Good morning. David here again, filling in for Alan.
Google may have to pay a $5 billion antitrust fine in Europe over its anticompetitive Android practices, but Alphabet’s investors are in no mood to punish the company. After Alphabet beat analyst estimates for second-quarter revenues ($26.24 billion rather than $25.55 billion,) its shares popped by as much as 6.1%.
The key here is that Google’s ad business is growing, largely thanks to mobile, and that the company is spending less money on so-called traffic acquisition—i.e. getting people to use its search services—and therefore enjoys a higher operating margin.
At this point, it’s worth remembering what that fine (which Google is appealing) was all about: Google’s abuse of its control of the market-dominating Android mobile operating system to illegally steer people towards its search services, thus entrenching them and shutting out competition.
Google doesn’t just have to pay a fat fine; it has to stop doing what it’s been doing with Android, otherwise in a few months it may have to start paying an additional daily fine of 5% of global revenues. This behavioral change won’t yield instant results for Google’s competitors in search and other key mobile services, but in the long term it will likely make a difference. Alphabet’s investors had better keep a close eye on the situation, and not treat the antitrust crackdown as a one-off inconvenience.
Meanwhile, President Donald Trump railed against Amazon again yesterday, with the consequent antitrust enforcement fears leading to a temporary dip in that company’s share price. I’d recommend reading Joe Nocera’s Bloomberg piece about the outburst, which notes how Trump’s tweets—largely retribution against Jeff Bezos for the Washington Post‘s critical reporting—could taint a potential antitrust case against Amazon.
The situation is not a million miles away from what I was saying yesterday, about European regulatory enforcement on U.S. tech giants becoming part of the Trump trade war narrative. With the president being so keen to inject himself into crucial conversations about the future of business, those debates risk being redefined and perhaps ultimately derailed.
More news below.
| David Meyer | |
| @superglaze | |
Top News
Russian Hacking
Russian hackers gained access to the control rooms of U.S. electric utilities, according to federal officials who say the hacking campaign is still ongoing. The Department of Homeland Security said they got far enough that they could have caused blackouts. The utilities are supposed to have isolated networks for safety purposes, but the hackers apparently got in by penetrating the networks of the utilities' trusted suppliers. Wall Street Journal
Chinese Fiscal Policy
China's government has said it will pursue a more "vigorous" fiscal policy, and its central bank has thrown around $74.4 billion at financial institutions in order to support lending in the face of slowing growth. The policy shift led Chinese government bond yields and stocks upwards today. Reuters
eBay to eSports
Former eBay and HP CEO Meg Whitman has invested in and joined the board of eSports franchise Immortals. The genre now rakes in more than $800 million a year from things like ticket sales and corporate sponsorships, and Whitman hails its speedy growth. Just don't expect eSports to be included in the Olympic Games anytime soon. Fortune
Nike Raises
Nike has announced raises for around 10% of its workforce. The company says it has conducted a "deeper analysis" of employee pay than usual this year, in order to make sure its wages are competitive and "support a culture in which employees feel included and empowered." Around 7,000 people will see their paychecks increase throughout the company, which has been dealing with many complaints about gender discrimination. CNN
Around the Water Cooler
Feeling the Heat
Global warming is very much in evidence right now. Greek wildfires have destroyed a village near Athens, pushing inhabitants into the sea and killing at least 50. There are wildfires in Sweden too—within the Arctic circle—and in California, and in Canada. Japan is undergoing a heatwave that has just been declared a natural disaster, with temperatures in central Tokyo above 104 degrees. Fortune
North Korea
North Korea seems to be dismantling its main facility for rocket launch tests, according to new satellite imagery. The move may demonstrate that Kim Jong-un is following through on some of the promises he allegedly made President Trump at the two leaders' June summit. But experts warn that people shouldn't read too much into it, as the dismantling may turn out to be reversible, and the country's nuclear program has in any case moved beyond the testing stage. Wall Street Journal
Foreign Takeovers
The British government has proposed stepping up its scrutiny of foreign takeovers that may present national security concerns. The shift would require companies to notify the government before transactions, even if the targets are small and the takeover is only that of an asset or even intellectual property (here's looking at you, China.) Going against the government's subsequent recommendations would become a criminal offence. Financial Times
Blockchain Phone
HTC, a phonemaker that most observers see as past its prime, is building a smartphone that it wants to pitch as a secure repository for cryptocurrencies such as Bitcoin. But some analysts think the company is just bandwagon-jumping, and that such a device wouldn't find much of an audience at this point in the technology's development. CNBC
This edition of CEO Daily was edited by David Meyer. Find previous editions here, and sign up for other Fortune newsletters here.
