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Alphabet Beats Expectations on Earnings Despite Huge EU Fine

There’s good news and bad news for Google’s parent company, Alphabet. The good news is that it once again saw a strong growth in revenue during its most recent quarter, to the tune of 21% year-over-year, surpassing even bullish analyst expectations.

Google and Alphabet CFO Ruth Porat credited “tremendous results in mobile search” as well as “a strong contribution from YouTube” as significant contributors to the revenue growth.

The bad news is that it expects to fork over a good chunk of that revenue to the European Union (EU) as a fine for anti-competitive behavior.

EU regulators had fined Google $2.74 billion in June for giving its own shopping results preference on its search engine. Google at the time said that it was considering to appeal the ruling, but Alphabet nonetheless decided to account for the entire fine as a separate operating charge in Q2.

The company generated a total of $26 billion in revenue in Q2 of 2017, compared to $21.5 billion during the same quarter last year. Net income for the quarter was $3.5 billion on an adjusted basis, compared to $4.9 billion a year ago — that’s where the huge EU fine made a clear dent. This equals earnings of $5.01 per share, compared to $7 for last year’s Q2.

Analysts had expected revenue of $25.5 billion and earnings of $4.46 per share. However, investors apparently didn’t care about this as much as about the absolute numbers, and sent Alphabet’s stock down more than 2% in after-hours trading immediately following the earnings announcement.

Alphabet announced earlier on Monday that it had given one of its board seats to Pichai. Including this new seat, Alphabet now has a total of 13 board members, with other notable directors including Google’s co-founders Larry Page and Sergey Brin, as well as former Google CEO Eric Schmidt.

A few other tidbits worth noting:

— Google’s other revenues are up 42% year-over-year, growing from $2.2 billion in Q2 of 2016 to $3.1 billion this past quarter. This money includes hardware revenue from sales of the Pixel phone as well as Chromecast and Google Home, but also Google Play revenue.

— Porat said that the company once again expects significant hardware marketing expenses towards the end of the year.

— Google CEO Sundar Pichai didn’t offer any updates on the number of devices sold, but said that hardware sales “continue to be encouraging.”

— Alphabet’s “other bets,” the umbrella of businesses that include Nest and Verily as well as Google Fiber, generated $248 million during Q2, but lost $772 million. A year ago, those businesses generated $185 in revenue, losing $855 million.

— Alphabet employed 75,606 people at the end of Q2 2017, up from 66,575 a year ago.

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