Google Advertising Still Alphabet’s Strongest Revenue Earner As Parent Company Posts Healthy Q2 2018 Earnings

Google's parent company Alphabet posted its Q2 2018 earnings. Revealed advertising still tops the revenue charts. But the EC fine could be a huge dampener.

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Google’s parent company Alphabet recently posted its earnings for the second quarter of 2018. Needless to mention, the company’s revenues have never been stronger. Moreover, despite the huge fine slapped by European Council, Google’s net income still managed to reach within touching distance of $3 Billion.

Alphabet’s gross revenue hit $32.66 Billion for the second quarter of 2018. Google’s parent company had an Operating Income of just $2.8 Billion. However, had it not been for the humongous $5 Billion fine, the company’s Operating Income would have been $7.88 Billion. Of course, Google is expected to contest the penalty. Should it win during the appeal process or even manage to scale down the fine, the company’s Operating Income will shoot up substantially.

Advertising Still The Most Important and Strongest Revenue Earner:

Alphabet continues to earn majority of its revenue from advertising. The advertising, driven by AI, machine learning, and advanced neural processing, appears on Google’s own properties and its network members’ properties. This one segment earned $28 billion for the quarter. The rest of the $32.4 Billion, about $4.4 Billion, came from “other revenues” segment — including the hardware business, Play Store, and several others.

Interestingly, Google also has an “Other Bets” segment. It consists of various experimental startups, and other longshot avenues with goals that may nor may not materialize. Surprisingly, this had higher revenue of $145 million this quarter. However, this division also raised its operating loss to $732 million.

The Costs And Expenditure To Attract Or Drive Traffic Is Rising For Google:

The traffic acquisition costs or the expenditure incurred by Google has been rising steadily, but hasn’t skyrocketed. Paid clicks were up 15% on a Year on Year (YoY) basis. Whereas Cost per Click or CPC, is still on the same negative trend. In essence, Google is spending more to drive traffic to its advertising endeavors, while the CPC for Google is steadily declining.

To drive Google’s growth at an accelerated pace, the company hired more than 13,000 employees within the last 12 months. Google has indicated that majority of these new employees were meant for the company’s cloud business. As per last official count, Google has over 89,000 employees across the globe. If the company continues at the current rate, Alphabet could have over 100,000 employees before 2019 is over.

European Union $5 Billion Fine Erodes Google’s Income:

The European Commission (EC) recently slapped a huge $5 Billion fine on Google. The actual figure was €4.3 Billion, which translates to around $5 Billion USD. Google was penalized allegedly because of the way the company’s Android Operating System functions. The EC claims Google has acted illegally by arm-twisting Android OEMs to pre-load Google Search and Chrome onto Android phones. The company allegedly pays manufacturers to exclusively install certain Google apps over competing ones. Also, the EC insists Google prevents the OEMs from selling any sort of smart device that runs a “forked” version of Android.

In its defense, Google’s CEO Sundar Pichai wrote a blog post, in which he attempted to familiarize the EC with the current smartphone ecosystem. He writes, “The decision ignores the fact that Android phones compete with iOS phones, something that 89 percent of respondents to the Commission’s own market survey confirmed. It also misses just how much choice Android provides to thousands of phone makers and mobile network operators who build and sell Android devices; to millions of app developers around the world who have built their businesses with Android; and billions of consumers who can now afford and use cutting-edge Android smartphones.”

Incidentally, Google has just 90 days to alter its business practices so that they are in compliance with the requirements of the EC. Failing to do so, EC is threatening to slap an additional fine of up to 5% for its global daily turnover. In other words, the company must quickly come up with a strong appeal and/or successfully repeal or reduce the fine.