Profit at Google parent company Alphabet sank in the three months through June as the Internet search giant absorbed a $5 billion fine for violations of the European Union’s anti-competition rules.
Net income dropped 9.3 percent to $3.2 billion, the Mountain View, Calif.-based company said in a statement. Revenue climbed 26 percent to $32.7 billion, and profit would have increased 32 percent without the fine, which Alphabet is appealing.
“Our investments are driving great experiences for users, strong results for advertisers, and new business opportunities,” said Google Chief Financial Officer Ruth Porat.
The European Commission’s fine focused on Google’s Android operating system for mobile phones. While the company offers the software for free, it forced cell phone makers and mobile service providers to pre-install Google apps like the Chrome browser on phones if they wanted to give customers access to Google’s app store.
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Chief Executive Officer Sundar Pichai defended the company’s actions in a blog post.
“Today, because of Android, there are more than 24,000 devices, at every price point, from more than 1,300 different brands,” Pichai wrote. “The phones made by these companies are all different, but have one thing in common – the ability to run the same applications. This is possible thanks to simple rules that ensure technical compatibility, no matter what the size or shape of the device.”
How the fine will affect relations between the European Union and the U.S., strained by a trade dispute started by President Trump as well as his combative rhetoric during a meeting with allies this month, is less clear. Trump has described the trading bloc as a foe and said on Twitter that the penalty proves his point.
“They truly have taken advantage of us, but not for long,” the president said.
Advertising revenue, the largest portion of Alphabet’s overall revenue, rose 23.9 percent to $28 billion.
“We’re pleased with the ongoing momentum in our advertising business,” Porat told investors. “We continue to identify new opportunities…including the benefits of applying machine learning.”
Capital expenditures at Google rose 86.7 percent to $5.3 billion, a sign the company is taking advantage of a provision in the GOP-led tax law that allows companies to fully expense the cost of investments back into business assets like real estate. Alphabet’s tax rate was 24.2 percent for the quarter.
Google’s Pichai said it was too early to assess the impact of a sweeping new EU privacy law that requires companies to gain consent from consumers before selling any user information.
“For us its been super important to get it right and we’ve always been focused on user privacy,” he told investors. “We’re working closely with our partners and regulators and [are] committed to doing it right, but it’s too early to tell.”
House lawmakers recently questioned Alphabet on what user information the company gathers through its mobile phones and how that data is used. Google is facing allegations that it allowed third party companies to access user emails.
