After the closing bell today, Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) will release its second-quarter fiscal 2018 results. Google earnings for Q2 are usually straightforward, positive affairs. The search-engine giant has exceeded profit expectations since at least 2015. However, this go-around offers some unexpected drama.

Earlier this week, antitrust regulators from the European Union handed down a record $5 billion fine on Alphabet. The watchdogs accused the company of flexing its muscle to force smartphone manufacturers into pre-installing Google apps. At the time, Alphabet shares absorbed a modest hit, if you can even call it that. Year-to-date, GOOG is up 13%.

Furthermore, several analysts have argued that longer-term impact should be very limited. As I stated earlier:

“If regulatory officials slapped a $5 billion fine on an ordinary company, it might spark panic. But Alphabet is the very antithesis of ordinary. In its most recent quarter, the internet giant delivered $9.4 billion in profit. This was up a massive 73% from the year-ago quarter, which still saw a robust $5.4 billion profit.”

Plus, Alphabet has a cash treasure chest of $103 billion against long-term debt of only $3.94 billion. No matter how you cut it, Google will skip over this issue with the simplicity of sharpening a dull pencil.

However, it will affect the upcoming Google earnings, at least on paper. Management decided to take the hit in Q2, although they’re adamant that they’re appealing the EU’s fine. To account for the charge, Alphabet will create a separate operating expense line.

The fine is not tax deductible, and will therefore negatively impact the Google earnings per share metric. And by negative impact, I mean a cataclysmic drop.

Still, don’t expect too many traders to hit the sell button.

Google Earnings Impacted on Paper Only

Prior to the EU fine, Wall Street consensus pegged Alphabet to hit an EPS of $9.54. This was slightly near the upper level of estimates, which ranged from $8.71 to $10.40. In the year-ago quarter, the company delivered $5.01 against a consensus EPS target of $4.47.

Why the dramatic lift? Turns out, this year’s Google earnings is experiencing a case of déjà vu. Last year, regulators imposed a multi-billion dollar fine on Alphabet for anticompetitive behavior. The sheriff was also the EU, which had accused the company of manipulating its search-engine results to favor its e-commerce channels at the expense of competitors like Amazon (NASDAQ:AMZN).

Management ended up paying the $2.7 billion fine, and recorded it in their Q2 report. Prior to the disclosure, analysts adjusted down their expectations for Google earnings. Notably, Goldman Sachs cut its EPS target from $8.64 to $4.60.

This time, comparatively few analysts have had a chance to downgrade their targets. One exception is Goldman Sachs’ Heather Bellini, who anticipates a $2.23 EPS against revenues of $32.1 billion.

Due to the confusing and contentious impact that the EU fine will render on Google earnings, investors will likely focus on revenue growth, long the company’s strength. In the year-ago quarter, the internet titan hauled in $26 billion. Should Bellini’s target hold true, Alphabet is looking at 23% sales growth.

Considering Alphabet’s prior results, that’s not at all an unreasonable expectation. Furthermore, we’re probably going to see the same old suspects drive home the goods for the upcoming Google earnings report. Alphabet’s core search-engine business represented 70.2% of total 2017 revenue, up from a 67.4% allocation in 2013. “Other revenues” jumped from $4.4 billion to $14.3 billion over the same timeframe.

Both sectors have enjoyed tremendous momentum, so don’t expect big changes here.

Watch Out for Market Volatility

While I’m confident that the details within the Google earnings disclosure will justify the bullish, longer-term position, you should be mindful of some technical risk; namely, Alphabet shares have gyrated wildly this year.

But to ease doubts, consider what happened last year. Alphabet delivered on profitability expectations in light of a massive EU fine. Shares tumbled, though, immediately after the report, eventually falling into a consolidation phase. But after that frustrating period, the fundamentals took over. GOOG stock closed out 2017 up over 34%.

Of course, history isn’t a perfect predictor of future results. But in my opinion, there’s more than enough similarities that indicate over the longer-term, Alphabet will be just fine. Recall that last year, the company had a PR issue regarding YouTube inadvertently running client advertisements on hate content.

Which is to say, Alphabet has never run cleanly from controversies. That still hasn’t meaningfully impacted Google earnings, and I don’t expect anything different today.

As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.

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