Google shrugs off EU fines to hit shares high

Mark Bergen

Google executives projected confidence in Android and other businesses, giving investors no signal that a costly regulatory crackdown by the EU would curb sales and profit anytime soon. The shares surged to a record high and helped boost global stock markets weighed down by fears of trade wars.

Parent company Alphabet posted second-quarter results that walloped Wall Street expectations, while chief executive officer Sundar Pichai hinted at untapped advertising opportunities and highlighted growth at video service YouTube and the cloud arm.

Shares rose as much as 5.3% at one stage in the latest session, valuing the firm at $878bn (€749.5bn). Several analysts lifted their price target on the stock.

The monster quarter came despite a regulatory backlash in Europe, raising questions about Google’s massive data collection and clashes with advertisers over inappropriate content on YouTube. That had quelled analysts’ expectations ahead of the results on Monday.

Alphabet reported two different profit figures to account for a record $5bn fine Europe imposed last week for violating competition law with Google’s Android mobile software.

Excluding that, Alphabet said profit was $11.75 a share. Google plans to contest the ruling. Even including the record fine, the company generated $3.2bn in net income during the second quarter.

On the earnings call, Mr Pichai suggested the company wouldn’t dramatically alter its Android strategy.

“I’m confident that we can find a way to make sure Android is available at scale to users everywhere,” he said.

Google gives Android to smartphone makers for free, part of the reason it’s the most popular mobile operating system. Mr Pichai’s comments suggest the company will continue the approach.

Google also shrugged off the General Data Protection Regulation, the EU’s privacy law that started in May and limits targeted advertising.

“There do not appear to be any signs that should cause a meaningful slowdown any time soon, as fines from the European Commission are not likely to hamper Alphabet’s growth rate,” Brian Wieser, an analyst at Pivotal Research Group, wrote in a note to investors.

“Conversely, regulatory changes such as GDPR in Europe (and similar laws implemented elsewhere) could have the effect of reinforcing Alphabet’s growth.”

Google has continued to give search ads more prominent space on mobile phones and bundle more of its ads products together, helping to fuel the brisk sales growth. Chief financial officer Ruth Porat suggested that the company would not sacrifice investment in its cash cow of advertising in favor of other bets like autonomous cars and delivery drones.

“One of the biggest opportunities for investment continues to be in our ads business,” Ms Porat told analysts on the earnings call.

“I don’t want to leave you with the notion that the investment is just going to the new businesses,” she said.

Google’s advertising business grew 24%, pushing total Alphabet revenue, minus partner payouts, to $26.24bn during the second quarter. Analysts were expecting $25.55bn, according to data compiled by Bloomberg. Those gains came even as Amazon.com revs up its own ads business.

Mr Pichai highlighted rising use of the company’s digital maps, particularly in emerging markets.

Bloomberg