Alphabet Inc. handily beat quarterly earnings forecasts today despite taking an expected multibillion-dollar hit from an antitrust fine, but investors appear more worried about future challenges for the Internet giant.

The parent company of search giant Google Inc. said today that it earned a second-quarter profit of $5.01 a share, down 28 percent from a year ago, on a 21 percent rise in revenue, to $26 billion. The quarter’s results were a bit skewed because of a record $2.7 billion fine from the European Commission, which charged Google with anticompetitive behavior in how it shows the results of shopping-search rivals.

Although Google is expected to appeal, it’s on the hook for the payment, which it took in the second quarter. As a result, analysts had already cut their profit estimates on average from $8.25 a share, which would have been down 2 percent, to $4.46 a share, down 47 percent. Analysts had expected revenue to rise 19 percent, to $25.6 billion, or $20.9 billion after payments to web traffic partners.

Despite the beat, Google’s stock was falling about 3 percent in after-hours trading, likely because of higher costs of getting traffic for its ads. Shares hit an all-time high of $1,004.28 on June 8, but have since fallen back slightly. They rose a little less than a half-percentage point in regular trading today, to $998.31.

Google Chief Executive Sundar Pichai (pictured) called the quarter “phenomenal,” calling out artificial intelligence and machine learning as Google’s key focus in almost all its products and services.

“Google continues to lead the shift to AI-driven computing,” he said in prepared comments on the earnings conference call. “It’s our focus on infusing our products and platforms with the power of machine learning and AI that’s driving our success.”

Advertising still drives the vast majority of Google’s business. In particular, the company has called out mobile search ads and video ads in its YouTube unit. Overall, the operation is a smooth-running machine. Google and Facebook by most estimates dominate online advertising between them, accounting for virtually all the growth in the market in the past year, according to Pivotal Research Inc.

“Advertising revenues benefitted from the strong performance in [Google] Sites, which was led in particular by tremendous results in mobile search, with a strong contribution from YouTube,” Chief Financial Officer Ruth Porat said on the call.

Google saw a 61 percent jump in paid clicks on its own properties, though a much more modest 9 percent rise on clicks on partner websites to which it syndicates ads. But the price per click paid fell by 23 percent overall, led by a 26 percent drop in cost-per-click on Google properties.

Pivotal Research analyst Brian Wieser indicated in a note to clients after the earnings report that Google’s lower margins from paying more to partners for mobile traffic to its ads may continue as Google tries to get ads onto more brand-safe sites and apps. Some brands pulled ads from YouTube after they appeared next to extremist and other unsavory content. Longer-term, Wieser worries that digital ads are reaching a saturation point. He has a hold rating on shares, valuing them at only $940.

Although the $2.7 billion EC fine is a relative drop in the bucket for Google, which has $92 billion in cash, the way it may change the company’s practices is a bigger concern for investors, since it could limit revenues for shopping or other ads. The EC is also looking into Google’s Android mobile operating system, its AdSense syndicated-ad service and Google Maps. “We believe that the EC’s $2.74 fine related to GOOG’s comparison shopping features may only be the beginning of the company’s regulatory issues in Europe,” Macquarie Capital Inc. analyst Ben Schachter wrote in a note to clients today.

Beyond advertising, it’s difficult to tell if other businesses are moving the needle yet. Porat called out “substantial growth in Other Revenues from Cloud, Play and Hardware” but didn’t provide many specifics.

In particular, Google doesn’t yet break out its cloud computing services revenue, a sign that despite rapid growth, it’s still a relatively small part of the company, and one that likely is not yet producing profits. “Cloud continues to benefit from the ongoing investments in our go-to-market and product efforts,” Porat said.

Pichai said Google Cloud Platform is attracting more large enterprise customers in regulated industries. He said the number of new deals worth more than $500,000 tripled from last year. That’s thanks partly to partnerships such as with SAP SE and Nutanix Inc., the latter helping Google get into hybrid cloud/on-premises setups.

“We’re seeing quite a diverse set of use cases across sectors and industries and geographies,” he said in response to a question. “The breadth of what we’ve seen has really surprised me.”

Google’s “other revenues,” which includes cloud and hardware such as its Pixel phones and Home smart speaker, rose 42 percent, to $3.1 billion, a slightly slower pace than the 49 percent it saw in the first quarter. Porat called out Home and Google’s WiFi devices as particularly strong.

Competition in the cloud

“They don’t report public cloud revenue as we count it, per se, but it must be getting close to 7-8 percent of their overall business, so at some point they will have to begin to show numbers,” said Ralph Finos, an analyst with Wikibon, owned by the same company as SiliconANGLE.

Either way, Google — no better than the distant No. 3 cloud provider behind runaway leader Amazon Web Services Inc. and Microsoft Corp.’s Azure — faces continued heavy competition. Last week, Microsoft reported its Azure revenue nearly doubled in its fiscal fourth quarter from a year earlier, helping lift its shares to an all-time high. Amazon, which reports its second-quarter earnings Thursday, is expected to see its cloud revenue rise 44 percent.

An RBC Capital Markets study last week indicated that cloud providers had eased off on near-constant price reductions in their services, which may help profits at Google and its rivals as well. But competition is unlikely to ease longer-term. Snap Inc., for instance, revealed in March that it had a $2 billion, five-year deal to use Google’s cloud but then announced a few days later that it also had a $1 billion deal with AWS.

“We see evidence that Google Cloud’s sweet spot continues to be consumer-oriented businesses, and that Google is still working on raising its value and support for enterprise customers, but it’s behind AWS, Microsoft, and IBM as a vendor that really gets enterprises,” Forrester Research Inc. analyst John Rymer told SiliconANGLE. “We expect continual improvements. Google is serious about becoming an enterprise vendor and there’s every reason to expect investments to pay off in the long term.”

Alphabet’s so-called “other bets” that include self-driving cars, Internet access and other fledgling efforts, are also losing big money. Revenues rose 34 percent, to $248 million. Losses were trimmed, however, from $855 million a year ago to $772 million in the second quarter. That’s no doubt because of Porat’s ongoing cost-cutting campaign in these far-flung bets, especially Google Fiber, whose expansion was paused last fall.

Google also announced today that it has appointed Pichai to Alphabet’s board, about two years after he became CEO of Google in the reorganization that made Alphabet the holding company.

Photo: Robert Hof