EU Fine Hits Google Second-Quarter Earnings, Sends Stock Down

Sundar Pichai Getty H 2016
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The search and advertising giant was hit with a $2.7 billion fine in June for its online shopping business.

Google owner Alphabet saw profit drop during the second quarter due to a $2.7 billion fine levied by European antitrust regulators.

The setback, revealed Monday in the company's quarterly earnings report, sent the company's stock down more than 3 percent during afterhours trading on the Nasdaq

The search and advertising giant reported earnings of $5.01 per share, down from $7 per share during the same period last year. Adjusted earnings that did not include the fine came in at $8.90 per share.

Revenue was up 21 percent to $26.01 billion. Despite the profit decline, both revenue and earnings were well ahead of Wall Street's expectations. Analysts had been anticipating earnings of $4.46 per share and revenue of $25.64 billion. 

The European Union issued the fine against Google in June after a seven-year investigation that found the company guilty of favoring its own shopping service's search results ahead of competitive services. At the time, European Commissioner Margrethe Vestager, head of competition policy for the EU, noted that "Google's strategy for its comparison shopping service wasn't just about attracting customers by making its product better than those of its rivals." At the time, the company said it would consider an appeal. 

Outside of the fine, Google's strong quarter indicated that troubles with advertisers at YouTube were not material enough to impact its overall business. During the quarter, a Wall Street Journal report said that some YouTube ads were running alongside violent or inappropriate videos, causing some advertisers to pull off of the platform entirely. YouTube made some adjustments to its advertising products to address the concerns and some advertisers have returned, but that didn't stop investors from questioning how the episode would impact second-quarter earnings. 

"YouTube is one of those products scaling really well globally, just like search did," said Google CEO Sundar Pichai during Alphabet's earnings call with investors. "We're seeing real strong growth on mobile. We're seeing real strong growth for emerging markets, as well. ... I think there's a lot more growth ahead." 

Meanwhile, Alphabet's "other bets" division — which includes acquisitions like Nest and other longer-term projects being developed through its X lab — remains a small revenue driver and unprofitable business. During the second quarter, it brought in revenue of $248 million, up from $185 million during the same quarter last year. Operating loss shrunk to $772 million during the quarter. 

Alphabet stock closed the day up nearly 1 percent to $980.34.