Alphabet Q2 net at record $3.5bn despite Google's $2.7bn EU fine

Alphabet Inc, the parent company of search giant Google, has reported a $3.5-billion in net income in the April-June 2017 quarter despite a record $2.7-billion European Union antitrust fine.

Mountain View, California-based Alphabet said its revenue for the quarter jumped 21 per cent to $26 billion - a growth rate that is rarely seen among companies of its size.

Alphabet, which owns Google and YouTube, said the profit would have been much larger but for a record $2.7-billion European Union antitrust fine.

Google's ad revenue, its biggest source of income, rose 18.4 per cent to $22.67 billion during the April-June 2-017 quarter.

Revenue from other Google products, a category that includes the Pixel smartphone, the Play Store and Google's cloud business, rose 42.3 per cent to $3.09 billion.

Alphabet competes in the fast-growing cloud business with tech companies Amazon.com Inc and Microsoft Corp.

Losses from other Alphabet units - an array of businesses known as "other bets" that includes the Waymo self-driving car company, thermostat-maker Nest and the life sciences firm Verily - narrowed to $772 million from $855 million a year earlier.

The company expects a squeeze on profits as costs were rising faster than sales and warned that expenses would remain high as more searches shift to mobile devices.

The squeeze on expected future profit appeared to weigh on Alphabet's share price, which fell about 3 percent to $967 after the bell. Shares had closed up in regular trading and have gained 26 percent for the year.

Alphabet's cost of revenue, a measure of how much money the company must spend to keep its platforms running before added costs such as research, rose 28 per cent, well above the growth in revenue itself.

The rising costs, including what Google pays to drive traffic to its search engine, hurt operating margins more than most people had expected, said Doug Kass, president of Seabreeze Partners Management.

During a conference call with analysts, Alphabet chief financial officer Ruth Porat said the company was focused on getting bigger. "As we've often said, we're focused on revenue and operating income dollar growth and not on operating margins," she said.

Increasing costs, Porat added, are a result of more money going into high-growth products that she said would create value for shareholders.

With its latest profits, Alphabet reported $15.7 billion in cash and cash equivalents, and another $79 billion in marketable securities.

Alphabet and social media rival Facebook Inc, which together dominate the online ad market, compete for advertising dollars.

This year, Google is expected to have $73.75 billion in net digital ad revenue worldwide while Facebook is expected to take in $36.29 billion, according to research firm eMarketer. Together they will have about 49 per cent of the market, eMarketer said.