Google Sets Aside $500 Million for Federal Investigation, Crimping Profit
The expense trimmed net income to $1.8 billion, or $5.51 a share, in the period, Google said yesterday in a regulatory filing. The Mountain View, California-based company had reported first-quarter profit of $2.3 billion, or $7.04, on April 14.
“Although we cannot predict the ultimate outcome of this matter, we believe it will not have a material adverse effect on our business, consolidated financial position, results of operations or cash flows,” Google said in the statement.
The Justice Department is investigating the use of Google ads by “certain advertisers,” Google said in the filing. Aaron Zamost, a spokesman for the company, declined to comment on the disclosure. Google gets almost all its revenue from online advertising, which runs on its search engine and other sites, such as YouTube.
Google faces an increasing array of scrutiny from regulators over its market leadership and handling of users’ data. The Federal Trade Commission is preparing an investigation of Google’s dominance of the search industry and has alerted technology companies that it plans to gather information for the probe, three people familiar with the matter said last month.
The FTC, which had been considering a broad investigation, waited until the Justice Department concluded its own review of Google’s acquisition of ITA Software Inc., two people familiar with the matter said in April. The Justice Department cleared the purchase last month, on the condition that Google make ITA’s travel information available to search-engine rivals.
Microsoft Corp. (MSFT), Kayak.com, Expedia Inc. and other Google competitors banded together as a group called FairSearch.org to oppose the acquisition of ITA, which makes software that provides data for online travel sites such as Orbitz Worldwide Inc. (OWW) They said the deal would reduce competition and called on the Justice Department to impose conditions for the transaction.
U.S. Senator Herb Kohl, a Wisconsin Democrat who heads a Judiciary antitrust subcommittee, has said he will examine Google’s business practices. Senator Mike Lee of Utah, the panel’s senior Republican, has called for hearings.
Officials in Texas and the European Commission have started investigations into Google’s search dominance, and Ohio Attorney General Mike DeWine is considering such a probe.
With the $500 million expense, Google’s net income declined 8 percent in the first quarter from the year-earlier period. Before the change, net income had climbed 18 percent.
Excluding revenue passed on to partner sites, sales rose 29 percent to $6.54 billion, topping the $6.32 billion average of estimates. Still, that growth was dwarfed by a 54 percent jump in operating expenses.
Laura Sweeney, a Justice Department spokeswoman, declined to comment on the matter.
Google fell $7.21 to $535.45 at 4 p.m. New York time on the Nasdaq Stock Market. The shares have declined 9.9 percent this year.
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