Dive Brief:

• Google parent company Alphabet Inc. reported revenues of $32.7 billion for Q2 2018, a 26% increase over Q2 2017, per a news release. The company's advertising sales totaled $28 billion, a 23.9% increase year-over-year. "Other" revenue, which includes hardware, cloud and app store sales, brought in $4.4 billion, according to The Wall Street Journal.
• Alphabet's Q2 profit dropped 9% to $3.2 billion, following a $5 billion fine imposed by the European Union last week, according to the Journal. The EU has said Google abused the dominant role of its Android mobile operating system. More than 80% of smartphones worldwide use Android. Google said it will appeal the levy.
• While the cost-per-click continued its drop on the platform — down 22% in Q2 — other indicators are trending in a positive direction. Paid clicks increased 58%, driven by mobile search and YouTube and traffic acquisition costs — a key metric around advertising sales — dropped for the first time in three years. Google's capital expenditures reached $5.5 billion, nearly doubling over last year, the Journal said. The company's largest increase in spending was on research and development and enhancing its tech workforce.

Dive Insight:

Alphabet posted strong growth for Q2 2018, despite the hefty EU fine, beating analysts' forecasts and demonstrating the power of the company's ad business. Earlier this month, Google said that it was delaying participation in a consortium of ad tech companies, a move that is causing members to be out of compliance with the EU's new General Data Protection Regulation (GDPR), which aims to protect user privacy, and putting them at risk for a penalty. The tech firms launched software to obtain user consent before delivering ads, but Google said it will not join until August.

During a conference call with analysts to discuss the results, Google executives specifically called out advances in machine learning as one way it continues to drive innovation in its advertising business, The Street reported. The company recently unveiled responsive search ads powered by machine learning to optimize creative in real time so that searchers see the best-performing ad for their query. Advertisers that used the machine learning tools to test combinations of headlines and descriptions for text ads saw about 15% more clicks. The company also unveiled a machine learning smart-bidding solution Maximum Lift for YouTube.

Alphabet's investments in advertising seem to be paying off, as the company's ad revenue continues to grow. For Q1 2018, Alphabet reported $31.1 billion in revenue, a 26% year-over-year increase, with advertising revenue totaling $26.6 billion, a 20% increase over the previous year. Google is projected to control 31% of the global advertising marketing, a small decline from 31.7% in 2017, according to eMarketer estimates cited by the Journal.