Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL) reports second-quarter 2018 results on Monday after the market close. It seems an understatement to say it's been a busy few months for the parent company of Google.
So before Alphabet's release hits the wires, let's dig deeper to get a better idea of what we should expect.
That (second) enormous fine
First, let's tackle the elephant in the room: Last week, the European Commission hit Google with a 4.34 billion euro (or $5.07 billion) antitrust fine for allegedly imposing "illegal restrictions on Android device manufacturers and mobile network operators to cement its dominant position in general internet search."
Alphabet shares were little changed on the news, as a likely consequence of earlier rumblings that the record fine was coming down the pipe. But this penalty absolutely dwarfs the EC's previous $2.7 billion fine levied against Google around this time last year for favoring its own comparison-shopping service over those of competitors -- an allegation Google vehemently denies and has since appealed.
In any case, Google will almost certainly appeal this fine as well. In the meantime, and similar to how it handled its old fine in last year's second-quarter results, the company will absorb the $5.07 billion charge as a separate operating expense on this quarter's income statement.
Changes in Other Bets, newly independent businesses
You might recall that last quarter, Alphabet shifted its Nest subsidiary (which includes smart home devices like thermostats and smoke detectors) out of its Other Bets segment and into its core Google business. Industry watchers viewed it as a graduation of sorts, noting that Other Bets is otherwise largely comprised of early-stage businesses, many still operating in their respective pre-revenue stages. Alphabet, for its part, says it made the move in order to "supercharge" Nest's recent momentum and combine its engineers with the Google Hardware team.
But two other businesses have emerged to help fill the hole left by Nest. Earlier this month, Google announced that two projects that started as moonshot/X initiatives, Loon (balloon-powered internet) and Wing (drone delivery), have graduated out of X and into their own independent businesses within Other Bets.
Loon has already shown some progress since then, signing its first deal with Telkom Kenya a few days ago to amplify internet signals and increase connectivity across remote areas of Kenya. And I suspect we may hear more about the headway Wing has made in pioneering more efficient transporting of goods during this quarter's call.
Finally, expect Alphabet to offer the usual gauges of strength within Google, which will undoubtedly generate the vast majority of the company's revenue (Google sales climbed nearly 26% last quarter, to $31 billion) and operating income (up 12.4% last quarter to just under $8.4 billion).
Advertising will once again comprise the bulk of Google's totals (ad revenue rose 24.4% last quarter to just over $26.6 billion), and will be broken down in the performance of both Google's own sites and that of Network Members' sites. On the latter, however, note that starting this quarter Google will not break out paid clicks or cost-per-click metrics for Network Members' sites due to the increasing focus on programmatic ads there. Instead, it will shift investors' attention to total ad impressions and cost per impression.
And, of course, we can't forget non-advertising sales within Google, which climbed 36% last quarter to a formidable $4.35 billion. Expect similar growth this quarter, driven by cloud, hardware, and Google Play.
Finally, remember Alphabet does not provide specific quarterly guidance. So for perspective, and while we don't generally pay close attention to Wall Street's demands, most investors will be looking for Alphabet to post consolidated quarterly earnings of $9.54 per share on revenue of $32.19 billion.
Don't lose too much sleep, however, over whether Alphabet lives up to those expectations. If its core ad business remains healthy, its hardware and cloud products have sustained their momentum, and Other Bets continues to move the agenda forward for its various high-potential projects, long-term investors should be more than content with its direction.