Alphabet profits rocked by EU fine

Google sign in Menlo Park, Calif.Image copyrightAFP/GETTY

Profits at Alphabet, the parent company of search giant Google, have been hit by the record fine imposed by the European Commission last month.

The firm said it saw strong growth in the second quarter, with revenues of about $26bn (£19bn), up 21% compared to the same period in 2016.

But profits for the three months to the end of June were $3.5bn, more than 40% lower than they would have been without the fine.

Year-on-year profits fell almost 30%.

Google was fined 2.42bn euros ($2.7bn; £2.1bn) by the European Commission last month after it ruled the company had abused its power by promoting its own shopping comparison service at the top of search results.

The amount was the regulator’s largest penalty to date against a company accused of distorting the market.

Alphabet has already said it may challenge the fine.

Google ShoppingImage copyrightEPA
Image captionGoogle faces further penalties if it does not change the way Google Shopping ads are displayed within three months

Analysis by Dave Lee, North America technology reporter:

Naturally, this quarter’s earnings tell a very skewed picture of the health of Alphabet. It’s been a terrific quarter which, were it not for that record breaking fine, would have exceeded expectations in almost every way.

Google is appealing that fine, so we could find at some point in the future those “lost” billions are added back on, making for a particularly bountiful quarter somewhere down the line.

The company wants to keep an eye on its advertising business, however. The cost per click – i.e how much money Google makes with every ad click – has dropped by 23% year on year. That’s much more than analysts had hoped.

It’s a sign that Google is having to work harder to keep those incredible revenues coming in.

And if it is to comply with what it sees as overly strict European Commission measures, its ability to use its market power to dominate online advertising may be restricted. Just as well, then, that the non-advertising side of Alphabet is doing well too.


On Monday, chief financial officer Ruth Porat said the firm is reviewing the decision and working on ways to address the regulator’s concerns. She refused to comment further on how it may affect the business, describing it as an ongoing legal matter.

“The main thing is we’re very focused on helping users and advertisers and are reviewing our options,” she said.

The tech giant’s shares, which had risen ahead of the firm’s publication of its earnings, fell more than 3% in after-hours trading. Some said that was a sign shareholders were cashing in.

‘Strong growth’

Alphabet makes most of its money from advertising. It said revenues from advertisers on its own sites, such as YouTube and Gmail, and other sites together increased 18% year-on-year to $22.7bn.

YouTube, for example, now has about 1.5bn monthly viewers, who watch an average of 60 minutes a day, said Google chief executive Sundar Pichai.

The firm has also been working to diversify its revenue stream, investing in areas such as driverless cars, cloud services and life sciences that it says are united by the opportunities presented by machine learning.

Alphabet’s other revenues – which include money from things such as app purchases and its cloud services – jumped more than 40% to about $3bn.

“We’re delivering strong growth with great underlying momentum, while continuing to make focused investments in new revenue streams,” Ms Porat said.

US and China emerge from trade talks without agreement

  • China shipping line container ship near the port of Los AngelesImage copyrightGETTY IMAGES

The US and China have wrapped up contentious trade talks in Washington without agreement.

The two sides did not issue a joint statement or action plan after the meeting and cancelled scheduled press conferences.

The US was critical of China’s trade surplus and demanded “more fair” trade arrangements.

Separately, US President Donald Trump indicated that tariffs on Chinese steel were still a possibility.

Massive trade surplus

In his opening remarks to the annual US-China Comprehensive Economic Dialogue, US Commerce Secretary Wilbur Ross criticised China’s $347bn (£266bn) trade surplus with the US, saying it was not the product of market forces.

In a brief statement after the talks, Mr Ross and US Treasury Secretary Steven Mnuchin offered few details and little indication of any progress on contentious issues.

“China acknowledged our shared objective to reduce the trade deficit which both sides will work cooperatively to achieve,” the statement said.

Chinese steelworkers at a smelterImage copyrightGETTY IMAGES
Image captionSteel from China coming into the US has been a point of contention

Steely resolve on tariffs

The contentious issue of steel tariffs was expected to be a difficult topic at the talks, but the two sides did not issue any statements on this.

The US blames Chinese excess capacity for a global steel glut that is hurting US producers, and has threatened to impose tariffs.

US Steel stocks were sharply higher as investors interpreted silence on the issue as an increased likelihood of US action on Chinese steel.

After the market closed, President Donald Trump told a reporter that steel tariffs “could happen”, according to Reuters news agency.

Low expectations

Experts thought it was unlikely that the talks would produce any significant agreements on the most thorny issues.

In addition to steel, the US was expected to push Beijing on its subsidies for state-owned enterprises.

China was expected to focus on US refusals to sell Beijing advanced technology products.

It was unclear whether the talks covered US demands for China to put more pressure on North Korea over its nuclear and missile program.

Mr Trump has previously signalled that China might obtain improved trade terms in exchange for help on North Korea.

In May, the US and China reached a trade deal that opens the Chinese market to US credit rating agencies and credit card companies.

China also agreed to lift its ban on US beef imports and accept US shipments of liquefied natural gas.

EU clamps down on social media job snoops

A bunch of employeesImage copyrightGETTY IMAGES
Image captionThe majority of employers use social media to research candidates, according to one recruitment firm

Employers who use Facebook, Twitter and other social media to check on potential job candidates could be breaking European law in future.

An EU data protection working party has ruled that employers should require “legal grounds” before snooping.

The recommendations are non-binding, but will influence forthcoming changes to data protection laws.

Recruitment company CareerBuilder suggests that 70% of employers use social networks to screen candidates.

Its study also found that the same percentage are also using online search engines to research potential employees.

Guidelines

The guidelines from the Article 29 working party will inform a radical shake-up of European data protection laws, known as the General Data Protection Regulation (GDPR), which are due to come into force in May 2018.

Their recommendations also suggest that any data collected from an internet search of potential candidates must be necessary and relevant to the performance of the job.

Peter Church, a technology specialist at law firm Linklaters, told the BBC that the UK already had guidelines on employers’ use of social media.

“Demanding passwords or making a friend request is unacceptable, but it is more difficult when it comes to public facing information,” he said.

“The general rules are that employers should inform applicants if they are going to look at social media profiles and give them the opportunity to comment. The searches should also be proportionate to the job being applied for.”

He added that social network LinkedIn was “fair game” because it was set up as a way of advertising yourself as a potential employee.

Implementation of the GDPR might tighten the enforcement of such guidelines.

“In theory, all employers should be following these basic rules but, in practice, I’m not sure they do. The GDPR might force employers to be a bit more diligent about compliance with the rules,” said Mr Church.

South Korea tourism hit by China ban

South Korean tour guide giving directions to Chinese touristsImage copyrightGETTY IMAGES
Image captionTour guides – many of who speak Chinese – are a regular sight in Seoul

South Korea’s tourism body fears a huge drop in visitors, as a diplomatic row with China starts to bite.

The Korea Tourism Organisation (KTO) predicted there could be 4.7 million fewer foreign tourists this year than in 2016 – a drop of about 27%.

China has banned travel agencies from selling package tours to Korea in protest at Seoul allowing a US missile defence system.

Visitors from China made up 46.8% of tourists in South Korea last year.

‘Long-term depression’

Tourist numbers into South Korea saw double digit growth in the first two months of the year, the KTO said, but have declined every month since then.

May was particularly bad, with arrivals falling 34.5% against a year ago, and dropping below a million for the first time since the MERS epidemic in mid-2015.

“With the current trend, South Korea’s tourism industry could enter a long-term depression,” an unnamed KTO official told Yonhap.

Chinese tourists in front of temple in South KoreaImage copyrightGETTY IMAGES

The group tour ban came into force after the US military started to deploy the Terminal High Altitude Area Defense (THAAD) system in South Korea.

While supposed to guard against North Korea’s shorter-range missiles, it has drawn criticism from China, which claims the powerful radar can probe deep into its territory.

Although the US insists it’s a purely defensive weapon, China says it undermines regional security.

EU and Japan reach free trade deal

Abe and Tusk

The European Union and Japan have formally agreed an outline free-trade deal.

The agreement paves the way for trading in goods without tariff barriers between two of the world’s biggest economic areas.

However, few specific details are known and a full, workable agreement may take some time.

Two of the most important sectors are Japanese cars and, for Europe, EU farming goods into Japan.


Analysis: Damian Grammaticas, BBC News

The EU and Japan have done two deals for the price of one: a trade deal and a complementary “Strategic Partnership”. One will create a major free-trading economic bloc, the second will see them co-operate in other areas like combating climate change.

Both are “in principle” deals, some details to be agreed, so there could still be hurdles. But the signal this sends, bringing two of the world’s biggest economic powers together, is unmistakeable.

EU-Japan negotiations began in 2012 then stalled. It was Donald Trump’s election, and the inward turn America is taking, that spurred the EU and Japan to overcome their differences. Both want to show domestic audiences they can deliver signature deals that promise new economic opportunities.

They also want to send a clear message internationally that the EU and Japan, highly-developed democracies, remain committed to a liberal, free-trading, rules-based world, and they will seek to shape it even if the US won’t.


The outline plan was signed in Brussels after a meeting between the Japanese Prime Minister, Shinzo Abe, and the European Commission president, Jean-Claude Juncker, on the eve of a meeting of the G20 group of leading economies in Hamburg.

It comes hard on the heels of the collapse of a long-awaited trade agreement between Japan, the US and other Pacific ring countries, the Trans-Pacific Partnership (TPP), which was scrapped in January by US President Donald Trump.

‘Countering’ Brexit

The president of the European Council, Donald Tusk, said the agreement showed the EU’s commitment to world trade: “We did it. We concluded EU-Japan political and trade talks. EU is more and more engaged globally.”

Mr Tusk also said the deal countered the argument put forward by some of those in favour of Brexit that the EU was unable to promote free trade: “Although some are saying that the time of isolationism and disintegration is coming again, we are demonstrating that this is not the case.”

He added that the deal was not just about common trade interests, but reflected “the shared values that underpin our societies, by which I mean liberal democracy, human rights and the rule of law”.

Japan is the world’s third-largest economy, with a population of about 127 million.

As it stands, the country is Europe’s seventh biggest export market.

One of the most important trade categories for the EU is dairy goods.

Japan’s appetite for milk and milk-based products has been growing steadily in recent years.

The EU’s dairy farmers are struggling with falling demand in its home nations and an ultra-competitive buying climate, which farmers say means they are paid less than the cost of production.

Even once the agreement is fully signed, the deal is likely to have in place long transition clauses of up to 15 years to allow sectors in both countries time to adjust to the new outside competition.

Uber faces lawsuit over rape investigation

An Uber carImage copyrightSPENCER PLATT/GETTY

The woman raped by an Uber driver in India is suing the company for invading her privacy, after reports that the firm obtained her medical records.

The lawsuit comes as the ride-hailing company is trying to renovate its reputation amid a series of scandals.

Uber chief Travis Kalanick said on Tuesday he would take leave from the firm.

Other top executives have also left. Uber has pledged other changes.

In December 2014, a 26-year-old Delhi woman, identified as Texas resident Jane Doe, was raped by Uber driver Shiv Kumar Yadav. Yadav was sentenced to life in prison.

The lawsuit says Uber investigated the complaint, obtaining her medical records and speculated that she made up the claims to hurt the firm’s business.

The complaint names Mr Kalanick, and executives Emil Michael and Eric Alexander.

Mr Alexander left the company last week after US reporters asked questions about the incident.

An Uber spokesperson said: “No one should have to go through a horrific experience like this, and we’re truly sorry that she’s had to relive it over the last few weeks.”

US key interest rate highest since 2008

Janet YellenImage copyrightGETTY IMAGES

The US Federal Reserve has said it would raise its key interest rate by 0.25%, the second rise this year.

The central bank voted to raise its key rate target to a range of 1% to 1.25%.

That’s the highest level since 2008, when policymakers cut rates to encourage borrowing and spending after the financial crisis.

The bank also said it would begin cutting its bond holdings and other securities this year.

It cited continued US economic growth and job market strength as reasons for raising its benchmark interest rate.

“Our decision … reflects the progress the economy has made and is expected to make,” said Federal Reserve Chair Janet Yellen.

Mixed data

The rise was widely anticipated after a low unemployment rate, but other economic indicators, including inflation, have been weaker.

Data on Wednesday showed US consumer prices unexpectedly fell in May and retail sales recorded their biggest drop in 16 months.

This has raised questions about the bank’s future course.

US stock markets the S&P 500 and the Nasdaq edged down at the close.

But the rate increase was already priced into most stocks.


Analysis: BBC economics correspondent Andrew Walker

Should the Fed have done it? The case against is inflation.

The Fed’s statement noted that price rises have slowed recently.

Inflation is below the target of 2%. But then Fed Chair Janet Yellen thinks a large part of that is down to falls in specific prices.

She mentioned cell-phone plans and prescription drug prices. Over time their impact will drop out, and she and the committee expect inflation to get to the target in time.

The rate rise continues the Fed’s slow return to normality after the financial crisis. The journey is not over.

The Fed’s policy makers think about 3% is the new normal.

There’s also the legacy of quantitative easing and the $4.2trn portfolio of financial assets.

Really normal will mean running that down – though perhaps not to pre-crisis levels.

It will take a long time and it hasn’t begun yet, but the Fed does expect to make a start later this year.


Bond buying

Federal Reserve policymakers have been grappling with when and how to alter the policies put in place after the 2008 financial crisis to boost economic activity.

At the time, they slashed interest rates and bought up US treasuries and mortgage-backed securities to keep rates low.

The Fed has a $4.2trn portfolio of Treasury bonds and mortgage-backed securities, most of which were purchased in the wake of the financial crisis and recession.

In 2014 the bank stopped its bond purchase program, known as quantitative easing, but it has continued to reinvest the assets on its books.

On Wednesday, policymakers said they aim to reduce that balance sheet, by reinvesting payments from those securities only above certain caps, totalling $10bn.

The cap would escalate in three month intervals. It would start implementing those policies this year, assuming economic growth continues.

Ms Yellen said she’s not sure how far the committee will want to reduce the holdings over the long run, but she said they would be levels “appreciably below” those seen in recent years though larger than before the financial crisis.

Rate hikes

The Fed raised interest rates for the first time since the crisis in December 2015.

Policymakers acted in December 2016 and again in March.

Wednesday’s decision was made with an 8-1 vote, with Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, dissenting. Mr Kashkari also voted against the March rise.

Interest rates remain low by historic standards. The board expects to raise rates at least three times this year.

The moves depend on the strength of the economy, which has been mixed.

On Wednesday, the US Labor Department reported that prices for goods excluding food and energy increased by 1.7% from May 2016, slowing steadily from earlier in the year.

That fell short of the Federal Reserve’s target of 2%.

Ms Yellen said the bank is aware of the shortfall and it was “essential” to move back to the target.

But she said this year’s data may be skewed by one-off factors, such as lower prices on cell phone plans.

“It’s important not to overreact to a few readings,” Ms Yellen said. “Data on inflation can be noisy.”

Consumers

For US consumers, interest rate increases tend to lead to increased borrowing costs.

Greg McBride, chief financial analyst for Bankrate.com, said the cumulative effect of recent rate increases on consumers is “mounting”.

“The combination of rising debt burdens and rising interest rates is straining some households, with delinquencies picking up from recent lows,” he said.

In broader terms, the economic impact includes a stronger dollar and higher bank profits.