Google has recently been handed fines from European regulators that may significantly impact the quarterly earnings results of its parent company, Alphabet (NASDAQ:$GOOG). With Alphabet reporting second-quarter earnings at the closing bell today, July 24th, analysts (as reported by Financial Times) are expecting revenue figures of $25.64 billion, up 19% year-over-year from $21.5 Billion last year, despite the European Union fine.
However, there’s more to consider than just analyst revenue estimates.
Due to skepticism over Google’s ranking system for placing its shopping features above its competitors, regulators from the EU levied a $2.74 billion fine against the search engine for anti-competitive behaviour. The European Union also demanded that Google corrects its antitrust behaviour within 90 days, or risk additional penalties of up to 5% of its revenue. Although Google’s parent company, Alphabet, is thinking of making an appeal, management has said the fine will still be factored into current quarter results.
The company released more information in a press release, detailing that they will “report a separate operating expense line for the $2.74 billion charge on the income statement.” Management also noted that the fine is not tax deductible, and will affect GAAP net income and ultimately GAAP earnings per share by the full proportional amount.
Additionally, an EPS (Earnings Per Share) for Alphabet of $4.46 is the consensus amongst analysts. To put the impact that the EU Fine is expected to have into perspective, EPS for 2Q16 was $8.42 – almost double.
Other Factors:
This isn’t the first time Alphabet has faced scrutiny over its services. Just months ago, advertisers boycotted YouTube, complaining that their advertisements weren’t being placed on the appropriate videos. Reports from Recode suggest that the boycott has largely dissolved in the second quarter.
Additionally, other companies that operate under Alphabet, such as Waymo, Verily, and Nest, continue to lose money. As the projects are still in their infancy, Alphabet reports all the losses together rather than separating each item.
Stock Price:
Alphabet’s stock price briefly cracked $1,000 earlier in June this year, dipping below to trade around the $980-990 range. The trading session leading up to Alphabet’s 2Q earnings release has seen its stock price briefly climb above $1,000 as well. Analysts will be wary to see if share prices will persist after the anticipated earnings release when markets close.
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