Google shrugs off US$5.1b fine with another big quarter

San Francisco

EUROPEAN authorities took their best swing, but it appears that Google hardly felt it.

Less than a week after the European Union fined Google a record US$5.1 billion for abusing its dominance in the smartphone market, Google's parent company, Alphabet, said Monday it had absorbed the cost of the fine and made US$3.2 billion in profits in its latest quarter.

Alphabet's stock rose 3.5 per cent in after-hours trading, and some analysts recommended the company's shares. With the regulatory issue settled, they said, Google could get back to focusing on selling ads across the internet.

"It's like a delivery company having to pay for a parking ticket," Brian Wieser, a Pivotal Research analyst, said of the penalty, which Alphabet accounted for in the second quarter. "It's not a meaningful fine in the context of the size of this company."

The European Union's previous record fine was also aimed at Google, a US$2.7 billion levy it imposed last year for unfairly favouring its comparison-shopping service in its search results. Google booked that charge in the same quarter a year ago - and posted a US$3.5 billion profit.

More substantive than the fine are the changes that will come to the company's Android software, which backs 80 per cent of the world's smartphones. European authorities ordered Google to stop effectively requiring phone-makers in Europe to install Google's search engine and Chrome internet browser on their devices in order to use the Android software.

Such a change could mean fewer people using Google's search engine on their phones, which would undercut an advertising business that is fuelled by users clicking on ads in mobile search results.

But it is Google that is responsible for crafting a remedy, and it will have much incentive to propose one that limits the effect on its business. After Google complied with last year's charges by the European Union related to its shopping service, competitors complained that its solution did little to reduce the harm to their businesses.

Google is "looking forward to finding a solution above all that preserves the enormous benefits of Android to users," Google's chief executive, Sundar Pichai, said on a call with analysts Monday.

MR Pichai said Google planned to appeal the charges, though it must implement a remedy by mid-October or risk more fines. (The company said it was depositing the fine payment in a holding account while the legal process unfolds.) He said last week that Android lowered prices for consumers and encouraged competition in the smartphone market by helping handset-makers compete with Apple. Google has said that it provides Android for free to phone-makers and it must recoup its expenses by including its services with the software.

Europe's new data privacy rule, known as the General Data Protection Regulation, appeared to have had little effect on Google's bottom line. The law, which restricts how companies obtain and handle users' information, sent many businesses scrambling to comply earlier this year. But some analysts believe Google and its partner in the digital-advertising duopoly, Facebook, stand to benefit from the rules because they can afford to comply while smaller competitors might not.

MR Wieser said that after reviewing Google's earnings, the privacy rule "probably helped, at least in the European numbers." Alphabet's revenues rose 26 per cent in Europe, Africa and the Middle East over the same period a year ago, though some of the increase was related to currency fluctuations.

Alphabet's revenues in the quarter increased 26 per cent to US$32.7 billion as users clicked on more of the ads that Google serves atop its search results and before YouTube videos. Alphabet earned US$11.75 a share in the quarter, excluding the fine, easily beating analysts' estimate of US$9.54 a share. NYTIMES