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Alphabet Stock Up on Better-Than-Expected Earnings Despite $5 Billion Fine

Alphabet investors shrugged off the European Union’s $5 billion fine against the company, sending its stock price up sharply after the Google parent announced Q2 2018 earning results that far exceeded analyst expectations.

Alphabet generated revenue of $32.66 billion during the second quarter of 2018, compared to $26.01 billion during the same quarter last year. Without accounting for the fine, the company’s net income for the three months ending June 30 was $8.27 billion, compared to $3.5 billion a year ago.

Analysts had expected net income of $6.7 billion on revenue of $25.6 billion. Investors reacted by sending Alphabet’s stock up more than 5% immediately following the publication of the results. Following Monday afternoon’s earnings call, gains stabilized at around 3%.

The E.U. had announced a record $5 billion fine against the company, charging Alphabet with abusing its dominant position in the smart-phone operating system space to push its own apps and services. Alphabet said it would appeal the fine, but already accounted for it in its Q2 results.

Including the fine, Alphabet still booked net income of $3.2 billion, which equals earnings of $4.54 per share.

Monday afternoon’s earnings call heavily focused on Google’s cloud business, in which it directly competes against Amazon and Microsoft. Google CEO Sundar Pichai revealed during the call that SoundCloud had joined the ranks of Google Cloud customers. Other major new customers include Target and PWC.

Google’s growing focus on its cloud business also comes with a major increase of capital expenditures, to the tune of $5.5 billion for the quarter. “We are investing for the long run,” Pichai said.

Google’s hardware sales was also repeatedly mentioned on the call, with a particular focus on smart speakers like the Google Home. “Our hardware business continues to deliver significant growth,” said Alphabet and Google CFO Ruth Porat.

“Other revenue,” a segment that includes both media and hardware sales as well as Google’s cloud business, grew to $4.43 billion. In Q2 of 2017, this segmented accounted for $3.24 billion of Google’s revenue.

Alphabet’s “other bets,” which includes the company’s self-driving car unit Waymo, brought in $145 million during the quarter, compared to $97 million during the same quarter last year. However, “other bets” losses also accelerated, costing the company $732 million for the quarter, compared to $633 million last year.

The company disclosed Monday that it ended the quarter with 89,058 employees, up from 75,606 a year ago.

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