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Alphabet shares up after better-than-expected quarter

Shares in Google’s parent company Alphabet have risen in value after it reported quarterly revenue of $32.7bn, up 26% year on year

Alphabet reported a strong quarter ending 30 June 2018, with revenue of $32.7bn, up 26% compared with the previous year, and profit of $3.19bn after deducting a European Commission fine of $5bn.

The fine was announced on 18 July after European authorities decided that certain contractual provisions in agreements between Google and Android partners infringed European competition law.

The EC said Google dominates the markets for general internet search services, licensable smart mobile operating systems and app stores for the Android mobile operating system, and has engaged in three separate practices, all of which were aimed at cementing its dominant position in general internet search. The company has launched an appeal against the decision.

Without the fine, Alphabet would have recorded profit of $8.2bn and earnings per share of $11.75, an increase of 32% on the equivalent period a year ago.

The strong quarter, with revenues $487,000 higher than expected, sent shares up 6% in after-hours trading, according to The Guardian.

“Our investments are driving great experiences for users, strong results for advertisers, and new business opportunities for Google and Alphabet,” said Ruth Porat, CFO of Alphabet and Google.

Revenue was driven mainly by a 24% increase in advertising revenue and a 37% rise in “'other revenue”, which includes the company’s cloud division.

Although Google’s traffic acquisition costs were up 1% to 23% of total advertising revenue from the same period a year ago, they were down 1% from the previous quarter.

Alphabet’s capital expenditure for the quarter remained high, almost doubling from the previous year to $5.5bn, as the company continues to invest in it cloud division as part of its long-term strategy.

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While cloud is one of the biggest growth areas for the company, its Other Bets segment, which includes companies such as driverless car firm Waymo, reported a quarterly operating loss of $732m, up from $633m for the same quarter last year.

Goldman Sachs analysts believe Alphabet could benefit from the General Data Protection Regulation (GDPR) as advertisers in Europe switch to larger platforms that can ensure compliance with the regulation.

On a call with financial analysts, chief executive Sundar Pichai said it was too early to say what effect the GDPR is having.

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