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Alphabet adds to cash pile despite higher costs, antitrust fine

SAN FRANCISCO (Reuters) - Alphabet Inc reported a 21 percent jump in quarterly revenue on Monday, maintaining a growth rate that is rarely seen among companies its size and suggesting the big sales gains enjoyed recently by the other Internet firms are not done yet.

Alphabet, the owner of Google and YouTube, said it made $3.5 billion in net income on sales of $26 billion. The profit would have been much larger but for a record $2.7 billion European Union antitrust fine.

Still, the company noted that costs were rising faster than sales and warned that expenses would remain high as more searches shift to mobile devices.

The squeeze on expected future profit appeared to weigh on Alphabet's share price, which fell about 3 percent to $967 after the bell. Shares had closed up in regular trading and have gained 26 percent for the year.

Alphabet's cost of revenue, a measure of how much money the company must spend to keep its platforms running before added costs such as research, rose 28 percent, well above the growth in revenue itself.

The rising costs, including what Google pays to drive traffic to its search engine, hurt operating margins more than most people had expected, said Doug Kass, president of Seabreeze Partners Management.

"This could be problematic going forward," Kass said.

Alphabet Chief Financial Officer Ruth Porat, asked about margins during a conference call with analysts, said the...


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