Alphabet: Google parent’s profits hit $9bn amid increased scrutiny


Company’s earnings rebound even as justice department announces antitrust review of major tech firms


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The Google CEO Sundar Pichai speaks during Google I/O 2016 at Shoreline Amphitheater on 19 May 2016 in Mountain View, California. Photograph: Justin Sullivan/Getty Images
Google’s parent company Alphabet rebounded from a difficult start to the year on Thursday, when it reported higher than expected revenue and earnings.

The digital advertising behemoth continues to amass extraordinary profits, with $9.18bn in the second quarter of 2019, but investors had been concerned about decelerating growth rates.

Google’s share price was down 11% since 29 April, when it closed at its highest price in 2019, and up just 8.8% since the beginning of the year, compared to the S&P 500, which has grown more than 20% in the same time period.

Shares shot up more than 7% in after hours trading on the strong report, which showed 19% growth in revenue year-over-year, to $38.9bn. Among the positive results were lower than expected traffic acquisition costs and earnings per share of $14.21, compared to the $11.30 expected by analysts. The company recorded a $989m loss in its “other bets” division, which includes “moonshot” investments such as the autonomous vehicle company Waymo.

Alphabet’s relative slump came amid increasing regulatory pressure in the US. On Tuesday, the US Department of Justice announced a broad antitrust review of major online platforms. The US House of Representatives has also undertaken an investigation of anti-competitive behavior among major technology firms, and the justice department has reportedly launched a specific antitrust investigation of Google.

“It’s not new to us,” said Google’s chief executive officer Sundar Pichai on a conference call with investors on Thursday, in response to a question about potential scrutiny by the justice department. “We have participated in these processes before … To the extent we have to answer questions we will do so, and to the extent there are concerns we will address them.”

Google has been hit with serious fines by European regulators in the past, but has been left largely unmolested by US regulators to date. The Federal Trade Commission concluded an antitrust investigation of the company in 2013 without taking any legal action, against the recommendation of the agency’s staff.

Political pressure will likely only increase with the 2020 US presidential election, in which “big tech” is certain to be a partisan punching bag. On Thursday, the longshot candidate Tulsi Gabbard, a Democratic congresswoman from Hawaii, filed a $50m federal lawsuit against Google alleging that it violated her first amendment rights by briefly suspending her campaign’s advertising account.

The company also faces growing competition in the digital ad space from Amazon and Alibaba, which continue to make inroads against the Google-Facebook duopoly. An attempt to enter the Chinese market with a censored search engine was stymied by protests by Google employees. Other challenges include concerns about inappropriate content on YouTube from advertisers and ongoing activism from employees.

Investors continue to complain about a lack of transparency in Alphabet’s financial reporting. The company divides its financial disclosures into three categories – advertising, other revenues and other bets – without specifying results for specific products, such as YouTube or Google Cloud. The secrecy has long frustrated investors and analysts, who are largely left into the dark as to the true state of the company’s business.

Pichai and the chief financial officer Ruth Porat provided a few breadcrumbs to those seeking more information on the investor call, asserting that YouTube was the second largest contributor of revenue growth, followed by Google Cloud. Pichai said that Cloud has an annual run rate of more than $8bn.

The company also reported a headcount of 107,646 employees, up 20% from a year ago. The headcount figure excludes a workforce of temps and contractors roughly equal in size. Porat said that the headcount will grow at a slightly higher rate than expected throughout the rest of 2019 as Google plans to bring more sub-contracted positions in house.

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