Alphabet shares looked set for opening losses on Tuesday after investors turned cautious about the prospect for future revenues following a record fine in Europe and rising development costs.
Google's parent company reported a 21% increase in quarterly revenues which would have translated into a 28% rise in second-quarter profit, but for the record $2.7bn fine imposed by European competition authorities.
EU antitrust fine
The European Commission fined Google this year for abusing its dominance as a search engine, saying the company gave itself advantageous advertising for its own products and services.
While the equivalent US body the Federal Trade Commission declined to prosecute, Google has faced competition issues from antitrust authorities across the world because of its dominant search engine and Android operating system.
"An increasingly aggressive anti-trust spirit abroad is perhaps the biggest elephant in the room right now for Alphabet and fellow technology gargantuans like Amazon, Facebook and Apple," said Ken Odeluga, market analyst at City Index.
Alphabet suggested an appeal was being considered over EC the fine. Ruth Porat, chief financial officer, told investors following the results that the company was "reviewing our options".
Sundar Pichai, Google's chief executive who was made an Alphabet board member on Monday, said the company's Android system was a "very open market".
Revenues rose 21% to $26bn in the quarter, and while it earned $3.5bn in net profit, this was a 28% fall on the equivalent period last year because of the EU fine.
It was the largest fall in the company's net earnings in nearly a decade.
Earnings per share worked out at $5.01, beating Wall Street forecasts of $4.50.
Although the shares fell 3% in after-hours trading, analysts were broadly positive on the results, suggesting the market reaction was down to profit taking after a strong run.
Apart from 2008 and 2014, Google shares have risen every year since listing in 2004, and are already up nearly 20% so far this year.
There were a number of upgrades to Alphabet stock on Tuesday morning following the second-quarter earnings report.
JPMorgan raised its price target to $1,115 from $1,075, saying the second-quarter results were not "thesis changing". Bank of America/Merrill Lynch lifted its target to $1,100 from $1,035
Colin Sebastian at Baird, said: "Alphabet's second-quarter results were essentially in line with our estimates, reflecting continuing healthy trends in the company's core search segment."
He added: "While the EC antitrust fine damped earnings per share, as expected, normalised operating margin is also in line with our estimate."