Alphabet Inc., better known as Google, shared its fiscal year 2018 second quarter financials last week for the period ended June 30, 2018. The company (NASDAQ: GOOG, GOOGL) had a strong quarter with total revenue of $32.7 billion, a 26 percent increase over the same period last year. The company broke out additional financial results including and excluding fines. Here are highlights from the report:

• Including fines, operating income was $2.81 billion. Excluding fines, operating income was $7.88 billion.
• Including fines, operating margin was 9 percent. Excluding fines, operating margin was 24 percent.
• Including fines, net income (GAAP) was $3.2 billion, or $4.54 diluted earnings per share.
• Excluding fines, net income (GAAP) was $8.27 billion, or $11.75 diluted earnings per share.

“We delivered another quarter of very strong performance, with revenues of $32.7 billion, up 26 percent versus the second quarter of 2017 and 23 percent on a constant currency basis,” said Ruth Porat, CFO of Alphabet, Inc. and Google LLC in a statement. “Our investments are driving great experiences for users, strong results for advertisers, and new business opportunities for Google and Alphabet.

Google revenue by segment for the second quarter is as follows:

• Google properties revenue = $23.3 billion
• Google Network Members’ properties revenue = $4.8 billion
• Google other revenue = $4.4 billion
• Other Bets revenue = $145 million

Earlier this month, the European Union hit Google with a $5 billion antitrust fine for using its Android phone software to suppress the competition, reports CNBC. Because Android powers more than 75 percent of the world’s smartphones, Google’s influence is significant. Politico Europe says this is the largest antitrust fine ever between the EU and a single company.

A year ago, Google was fined $2.8 billion in a separate case, reports Politico Europe. Google is appealing charges in both of those cases.

“What we want is for Google to change its behavior,” said Margrethe Vestager, the EU’s competition commissioner. “This is a market and there are rules.”

Of course, Google disagrees. In a July 18, 2018 blog post, Google CEO Sundar Pichai, arguing that Android provides flexibility, choice and opportunity for consumers.

Here’s an excerpt of Pichai’s argument against the EU decision:

“The free distribution of the Android platform, and of Google’s suite of applications, is not only efficient for phone makers and operators-it’s of huge benefit for developers and consumers. If phone makers and mobile network operators couldn’t include our apps on their wide range of devices, it would upset the balance of the Android ecosystem. So far, the Android business model has meant that we haven’t had to charge phone makers for our technology, or depend on a tightly controlled distribution model. 

We’ve always agreed that with size comes responsibility. A healthy, thriving Android ecosystem is in everyone’s interest, and we’ve shown we’re willing to make changes. But we are concerned that today’s decision will upset the careful balance that we have struck with Android, and that it sends a troubling signal in favor of proprietary systems over open platforms. 

Rapid innovation, wide choice, and falling prices are classic hallmarks of robust competition and Android has enabled all of them. Today’s decision rejects the business model that supports Android, which has created more choice for everyone, not less. We intend to appeal,” said Pichai.

Investors don’t seem phased by the fines. As of 7:59 p.m. EDT yesterday, Alphabet Class A stock was valued at $1,275.94 per share, compared to $1,212.91 per share the day the latest fine was announced.

Insider Take:

Regardless of whether Google wins its appeals in these two cases, the significant fines have had little impact on the company’s bottom line. Yes, the net profit and margin are lower as a result of the fines, but Google can afford to take a regulatory risk.