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Google stumbles on earnings as it deals with outside turmoil

Google's got another problem.

google-hq-sede-mountain-view.jpg

Google headquarters in Mountain View, California. 

Stephen Shankland/CNET

Tensions continue to mount for Google, as the search giant faces antitrust blowback from both federal and state officials, as well as massive dissent from its own employees. And as it faces those pressures, it's now got another issue to deal with: Its profits were weaker than expected in the third quarter. On Monday, parent company Alphabet released a sluggish financial report. 

Google also made waves on Monday when Reuters reported that it's made an offer to buy the wearable device maker Fitbit. In the past few years, Google has made major investments in consumer hardware. Earlier this month, the company unveiled its latest suite of devices, including its flagship Pixel 4 phone, a new Nest Mini smart speaker and a mesh Wi-Fi router. Noticeably missing from the lineup was a Google-branded smartwatch. 

On a conference call with Wall Street analysts Monday, no one asked about the Fitbit report. 

In the quarter ended Sept. 30, Alphabet tallied $40.49 billion in sales, beating analyst estimates of $40.32 billion. Earnings per share were $10.12, falling short of expectations of $12.42 per share, according to Thomson Reuters.

Google CEO Sundar Pichai downplayed the earnings miss. "I am extremely pleased with the progress we made across the board in the third quarter," he said in a statement. 

Alphabet also continued to pour money into projects that don't make money through advertising. The company's "Other Bets" division, which includes its moonshot projects like driverless cars and its Verily health tech initiative, had $941 million in operating costs, up from $727 million during the same period last year.

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News of a big possible acquisition like Fitbit in the works could cause headaches for Google, which has been under intense antitrust scrutiny. The search giant in July acknowledged that it was under investigation by the Justice Department. It's also getting heat at the state level. Texas Attorney General Ken Paxton announced last month he's leading a coalition of 50 attorneys general looking into Google's business practices when it comes to its massive digital advertising operation. 

"Our products and services benefit consumers, small and medium businesses, advertisers, and overall they help reduce prices and expand choice," Pichai said the analyst call. "That's our underlying approach," and what the company tries to explain to regulators, he said.

Meanwhile, the company faces turmoil from within. That includes fallout from the historic walkout -- one year ago this week -- over the company's handling of sexual harassment allegations targeted at key executives. Some employees are also upset over Google's hiring of Miles Taylor, a former Department of Homeland Security official who'd publicly defended President Trump's travel ban

Google employees have also accused management of increased surveillance in an attempt to thwart labor organizing. The company's workers have taken issue with a required software extension for Google's Chrome browser that would automatically report staffers who create a calendar event with more than 10 rooms or 100 participants.

Last week, Pichai acknowledged the issues employees have with the company, according to a report by the Washington Post. "I think it's one of the most foundational things for the company," Pichai said, referring to employee trust. "I take it seriously."

Originally published at 1:14 p.m. PT.
Update, 3:19 p.m. PT:
Adds comments from a conference call with analysts.