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Google parent company weighed down by EU fine

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Alphabet executives were forced to defend the way other businesses in its portfolio, such as YouTube, Maps and Android, are bundled together, as analysts quizzed them on the impact of a record-breaking $2.7bn EU fine.

Ruth Porat, Alphabet’s chief financial officer, told investors on Monday that the company was “reviewing our options” after the EU ruled that Google had abused its dominance in web search to give “illegal advantage” to its own shopping service in its results.

Google has said it will consider an appeal over fine by the European Commission but, in the meantime, its parent company saw net income for the three months ending in June fall by 28 per cent to $3.5bn as a result. The drop was the biggest decline in the internet group’s net income since 2008

“I expect that to continue,” he said, despite another EU probe focusing on whether Google had unfairly restricted competition by requiring smartphone manufacturers who use Android to pre-install its own apps such as Maps and YouTube on hundreds of millions of devices.

“A lot of our products which were successful on Android happen to be successful outside of Android as well,” he added.

Mr Pichai was also cautious when asked by another analyst about the potential for using Google’s vast trove of search data to fuel advertising on other parts of its network, such as YouTube, arguing that the group tried to help both consumers and advertisers get “a better experience”.

“Obviously we do these things with the foremost thing being making sure we do the right thing for user privacy,” he said. “We will be thoughtful as we move forward.”

In a note to clients on Monday, Brian Wieser of Pivotal Research said the EU’s ruling “may oblige Google to make other changes to other parts of its business”, while a new European privacy policy coming into force next year “could have as yet undefined negative or positive implications for different Google businesses”.

Without last month’s fine, Alphabet’s profits would have risen by 28 per cent year-on-year to $6.9bn. Group revenues were up 21 per cent to $26bn compared to the second quarter of 2016, maintaining the growth rate that it reported the same time last year. Earnings per share were $5.01, beating analysts’ expectations of around $4.46.

Revenues for Google properties, including search advertising and display ads shown across the web, were up 20 per cent to $18.4bn.

Ms Porat pointed to “tremendous results in mobile search, with a strong contribution from YouTube”, while its programmatic advertising business — which was hit by a boycott earlier this year by brands concerned about their ads appearing next to offensive content on YouTube — saw “healthy growth”.

Traffic acquisition costs were up 28 per cent — more than some analysts had expected. Alphabet said that was because payments to partners that showed Google’s ads were higher for the mobile and programmatic ads business, its big growth areas, than in the traditional desktop search business. Cost per click, another closely watched indicator of ad pricing, was down by 23 per cent.

Shares in Alphabet fell by around 3 per cent after hours at $966.75, as investors took profits following huge gains for the tech sector this year. Despite the increased scrutiny from regulators, Alphabet’s market capitalisation has appreciated by $100bn since its first quarter ended in March.

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