Alphabet Inc 2Q 2017 Earnings Preview: EU Fine Will Eat Into Profits

Alphabet Inc 2Q 2017 Earnings Preview: EU Fine Will Eat Into Profits
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Alphabet 2Q 2017 earnings are due after closing bell tonight, and Wall Street is looking for earnings of $8.36 per share and $20.9 billion in revenue. However, it should be noted that earnings estimates for Alphabet may be a bit widespread because some analysts have included the fine levied against the firm by regulators in the European Union.

In last year’s second quarter, the Google parent firm posted $8.42 per share in earnings on $17.5 billion in revenue. Excluding traffic acquisition costs, analysts are looking for $25.6 billion in revenue, compared to $21.5 billion in last year’s second quarter.

Alphabet 2Q 2017 earnings impacted by EU fine

Alphabet has already said it will account for the $2.74 billion fine imposed by EU regulators in its second-quarter earnings results. While the company has plenty of cash to deal with a fine of that size, it’s still going to weigh on its profits for the second quarter.

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Antitrust regulators in the EU ruled that Google had taken advantage of its dominant position in the search market by promoting its own shopping and product ads with a higher position than ads by its competitors. Analysts generally expect Google to appeal the ruling, which resulted in the highest fine of its kind in the EU. Along with the Alphabet 2Q 2017 earnings, we may learn whether or not the Internet giant will file an appeal.

Alphabet 2Q 2017 earnings: What to expect

Alphabet switched to a focus on GAAP earnings rather than non-GAAP in the last quarter. The next step in the Google parent’s reporting adjustments is a shift to the new rules governing revenue recognition, which analysts believe could have a greater impact than the switch to GAAP earnings.

The reason is because Alphabet hasn’t been breaking down the amount of revenue it gets from YouTube, which it has been lumping in with its Google Search and digital ad revenues. The new revenue recognition rules go into effect at the beginning of next year, but a number of technology firms are already starting to implement the changes.

Senior Market Analyst Clement Thibault of expects Google’s ad business and the cloud to continue to drive strong growth at Alphabet. He noted that paid clicks jumped another 44% in the first quarter, on top of the 36% growth recorded in last year’s first quarter.

“Although the stock price is nearing $1,000, Alphabet is rather conservatively valued,” Thibault believes. “Its strong, proven track record of growth, as well as its domination of the sector in which it competes should not be underestimated.”

Ahead of Alphabet 2Q 2017 earnings, the company’s stock ticked lower during regular trading hours, falling by as much as 0.24% to $991.62.

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