GOOGL Alphabet Inc

By Jack Nicas 

Google parent Alphabet Inc.'s quarterly profit fell by 28% because of a $2.7 billion fine from European regulators, but other metrics show the company's massive ad business continues to hum.

Alphabet's second-quarter profit fell to $3.52 billion, or $5.01 a share, compared with $4.88 billion, or $7 a share, a year prior. Excluding certain items, such as the EU fine, earnings were $8.90 a share.

Alphabet said net revenue rose 21% to $26.01 billion in the quarter, above analysts' expectations and continuing a streak of steady growth.

Alphabet shares, up 26% this year, fell 2.5% to $969 in after-hours trading.

EU regulators fined Google after their seven-year investigation concluded Google favors its shopping ads in its search results at the expense of competitors. Google denies the charges and said it is considering an appeal.

Aside from the fine, Google posted strong results as its advertising business -- the world's largest -- continues to grow rapidly, fueled by increasing internet usage globally. As more people connect to the web on smartphones, they are clicking on more ads Google sells on internet search results, websites and videos.

Google said clicks on its ads increased 52% in the quarter compared with a year ago, though advertisers paid 23% less per ad click.

The strong growth suggests recent spending cuts by a series of major advertisers did little to hurt its massive digital-ad business. In late March, some major advertisers, including Wal-Mart Stores Inc., AT&T Inc. and J.P. Morgan Chase & Co. pulled their spending on ads on YouTube, Google's video platform, after a series of news stories showed Google was running brands' ads alongside racist or hateful videos. The second-quarter results were a chance for investors to gauge the impact of the spending cuts. Some advertisers have returned to YouTube, while others have stayed away.

Part of what has driven the share price increase is the emergence of a second major business beyond advertising: the cloud, in which Google stores other companies' data and runs their systems on its global network of computers. Google has said it believes the business can one day eclipse its ad sales, which accounted for 88% of its $90.27 billion in revenue last year. The segment that includes Google's cloud sales, dubbed "other revenue," grew by 42% in the quarter to $3.09 billion.

Write to Jack Nicas at jack.nicas@wsj.com

(END) Dow Jones Newswires

July 24, 2017 16:47 ET (20:47 GMT)

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