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Alphabet Profits Slide after Historic EU Fine | ASHARQ AL-AWSAT English Archive 2005 -2017
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Google logo at the company’s Asia-Pacific headquarters during its opening day in Singapore on November 10, 2016. (Getty Images)

Alphabet, the parent company of popular search engine Google, saw its slide take a hit on Monday in wake of the historic fine imposed on it by the European Commission.

Alphabet reported a quarterly profit of $3.5 billion, in a sharp decline from a year ago, with a massive $2.74 billion antitrust fine in Europe biting into earnings.

Word that success in mobile, cloud and YouTube is coming with higher costs also contributed to the slump.

The technology giant reported that revenue grew to $26 billion in the recently ended quarter, and that profit would have tallied nearly $6.3 billion if it were not for the fine levied on search engine Google by the European Commission.

Earnings for the quarter fell 28 percent from the same period last year.

Revenue was up 21 percent from the same quarter last year.

Alphabet chief financial officer Ruth Porat said the report showed “strong growth with great underlying momentum,” as the company makes “focused investments in new revenue streams.”

Alphabet shares slid about 3.1 percent to $967.20 in after-market trades that followed the release of the earnings figures.

Reasons for the drop likely included the mixed blessing of Google use booming on mobile devices, bringing in more revenue but also paying more to websites hosting ads.

Alphabet also said it was spending more money on operating data centers, acquiring YouTube content, and its line of hardware, which were cited as growing businesses at the company.

In a verdict that could redraw the online map worldwide, the EU’s top antitrust sheriff, Margrethe Vestager, in June imposed a record fine on Google for illegally favoring its shopping service in search results.

The EU accuses Google of giving its multitude of services too much priority in search results to the detriment of other price comparison services.

The decision — if it survives an expected appeal process — could prove to be momentous for Google, as well as for competition law in general.

Investors have been concerned about what the regulatory trouble in Europe means for Alphabet, which gets most of its money from Google advertising while investing in “other bets” such as self-driving cars and life sciences.

Alphabet took in $248 million in revenue and posted a narrowed loss of $772 million in its “other bets” category in the recently ended quarter.

The rising costs, including what Google pays to drive traffic to its search engine, hurt operating margins more than most people had expected, said Doug Kass, president of Seabreeze Partners Management.

“This could be problematic going forward,” Kass said.

Alphabet Chief Financial Officer Ruth Porat, asked about margins during a conference call with analysts, said the company was focused on getting bigger.

“As we’ve often said, we’re focused on revenue and operating income dollar growth and not on operating margins,” she said.

Increasing costs, Porat added, are a result of more money going into high-growth products that she said would create value for shareholders.

Google and the EU are gearing up for a battle that could last years, with the Silicon Valley behemoth facing a relentless challenge to its ambition to expand beyond search results.

Brussels has already spent seven years targeting Google, fueled by a deep apprehension of the company’s dominance of internet search across Europe, where it commands about 90 percent of the market.