Washington, D.C. 20549
Alphabet Inc.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Alphabet Inc.
Form 10-Q
For the Quarterly Period Ended September 30, 2017March 31, 2024
TABLE OF CONTENTS
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Item 4 | | |
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Item 1A | | |
Item 62 | | |
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Item 6 | | |
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NOTE ABOUT FORWARD-LOOKING STATEMENTSNote About Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements include, among other things, statements regarding:
•the growth of our business and revenues and our expectations about the factors that influence our success and trends in our business;
•fluctuations in our plansrevenues and margins and various factors contributing to such fluctuations;
•our expectation that the continuing shift from an offline to online world will continue to invest in new businesses, products, services and technologies, systems, facilities, and infrastructure, tobenefit our business;
•our expectation that the portion of our revenues that we derive beyond advertising will continue to hire aggressivelyincrease and provide competitive compensation programs,may affect our margins;
•our expectation that our traffic acquisition costs (TAC) and the associated TAC rate will fluctuate, which could affect our overall margins;
•our expectation that our monetization trends will fluctuate, which could affect our revenues and margins;
•fluctuations in paid clicks and cost-per-click as well as impressions and cost-per-impression, and various factors contributing to continue to invest in acquisitions;such fluctuations;
seasonal fluctuations in internet usage and advertiser expenditures, underlying business trends such as traditional retail seasonality, and macroeconomic conditions, which are likely to cause fluctuations in our quarterly results;
the potential for declines in our revenue growth rate;
•our expectation that we will continue to take steps to improve the relevance of the ads we deliverperiodically review, refine, and to reduceupdate our methodologies for monitoring, gathering, and counting the number of accidental clicks;
fluctuations in the rate of change in revenue and revenue growth, as well as the rate of change in paid clicks and average cost-per-click and various factors contributing to such fluctuations;impressions;
•our expectation that our results will be affected by our performance in international markets as users in developing economies increasingly come online;
•our expectation that our foreign exchange risk management program will not fully offset our net exposure to fluctuations in foreign currency exchange rates;
•the expected variability of costsgains and losses related to hedging activities under our foreign exchange risk management program;
•the amount and timing of revenue recognition from customer contracts with commitments for performance obligations, including our estimate of the remaining amount of commitments and when we expect to recognize revenue;
•our expectation that our capital expenditures will increase, including the expected increase in our technical infrastructure investment to support the growth of our business and our long-term initiatives, in particular in support of artificial intelligence (AI) products and services;
•our plans to continue to invest in new businesses, products, services and technologies, and systems, as well as to continue to invest in acquisitions and strategic investments;
•our pace of hiring and our plans to provide competitive compensation programs;
•our expectation that our cost of revenues, research and development (R&D) expenses, sales and marketing expenses, and general and administrative expenses willmay increase in dollars andamount and/or may increase as a percentage of revenues;
our potential exposure in connection with pending investigations, proceedings, and other contingencies;
our expectation that our monetization trends will fluctuate, which could affect our revenues and margins in the future;may be affected by a number of factors;
our expectation that our traffic acquisition costs will increase in the future;
our expectation that our results will be impacted by our performance in international markets as users in developing economies increasingly come online;
our expectation that the portion•estimates of our revenues that we derive from non-advertising revenues will continue to increase;future compensation expenses;
•our expectation that our other income (loss)(expense), net (OI&E), will fluctuate in the future, as it is largely driven by market dynamics;
estimates of •our expectation that our effective tax rate and cash tax payments could increase in future compensation expenses;years;
•seasonal fluctuations in internet usage and advertiser expenditures, underlying business trends such as traditional retail seasonality, which are likely to cause fluctuations in our effective tax rate;quarterly results;
•the sufficiency of our sources of funding;
•our payment termspotential exposure in connection with new and pending investigations, proceedings, and other contingencies, including the possibility that certain legal proceedings to certain advertisers, which may increasewe are a party could harm our working capital requirements;business, financial condition, and operating results;
fluctuations•our expectation that we will continue to face heightened regulatory scrutiny, and changes in regulatory conditions, laws, and public policies, which could affect our capital expenditures;business practices and financial results;
our expectations related to the operating structure implemented pursuant to the Alphabet holding company reorganization;
•the expected timing, amount, and amounteffect of Alphabet Inc.'s stock repurchases;share repurchases and dividends;
•our long-term sustainability and diversity goals;
as well as other statements regarding our future operations, financial condition and prospects, and business strategies. Forward-looking statements may appear throughout this report and other documents we file with the Securities and Exchange Commission (SEC), including without limitation, the following sections: Part I, Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in this Quarterly Report on Form 10-Q and Part I, Item 1A, "Risk Factors"“Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016,2023, as may be updated in our subsequentthis Quarterly ReportsReport on Form 10-Q. Forward-looking statements generally can be identified by words such as "anticipates," "believes," "could," "estimates," "expects," "intends," "may," "plans," "predicts," "projects," "will be," "will continue," "may," "could," "will likely result," and similar expressions. These forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties, which could cause our actual results to differ materially from those reflected in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this Quarterly Report on Form 10-Q, and in particular,10-Q; the risks discussed in Part I, Item 1A, "Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016,2023, as updated in this Quarterly Report on Form 10-Q; the trends discussed in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023; and those discussed in other documents we file with the SEC. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements, except as required by law. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.
As used herein, "Alphabet," "the company," "we," "us," "our," and similar terms include Alphabet Inc. and its subsidiaries, unless the context indicates otherwise.
"Alphabet," "Google," and other trademarks of ours appearing in this report are our property. This report contains additional trade names and trademarks of other companies. We do not intend our use or display of other companies' trade names or trademarks to imply an endorsement or sponsorship of us by such companies, or any relationship with any of these companies.
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PART I. | FINANCIAL INFORMATIONAlphabet Inc. |
PART I. FINANCIAL INFORMATION | |
ITEM 1. | FINANCIAL STATEMENTS |
ITEM 1.FINANCIAL STATEMENTS Alphabet Inc.
CONSOLIDATED BALANCE SHEETS
(in millions, except share amounts which are reflected in thousands,
and par value per share amounts)
|
| | | | | | | |
| As of December 31, 2016 | | As of September 30, 2017 |
| | | (unaudited) |
Assets | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 12,918 |
| | $ | 10,581 |
|
Marketable securities | 73,415 |
| | 89,562 |
|
Total cash, cash equivalents, and marketable securities | 86,333 |
| | 100,143 |
|
Accounts receivable, net of allowance of $467 and $625 | 14,137 |
| | 15,295 |
|
Income taxes receivable, net | 95 |
| | 282 |
|
Inventory | 268 |
| | 765 |
|
Other current assets | 4,575 |
| | 2,860 |
|
Total current assets | 105,408 |
| | 119,345 |
|
Non-marketable investments | 5,878 |
| | 7,269 |
|
Deferred income taxes | 383 |
| | 505 |
|
Property and equipment, net | 34,234 |
| | 40,120 |
|
Intangible assets, net | 3,307 |
| | 2,883 |
|
Goodwill | 16,468 |
| | 16,731 |
|
Other non-current assets | 1,819 |
| | 2,683 |
|
Total assets | $ | 167,497 |
| | $ | 189,536 |
|
Liabilities and Stockholders’ Equity | | | |
Current liabilities: | | | |
Accounts payable | $ | 2,041 |
| | $ | 2,674 |
|
Accrued compensation and benefits | 3,976 |
| | 4,022 |
|
Accrued expenses and other current liabilities | 6,144 |
| | 9,307 |
|
Accrued revenue share | 2,942 |
| | 3,200 |
|
Deferred revenue | 1,099 |
| | 1,269 |
|
Income taxes payable, net | 554 |
| | 221 |
|
Total current liabilities | 16,756 |
| | 20,693 |
|
Long-term debt | 3,935 |
| | 3,964 |
|
Deferred revenue, non-current | 202 |
| | 346 |
|
Income taxes payable, non-current | 4,677 |
| | 4,358 |
|
Deferred income taxes | 226 |
| | 151 |
|
Other long-term liabilities | 2,665 |
| | 2,924 |
|
Total liabilities | 28,461 |
| | 32,436 |
|
Commitments and Contingencies (Note 11) |
| |
|
Stockholders’ equity: | | | |
Convertible preferred stock, $0.001 par value per share, 100,000 shares authorized; no shares issued and outstanding | 0 |
| | 0 |
|
Class A and Class B common stock, and Class C capital stock and additional paid-in capital, $0.001 par value per share: 15,000,000 shares authorized (Class A 9,000,000, Class B 3,000,000, Class C 3,000,000); 691,293 (Class A 296,992, Class B 47,437, Class C 346,864) and 694,790 (Class A 298,263, Class B 47,054, Class C 349,473) shares issued and outstanding | 36,307 |
| | 39,609 |
|
Accumulated other comprehensive loss | (2,402 | ) | | (746 | ) |
Retained earnings | 105,131 |
| | 118,237 |
|
Total stockholders’ equity | 139,036 |
| | 157,100 |
|
Total liabilities and stockholders’ equity | $ | 167,497 |
| | $ | 189,536 |
|
| | | | | | | | | | | |
| As of December 31, 2023 | | As of March 31, 2024 |
| | | (unaudited) |
Assets | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 24,048 | | | $ | 24,493 | |
Marketable securities | 86,868 | | | 83,597 | |
Total cash, cash equivalents, and marketable securities | 110,916 | | | 108,090 | |
Accounts receivable, net | 47,964 | | | 44,552 | |
Other current assets | 12,650 | | | 12,829 | |
Total current assets | 171,530 | | | 165,471 | |
Non-marketable securities | 31,008 | | | 33,994 | |
Deferred income taxes | 12,169 | | | 11,687 | |
Property and equipment, net | 134,345 | | | 143,182 | |
Operating lease assets | 14,091 | | | 13,768 | |
Goodwill | 29,198 | | | 29,183 | |
Other non-current assets | 10,051 | | | 10,065 | |
Total assets | $ | 402,392 | | | $ | 407,350 | |
Liabilities and Stockholders’ Equity | | | |
Current liabilities: | | | |
Accounts payable | $ | 7,493 | | | $ | 6,198 | |
| | | |
Accrued compensation and benefits | 15,140 | | | 9,703 | |
Accrued expenses and other current liabilities | 46,168 | | | 48,603 | |
Accrued revenue share | 8,876 | | | 8,520 | |
Deferred revenue | 4,137 | | | 3,973 | |
Total current liabilities | 81,814 | | | 76,997 | |
Long-term debt | 13,253 | | | 13,228 | |
Deferred revenue, non-current | 911 | | | 921 | |
Income taxes payable, non-current | 8,474 | | | 9,234 | |
Deferred income taxes | 485 | | | 486 | |
Operating lease liabilities | 12,460 | | | 11,957 | |
Other long-term liabilities | 1,616 | | | 1,683 | |
Total liabilities | 119,013 | | | 114,506 | |
Commitments and Contingencies (Note 8) | | | |
Stockholders’ equity: | | | |
Preferred stock, $0.001 par value per share, 100 shares authorized; no shares issued and outstanding | 0 | | | 0 | |
Class A, Class B, and Class C stock and additional paid-in capital, $0.001 par value per share: 300,000 shares authorized (Class A 180,000, Class B 60,000, Class C 60,000); 12,460 (Class A 5,899, Class B 870, Class C 5,691) and 12,381 (Class A 5,879, Class B 867, Class C 5,635) shares issued and outstanding | 76,534 | | | 77,913 | |
Accumulated other comprehensive income (loss) | (4,402) | | | (4,839) | |
Retained earnings | 211,247 | | | 219,770 | |
Total stockholders’ equity | 283,379 | | | 292,844 | |
Total liabilities and stockholders’ equity | $ | 402,392 | | | $ | 407,350 | |
See accompanying notes.
Alphabet Inc.
CONSOLIDATED STATEMENTS OF INCOME
(in millions, except per share amounts; unaudited)
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
| 2016 | | 2017 | | 2016 | | 2017 |
Revenues | $ | 22,451 |
| | $ | 27,772 |
| | $ | 64,208 |
| | $ | 78,532 |
|
Costs and expenses: | | | | | | | |
Cost of revenues | 8,699 |
| | 11,148 |
| | 24,477 |
| | 31,316 |
|
Research and development | 3,596 |
| | 4,205 |
| | 10,326 |
| | 12,319 |
|
Sales and marketing | 2,565 |
| | 3,042 |
| | 7,367 |
| | 8,583 |
|
General and administrative | 1,824 |
| | 1,595 |
| | 4,961 |
| | 5,096 |
|
European Commission fine | 0 |
| | 0 |
| | 0 |
| | 2,736 |
|
Total costs and expenses | 16,684 |
| | 19,990 |
| | 47,131 |
| | 60,050 |
|
Income from operations | 5,767 |
| | 7,782 |
| | 17,077 |
| | 18,482 |
|
Other income (expense), net | 278 |
| | 197 |
| | 216 |
| | 693 |
|
Income before income taxes | 6,045 |
| | 7,979 |
| | 17,293 |
| | 19,175 |
|
Provision for income taxes | 984 |
| | 1,247 |
| | 3,148 |
| | 3,493 |
|
Net income | $ | 5,061 |
| | $ | 6,732 |
| | $ | 14,145 |
| | $ | 15,682 |
|
| | | | | | | |
Basic net income per share of Class A and B common stock and Class C capital stock | $ | 7.36 |
| | $ | 9.71 |
| | $ | 20.59 |
| | $ | 22.65 |
|
Diluted net income per share of Class A and B common stock and Class C capital stock | $ | 7.25 |
| | $ | 9.57 |
| | $ | 20.26 |
| | $ | 22.30 |
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | |
| March 31, | | |
| 2023 | | 2024 | | | | |
Revenues | $ | 69,787 | | | $ | 80,539 | | | | | |
Costs and expenses: | | | | | | | |
Cost of revenues | 30,612 | | | 33,712 | | | | | |
Research and development | 11,468 | | | 11,903 | | | | | |
Sales and marketing | 6,533 | | | 6,426 | | | | | |
General and administrative | 3,759 | | | 3,026 | | | | | |
Total costs and expenses | 52,372 | | | 55,067 | | | | | |
Income from operations | 17,415 | | | 25,472 | | | | | |
Other income (expense), net | 790 | | | 2,843 | | | | | |
Income before income taxes | 18,205 | | | 28,315 | | | | | |
Provision for income taxes | 3,154 | | | 4,653 | | | | | |
Net income | $ | 15,051 | | | $ | 23,662 | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Basic net income per share of Class A, Class B, and Class C stock | $ | 1.18 | | | $ | 1.91 | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Diluted net income per share of Class A, Class B, and Class C stock | $ | 1.17 | | | $ | 1.89 | | | | | |
See accompanying notes.
Alphabet Inc.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions; unaudited) | | | | | | | | | | | | | | | |
| Three Months Ended | | |
| March 31, | | |
| 2023 | | 2024 | | | | |
Net income | $ | 15,051 | | | $ | 23,662 | | | | | |
Other comprehensive income (loss): | | | | | | | |
Change in foreign currency translation adjustment, net of income tax benefit (expense) of $47 and $(18) | 596 | | | (503) | | | | | |
Available-for-sale investments: | | | | | | | |
Change in net unrealized gains (losses) | 866 | | | (360) | | | | | |
Less: reclassification adjustment for net (gains) losses included in net income | 292 | | | 311 | | | | | |
Net change, net of income tax benefit (expense) of $(330) and $14 | 1,158 | | | (49) | | | | | |
Cash flow hedges: | | | | | | | |
Change in net unrealized gains (losses) | (74) | | | 186 | | | | | |
Less: reclassification adjustment for net (gains) losses included in net income | (77) | | | (71) | | | | | |
Net change, net of income tax benefit (expense) of $30 and $(23) | (151) | | | 115 | | | | | |
Other comprehensive income (loss) | 1,603 | | | (437) | | | | | |
Comprehensive income | $ | 16,654 | | | $ | 23,225 | | | | | |
See accompanying notes.
Alphabet Inc.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in millions; unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2023 |
| Class A, Class B, Class C Stock and Additional Paid-In Capital | | Accumulated Other Comprehensive Income (Loss) | | Retained Earnings | | Total Stockholders’ Equity |
| Shares | | Amount | |
Balance as of December 31, 2022 | 12,849 | | | $ | 68,184 | | | $ | (7,603) | | | $ | 195,563 | | | $ | 256,144 | |
Stock issued | 30 | | | 0 | | | 0 | | | 0 | | | 0 | |
Stock-based compensation expense | 0 | | | 5,313 | | | 0 | | | 0 | | | 5,313 | |
Tax withholding related to vesting of restricted stock units and other | 0 | | | (2,093) | | | 0 | | | 0 | | | (2,093) | |
Repurchases of stock | (157) | | | (1,135) | | | 0 | | | (13,989) | | | (15,124) | |
Net income | 0 | | | 0 | | | 0 | | | 15,051 | | | 15,051 | |
Other comprehensive income (loss) | 0 | | | 0 | | | 1,603 | | | 0 | | | 1,603 | |
Balance as of March 31, 2023 | 12,722 | | | $ | 70,269 | | | $ | (6,000) | | | $ | 196,625 | | | $ | 260,894 | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
| 2016 | | 2017 | | 2016 | | 2017 |
Net income | $ | 5,061 |
| | $ | 6,732 |
| | $ | 14,145 |
| | $ | 15,682 |
|
Other comprehensive income: | | | | | | | |
Change in foreign currency translation adjustment | 129 |
| | 441 |
| | 166 |
| | 1,457 |
|
Available-for-sale investments: | | | | | | | |
Change in net unrealized gains (losses) | 71 |
| | 578 |
| | 627 |
| | 803 |
|
Less: reclassification adjustment for net (gains) losses included in net income | (46 | ) | | 47 |
| | 137 |
| | 98 |
|
Net change (net of tax effect of $7, $0, $191, and $0) | 25 |
| | 625 |
| | 764 |
| | 901 |
|
Cash flow hedges: | | | | | | | |
Change in net unrealized gains (losses) | 32 |
| | (209 | ) | | 148 |
| | (668 | ) |
Less: reclassification adjustment for net (gains) losses included in net income | (67 | ) | | 125 |
| | (236 | ) | | (34 | ) |
Net change (net of tax effect of $20, $50, $29, and $342) | (35 | ) | | (84 | ) | | (88 | ) | | (702 | ) |
Other comprehensive income | 119 |
| | 982 |
| | 842 |
| | 1,656 |
|
Comprehensive income | $ | 5,180 |
| | $ | 7,714 |
| | $ | 14,987 |
| | $ | 17,338 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2024 |
| Class A, Class B, Class C Stock and Additional Paid-In Capital | | Accumulated Other Comprehensive Income (Loss) | | Retained Earnings | | Total Stockholders’ Equity |
| Shares | | Amount | |
Balance as of December 31, 2023 | 12,460 | | | $ | 76,534 | | | $ | (4,402) | | | $ | 211,247 | | | $ | 283,379 | |
Stock issued | 32 | | | 0 | | | 0 | | | 0 | | | 0 | |
Stock-based compensation expense | 0 | | | 5,293 | | | 0 | | | 0 | | | 5,293 | |
Tax withholding related to vesting of restricted stock units and other | 0 | | | (2,996) | | | 0 | | | 0 | | | (2,996) | |
Repurchases of stock | (111) | | | (918) | | | 0 | | | (15,139) | | | (16,057) | |
Net income | 0 | | | 0 | | | 0 | | | 23,662 | | | 23,662 | |
Other comprehensive income (loss) | 0 | | | 0 | | | (437) | | | 0 | | | (437) | |
Balance as of March 31, 2024 | 12,381 | | | $ | 77,913 | | | $ | (4,839) | | | $ | 219,770 | | | $ | 292,844 | |
See accompanying notes.
Alphabet Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions; unaudited)
|
| | | | | | | |
| Nine Months Ended |
| September 30, |
| 2016 | | 2017 |
Operating activities | | | |
Net income | $ | 14,145 |
| | $ | 15,682 |
|
Adjustments: | | | |
Depreciation and impairment of property and equipment | 3,803 |
| | 4,272 |
|
Amortization and impairment of intangible assets | 654 |
| | 617 |
|
Stock-based compensation expense | 4,857 |
| | 5,832 |
|
Deferred income taxes | 119 |
| | 242 |
|
Loss on marketable and non-marketable investments, net | 204 |
| | 160 |
|
Other | 117 |
| | 99 |
|
Changes in assets and liabilities, net of effects of acquisitions: | | | |
Accounts receivable | (299 | ) | | (719 | ) |
Income taxes, net | 2,153 |
| | (865 | ) |
Other assets | 114 |
| | (2,086 | ) |
Accounts payable | 238 |
| | 58 |
|
Accrued expenses and other liabilities | 338 |
| | 3,121 |
|
Accrued revenue share | 138 |
| | 182 |
|
Deferred revenue | 42 |
| | 228 |
|
Net cash provided by operating activities | 26,623 |
| | 26,823 |
|
Investing activities | | | |
Purchases of property and equipment | (7,134 | ) | | (8,877 | ) |
Proceeds from disposals of property and equipment | 226 |
| | 81 |
|
Purchases of marketable securities | (70,959 | ) | | (78,709 | ) |
Maturities and sales of marketable securities | 54,379 |
| | 62,588 |
|
Purchases of non-marketable investments | (862 | ) | | (871 | ) |
Maturities and sales of non-marketable investments | 189 |
| | 215 |
|
Cash collateral related to securities lending | (2,428 | ) | | 0 |
|
Investments in reverse repurchase agreements | 450 |
| | 0 |
|
Acquisitions, net of cash acquired, and purchases of intangible assets | (324 | ) | | (273 | ) |
Proceeds from collection of notes receivable | 0 |
| | 1,419 |
|
Net cash used in investing activities | (26,463 | ) | | (24,427 | ) |
Financing activities | | | |
Net payments related to stock-based award activities | (2,425 | ) | | (3,111 | ) |
Repurchases of capital stock | (3,693 | ) | | (2,745 | ) |
Proceeds from issuance of debt, net of costs | 8,729 |
| | 2,698 |
|
Repayments of debt | (10,051 | ) | | (2,762 | ) |
Proceeds from sale of subsidiary shares | 0 |
| | 800 |
|
Net cash used in financing activities | (7,440 | ) | | (5,120 | ) |
Effect of exchange rate changes on cash and cash equivalents | 137 |
| | 387 |
|
Net decrease in cash and cash equivalents | (7,143 | ) | | (2,337 | ) |
Cash and cash equivalents at beginning of period | 16,549 |
| | 12,918 |
|
Cash and cash equivalents at end of period | $ | 9,406 |
| | $ | 10,581 |
|
| | | | | | | | | | | |
| Three Months Ended |
| March 31, |
| 2023 | | 2024 |
Operating activities | | | |
Net income | $ | 15,051 | | | $ | 23,662 | |
Adjustments: | | | |
Depreciation of property and equipment | 2,635 | | | 3,413 | |
Stock-based compensation expense | 5,284 | | | 5,264 | |
Deferred income taxes | (1,854) | | | 419 | |
Loss (gain) on debt and equity securities, net | (84) | | | (1,781) | |
Other | 1,104 | | | 334 | |
Changes in assets and liabilities, net of effects of acquisitions: | | | |
Accounts receivable, net | 4,454 | | | 3,167 | |
Income taxes, net | 4,069 | | | 3,011 | |
Other assets | (746) | | | (1,000) | |
Accounts payable | (1,105) | | | (2,124) | |
Accrued expenses and other liabilities | (4,496) | | | (5,054) | |
Accrued revenue share | (602) | | | (322) | |
Deferred revenue | (201) | | | (141) | |
Net cash provided by operating activities | 23,509 | | | 28,848 | |
Investing activities | | | |
Purchases of property and equipment | (6,289) | | | (12,012) | |
Purchases of marketable securities | (14,227) | | | (20,684) | |
Maturities and sales of marketable securities | 18,327 | | | 24,985 | |
Purchases of non-marketable securities | (626) | | | (1,206) | |
Maturities and sales of non-marketable securities | 36 | | | 313 | |
| | | |
| | | |
Acquisitions, net of cash acquired, and purchases of intangible assets | (42) | | | (61) | |
Other investing activities | (125) | | | 101 | |
| | | |
Net cash used in investing activities | (2,946) | | | (8,564) | |
Financing activities | | | |
Net payments related to stock-based award activities | (1,989) | | | (2,929) | |
| | | |
Repurchases of stock | (14,557) | | | (15,696) | |
Proceeds from issuance of debt, net of costs | 6,927 | | | 1,982 | |
Repayments of debt | (6,952) | | | (3,079) | |
Proceeds from sale of interest in consolidated entities, net | 3 | | | 8 | |
Net cash used in financing activities | (16,568) | | | (19,714) | |
Effect of exchange rate changes on cash and cash equivalents | 50 | | | (125) | |
Net increase (decrease) in cash and cash equivalents | 4,045 | | | 445 | |
Cash and cash equivalents at beginning of period | 21,879 | | | 24,048 | |
Cash and cash equivalents at end of period | $ | 25,924 | | | $ | 24,493 | |
| | | |
| | | |
| | | |
| | | |
See accompanying notes.
Alphabet Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Nature of Operations and Summary of Significant Accounting Policies
Nature of Operations
Google Inc. (Google) was incorporated in California in September 1998 and re-incorporated in the State of Delaware in August 2003. In 2015, we implemented a holding company reorganization, and as a result, Alphabet Inc. (Alphabet)("Alphabet") became the successor issuer to Google.
We generate revenues primarily by delivering relevant, cost-effective online advertising.advertising; cloud-based solutions that provide enterprise customers with infrastructure and platform services as well as communication and collaboration tools; sales of other products and services, such as fees received for subscription-based products, apps and in-app purchases, and devices.
Basis of Consolidation
The consolidated financial statements of Alphabet include the accounts of Alphabet and all wholly-owned subsidiaries as well as allentities consolidated under the variable interest entities where we are the primary beneficiary. All intercompanyand voting models. Intercompany balances and transactions have been eliminated.
Unaudited Interim Financial Information
The accompanying Consolidated Balance Sheet as of September 30, 2017, the Consolidated Statements of Income for the three and nine months ended September 30, 2016 and 2017, the Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2016 and 2017, and the Consolidated Statements of Cash Flows for the nine months ended September 30, 2016 and 2017 are unaudited. These unaudited interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (GAAP). In, and in our opinion, the unaudited interim consolidated financial statements include all adjustments of a normal recurring nature necessary for the fair presentation of our financial position as of September 30, 2017, ourstatement presentation. Interim results of operations for the three and nine months ended September 30, 2016 and 2017, and our cash flows for the nine months ended September 30, 2016 and 2017. The results of operations for the three and nine months ended September 30, 2017 are not necessarily indicative of the results to be expected for the full year ending December 31, 2017.
These unaudited interim consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016, filed with the SEC on February 2, 2017.
Use of Estimates
Preparation of the consolidated financial statements in conformity with GAAP requires us to make2024. We have made estimates and assumptions that affect the amounts reported and disclosed in the financial statements and the accompanying notes. Actual results could differ materially from these estimates. On an ongoing basis, we evaluate
These consolidated financial statements and other information presented in this Form 10-Q should be read in conjunction with the consolidated financial statements and the related notes included in our estimates, including those related to accounts receivable and sales allowances, fair values of financial instruments, intangible assets and goodwill, useful lives of intangible assets and property and equipment, income taxes, and contingent liabilities, among others. We base our estimatesAnnual Report on assumptions, both historical and forward looking, that are believed to be reasonable,Form 10-K for the results of which formfiscal year ended December 31, 2023 filed with the basis for making judgments about the carrying values of assets and liabilities.
Fair Value of Financial Instruments
Our financial assets and financial liabilities including cash equivalents, marketable securities, foreign currency and interest rate derivative contracts, and non-marketable debt securities are measured and recorded at fair value on a recurring basis. We measure certain financial assets at fair value for disclosure purposes, as well as on a nonrecurring basis when they are deemed to be other-than-temporarily impaired. Our other current financial assets and our other current financial liabilities have fair values that approximate their carrying values.
Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that is determined based on assumptions that market participants would use in pricing an asset or a liability. Assets and liabilities recorded at fair value are measured and classified in accordance with a three-tier fair value hierarchy based on the observability of the inputs available in the market used to measure fair value:
Level 1 - Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2 - Include other inputs that are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques
for which all significant inputs are observable in the market or can be derived from observable market data. Where applicable, these models project future cash flows and discount the future amounts to a present value using market-based observable inputs including interest rate curves, foreign exchange rates, and credit ratings.
Level 3 - Unobservable inputs that are supported by little or no market activities.
The fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.SEC.
Recent Accounting Pronouncements
Recently issued accounting pronouncements not yet adopted
In January 2016,November 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2016-01 (ASU 2016-01) "Financial Instruments-Overall (Subtopic 825-10)(ASU) 2023-07 "Segment Reporting (Topic 280): RecognitionImprovements to Reportable Segment Disclosures" which expands annual and Measurement of Financial Assets and Financial Liabilities."interim disclosure requirements for reportable segments, primarily through enhanced disclosures about significant segment expenses. ASU 2016-01 amends various aspects of the recognition, measurement, presentation, and disclosure of financial instruments. ASU 2016-012023-07 is effective for our annual reporting periods beginning January 1, 2024, and for interim periods within those years beginning after December 15, 2017. The most significant impact to our consolidated financial statements relates toJanuary 1, 2025, with early adoption permitted. We are currently evaluating the recognition and measurement of equity investments at fair value in our consolidated statement of income. We expect to elect the measurement alternative, defined as cost, less impairments, adjusted by observable price changes. We anticipatepotential effect that the adoption of ASU 2016-01updated standard will increase the volatility ofhave on our other income (expense), net, as a result of the remeasurement of our equity securities upon the occurrence of observable price changes and impairments.financial statement disclosures.
In February 2016,December 2023, the FASB issued Accounting Standards Update No. 2016-02 (Topic 842) "Leases." Topic 842 supersedesASU 2023-09 "Income Taxes (Topics 740): Improvements to Income Tax Disclosures" to expand the lease recognitiondisclosure requirements in Accounting Standards Codification (ASC) Topic 840, "Leases." Under Topic 842, lessees are requiredfor income taxes, specifically related to recognize assetsthe rate reconciliation and liabilities on the balance sheet for most leases and provide enhanced disclosures. Leases will continue to be classified as either finance or operating. Topic 842income taxes paid. ASU 2023-09 is effective for our annual reporting periods and interim periods within those years beginning after December 15, 2018. Early adoption by public entities is permitted. Entities are required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements, and there are certain optional practical expedients that an entity may elect to apply. Full retrospective application is prohibited. We anticipate that the adoption of Topic 842 will materially affect our Consolidated Balance Sheets. We are in the process of implementing changes to our systems and processes in conjunction with our review of existing lease agreements. We plan to adopt Topic 842 effective January 1, 2019 and we are evaluating the use of the optional practical expedients.
In June 2016, the FASB issued Accounting Standards Update No. 2016-13 (ASU 2016-13) "Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments" which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13 replaces the existing incurred loss impairment model2025, with an expected loss methodology, which will result in more timely recognition of credit losses. ASU 2016-13 is effective for annual reporting periods, and interim periods within those years beginning after December 15, 2019.early adoption permitted. We are currently in the process of evaluating the impact ofpotential effect that the adoption of ASU 2016-13updated standard will have on our consolidated financial statements.
In October 2016, the FASB issued Accounting Standards Update No. 2016-16 (ASU 2016-16) "Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other than Inventory." ASU 2016-16 generally accelerates the recognition of income tax consequences for asset transfers between entities under common control. ASU 2016-16 is effective for annual reporting periods and interim periods within those years beginning after December 15, 2017. Entities are required to adopt using a modified retrospective approach with a cumulative adjustment to retained earnings for previously unrecognized income tax expense. We anticipate a retained earnings adjustment of $600 million to $800 million upon adoption related to the unrecognized income tax effects of asset transfers that occurred prior to adoption.
In January 2017, the FASB issued Accounting Standards Update No. 2017-04 (ASU 2017-04) “Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.” ASU 2017-04 eliminates step two of the goodwill impairment test and specifies that goodwill impairment should be measured by comparing the fair value of a reporting unit with its carrying amount. Additionally, the amount of goodwill allocated to each reporting unit with a zero or negative carrying amount of net assets should be disclosed. ASU 2017-04 is effective for annual or interim goodwill impairment tests performed in fiscal years beginning after December 15, 2019; early adoption is permitted. We currently anticipate that the adoption of ASU 2017-04 will not have a material impact on our consolidated financial statements.
Recently adopted accounting pronouncements
In May 2014, the FASB issued Accounting Standards Update No. 2014-09 (Topic 606) "Revenue from Contracts with Customers." Topic 606 supersedes the revenue recognition requirements in Topic 605 “Revenue Recognition” (Topic 605), and requires entities to recognize revenue when control of the promised goods or services is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. We adopted Topic 606 as of January 1, 2017 using the modified retrospective transition method. See Note 2 for further details.
In January 2017, the FASB issued Accounting Standards Update No. 2017-01 (ASU 2017-01) “Business Combinations (Topic 805): Clarifying the Definition of a Business.” ASU 2017-01 provides guidance to evaluate whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. If substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single asset or a group of similar assets, the assets acquired (or disposed of) are not considered a business. We adopted ASU 2017-01 as of January 1, 2017 on a prospective basis.statement disclosures.
Prior Period Reclassifications
Certain amounts in prior periods have been reclassified to conform with current period presentation.
Note 2. Revenues
Adoption of ASC Topic 606, "Revenue from Contracts with Customers"Disaggregated Revenues
On January 1, 2017, we adopted Topic 606 using the modified retrospective method applied to those contracts which were not completed as of January 1, 2017. Results for reporting periods beginning after January 1, 2017 are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under Topic 605.
We recorded a net reduction to opening retained earnings of $15 million as of January 1, 2017 due to the cumulative impact of adopting Topic 606, with the impact primarily related to our non-advertising revenues. The impact to revenues as a result of applying Topic 606 was an increase of $10 million and $32 million for the three and nine months ended September 30, 2017, respectively.
Revenue Recognition
Revenues are recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.
The following table presents our revenues disaggregated by revenue sourcetype (in millions, unaudited). Sales and usage-based taxes are excluded from revenues.millions): | | | | | | | | | | | | | | | |
| Three Months Ended | | |
| March 31, | | |
| 2023 | | 2024 | | | | |
Google Search & other | $ | 40,359 | | | $ | 46,156 | | | | | |
YouTube ads | 6,693 | | | 8,090 | | | | | |
Google Network | 7,496 | | | 7,413 | | | | | |
Google advertising | 54,548 | | | 61,659 | | | | | |
Google subscriptions, platforms, and devices | 7,413 | | | 8,739 | | | | | |
Google Services total | 61,961 | | | 70,398 | | | | | |
Google Cloud | 7,454 | | | 9,574 | | | | | |
Other Bets | 288 | | | 495 | | | | | |
Hedging gains (losses) | 84 | | | 72 | | | | | |
Total revenues | $ | 69,787 | | | $ | 80,539 | | | | | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
| 2016(1) | | 2017 | | 2016(1) | | 2017 |
Google properties | $ | 16,089 |
| | $ | 19,723 |
| | $ | 45,817 |
| | $ | 55,551 |
|
Google Network Members' properties | 3,732 |
| | 4,342 |
| | 11,167 |
| | 12,597 |
|
Google advertising revenues | 19,821 |
| | 24,065 |
| | 56,984 |
| | 68,148 |
|
Google other revenues | 2,433 |
| | 3,405 |
| | 6,677 |
| | 9,590 |
|
Other Bets revenues | 197 |
| | 302 |
| | 547 |
| | 794 |
|
Total revenues(2) | $ | 22,451 |
| | $ | 27,772 |
| | $ | 64,208 |
| | $ | 78,532 |
|
| |
(1)
| As noted above, prior period amounts have not been adjusted under the modified retrospective method. |
| |
(2)
| Revenues include hedging gains (losses) of $105 million and $(191) million for the three months ended September 30, 2016 and 2017, respectively, and $352 million and $29 million for the nine months ended September 30, 2016 and 2017, respectively, which do not represent revenues recognized from contracts with customers. |
The following table presents our revenues disaggregated by geography, based on the billing addresses of our customers (in millions, unaudited)millions): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | |
| March 31, | | |
| 2023 | | 2024 | | | | |
United States | $ | 32,864 | | | 47 | % | | $ | 38,737 | | | 48 | % | | | | | | | | |
EMEA(1) | 21,078 | | | 30 | | | 23,788 | | | 30 | | | | | | | | | |
APAC(1) | 11,681 | | | 17 | | | 13,289 | | | 16 | | | | | | | | | |
Other Americas(1) | 4,080 | | | 6 | | | 4,653 | | | 6 | | | | | | | | | |
Hedging gains (losses) | 84 | | | 0 | | | 72 | | | 0 | | | | | | | | | |
Total revenues | $ | 69,787 | | | 100 | % | | $ | 80,539 | | | 100 | % | | | | | | | | |
(1) Regions represent Europe, the Middle East, and Africa (EMEA); Asia-Pacific (APAC); and Canada and Latin America ("Other Americas"). |
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
| 2016 | | 2017 | | 2016 | | 2017 |
United States | $ | 10,649 |
| | $ | 12,930 |
| | $ | 30,065 |
| | $ | 37,021 |
|
EMEA(1) | 7,392 |
| | 9,097 |
| | 22,007 |
| | 25,733 |
|
APAC(1) | 3,248 |
| | 4,199 |
| | 8,951 |
| | 11,548 |
|
Other Americas(1) | 1,162 |
| | 1,546 |
| | 3,185 |
| | 4,230 |
|
Total revenues(2) | $ | 22,451 |
| | $ | 27,772 |
| | $ | 64,208 |
| | $ | 78,532 |
|
| |
(1)
| Regions represent Europe, the Middle East, and Africa (EMEA); Asia-Pacific (APAC); and Canada and Latin America (Other Americas). |
| |
(2)
| Revenues include hedging gains (losses) for the three and nine months ended September 30, 2016 and 2017. |
Advertising RevenuesRevenue Backlog
We generate revenuesAs of March 31, 2024, we had $72.5 billion of remaining performance obligations (“revenue backlog”), primarily related to Google Cloud. Our revenue backlog represents commitments in customer contracts for future services that have not yet been recognized as revenue. The estimated revenue backlog and timing of revenue recognition for these commitments is largely driven by delivering advertising on Google propertiesour ability to deliver in accordance with relevant contract terms and Google Network Members’ properties.
Google properties revenues consist primarily of advertising revenues generated on Google.com, the Google app, YouTube, and other Google owned and operated properties like Gmail, Google Maps, and Google Play.
Google Network Members’ properties revenues consist primarily of advertising revenues generated from placing ads on Google Network Members’ properties.
Our customers generally purchase advertising inventory through AdWords, DoubleClick Bid Manager, and DoubleClick AdExchange, among others.
Most ofwhen our customers pay us on a cost-per-click basis (CPC), which means that an advertiser pays us only when a user clicks on an ad on Google properties or Google Network Members' properties or views certain YouTube ad formats like TrueView. For these customers, weutilize services. We expect to recognize approximately half of the revenue each time a user clicks onbacklog as revenues over the ad or when a user viewsnext 24 months with the ad for a specified period of time.
We also offer advertising on other bases such as cost-per-impression (CPM), which means an advertiser pays us based on the number of times their ads are displayed on Google properties or Google Network Members’ properties. For these customers, we recognize revenue each time an ad is displayed.
Certain customers may receive cash-based incentives or credits, which are accounted for as variable consideration. We estimate these amounts based on the expected amountremaining to be provided to customers and reduce revenues recognized. We believe that there will not be significant changes to our estimates of variable consideration.
For ads placed on Google Network Members’ properties, we evaluate whether we are the principal (i.e., report revenues on a gross basis) or agent (i.e., report revenues on a net basis). Generally, we report advertising revenues for ads placed on Google Network Members’ properties on a gross basis, that is, the amounts billed to our customers arerecognized thereafter. Revenue backlog includes related deferred revenue currently recorded as revenues,well as amounts that will be invoiced in future periods, and amounts paid to Google Network Members are recorded as cost of revenues. Where we are the principal, we control the advertising inventory before it is transferred to our customers. Our control is evidenced by our sole ability to monetize the advertising inventory before it is transferred to our customers, and is further supported by us being primarily responsible to our customers and having a level of discretion in establishing pricing.
Other Revenues
Google other revenues and Other Bets revenues consist primarily of revenues from:
Apps, in-app purchases, and digital content in the Google Play store;
Google Cloud offerings;
Hardware; and
Other miscellaneous products and services.
As it relates to Google other revenues, the most significant judgment is determining whether we are the principal or agent for app sales and in-app purchases through the Google Play store. We report revenues from these transactions on a net basis because our performance obligation is to facilitate a transaction between app developers and end users,
for which we earn a commission. Consequently, the portion of the gross amount billed to end users that is remitted to app developers is not reflected as revenues.
Arrangements with Multiple Performance Obligations
Ourexcludes contracts with customers may include multiple performance obligations. For such arrangements, we allocate revenue to each performance obligation based on its relative standalone selling price. We generally determine standalone selling prices based on the prices charged to customersan original expected term of one year or using expected cost plus margin.less and cancellable contracts.
Deferred Revenues
We record deferred revenues when cash payments are received or due in advance of our performance, including amounts which are refundable. The increase in theDeferred revenues primarily relate to Google Cloud and Google subscriptions, platforms, and devices. Total deferred revenue balance for the nine months ended September 30, 2017 is primarily driven by cash payments received or due in advance of satisfying our performance obligations, offset by $779 million of revenues recognized that were included in the deferred revenue balance as of December 31, 2016.2023 was $5.0 billion, of which $2.4 billion was recognized as revenues during the three months ended March 31, 2024.
Our payment terms vary by the type and location of our customer and the products or services offered. The term between invoicing and when payment is due is not significant. For certain products or services and customer types, we require payment before the products or services are delivered to the customer.
Practical Expedients and Exemptions
We generally expense sales commissions when incurred because the amortization period would have been one year or less. These costs are recorded within sales and marketing expenses.
We do not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed.
Note 3. Financial Instruments
We classify ourFair Value Measurements
Investments Measured at Fair Value on a Recurring Basis
Cash, cash equivalents, and marketable equity securities are measured at fair value and classified within Level 1 and Level 2 in the fair value hierarchy, because we use quoted prices for identical assets in active markets
or inputs that are based upon quoted prices for similar instruments in active markets.
Debt securities are measured at fair value and classified within Level 2 in the fair value hierarchy, because we use quoted market prices to the extent available or alternative pricing sources and models utilizing market observable inputs to determine their fair value. We classify our foreign currency and interest rate derivative contracts primarily within Level 2 inFor certain marketable debt securities, we have elected the fair value hierarchy asoption for which changes in fair value are recorded in OI&E. The fair value option was elected for these securities to align with the valuation inputs are based on quoted pricesunrealized gains and market observable data of similar instruments.losses from related derivative contracts.
Cash, Cash Equivalents, and Marketable Securities
The following tables summarize our cash, cash equivalents, and marketable securities by significant investment categoriesmeasured at fair value on a recurring basis (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | As of December 31, 2023 |
| | Fair Value Hierarchy | | Adjusted Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value | | Cash and Cash Equivalents | | Marketable Securities |
Fair value changes recorded in other comprehensive income | | | | | | | | | | | | | | |
Time deposits | | Level 2 | | $ | 2,628 | | | $ | 0 | | | $ | 0 | | | $ | 2,628 | | | $ | 2,628 | | | $ | 0 | |
Government bonds | | Level 2 | | 38,106 | | 233 | | | (679) | | | 37,660 | | | 1,993 | | | 35,667 | |
Corporate debt securities | | Level 2 | | 22,457 | | 112 | | | (637) | | | 21,932 | | | 0 | | | 21,932 | |
Mortgage-backed and asset-backed securities | | Level 2 | | 17,243 | | 88 | | | (634) | | | 16,697 | | | 0 | | | 16,697 | |
Total investments with fair value change reflected in other comprehensive income(1) | | | | $ | 80,434 | | | $ | 433 | | | $ | (1,950) | | | $ | 78,917 | | | $ | 4,621 | | | $ | 74,296 | |
Fair value adjustments recorded in net income | | | | | | | | | | | | | | |
Money market funds | | Level 1 | | | | | | | | $ | 6,480 | | | $ | 6,480 | | | $ | 0 | |
Current marketable equity securities(2) | | Level 1 | | | | | | | | 4,282 | | | 0 | | | 4,282 | |
Mutual funds | | Level 2 | | | | | | | | 311 | | | 0 | | | 311 | |
Government bonds | | Level 2 | | | | | | | | 1,952 | | | 347 | | | 1,605 | |
Corporate debt securities | | Level 2 | | | | | | | | 3,782 | | | 91 | | | 3,691 | |
Mortgage-backed and asset-backed securities | | Level 2 | | | | | | | | 2,683 | | | 0 | | | 2,683 | |
Total investments with fair value change recorded in net income | | | | | | | | | | $ | 19,490 | | | $ | 6,918 | | | $ | 12,572 | |
Cash | | | | | | | | | | 0 | | | 12,509 | | | 0 | |
Total | | | | $ | 80,434 | | | $ | 433 | | | $ | (1,950) | | | $ | 98,407 | | | $ | 24,048 | | | $ | 86,868 | |
(1)Represents gross unrealized gains and losses for debt securities recorded to accumulated other comprehensive income (AOCI).
(2)The long-term portion of marketable equity securities (subject to long-term lock-up restrictions) of $1.4 billion as of December 31, 2016 and September 30, 2017 (in millions):2023 is included within other non-current assets.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| As of December 31, 2016 |
| Adjusted Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value | | Cash and Cash Equivalents | | Marketable Securities |
Cash | $ | 7,078 |
| | $ | 0 |
| | $ | 0 |
| | $ | 7,078 |
| | $ | 7,078 |
| | $ | 0 |
|
Level 1: | | | | | | | | | | | |
Money market and other funds | 4,783 |
| | 0 |
| | 0 |
| | 4,783 |
| | 4,783 |
| | 0 |
|
U.S. government notes | 38,454 |
| | 46 |
| | (215 | ) | | 38,285 |
| | 613 |
| | 37,672 |
|
Marketable equity securities | 160 |
| | 133 |
| | 0 |
| | 293 |
| | 0 |
| | 293 |
|
| 43,397 |
| | 179 |
| | (215 | ) | | 43,361 |
| | 5,396 |
| | 37,965 |
|
Level 2: | | | | | | | | | | | |
Time deposits(1) | 142 |
| | 0 |
| | 0 |
| | 142 |
| | 140 |
| | 2 |
|
Mutual funds(2) | 204 |
| | 7 |
| | 0 |
| | 211 |
| | 0 |
| | 211 |
|
U.S. government agencies | 1,826 |
| | 0 |
| | (11 | ) | | 1,815 |
| | 300 |
| | 1,515 |
|
Foreign government bonds | 2,345 |
| | 18 |
| | (7 | ) | | 2,356 |
| | 0 |
| | 2,356 |
|
Municipal securities | 4,757 |
| | 15 |
| | (65 | ) | | 4,707 |
| | 2 |
| | 4,705 |
|
Corporate debt securities | 12,993 |
| | 114 |
| | (116 | ) | | 12,991 |
| | 2 |
| | 12,989 |
|
Agency mortgage-backed securities | 12,006 |
| | 26 |
| | (216 | ) | | 11,816 |
| | 0 |
| | 11,816 |
|
Asset-backed securities | 1,855 |
| | 2 |
| | (1 | ) | | 1,856 |
| | 0 |
| | 1,856 |
|
| 36,128 |
| | 182 |
| | (416 | ) | | 35,894 |
| | 444 |
| | 35,450 |
|
Total | $ | 86,603 |
| | $ | 361 |
| | $ | (631 | ) | | $ | 86,333 |
| | $ | 12,918 |
| | $ | 73,415 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| As of September 30, 2017 |
| Adjusted Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value | | Cash and Cash Equivalents | | Marketable Securities |
| (unaudited) |
Cash | $ | 6,460 |
| | $ | 0 |
| | $ | 0 |
| | $ | 6,460 |
| | $ | 6,460 |
| | $ | 0 |
|
Level 1: | | | | | | | | | | | |
Money market and other funds | 1,450 |
| | 0 |
| | 0 |
| | 1,450 |
| | 1,450 |
| | 0 |
|
U.S. government notes | 40,268 |
| | 12 |
| | (163 | ) | | 40,117 |
| | 919 |
| | 39,198 |
|
Marketable equity securities | 226 |
| | 120 |
| | (2 | ) | | 344 |
| | 0 |
| | 344 |
|
| 41,944 |
| | 132 |
| | (165 | ) | | 41,911 |
| | 2,369 |
| | 39,542 |
|
Level 2: | | | | | | | | | | | |
Time deposits(1) | 145 |
| | 0 |
| | 0 |
| | 145 |
| | 143 |
| | 2 |
|
Mutual funds(2) | 233 |
| | 14 |
| | 0 |
| | 247 |
| | 0 |
| | 247 |
|
U.S. government agencies | 2,841 |
| | 0 |
| | (9 | ) | | 2,832 |
| | 17 |
| | 2,815 |
|
Foreign government bonds | 2,464 |
| | 8 |
| | (15 | ) | | 2,457 |
| | 0 |
| | 2,457 |
|
Municipal securities | 6,774 |
| | 17 |
| | (10 | ) | | 6,781 |
| | 13 |
| | 6,768 |
|
Corporate debt securities | 23,107 |
| | 49 |
| | (35 | ) | | 23,121 |
| | 1,579 |
| | 21,542 |
|
Agency mortgage-backed securities | 10,984 |
| | 17 |
| | (76 | ) | | 10,925 |
| | 0 |
| | 10,925 |
|
Asset-backed securities | 5,261 |
| | 7 |
| | (4 | ) | | 5,264 |
| | 0 |
| | 5,264 |
|
| 51,809 |
| | 112 |
| | (149 | ) | | 51,772 |
| | 1,752 |
| | 50,020 |
|
Total | $ | 100,213 |
| | $ | 244 |
| | $ | (314 | ) | | $ | 100,143 |
| | $ | 10,581 |
| | $ | 89,562 |
|
| | | | | |
| The majority of our time deposits are foreign deposits.Alphabet Inc. |
| |
(2)
| The fair value option was elected for mutual funds with gains (losses) recognized in other income (expense), net. |
We determine realized | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | As of March 31, 2024 |
| | Fair Value Hierarchy | | Adjusted Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value | | Cash and Cash Equivalents | | Marketable Securities |
Fair value changes recorded in other comprehensive income | | | | | | | | | | | | | | |
Time deposits | | Level 2 | | $ | 2,812 | | | $ | 0 | | | $ | 0 | | | $ | 2,812 | | | $ | 2,812 | | | $ | 0 | |
Government bonds | | Level 2 | | 36,336 | | | 88 | | | (595) | | | 35,829 | | | 2,724 | | | 33,105 | |
Corporate debt securities | | Level 2 | | 22,085 | | | 64 | | | (546) | | | 21,603 | | | 0 | | | 21,603 | |
Mortgage-backed and asset-backed securities | | Level 2 | | 17,018 | | | 47 | | | (642) | | | 16,423 | | | 0 | | | 16,423 | |
Total investments with fair value change reflected in other comprehensive income(1) | | | | $ | 78,251 | | | $ | 199 | | | $ | (1,783) | | | $ | 76,667 | | | $ | 5,536 | | | $ | 71,131 | |
Fair value adjustments recorded in net income | | | | | | | | | | | | | | |
Money market funds | | Level 1 | | | | | | | | $ | 6,890 | | | $ | 6,890 | | | $ | 0 | |
Current marketable equity securities(2) | | Level 1 | | | | | | | | 3,998 | | | 0 | | | 3,998 | |
Mutual funds | | Level 2 | | | | | | | | 278 | | 0 | | | 278 |
Government bonds | | Level 2 | | | | | | | | 1,965 | | 158 | | | 1,807 |
Corporate debt securities | | Level 2 | | | | | | | | 3,772 | | 80 | | | 3,692 |
Mortgage-backed and asset-backed securities | | Level 2 | | | | | | | | 2,691 | | 0 | | | 2,691 |
Total investments with fair value change recorded in net income | | | | | | | | | | $ | 19,594 | | | $ | 7,128 | | | $ | 12,466 | |
Cash | | | | | | | | | | 0 | | | 11,829 | | | 0 | |
Total | | | | $ | 78,251 | | | $ | 199 | | | $ | (1,783) | | | $ | 96,261 | | | $ | 24,493 | | | $ | 83,597 | |
(1)Represents gross unrealized gains orand losses on the salefor debt securities recorded to AOCI.
(2)The long-term portion of marketable equity securities (subject to long-term lock-up restrictions) of $1.4 billion as of March 31, 2024 is included within other non-current assets.
Investments Measured at Fair Value on a specific identification method. We recognized gross realized gainsNonrecurring Basis
Our non-marketable equity securities are investments in privately held companies without readily determinable market values. The carrying value of $62 millionour non-marketable equity securities is adjusted to fair value upon observable transactions for identical or similar investments of the same issuer or impairment. Non-marketable equity securities that have been remeasured during the period based on observable transactions are classified within Level 2 or Level 3 in the fair value hierarchy. Non-marketable equity securities that have been remeasured due to impairment are classified within Level 3. Our valuation methods include option pricing models, market comparable approach, and $21 million forcommon stock equivalent method, which may include a combination of the observable transaction price at the transaction date and other unobservable inputs including volatility, expected time to exit, risk free rate, and the rights, and obligations of the securities we hold. These inputs significantly vary based on investment type.
As of March 31, 2024, the carrying value of our non-marketable equity securities was $31.4 billion, of which $13.6 billion were remeasured at fair value during the three months ended September 30, 2016March 31, 2024 and 2017, respectively, and $221 million and $193 million forprimarily classified within Level 2 of the nine months ended September 30, 2016 and 2017, respectively. We recognized gross realized lossesfair value hierarchy at the time of $12 million and $65 million for the three months ended September 30, 2016 and 2017, respectively, and $347 million and $274 million for the nine months ended September 30, 2016 and 2017, respectively. We reflect these gains and losses as a component of other income (expense), net, in the accompanying Consolidated Statements of Income.measurement.
Debt Securities
The following table summarizes the estimated fair value of our investments in available-for-sale marketable debt securities accounted for as available-for-sale securities and classified by theeffective contractual maturity date of the securitiesdates (in millions, unaudited)millions):
|
| | | |
| As of September 30, 2017 |
Due in 1 year | $ | 22,234 |
|
Due in 1 year through 5 years | 52,502 |
|
Due in 5 years through 10 years | 2,172 |
|
Due after 10 years | 12,063 |
|
Total | $ | 88,971 |
|
Impairment Considerations for Marketable Investments | | | | | |
| As of March 31, 2024 |
Due in 1 year or less | $ | 8,551 | |
Due in 1 year through 5 years | 42,755 | |
Due in 5 years through 10 years | 13,972 | |
Due after 10 years | 14,043 | |
Total | $ | 79,321 | |
The following tables present fair values and gross unrealized losses and fair values for those investments that were in an unrealized loss position as of December 31, 2016 and September 30, 2017,recorded to AOCI, aggregated by investment category and the length of time that individual securities have been in a continuous loss position (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of December 31, 2023 |
| Less than 12 Months | | 12 Months or Greater | | Total |
| Fair Value | | Unrealized Loss | | Fair Value | | Unrealized Loss | | Fair Value | | Unrealized Loss |
Government bonds | $ | 1,456 | | | $ | (22) | | | $ | 13,897 | | | $ | (657) | | | $ | 15,353 | | | $ | (679) | |
Corporate debt securities | 827 | | | (5) | | | 15,367 | | | (592) | | | 16,194 | | | (597) | |
Mortgage-backed and asset-backed securities | 2,945 | | | (26) | | | 7,916 | | | (608) | | | 10,861 | | | (634) | |
Total | $ | 5,228 | | | $ | (53) | | | $ | 37,180 | | | $ | (1,857) | | | $ | 42,408 | | | $ | (1,910) | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| As of December 31, 2016 |
| Less than 12 Months | | 12 Months or Greater | | Total |
| Fair Value | | Unrealized Loss | | Fair Value | | Unrealized Loss | | Fair Value | | Unrealized Loss |
U.S. government notes | $ | 26,411 |
| | $ | (215 | ) | | $ | 0 |
| | $ | 0 |
| | $ | 26,411 |
| | $ | (215 | ) |
U.S. government agencies | 1,014 |
| | (11 | ) | | 0 |
| | 0 |
| | 1,014 |
| | (11 | ) |
Foreign government bonds | 956 |
| | (7 | ) | | 0 |
| | 0 |
| | 956 |
| | (7 | ) |
Municipal securities | 3,461 |
| | (63 | ) | | 46 |
| | (2 | ) | | 3,507 |
| | (65 | ) |
Corporate debt securities | 6,184 |
| | (111 | ) | | 166 |
| | (5 | ) | | 6,350 |
| | (116 | ) |
Agency mortgage-backed securities | 10,184 |
| | (206 | ) | | 259 |
| | (10 | ) | | 10,443 |
| | (216 | ) |
Asset-backed securities | 391 |
| | (1 | ) | | 0 |
| | 0 |
| | 391 |
| | (1 | ) |
Total | $ | 48,601 |
| | $ | (614 | ) | | $ | 471 |
| | $ | (17 | ) | | $ | 49,072 |
| | $ | (631 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of March 31, 2024 |
| Less than 12 Months | | 12 Months or Greater | | Total |
| Fair Value | | Unrealized Loss | | Fair Value | | Unrealized Loss | | Fair Value | | Unrealized Loss |
Government bonds | $ | 14,539 | | | $ | (116) | | | $ | 9,276 | | | $ | (479) | | | $ | 23,815 | | | $ | (595) | |
Corporate debt securities | 2,653 | | | (8) | | | 13,022 | | | (494) | | | 15,675 | | | (502) | |
Mortgage-backed and asset-backed securities | 4,895 | | | (79) | | | 6,851 | | | (563) | | | 11,746 | | | (642) | |
Total | $ | 22,087 | | | $ | (203) | | | $ | 29,149 | | | $ | (1,536) | | | $ | 51,236 | | | $ | (1,739) | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| As of September 30, 2017 |
| Less than 12 Months | | 12 Months or Greater | | Total |
| Fair Value | | Unrealized Loss | | Fair Value | | Unrealized Loss | | Fair Value | | Unrealized Loss |
| (unaudited) |
U.S. government notes | $ | 26,626 |
| | $ | (115 | ) | | $ | 5,409 |
| | $ | (48 | ) | | $ | 32,035 |
| | $ | (163 | ) |
U.S. government agencies | 2,751 |
| | (9 | ) | | 0 |
| | 0 |
| | 2,751 |
| | (9 | ) |
Foreign government bonds | 1,362 |
| | (13 | ) | | 123 |
| | (2 | ) | | 1,485 |
| | (15 | ) |
Municipal securities | 2,118 |
| | (6 | ) | | 432 |
| | (4 | ) | | 2,550 |
| | (10 | ) |
Corporate debt securities | 11,153 |
| | (27 | ) | | 793 |
| | (8 | ) | | 11,946 |
| | (35 | ) |
Agency mortgage-backed securities | 8,450 |
| | (62 | ) | | 728 |
| | (14 | ) | | 9,178 |
| | (76 | ) |
Asset-backed securities | 2,572 |
| | (4 | ) | | 0 |
| | 0 |
| | 2,572 |
| | (4 | ) |
Marketable equity securities | 38 |
| | (2 | ) | | 0 |
| | 0 |
| | 38 |
| | (2 | ) |
Total | $ | 55,070 |
| | $ | (238 | ) | | $ | 7,485 |
| | $ | (76 | ) | | $ | 62,555 |
| | $ | (314 | ) |
DuringWe determine realized gains or losses on the three months ended September 30, 2016sale or extinguishment of debt securities on a specific identification method. The following table summarizes gains and the three and nine months ended September 30, 2017, we did not recognize any other-than-temporary impairment losses. During the nine months ended September 30, 2016, we recognized $87 million of other-than-temporary impairment losses related to our marketable equity securities. Those losses are included in gain (loss) on marketablefor debt securities, net,reflected as a component of other income (expense),OI&E (in millions):
| | | | | | | | | | | | | | | |
| Three Months Ended | | |
| March 31, | | |
| 2023 | | 2024 | | | | |
Unrealized gain (loss) on fair value option debt securities | $ | 145 | | | $ | (46) | | | | | |
Gross realized gain on debt securities | 57 | | | 68 | | | | | |
Gross realized loss on debt securities | (492) | | | (480) | | | | | |
(Increase) decrease in allowance for credit losses | (3) | | | (4) | | | | | |
Total gain (loss) on debt securities recognized in other income (expense), net | $ | (293) | | | $ | (462) | | | | | |
Equity Investments
The carrying value of equity securities is measured as the total initial cost plus the cumulative net gain (loss). Gains and losses, including impairments, are included as a component of OI&E in the accompanying Consolidated Statements of Income. See Note 6 for further details on other income (expense)OI&E.
The carrying values for marketable and non-marketable equity securities are summarized below (in millions): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of December 31, 2023 | | As of March 31, 2024 |
| Marketable Equity Securities | | Non-Marketable Equity Securities | | Total | | Marketable Equity Securities | | Non-Marketable Equity Securities | | Total |
Total initial cost | $ | 5,418 | | | $ | 17,616 | | | $ | 23,034 | | | $ | 5,083 | | | $ | 18,505 | | | $ | 23,588 | |
Cumulative net gain (loss)(1) | 555 | | | 11,150 | | | 11,705 | | | 570 | | | 12,925 | | | 13,495 | |
Carrying value | $ | 5,973 | | | $ | 28,766 | | | $ | 34,739 | | | $ | 5,653 | | | $ | 31,430 | | | $ | 37,083 | |
(1)Non-marketable equity securities cumulative net gain (loss) is comprised of $18.1 billion gains and $6.9 billion losses (including impairments) as of December 31, 2023 and $20.6 billion gains and $7.7 billion losses (including impairments) as of March 31, 2024.
Gains and Losses on Marketable and Non-marketable Equity Securities
Gains and losses (including impairments), net.net, for marketable and non-marketable equity securities included in OI&E are summarized below (in millions):
| | | | | | | | | | | | | | | |
| Three Months Ended | | |
| March 31, | | |
| 2023 | | 2024 | | | | |
Realized net gain (loss) on equity securities sold during the period | $ | 105 | | | $ | 95 | | | | | |
Unrealized net gain (loss) on marketable equity securities | 51 | | | 164 | | | | | |
Unrealized net gain (loss) on non-marketable equity securities(1) | 221 | | | 1,984 | | | | | |
Total gain (loss) on equity securities in other income (expense), net | $ | 377 | | | $ | 2,243 | | | | | |
(1)Unrealized gain (loss) on non-marketable equity securities accounted for under the measurement alternative is comprised of $915 million and $2.8 billion of upward adjustments and $694 million and $814 million of downward adjustments (including impairments) for the three months ended March 31, 2023 and 2024, respectively.
In the table above, realized net gain (loss) on equity securities sold during the period reflects the difference between the sale proceeds and the carrying value of the equity securities at the beginning of the period or the purchase date, if later.
Cumulative net gains (losses) on equity securities sold during the period, which is summarized in the following table (in millions), represents the total net gains (losses) recognized after the initial purchase date of the equity security sold during the period. While these net gains (losses) may have been reflected in periods prior to the period of sale, we believe they are important supplemental information as they reflect the economic net gains (losses) on the securities sold during the period. Cumulative net gains (losses) are calculated as the difference between the sale price and the initial purchase price for the equity security sold during the period.
| | | | | | | | | | | | | | | |
| Equity Securities Sold |
| Three Months Ended | | |
| March 31, | | |
| 2023 | | 2024 | | | | |
Total sale price | $ | 312 | | | $ | 1,090 | | | | | |
Total initial cost | 211 | | | 661 | | | | | |
Cumulative net gains (losses) | $ | 101 | | | $ | 429 | | | | | |
Equity Securities Accounted for Under the Equity Method
As of December 31, 2023 and March 31, 2024, equity securities accounted for under the equity method had a carrying value of approximately $1.7 billion and $2.0 billion, respectively. Our share of gains and losses, including impairments, are included as a component of OI&E, in the Consolidated Statements of Income. See Note 6 for further details on OI&E.
Derivative Financial Instruments
We recognizeuse derivative instruments as either assets or liabilities in the accompanying Consolidated Balance Sheets at fair value.to manage risks relating to our ongoing business operations. The primary risk managed is foreign exchange risk. We record changes in the fair value (i.e., gains or losses) of the derivatives in the accompanying Consolidated Statements of Income as either other income (expense), net, or revenues, or in the accompanying Consolidated Balance Sheets in accumulated other comprehensive income (AOCI), as discussed below.
We enter intouse foreign currency contracts with financial institutions to reduce the risk that our cash flows, earnings, and earningsinvestment in foreign subsidiaries will be adversely affected by foreign currency exchange rate fluctuations. We use certain interest ratealso enter into derivative contractsinstruments to hedge interest rate exposures onpartially offset our fixed income securitiesexposure to other risks and debt issuances. Our program is not used for trading or speculative purposes.enhance investment returns.
We enter into master netting arrangements, which reduce credit risk by permitting net settlement of transactions withrecognize derivative instruments in the same counterparty. To further reduce credit risk, we enter into collateral security arrangements under which the counterparty is required to provide collateral when the netConsolidated Balance Sheets at fair value of certain financial instruments fluctuates from contractually established thresholds. We can take possession ofand classify the collateralderivatives primarily within Level 2 in the event of counterparty default. As of December 31, 2016 and September 30, 2017, we received cash collateral related to the derivative instruments underfair value hierarchy. We present our collateral security arrangements of $362 million and $47 million, respectively.
Cash Flow Hedges
We use foreign currency forwards and optioncollar contracts including collars (an option strategy comprised of a combination of purchased and written options), designated at net fair values and present all other derivatives at gross fair values. The accounting treatment for derivatives is based on the intended use and hedge designation.
Cash Flow Hedges
We designate foreign currency forward and option contracts (including collars) as cash flow hedges to hedge certain forecasted revenue transactions denominated in currencies other than the U.S. dollar and at times we use interest rate swaps to effectively lock interest rates on anticipated debt issuances. These transactions are designated as cash flow hedges. The notional principal of these contracts was approximately $10.7 billion and $11.7 billion as of December 31, 2016 and September 30, 2017, respectively.United States (U.S.) dollar. These contracts have maturities of 24 months or less.less.
We reflect gain or loss on the effective portion of a cashCash flow hedge as a componentamounts included in the assessment of hedge effectiveness are deferred in AOCI and subsequently reclassify cumulative gains and lossesreclassified to revenues or interest expenserevenue when the hedged transactions are recorded. If the hedged transactions become probable of not occurring, the corresponding amountsitem is recognized in AOCI are immediately reclassified to other income (expense), net.For foreign currency collars, we include the change in time value in our assessment of hedge effectiveness.For forwards and all other option contracts, weearnings. We exclude the change in the forward points and time value from our assessment of hedge effectiveness. We recognizeeffectiveness and amortize them on a straight-line basis over the life of the hedging instrument in revenues. The difference between fair value changes of the excluded componentscomponent and the amount amortized to revenues is recorded in other income (expense), net.AOCI.
As of September 30, 2017,March 31, 2024, the effective portion ofnet accumulated gain on our foreign currency cash flow hedges before tax effect was a net accumulated loss of $440$128 million, of which a net loss of $473 million is expected to be reclassified from AOCI into earningsrevenues within the next 12 months.
Fair Value Hedges
We usedesignate foreign currency forward contracts designated as fair value hedges to hedge foreign currency risks for our investmentsmarketable securities denominated in currencies other than the U.S. dollar. We exclude changesFair value hedge amounts included in forward points for the forward contracts from the assessment of hedge effectiveness. The notional principal of these contracts was $2.4 billion and $2.5 billion as of December 31, 2016 and September 30, 2017, respectively.
Gains and losses on these forward contractseffectiveness are recognized in other income (expense), net,OI&E, along with the offsetting gains and losses of the related hedged items. We exclude forward points from the assessment of hedge effectiveness and recognize changes in the excluded component in OI&E.
Net Investment Hedges
We designate foreign currency forward contracts as net investment hedges to hedge the foreign currency risks related to our investment in foreign subsidiaries. Net investment hedge amounts included in the assessment of hedge effectiveness are recognized in AOCI along with the foreign currency translation adjustment. We exclude forward points from the assessment of hedge effectiveness and recognize changes in the excluded component in OI&E.
Other Derivatives
Other derivativesWe enter into foreign currency forward and option contracts that are not designated as hedging instruments consist of foreign currency forward contracts that we use to hedge intercompany transactions and other monetary assets or liabilities denominated in currencies other than the localfunctional currency of a subsidiary. We recognize gainsGains and losses on these contracts,derivatives that are not designated as well as the related costsaccounting hedges are primarily recorded in other income (expense), net,OI&E along with the foreign currency gains and losses on monetary assets and liabilities. The notional principal of
We also use derivatives not designated as hedging instruments to manage risks relating to interest rates, commodity prices, and credit exposures, and to enhance investment returns. From time to time, we enter into derivatives to hedge the outstanding foreign exchange contracts was $7.9 billion and $17.2 billion as of December 31, 2016 and September 30, 2017, respectively.
The fair valuesmarket price risk on certain of our marketable equity securities. Gains and losses arising from other derivatives are primarily reflected within the “other” component of OI&E. See Note 6 for further details.
The gross notional amounts of outstanding derivative instruments were as follows (in millions): | | | | | | | | | | | |
| As of December 31, 2023 | | As of March 31, 2024 |
Derivatives designated as hedging instruments: | | |
Foreign exchange contracts | | | |
Cash flow hedges | $ | 18,039 | | | $ | 17,726 | |
Fair value hedges | $ | 2,065 | | | $ | 1,847 | |
Net investment hedges | $ | 9,472 | | | $ | 9,321 | |
Derivatives not designated as hedging instruments: | | |
Foreign exchange contracts(1) | $ | 39,722 | | | $ | 107,978 | |
Other contracts | $ | 10,818 | | | $ | 10,902 | |
|
| | | | | | | | | | | | | |
| | | As of December 31, 2016 |
| Balance Sheet Location | | Fair Value of Derivatives Designated as Hedging Instruments | | Fair Value of Derivatives Not Designated as Hedging Instruments | | Total Fair Value |
Derivative Assets: | | | | | | | |
Level 2: | | | | | | | |
Foreign exchange contracts | Other current and non-current assets | | $ | 539 |
| | $ | 57 |
| | $ | 596 |
|
Total | | | $ | 539 |
| | $ | 57 |
| | $ | 596 |
|
Derivative Liabilities: | | | | | | | |
Level 2: | | | | | | | |
Foreign exchange contracts | Accrued expenses and other liabilities, current and non-current | | $ | 4 |
| | $ | 9 |
| | $ | 13 |
|
Total | | | $ | 4 |
| | $ | 9 |
| | $ | 13 |
|
|
| | | | | | | | | | | | | |
| | | As of September 30, 2017 |
| Balance Sheet Location | | Fair Value of Derivatives Designated as Hedging Instruments | | Fair Value of Derivatives Not Designated as Hedging Instruments | | Total Fair Value |
| | | (unaudited) |
Derivative Assets: | | | | | | | |
Level 2: | | | | | | | |
Foreign exchange contracts | Other current and non-current assets | | $ | 53 |
| | $ | 113 |
| | $ | 166 |
|
Total | | | $ | 53 |
| | $ | 113 |
| | $ | 166 |
|
Derivative Liabilities: | | | | | | | |
Level 2: | | | | | | | |
Foreign exchange contracts | Accrued expenses and other liabilities, current and non-current | | $ | 459 |
| | $ | 123 |
| | $ | 582 |
|
Total | | | $ | 459 |
| | $ | 123 |
| | $ | 582 |
|
(1) The effectgross notional amounts of these derivative instruments as of March 31, 2024 reflect a rollover in timing of settlement into our second quarter as a result of a holiday market closure.
The fair values of outstanding derivative instruments were as follows (in millions): | | | | | | | | | | | | | | | | | | | | | | | |
| As of December 31, 2023 | | As of March 31, 2024 |
| Assets(1) | | Liabilities(2) | | Assets(1) | | Liabilities(2) |
Derivatives designated as hedging instruments: | | | | | | | |
Foreign exchange contracts | $ | 205 | | | $ | 242 | | | $ | 150 | | | $ | 125 | |
| | | | | | | |
Derivatives not designated as hedging instruments: | | | | | | | |
Foreign exchange contracts | 134 | | 156 | | 317 | | 221 |
Other contracts | 114 | | 47 | | 164 | | 40 |
Total derivatives not designated as hedging instruments | 248 | | | 203 | | | 481 | | | 261 | |
Total | $ | 453 | | | $ | 445 | | | $ | 631 | | | $ | 386 | |
(1) Derivative assets are recorded as other current and non-current assets in the Consolidated Balance Sheets.
(2) Derivative liabilities are recorded as accrued expenses and other liabilities, current and non-current in the Consolidated Balance Sheets.
The gains (losses) on derivatives in cash flow hedging and net investment hedging relationships on income and recognized in other comprehensivecomprehensive income (OCI) isare summarized below (in millions, unaudited)millions): | | | | | | | | | | | | | | |
| Three Months Ended | |
| March 31, | |
| 2023 | | 2024 | | | |
Derivatives in cash flow hedging relationship: | | | | | | |
Foreign exchange contracts | | | | | | |
Amount included in the assessment of effectiveness | $ | (138) | | | $ | 155 | | | | |
Amount excluded from the assessment of effectiveness | 47 | | | 58 | | | | |
| | | | | | |
Derivatives in net investment hedging relationship: | | | | | | |
Foreign exchange contracts | | | | | | |
Amount included in the assessment of effectiveness | (215) | | | 82 | | | | |
Total | $ | (306) | | | $ | 295 | | | | |
|
| | | | | | | | | | | | | | | |
| Gains (Losses) Recognized in OCI on Derivatives Before Tax Effect (Effective Portion) |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
Derivatives in Cash Flow Hedging Relationship | 2016 | | 2017 | | 2016 | | 2017 |
Foreign exchange contracts | $ | 52 |
| | $ | (324 | ) | | $ | 240 |
| | $ | (1,011 | ) |
17
|
| | | | | | | | | | | | | | | | | |
| Gains (Losses) Reclassified from AOCI into Income (Effective Portion) |
| | | Three Months Ended | | Nine Months Ended |
| | | September 30, | | September 30, |
Derivatives in Cash Flow Hedging Relationship | Location | | 2016 | | 2017 | | 2016 | | 2017 |
Foreign exchange contracts | Revenues | | $ | 105 |
| | $ | (191 | ) | | $ | 352 |
| | $ | 29 |
|
Interest rate contracts | Other income (expense), net | | 1 |
| | 1 |
| | 4 |
| | 4 |
|
Total | | | $ | 106 |
| | $ | (190 | ) | | $ | 356 |
| | $ | 33 |
|
The table below presents the gains (losses) of our derivatives on the Consolidated Statements of Income: (in millions): | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2024 |
| 2023 | | 2024 |
| Revenues | | Other income (expense), net | | Revenues | | Other income (expense), net |
Total amounts in the Consolidated Statements of Income | $ | 69,787 | | | $ | 790 | | | $ | 80,539 | | | $ | 2,843 | |
| | | | | | | |
Effect of cash flow hedges: | | | | | | | |
Foreign exchange contracts | | | | | | | |
Amount reclassified from AOCI to income | $ | 88 | | | $ | 0 | | | $ | 74 | | | $ | 0 | |
Amount excluded from the assessment of effectiveness (amortized) | (4) | | | 0 | | | (2) | | | 0 | |
Effect of fair value hedges: | | | | | | | |
Foreign exchange contracts | | | | | | | |
Hedged items | 0 | | | 32 | | | 0 | | | (16) | |
Derivatives designated as hedging instruments | 0 | | | (32) | | | 0 | | | 15 | |
Amount excluded from the assessment of effectiveness | 0 | | | 5 | | | 0 | | | 3 | |
Effect of net investment hedges: | | | | | | | |
Foreign exchange contracts | | | | | | | |
Amount excluded from the assessment of effectiveness | 0 | | | 51 | | | 0 | | | 36 | |
Effect of non designated hedges: | | | | | | | |
Foreign exchange contracts | 0 | | | 30 | | | 0 | | | 21 | |
Other contracts | 0 | | | 3 | | | 0 | | | 76 | |
Total gains (losses) | $ | 84 | | | $ | 89 | | | $ | 72 | | | $ | 135 | |
|
| | | | | | | | | | | | | | | | | |
| Gains (Losses) Recognized in Income on Derivatives (Amount Excluded from Effectiveness Testing and Ineffective Portion) (1) |
| | | Three Months Ended | | Nine Months Ended |
| | | September 30, | | September 30, |
Derivatives in Cash Flow Hedging Relationship | Location | | 2016 | | 2017 | | 2016 | | 2017 |
Foreign exchange contracts | Other income (expense), net | | $ | (102 | ) | | $ | 26 |
| | $ | (361 | ) | | $ | 72 |
|
| |
(1)
| Gains (losses) related to the ineffective portion of the hedges were not material in all periods presented. |
The effect of derivative instruments in fair value hedging relationships on income is summarized below (in millions, unaudited):
|
| | | | | | | | | | | | | | | | | |
| Gains (Losses) Recognized in Income on Derivatives(2) |
| | | Three Months Ended | | Nine Months Ended |
| | | September 30, | | September 30, |
Derivatives in Fair Value Hedging Relationship | Location | | 2016 | | 2017 | | 2016 | | 2017 |
Foreign Exchange Hedges: | | | | | | | | | |
Foreign exchange contracts | Other income (expense), net | | $ | 1 |
| | $ | (89 | ) | | $ | 26 |
| | $ | (216 | ) |
Hedged item | Other income (expense), net | | 1 |
| | 94 |
| | (24 | ) | | 230 |
|
Total | | | $ | 2 |
| | $ | 5 |
| | $ | 2 |
| | $ | 14 |
|
| |
(2)
| Amounts excluded from effectiveness testing and the ineffective portion of the fair value hedging relationships were not material in all periods presented. |
The effect of derivative instruments not designated as hedging instruments on income is summarized below (in millions, unaudited):
|
| | | | | | | | | | | | | | | | | |
| Gains (Losses) Recognized in Income on Derivatives |
| | | Three Months Ended | | Nine Months Ended |
| | | September 30, | | September 30, |
Derivatives Not Designated As Hedging Instruments | Location | | 2016 | | 2017 | | 2016 | | 2017 |
Foreign exchange contracts | Other income (expense), net | | $ | (67 | ) | | $ | (39 | ) | | $ | (147 | ) | | $ | (263 | ) |
Offsetting of Derivatives
We present our forwards and purchased options at gross fair values in the Consolidated Balance Sheets. For foreign currency collars, we present at net fair values where both purchased and written options are with the same counterparty. Ourenter into master netting arrangements and other similarcollateral security arrangements allow net settlements under certain conditions. As of December 31, 2016 and September 30, 2017, informationto reduce credit risk. Cash collateral received related to these offsettingderivative instruments under our collateral security arrangements are included in other current assets with a corresponding liability. Cash and non-cash collateral pledged related to derivative instruments under our collateral security arrangements are included in other current assets.
The gross amounts of derivative instruments subject to master netting arrangements with various counterparties, and cash and non-cash collateral received and pledged under such agreements were as follows (in millions):
Offsetting | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of December 31, 2023 |
| | | | | | | Gross Amounts Not Offset in the Consolidated Balance Sheets, but Have Legal Rights to Offset | | |
| Gross Amounts Recognized | | Gross Amounts Offset in the Consolidated Balance Sheets | | Net Amounts Presented in the Consolidated Balance Sheets | | Financial Instruments(1) | | Cash and Non-Cash Collateral Received or Pledged | | Net Amounts |
Derivatives assets | $ | 535 | | | $ | (82) | | | $ | 453 | | | $ | (213) | | | $ | (75) | | | $ | 165 | |
Derivatives liabilities | $ | 527 | | | $ | (82) | | | $ | 445 | | | $ | (213) | | | $ | (16) | | | $ | 216 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of March 31, 2024 |
| | | | | | | Gross Amounts Not Offset in the Consolidated Balance Sheets, but Have Legal Rights to Offset | | |
| Gross Amounts Recognized | | Gross Amounts Offset in the Consolidated Balance Sheets | | Net Amounts Presented in the Consolidated Balance Sheets | | Financial Instruments(1) | | Cash and Non-Cash Collateral Received or Pledged | | Net Amounts |
Derivatives assets | $ | 705 | | | $ | (74) | | | $ | 631 | | | $ | (179) | | | $ | (264) | | | $ | 188 | |
Derivatives liabilities | $ | 460 | | | $ | (74) | | | $ | 386 | | | $ | (179) | | | $ | (9) | | | $ | 198 | |
(1)The balances as of AssetsDecember 31, 2023 and March 31, 2024 were related to derivatives allowed to be net settled in accordance with our master netting agreements.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of December 31, 2016 |
| | | | | | | Gross Amounts Not Offset in the Consolidated Balance Sheets, but Have Legal Rights to Offset | | |
Description | Gross Amounts of Recognized Assets | | Gross Amounts Offset in the Consolidated Balance Sheets | | Net Presented in the Consolidated Balance Sheets | | Financial Instruments | | Cash Collateral Received | | Non-Cash Collateral Received | | Net Assets Exposed |
Derivatives | $ | 596 |
| | $ | 0 |
| | $ | 596 |
| | $ | (11 | ) | (1) | $ | (337 | ) | | $ | (73 | ) | | $ | 175 |
|
| | | | | | | | | | | | | |
| As of September 30, 2017 |
| | | | | | | Gross Amounts Not Offset in the Consolidated Balance Sheets, but Have Legal Rights to Offset | | |
Description | Gross Amounts of Recognized Assets | | Gross Amounts Offset in the Consolidated Balance Sheets | | Net Presented in the Consolidated Balance Sheets | | Financial Instruments | | Cash Collateral Received | | Non-Cash Collateral Received | | Net Assets Exposed |
| (unaudited) |
Derivatives | $ | 183 |
| | $ | (17 | ) | | $ | 166 |
| | $ | (122 | ) | (1) | $ | (37 | ) | | $ | 0 |
| | $ | 7 |
|
| |
(1)
| The balances as of December 31, 2016 and September 30, 2017 were related to derivative liabilities which are allowed to be net settled against derivative assets in accordance with our master netting agreements. |
Offsetting of Liabilities
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of December 31, 2016 |
| | | | | | | Gross Amounts Not Offset in the Consolidated Balance Sheets, but Have Legal Rights to Offset | | |
Description | Gross Amounts of Recognized Liabilities | | Gross Amounts Offset in the Consolidated Balance Sheets | | Net Presented in the Consolidated Balance Sheets | | Financial Instruments | | Cash Collateral Pledged | | Non-Cash Collateral Pledged | | Net Liabilities |
Derivatives | $ | 13 |
| | $ | 0 |
| | $ | 13 |
| | $ | (11 | ) | (2) | $ | 0 |
| | $ | 0 |
| | $ | 2 |
|
| | | | | | | | | | | | | |
| As of September 30, 2017 |
| | | | | | | Gross Amounts Not Offset in the Consolidated Balance Sheets, but Have Legal Rights to Offset | |
Description | Gross Amounts of Recognized Liabilities | | Gross Amounts Offset in the Consolidated Balance Sheets | | Net Presented in the Consolidated Balance Sheets | | Financial Instruments | | Cash Collateral Pledged | | Non-Cash Collateral Pledged | | Net Liabilities |
| (unaudited) |
Derivatives | $ | 599 |
| | $ | (17 | ) | | $ | 582 |
| | $ | (122 | ) | (2) | $ | 0 |
| | $ | 0 |
| | $ | 460 |
|
| |
(2)
| The balances as of December 31, 2016 and September 30, 2017 were related to derivative assets which are allowed to be net settled against derivative liabilities in accordance with our master netting agreements. |
Note 4. Non-Marketable InvestmentsVariable Interest Entities (VIE)
Our non-marketable investments include non-marketable equity investments and non-marketable debt securities.Consolidated VIEs
Non-Marketable Equity Investments
Our non-marketable equity investments are investmentsWe consolidate VIEs in which we have made in privately-held companies accounted for under the equity or cost methodhold a variable interest and are the primary beneficiary. The results of operations and financial position of these VIEs are included in our consolidated financial statements.
For certain consolidated VIEs, their assets are not requiredavailable to be consolidated under the variable interest or voting models.
us, and their creditors do not have recourse to us. As of December 31, 20162023 and September 30, 2017, investments accounted for under the equity method had a carrying valueMarch 31, 2024, assets that can only be used to settle obligations of approximately $1.7 billion. Our share of gainsthese VIEs were $4.9 billion and losses in equity method investments including impairment was a net loss of approximately $61 million and $31 million for the three months ended September 30, 2016 and 2017,$4.1 billion, respectively, and a net lossthe liabilities for which creditors only have recourse to the VIEs were $2.5 billion and $2.2 billion, respectively. We may continue to fund ongoing operations of $209 millioncertain VIEs that are included within Other Bets.
Total noncontrolling interests (NCI) in our consolidated subsidiaries were $3.4 billion and $93 million for the nine months ended September 30, 2016 and 2017, respectively. As$3.2 billion as of December 31, 20162023 and September 30, 2017, investments accounted for under the cost method had a carrying valueMarch 31, 2024, respectively, of $3.0which $1.1 billion and $3.6$1.0 billion respectively,is redeemable noncontrolling interest (RNCI) as of December 31, 2023 and a fair valueMarch 31, 2024, respectively. NCI and RNCI are included within additional paid-in capital. Net loss attributable to noncontrolling interests was not material for any period presented and is included within the "other" component of approximately $8.1 billion and $8.9 billion, respectively. The fair value ofOI&E. See Note 6 for further details on OI&E.
Unconsolidated VIEs
We have investments in VIEs in which we are not the cost method investmentsprimary beneficiary. These VIEs include private companies that are primarily determined from data leveraging private-market transactionsearly stage companies and are classified within Level 3 in the fair value hierarchy. We reflect our share of equity method investee earnings and losses and impairments of non-marketable equity investments as a component of other income (expense), net, in the accompanying Consolidated Statements of Income.
Certaincertain renewable energy investments includedentities in our non-marketable equity investments accounted for under the equity method are variable interest entities (VIE). These entities'which activities involve power generation using renewable sources.
We have determined that the governance structures of these entities do not allow us to direct the activities that would significantly impact the VIE'saffect their economic performance such as setting operating budgets.performance. Therefore, we doare not consolidatethe primary beneficiary, and the results of operations and financial position of these VIEs are not included in our consolidated financial statements. We account for these investments primarily as non-marketable equity securities or equity method investments.
The carrying value and maximum exposure of these unconsolidated VIEs were $1.2 billion asis generally based on the current carrying value of December 31, 2016the investments and $1.1 billion as of September 30, 2017.any future funding commitments. The maximum exposure is based on current investments to date. We have determined the single source of our exposure to these VIEs is our capital investment in these entities. We periodically reassess whether we are the primary beneficiary of a VIE. The reassessment process considers whether we have acquired the power to direct the most significant activities of the VIE through changes in governing documents or other circumstances. We also reconsider whether entities previously determined not to be VIEs have become VIEs, and vice versa, based on changes in facts and circumstances including changes in contractual arrangements and capital structure.
Non-Marketable Debt Securities
Our non-marketable debt securities are primarily preferred stock that are redeemable at our option and convertible notes issued by private companies. The cost of these securities were $1.1 billion as of December 31, 2016 and September 30, 2017. These debt securities do not have readily determinable market values and are categorized accordingly as Level 3 in the fair value hierarchy. To estimate the faircarrying value of these securities, we use a combinationunconsolidated VIEs were $5.7 billion and $4.0 billion, respectively, as of valuation methodologies, including marketDecember 31, 2023 and income approaches based on prior transaction prices; estimated timing, probability, $6.9 billion and amount$5.3 billion, respectively, as of cash flows;March 31, 2024. The difference between the maximum exposure and illiquidity considerations. Financial information of private companies may not be available and consequently we estimate the carrying value based on the best available information at the measurement date. No significant impairments were recognized for the three and nine months ended September 30, 2016 and 2017.relates primarily to future funding commitments.
The following table presents a reconciliation for our non-marketable debt securities measured and recorded at fair value on a recurring basis, using significant unobservable inputs (Level 3) (in millions, unaudited):
|
| | | | | | | |
| Nine Months Ended |
| September 30, |
| 2016 | | 2017 |
Beginning balance | $ | 1,024 |
| | $ | 1,165 |
|
Total net gains (losses) | | | |
Included in earnings | 0 |
| | (5 | ) |
Included in other comprehensive income | 100 |
| | 699 |
|
Purchases | 78 |
| | 85 |
|
Sales | (7 | ) | | (1 | ) |
Settlements | (16 | ) | | (54 | ) |
Ending balance | $ | 1,179 |
| | $ | 1,889 |
|
Note 5. Debt
Short-Term Debt
We have a debt financing program of up to $5.0 $10.0 billion through the issuance of commercial paper. Net proceeds from this program are used for general corporate purposes. We had no commercialcommercial paper outstanding as of December 31, 20162023 and September 30, 2017.March 31, 2024.
Our short-term debt balance also includes the current portion of certain long-term debt.
Long-Term Debt
Google issued $3.0 billion of senior unsecured notes in three tranches (collectively, 2011 Notes) in May 2011, due in 2014, 2016, and 2021, as well as $1.0 billion of senior unsecured notes (2014 Notes) in February 2014 due in 2024.
In April 2016, we completed an exchange offer with eligible holders of Google’s 2011 Notes due 2021 and 2014 Notes due 2024 (collectively, the Google Notes). An aggregate principal amount of approximately $1.7 billion of the Google Notes was exchanged for approximately $1.7 billion of Alphabet notes with identical interest rate and maturity. Because the exchange was between a parent and the subsidiary company and for substantially identical notes, the change was treated as a debt modification for accounting purposes with no gain or loss recognized.
In August 2016, Alphabet issued $2.0 billion of senior unsecured notes (2016 Notes) due 2026. The net proceeds from the issuance of the 2016 Notes were used for general corporate purposes, including the repayment ofTotal outstanding commercial paper. The Alphabet notes due in 2021, 2024, and 2026 rank equally with each other and are structurally subordinate to the outstanding Google Notes.
The total outstanding long-term debt is summarized below (in
millions)millions, except percentages):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Maturity | | Coupon Rate | | Effective Interest Rate | | As of December 31, 2023 | | As of March 31, 2024 |
Debt | | | | | | | | | | |
2016-2020 Notes issuances | | 2025 - 2060 | | 0.45% - 2.25% | | 0.57% - 2.33% | | $ | 13,000 | | | $ | 12,000 | |
Future finance lease payments, net and other (1) | | | | | | | | 1,746 | | | 1,672 | |
Total debt | | | | | | | | 14,746 | | | 13,672 | |
Unamortized discount and debt issuance costs | | | | | | | | (130) | | | (127) | |
Less: Current portion of long-term notes(2) | | | | | | | | (1,000) | | | 0 | |
Less: Current portion of future finance lease payments, net and other current debt(1)(2) | | | | | | | | (363) | | | (317) | |
Total long-term debt | | | | | | | | $ | 13,253 | | | $ | 13,228 | |
(1)Future finance lease payments are net of imputed interest. |
| | | | | | | |
| As of December 31, 2016 | | As of September 30, 2017 |
| | | (unaudited) |
Long-term debt | | | |
3.625% Notes due on May 19, 2021 | $ | 1,000 |
| | $ | 1,000 |
|
3.375% Notes due on February 25, 2024 | 1,000 |
| | 1,000 |
|
1.998% Notes due on August 15, 2026 | 2,000 |
| | 2,000 |
|
Unamortized discount for the Notes above | (65 | ) | | (59 | ) |
Subtotal(1) | $ | 3,935 |
| | $ | 3,941 |
|
Capital lease obligation | 0 |
| | 23 |
|
Total long-term debt | $ | 3,935 |
| | $ | 3,964 |
|
(2)Total current portion of long-term debt is included within other accrued expenses and current liabilities. See Note 6 for further details. | |
(1)
| Includes the outstanding (and unexchanged) Google Notes issued in 2011 and 2014 and the Alphabet notes exchanged in 2016. |
The effective interest yields based on proceeds received fromnotes in the outstanding notes due in 2021, 2024,table above are fixed-rate senior unsecured obligations and 2026 were 3.734%, 3.377%, and 2.231%, respectively,rank equally with interest payable semi-annually.each other. We may redeem thesethe notes at any time in whole or in part at specified redemption prices. The effective interest rates are based on proceeds received with interest payable semi-annually.
The total estimated fair value of allthe outstanding notes was approximately $3.9$10.3 billion and $9.0 billion as of December 31, 20162023 and $4.0 billion as of September 30, 2017.March 31, 2024, respectively. The fair value was determined based on observable market prices of identical instruments in less active markets and is categorized accordingly as Level 2 in the fair value hierarchy.
The effective rate of the capital lease obligation approximates the market rate. The estimated fair value of the capital lease obligation approximated its carrying value as of September 30, 2017.
Credit Facility
We haveAs of March 31, 2024, we had $10.0 billion of revolving credit facilities, of which $4.0 billion expires in April 2024 and $6.0 billion expires in April 2028. In April 2024, we entered into a new $4.0 billion revolving credit facility which expiresexpiring in February 2021.April 2025. The interest raterates for theall credit facility isfacilities are determined based on a formula using certain market rates.rates, as well as our progress toward the achievement of certain sustainability goals. No amounts amounts were outstanding under the credit facilityfacilities as of December 31, 20162023 and September 30, 2017.March 31, 2024.
Note 6. Supplemental Financial Statement Information
Accounts Receivable
The allowance for credit losses on accounts receivable was $771 million and $745 million as of December 31, 2023 and March 31, 2024, respectively.
Property and Equipment, Net
Property and equipment, net, consistedconsisted of the following (in millions): | | | | | | | | | | | |
| As of December 31, 2023 | | As of March 31, 2024 |
Land and buildings | $ | 74,083 | | | $ | 77,421 | |
Information technology assets | 80,594 | | | 85,976 | |
Construction in progress | 35,229 | | | 37,679 | |
Leasehold improvements | 11,425 | | | 11,576 | |
Furniture and fixtures | 472 | | | 534 | |
Property and equipment, gross | 201,803 | | | 213,186 | |
Less: accumulated depreciation | (67,458) | | | (70,004) | |
Property and equipment, net | $ | 134,345 | | | $ | 143,182 | |
|
| | | | | | | |
| As of December 31, 2016 | | As of September 30, 2017 |
| | | (unaudited) |
Land and buildings | $ | 19,804 |
| | $ | 22,367 |
|
Information technology assets | 16,084 |
| | 19,454 |
|
Construction in progress | 8,166 |
| | 10,280 |
|
Leasehold improvements | 3,415 |
| | 4,208 |
|
Furniture and fixtures | 58 |
| | 49 |
|
Property and equipment, gross | 47,527 |
| | 56,358 |
|
Less: accumulated depreciation and amortization | (13,293 | ) | | (16,238 | ) |
Property and equipment, net | $ | 34,234 |
| | $ | 40,120 |
|
As of September 30, 2017, assets under capital lease with a cost basis of $364 million were included in property and equipment.
Note Receivable
In connection with the sale of our Motorola Mobile business to Lenovo Group Limited (Lenovo) on October 29, 2014, we received an interest-free, three-year prepayable promissory note (Note Receivable) due October 2017. The Note Receivable was included on our Consolidated Balance Sheets in other current assets. Based on the general market conditions and the credit quality of Lenovo at the time of the sale, we discounted the Note Receivable at an effective interest rate of 4.5%. The Note Receivable was fully repaid in May 2017. The outstanding balances are shown in the table below (in millions):
|
| | | | | | | |
| As of December 31, 2016 | | As of September 30, 2017 |
| | | (unaudited) |
Principal of the Note Receivable | $ | 1,448 |
| | $ | 0 |
|
Less: unamortized discount for the Note Receivable | (51 | ) | | 0 |
|
Total | $ | 1,397 |
| | $ | 0 |
|
As of December 31, 2016, we did not recognize a valuation allowance on the Note Receivable.
Accrued expensesExpenses and other current liabilitiesOther Current Liabilities
Accrued expenses and other current liabilities consisted of the following (in millions): | | | | | | | | | | | |
| As of December 31, 2023 | | As of March 31, 2024 |
European Commission fines(1) | $ | 9,525 | | | $ | 9,475 | |
Accrued purchases of property and equipment | 4,679 | | | 5,666 | |
Accrued customer liabilities | 4,140 | | | 4,355 | |
Current operating lease liabilities | 2,791 | | | 2,874 | |
Income taxes payable, net | 2,748 | | | 4,926 | |
Other accrued expenses and current liabilities | 22,285 | | | 21,307 | |
Accrued expenses and other current liabilities | $ | 46,168 | | | $ | 48,603 | |
|
| | | | | | | |
| As of December 31, 2016 | | As of September 30, 2017 |
| | | (unaudited) |
European Commission fine(1) | $ | 0 |
| | $ | 2,844 |
|
Accrued customer liabilities | 1,256 |
| | 1,262 |
|
Other accrued expenses and current liabilities | 4,888 |
| | 5,201 |
|
Accrued expenses and other current liabilities | $ | 6,144 |
| | $ | 9,307 |
|
| |
(1)
| Includes the effects of foreign exchange. |
(1) While each European Commission (EC) decision is under appeal, the fines are included in accrued expenses and other current liabilities on our Consolidated Balance Sheets, as we provided bank guarantees (in lieu of a cash payment) for the fines. Amounts include the effects of foreign exchange and interest. See Note 8 for further details.
Accumulated Other Comprehensive Income (Loss)
The componentsComponents of AOCI, net of income tax, were as follows (in millions, unaudited)millions): | | | | | | | | | | | | | | | | | | | | | | | |
| Foreign Currency Translation Adjustments | | Unrealized Gains (Losses) on Available-for-Sale Investments | | Unrealized Gains (Losses) on Cash Flow Hedges | | Total |
Balance as of December 31, 2022 | $ | (4,142) | | | $ | (3,477) | | | $ | 16 | | | $ | (7,603) | |
Other comprehensive income (loss) before reclassifications | 596 | | | 866 | | | (121) | | | 1,341 | |
Amounts excluded from the assessment of hedge effectiveness recorded in AOCI | 0 | | | 0 | | | 47 | | | 47 | |
Amounts reclassified from AOCI | 0 | | | 292 | | | (77) | | | 215 | |
Other comprehensive income (loss) | 596 | | | 1,158 | | | (151) | | | 1,603 | |
Balance as of March 31, 2023 | $ | (3,546) | | | $ | (2,319) | | | $ | (135) | | | $ | (6,000) | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Foreign Currency Translation Adjustments | | Unrealized Gains (Losses) on Available-for-Sale Investments | | Unrealized Gains (Losses) on Cash Flow Hedges | | Total |
Balance as of December 31, 2023 | $ | (3,407) | | | $ | (965) | | | $ | (30) | | | $ | (4,402) | |
Other comprehensive income (loss) before reclassifications | (503) | | | (360) | | | 128 | | | (735) | |
Amounts excluded from the assessment of hedge effectiveness recorded in AOCI | 0 | | | 0 | | | 58 | | | 58 | |
Amounts reclassified from AOCI | 0 | | | 311 | | | (71) | | | 240 | |
Other comprehensive income (loss) | (503) | | | (49) | | | 115 | | | (437) | |
Balance as of March 31, 2024 | $ | (3,910) | | | $ | (1,014) | | | $ | 85 | | | $ | (4,839) | |
|
| | | | | | | | | | | | | | | |
| Foreign Currency Translation Adjustments | | Unrealized Gains (Losses) on Available-for-Sale Investments | | Unrealized Gains (Losses) on Cash Flow Hedges | | Total |
Balance as of December 31, 2015 | $ | (2,047 | ) | | $ | (86 | ) | | $ | 259 |
| | $ | (1,874 | ) |
Other comprehensive income (loss) before reclassifications | 166 |
| | 627 |
| | 148 |
| | 941 |
|
Amounts reclassified from AOCI | 0 |
| | 137 |
| | (236 | ) | | (99 | ) |
Other comprehensive income (loss) | 166 |
| | 764 |
| | (88 | ) | | 842 |
|
Balance as of September 30, 2016 | $ | (1,881 | ) | | $ | 678 |
| | $ | 171 |
| | $ | (1,032 | ) |
|
| | | | | | | | | | | | | | | |
| Foreign Currency Translation Adjustments | | Unrealized Gains (Losses) on Available-for-Sale Investments | | Unrealized Gains (Losses) on Cash Flow Hedges | | Total |
Balance as of December 31, 2016 | $ | (2,646 | ) | | $ | (179 | ) | | $ | 423 |
| | $ | (2,402 | ) |
Other comprehensive income (loss) before reclassifications | 1,457 |
| | 803 |
| | (668 | ) | | 1,592 |
|
Amounts reclassified from AOCI | 0 |
| | 98 |
| | (34 | ) | | 64 |
|
Other comprehensive income (loss) | 1,457 |
| | 901 |
| | (702 | ) | | 1,656 |
|
Balance as of September 30, 2017 | $ | (1,189 | ) | | $ | 722 |
| | $ | (279 | ) | | $ | (746 | ) |
The effects on net income of amounts reclassified from AOCI were as follows (in millions, unaudited)millions):
|
| | | | | | | | | | | | | | | | | | |
| | | | Gains (Losses) Reclassified from AOCI to the Consolidated Statement of Income |
| | | | Three Months Ended | | Nine Months Ended |
| | | | September 30, | | September 30, |
AOCI Components | | Location | | 2016 | | 2017 | | 2016 | | 2017 |
Unrealized gains (losses) on available-for-sale investments | | | | | | | | |
| | Other income (expense), net | | $ | 46 |
| | $ | (47 | ) | | $ | (137 | ) | | $ | (98 | ) |
| | Provision for income taxes | | 0 |
| | 0 |
| | 0 |
| | 0 |
|
| | Net of tax | | $ | 46 |
| | $ | (47 | ) | | $ | (137 | ) | | $ | (98 | ) |
Unrealized gains (losses) on cash flow hedges | | | | | | | | |
Foreign exchange contracts | | Revenue | | $ | 105 |
| | $ | (191 | ) | | $ | 352 |
| | $ | 29 |
|
Interest rate contracts | | Other income (expense), net | | 1 |
| | 1 |
| | 4 |
| | 4 |
|
| | Benefit (provision) for income taxes | | (39 | ) | | 65 |
| | (120 | ) | | 1 |
|
| | Net of tax | | $ | 67 |
| | $ | (125 | ) | | $ | 236 |
| | $ | 34 |
|
Total amount reclassified, net of tax | | $ | 113 |
| | $ | (172 | ) | | $ | 99 |
| | $ | (64 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended | | |
| | | | March 31, | | |
AOCI Components | | Location | | 2023 | | 2024 | | | | |
Unrealized gains (losses) on available-for-sale investments | | | | | | | | |
| | Other income (expense), net | | $ | (374) | | | $ | (399) | | | | | |
| | Benefit (provision) for income taxes | | 82 | | | 88 | | | | | |
| | Net of income tax | | (292) | | | (311) | | | | | |
Unrealized gains (losses) on cash flow hedges | | | | | | | | |
Foreign exchange contracts | | Revenue | | 88 | | | 74 | | | | | |
Interest rate contracts | | Other income (expense), net | | 2 | | | 1 | | | | | |
| | Benefit (provision) for income taxes | | (13) | | | (4) | | | | | |
| | Net of income tax | | 77 | | | 71 | | | | | |
Total amount reclassified, net of income tax | | $ | (215) | | | $ | (240) | | | | | |
Other Income (Expense), Net
The componentsComponents of other income (expense), net,OI&E were as follows (in millions, unaudited)millions): | | | | | | | | | | | | | | | |
| Three Months Ended | | |
| March 31, | | |
| 2023 | | 2024 | | | | |
Interest income | $ | 797 | | | $ | 1,061 | | | | | |
Interest expense(1) | (80) | | | (94) | | | | | |
Foreign currency exchange gain (loss), net | (210) | | | (238) | | | | | |
Gain (loss) on debt securities, net | (293) | | | (462) | | | | | |
Gain (loss) on equity securities, net | 377 | | | 2,243 | | | | | |
Performance fees | 118 | | | 104 | | | | | |
Income (loss) and impairment from equity method investments, net | (51) | | | (26) | | | | | |
Other | 132 | | | 255 | | | | | |
Other income (expense), net | $ | 790 | | | $ | 2,843 | | | | | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
| 2016 | | 2017 | | 2016 | | 2017 |
Interest income | $ | 318 |
| | $ | 306 |
| | $ | 895 |
| | $ | 912 |
|
Interest expense | (29 | ) | | (27 | ) | | (91 | ) | | (73 | ) |
Foreign currency exchange losses, net | (123 | ) | | (53 | ) | | (437 | ) | | (101 | ) |
Gain (loss) on marketable securities, net | 50 |
| | (44 | ) | | (126 | ) | | (81 | ) |
Gain (loss) on non-marketable investments, net | 40 |
| | (32 | ) | | (78 | ) | | (79 | ) |
Other | 22 |
| | 47 |
| | 53 |
| | 115 |
|
Other income (expense), net | $ | 278 |
| | $ | 197 |
| | $ | 216 |
| | $ | 693 |
|
(1)Interest expense in the preceding table is net of interest capitalized of $0$40 million and $13$43 million for the three months ended September 30, 2016March 31, 2023 and 2017, respectively, and $0 million and $32 million for the nine months ended September 30, 2016 and 2017,2024, respectively.
Note 7. Acquisitions
During the nine months ended September 30, 2017, we completed various acquisitions and purchases of intangible assets for total consideration of approximately $312 million. In aggregate, $12 million was cash acquired, $111 million was attributed to intangible assets, $205 million was attributed to goodwill, and $16 million was attributed to net liabilities assumed. These acquisitions generally enhance the breadth and depth of our offerings and expand our expertise in engineering and other functional areas. The amount of goodwill expected to be deductible for tax purposes is approximately $24 million.
Pro forma results of operations for these acquisitions have not been presented because they are not material to the consolidated results of operations, either individually or in aggregate.
For all intangible assets acquired and purchased during the nine months ended September 30, 2017, patents and developed technology have a weighted-average useful life of 3.9 years, customer relationships have a weighted-average useful life of 3.1 years, and trade names and other have a weighted-average useful life of 8.8 years.
Note 8. Calico
In September 2013, we announced the formation of Calico, a life science company with a mission to harness advanced technologies to increase our understanding of the biology that controls lifespan. As of September 30, 2017, we have contributed $240 million to Calico in exchange for Calico convertible preferred units and are committed to fund an additional $490 million on an as-needed basis.
Calico is a VIE and its results of operations and statement of financial position are included in our consolidated financial statements as we have the power to direct the activities that most significantly impact its economic performance.
In September 2014, AbbVie Inc. (AbbVie) and Calico announced a research and development collaboration agreement intended to help both companies discover, develop, and bring to market new therapies for patients with age-related diseases, including neurodegeneration and cancer. As of September 30, 2017, AbbVie has contributed $750 million to fund the collaboration pursuant to the agreement, which reflects its total commitment. As of September 30, 2017, Calico has contributed $250 million and committed up to an additional $500 million.
Calico has used its scientific expertise to establish a world-class research and development facility, with a focus on drug discovery and early drug development; and AbbVie provides scientific and clinical development support and its commercial expertise to bring new discoveries to market. Both companies share costs and profits equally. AbbVie's contribution has been recorded as a liability on Calico's financial statements, which is reduced and reflected as a reduction to research and development expense as eligible research and development costs are incurred by Calico over the next few years.
Note 9. Verily
Verily is a life science company with a mission to make the world's health data useful so that people enjoy healthier lives. Verily is a VIE and its results of operations and statement of financial position are included in our consolidated financial statements as we have the power to direct the activities that most significantly impact its economic performance.
In January 2017, Temasek, a Singapore-based investment company, signed a binding commitment to purchase a noncontrolling interest in Verily for an aggregate of $800 million in cash. In the first quarter of 2017, the first tranche of the investment closed and we received $480 million. The second and final tranche of the investment closed in the third quarter of 2017 and we received the remaining $320 million. The transaction is accounted for as an equity transaction and no gain or loss was recognized. Of the $800 million received, $78 million was recorded as noncontrolling interest and $722 million was recorded as additional paid-in capital. Noncontrolling interest and net loss attributable to noncontrolling interest were not separately presented on our consolidated financial statements as of and for the three and nine months ended September 30, 2017 as the amounts were not material.
Note 10. Goodwill and Other Intangible Assets
Goodwill
The changesChanges in the carrying amount of goodwill allocated to our disclosed segments for the ninethree months ended September 30, 2017 were as follows (in millions, unaudited):
|
| | | | | | | | | | | |
| Google | | Other Bets | | Total Consolidated |
Balance as of December 31, 2016 | $ | 16,027 |
| | $ | 441 |
| | $ | 16,468 |
|
Acquisitions | 196 |
| | 9 |
| | 205 |
|
Foreign currency translation and other adjustments | 57 |
| | 1 |
| | 58 |
|
Balance as of September 30, 2017 | $ | 16,280 |
| | $ | 451 |
| | $ | 16,731 |
|
Other Intangible Assets
Information regarding purchased intangible assetsMarch 31, 2024 were as follows (in millions):
| | | | | | | | | | | | | | | | | | | | | | | |
| Google Services | | Google Cloud | | Other Bets | | Total |
Balance as of December 31, 2023 | $ | 21,118 | | | $ | 7,199 | | | $ | 881 | | | $ | 29,198 | |
Acquisitions | 9 | | | 0 | | | 0 | | | 9 | |
Foreign currency translation and other adjustments | (22) | | | (2) | | | 0 | | | (24) | |
Balance as of March 31, 2024 | $ | 21,105 | | | $ | 7,197 | | | $ | 881 | | | $ | 29,183 | |
Note 8. Commitments and Contingencies
Commitments
We have content licensing agreements with future fixed or minimum guaranteed commitments of $10.1 billion as of March 31, 2024, of which the majority is paid quarterly through the first quarter of 2030.
|
| | | | | | | | | | | |
| As of December 31, 2016 |
| Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
Patents and developed technology | $ | 5,542 |
| | $ | 2,710 |
| | $ | 2,832 |
|
Customer relationships | 352 |
| | 197 |
| | 155 |
|
Trade names and other | 463 |
| | 143 |
| | 320 |
|
Total | $ | 6,357 |
| | $ | 3,050 |
| | $ | 3,307 |
|
| | | | | |
| As of September 30, 2017 |
| Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
| (unaudited) |
Patents and developed technology | $ | 5,312 |
| | $ | 2,931 |
| | $ | 2,381 |
|
Customer relationships | 358 |
| | 246 |
| | 112 |
|
Trade names and other | 548 |
| | 158 |
| | 390 |
|
Total | $ | 6,218 |
| | $ | 3,335 |
| | $ | 2,883 |
|
IndemnificationsAmortization expense relatingIn the normal course of business, including to purchased intangible assets was $203 millionfacilitate transactions in our services and $194 million forproducts and corporate activities, we indemnify certain parties, including advertisers, Google Network partners, distribution partners, customers of Google Cloud offerings, lessors, and service providers with respect to certain matters. We have agreed to defend and/or hold certain parties harmless against losses arising from a breach of representations or covenants, or out of intellectual property infringement or other claims made against certain parties. Several of these agreements limit the three months ended September 30, 2016time within which an indemnification claim can be made and 2017, respectively,the amount of the claim. In addition, we have entered into indemnification agreements with our officers and $629 milliondirectors, and $600 million forour bylaws contain similar indemnification obligations to our agents.
It is not possible to make a reasonable estimate of the nine months ended September 30, 2016maximum potential amount under these indemnification agreements due to the unique facts and 2017, respectively.circumstances involved in each particular agreement. Additionally, the payments we have made under such agreements have not had a material adverse effect on our results of operations, cash flows, or financial position. However, to the extent that valid indemnification claims arise in the future, future payments by us could be significant and could have a material adverse effect on our results of operations or cash flows in a particular period.
As of September 30, 2017, expected amortization expense relating to purchased intangible assets for each of the next five years and thereafter are as follows (in millions, unaudited):
|
| | | |
Remainder of 2017 | $ | 193 |
|
2018 | 726 |
|
2019 | 615 |
|
2020 | 493 |
|
2021 | 459 |
|
Thereafter | 397 |
|
| $ | 2,883 |
|
Note 11. ContingenciesMarch 31, 2024, we did not have any material indemnification claims that were probable or reasonably possible.
Legal Matters
We record a liability when we believe that it is probable that a loss has been incurred, and the amount can be reasonably estimated. If we determine that a loss is reasonably possible and the loss or range of loss can be estimated, we disclose the reasonably possible loss. We evaluate developments in our legal matters that could affect the amount of liability that has been previously accrued, and the matters and related reasonably possible losses disclosed, and make adjustments as appropriate.
Certain outstanding matters seek speculative, substantial or indeterminate monetary amounts, substantial changes to our business practices and products, or structural remedies. Significant judgment is required to determine both the likelihood of there being a loss and the estimated amount of a loss related to such matters, and we may be unable to estimate the reasonably possible loss or range of losses. The outcomes of outstanding legal matters are inherently unpredictable and subject to significant uncertainties, and could, either individually or in aggregate, have a material adverse effect.
We expense legal fees in the period in which they are incurred.
Antitrust InvestigationsMatters
On November 30, 2010, the European Commission's (EC)EC's Directorate General for Competition opened an investigation into various antitrust-related complaints against us.
On April 15, 2015, the EC issued a Statement of Objections (SO) regarding the display and ranking of shopping search results and ads, to which we responded on August 27, 2015. On July 14, 2016, the EC issued a Supplementary SO regarding shopping search results and ads. •On June 27, 2017, the EC announced its decision that certain actions taken by Google regarding its display and ranking of shopping search results and ads infringed European competition law. The EC decision imposed a €2.42€2.4 billion (approximately $2.74($2.7 billion as of June 27, 2017) fine. On September 11, 2017, we appealed the EC decision to the General Court, and on September 27, 2017, we implemented product changes to bring shopping ads into compliance with the EC's decision. We recognized a charge of approximately $2.74$2.7 billion for the fine in the second quarter of 2017. The fine is included in accrued expensesOn November 10, 2021, the General Court rejected our appeal, and other current liabilitieswe subsequently filed an appeal with the European Court of Justice on our Consolidated Balance Sheet as we provided bank guarantees in lieu of a cash payment for the fine.January 20, 2022.
•On April 20, 2016,July 18, 2018, the EC issued an SO regardingannounced its decision that certain provisions in Google’s Android-related distribution agreements infringed European competition law. The EC decision imposed a €4.3 billion ($5.1 billion as of June 30, 2018) fine and directed the termination of the conduct at issue. On October 9, 2018, we appealed the EC decision, and on October 29, 2018, we implemented changes to certain of our Android distribution practices. On September 14, 2022, the General Court reduced the fine from €4.3 billion to €4.1 billion. We subsequently filed an appeal with the European Court of Justice. In 2018, we recognized a charge of $5.1 billion for the fine, which we reduced by $217 million in 2022.
•On March 20, 2019, the EC announced its decision that certain contractual provisions in agreements that Google had with AdSense for Search partners infringed European competition law. The EC decision imposed a fine of €1.5 billion ($1.7 billion as of March 20, 2019) and directed actions related to AdSense for Search partners' agreements, which we implemented prior to the decision. On June 4, 2019, we appealed the EC decision. We recognized a charge of $1.7 billion for the fine in the first quarter of 2019.
In addition, on July 7, 2021, a number of state Attorneys General filed an antitrust complaint in the U.S. District Court for the Northern District of California, alleging that Google’s operation of Android and Google Play violated U.S. antitrust laws and state antitrust and consumer protection laws. In September 2023, we reached a settlement in principle with 50 state Attorneys General and three territories. The U.S. District Court subsequently vacated the trial date with the states, and we expect any final approval of the settlement would come in 2024.
In December 2023, a California jury delivered a verdict in a similar lawsuit in Epic Games v. Google. The jury found that Google violated antitrust laws related to Google Play's business. Epic did not seek monetary damages. The presiding judge will determine non-monetary remedies in 2024, and the range of potential remedies vary widely. We plan to appeal.
From time to time we are subject to formal and informal inquiries and investigations on various competition matters by regulatory authorities in the U.S., Europe, and other jurisdictions globally. Examples, for which given their nature we cannot estimate a possible loss include:
•In August 2019, we began receiving civil investigative demands from the U.S. Department of Justice (DOJ) requesting information and documents relating to our prior antitrust investigations and certain aspects of our business. The DOJ and a number of state Attorneys General filed a lawsuit in the U.S. District Court for the District of Columbia on October 20, 2020 alleging that Google violated U.S. antitrust laws relating to Search and Search advertising. The trial ended on November 16, 2023, and we expect a decision in 2024. Further, in June 2022, the Australian Competition and Consumer Commission (ACCC) and the United Kingdom's Competition and Markets Authority (CMA) each opened an investigation into Search distribution practices.
•On December 16, 2020, a number of state Attorneys General filed an antitrust complaint in the U.S. District Court for the Eastern District of Texas, alleging that Google violated U.S. antitrust laws as well as state deceptive trade laws relating to its advertising technology, and a trial is scheduled for March 2025. Additionally, on January 24, 2023, the DOJ, along with a number of state Attorneys General, filed an antitrust complaint in the U.S. District Court for the Eastern District of Virginia alleging that Google’s digital advertising technology products violate U.S. antitrust laws, and on April 17, 2023, a number of additional state Attorneys General joined the complaint. A trial is scheduled for September 2024. The EC, the CMA, and the ACCC each opened a formal investigation into Google's advertising technology business practices on June 22, 2021, May 25, 2022, and June 29, 2022, respectively. On June 14, 2016,2023, the EC issued an SO regarding the syndicationa Statement of AdSense for Search.Objections (SO) informing Google of its preliminary view that Google violated European antitrust laws relating to its advertising technology. We responded to the SOsSO on December 1, 2023.
•In May 2022, the EC and the CMA each opened investigations into Google Play’s business practices. Korean regulators are investigating Google Play's billing practices, including a formal review in May 2022 of Google's compliance with the new app store billing regulations.
We believe we have strong arguments against these claims and will defend ourselves vigorously. We continue to respondcooperate with federal and state regulators in the U.S., the EC, and other regulators around the world.
Privacy Matters
We are subject to a number of privacy-related laws and regulations, and we currently are party to a number of privacy investigations and lawsuits ongoing in multiple jurisdictions. For example, there are ongoing investigations and litigation in the EC's informational requests. There is significant uncertainty asU.S. and the European Union, including those relating to the outcomesour collection and use of these investigations; however, adverse decisionslocation information and advertising practices, which could result in significant fines, judgments, and directives to alter or terminate certain conduct. Given the nature of these cases, we are unable to estimate the reasonably possible loss or ranges of loss, if any. We remain committed to working with the EC to resolve these matters.
The Comision Nacional de Defensa de la Competencia in Argentina, the Competition Commission of India (CCI), Brazil's Council for Economic Defense (CADE), and the Korean Fair Trade Commission have also opened investigations into certain of our business practices. In November 2016, we responded to the CCI Director General's report with interim findings of competition law infringements regarding search and ads.product changes.
Patent and Intellectual Property Claims
We have had patent, copyright, trade secret, and trademark infringement lawsuits filed against us claiming that certain of our products, services, and technologies infringe theothers' intellectual property rights of others.rights. Adverse results in these lawsuits may include awards of substantial monetary damages, costly royalty or licensing agreements, or orders preventing us from offering certain features, functionalities, products, or services, andservices. As a result, we may also cause ushave to change our business practices and require development ofdevelop non-infringing products or technologies, which could result in a loss of revenues for us and otherwise harm our business. In addition, the U.S. International Trade Commission (ITC) has increasingly become an important forum to litigate intellectual property disputes because an ultimate loss for a company or its suppliers in an ITC action couldcan result in a prohibition on importing infringing products into the U.S. Because the U.S. is an important market, a prohibition on importation could have an adverse effect on us, including preventing us from importing many important products into the U.S. or necessitating workarounds that may limit certain features of our products.
Furthermore, many of our agreements with our customers and partners require us to indemnify them foragainst certain intellectual property infringement claims, against them, which would increase our costs as a result of defending such claims, and may require that we pay significant damages if there were an adverse ruling in any such claims. OurIn addition, our customers and partners may discontinue the use of our products, services, and technologies, as a result of injunctions or otherwise, which could result in loss of revenues and adversely impactaffect our business.
Oracle America, Inc. (Oracle) brought a copyright lawsuit against Google in the Northern District of California, alleging that Google's Android infringes Oracle's copyrights related to certain Java application programming interfaces. After trial, final judgment was entered by the district court in favor of Google on June 8, 2016, and the court decided post-trial motions in favor of Google. Oracle has appealed. We believe this lawsuit is without merit and are defending ourselves vigorously. Given the nature of this case, we are unable to estimate the reasonably possible loss or range of loss, if any, arising from this matter.
Other
We are also regularly subject to claims, suits,lawsuits, regulatory and government investigations, and other proceedings, and consent orders involving competition, (such as the pending EC investigations described above), intellectual property, privacy,data security, tax and related compliance, labor and employment, commercial disputes, content generated by our users, goods and services offered by advertisers or publishers using our platforms, personal injury, consumer protection, and other matters. For example, we periodically have data incidents that we report to relevant regulators as required by law. Such claims, suits,consent orders, lawsuits, regulatory
and government investigations, and other proceedings could result in substantial fines and penalties, injunctive relief, ongoing monitoring and auditing obligations, changes to our products and services, alterations to our business models and operations, and collateral related civil or criminal penalties,litigation or other adverse consequences.consequences, all of which could harm our business, reputation, financial condition, and operating results.
Certain of our outstandingWe have ongoing legal matters relating to Russia. For example, civil judgments that include speculative claims for substantial or indeterminate amountscompounding penalties have been imposed upon us in connection with disputes regarding the termination of damages.accounts, including those of sanctioned parties. We record a liability when wedo not believe that it is probable that a loss has been incurred and the amount can be reasonably estimated. If we determine that a loss is reasonably possible and the loss or range of loss can be estimated, we disclose the reasonably possible loss. We evaluate, on a monthly basis, developments in ourthese ongoing legal matters that could affect the amount of liability that has been previously accrued, and the matters and related reasonably possible losses disclosed, and make adjustments as appropriate. Significant judgment is required to determine both likelihood of there being and the estimated amount of a loss related to such matters.
With respect to our outstanding legal matters, based on our current knowledge, we believe that the amount or range of reasonably possible loss will not, either individually or in the aggregate, have a material adverse effect on our business, consolidated financial position, results of operations, or cash flows. However, the outcome of such legal matters is inherently unpredictable and subject to significant uncertainties.effect.
We expense legal fees in the period in which they are incurred.
Indirect Taxes and Other Non-Income Taxes
We are under audit by various domestic and foreign tax authorities with regards to indirect tax and other non-income tax matters. The subject matter of indirect tax and other non-income tax audits primarily arises from disputes on the tax treatment and tax rate applied to the sale of our products and services in these jurisdictions and the tax treatment of certain employee benefits. We accrue indirect taxes and other non-income taxes that may result from examinations by, or any negotiated agreements with, these tax authorities when a loss is probable and reasonably estimable. If we determine that a loss is reasonably possible and the loss or range of loss can be estimated, we disclose the reasonably possible loss. We believe these matters are without merit and we are defending ourselves vigorously. Due to the inherent complexity and uncertainty of these matters and judicial process in certain jurisdictions, the final outcome may be materially different from our expectations.
ForSee Note 12 for information regarding income tax contingencies, see contingencies.
Note 14.9. Stockholders' Equity
Share Repurchases
During the three months ended March 31, 2023 and 2024, we repurchased $15.1 billion and $16.1 billion, respectively, of Alphabet's Class A and Class C shares.
In April 2023, the Board of Directors of Alphabet authorized the company to repurchase up to $70.0 billion of its Class A and Class C shares. As of March 31, 2024, $20.4 billion remained available for Class A and Class C share repurchases. In April 2024, the Board of Directors of Alphabet authorized the company to repurchase up to an additional $70.0 billion of its Class A and Class C shares.
The following table presents Class A and Class C shares repurchased and subsequently retired (in millions):
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2024 | | |
| Shares | | Amount | | | | |
Class A share repurchases | 23 | | | $ | 3,350 | | | | | |
Class C share repurchases | 88 | | | 12,707 | | | | | |
Total share repurchases(1) | 111 | | | $ | 16,057 | | | | | |
(1) Shares repurchased include unsettled repurchases as of March 31, 2024.
Class A and Class C shares are repurchased in a manner deemed in the best interest of the company and its stockholders, taking into account the economic cost and prevailing market conditions, including the relative trading prices and volumes of the Class A and Class C shares. Repurchases are executed from time to time, subject to general business and market conditions and other investment opportunities, through open market purchases or privately negotiated transactions, including through Rule 10b5-1 plans. The repurchase program does not have an expiration date.
Dividends
On April 25, 2024, the Board of Directors of Alphabet declared a cash dividend of $0.20 per share to be paid on June 17, 2024, to stockholders of record as of June 10, 2024, on each of the company’s Class A, Class B, and Class C shares.
The company intends to pay quarterly cash dividends in the future, subject to review and approval by the company’s Board of Directors in its sole discretion. In connection with the cash dividend (and any future dividend the company’s Board of Directors may declare from time to time), the company will also award dividend equivalent units to holders of all unvested stock units in accordance with the Alphabet Inc. Amended and Restated 2021 Stock Plan and pursuant to each holder’s outstanding stock unit grant agreements, as amended.
Note 12.10. Net Income Per Share
The following table sets forth the computation of basic and diluted net income per share of Class A, and Class B, common stock and Class C capital stock (in millions, except share amounts which are reflected in thousands, and per share amounts, unaudited)amounts):
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, |
| 2016 | | 2017 |
| Class A | | Class B | | Class C | | Class A | | Class B | | Class C |
Basic net income per share: | | | | | | | | | | | |
Numerator | | | | | | | | | | | |
Allocation of undistributed earnings | $ | 2,171 |
| | $ | 357 |
| | $ | 2,533 |
| | $ | 2,891 |
| | $ | 457 |
| | $ | 3,384 |
|
Denominator | | | | | | | | | | | |
Number of shares used in per share computation | 294,945 |
| | 48,513 |
| | 344,103 |
| | 297,804 |
| | 47,078 |
| | 348,603 |
|
Basic net income per share | $ | 7.36 |
| | $ | 7.36 |
| | $ | 7.36 |
| | $ | 9.71 |
| | $ | 9.71 |
| | $ | 9.71 |
|
Diluted net income per share: | | | | | | | | | | | |
Numerator | | | | | | | | | | | |
Allocation of undistributed earnings for basic computation | $ | 2,171 |
| | $ | 357 |
| | $ | 2,533 |
| | $ | 2,891 |
| | $ | 457 |
| | $ | 3,384 |
|
Reallocation of undistributed earnings as a result of conversion of Class B to Class A shares | 357 |
| | 0 |
| | 0 |
| | 457 |
| | 0 |
| | 0 |
|
Reallocation of undistributed earnings | (25 | ) | | (5 | ) | | 25 |
| | (38 | ) | | (7 | ) | | 38 |
|
Allocation of undistributed earnings | $ | 2,503 |
| | $ | 352 |
| | $ | 2,558 |
| | $ | 3,310 |
| | $ | 450 |
| | $ | 3,422 |
|
Denominator | | | | | | | | | | | |
Number of shares used in basic computation | 294,945 |
| | 48,513 |
| | 344,103 |
| | 297,804 |
| | 47,078 |
| | 348,603 |
|
Weighted-average effect of dilutive securities | | | | | | | | | | | |
Add: | | | | | | | | | | | |
Conversion of Class B to Class A common shares outstanding | 48,513 |
| | 0 |
| | 0 |
| | 47,078 |
| | 0 |
| | 0 |
|
Restricted stock units and other contingently issuable shares | 1,923 |
| | 0 |
| | 8,956 |
| | 1,070 |
| | 0 |
| | 9,161 |
|
Number of shares used in per share computation | 345,381 |
| | 48,513 |
| | 353,059 |
| | 345,952 |
| | 47,078 |
| | 357,764 |
|
Diluted net income per share | $ | 7.25 |
| | $ | 7.25 |
| | $ | 7.25 |
| | $ | 9.57 |
| | $ | 9.57 |
| | $ | 9.57 |
|
| | Three Months Ended March 31, | | | Three Months Ended March 31, |
| | | 2023 | | 2024 |
| | | Class A | | Class B | | Class C | | Class A | | Class B | | Class C |
Basic net income per share: | |
Numerator | |
Numerator | |
Numerator | |
Allocation of undistributed earnings | |
Allocation of undistributed earnings | |
Allocation of undistributed earnings | |
| Denominator | |
Denominator | |
Denominator | |
Number of shares used in per share computation | |
Number of shares used in per share computation | |
Number of shares used in per share computation | |
| Basic net income per share | |
| Basic net income per share | |
| Basic net income per share | |
Diluted net income per share: | |
Numerator | |
Numerator | |
Numerator | |
| Allocation of undistributed earnings for basic computation | |
| Allocation of undistributed earnings for basic computation | |
| Allocation of undistributed earnings for basic computation | |
| Reallocation of undistributed earnings as a result of conversion of Class B to Class A shares | |
| Reallocation of undistributed earnings as a result of conversion of Class B to Class A shares | |
| Reallocation of undistributed earnings as a result of conversion of Class B to Class A shares | |
Reallocation of undistributed earnings | |
Allocation of undistributed earnings | |
| | | Nine Months Ended September 30, |
| 2016 | | 2017 |
Denominator | |
| Class A | | Class B | | Class C | | Class A | | Class B | | Class C |
Basic net income per share: | | | | | | | | | | | |
Numerator | | | | | | | | | | | |
Allocation of undistributed earnings | $ | 6,047 |
| | $ | 1,013 |
| | $ | 7,085 |
| | $ | 6,734 |
| | $ | 1,069 |
| | $ | 7,879 |
|
| Denominator | | | | | | | | | | | |
Number of shares used in per share computation | 293,723 |
| | 49,214 |
| | 344,162 |
| | 297,291 |
| | 47,189 |
| | 347,853 |
|
Basic net income per share | $ | 20.59 |
| | $ | 20.59 |
| | $ | 20.59 |
| | $ | 22.65 |
| | $ | 22.65 |
| | $ | 22.65 |
|
Diluted net income per share: | | | | | | | | | | | |
Numerator | | | | | | | | | | | |
Allocation of undistributed earnings for basic computation | $ | 6,047 |
| | $ | 1,013 |
| | $ | 7,085 |
| | $ | 6,734 |
| | $ | 1,069 |
| | $ | 7,879 |
|
Reallocation of undistributed earnings as a result of conversion of Class B to Class A shares | 1,013 |
| | 0 |
| | 0 |
| | 1,069 |
| | 0 |
| | 0 |
|
Reallocation of undistributed earnings | (68 | ) | | (16 | ) | | 68 |
| | (92 | ) | | (17 | ) | | 92 |
|
Allocation of undistributed earnings | $ | 6,992 |
| | $ | 997 |
| | $ | 7,153 |
| | $ | 7,711 |
| | $ | 1,052 |
| | $ | 7,971 |
|
| Denominator | | | | | | | | | | | |
Number of shares used in basic computation | |
Number of shares used in basic computation | |
Number of shares used in basic computation | 293,723 |
| | 49,214 |
| | 344,162 |
| | 297,291 |
| | 47,189 |
| | 347,853 |
|
Weighted-average effect of dilutive securities | | | | | | | | | | | |
Add: | | | | | | | | | | | |
Conversion of Class B to Class A common shares outstanding | 49,214 |
| | 0 |
| | 0 |
| | 47,189 |
| | 0 |
| | 0 |
|
Add: | |
Add: | |
Conversion of Class B to Class A shares outstanding | |
Conversion of Class B to Class A shares outstanding | |
Conversion of Class B to Class A shares outstanding | |
| Restricted stock units and other contingently issuable shares | |
Restricted stock units and other contingently issuable shares | |
Restricted stock units and other contingently issuable shares | 2,204 |
| | 0 |
| | 8,896 |
| | 1,255 |
| | 0 |
| | 9,497 |
|
Number of shares used in per share computation | 345,141 |
| | 49,214 |
| | 353,058 |
| | 345,735 |
| | 47,189 |
| | 357,350 |
|
| Diluted net income per share | $ | 20.26 |
| | $ | 20.26 |
| | $ | 20.26 |
| | $ | 22.30 |
| | $ | 22.30 |
| | $ | 22.30 |
|
| Diluted net income per share | |
| Diluted net income per share | |
For the periods presented above, the net income per share amounts are the same for Class A, and Class B, common stock and Class C capital stock because the holders of each class are entitled to equal per share dividends or distributions in liquidation in accordance with the Amended and Restated Certificate of Incorporation of Alphabet Inc.
Note 13. Stockholders’ Equity11. Compensation Plans
Stock-Based Compensation
For the three months ended September 30, 2016March 31, 2023 and 2017,2024, total stock-basedstock based compensation (SBC) expense was $1,902 million and $1,881 million,$5.3 billion, including amounts associated with awards we expect to settle in Alphabet stock of $1,860 million and $1,820 million, respectively. For the nine months ended September 30, 2016 and 2017, total stock-based compensation expense was $4,912 million and $6,008 million, including amounts associated with awards we expect to settle in Alphabet stock of $4,857 million and $5,832 million, respectively.$5.1 billion, for both periods.
Stock-Based Award Activities
The following table summarizes the activities for our unvested Alphabet restricted stock units (RSUs) for the ninethree months ended September 30, 2017 (unaudited)March 31, 2024 (in millions, except per share amounts): |
| | | | | | |
| Unvested Restricted Stock Units |
| Number of Shares | | Weighted- Average Grant-Date Fair Value |
Unvested as of December 31, 2016 | 25,348,955 |
| | $ | 624.92 |
|
Granted | 7,246,476 |
| | $ | 826.60 |
|
Vested | (9,112,936 | ) | | $ | 610.82 |
|
Forfeited/canceled | (1,029,398 | ) | | $ | 651.68 |
|
Unvested as of September 30, 2017 | 22,453,097 |
| | $ | 694.86 |
|
| | | | | | | | | | | |
| Number of Shares | | Weighted- Average Grant-Date Fair Value |
Unvested as of December 31, 2023 | 338 | | | $ | 104.93 | |
Granted | 159 | | | $ | 133.43 | |
Vested | (49) | | | $ | 107.61 | |
Forfeited/canceled | (8) | | | $ | 106.64 | |
Unvested as of March 31, 2024 | 440 | | | $ | 114.91 | |
As of September 30, 2017,March 31, 2024, there was $14.0$48.7 billion of unrecognized compensation cost related to unvested employee RSUs. This amount is expected to be recognized over a weighted-average period of 2.52.9 years.
Share Repurchases
In October 2016, the board of directors of Alphabet authorized the company to repurchase up to $7,019,340,976.83 of its Class C capital stock. The repurchases are being executed from time to time, subject to general business and market conditions and other investment opportunities, through open market purchases or privately negotiated transactions, including through Rule 10b5-1 plans. The repurchase program does not have an expiration date. In the nine months ended September 30, 2017, we repurchased and subsequently retired 3.1 million shares of Alphabet Class C capital stock for an aggregate amount of $2.7 billion.
Note 14. 12. Income Taxes
The following table presents provision for income taxes (in millions, except for effective tax rate):
| | | | | | | | | | | | | | | |
| Three Months Ended | | |
| March 31, | | |
| 2023 | | 2024 | | | | |
Income before provision for income taxes | $ | 18,205 | | | $ | 28,315 | | | | | |
Provision for income taxes | $ | 3,154 | | | $ | 4,653 | | | | | |
Effective tax rate | 17.3 | % | | 16.4 | % | | | | |
We are subject to income taxes in the U.S. and numerous foreign jurisdictions. Significant judgment is required in evaluating our uncertain tax positions and determining our provision for income taxes. OurThe total amount of gross unrecognized tax benefits were $5.4was $9.4 billion and $5.1$10.2 billion, as of December 31, 2016which $7.4 billion and September 30, 2017, respectively. Our total unrecognized tax benefits that, $8.1 billion, if recognized, would affect our effective tax rate, were $4.3 billion and $3.9 billion as of December 31, 20162023 and September 30, 2017,March 31, 2024, respectively.
Our effective tax rate is lower than the U.S. statutory rate primarily because of more earnings realized in countries that have lower statutory tax rates. Our effective tax rate in the future will depend on the portion of our profits earned within and outside the United States.
In addition, we are subject to the continuous examination of our income tax returns by the Internal Revenue Service (IRS) and other domestic and foreign tax authorities. We regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes. We continue to monitor the progress of ongoing discussions with tax authorities and the impact, if any, of the expected expiration of the statute of limitations in various taxing jurisdictions. We believe that an adequate provision has been made for any adjustments that may result from tax examinations. However, the outcome of tax audits cannot be predicted with certainty. If any issues addressed in our tax audits are resolved in a manner not consistent with management's expectations, we could be required to adjust the provision for income taxes in the period such resolution occurs.
We have received tax assessments in multiple foreign jurisdictions asserting transfer pricing adjustments or permanent establishment. We continue to defend against any and all such claims as presented. While we believe it is more likely than not that our tax position will be sustained, it is reasonably possible that we will have future obligations related to these matters.
For information regarding indirect taxes and other non-income taxes, see Note 11.
Note 15.13. Information about Segments and Geographic Areas
We operatereport our business in multiple operating segments.segment results as Google is our only reportable segment. None of our other segments meet the quantitative thresholds to qualify as reportable segments; therefore, the other operating segments are combinedServices, Google Cloud, and disclosed below as Other Bets.Bets:
Our reported segments are described below:
•Google – GoogleServices includes our main internet products and services such as Search, Ads, Commerce, Maps, YouTube, Google Cloud,ads, Android, Chrome, anddevices, Google Maps, Google Play, as well as our hardware initiatives. Our technical infrastructureSearch, and some newer efforts like virtual reality are also included in Google.YouTube. Google Services generates revenues primarily from advertising; salesfees received for consumer subscription-based products such as YouTube TV, YouTube Music and Premium, and NFL Sunday Ticket, as well as Google One; the sale of apps and in-app purchases and digital content;devices.
•Google Cloud includes infrastructure and platform services, collaboration tools, and other services for enterprise customers. Google Cloud generates revenues primarily from consumption-based fees and subscriptions received for cloud offerings;Google Cloud Platform services, Google Workspace communication and sales of hardware products.
collaboration tools, and other enterprise services.Other Bets – •Other Bets is a combination of multiple operating segments that are not individually material. Other Bets includes businesses such as Access, Calico, CapitalG, GV, Nest, Verily, Waymo, and X. Revenues from the Other Bets are derivedgenerated primarily throughfrom the salessale of internet and TV services through Google Fiber, sales of Nest products andhealthcare-related services and licensing and R&D services through Verily.
internet services.Revenues, cost of revenues,certain costs, such as costs associated with content and traffic acquisition, certain engineering activities, and devices, as well as certain operating expenses are generally directly attributedattributable to our segments. Inter-segment revenues are not presented separately, as these amounts are immaterial. Our Chief Operating Decision Maker does not evaluate operating segments using asset information. Prior period segment information has been recast to conformDue to the current period segment presentation.
Information about segments duringintegrated nature of Alphabet, other costs and expenses, such as technical infrastructure and office facilities, are managed centrally at a consolidated level. These costs, including the periods presented were as follows (in millions, unaudited):
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
| 2016 | | 2017 | | 2016 | | 2017 |
Revenues: | | | | | | | |
Google | $ | 22,254 |
| | $ | 27,470 |
| | $ | 63,661 |
| | $ | 77,738 |
|
Other Bets | 197 |
| | 302 |
| | 547 |
| | 794 |
|
Total revenues | $ | 22,451 |
| | $ | 27,772 |
| | $ | 64,208 |
| | $ | 78,532 |
|
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
| 2016 | | 2017 | | 2016 | | 2017 |
Operating income (loss): | | | | | | | |
Google | $ | 6,774 |
| | $ | 8,744 |
| | $ | 20,009 |
| | $ | 24,145 |
|
Other Bets | (861 | ) | | (812 | ) | | (2,490 | ) | | (2,439 | ) |
Reconciling items(1) | (146 | ) | | (150 | ) | | (442 | ) | | (3,224 | ) |
Total income from operations | $ | 5,767 |
| | $ | 7,782 |
| | $ | 17,077 |
| | $ | 18,482 |
|
| |
(1)
| Reconciling items are primarily comprised of the European Commission fine for the nine months ended September 30, 2017, as well as corporate administrative costs and other miscellaneous items that are not allocated to individual segments for all periods presented. |
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
| 2016 | | 2017 | | 2016 | | 2017 |
Capital expenditures: | | | | | | | |
Google | $ | 2,434 |
| | $ | 3,559 |
| | $ | 6,529 |
| | $ | 8,800 |
|
Other Bets | 324 |
| | 77 |
| | 881 |
| | 398 |
|
Reconciling items(2) | (204 | ) | | (98 | ) | | (276 | ) | | (321 | ) |
Total capital expenditures as presented on the Consolidated Statements of Cash Flows | $ | 2,554 |
| | $ | 3,538 |
| | $ | 7,134 |
| | $ | 8,877 |
|
| |
(2)
| Reconciling items are related to timing differences of payments as segment capital expenditures are on accrual basis while total capital expenditures shown on the Consolidated Statements of Cash Flow are on cash basis and other miscellaneous differences. |
Stock-based compensation (SBC) andassociated depreciation amortization, and impairment, are includedallocated to operating segments as a service cost generally based on usage, headcount, or revenue.
Certain costs are not allocated to our segments because they represent Alphabet-level activities. These costs primarily include AI-focused shared R&D activities, including development costs of our general AI models; corporate initiatives such as our philanthropic activities; corporate shared costs such as certain finance, human resource, and legal costs, including certain fines and settlements. Charges associated with employee severance and office space reductions during 2023 and employee severance in segmentthe first quarter of 2024, were not allocated to our segments. Additionally, hedging gains (losses) related to revenue are not allocated to our segments.
Our operating income (loss) as shown below (in millions, unaudited):segments are not evaluated using asset information.
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
| 2016 | | 2017 | | 2016 | | 2017 |
Stock-based compensation: | | | | | | | |
Google | $ | 1,629 |
| | $ | 1,654 |
| | $ | 4,273 |
| | $ | 5,362 |
|
Other Bets | 199 |
| | 130 |
| | 486 |
| | 355 |
|
Reconciling items(3) | 32 |
| | 36 |
| | 98 |
| | 115 |
|
Total stock-based compensation(4) | $ | 1,860 |
| | $ | 1,820 |
| | $ | 4,857 |
| | $ | 5,832 |
|
| | | | | | | |
Depreciation, amortization, and impairment: | | | | | | | |
Google | $ | 1,488 |
| | $ | 1,667 |
| | $ | 4,214 |
| | $ | 4,606 |
|
Other Bets | 104 |
| | 94 |
| | 239 |
| | 283 |
|
Reconciling items(5) | 4 |
| | 0 |
| | 4 |
| | 0 |
|
Total depreciation, amortization, and impairment as presented on the Consolidated Statements of Cash Flows | $ | 1,596 |
| | $ | 1,761 |
| | $ | 4,457 |
| | $ | 4,889 |
|
| |
(3)
| Reconciling items represent corporate administrative costs that are not allocated to individual segments. |
| |
(4)
| For purposes of segment reporting, SBC represents awards that we expect to settle in Alphabet stock. |
| |
(5)
| Reconciling items are primarily related to corporate administrative costs and other miscellaneous items that are not allocated to individual segments. |
The following table presents information about our segments (in millions): | | | | | | | | | | | | | | | |
| Three Months Ended | | |
| March 31, | | |
| 2023 | | 2024 | | | | |
Revenues: | | | | | | | |
Google Services | $ | 61,961 | | | $ | 70,398 | | | | | |
Google Cloud | 7,454 | | | 9,574 | | | | | |
Other Bets | 288 | | | 495 | | | | | |
Hedging gains (losses) | 84 | | | 72 | | | | | |
Total revenues | $ | 69,787 | | | $ | 80,539 | | | | | |
| | | | | | | | | | | | | | | |
| Three Months Ended | | |
| March 31, | | |
| 2023 | | 2024 | | | | |
Operating income (loss): | | | | | | | |
Google Services | $ | 21,737 | | | $ | 27,897 | | | | | |
Google Cloud | 191 | | | 900 | | | | | |
Other Bets | (1,225) | | | (1,020) | | | | | |
Alphabet-level activities | (3,288) | | | (2,305) | | | | | |
Total income from operations | $ | 17,415 | | | $ | 25,472 | | | | | |
See Note 2 for information relating to revenues by geography.
The following table presents long-lived assets by geographic area, which includes property and equipment, net and operating lease assets (in millions): | | | | | | | | | | | |
| As of December 31, 2023 | | As of March 31, 2024 |
Long-lived assets: | | | |
United States | $ | 110,053 | | | $ | 117,085 | |
International | 38,383 | | | 39,865 | |
Total long-lived assets | $ | 148,436 | | | $ | 156,950 | |
|
| | | | | | | |
| As of December 31, 2016 | | As of September 30, 2017 |
| | | (unaudited) |
Long-lived assets: | | | |
United States | $ | 47,383 |
| | $ | 53,051 |
|
International | 14,706 |
| | 17,140 |
|
Total long-lived assets | $ | 62,089 |
| | $ | 70,191 |
|
For revenues by geography, see Note 2.
| |
ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Please read the following discussion and analysis of our financial condition and results of operations together with "Note About Forward-Looking Statements" and our consolidated financial statements and related notes included under Item 1 of this Quarterly Report on Form 10-Q as well as our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, including Part I, Item 1A "Risk Factors," as updated in this Quarterly Report on Form 10-Q.
Understanding Alphabet’s Financial Results
Alphabet is a collection of businesses — the largest of which is Google. We report Google in two segments, Google Services and Google Cloud; we also report all non-Google businesses collectively as Other Bets. For further details on our segments, see Note 13 of the Notes to Consolidated Financial Statements included in Item 1 of this Quarterly Report on Form 10-Q.
Executive Overview of Results
Below are our key financial results for the three months ended September 30, 2017 (consolidated unless otherwise noted):
Revenues of $27.8 billion and revenue growth of 24% year over year, constant currency revenue growth of 24% year over year.
Google segment revenues of $27.5 billion with revenue growth of 23% year over year and Other Bets revenues of $0.3 billion with revenue growth of 53% year over year.
Revenues from the United States, EMEA, APAC, and Other Americas were $12.9 billion, $9.1 billion, $4.2 billion, and $1.5 billion, respectively.
Cost of revenues was $11.1 billion, consisting of traffic acquisition costs of $5.5 billion and other cost of revenues of $5.6 billion. Our traffic acquisition costs as a percentage of advertising revenues was 23%.
Operating expenses (excluding cost of revenues) were $8.8 billion.
Income from operations was $7.8 billion.
Effective tax rate was 16%.
Net income was $6.7 billion with diluted net income per share of $9.57.
Operating cash flow was $9.9 billion.
Capital expenditures were $3.5 billion.
Headcount increased to 78,101 as of September 30, 2017.
Information about SegmentsMonetization Metrics
We operate our business in multiple operating segments. Google is our only reportable segment. Nonegenerate revenues by delivering relevant, cost-effective online advertising; cloud-based solutions that provide enterprise customers of our other segments meet the quantitative thresholds to qualify as reportable segments; therefore, the other operating segments are combinedall sizes with infrastructure and disclosed below as Other Bets.
Our reported segments are described below:
Google – Google includes our main internet products such as Search, Ads, Commerce, Maps, YouTube, Google Cloud, Android, Chrome, and Google Playplatform services as well as our hardware initiatives. Our technical infrastructurecommunication and some newer efforts like virtual reality are also included in Google. Google generates revenues primarily from advertising;collaboration tools; sales of other products and services, such as fees received for subscription-based products, apps and in-app purchases, and digital content; services fees for cloud offerings; and sales of hardware products.
Other Bets – Other Bets is a combination of multiple operating segments that are not individually material. Other Bets includes businesses such as Access, Calico, CapitalG, GV, Nest, Verily, Waymo, and X. Revenues from the Other Bets are derived primarily through the sales of internet and TV services through Google Fiber, sales of Nest products and services, and licensing and R&D services through Verily.
Seedevices. For additional information on how we recognize revenue, see Note 151 of the Notes to Consolidated Financial Statements included in Part I,II, Item 1 of this Quarterly8 in our Annual Report on Form 10-Q10-K for further information. Prior period segment information has been recast to conformthe fiscal year ended December 31, 2023.
In addition to the current period segment presentation.
Revenues
The following table presentslong-term trends and their financial effect on our business discussed in "Trends in Our Business and Financial Effect" in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, fluctuations in our revenues have been and may continue to be affected by segmenta combination of factors, including:
•changes in foreign currency exchange rates;
•changes in pricing, such as those resulting from changes in fee structures, discounts, and revenue source (in millions, unaudited):customer incentives;
•general economic conditions and various external dynamics, including geopolitical events, regulations, and other measures and their effect on advertiser, consumer, and enterprise spending; |
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
| 2016 | | 2017 | | 2016 | | 2017 |
Google segment | | | | | | | |
Google properties revenues | $ | 16,089 |
| | $ | 19,723 |
| | $ | 45,817 |
| | $ | 55,551 |
|
Google Network Members' properties revenues | 3,732 |
| | 4,342 |
| | 11,167 |
| | 12,597 |
|
Google advertising revenues | 19,821 |
| | 24,065 |
| | 56,984 |
| | 68,148 |
|
Google other revenues | 2,433 |
| | 3,405 |
| | 6,677 |
| | 9,590 |
|
Google segment revenues | 22,254 |
| | 27,470 |
| | 63,661 |
| | 77,738 |
|
| | | | | | | |
Other Bets | | | | | | | |
Other Bets revenues | 197 |
| | 302 |
| | 547 |
| | 794 |
|
| | | | | | | |
Revenues | $ | 22,451 |
| | $ | 27,772 |
| | $ | 64,208 |
| | $ | 78,532 |
|
•new product and service launches; and•seasonality.
Additionally, fluctuations in our revenues generated from advertising ("Google advertising"), revenues from other sources ("Google subscriptions, platforms, and devices revenues"), Google Cloud, and Other Bets revenues have been, and may continue to be, affected by other factors unique to each set of revenues, as described below.
Google segmentServices
The following table presents our Google segmentServices revenues (in millions, unaudited)consist of Google advertising as well as Google subscriptions, platforms, and devices revenues.
Google Advertising
Google advertising revenues are comprised of the following:
•Google Search & other, which includes revenues generated on Google search properties (including revenues from traffic generated by search distribution partners who use Google.com as their default search in browsers, toolbars, etc.), and changesother Google owned and operated properties like Gmail, Google Maps, and Google Play;
•YouTube ads, which includes revenues generated on YouTube properties; and
•Google Network, which includes revenues generated on Google Network properties participating in AdMob, AdSense, and Google Ad Manager.
We use certain metrics to track how well traffic across various properties is monetized as it relates to our aggregateadvertising revenues: paid clicks and cost-per-click (expressed as a percentage):
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
| 2016 | | 2017 | | 2016 | | 2017 |
Google segment revenues | $ | 22,254 |
| | $ | 27,470 |
| | $ | 63,661 |
| | $ | 77,738 |
|
Google segment revenues as a percentage of total revenues | 99.1 | % | | 98.9 | % | | 99.1 | % | | 99.0 | % |
Aggregate paid clicks change | | | 47 | % | | | | 48 | % |
Aggregate cost-per-click change | | | (18 | )% | | | | (20 | )% |
Use of Monetization Metrics
When assessing our advertising revenue performance, we present information regarding the percentage change in the number of "paid clicks"pertain to traffic on Google Search & other properties, while impressions and "cost-per-click" forcost-per-impression pertain to traffic on our Google properties and Google Network Members' properties. Management views these as important metrics for understanding our business.
Paid clicks for our Google properties represent engagement by users and include clicks on advertisements by end-users related to searches on Google.com, clicks related to advertisements onGoogle search properties and other Google owned and operated properties including Gmail, Google Maps, and Google Play; and viewed YouTube engagement ads like TrueView (counted as an engagement when the user chooses not to skip the ad). Paid clicks for our Google Network Members' properties include clicks by end-users related to advertisements served on Google Network Members' properties participating in AdSense for Search, AdSense for Content, and AdMob. In some cases, such as programmatic and reservation based advertising buying, we primarily charge advertisers by impression; while growing, this represents a small part of our revenue base.
Play. Cost-per-click is defined as click-driven revenues divided by our total number of paid clicks and represents the average amount we charge advertisers for each engagement by users.
WeImpressions include impressions displayed to users on Google Network properties participating primarily in AdMob, AdSense, and Google Ad Manager. Cost-per-impression is defined as impression-based and click-based revenues divided by our total number of impressions, and represents the average amount we charge advertisers for each impression displayed to users.
As our business evolves, we periodically review, refine, and update our methodologies for monitoring, gathering, and counting the number of paid clicks and the number of impressions, and for identifying the revenues generated by the corresponding click and impression activity.
In the first quarter of 2017, we refinedFluctuations in our methodology for paid clicks and cost-per-click to include additional categories of TrueView engagement ads and exclude non-engagement based trial ad formats. This change resulted in a modest increase in paid clicks and a modest decrease in cost-per-click. For comparison purposes, we have included updated data for historical periods in the table below:
|
| | | | | | | | | | | |
| Three Months Ended |
| Mar 31, 2016 | | Jun 30, 2016 | | Sep 30, 2016 | | Dec 31, 2016 |
Year-over-year change | | | | | | | |
Aggregate paid clicks | 29 | % | | 28 | % | | 32 | % | | 39 | % |
Paid clicks on Google properties | 38 | % | | 36 | % | | 41 | % | | 47 | % |
Paid clicks on Google Network Members' properties | 2 | % | | 0 | % | | 1 | % | | 7 | % |
| | | | | | | |
Aggregate cost-per-click | (8 | )% | | (6 | )% | | (10 | )% | | (17 | )% |
Cost-per-click on Google properties | (11 | )% | | (8 | )% | | (12 | )% | | (18 | )% |
Cost-per-click on Google Network Members' properties | (8 | )% | | (8 | )% | | (14 | )% | | (19 | )% |
| | | | | | | |
Quarter-over-quarter change | | | | | | | |
Aggregate paid clicks | (2 | )% | | 7 | % | | 9 | % | | 22 | % |
Paid clicks on Google properties | (3 | )% | | 9 | % | | 11 | % | | 25 | % |
Paid clicks on Google Network Members' properties | 4 | % | | (3 | )% | | 1 | % | | 6 | % |
| | | | | | | |
Aggregate cost-per-click | (1 | )% | | (1 | )% | | (5 | )% | | (10 | )% |
Cost-per-click on Google properties | 1 | % | | (2 | )% | | (6 | )% | | (12 | )% |
Cost-per-click on Google Network Members' properties | (12 | )% | | (2 | )% | | (6 | )% | | 0 | % |
Our advertising revenue growth and the change in advertising revenue growth,revenues, as well as the change in paid clicks and cost-per-click on Google Search & other properties and the change in impressions and cost-per-impression on Google Network Members' properties and the correlation between these items have fluctuatedbeen, and may continue to fluctuate because of variousbe, affected by factors including:in addition to the general factors described above, such as:
growth rates of revenues from Google properties, including YouTube, compared to growth rates of revenues from Google Network Members' properties;
•advertiser competition for keywords;
changes in foreign currency exchange rates;
seasonality;
the fees advertisers are willing to pay based on how they manage their advertising costs;
•changes in advertising quality, formats, delivery or formats;policy;
•changes in device mix;
•seasonal fluctuations in internet usage, advertising expenditures, and underlying business trends, such as traditional retail seasonality; and
•traffic growth in emerging markets compared to more mature markets and across various advertising verticals and channels;channels.
a shift in the proportion of non-click basedGoogle subscriptions, platforms, and devices
Google subscriptions, platforms, and devices revenues generated on Google properties and Google Network Members' properties, including an increase in programmatic and reservation based advertising buying; and
general economic conditions.
Our advertising revenue growth rate has fluctuated over time as a result of a number of factors, including increasing competition, query growth rates, challenges in maintaining our growth rate as our revenues increase to higher levels, the evolutionare comprised of the online advertising market, our investments in new business strategies, changesfollowing:
•consumer subscriptions, which primarily include revenues from YouTube services, such as YouTube TV, YouTube Music and Premium, and NFL Sunday Ticket, as well as Google One;
•platforms, which primarily include revenues from Google Play from the sales of apps and in-app purchases;
•devices, which primarily include sales of the Pixel family of devices; and
•other products and services.
Fluctuations in our product mix,Google subscriptions, platforms, and shifts in the geographic mix of our revenues. We also expect that our revenue growth rate willdevices revenues have been, and may continue to be, affected by evolving user preferences,factors in addition to the acceptancegeneral factors described above, such as changes in customer usage and demand, number of subscribers, and fluctuations in the timing of product launches.
Google Cloud
Google Cloud revenues are comprised of the following:
•Google Cloud Platform, which generates consumption-based fees and subscriptions for infrastructure, platform, and other services. These services provide access to solutions such as cybersecurity, databases, analytics, and AI offerings including our AI infrastructure, Vertex AI platform, and Gemini for Google Cloud;
•Google Workspace, which includes subscriptions for cloud-based communication and collaboration tools for enterprises, such as Calendar, Gmail, Docs, Drive, and Meet, with integrated features like Gemini for Google Workspace; and
•other enterprise services.
Fluctuations in our Google Cloud revenues have been, and may continue to be, affected by usersfactors in addition to the general factors described above, such as customer usage.
Other Bets
Revenues from Other Bets are generated primarily from the sale of healthcare-related services and internet services.
Costs and Expenses
Our cost structure has two components: cost of revenues and operating expenses. Our operating expenses include costs related to R&D, sales and marketing, and general and administrative functions. Certain of our costs and expenses, including those associated with the operation of our technical infrastructure as well as components of our operating expenses, are generally less variable in nature and may not correlate to changes in revenue. Additionally, fluctuations in compensation expenses may not directly correlate with changes in headcount, in particular due to annual SBC awards that generally vest over four years.
Cost of Revenues
Cost of revenues is comprised of TAC and other costs of revenues.
•TAC includes:
◦amounts paid to our distribution partners who make available our search access points and services. Our distribution partners include browser providers, mobile carriers, original equipment manufacturers, and software developers; and
◦amounts paid to Google Network partners primarily for ads displayed on their properties.
•Other cost of revenues primarily includes:
◦compensation expense related to our data centers and other operations such as content review and customer and product support;
◦content acquisition costs, which are payments to content providers from whom we license video and other content for distribution on YouTube and Google Play (we pay fees to these content providers based on revenues generated or a flat fee);
◦depreciation expense related to our technical infrastructure; and
◦inventory and other costs related to the devices we sell.
TAC as a percentage of revenues generated from ads placed on Google Network properties are significantly higher than TAC as a percentage of revenues generated from ads placed on Google Search & other properties, because most of the advertiser revenues from ads served on Google Network properties are paid as TAC to our Google Network partners.
Operating Expenses
Operating expenses are generally incurred during our normal course of business, which we categorize as either R&D, sales and marketing, or general and administrative.
The main components of our R&D expenses are:
•compensation expenses for engineering and technical employees responsible for R&D related to our existing and new products and services;
•depreciation; and
•third-party services fees primarily relating to consulting and outsourced services in support of our engineering and product development efforts.
The main components of our sales and marketing expenses are:
•compensation expenses for employees engaged in sales and marketing, sales support, and certain customer service functions; and
•spending relating to our advertising and promotional activities in support of our products and services.
The main components of our general and administrative expenses are:
•compensation expenses for employees in finance, human resources, information technology, legal, and other administrative support functions;
•expenses relating to legal matters, including certain fines and settlements; and
•third-party services as they are delivered on diverse devices, our ability to create a seamless experience for both usersfees, including audit, consulting, outside legal, and advertisers, and movements inother outsourced administrative services.
Other Income (Expense), Net
OI&E, net primarily consists of interest income (expense), the effect of foreign currency exchange rates.gains (losses), net gains (losses) and impairment on our marketable and non-marketable securities, performance fees, and income (loss) and impairment from our equity method investments.
For additional information, including how we account for our investments and factors that can drive fluctuations in the value of our investments, see Note 1 of the Notes to Consolidated Financial Statements included in Part II, Item 8 and Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 as well as Note 3 of the Notes to Consolidated Financial Statements included in Item 1 of this Quarterly Report on Form 10-Q.
Google properties
Provision for Income Taxes
Provision for income taxes represents the estimated amount of federal, state, and foreign income taxes incurred in the U.S. and the many jurisdictions in which we operate. The provision includes the effect of reserve provisions and changes to reserves that are considered appropriate as well as the related net interest and penalties.
For additional information, see Note 1 of the Notes to Consolidated Financial Statements included in Part II, Item 8 in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 as well as Note 12 of the Notes to Consolidated Financial Statements included in Item 1 of this Quarterly Report on Form 10-Q.
Executive Overview
The following table presentssummarizes our Google properties revenuesconsolidated financial results (in millions, unaudited)except per share information and percentages):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | | | |
| March 31, | | | | |
| | 2023 | | 2024 | | $ Change | | % Change |
Consolidated revenues | | $ | 69,787 | | | $ | 80,539 | | | $ | 10,752 | | | 15 | % |
Change in consolidated constant currency revenues(1) | | | | | | | | 16 | % |
| | | | | | | | |
Cost of revenues | | $ | 30,612 | | | $ | 33,712 | | | $ | 3,100 | | | 10 | % |
Operating expenses | | $ | 21,760 | | | $ | 21,355 | | | $ | (405) | | | (2) | % |
| | | | | | | | |
Operating income | | $ | 17,415 | | | $ | 25,472 | | | $ | 8,057 | | | 46 | % |
Operating margin | | 25 | % | | 32 | % | | | | 7 | % |
| | | | | | | | |
Other income (expense), net | | $ | 790 | | | $ | 2,843 | | | $ | 2,053 | | | 260 | % |
| | | | | | | | |
Net Income | | $ | 15,051 | | | $ | 23,662 | | | $ | 8,611 | | | 57 | % |
Diluted EPS | | $ | 1.17 | | | $ | 1.89 | | | $ | 0.72 | | | 62 | % |
| | | | | | | | |
| | | | | | | | |
(1) See "Use of Non-GAAP Constant Currency Measures" below for details relating to our use of constant currency information.
•Revenues were $80.5 billion, an increase of 15% year over year, primarily driven by an increase in Google Services revenues of $8.4 billion, or 14%, and changesan increase in Google Cloud revenues of $2.1 billion, or 28%.
•Total constant currency revenues, which exclude the effect of hedging, increased 16% year over year.
•Cost of revenues was $33.7 billion, an increase of 10% year over year, primarily driven by increases in TAC, content acquisition costs, and depreciation expense. These increases were partially offset by decreases in compensation expenses, largely the result of a reduction in employee severance and related charges, and charges related to our paid clicksoffice space optimization efforts.
•Operating expenses were $21.4 billion, a decrease of 2% year over year, primarily driven by decreases in charges related to our office space optimization efforts, compensation expenses, largely the result of a reduction in employee severance and cost-per-click (expressed as a percentage):related charges, and charges related to legal matters. These decreases were partially offset by an increase in depreciation expense.
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
| 2016 | | 2017 | | 2016 | | 2017 |
Google properties revenues | $ | 16,089 |
| | $ | 19,723 |
| | $ | 45,817 |
| | $ | 55,551 |
|
Google properties revenues as a percentage of Google segment revenues | 72.3 | % | | 71.8 | % | | 72.0 | % | | 71.5 | % |
Paid clicks change | | | 55 | % | | | | 57 | % |
Cost-per-click change | | | (21 | )% | | | | (22 | )% |
Other Information•On April 25, 2024, the Board of Directors of Alphabet approved the initiation of a cash dividend program, and declared a cash dividend of $0.20 per share that will be paid on June 17, 2024, to stockholders of record as of June 10, 2024, on each of the company’s Class A, Class B, and Class C shares. See Note 9 of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-Q for additional information.
•Repurchases of Class A and Class C shares were $3.4 billion and $12.7 billion, respectively, totaling $16.1 billion for the three months ended March 31, 2024. In April 2024, the Board of Directors of Alphabet authorized the company to repurchase up to an additional $70.0 billion of its Class A and Class C shares. For additional information, see Note 9 of the Notes to Consolidated Financial Statements included in Item 1 of this Quarterly Report on Form 10-Q for additional information.
•Compensation expenses included employee severance and related charges for the three months ended March 31, 2024 of $716 million, a $1.3 billion decrease in severance and related charges as compared to the three months ended March 31, 2023. For the first quarter of 2024, these charges are included within cost of revenues, research and development, sales and marketing, and general and administrative expenses in the amounts of $153 million, $247 million, $217 million, and $99 million, respectively.
•Operating cash flow was $28.8 billion for the three months ended March 31, 2024.
•Capital expenditures, which primarily reflected investments in technical infrastructure, were $12.0 billion for the three months ended March 31, 2024.
•As of March 31, 2024, we had 180,895 employees.
Financial Results
Revenues
The following table presents revenues by type (in millions): | | | | | | | | | | | |
| Three Months Ended |
| March 31, |
| 2023 | | 2024 |
Google Search & other | $ | 40,359 | | | $ | 46,156 | |
YouTube ads | 6,693 | | | 8,090 | |
Google Network | 7,496 | | | 7,413 | |
Google advertising | 54,548 | | | 61,659 | |
Google subscriptions, platforms, and devices | 7,413 | | | 8,739 | |
Google Services total | 61,961 | | | 70,398 | |
Google Cloud | 7,454 | | | 9,574 | |
Other Bets | 288 | | | 495 | |
Hedging gains (losses) | 84 | | | 72 | |
Total revenues | $ | 69,787 | | | $ | 80,539 | |
Google properties revenues consist primarily ofServices
Google advertising revenues that are generated on:
Google search properties which includes revenues from traffic generated by search distribution partners who use Google.com as their default search in browsers, toolbars, etc.;Search & other
Other Google owned and operated properties like Gmail, Google Maps, and Google Play; and
YouTube, including but not limited to, YouTube TrueView and Google Preferred.
Our Google propertiesSearch & other revenues increased $3,634 million$5.8 billion from the three months ended September 30, 2016March 31, 2023 to the three months ended September 30, 2017.March 31, 2024. The overall growth was primarily driven by interrelated factors including increases in mobile search queries resulting from ongoing growth in user adoption and usage as well as continuedon mobile devices; growth in advertiser activity. We also experienced growth in desktop search due to improvements in ad formatsspending; and delivery, as well as growth in YouTube driven primarily by video advertising.
Our Google properties revenues increased $9,734 million from the nine months ended September 30, 2016 to the nine months ended September 30, 2017. The growth was primarily driven by increases in mobile search resulting from ongoing growth in user adoption and usage, as well as continued growth in advertiser activity. We also experienced growth in YouTube driven primarily by video advertising. The growth was partially offset by the general strengthening of the U.S. dollar compared to certain foreign currencies.
The number of paid clicks through our advertising programs on Google properties increased from the three and nine months ended September 30, 2016 to the three and nine months ended September 30, 2017 due to growth in YouTube engagement ads, increases in mobile search queries, improvements we have made in ad formats and delivery, and continued global expansion of our products, advertisers and user base. The positive impact on ourdelivery.
YouTube ads
YouTube ads revenues from an increase in paid clicks was partially offset by a decrease in the cost-per-click paid by our advertisersincreased $1.4 billion from the three and nine months ended September 30, 2016March 31, 2023 to the three and nine months ended September 30, 2017.March 31, 2024. The decrease in cost-per-clickgrowth was primarily driven by continued growth in YouTube engagement ads where cost-per-click remains lower than on our otherdirect response and brand advertising platforms. The decrease in cost-per-click was also impactedproducts, both of which benefited from increased spending by changes in device mix, property mix, product mix, geographic mix, ongoing product changes, and fluctuations of the U.S. dollar compared to certain foreign currencies.our advertisers.
Google Network
Google Network Members' properties
The following table presents our Google Network Members' properties revenues (in millions, unaudited) and changes in our paid clicks and cost-per-click (expressed as a percentage):
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
| 2016 | | 2017 | | 2016 | | 2017 |
Google Network Members' properties revenues | $ | 3,732 |
| | $ | 4,342 |
| | $ | 11,167 |
| | $ | 12,597 |
|
Google Network Members' properties revenues as a percentage of Google segment revenues | 16.8 | % | | 15.8 | % | | 17.5 | % | | 16.2 | % |
Paid clicks change | | | 10 | % | | | | 9 | % |
Cost-per-click change | | | (5 | )% | | | | (11 | )% |
Google Network Members' properties revenues consist primarily of advertising revenues generated from ads placed on Google Network Member properties through:
AdMob;
AdSense (such as AdSense for Search, AdSense for Content, etc.); and
DoubleClick AdExchange.
Our Google Network Members' properties revenues increased $610decreased $83 million from the three months ended September 30, 2016March 31, 2023 to the three months ended September 30, 2017. The growth wasMarch 31, 2024 primarily driven by strength in both programmatic advertising buying and AdMob.
Our Google Network Members' properties revenues increased $1,430 million from the nine months ended September 30, 2016 to the nine months ended September 30, 2017. The growth was primarily driven by strength in both programmatic advertising buying and AdMob, offset by a decline in our traditional AdSense businesses and the general strengthening of the U.S. dollar compared to certain foreign currencies.
The increase in paid clicks from the three and nine months ended September 30, 2016 to the three and nine months ended September 30, 2017 resulted primarily from growth in AdMob and an increase from our traditional AdSense for Search business. The positive impact on our revenues from an increase in paid clicks was partially offset by a decrease in the cost-per-click paid by our advertisers. The decrease in cost-per-click was impacted by changes in device mix, property mix, product mix, geographic mix, ongoing product changes, and fluctuations of the U.S. dollar compared to certain foreign currencies.AdSense revenues.
Google other revenuesMonetization Metrics
The following table presents ourchanges in monetization metrics for Google Search & other revenues (in millions, unaudited):(paid clicks and cost-per-click) and Google Network revenues (impressions and cost-per-impression), expressed as a percentage, from three months ended March 31, 2023 to three months ended March 31, 2024:
| | | | | |
Google Search & other | |
Paid clicks change | 5 | % |
Cost-per-click change | 8 | % |
Google Network | |
Impressions change | (13) | % |
Cost-per-impression change | 14 | % |
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
| 2016 | | 2017 | | 2016 | | 2017 |
Google other revenues | $ | 2,433 |
| | $ | 3,405 |
| | $ | 6,677 |
| | $ | 9,590 |
|
Google other revenues as a percentage of Google segment revenues | 10.9 | % | | 12.4 | % | | 10.5 | % | | 12.3 | % |
Changes in paid clicks and impressions are driven by a number of interrelated factors, including changes in advertiser spending; ongoing product and policy changes; and, as it relates to paid clicks, fluctuations in search queries resulting from changes in user adoption and usage, primarily on mobile devices.Changes in cost-per-click and cost-per-impression are driven by a number of interrelated factors including changes in device mix, geographic mix, advertiser spending, ongoing product and policy changes, product mix, property mix, and changes in foreign currency exchange rates.
Google other revenues consist primarily of revenues from:
•Apps, in-app purchases,subscriptions, platforms, and digital content in the Google Play store;devices
Google Cloud offerings;subscriptions, platforms, and
Hardware.
Our Google other devices revenues increased $972 million$1.3 billion from the three months ended September 30, 2016March 31, 2023 to the three months ended September 30, 2017 and increased $2,913 million from the nine months ended September 30, 2016 to the nine months ended September 30, 2017. The growth from the three and nine months ended September 30, 2016 to the three and nine months ended September 30, 2017 wasMarch 31, 2024, primarily driven by an increase in subscription revenues, largely from growth in the number of paid subscribers for YouTube services.
Google Cloud
Google Cloud offerings, revenues from Google Play, largely relating to in-app purchases (revenues which we recognize net of payout to developers), and hardware sales.
Other Bets
The following table presents our Other Bets revenues (in millions, unaudited):
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
| 2016 | | 2017 | | 2016 | | 2017 |
Other Bets revenues | $ | 197 |
| | $ | 302 |
| | $ | 547 |
| | $ | 794 |
|
Other Bets revenues as a percentage of total revenues | 0.9 | % | | 1.1 | % | | 0.9 | % | | 1.0 | % |
Other Bets revenues consist primarily of revenues and sales from:
Internet and TV services;
Licensing and R&D services; and
Nest branded hardware.
Our Other Bets revenues increased $105 million$2.1 billion from the three months ended September 30, 2016March 31, 2023 to the three months ended September 30, 2017 and increased $247 million from the nine months ended September 30, 2016 to the nine months ended September 30, 2017. The growth from the three and nine months ended September 30, 2016 to the three and nine months ended September 30, 2017March 31, 2024. Growth was primarily driven by revenues from salesGoogle Cloud Platform followed by Google Workspace offerings. Google Cloud's infrastructure and platform services were the largest drivers of Nest branded hardware, Fiber internet and TV services, and Verily licensing and R&D services.growth in Google Cloud Platform.
Revenues by Geography
The following table presents our revenues by geography as a percentage of revenues, determined based on the billing addresses of our customers (unaudited):
|
| | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
| 2016 | | 2017 | | 2016 | | 2017 |
United States | 47 | % | | 47 | % | | 47 | % | | 47 | % |
EMEA | 33 | % | | 33 | % | | 34 | % | | 33 | % |
APAC | 15 | % | | 15 | % | | 14 | % | | 15 | % |
Other Americas | 5 | % | | 5 | % | | 5 | % | | 5 | % |
customers: | | | | | | | | | | | | |
| Three Months Ended | |
| March 31, | |
| 2023 | | 2024 | |
United States | 47 | % | | 48 | % | |
EMEA | 30 | % | | 30 | % | |
APAC | 17 | % | | 16 | % | |
Other Americas | 6 | % | | 6 | % | |
Hedging gains (losses) | 0 | % | | 0 | % | |
For the amounts of revenues by geography,additional information, see Note 2 of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Use of Non-GAAP Constant Currency RevenuesInformation
International revenues, which represent a significant portion of our revenues, are generally transacted in multiple currencies and Constant Currency Revenue Growththerefore are affected by fluctuations in foreign currency exchange rates.
The impacteffect of currency exchange rates on our business is an important factor in understanding period to periodperiod-to-period comparisons. Our international revenues are favorably impacted as the U.S. dollar weakens relative to other foreign currencies, and unfavorably impacted as the U.S dollar strengthens relative to other foreign currencies. We use non-GAAP constant currency revenues and ("constant currency revenue growthrevenues") and non-GAAP percentage change in constant currency revenues ("percentage change in constant currency revenues") for
financial and operational decision-making and as a means to evaluate period-to-period comparisons. We believe the presentation of results on a constant currency basis in addition to GAAP results helps improve the ability to understand our performance, because they excludeit excludes the effects of foreign currency volatility that are not indicative of our core operating results.
Constant currency information compares results between periods as if exchange rates had remained constant period over period. We define constant currency revenues as total revenues excluding the impacteffect of foreign currency exchange rate movements and("FX Effect") as well as hedging activities, andwhich are recognized at the consolidated level. We use itconstant currency revenues to determine the constant currency revenue growthpercentage change on a year-on-year basis. Constant currency revenues are calculated by translating current period revenues using prior year comparable period exchange rates, as well as excluding any hedging impactseffects realized in the current period.
Constant currency revenue growth (expressed as a percentage)percentage change is calculated by determining the increasechange in current period revenues over prior year comparable period revenues where current period foreign currency revenues are translated using prior year comparable period exchange rates and hedging benefitseffects are excluded from revenues of both periods.
These results should be considered in addition to, not as a substitute for, results reported in accordance with GAAP. Results on a constant currency basis, as we present them, may not be comparable to similarly titled measures used by other companies and are not a measure of performance presented in accordance with GAAP.
TheThe following table presents the foreign currency exchange impacteffect on our international revenues and total revenues (in millions, unaudited)except percentages):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Three Months Ended March 31, 2024 |
| | | | | | | | | % Change from Prior Period |
| Three Months Ended March 31, | | Less FX Effect | | Constant Currency Revenues | | As Reported | | Less Hedging Effect | | Less FX Effect | | Constant Currency Revenues |
| 2023 | | 2024 | | | | | | |
United States | $ | 32,864 | | | $ | 38,737 | | | $ | 0 | | | $ | 38,737 | | | 18 | % | | | | 0 | % | | 18 | % |
EMEA | 21,078 | | | 23,788 | | | 204 | | | 23,584 | | | 13 | % | | | | 1 | % | | 12 | % |
APAC | 11,681 | | | 13,289 | | | (439) | | | 13,728 | | | 14 | % | | | | (4) | % | | 18 | % |
Other Americas | 4,080 | | | 4,653 | | | (152) | | | 4,805 | | | 14 | % | | | | (4) | % | | 18 | % |
Revenues, excluding hedging effect | 69,703 | | | 80,467 | | | (387) | | | 80,854 | | | 15 | % | | | | (1) | % | | 16 | % |
Hedging gains (losses) | 84 | | | 72 | | | | | | | | | | | | | |
Total revenues(1) | $ | 69,787 | | | $ | 80,539 | | | | | $ | 80,854 | | | 15 | % | | 0 | % | | (1) | % | | 16 | % |
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
| 2016 | | 2017 | | 2016 | | 2017 |
EMEA revenues | $ | 7,392 |
| | $ | 9,097 |
| | $ | 22,007 |
| | $ | 25,733 |
|
Exclude foreign exchange impact on current period revenues using prior year rates | 361 |
| | (283 | ) | | 867 |
| | 557 |
|
Exclude hedging impact recognized in current period | (104 | ) | | 161 |
| | (293 | ) | | 15 |
|
EMEA constant currency revenues | $ | 7,649 |
| | $ | 8,975 |
| | $ | 22,581 |
| | $ | 26,305 |
|
Prior period EMEA revenues, excluding hedging impact | $ | 6,286 |
| | $ | 7,288 |
| | $ | 18,405 |
| | $ | 21,714 |
|
EMEA revenue growth | 14 | % | | 23 | % | | 15 | % | | 17 | % |
EMEA constant currency revenue growth | 22 | % | | 23 | % | | 23 | % | | 21 | % |
| | | | | | | |
APAC revenues | $ | 3,248 |
| | $ | 4,199 |
| | $ | 8,951 |
| | $ | 11,548 |
|
Exclude foreign exchange impact on current period revenues using prior year rates | (210 | ) | | 54 |
| | (142 | ) | | (33 | ) |
Exclude hedging impact recognized in current period | 0 |
| | 18 |
| | (31 | ) | | (52 | ) |
APAC constant currency revenues | $ | 3,038 |
| | $ | 4,271 |
| | $ | 8,778 |
| | $ | 11,463 |
|
Prior period APAC revenues, excluding hedging impact | $ | 2,406 |
| | $ | 3,248 |
| | $ | 6,893 |
| | $ | 8,920 |
|
APAC revenue growth | 30 | % | | 29 | % | | 25 | % | | 29 | % |
APAC constant currency revenue growth | 26 | % | | 31 | % | | 27 | % | | 29 | % |
| | | | | | | |
Other Americas revenues | $ | 1,162 |
| | $ | 1,546 |
| | $ | 3,185 |
| | $ | 4,230 |
|
Exclude foreign exchange impact on current period revenues using prior year rates | 45 |
| | (26 | ) | | 346 |
| | (111 | ) |
Exclude hedging impact recognized in current period | (1 | ) | | 12 |
| | (28 | ) | | 8 |
|
Other Americas constant currency revenues | $ | 1,206 |
| | $ | 1,532 |
| | $ | 3,503 |
| | $ | 4,127 |
|
Prior period Other Americas revenues, excluding hedging impact | $ | 949 |
| | $ | 1,161 |
| | $ | 2,777 |
| | $ | 3,157 |
|
Other Americas revenue growth | 20 | % | | 33 | % | | 12 | % | | 33 | % |
Other Americas constant currency revenue growth | 27 | % | | 32 | % | | 26 | % | | 31 | % |
| | | | | | | |
United States revenues | $ | 10,649 |
| | $ | 12,930 |
| | $ | 30,065 |
| | $ | 37,021 |
|
United States revenue growth | 22 | % | | 21 | % | | 23 | % | | 23 | % |
| | | | | | | |
Total revenues | $ | 22,451 |
| | $ | 27,772 |
| | $ | 64,208 |
| | $ | 78,532 |
|
Total constant currency revenues | $ | 22,542 |
| | $ | 27,708 |
| | $ | 64,927 |
| | $ | 78,916 |
|
Total revenue growth | 20 | % | | 24 | % | | 20 | % | | 22 | % |
Total constant currency revenue growth | 23 | % | | 24 | % | | 23 | % | | 24 | % |
For(1)Total constant currency revenues of $80.9 billion for the three months ended September 30, 2017, ourMarch 31, 2024 increased $11.2 billion compared to $69.7 billion in revenues, from excluding hedging effect, for the three months ended March 31, 2023.
EMEA wererevenue growth was favorably impactedaffected by changes in foreign currency exchange rates, primarily becausedue to the U.S. dollar weakenedweakening relative to the Euro. ForEuro, partially offset by the nine months ended September 30, 2017, our revenues from EMEA wereU.S. dollar strengthening relative to the Turkish lira.
APAC revenue growth was unfavorably impactedaffected by changes in foreign currency exchange rates, primarily because the U.S. dollar strengthened relativedue to the British pound.
For the three months ended September 30, 2017, our revenues from APAC were unfavorably impacted by changes in foreign currency exchange rates, primarily because the U.S. dollar strengthened relative to the Japanese yen, partially offset by the impact of the U.S. dollar weakening relative to the Australian dollar and Indian rupee. For the nine months ended September 30, 2017, our revenues from APAC were favorably impacted by changes in foreign
currency exchange rates, primarily because the U.S. dollar weakened relative to the Australian dollar, South Korean won and Taiwanese dollar, partially offset by the impact of the U.S. dollar strengthening relative to the Japanese yen.
For the three months ended September 30, 2017, our revenues from Other Americas were favorably impactedrevenue growth was unfavorably affected by changes in foreign currency exchange rates, primarily because the U.S. dollar weakened relativedue to the Canadian dollar, Brazilian real, and Mexican peso partially offset by the impact of the U.S. dollar strengthening relative to the Argentine peso. For the nine months ended September 30, 2017, our revenues from Other Americas were favorably impacted by changes in foreign currency exchange rates, primarily because the U.S. dollar weakened relative to the Brazilian real.
Costs and Expenses
Cost of Revenues
Cost of revenues consists of traffic acquisition costs (TAC) which are paid to Google Network Members primarily for ads displayed on their properties and amounts paid to our distribution partners who make available our search access points and services. Our distribution partners include browser providers, mobile carriers, original equipment manufacturers, and software developers.
Additionally, otherThe following table presents cost of revenues, (which is the cost of revenues excluding traffic acquisition costs) includes the following:
The expenses associated with the operation of our data centers (including depreciation, labor including SBC, energy, bandwidth, and other equipment costs);
Content acquisition costs primarily related to payments to certain content providers from whom we license their video and other content for distribution on YouTube and Google Play (we pay fees to these content providers based on revenues generated or a flat fee);
Credit card and other transaction fees related to processing customer transactions;
Inventory related costs for hardware we sell; and
Amortization of certain intangible assets.
The following tables present our costs of revenues, including traffic acquisition costsTAC (in millions, unaudited)except percentages):
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
| 2016 | | 2017 | | 2016 | | 2017 |
Traffic acquisition costs | $ | 4,182 |
| | $ | 5,502 |
| | $ | 11,945 |
| | $ | 15,222 |
|
Other cost of revenues | 4,517 |
| | 5,646 |
| | 12,532 |
| | 16,094 |
|
Total cost of revenues | $ | 8,699 |
| | $ | 11,148 |
| | $ | 24,477 |
| | $ | 31,316 |
|
Total cost of revenues as a percentage of revenues | 38.7 | % | | 40.1 | % | | 38.1 | % | | 39.9 | % |
| | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
| 2016 | | 2017 | | 2016 | | 2017 |
Traffic acquisition costs to distribution partners | $ | 1,559 |
| | $ | 2,401 |
| | $ | 4,128 |
| | $ | 6,255 |
|
Traffic acquisition costs to distribution partners as a percentage of Google properties revenues (Google properties TAC rate) | 9.7 | % | | 12.2 | % | | 9.0 | % | | 11.3 | % |
| | | | | | | |
Traffic acquisition costs to Google Network Members | $ | 2,623 |
| | $ | 3,101 |
| | $ | 7,817 |
| | $ | 8,967 |
|
Traffic acquisition costs to Google Network Members as a percentage of Google Network Members' properties revenues (Network Members TAC rate) | 70.3 | % | | 71.4 | % | | 70.0 | % | | 71.2 | % |
| | | | | | | |
Traffic acquisition costs | $ | 4,182 |
| | $ | 5,502 |
| | $ | 11,945 |
| | $ | 15,222 |
|
Traffic acquisition costs as a percentage of advertising revenues (Aggregate TAC rate) | 21.1 | % | | 22.9 | % | | 21.0 | % | | 22.3 | % |
The cost of revenues that we incur related to revenues generated from ads placed on the properties of our Google Network Members are significantly higher than the costs of revenues that we incur related to revenues generated from ads placed on Google properties because most of the advertiser revenues from ads served on Google Network Members’ properties are paid as TAC to our Google Network Members. | | | | | | | | | | | | | | | |
| Three Months Ended | | |
| March 31, | | |
| 2023 | | 2024 | | | | |
TAC | $ | 11,721 | | | $ | 12,946 | | | | | |
Other cost of revenues | 18,891 | | | 20,766 | | | | | |
Total cost of revenues | $ | 30,612 | | | $ | 33,712 | | | | | |
Total cost of revenues as a percentage of revenues | 44 | % | | 42 | % | | | | |
Cost of revenues increased $2,449$3.1 billion from the three months ended March 31, 2023 to the three months ended March 31, 2024 due to an increase in other cost of revenues and TAC of $1.9 billion and $1.2 billion, respectively.
The increase in TAC from the three months ended March 31, 2023 to the three months ended March 31, 2024 was largely due to an increase in TAC paid to distribution partners, primarily driven by growth in revenues subject to TAC. The TAC rate decreased from 21.5% to 21.0% from the three months ended March 31, 2023 to the three months ended March 31, 2024 primarily due to a revenue mix shift from Google Network properties to Google Search & other properties. The TAC rate on Google Search & other revenues was substantially consistent from the three months ended March 31, 2023 to the three months ended March 31, 2024. The TAC rate on Google Network revenues reflected a slight increase from the three months ended March 31, 2023 to the three months ended March 31, 2024 due to a combination of factors, none of which were individually significant.
The increase in other cost of revenues from the three months ended March 31, 2023 to the three months ended March 31, 2024 was primarily due to increases in content acquisition costs, largely for YouTube, and depreciation expense. These increases were partially offset by decreases in compensation expenses, largely the result of a reduction in employee severance and related charges of $308 million, and charges related to our office space optimization efforts of $220 million.
Research and Development
The following table presents R&D expenses (in millions, except percentages): | | | | | | | | | | | | | | | |
| Three Months Ended | | |
| March 31, | | |
| 2023 | | 2024 | | | | |
Research and development expenses | $ | 11,468 | | | $ | 11,903 | | | | | |
Research and development expenses as a percentage of revenues | 16 | % | | 15 | % | | | | |
R&D expenses increased $435 million from the three months ended September 30, 2016March 31, 2023 to the three months ended September 30, 2017March 31, 2024, primarily driven by increases in depreciation expense of $308 million and increased $6,839third-party services fees of $253 million, frompartially offset by a decrease in charges associated with our office space optimization efforts of $247 million. Additionally, a decrease in compensation expenses of $64 million was primarily the nine months ended September 30, 2016 to the nine months ended September 30, 2017 due to various factors, including (1) traffic acquisition costs, (2) data center costs which include depreciation, labor (including SBC), energy, bandwidth, and other equipment costs, (3) content acquisition costs as a result of increased activitiesa reduction in employee severance and related to YouTube, and (4) hardware related costs.
The increase in TAC to distribution partnerscharges of $588 million. This decrease was drivenpartially offset by an increase in Google properties revenues. The increase in the associated Google properties TAC rate was driven by changes in partner agreements and the ongoing shift to mobile, which carries higher TAC because more mobile searches are channeled through paid access points. The increases in TAC to Google Network Members and the associated Network Members TAC rate were driven by the continued underlying shift in advertising buying from our traditional network business to programmatic advertising buying which carries higher TAC and the impact from sales allowances. The increase in the aggregate TAC rate was also partially offset by a favorable revenue mix shift from Google Network Member properties to Google properties.
We expect costSBC expense of revenues to increase in dollar amount and as a percentage of total revenues in future periods based on a number of factors, including the following:
The relative revenue growth rates of Google properties and our Google Network Members’ properties;
Traffic acquisition costs paid to our distribution partners, which are affected by changes in device mix between mobile, desktop and tablet, partner mix, partner agreement terms such as revenue share arrangements, and the percentage of queries channeled through paid access points;
Traffic acquisition costs paid to Google Network Members, which are affected by ongoing adoption of programmatic advertising buying and changes in partner agreement terms;
The growth rates of expenses associated with our data center operations, content acquisition costs, as well as our hardware inventory$320 million, excluding employee severance and related costs; andcharges.
Increased proportion of non-advertising revenues as part of our total revenues.
Research and Development
The following table presents our R&D expenses (in millions, unaudited):
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
| 2016 | | 2017 | | 2016 | | 2017 |
Research and development expenses | $ | 3,596 |
| | $ | 4,205 |
| | $ | 10,326 |
| | $ | 12,319 |
|
Research and development expenses as a percentage of revenues | 16.0 | % | | 15.1 | % | | 16.1 | % | | 15.7 | % |
R&D expenses consist primarily of:
Labor and facilities-related costs, including SBC, for employees responsible for R&D of our existing and new products and services and
Depreciation and equipment-related expenses.
R&D expenses increased $609 million from the three months ended September 30, 2016 to the three months ended September 30, 2017. The increase was primarily due to an increase in labor and facilities-related costs of $363 million, largely resulting from a 17% increase in headcount, partially offset by the shift in the timing of our annual equity refresh cycle. In addition, there was an increase in depreciation and equipment-related expenses of $206 million.
R&D expenses increased $1,993 million from the nine months ended September 30, 2016 to the nine months ended September 30, 2017. The increase was primarily due to an increase in labor and facilities-related costs of $1,465 million, largely resulting from a 17% increase in headcount. In addition, there was an increase in depreciation and equipment-related expenses of $358 million and an increase in professional services expenses of $107 million largely due to additional expenses incurred for outsourced services.
We expect that R&D expenses will increase in dollar amount and may fluctuate as a percentage of revenues in future periods.
Sales and Marketing
The following table presents our sales and marketing expenses (in millions, unaudited)except percentages):
| | Three Months Ended | |
| Three Months Ended | |
| Three Months Ended | |
| |
| | | Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
| 2016 | | 2017 | | 2016 | | 2017 |
Sales and marketing expenses | $ | 2,565 |
| | $ | 3,042 |
| | $ | 7,367 |
| | $ | 8,583 |
|
Sales and marketing expenses | |
Sales and marketing expenses | |
Sales and marketing expenses as a percentage of revenues | 11.5 | % | | 11.0 | % | | 11.5 | % | | 10.9 | % |
Sales and marketing expenses as a percentage of revenues | |
Sales and marketing expenses as a percentage of revenues | |
Sales and marketing expenses consist primarily of:
Labor and facilities-related costs, including SBC, for employees engaged in sales and marketing, sales support, and certain customer service functions; and
Advertising and promotional expenditures related to our products and services.
Sales and marketing expenses increased $477decreased $107 million from the three months ended September 30, 2016March 31, 2023 to the three months ended September 30, 2017. The increase wasMarch 31, 2024, primarily due to an increasedriven by a decrease in advertising and promotionalcompensation expenses of $251$85 million,
largely resulting from increasesthe result of a reduction in marketingemployee severance and promotion-related expenses for our hardware products and Cloud offerings. In addition, there was an increase in labor and facilities-related costsrelated charges of $151$228 million, largely resulting from a 5% increase in headcount, partially offset by the shift in the timinga combination of our annual equity refresh cycle.factors, none of which were individually significant.
Sales and marketing expenses increased $1,216 million from the nine months ended September 30, 2016 to the nine months ended September 30, 2017. The increase was primarily due to an increase in labor and facilities-related costs of $643 million, largely resulting from a 6% increase in headcount. In addition, there was an increase in advertising and promotional expenses of $480 million, largely resulting from increases in marketing and promotion-related expenses for our hardware products.
We expect that sales and marketing expenses will increase in dollar amount and may fluctuate as a percentage of revenues in future periods.
General and Administrative
The following table presents our general and administrative expenses (in millions, unaudited)except percentages):
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
| 2016 | | 2017 | | 2016 | | 2017 |
General and administrative expenses | $ | 1,824 |
| | $ | 1,595 |
| | $ | 4,961 |
| | $ | 5,096 |
|
General and administrative expenses as a percentage of revenues | 8.1 | % | | 5.7 | % | | 7.7 | % | | 6.5 | % |
General and administrative expenses consist primarily of:
Labor and facilities-related costs, including SBC, for employees in our facilities, finance, human resources, information technology, and legal organizations;
Depreciation and equipment-related expenses;
Professional services fees primarily related to outside legal, audit, information technology consulting, and outsourcing services; and
Amortization of certain intangible assets. | | | | | | | | | | | | | | | |
| Three Months Ended | | |
| March 31, | | |
| 2023 | | 2024 | | | | |
General and administrative expenses | $ | 3,759 | | | $ | 3,026 | | | | | |
General and administrative expenses as a percentage of revenues | 5 | % | | 4 | % | | | | |
General and administrative expenses decreased $229$733 million from the three months ended September 30, 2016March 31, 2023 to the three months ended September 30, 2017. March 31, 2024, primarily driven by a reduction in charges related to legal matters of $248 million and a combination of factors, none of which were individually significant.
Segment Profitability
The decreasefollowing table presents segment operating income (loss) (in millions):
| | | | | | | | | | | | | | | |
| Three Months Ended | | |
| March 31, | | |
| 2023 | | 2024 | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | |
| | | | | | | |
Operating income (loss): | | | | | | | |
Google Services | $ | 21,737 | | | $ | 27,897 | | | | | |
Google Cloud | 191 | | | 900 | | | | | |
Other Bets | (1,225) | | | (1,020) | | | | | |
Alphabet-level activities(1) | (3,288) | | | (2,305) | | | | | |
Total income from operations | $ | 17,415 | | | $ | 25,472 | | | | | |
(1)In addition to the costs included in Alphabet-level activities, hedging gains (losses) related to revenue were $84 million and $72 million for the three months ended March 31, 2023 and 2024, respectively. For the three months ended March 31, 2023 and 2024, Alphabet-level activities included substantially all of the charges related to employee severance and our office space optimization efforts. For additional information relating to our segments, see Note 13 of the Notes to Consolidated Financial Statements included in Item 1 of this Quarterly Report on Form 10-Q.
Google Services
Google Services operating income increased $6.2 billion from the three months ended March 31, 2023 to the three months ended March 31, 2024. The increase in operating income was primarily driven by an increase in revenues, partially offset by increases in TAC and content acquisition costs. Additionally, a reduction in compensation expenses contributed to the increase in operating income.
Google Cloud
Google Cloud operating income increased $709 million from the three months ended March 31, 2023 to the three months ended March 31, 2024. The increase in operating income was primarily driven by an increase in revenues, partially offset by increases in compensation expenses, largely driven by headcount growth, and usage costs for technical infrastructure assets.
Other Bets
Other Bets operating loss decreased $205 million from the three months ended March 31, 2023 to the three months ended March 31, 2024 primarily due to a decreasegrowth in labor and facilities-related costs of $184 million, partly resulting from the shift in the timing of our annual equity refresh cycle, as well as decreases in miscellaneous general and administrative expenses and reduced allocations.revenues.
General and administrative expenses increased $135 million from the nine months ended September 30, 2016 to the nine months ended September 30, 2017. The increase was primarily due to an increase in professional service fees of $160 million due to additional expenses incurred for consulting and outsourced services and lower legal related costs in the first quarter of 2016. In addition, there was an increase in labor and facilities-related costs of $59 million,
largely resulting from a 12% increase in headcount. These increases were partially offset by decreases in miscellaneous general and administrative expenses and reduced allocations.
We expect general and administrative expenses will increase in dollar amount and may fluctuate as a percentage of revenues in future periods.
European Commission Fine
On June 27, 2017, the EC announced its decision that certain actions taken by Google regarding its display and ranking of shopping search results and ads infringed European competition law. The EC decision imposed a €2.42 billion (approximately $2.74 billion as of June 27, 2017) fine, which was accrued in the second quarter of 2017.
Other Income (Expense), Net
The following table presents other income (expense), netOI&E (in millions, unaudited)millions):
| | | | | | | | | | | | | | | |
| Three Months Ended | | |
| March 31, | | |
| 2023 | | 2024 | | | | |
Interest income | $ | 797 | | | $ | 1,061 | | | | | |
Interest expense | (80) | | | (94) | | | | | |
Foreign currency exchange gain (loss), net | (210) | | | (238) | | | | | |
Gain (loss) on debt securities, net | (293) | | | (462) | | | | | |
Gain (loss) on equity securities, net | 377 | | | 2,243 | | | | | |
Performance fees | 118 | | | 104 | | | | | |
Income (loss) and impairment from equity method investments, net | (51) | | | (26) | | | | | |
Other | 132 | | | 255 | | | | | |
Other income (expense), net | $ | 790 | | | $ | 2,843 | | | | | |
| | | | | | | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
| 2016 | | 2017 | | 2016 | | 2017 |
Other income (expense), net | $ | 278 |
| | $ | 197 |
| | $ | 216 |
| | $ | 693 |
|
Other income (expense), net, as a percentage of revenues | 1.2 | % | | 0.7 | % | | 0.3 | % | | 0.9 | % |
Other income (expense), net, decreased $81 millionOI&E increased $2.1 billion from the three months ended September 30, 2016March 31, 2023 to the three months ended September 30, 2017. This decrease was primarily driven by losses recorded related to marketable and non-marketable investments. These losses were offset by reduced costs of our foreign currency hedging activities.
Other income (expense), net, increased $477 million from the nine months ended September 30, 2016 to the nine months ended September 30, 2017. ThisMarch 31, 2024. The increase was primarily driven by reduced costs of our foreign currency hedging activitiesdue to net unrealized gains in non-marketable equity securities due to fair value adjustments related to observable transactions and decreased losses on marketable investments.increased interest income due to interest rates.
The costs of our foreign exchange hedging activities recognized in other income (expense), net, are primarily a functionFor additional information, see Note 6 of the notional amountNotes to Consolidated Financial Statements included in Item 1 of the option and forward contracts and their related duration, the movement of foreign exchange rates relative to the contract prices, the volatility of foreign exchange rates, and forward points. The hedging costs expensed in other income (expense), net, decreased as a result of less option premiums paid after we began to use foreign currency forward contracts to hedge our forecasted revenues in the fourth quarter of 2016.this Quarterly Report on Form 10-Q for further information.
We expect that other income (expense), net, will fluctuate in dollar amount in future periods as it is largely driven by market dynamics.
Provision for Income Taxes
The following table presents our provision for income taxes (in millions, unaudited) andexcept effective tax rate:rate):
| | | | | | | | | | | | | | | |
| Three Months Ended | | |
| March 31, | | |
| 2023 | | 2024 | | | | |
Income before provision for income taxes | $ | 18,205 | | | $ | 28,315 | | | | | |
Provision for income taxes | $ | 3,154 | | | $ | 4,653 | | | | | |
Effective tax rate | 17.3 | % | | 16.4 | % | | | | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
| 2016 | | 2017 | | 2016 | | 2017 |
Provision for income taxes | $ | 984 |
| | $ | 1,247 |
| | $ | 3,148 |
| | $ | 3,493 |
|
Effective tax rate | 16.3 | % | | 15.6 | % | | 18.2 | % | | 18.2 | % |
OurThe effective tax rate decreased from the three months ended September 30, 2016March 31, 2023 to the three months ended September 30, 2017 as a result of a proportionate decrease in unrecognized tax benefits offset by other miscellaneous items. Our provision for income taxes increased from the three months ended September 30, 2016March 31, 2024, primarily due to the three months ended September 30, 2017 as a result oftax rule change related to U.S. federal foreign tax credits issued by the IRS in July 2023 and an increase in taxable income year over year.stock-based compensation-related tax benefits, partially offset by a decrease in the U.S. federal Foreign Derived Intangible Income tax deduction and an increase in taxes for certain U.S. jurisdictions.
OurThe OECD is coordinating negotiations among more than 140 countries with the goal of achieving consensus around substantial changes to international tax policies, including the implementation of a minimum global effective tax rate remained flat fromof 15%. Some countries have already implemented the nine months ended September 30, 2016legislation effective January 1, 2024, and we expect others to the nine months ended September 30, 2017. Ourfollow, however we do not expect a material change to our income tax provision for income taxes increased from the nine months ended September 30, 2016 to2024 fiscal year. As additional jurisdictions enact such legislation, transitional rules lapse, and other provisions of the nine months ended September 30, 2017 as a result of an increase in taxable income year over year.
Our futureminimum tax legislation become effective, we expect our effective tax rate and cash tax payments could be adversely affected by earnings being lower than anticipatedincrease in countries that have lower statutory ratesfuture years.
Financial Condition
Cash, Cash Equivalents, and higher than anticipated in countries that have higher statutory rates, the net gains and losses recognized by legal entities on certain hedges and related hedged intercompany and other transactions under our foreign exchange risk management program, changes in the valuation of our deferred tax assets, or changes in tax laws, regulations, or accounting principles, as well as certain discrete items.
Marketable Securities
Capital Resources and Liquidity
As of September 30, 2017,March 31, 2024, we had $100.1$108.1 billion in cash, cash equivalents, and short-term marketable securities. Cash equivalents and marketable securities areare comprised of time deposits, money market and other funds, highly liquid debt instruments of the U.S. government and its agencies, debt instruments issued by foreign governments, debt instruments issued by municipalities in the U.S.,bonds, corporate debt securities, agency mortgage-backed and asset-backed securities, and asset-backed securities. From time to time, we may hold marketable equity securities obtained through acquisitions or strategic investments in private companies that subsequently go public.securities.
AsSources, Uses of September 30, 2017, $60.5 billion of the $100.1 billion of cash, cash equivalents,Cash and marketable securities were held by our foreign subsidiaries. If these funds were needed for our operations in the U.S., we would be required to accrue and pay U.S. taxes to repatriate these funds. However, our intent is to permanently reinvest these funds outside of the U.S. and our current plans do not demonstrate a need to repatriate them to fund our U.S. operations.Related Trends
Our principal sources of liquidity are our cash, cash equivalents, and marketable securities, as well as the cash flow that we generate from operations. The primary use of capital continues to be to invest for the long-term growth of the business. We regularly evaluate our operations. cash and capital structure, including the size, pace, and form of capital return to stockholders.
The following table presents our cash flows (in millions):
| | | | | | | | | | | |
| Three Months Ended |
| March 31, |
| 2023 | | 2024 |
Net cash provided by operating activities | $ | 23,509 | | | $ | 28,848 | |
Net cash used in investing activities | $ | (2,946) | | | $ | (8,564) | |
Net cash used in financing activities | $ | (16,568) | | | $ | (19,714) | |
Cash Provided by Operating Activities
Our largest source of cash provided by operations are advertising revenues generated by Google Search & other properties, Google Network properties, and YouTube properties. In Google Services, we also generate cash through consumer subscriptions and the sale of apps and in-app purchases and devices. In Google Cloud, we generate cash through consumption-based fees and subscriptions for infrastructure, platform, collaboration tools, and other cloud services.
Our primary uses of cash from operating activities include payments to distribution and Google Network partners, to employees for compensation, and to content providers. Other uses of cash from operating activities include payments to suppliers for devices, to tax authorities for income taxes, and other general corporate expenditures.
Net cash provided by operating activities increased from the three months ended March 31, 2023 to the three months ended March 31, 2024 due to the increase in cash received from customers, partially offset by an increase in cash payments for cost of revenues and operating expenses.
Cash Used in Investing Activities
Cash provided by investing activities consists primarily of maturities and sales of investments in marketable and non-marketable securities. Cash used in investing activities consists primarily of purchases of marketable and non-marketable securities, purchases of property and equipment, and payments for acquisitions.
Net cash used in investing activities increased from the three months ended March 31, 2023 to the three months ended March 31, 2024 primarily due to an increase in purchases of property and equipment.
Cash Used in Financing Activities
Cash provided by financing activities consists primarily of proceeds from issuance of debt and proceeds from the sale of interests in consolidated entities. Cash used in financing activities consists primarily of repurchases of stock, net payments related to stock-based award activities, and repayments of debt.
Net cash used in financing activities increased from the three months ended March 31, 2023 to the three months ended March 31, 2024 due to increases in net repayments related to debt, net payments related to stock-based award activities, and repurchases of stock.
Liquidity and Material Cash Requirements
We expect existing cash, cash equivalents, short-term marketable securities, cash flows from operations and financing activities to continue to be sufficient to fund our operating activities and cash commitments for investing and financing activities for at least the next 12 months and thereafter for the foreseeable future.
Capital Expenditures and Leases
We make investments in land and buildings for data centers and offices and information technology assets through purchases of property and equipment and lease arrangements to provide capacity for the growth of our services and products.
Capital Expenditures
Our capital investments in property and equipment consist primarily of the following major categories:
•technical infrastructure, which consists of our investments in servers and network equipment for computing, storage, and networking requirements for ongoing business activities, including AI, (collectively referred to as our information technology assets) and data center land and building construction; and
•office facilities, ground-up development projects, and building improvements (also referred to as "fit-outs").
Construction in progress consists primarily of technical infrastructure and office facilities which have not yet been placed in service. The time frame from date of purchase to placement in service of these assets may extend from months to years. For example, our data center construction projects are generally multi-year projects with multiple phases, where we acquire land and buildings, construct buildings, and secure and install information technology assets.
During the three months ended March 31, 2023 and 2024, we spent $6.3 billion and $12.0 billion on capital expenditures, respectively. We expect to increase, relative to 2023, our investment in our technical infrastructure, including servers, network equipment, and data centers, to support the growth of our business and our long-term initiatives, in particular in support of AI products and services. Depreciation of our property and equipment commences when the deployment of such assets are completed and are ready for our intended use. Land is not depreciated. For the three months ended March 31, 2023 and 2024, our depreciation on property and equipment was $2.6 billion and $3.4 billion, respectively.
Leases
For the three months ended March 31, 2023 and 2024, we recognized total operating lease assets of $1.1 billion and $0.4 billion, respectively. As of March 31, 2024, the amount of total future lease payments under operating leases, which had a weighted average remaining lease term of 8 years, was $17.2 billion.
As of March 31, 2024, we have entered into leases that have not yet commenced with future lease payments of $3.6 billion, that are not yet recorded on our Consolidated Balance Sheets. These leases will commence between2024 and 2026 with non-cancelable lease terms of one to 25 years.
For the three months ended March 31, 2023 and 2024, our operating lease expenses (including variable lease costs) were $1.1 billion and $1.1 billion, respectively. Finance lease costs were not material for the three months ended March 31, 2023 and 2024.
Financing
We have a short-term debt financing program of up to $5.0$10.0 billion through the issuance of commercial paper. Net proceeds from this program are used for general corporate purposes. WeAs of March 31, 2024, we had no commercial paper outstanding asoutstanding.
As of September 30, 2017. We haveMarch 31, 2024, we had $10.0 billion of revolving credit facilities, $4.0 billion expiring in April 2024 and $6.0 billion expiring in April 2028. In April 2024, we entered into a new $4.0 billion revolving credit facility expiring in February 2021. April 2025.The interest raterates for theall credit facility isfacilities are determined based on a formula using certain market rates. Asrates, as well as our progress toward the achievement of September 30, 2017, nocertain sustainability goals. No amounts were outstandinghave been borrowed under the credit facility. We believe that our sources of funding will be sufficient to satisfy our currently anticipated cash requirements including capital expenditures, working capital requirements, potential acquisitions, and other liquidity requirements through at least the next 12 months.facilities.
As of September 30, 2017,March 31, 2024, we havehad senior unsecured notes outstanding due in 2021, 2024, and 2026 with a total carrying value of $3.9 billion$11.9 billion. For additional information, see Note 5 of the Notes to Consolidated Financial Statements included in Item 1 of this Quarterly Report on Form 10-Q.
We primarily utilize contract manufacturers for the assembly of our servers used in our technical infrastructure and devices we sell. We have agreements where we may purchase components directly from suppliers and then supply these components to contract manufacturers for use in the assembly of the servers and devices. Certain of these arrangements result in a total estimated fair valueportion of $4.0the cash received from and paid to the contract manufacturers to be presented as financing activities in the Consolidated Statements of Cash Flows included in Item 1 of this Quarterly Report on Form 10-Q.
Share Repurchase Program
During the three months ended March 31, 2024, we repurchased and subsequently retired 111 million shares for $16.1 billion.
In October 2016,April 2023, the boardBoard of directorsDirectors of Alphabet authorized the company to repurchase up to $7,019,340,976.83$70.0 billion of its Class A and Class C capital stock.shares. As of March 31, 2024, $20.4 billion remained available for Class A and Class C share repurchases. In April 2024, the nine months ended September 30, 2017, weBoard of Directors of Alphabet authorized the company to repurchase up to an additional $70.0 billion of its Class A and Class C shares.
The following table presents Class A and Class C shares repurchased and subsequently retired 3.1 million shares(in millions):
| | | | | | | | | | | |
| Three Months Ended March 31, 2024 |
| Shares | | Amount |
Class A share repurchases | 23 | | $ | 3,350 | |
Class C share repurchases | 88 | | 12,707 | |
Total share repurchases(1) | 111 | | $ | 16,057 | |
(1) Shares repurchased include unsettled repurchases as of Alphabet Class C capital stock for an aggregate amount of $2.7 billion.In January 2017, Temasek, a Singapore-based investment company, signed a binding commitment to purchase a non-controlling interest in Verily for an aggregate of $800 million in cash. We received the first tranche of $480 million in the first quarter of 2017 and the final tranche of $320 million in the third quarter of 2017.
In September 2017, we entered into an agreement with HTC Corporation (HTC) to acquire a team of engineers and a non-exclusive license for HTC intellectual property for approximately $1.1 billion in cash. The transaction is expected to close in early 2018.
At DecemberMarch 31, 2016, we had a $1.4 billion interest-free, three-year prepayable promissory note (Note Receivable) due October 2017. The Note Receivable was fully repaid in May 2017.2024.
For the nine months ended September 30, 2016 and 2017, our cash flows were as follows (in millions, unaudited):
|
| | | | | | | |
| Nine Months Ended |
| September 30, |
| 2016 | | 2017 |
Net cash provided by operating activities | $ | 26,623 |
| | $ | 26,823 |
|
Net cash used in investing activities | $ | (26,463 | ) | | $ | (24,427 | ) |
Net cash used in financing activities | $ | (7,440 | ) | | $ | (5,120 | ) |
Cash Provided by Operating Activities
Our largest source of cash provided by our operations are advertising revenues generated by Google properties and Google Network Members' properties. Additionally, we generate cash through sales of apps, in-app purchases and digital content, hardware products, licensing arrangements, and service fees received for Google Cloud offerings.
Our primary uses of cash from our operating activities include payments to our Google Network Members and distribution partners, and payments for content acquisition costs. In addition, uses of cash from operating activities include compensation and related costs, hardware costs, other general corporate expenditures, and income taxes.
Net cash provided by operating activities increased from the nine months ended September 30, 2016 to the nine months ended September 30, 2017 primarily due to increases in cash received from advertising revenues and Google other revenues (net of payouts to app developers) offset by increases in cash paid for cost of revenues, operating expenses, and income taxes.
Cash Used in Investing Activities
Cash provided by or used in investing activities primarily consists of purchases of property and equipment, purchases, maturities, and sales of marketable and non-marketable securities, payments for acquisitions, and proceeds from the collection of notes receivable.
Net cash used in investing activities decreased from the nine months ended September 30, 2016 to the nine months ended September 30, 2017 primarily due to increases in maturities and sales of marketable securities, decreases in cash collateral paid related to securities lending, and increases in cash proceeds received from the collectionadditional information, see Note 9 of the Lenovo note receivable. These items were offset by increasesNotes to Consolidated Financial Statements included in purchases of marketable securities and increases in purchases of property and equipment.
Cash Used in Financing Activities
Cash provided by or used in financing activities consists primarily of net proceeds or payments from issuance or repayments of debt, repurchases of capital stock, net proceeds or payments from stock-based award activities, and proceeds from the sale of subsidiary shares.
Net cash used in financing activities decreased from the nine months ended September 30, 2016 to the nine months ended September 30, 2017 primarily driven by decreases in the repayment of debt, decreases in repurchases of capital stock, and increases in proceeds from the sale of subsidiary shares. These items were offset by decreases in proceeds received from the issuance of debt and increases in net payments related to stock-based award activities.
Contractual Obligations
We had long-term taxes payable of $4.4 billion as of September 30, 2017 primarily related to uncertain tax positions. At this time, we are unable to make a reasonably reliable estimate of the timing of payments in individual years beyond 12 months due to uncertainties in the timing of tax audit outcomes.
Critical Accounting Policies and Estimates
We prepare our consolidated financial statements in accordance with U.S. Generally Accepted Accounting Principles (GAAP). In doing so, we have to make estimates and assumptions that affect our reported amounts of assets, liabilities, revenues, and expenses, as well as related disclosure of contingent assets and liabilities. In some cases, we could reasonably have used different accounting policies and estimates. In some cases, changes in the accounting estimates are reasonably likely to occur from period to period. Accordingly, actual results could differ materially from our estimates. To the extent that there are material differences between these estimates and actual results, our financial condition or results of operations will be affected. We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis. We refer to accounting estimates of this type as critical accounting policies and estimates, which we discuss further below. We have reviewed our critical accounting policies and estimates with the audit committee of our board of directors.
Revenues
For the sale of third-party goods and services, we evaluate whether we are the principal, and report revenues on a gross basis, or an agent, and report revenues on a net basis. In this assessment, we consider if we obtain control of the specified goods or services before they are transferred to the customer, as well as other indicators such as the party primarily responsible for fulfillment, inventory risk, and discretion in establishing price.
See Note 1 of Part I, Item 1 of this Quarterly Report on Form 10-Q10-Q.
Dividend Program
On April 25, 2024, the Board of Directors of Alphabet declared a cash dividend of $0.20 per share to be paid on June 17, 2024, to stockholders of record as of June 10, 2024, on each of the company’s Class A, Class B, and Class C shares.
The company intends to pay quarterly cash dividends in the future, subject to review and approval by the company’s Board of Directors in its sole discretion. In connection with the cash dividend (and any future dividend the company’s Board of Directors may declare from time to time), the company will also award dividend equivalent units to holders of all unvested stock units in accordance with the Alphabet Inc. Amended and Restated 2021 Stock Plan and pursuant to each holder’s outstanding stock unit grant agreements, as amended.
European Commission Fines
In 2017, 2018 and 2019, the EC announced decisions that certain actions taken by Google infringed European competition law and imposed fines of €2.4 billion ($2.7 billion as of June 27, 2017), €4.3 billion ($5.1 billion as of June 30, 2018), and €1.5 billion ($1.7 billion as of March 20, 2019), respectively. On September 14, 2022, the General Court reduced the 2018 fine from €4.3 billion to €4.1 billion. We subsequently filed an appeal to the European Court of Justice.
While each EC decision is under appeal, we included the fines in accrued expenses and other current liabilities on our Consolidated Balance Sheets as we provided bank guarantees (in lieu of a cash payment) for the summaryfines. For additional information, see Note 8 of significant accounting policies. the Notes to Consolidated Financial Statements included in Item 1 of this Quarterly Report on Form 10-Q.
Taxes
As of March 31, 2024, we had income taxes payable of $4.2 billion, of which $2.1 billion was short-term, related to a one-time transition tax payable incurred as a result of the U.S. Tax Cuts and Jobs Act ("Tax Act"). As permitted by the Tax Act, we will pay the transition tax in annual interest-free installments through 2025. We also have long-term taxes payable of $7.1 billion primarily related to uncertain tax positions as of March 31, 2024.
Purchase Commitments and Other Contractual Obligations
As of March 31, 2024, we had material purchase commitments and other contractual obligations of $44.0 billion, of which $29.4 billion was short-term. These amounts primarily consist of purchase orders for certain technical infrastructure as well as the non-cancelable portion or the minimum cancellation fee in certain agreements related to commitments to purchase licenses, including content licenses, inventory and network capacity. For those agreements with variable terms, we do not estimate the non-cancelable obligation beyond any minimum quantities and/or pricing as of March 31, 2024. In certain instances, the amount of our contractual obligations may change based on the expected timing of order fulfillment from our suppliers. For more information related to our content licenses, see Note 8 of the Notes to Consolidated Financial Statements included in Item I of this Quarterly Report on Form 10-Q.
In addition seewe regularly enter into multi-year, non-cancellable agreements to purchase renewable energy and energy attributes, such as renewable energy certificates. These agreements do not include a minimum dollar commitment. The amounts to be paid under these agreements are based on the actual volumes to be generated and are not readily determinable.
Critical Accounting Estimates
See Part I,II, Item 7, "Critical Accounting Policies and Estimates" in our Annual Report on Form 10-K for the year ended December 31, 2016. There have been no other material changes to our critical accounting policies and estimates since our Annual Report on Form 10-K for the year ended December 31, 2016.2023.
Available Information
Our website is located at www.abc.xyz, and our investor relations website is located at www.abc.xyz/investor. OurAccess to our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and our Proxy Statements, areand any amendments to these reports, is available throughon our investor relations website, free of charge, after we file or furnish them with the SEC. We also provide a link to the section ofSEC and they are available on the SEC's website at www.sec.gov that has all of the reports that we file or furnish with the SEC. You may read and copy any materials we file with the SEC at the SEC's Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. You can get information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330..
We webcast via our investor relations website our earnings calls and certain events we participate in or host with members of the investment community. Our investor relations website also provides notifications of news or
announcements regarding our financial performance and other items of interest to our investors, including SEC filings, investor events, press and earnings releases, and blogs. We also share Google news and product updates on Google’s Keyword blog at https://www.blog.google/, which may be of interest or material to our investors. Further, corporate governance information, including our certificate of incorporation, bylaws, governance guidelines, board committee charters, and code of conduct, is also available on our investor relations website under the heading "Other."Governance." The content of our websites areis not incorporated by reference into this Quarterly Report on Form 10-Q or in any other report or document we file with the SEC, and any references to our websites are intended to be inactive textual references only.
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ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
We are exposedITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For quantitative and qualitative disclosures about market risk, refer to financial market risks, including changes in currency exchange ratesPart II, Item 7A, Quantitative and interest rates.
Foreign Currency ExchangeQualitative Disclosures About Market Risk,
We transact business globally in multiple currencies. Our international revenues, as well as costs and expenses denominated in foreign currencies, expose us to the risk of fluctuations in foreign currency exchange rates against the U.S. dollar. In general, we are a net receiver of foreign currencies and therefore benefit from a weakening of the U.S. dollar and are adversely affected by a strengthening of the U.S. dollar relative to the foreign currency. As of September 30, 2017, our most significant currency exposures are the British pound, Euro, and Japanese yen.
We use foreign currency forwards and option contracts, including collars (an option strategy comprised of a combination of purchased and written options) to protect our forecasted U.S. dollar-equivalent earnings from changes in foreign currency exchange rates. When the U.S. dollar strengthens, gains from foreign currency options and forwards reduce the foreign currency losses related to our earnings. When the U.S. dollar weakens, losses from foreign currency options and forwards offset the foreign currency gains related to our earnings. These hedging contracts reduce, but do not entirely eliminate, the impact of currency exchange rate movements. We designate these contracts as cash flow hedges for accounting purposes. We record the effective portion of these contracts as a component of accumulated other comprehensive income (AOCI) and subsequently reclassify them into revenues to offset the hedged exposures as they occur.For foreign currency collars, we include the change in time value in our assessment of hedge effectiveness.For forwards and all other option contracts, we exclude the change in the forward points and time value from our assessment of hedge effectiveness. We recognize changes of the excluded components in other income (expense), net.
We considered the historical trends in currency exchange rates and determined that it was reasonably possible that changes in exchange rates of 10% could be experienced in the near term. If the U.S. dollar weakened by 10% as of September 30, 2017, the amount recorded in AOCI related to our foreign exchange contracts before tax effect would have been approximately $1.1 billion lower as of September 30, 2017. The change in the value recorded in AOCI would be expected to offset a corresponding foreign currency change in the forecasted hedged revenues when recognized.
In addition, we use foreign exchange forward contracts to offset the foreign exchange riskAnnual Report on our assets and liabilities denominated in currencies other than the local currency of the subsidiary. These forward contracts reduce, but do not entirely eliminate the impact of currency exchange rate movements on our assets and liabilities. The foreign currency gains and losses on the assets and liabilities are recorded in other income (expense), net, which are offset by the gains and losses on the forward contracts.
We considered the historical trends in currency exchange rates and determined that it was reasonably possible that adverse changes in exchange rates of 10% for all currencies could be experienced in the near term. These reasonably possible adverse changes in exchange rates of 10% were applied to total monetary assets and liabilities denominated in currencies other than the local currencies at the balance sheet dates to compute the adverse impact these changes would have had on our income before income taxes in the near term. These changes would have resulted in an adverse impact on income before income taxes of approximately $65 million as of September 30, 2017. The adverse impact as of September 30, 2017 is after consideration of the offsetting effect of approximately $325 million from foreign exchange contracts in placeForm 10-K for the month of September 30, 2017.
Interest Rate Risk
Our investment strategy is to achieve a return that will allow us to preserve capital and maintain liquidity requirements. We invest primarily in debt securities including those of the U.S. government and its agencies, corporate debt securities, agency mortgage-backed securities, money market and other funds, municipal securities, time deposits, asset backed securities, and debt instruments issued by foreign governments. By policy, we limit the amount of credit exposure to any one issuer. Our investments in both fixed rate and floating rate interest earning securities carry a degree of interest rate risk. Fixed rate securities may have their fair market value adversely impacted due to a rise in interest rates, while floating rate securities may produce less income than predicted if interest rates fall. As ofyear ended December 31, 2016 and September 30, 2017, unrealized losses on our marketable debt securities were primarily due to temporary interest rate fluctuations as a result of higher market interest rates compared to interest rates at the time of purchase. We account for both fixed and variable rate securities at fair value with changes on gains and losses recorded in AOCI until the securities are sold.2023.
We considered the historical volatility of short-term interest rates and determined that it was reasonably possible that an adverse change of 100 basis points could be experienced in the near term. A hypothetical 1.00% (100 basis
points) increase in interest rates would have resulted in a decrease in the fair value of our marketable securities of approximately $1.8 billion as of September 30, 2017.
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ITEM 4. | CONTROLS AND PROCEDURES |
ITEM 4.CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Exchange Act, as of the end of the period covered by this Quarterly Report on Form 10-Q.
Based on this evaluation, our chief executive officer and chief financial officer concluded that, as of September 30, 2017,March 31, 2024, our disclosure controls and procedures are designed at a reasonable assurance level and are effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There werehave been no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2017March 31, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.
42
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PART II. | OTHER INFORMATION |
PART II. OTHER INFORMATION
ITEM 1.LEGAL PROCEEDINGS
For a description of our material pending legal proceedings, see Note 11 “Contingencies8 “Commitments and Contingencies - Legal Matters” of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, which is incorporated herein by reference.
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ITEM 1A. | RISK FACTORSITEM 1A.RISK FACTORS |
Our operations and financial results are subject to various risks and uncertainties, including those described in Part I, Item 1A, "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2016,2023, which could adversely affect our business, financial condition, results of operations, cash flows, and the trading price of our common and capital stock. There have been noBelow are material changes to our risk factors since our Annual Report on Form 10-K for the year ended December 31, 2016.2023.
Risks Specific to our Company We generate a significant portion of our revenues from advertising. Reduced spending by advertisers, a loss of partners, or new and existing technologies that block ads online and/or affect our ability to customize ads could harm our business.
We generated more than 75% of total revenues from online advertising in 2023. Many of our advertisers, companies that distribute our products and services, digital publishers, and content providers can terminate their contracts with us at any time. These partners may not continue to do business with us if we do not create more value (such as increased numbers of users or customers, new sales leads, increased brand awareness, or more effective monetization) than their available alternatives. Changes to our advertising policies and data privacy practices, such as our initiatives to phase out third-party cookies (which remain subject to review, affecting the timing), as well as changes to other companies’ advertising and/or data privacy practices have in the past, and may in the future, affect the advertising that we are able to provide. In addition, technologies have been developed that make customized ads more difficult, or that block the display of ads altogether, and some providers of online services have integrated these technologies that could potentially impair the availability and functionality of third-party digital advertising. Failing to provide superior value or deliver advertisements effectively and competitively could harm our business, reputation, financial condition, and operating results.
In addition, expenditures by advertisers tend to correlate with overall economic conditions. Adverse macroeconomic conditions have affected, and may in the future affect, the demand for advertising, resulting in fluctuations in the amounts our advertisers spend on advertising, which could harm our financial condition and operating results.
Risks Related to Ownership of our Stock
We cannot guarantee that any share repurchase program or dividend program will be continuously active or fully consummated or will enhance long-term stockholder value, and share repurchases or dividends could increase the volatility of our stock prices and could diminish our cash reserves.
We engage in share repurchases of our Class A and Class C stock from time to time in accordance with authorizations from the Board of Directors of Alphabet. Our repurchase program does not have an expiration date and does not obligate Alphabet to repurchase any specific dollar amount or to acquire any specific number of shares. In April 2024, we announced the approval of a cash dividend to our Class A, Class B and Class C stockholders. Any and all future cash dividends are subject to declaration by the Board of Directors at their sole discretion, and in accordance with the requirements of any applicable laws, rules and regulations, including the Delaware General Corporation Law. Our cash dividend program does not require, and our Board of Directors may not declare, a cash dividend each quarter, and does not obligate our Board of Directors to declare a dividend in any specific dollar amount per share. Further, our share repurchases or dividends could affect our share trading prices, increase their volatility, reduce our cash reserves and may be suspended or terminated at any time, which may result in a decrease in the trading prices of our stock.
The trading price for our Class A stock and non-voting Class C stock may continue to be volatile.
The trading price of our stock has at times experienced significant volatility and may continue to be volatile. In addition to the factors discussed in this report, the trading prices of our Class A stock and Class C stock have fluctuated, and may continue to fluctuate widely, in response to various factors, including, among others, the size or continuity of either our share repurchase or dividend programs, the activities of our peers and changes in broader
economic and political conditions around the world. These broad market and industry factors could harm the market price of our Class A stock and our Class C stock, regardless of our actual operating performance.
ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuer Purchases of Equity Securities
The following table presents information with respect to Alphabet's repurchases of Class A and Class C stock during the quarter ended March 31, 2024. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Period | | Total Number of Class A Shares Purchased (in thousands) (1) | | Total Number of Class C Shares Purchased (in thousands) (1) | | Average Price Paid per Class A Share (2) | | Average Price Paid per Class C Share (2) | | Total Number of Shares Purchased as Part of Publicly Announced Programs (in thousands) (1) | | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program (in millions) |
January 1 - 31 | | 9,717 | | | 29,623 | | | $ | 145.11 | | | $ | 146.28 | | | 39,340 | | | $ | 30,648 | |
February 1 - 29 | | 7,568 | | | 28,804 | | | $ | 143.82 | | | $ | 144.75 | | | 36,372 | | | $ | 25,429 | |
March 1 - 31 | | 5,949 | | | 29,230 | | | $ | 143.08 | | | $ | 143.86 | | | 35,179 | | | $ | 20,404 | |
Total | | 23,234 | | | 87,657 | | | | | | | 110,891 | | | |
(1)Repurchases are being executed from time to time, subject to general business and market conditions and other investment opportunities, through open market purchases or privately negotiated transactions, including through Rule 10b5-1 plans. The repurchase program does not have an expiration date. For additional information related to share repurchases, see Note 9 of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
(2)Average price paid per share includes costs associated with the repurchases.
ITEM 5.OTHER INFORMATION
10b5-1 Trading Plans
During the fiscal quarter ended March 31, 2024, no Section 16 director or officer adopted, modified, or terminated a “Rule 10b5-1 trading arrangement” (as defined in Item 408 of Regulation S-K of the Exchange Act).
There were no “non-Rule 10b5-1 trading arrangements” (as defined in Item 408 of Regulation S-K of the Exchange Act) adopted, modified or terminated during the fiscal quarter ended March 31, 2024 by our directors and Section 16 officers.
Compensatory Arrangements of Certain Officers
On April 16, 2024, the Leadership Development, Inclusion and Compensation Committee of the Board of Directors of Alphabet approved the accrual of dividend equivalent units to holders of all unvested stock units, subject to the approval of a dividend declaration by the Board of Directors of the Company (which was approved and announced on April 25, 2024). This approval covers both performance stock unit awards and Google stock unit awards, and applies both to currently outstanding and future equity awards. For the avoidance of doubt, the corresponding amendments to the respective stock unit grant agreements will apply both to currently outstanding grant agreements and all future grant agreements. As stock units are not outstanding shares of stock and thus would not otherwise be entitled to participate in any dividends (including the one referenced above), the crediting of dividend equivalent units is intended to preserve the equity-based incentives intended by the Company when the stock units were granted and to treat the holders of stock units consistently with all stockholders.
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Exhibit Number | | | Description | | | | |
Exhibit
Number
| | Description | | Incorporated by reference herein |
| | Form | | Form | Date |
31.0110.01 | * | ♦ | | | | | |
10.02 | * | ♦ | | | | | |
10.03 | * | ♦ | | | | | |
31.01 | * | | | | | | |
31.02 | * | | | | | | |
32.01 | ‡ | | | | | | |
101.INS | * | | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | | | | |
101.SCH | * | | Inline XBRL Taxonomy Extension Schema Document | | | | |
101.CAL | * | | Inline XBRL Taxonomy Extension Calculation Linkbase Document | | | | |
101.DEF | * | | Inline XBRL Taxonomy Extension Definition Linkbase Document | | | | |
101.LAB | * | | Inline XBRL Taxonomy Extension Label Linkbase Document | | | | |
101.PRE | * | | Inline XBRL Taxonomy Extension Presentation Linkbase Document | | | | |
104
| * | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | | | | |
__________________________ | | | | | |
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♦ | Indicates management compensatory plan, contract, or arrangement. |
* | Filed herewith. |
‡ | Furnished herewith. |
____________________
|
| |
* | Filed herewith. |
‡ | Furnished herewith. |
SIGNATURESIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | | | | | | |
| | ALPHABET INC. |
April 25, 2024 | By: | |
| | ALPHABET INC. |
October 26, 2017 | By: | /s/ RUTH M. PORAT |
| | Ruth M. Porat |
| | Senior Vice President and Chief Investment Officer; Chief Financial Officer |
| | | | | | | | |
| | ALPHABET INC. |
April 25, 2024 | By: | /s/ AMIE THUENER O'TOOLE |
| | ALPHABET INC.Amie Thuener O'Toole |
| October 26, 2017 | By:/s/ JAMES G. CAMPBELL |
| | James G. Campbell |
| | Vice President, Corporate Controller and ChiefPrincipal Accounting Officer |