, paid by Intel in 2009.

Presenting the results, the Alphabet management also noted that spending is growing faster than sales and costs will remain high as search is increasingly carried out through mobile devices. As Doug Kass, president of Seabreeze Partners Management, said in an interview with Reuters, the rising costs, including those that arise because Google is trying to increase traffic, have a much greater impact on the operating margin than expected. Thus, operating margin compared with the second quarter of last year fell from 28% to 16%. Shares of Alphabet on the Nasdaq exchange have reacted to the publication of the financials by a fall of 3%, to $ 967. However, in the course of trading before the opening of the stock exchange session, the company's shares grew a bit - by 0.45%.

source: reuters.com






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