A hefty $2.74 billion antitrust fine levied against Alphabet Inc. (GOOGL) dented its second-quarter earnings, causing profits to slump 28% year-over-year.
The Google parent company's earnings dropped to $3.52 billion, or $5.01 per share, as a result of the one-time charge brought by the European Commission last month. Europe's foremost antitrust watchdog argued that the internet giant had favored its own shopping services over those of rivals. Still, Alphabet beat analysts' expectations for earnings of $4.44 per share.
Shares of Alphabet dropped 2.9% to $969.00 in after-hours trading on Monday. The sell-off continued into Tuesday.
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Alphabet didn't provide many details on its next steps in regard to the fine, except to say that it continues to review its options. The company has until the end of August to decide how it will resolve the issue and inform the EU of its plans. The next deadline is at the end of September, when it must change how it presents results, lest it risk being fined up to 5% of Alphabet's daily revenue.
"There's not really much of an update there as we're still early in our analysis of the decision of the right next steps," Google CFO Ruth Porat said on the call with investors. "We do have time to notify the Commission for proposed remedies as well as to implement changes."
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Wall Street analysts continue to weigh whether the record-breaking fine will have much of a long-term impact. Pivotal Research analyst Brian Wieser said in a note following the earnings report that he remains mindful about how the EC fines will impact Alphabet in the future.
"[The ruling] could yet translate into more fines if remedies are insufficient," Wieser wrote. "Further, the ruling may oblige Google to make other changes to other parts of its businesses to help the company support the spirit of the ruling."
While Alphabet's top-line results were slammed by the antitrust charges, it had an otherwise solid quarter. Revenue surged 21% year-over-year to $26.01 billion, surpassing Wall Street's expected $25.6 billion. Porat said on the earnings call that revenue was driven by "tremendous" results in mobile search ads and YouTube ads.
Paid clicks on Google's ads were up 52% from the year prior, but advertisers paid 23% less per ad click, which was higher than the 15% analysts' projected.
Alphabet's costs to acquire customers, or traffic acquisition costs, were $5.1 billion, which was more than the $4.75 billion analysts' estimated. "Margin erosion was a modest negative for the quarter," Wieser noted.
