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, 2022
TABLE OF CONTENTS
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| Item 1 | | |
| Item 1A | | |
Item 62 | | |
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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 ongoing effect of the novel coronavirus pandemic ("COVID-19"), including its macroeconomic effects on our business, operations, and financial results;
•the growth of our business and revenues and our expectations about the factors that influence our success and trends in our business;
our plans to continue to invest in new businesses, products, services and technologies, systems, facilities, and infrastructure, to continue to hire aggressively and provide competitive compensation programs, as well as to continue to invest in acquisitions;
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;rate and operating margin and various factors contributing to such fluctuations;
•our expectation that the continuing shift from an offline to online world will continue to benefit our business;
•our expectation that the portion of our revenues that we derive from non-advertising revenues will continue to increase and 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 our revenue growth, as well as the change in paid clicks and cost-per-click and the change in impressions and cost-per-impression, and various factors contributing to such fluctuations;
•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;
•fluctuations in our capital expenditures;
•our plans to continue to invest in new businesses, products, services and technologies, systems, land and buildings for data centers and offices, and infrastructure, 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 future compensation expenses;
•fluctuations in our effective tax rate;
•seasonal fluctuations in internet usage and advertiser expenditures, underlying business trends such as traditional retail seasonality, which are likely to cause fluctuations in our quarterly results;
•the sufficiency of our sources of funding;
•our payment termspotential exposure in connection with new and pending investigations, proceedings, and other contingencies;
•the sufficiency and timing of our proposed remedies in response to certain advertisers, which may increase our working capital requirements;decisions from the European Commission (EC) and other regulators and governmental entities;
fluctuations in our capital expenditures;
•our expectations related toregarding the operating structure implemented pursuant to the Alphabet holding company reorganization;timing, design, and ongoing phased implementation of our new global enterprise resource planning (ERP) system;
•the expected timing, amount, and amounteffect of Alphabet Inc.'s stockshare repurchases;
•our long-term sustainability and diversity goals;
•the unpredictability of the ongoing broader economic effects resulting from the war in Ukraine on our future financial results;
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, as may be updated in our subsequent Quarterly Reports on Form 10-Q.2021. Forward-looking statements generally can be identified by words such as "anticipates," "believes," "estimates," "expects," "intends," "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, 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, 2016,2021, 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.
| | | | | |
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, 2021 | | As of
March 31, 2022 |
| | | (unaudited) |
| Assets | | | |
| Current assets: | | | |
| Cash and cash equivalents | $ | 20,945 | | | $ | 20,886 | |
| Marketable securities | 118,704 | | | 113,084 | |
| Total cash, cash equivalents, and marketable securities | 139,649 | | | 133,970 | |
| Accounts receivable, net | 39,304 | | | 34,703 | |
| Income taxes receivable, net | 966 | | | 919 | |
| Inventory | 1,170 | | | 1,369 | |
| Other current assets | 7,054 | | | 6,892 | |
| Total current assets | 188,143 | | | 177,853 | |
| Non-marketable securities | 29,549 | | | 30,544 | |
| Deferred income taxes | 1,284 | | | 1,388 | |
| Property and equipment, net | 97,599 | | | 104,218 | |
| Operating lease assets | 12,959 | | | 12,992 | |
| Intangible assets, net | 1,417 | | | 1,313 | |
| Goodwill | 22,956 | | | 23,010 | |
| Other non-current assets | 5,361 | | | 5,778 | |
| Total assets | $ | 359,268 | | | $ | 357,096 | |
| Liabilities and Stockholders’ Equity | | | |
| Current liabilities: | | | |
| Accounts payable | $ | 6,037 | | | $ | 3,436 | |
| | | |
| Accrued compensation and benefits | 13,889 | | | 9,803 | |
| Accrued expenses and other current liabilities | 31,236 | | | 33,051 | |
| Accrued revenue share | 8,996 | | | 8,116 | |
| Deferred revenue | 3,288 | | | 3,198 | |
| Income taxes payable, net | 808 | | | 4,344 | |
| Total current liabilities | 64,254 | | | 61,948 | |
| Long-term debt | 14,817 | | | 14,791 | |
| Deferred revenue, non-current | 535 | | | 499 | |
| Income taxes payable, non-current | 9,176 | | | 9,406 | |
| Deferred income taxes | 5,257 | | | 2,843 | |
| Operating lease liabilities | 11,389 | | | 11,363 | |
| Other long-term liabilities | 2,205 | | | 2,242 | |
| Total liabilities | 107,633 | | | 103,092 | |
| Contingencies (Note 9) | 0 | | 0 |
| Stockholders’ equity: | | | |
| Preferred stock, $0.001 par value per share, 100,000 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: 15,000,000 shares authorized (Class A 9,000,000, Class B 3,000,000, Class C 3,000,000); 662,121 (Class A 300,737, Class B 44,665, Class C 316,719) and 658,763 (Class A 300,763, Class B 44,404, Class C 313,596) shares issued and outstanding | 61,774 | | | 62,832 | |
| Accumulated other comprehensive income (loss) | (1,623) | | | (4,049) | |
| Retained earnings | 191,484 | | | 195,221 | |
| Total stockholders’ equity | 251,635 | | | 254,004 | |
| Total liabilities and stockholders’ equity | $ | 359,268 | | | $ | 357,096 | |
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, |
| | | | | 2021 | | 2022 |
| Revenues | | | | | $ | 55,314 | | | $ | 68,011 | |
| Costs and expenses: | | | | | | | |
| Cost of revenues | | | | | 24,103 | | | 29,599 | |
| Research and development | | | | | 7,485 | | | 9,119 | |
| Sales and marketing | | | | | 4,516 | | | 5,825 | |
| General and administrative | | | | | 2,773 | | | 3,374 | |
| Total costs and expenses | | | | | 38,877 | | | 47,917 | |
| Income from operations | | | | | 16,437 | | | 20,094 | |
| Other income (expense), net | | | | | 4,846 | | | (1,160) | |
| Income before income taxes | | | | | 21,283 | | | 18,934 | |
| Provision for income taxes | | | | | 3,353 | | | 2,498 | |
| Net income | | | | | $ | 17,930 | | | $ | 16,436 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Basic net income per share of Class A, Class B, and Class C stock | | | | | $ | 26.63 | | | $ | 24.90 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Diluted net income per share of Class A, Class B, and Class C stock | | | | | $ | 26.29 | | | $ | 24.62 | |
See accompanying notes.
Alphabet Inc.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions; unaudited)
|
| | | | | | | | | | | | | | | |
| | 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, |
| | | | | | 2021 | | 2022 |
| Net income | | | | | $ | 17,930 | | | $ | 16,436 | |
| Other comprehensive loss: | | | | | | | |
| Change in foreign currency translation adjustment | | | | | (423) | | | 39 | |
| Available-for-sale investments: | | | | | | | |
| Change in net unrealized gains (losses) | | | | | (488) | | | (2,478) | |
| Less: reclassification adjustment for net (gains) losses included in net income | | | | | 11 | | | 148 | |
| Net change, net of income tax benefit (expense) of $135 and $633 | | | | | (477) | | | (2,330) | |
| Cash flow hedges: | | | | | | | |
| Change in net unrealized gains (losses) | | | | | 179 | | | 114 | |
| Less: reclassification adjustment for net (gains) losses included in net income | | | | | 85 | | | (249) | |
| Net change, net of income tax benefit (expense) of $(50) and $44 | | | | | 264 | | | (135) | |
| Other comprehensive loss | | | | | (636) | | | (2,426) | |
| Comprehensive income | | | | | $ | 17,294 | | | $ | 14,010 | |
See accompanying notes.
Alphabet Inc.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In millions, except share amounts which are reflected in thousands; unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, 2021 |
| | 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, 2020 | 675,222 | | | $ | 58,510 | | | $ | 633 | | | $ | 163,401 | | | $ | 222,544 | |
| Stock issued | 1,569 | | | 6 | | | 0 | | | 0 | | | 6 | |
| Stock-based compensation expense | 0 | | | 3,788 | | | 0 | | | 0 | | | 3,788 | |
| Tax withholding related to vesting of restricted stock units and other | 0 | | | (2,234) | | | 0 | | | 0 | | | (2,234) | |
| Repurchases of stock | (5,697) | | | (644) | | | 0 | | | (10,751) | | | (11,395) | |
| Sale of interest in consolidated entities | 0 | | | 10 | | | 0 | | | 0 | | | 10 | |
| Net income | 0 | | | 0 | | | 0 | | | 17,930 | | | 17,930 | |
| Other comprehensive income (loss) | 0 | | | 0 | | | (636) | | | 0 | | | (636) | |
| Balance as of March 31, 2021 | 671,094 | | | $ | 59,436 | | | $ | (3) | | | $ | 170,580 | | | $ | 230,013 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, 2022 |
| | 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, 2021 | 662,121 | | | $ | 61,774 | | | $ | (1,623) | | | $ | 191,484 | | | $ | 251,635 | |
| Stock issued | 1,555 | | | 7 | | | 0 | | | 0 | | | 7 | |
| Stock-based compensation expense | 0 | | | 4,547 | | | 0 | | | 0 | | | 4,547 | |
| Tax withholding related to vesting of restricted stock units and other | 0 | | | (2,895) | | | 0 | | | 0 | | | (2,895) | |
| Repurchases of stock | (4,913) | | | (601) | | | 0 | | | (12,699) | | | (13,300) | |
| Net income | 0 | | | 0 | | | 0 | | | 16,436 | | | 16,436 | |
| Other comprehensive income (loss) | 0 | | | 0 | | | (2,426) | | | 0 | | | (2,426) | |
| Balance as of March 31, 2022 | 658,763 | | | $ | 62,832 | | | $ | (4,049) | | | $ | 195,221 | | | $ | 254,004 | |
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, |
| 2021 | | 2022 |
| Operating activities | | | |
| Net income | $ | 17,930 | | | $ | 16,436 | |
| Adjustments: | | | |
| Depreciation and impairment of property and equipment | 2,525 | | | 3,591 | |
| Amortization and impairment of intangible assets | 228 | | | 191 | |
| Stock-based compensation expense | 3,745 | | | 4,504 | |
| Deferred income taxes | 1,100 | | | (2,090) | |
| (Gain) loss on debt and equity securities, net | (4,751) | | | 1,437 | |
| Other | (255) | | | 140 | |
| Changes in assets and liabilities, net of effects of acquisitions: | | | |
| Accounts receivable | 2,794 | | | 4,364 | |
| Income taxes, net | 785 | | | 3,820 | |
| Other assets | 7 | | | (776) | |
| Accounts payable | (982) | | | (2,373) | |
| Accrued expenses and other liabilities | (3,530) | | | (3,216) | |
| Accrued revenue share | (444) | | | (828) | |
| Deferred revenue | 137 | | | (94) | |
| Net cash provided by operating activities | 19,289 | | | 25,106 | |
| Investing activities | | | |
| Purchases of property and equipment | (5,942) | | | (9,786) | |
| Purchases of marketable securities | (36,426) | | | (28,462) | |
| Maturities and sales of marketable securities | 39,248 | | | 29,779 | |
| Purchases of non-marketable securities | (646) | | | (776) | |
| Maturities and sales of non-marketable securities | 19 | | | 12 | |
| | | |
| | | |
| Acquisitions, net of cash acquired, and purchases of intangible assets | (1,666) | | | (173) | |
| Other investing activities | 30 | | | 355 | |
| | | |
| Net cash used in investing activities | (5,383) | | | (9,051) | |
| Financing activities | | | |
| Net payments related to stock-based award activities | (2,184) | | | (2,916) | |
| | | |
| Repurchases of stock | (11,395) | | | (13,300) | |
| Proceeds from issuance of debt, net of costs | 900 | | | 16,422 | |
| Repayments of debt | (937) | | | (16,420) | |
| Proceeds from sale of interest in consolidated entities, net | 10 | | | 0 | |
| Net cash used in financing activities | (13,606) | | | (16,214) | |
| Effect of exchange rate changes on cash and cash equivalents | (143) | | | 100 | |
| Net increase (decrease) in cash and cash equivalents | 157 | | | (59) | |
| Cash and cash equivalents at beginning of period | 26,465 | | | 20,945 | |
| Cash and cash equivalents at end of period | $ | 26,622 | | | $ | 20,886 | |
| | | |
| | | |
| | | |
| | | |
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 customers with infrastructure and platform services and collaboration tools; sales of other products and services, such as apps and in-app purchases, digital content products, and hardware; and fees received for subscription-based products such as YouTube Premium and YouTube TV.
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.and voting models. All 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 make2022. 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 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 estimates on assumptions, both historical and forward looking, that are believed to be reasonable, the results of which form 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.
Recent Accounting Pronouncements
Recently issued accounting pronouncements not yet adopted
In January 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2016-01 (ASU 2016-01) "Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities." ASU 2016-01 amends various aspects of the recognition, measurement, presentation, and disclosure of financial instruments. ASU 2016-01 is effective for annual reporting periods and interim periods within those years beginning after December 15, 2017. The most significant impact to ourThese consolidated financial statements relates toand other information presented in this Form 10-Q should be read in conjunction with 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 anticipate that the adoption of ASU 2016-01 will increase the volatility of our other income (expense), net, as a result of the remeasurement of our equity securities upon the occurrence of observable price changes and impairments.
In February 2016, the FASB issued Accounting Standards Update No. 2016-02 (Topic 842) "Leases." Topic 842 supersedes the lease recognition requirements in Accounting Standards Codification (ASC) Topic 840, "Leases." Under Topic 842, lessees are required to recognize assets 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 842 is effective for 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 affectrelated notes included in our Consolidated Balance Sheets. We are inAnnual Report on Form 10-K for the process of implementing changes to our systems and processes in conjunctionfiscal year ended December 31, 2021 filed 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.SEC.
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 model 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. We are currently in the process of evaluating the impact of the adoption of ASU 2016-13 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.
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"
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)millions). Sales and usage-based taxes are excluded from revenues. | | | | | | | | | | | | | | | |
| | | Three Months Ended |
| | | March 31, |
| | | | | 2021 | | 2022 |
| Google Search & other | | | | | $ | 31,879 | | | $ | 39,618 | |
| YouTube ads | | | | | 6,005 | | | 6,869 | |
| Google Network | | | | | 6,800 | | | 8,174 | |
| Google advertising | | | | | 44,684 | | | 54,661 | |
| Google other | | | | | 6,494 | | | 6,811 | |
| Google Services total | | | | | 51,178 | | | 61,472 | |
| Google Cloud | | | | | 4,047 | | | 5,821 | |
| Other Bets | | | | | 198 | | | 440 | |
| Hedging gains (losses) | | | | | (109) | | | 278 | |
| Total revenues | | | | | $ | 55,314 | | | $ | 68,011 | |
|
| | | | | | | | | | | | | | | |
| | 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 |
|
| | | | | |
| As noted above, prior period amounts have not been adjusted under the modified retrospective method.Alphabet Inc. |
| |
(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, |
| | | | | | 2021 | | 2022 |
| United States | | | | | | | | | $ | 25,032 | | | 45 | % | | $ | 31,733 | | | 47 | % |
EMEA(1) | | | | | | | | | 17,031 | | | 31 | | | 20,317 | | | 30 | |
APAC(1) | | | | | | | | | 10,455 | | | 19 | | | 11,841 | | | 17 | |
Other Americas(1) | | | | | | | | | 2,905 | | | 5 | | | 3,842 | | | 6 | |
| Hedging gains (losses) | | | | | | | | | (109) | | | 0 | | | 278 | | | 0 | |
| Total revenues | | | | | | | | | $ | 55,314 | | | 100 | % | | $ | 68,011 | | | 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,Revenue Backlog 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 Revenues
We generate revenues primarily by delivering advertising on Google properties 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 of 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, we recognize revenue each time a user clicks on the ad or when a user views 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 amount 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 are recorded as revenues, 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
Our 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 customers or using expected cost plus margin.
Deferred Revenues
As of March 31, 2022, we had $50.5 billion of remaining performance obligations (“revenue backlog”), primarily related to Google Cloud, and expect to recognize approximately half of this amount as revenues over the next 24 months with the remaining to be recognized thereafter. Our revenue backlog represents commitments in customer contracts for future services that have not yet been recognized as revenues. The amount and timing of revenue recognition for these commitments is largely driven by when our customers utilize services and our ability to deliver in accordance with relevant contract terms, which could affect our estimate of revenue backlog and when we expect to recognize such as revenues. Revenue backlog includes related deferred revenue currently recorded as well as amounts that will be invoiced in future periods and excludes contracts with an original expected term of one year or less and cancellable contracts.
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 other. 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, 2016.2021 was $3.8 billion, of which $1.4 billion was recognized as revenues during the three months ended March 31, 2022.
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
Debt Securities
We classify our cash equivalents and marketable debt securities, which are accounted for as available-for-sale, within Level 1 or 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 in
For certain marketable debt securities, we have elected the fair value hierarchyoption for which changes in fair value are recorded in other income (expense), net. The fair value option was elected for these securities to align with the unrealized gains and losses from related derivative contracts. Unrealized net losses related to debt securities still held where we have elected the fair value option were $35 million and $236 million as of December 31, 2021 and March 31, 2022, respectively. As of December 31, 2021 and March 31, 2022, the valuation inputs are based on quoted pricesfair value of these debt securities was $4.7 billion and market observable data of similar instruments.$5.6 billion, respectively.
Cash, Cash Equivalents, and Marketable Securities
The following tables summarize our cash, cash equivalents, and marketabledebt securities, for which we did not elect the fair value option, by significant investment categories as of December 31, 2016 and September 30, 2017 (in millions): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of December 31, 2021 |
| | Adjusted
Cost | | Gross
Unrealized
Gains | | Gross
Unrealized
Losses | | Fair
Value | | Cash and Cash
Equivalents | | Marketable
Securities |
| Level 2: | | | | | | | | | | | |
Time deposits(1) | $ | 5,133 | | | $ | 0 | | | $ | 0 | | | $ | 5,133 | | | $ | 5,133 | | | $ | 0 | |
| Government bonds | 53,288 | | | 258 | | | (238) | | | 53,308 | | | 5 | | | 53,303 | |
| Corporate debt securities | 35,605 | | | 194 | | | (223) | | | 35,576 | | | 12 | | | 35,564 | |
| Mortgage-backed and asset-backed securities | 18,829 | | | 96 | | | (112) | | | 18,813 | | | 0 | | | 18,813 | |
| Total | $ | 112,855 | | | $ | 548 | | | $ | (573) | | | $ | 112,830 | | | $ | 5,150 | | | $ | 107,680 | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | 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. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of March 31, 2022 |
| | Adjusted
Cost | | Gross
Unrealized
Gains | | Gross
Unrealized
Losses | | Fair
Value | | Cash and Cash
Equivalents | | Marketable
Securities |
| Level 2: | | | | | | | | | | | |
Time deposits(1) | $ | 4,690 | | | $ | 0 | | | $ | 0 | | | $ | 4,690 | | | $ | 4,690 | | | $ | 0 | |
| Government bonds | 50,485 | | | 58 | | | (1,365) | | | 49,178 | | | 0 | | | 49,178 | |
| Corporate debt securities | 36,621 | | | 30 | | | (1,043) | | | 35,608 | | | 10 | | | 35,598 | |
| Mortgage-backed and asset-backed securities | 18,852 | | | 6 | | | (594) | | | 18,264 | | | 0 | | | 18,264 | |
| Total | $ | 110,648 | | | $ | 94 | | | $ | (3,002) | | | $ | 107,740 | | | $ | 4,700 | | | $ | 103,040 | |
(1)The majority of our time deposits are domestic deposits.
We determine realized gains or losses on the sale or extinguishment of marketabledebt securities on a specific identification method. We recognized gross realized gains of $62$135 million and $21$40 million for the three months ended September 30, 2016March 31, 2021 and 2017, respectively, and $221 million and $193 million for the nine months ended September 30, 2016 and 2017,2022, respectively. We recognized gross realized losses of $12$136 million and $65$271 million for the three months ended September 30, 2016March 31, 2021 and 2017, respectively, and $347 million and $274 million for the nine months ended September 30, 2016 and 2017,2022, respectively. We reflect these gains and losses as a component of other income (expense), net, in the accompanying Consolidated Statements of Income.net.
The following table summarizes the estimated fair value of our investments in marketable debt securities accounted for as available-for-sale securities and classified by thestated 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, 2022 |
| Due in 1 year or less | $ | 15,516 | |
| Due in 1 year through 5 years | 75,938 | |
| Due in 5 years through 10 years | 4,755 | |
| Due after 10 years | 12,245 | |
| Total | $ | 108,454 | |
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, 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 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 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of December 31, 2021 |
| | Less than 12 Months | | 12 Months or Greater | | Total |
| | Fair Value | | Unrealized
Loss | | Fair Value | | Unrealized
Loss | | Fair Value | | Unrealized
Loss |
| Government bonds | $ | 32,843 | | | $ | (236) | | | $ | 71 | | | $ | (2) | | | $ | 32,914 | | | $ | (238) | |
| Corporate debt securities | 22,737 | | | (152) | | | 303 | | | (5) | | | 23,040 | | | (157) | |
| Mortgage-backed and asset-backed securities | 11,502 | | | (106) | | | 248 | | | (6) | | | 11,750 | | | (112) | |
| Total | $ | 67,082 | | | $ | (494) | | | $ | 622 | | | $ | (13) | | | $ | 67,704 | | | $ | (507) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of March 31, 2022 |
| | Less than 12 Months | | 12 Months or Greater | | Total |
| | Fair Value | | Unrealized
Loss | | Fair Value | | Unrealized
Loss | | Fair Value | | Unrealized
Loss |
| Government bonds | $ | 37,948 | | | $ | (1,203) | | | $ | 3,909 | | | $ | (162) | | | $ | 41,857 | | | $ | (1,365) | |
| Corporate debt securities | 27,403 | | | (879) | | | 2,572 | | | (164) | | | 29,975 | | | (1,043) | |
| Mortgage-backed and asset-backed securities | 15,415 | | | (532) | | | 1,101 | | | (62) | | | 16,516 | | | (594) | |
| Total | $ | 80,766 | | | $ | (2,614) | | | $ | 7,582 | | | $ | (388) | | | $ | 88,348 | | | $ | (3,002) | |
During the three months ended September 30, 2016March 31, 2021 and the three and nine months ended September 30, 2017,2022, we did not recognize any other-than-temporary impairment losses. Duringsignificant credit losses and the nine months ended September 30, 2016, we recognized $87 millionending allowance balances for credit losses were immaterial as of other-than-temporary impairment losses related toDecember 31, 2021 and March 31, 2022. See Note 6 for further details on other income (expense), net.
Equity Investments
The following discusses our marketable equity securities. Thosesecurities, non-marketable equity securities, gains and losses on marketable and non-marketable equity securities, as well as our equity securities accounted for under the equity method.
Our marketable equity securities are includedpublicly traded stocks or funds measured at fair value and classified within Level 1 and 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.
Our non-marketable equity securities are investments in privately held companies without readily determinable market values. The carrying value of our non-marketable equity securities is adjusted to fair value upon observable transactions for identical or similar investments of the same issuer or impairment (referred to as the measurement alternative). 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 because we estimate the value based on valuation methods which may include a combination of the observable transaction price at the transaction date and other unobservable inputs includingvolatility, rights, and obligations of the securities we hold. The fair value of non-marketable equity securities that have been remeasured due to impairment are classified within Level 3.
Gains and losses on marketable and non-marketable equity securities
Gains and losses reflected in other income (expense), net, for marketable and non-marketable equity securities are summarized below (in millions):
| | | | | | | | | | | | | | | |
| | | Three Months Ended |
| | | March 31, |
| | | | | 2021 | | 2022 |
| Net gain (loss) on equity securities sold during the period | | | | | $ | 201 | | | $ | (74) | |
| Net unrealized gain (loss) on equity securities held as of the end of the period | | | | | 4,636 | | | (996) | |
| Total gain (loss) recognized in other income (expense), net | | | | | $ | 4,837 | | | $ | (1,070) | |
In the table above, 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. While these net gains 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 on the securities sold during the period. Cumulative net gains 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, |
| | | | | | 2021 | | 2022 |
| Total sale price | | | | | $ | 725 | | | $ | 364 | |
| Total initial cost | | | | | 357 | | | 260 | |
| Cumulative net gains | | | | | $ | 368 | | | $ | 104 | |
Carrying value of marketable and non-marketable equity securities
The carrying value is measured as the total initial cost plus the cumulative net gain (loss). The carrying values for marketable and non-marketable equity securities are summarized below (in millions): | | | | | | | | | | | | | | | | | |
| As of December 31, 2021 |
| Marketable Securities | | Non-Marketable Securities | | Total |
| Total initial cost | $ | 4,211 | | | $ | 15,135 | | | $ | 19,346 | |
Cumulative net gain (loss)(1) | 3,587 | | | 12,436 | | | 16,023 | |
Carrying value(2) | $ | 7,798 | | | $ | 27,571 | | | $ | 35,369 | |
(1)Non-marketable equity securities cumulative net gain (loss) is comprised of $14.1 billion gains and $1.7 billion losses (including impairment).
(2)The long-term portion of marketable equity securities (subject to long-term lock-up restrictions) of $1.4 billion is included within other non-current assets.
| | | | | | | | | | | | | | | | | |
| As of March 31, 2022 |
| Marketable Securities | | Non-Marketable Securities | | Total |
| Total initial cost | $ | 4,549 | | | $ | 15,770 | | | $ | 20,319 | |
Cumulative net gain (loss)(1) | 1,586 | | | 12,882 | | | 14,468 | |
Carrying value(2) | $ | 6,135 | | | $ | 28,652 | | | $ | 34,787 | |
(1)Non-marketable equity securities cumulative net gain (loss) is comprised of $14.9 billion gains and $2.1 billion losses (including impairment).
(2)The long-term portion of marketable equity securities (subject to long-term lock-up restrictions) of $1.5 billion is included within other non-current assets.
Marketable equity securities
The following table summarizes marketable equity securities measured at fair value by significant investment categories (in millions):
| | | | | | | | | | | | | | | | | | | | | | | |
| | As of December 31, 2021 | | As of March 31, 2022 |
| | Cash and Cash Equivalents | | Marketable
Securities | | Cash and Cash Equivalents | | Marketable
Securities |
| Level 1: | | | | | |
| Money market funds | $ | 7,499 | | | $ | 0 | | | $ | 7,820 | | | $ | 0 | |
Marketable equity securities(1)(2) | 0 | | | 7,447 | | | 0 | | | 5,877 | |
| 7,499 | | | 7,447 | | | 7,820 | | | 5,877 | |
| Level 2: | | | | | | | |
| Mutual funds | 0 | | | 351 | | | 0 | | | 258 | |
| Total | $ | 7,499 | | | $ | 7,798 | | | $ | 7,820 | | | $ | 6,135 | |
(1)The balance as of December 31, 2021 includes investments that were reclassified from non-marketable equity securities following the commencement of public market trading of the issuers or acquisition by public entities (certain investments are subject to short-term lock-up restrictions).
(2)As of December 31, 2021 and March 31, 2022 the long-term portion of marketable equity securities (subject to long-term lock-up restrictions) of $1.4 billion and $1.5 billion, respectively, is included within other non-current assets.
Non-marketable equity securities
The following is a summary of unrealized gains and losses recorded in other income (expense), net, which are included as adjustments to the carrying value of non-marketable equity securities held as of the end of the period (in millions): | | | | | | | | | | | | | | | |
| | | Three Months Ended |
| | | March 31, |
| | | | | 2021 | | 2022 |
| Unrealized gains on non-marketable equity securities | | | | | $ | 4,678 | | | $ | 838 | |
| Unrealized losses on non-marketable equity securities (including impairment) | | | | | (2) | | | (378) | |
| Total unrealized gain (loss) recognized on non-marketable equity securities | | | | | $ | 4,676 | | | $ | 460 | |
During the three months ended March 31, 2022, included in the $28.7 billion of non-marketable equity securities held as of the end of the period, $3.1 billion were measured at fair value resulting in a net unrealized gain of $0.5 billion.
Equity securities accounted for under the Equity Method
As of December 31, 2021 and March 31, 2022, equity securities accounted for under the equity method had a carrying value of approximately $1.5 billion and $1.4 billion, respectively. Our share of gains and losses, including impairments, are included as a component of other income (expense), net, in the accompanying Consolidated Statements of Income. See Note 6 for further details on other income (expense), net.
Derivative Financial Instruments
We enter into derivative instruments to manage risks relating to our ongoing business operations. The primary risk managed with derivative instruments is foreign exchange risk. We use foreign currency contracts to reduce the risk that our cash flows, earnings, and investment in foreign subsidiaries will be adversely affected by foreign currency exchange rate fluctuations. We also enter into derivative instruments to partially offset our exposure to other risks and enhance investment returns.
We recognize derivative instruments as either assets or liabilities in the accompanying Consolidated Balance Sheets at fair value.value and classify the derivatives primarily within Level 2 in the fair value hierarchy. We present our collar contracts (an option strategy comprised of a combination of purchased and written options) at net fair values where both the purchased and written options are with the same counterparty. For other derivative contracts, we present at gross fair values. We primarily 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),AOCI, as discussed below.
We enter into foreign currency contracts with financial institutions to reduce the risk that our cash flows and earnings will be adversely affected by foreign currency exchange rate fluctuations. We use certain interest rate derivative contracts to hedge interest rate exposures on our fixed income securities and debt issuances. Our program is not used for trading or speculative purposes.
We enter into master netting arrangements, which reduce credit risk by permitting net settlement of transactions with the same counterparty. To further reduce credit risk,Further, we enter into collateral security arrangements under which the counterparty is requiredthat provide for collateral to provide collateralbe received or pledged when the net fair value of certain financial instruments fluctuates from contractually established thresholds. We can take possession of theCash collateral in the event of counterparty default. As of December 31, 2016 and September 30, 2017, we received cash collateral related to the derivative instruments under our collateral security arrangements of $362 millionare included in other current assets with a corresponding liability. Cash and $47 million, respectively.non-cash collateral pledged related to derivative instruments under our collateral security arrangements are included in other current assets.
Cash Flow Hedges
We usedesignate foreign currency forwardsforward and option contracts including collars (an option strategy comprised of a combination of purchased and written options), designated(including collars) as cash flow hedges to hedge certain forecastedforecasted 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.dollar. These contracts have maturities of 24 months or 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.item is recognized in earnings. We exclude the change in forward points and time value from our assessment of hedge effectiveness. The initial value of the excluded component is amortized on a straight-line basis over the life of the hedging instrument and recognized in revenues. The difference between fair value changes of the excluded component and the amount amortized to revenues is recorded in AOCI. If the hedged transactions become probable of not occurring, the corresponding amounts in AOCI are immediately reclassified to other income (expense), net.Fornet in the period of de-designation.
As of March 31, 2022, the net accumulated gain on our 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.
As of September 30, 2017, the effective portion of our cash flow hedges before tax effect was a net accumulated loss of $440$356 million, of which a net loss of $473 million is expected to be reclassified from AOCI into earnings 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 investments 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, along with the offsetting gains and losses of the related hedged items. We exclude changes in forward points from the assessment of hedge effectiveness and recognize changes in the excluded component in other income (expense), net.
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 changes in forward points from the assessment of hedge effectiveness and recognize changes in the excluded component in other income (expense), net.
Other Derivatives
Other derivatives not designated as hedging instruments consist primarily 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, as well as the related costs, are recognized in other income (expense), net, 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, credit exposures and to enhance investment returns. Additionally, 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 (losses) arising from these derivatives are reflected within the "other" component of other income (expense), net and the offsetting recognized gains (losses) on the marketable equity securities are reflected within the gain (loss) on equity securities, net component of other income (expense), net. See Note 6 for further details on other income (expense), net.
The gross notional amounts of outstanding derivative instruments were as follows (in millions): | | | | | | | | | | | |
| As of December 31, 2021 | | As of March 31, 2022 |
| Derivatives Designated as Hedging Instruments: | | |
| Foreign exchange contracts | | | |
| Cash flow hedges | $ | 16,362 | | | $ | 17,817 | |
| Fair value hedges | $ | 2,556 | | | $ | 2,438 | |
| Net investment hedges | $ | 10,159 | | | $ | 9,933 | |
| Derivatives Not Designated as Hedging Instruments: | | |
| Foreign exchange contracts | $ | 41,031 | | | $ | 42,338 | |
| Other contracts | $ | 4,275 | | | $ | 6,052 | |
|
| | | | | | | | | | | | | |
| | | | 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 |
|
The fair values of outstanding derivative instruments were as follows (in millions): | | | | | | | | | | | | | | | | | | | | | | | |
| | | | As of December 31, 2021 |
| 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 | | $ | 867 | | | $ | 42 | | | $ | 909 | |
| Other contracts | Other current and non-current assets | | 0 | | | 52 | | | 52 | |
| Total | | | $ | 867 | | | $ | 94 | | | $ | 961 | |
| Derivative Liabilities: | | | | | | |
| Level 2: | | | | | | | |
| Foreign exchange contracts | Accrued expenses and other liabilities, current and non-current | | $ | 8 | | | $ | 452 | | | $ | 460 | |
| Other contracts | Accrued expenses and other liabilities, current and non-current | | 0 | | | 121 | | | 121 | |
| Total | | | $ | 8 | | | $ | 573 | | | $ | 581 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | As of March 31, 2022 |
| 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 | | $ | 705 | | | $ | 26 | | | $ | 731 | |
| Other contracts | Other current and non-current assets | | 0 | | | 76 | | | 76 | |
| Total | | | $ | 705 | | | $ | 102 | | | $ | 807 | |
| Derivative Liabilities: | | | | | | |
| Level 2: | | | | | | | |
| Foreign exchange contracts | Accrued expenses and other liabilities, current and non-current | | $ | 163 | | | $ | 404 | | | $ | 567 | |
| Other contracts | Accrued expenses and other liabilities, current and non-current | | 0 | | | 76 | | | 76 | |
| Total | | | $ | 163 | | | $ | 480 | | | $ | 643 | |
|
| | | | | | | | | | | | | |
| | | | 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 |
|
The effect of derivative instrumentsgains (losses) on derivatives in cash flow hedging and net investment hedging relationships on income andrecognized in other comprehensive income (OCI) isare summarized below (in millions, unaudited)millions): | | | | | | | | | | | | | | | |
| | | | | | Gains (Losses) Recognized in OCI on Derivatives Before Tax Effect |
| | | Three Months Ended |
| | | | March 31, |
| | | | | 2021 | | 2022 |
| Derivatives in Cash Flow Hedging Relationship: | | | | | | | |
| Foreign exchange contracts | | | | | | | |
| Amount included in the assessment of effectiveness | | | | | $ | 162 | | | $ | 135 | |
| Amount excluded from the assessment of effectiveness | | | | | 49 | | | (15) | |
| | | | | | | |
| Derivatives in Net Investment Hedging Relationship: | | | | | | | |
| Foreign exchange contracts | | | | | | | |
| Amount included in the assessment of effectiveness | | | | | 378 | | | 149 | |
| Total | | | | | $ | 589 | | | $ | 269 | |
|
| | | | | | | | | | | | | | | |
| | 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 | ) |
|
| | | | | | | | | | | | | | | | | |
| | 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 |
|
|
| | | | | | | | | | | | | | | | | |
| | 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)millions):
| | | | | | | | | | | | | | | | | | | | | | | |
| | Gains (Losses) Recognized in Income |
| Three Months Ended |
| | March 31, |
| 2021 | | 2022 |
| Revenues | | Other income (expense), net | | Revenues | | Other income (expense), net |
| Total amounts presented in the Consolidated Statements of Income in which the effects of cash flow and fair value hedges are recorded | $ | 55,314 | | | $ | 4,846 | | | $ | 68,011 | | | $ | (1,160) | |
| | | | | | | |
| Gains (Losses) on Derivatives in Cash Flow Hedging Relationship: | | | | | | | |
| Foreign exchange contracts | | | | | | | |
| Amount of gains (losses) reclassified from AOCI to income | $ | (105) | | | $ | 0 | | | $ | 297 | | | $ | 0 | |
| Amount excluded from the assessment of effectiveness recognized in earnings based on an amortization approach | (4) | | | 0 | | | (19) | | | 0 | |
| Gains (Losses) on Derivatives in Fair Value Hedging Relationship: | | | | | | | |
| Foreign exchange contracts | | | | | | | |
| Hedged items | 0 | | | 0 | | | 0 | | | 13 | |
| Derivatives designated as hedging instruments | 0 | | | 0 | | | 0 | | | (12) | |
| Amount excluded from the assessment of effectiveness | 0 | | | 2 | | | 0 | | | 1 | |
| Gains (Losses) on Derivatives in Net Investment Hedging Relationship: | | | | | | | |
| Foreign exchange contracts | | | | | | | |
| Amount excluded from the assessment of effectiveness | 0 | | | 20 | | | 0 | | | 12 | |
| Gains (Losses) on Derivatives Not Designated as Hedging Instruments: | | | | | | | |
| Foreign exchange contracts | 0 | | | (340) | | | 0 | | | (247) | |
| Other Contracts | 0 | | | 323 | | | 0 | | | 38 | |
| Total gains (losses) | $ | (109) | | | $ | 5 | | | $ | 278 | | | $ | (195) | |
|
| | | | | | | | | | | | | | | | | |
| | 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 atThe 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. Ouramounts of derivative instruments subject to master netting arrangements with various counterparties, and other similar arrangements allow net settlementscash and non-cash collateral received and pledged under certain conditions. As of December 31, 2016 and September 30, 2017, information related to these offsetting arrangementssuch agreements were as follows (in millions):
Offsetting of Assets | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of December 31, 2021 |
| | | | | | | Gross Amounts Not Offset in the Consolidated Balance Sheets, but Have Legal Rights to Offset | | |
| 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 | $ | 999 | | | $ | (38) | | | $ | 961 | | | $ | (434) | | (1) | $ | (394) | | | $ | (12) | | | $ | 121 | |
| | | | | | | | | | | | | |
| As of March 31, 2022 |
| | | | | | | Gross Amounts Not Offset in the Consolidated Balance Sheets, but Have Legal Rights to Offset | | |
| 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 | $ | 894 | | | $ | (87) | | | $ | 807 | | | $ | (427) | | (1) | $ | (310) | | | $ | 0 | | | $ | 70 | |
(1)The balances as of December 31, 2021 and March 31, 2022 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, 2021 |
| | | | | | | Gross Amounts Not Offset in the Consolidated Balance Sheets, but Have Legal Rights to Offset | | |
| 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 | $ | 619 | | | $ | (38) | | | $ | 581 | | | $ | (434) | | (2) | $ | (4) | | | $ | (110) | | | $ | 33 | |
| | | | | | | | | | | | | |
| As of March 31, 2022 |
| | | | | | | Gross Amounts Not Offset in the Consolidated Balance Sheets, but Have Legal Rights to Offset | |
| 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 | $ | 730 | | | $ | (87) | | | $ | 643 | | | $ | (427) | | (2) | $ | (5) | | | $ | (49) | | | $ | 162 | |
(2) The balances as of December 31, 2021 and March 31, 2022 were related to derivative assets which are allowed to be net settled against derivative liabilities in accordance with our master netting agreements.
Note 4. Variable Interest Entities (VIE)
Consolidated VIEs
We consolidate VIEs in which we hold 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 available to us and their creditors do not have recourse to us. As of December 31, 2021 and March 31, 2022, assets that can only be used to settle obligations of these VIEs were $6.0 billion and $5.5 billion, respectively, and the liabilities for which creditors only have recourse to the VIEs were $2.5 billion and $2.4 billion, respectively.
As of December 31, 2021 and March 31, 2022, total noncontrolling interests (NCI), including redeemable noncontrolling interests (RNCI), in our consolidated subsidiaries was $4.3 billion for both periods. NCI and RNCI are
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 |
|
| | | | | |
| 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.Alphabet Inc. |
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 Investments
Our non-marketable investments include non-marketable equity investmentsincluded within additional paid-in capital. Net loss attributable to noncontrolling interests was not material for any period presented and non-marketable debt securities.
Non-Marketable Equity Investments
Our non-marketable equity investments are investments we have made in privately-held companies accounted for underis included within the equity or cost method and are not required to be consolidated under the variable interest or voting models.
As of December 31, 2016 and September 30, 2017, investments accounted for under the equity method had a carrying value of approximately $1.7 billion. Our share of gains 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, respectively, and a net loss of $209 million and $93 million for the nine months ended September 30, 2016 and 2017, respectively. As of December 31, 2016 and September 30, 2017, investments accounted for under the cost method had a carrying value of $3.0 billion and $3.6 billion, respectively, and a fair value of approximately $8.1 billion and $8.9 billion, respectively. The fair value of the cost method investments are primarily determined from data leveraging private-market transactions 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"other" component of other income (expense), net,net. See Note 6 for further details on other income (expense), net.
Unconsolidated VIEs
We have investments in VIEs in which we are not the accompanying Consolidated Statements of Income.
Certainprimary beneficiary. These VIEs include private companies that are primarily early stage companies and certain 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 as non-marketable equity securities or equity method investments.
The carrying value and maximum exposure of these unconsolidated VIEs were $1.2 billion as of December 31, 2016 and $1.1 billion as of September 30, 2017. The maximum exposure is generally based on the current carrying value of the investments to date.and any future funding commitments. We have determined that the single source of our exposure to these VIEs is our capital investmentinvestments in these entities. We periodically reassess whether we are the primary beneficiary of a VIE.them. 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,carrying value 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 costmaximum exposure of these securitiesunconsolidated VIEs were $1.1$2.7 billion and $2.9 billion, respectively, as of December 31, 20162021 and September 30, 2017. These debt securities do not have readily determinable market values$2.8 billion and are categorized accordingly$2.9 billion, respectively, as Level 3 in the fair value hierarchy. To estimate the fair value of these securities, we use a combination of valuation methodologies, including market and income approaches based on prior transaction prices; estimated timing, probability, and amount of cash flows; and illiquidity considerations. Financial information of private companies may not be available and consequently we estimate the 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.March 31, 2022.
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 commercial paper outstanding as of December 31, 20162021 and September 30, 2017.March 31, 2022.
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, 2021 | | As of
March 31, 2022 |
| Debt | | | | | | | | | | |
| 2014-2020 Notes Issuances | | 2024 - 2060 | | 0.45% - 3.38% | | 0.57% - 3.38% | | $ | 13,000 | | | $ | 13,000 | |
Future finance lease payments, net and other (1) | | | | | | | | 2,086 | | | 2,125 | |
| Total debt | | | | | | | | 15,086 | | | 15,125 | |
| Unamortized discount and debt issuance costs | | | | | | | | (156) | | | (153) | |
Less: Current portion future finance lease payments, net and other current debt(1)(2) | | | | | | | | (113) | | | (181) | |
| Total long-term debt | | | | | | | | $ | 14,817 | | | $ | 14,791 | |
(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 |
|
| |
(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,generally 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$12.4 billion and $11.4 billion as of December 31, 20162021 and $4.0 billion as of September 30, 2017.March 31, 2022, 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, 2022, we had $10.0 billion of revolving credit facilities, $4.0 billion expiring in April 2022 and $6.0 billion expiring in April 2026. In April 2022, we entered into a new $4.0 billion revolving credit facility which expiresexpiring in February 2021.April 2023. 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 were outstanding under the credit facilityfacilities as of December 31, 20162021 and September 30, 2017.March 31, 2022.
Note 6. Supplemental Financial Statement Information
Accounts Receivable
The allowance for credit losses on accounts receivable was $550 million and $578 million as of December 31, 2021 and March 31, 2022, respectively.
Property and Equipment, Net
Property and equipment, net, consisted of the following (in millions):
|
| | | | | | | |
| | 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. | | | | | | | | | | | |
| As of
December 31, 2021 | | As of
March 31, 2022 |
| Land and buildings | $ | 58,881 | | | $ | 62,869 | |
| Information technology assets | 55,606 | | | 57,628 | |
| Construction in progress | 23,172 | | | 25,555 | |
| Leasehold improvements | 9,146 | | | 9,912 | |
| Furniture and fixtures | 208 | | | 213 | |
| Property and equipment, gross | 147,013 | | | 156,177 | |
| Less: accumulated depreciation | (49,414) | | | (51,959) | |
| Property and equipment, net | $ | 97,599 | | | $ | 104,218 | |
Accrued expenses and other current liabilities
Accrued expenses and other current liabilities consisted of the following (in millions): | | | | | | | | | | | |
| As of
December 31, 2021 | | As of
March 31, 2022 |
European Commission fines(1) | $ | 9,799 | | | $ | 9,670 | |
| Accrued customer liabilities | 3,505 | | | 3,171 | |
| Accrued purchases of property and equipment | 2,415 | | | 3,175 | |
| Current operating lease liabilities | 2,189 | | | 2,267 | |
| Other accrued expenses and current liabilities | 13,328 | | | 14,768 | |
| Accrued expenses and other current liabilities | $ | 31,236 | | | $ | 33,051 | |
|
| | | | | | | |
| | 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) Includes the effects of foreign exchange and interest. See Note 9 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, 2020 | $ | (864) | | | $ | 1,612 | | | $ | (115) | | | $ | 633 | |
| Other comprehensive income (loss) before reclassifications | (423) | | | (488) | | | 130 | | | (781) | |
| Amounts excluded from the assessment of hedge effectiveness recorded in AOCI | 0 | | | 0 | | | 49 | | | 49 | |
| Amounts reclassified from AOCI | 0 | | | 11 | | | 85 | | | 96 | |
| Other comprehensive income (loss) | (423) | | | (477) | | | 264 | | | (636) | |
| Balance as of March 31, 2021 | $ | (1,287) | | | $ | 1,135 | | | $ | 149 | | | $ | (3) | |
|
| | | | | | | | | | | | | | | |
| | 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, 2021 | $ | (2,306) | | | $ | 236 | | | $ | 447 | | | $ | (1,623) | |
| Other comprehensive income (loss) before reclassifications | 39 | | | (2,478) | | | 129 | | | (2,310) | |
| Amounts excluded from the assessment of hedge effectiveness recorded in AOCI | 0 | | | 0 | | | (15) | | | (15) | |
| Amounts reclassified from AOCI | 0 | | | 148 | | | (249) | | | (101) | |
| Other comprehensive income (loss) | 39 | | | (2,330) | | | (135) | | | (2,426) | |
| Balance as of March 31, 2022 | $ | (2,267) | | | $ | (2,094) | | | $ | 312 | | | $ | (4,049) | |
|
| | | | | | | | | | | | | | | |
| | 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 | ) |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Gains (Losses) Reclassified from AOCI to the Consolidated Statements of Income |
| | | | | | Three Months Ended |
| | | | | | | March 31, |
| AOCI Components | | Location | | | | | | 2021 | | 2022 |
| Unrealized gains (losses) on available-for-sale investments | | | | | | | | |
| | Other income (expense), net | | | | | | $ | (14) | | | $ | (190) | |
| | Benefit (provision) for income taxes | | | | | | 3 | | | 42 | |
| | Net of income tax | | | | | | (11) | | | (148) | |
| Unrealized gains (losses) on cash flow hedges | | | | | | | | |
| Foreign exchange contracts | | Revenue | | | | | | (105) | | | 297 | |
| Interest rate contracts | | Other income (expense), net | | | | | | 1 | | | 2 | |
| | Benefit (provision) for income taxes | | | | | | 19 | | | (50) | |
| | Net of income tax | | | | | | (85) | | | 249 | |
| Total amount reclassified, net of income tax | | | | | | $ | (96) | | | $ | 101 | |
Other Income (Expense), Net
The componentsComponents of other income (expense), net, were as follows (in millions, unaudited)millions): | | | | | | | | | | | | | | | |
| | | | Three Months Ended |
| | | March 31, |
| | | | | | 2021 | | 2022 |
| Interest income | | | | | $ | 345 | | | $ | 414 | |
Interest expense(1) | | | | | (76) | | | (83) | |
| Foreign currency exchange gain (loss), net | | | | | 113 | | | (73) | |
| Gain (loss) on debt securities, net | | | | | (86) | | | (367) | |
| Gain (loss) on equity securities, net | | | | | 4,837 | | | (1,070) | |
| Performance fees | | | | | (665) | | | 233 | |
| Income (loss) and impairment from equity method investments, net | | | | | 5 | | | (89) | |
| Other | | | | | 373 | | | (125) | |
| Other income (expense), net | | | | | $ | 4,846 | | | $ | (1,160) | |
|
| | | | | | | | | | | | | | | |
| | 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$47 million and $13$34 million for the three months ended September 30, 2016March 31, 2021 and 2017, respectively, and $0 million and $32 million for the nine months ended September 30, 2016 and 2017,2022, respectively.
Note 7. Acquisitions
DuringPending Acquisition of Mandiant
In March 2022, we entered into an agreement to acquire Mandiant, a leader in dynamic cyber defense and response, for $23.00 per share, in an all-cash transaction valued at approximately $5.4 billion, net of cash and debt. The acquisition of Mandiant is subject to customary closing conditions, including the nine months ended September 30, 2017, we completed various acquisitionsreceipt of regulatory 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,Mandiant stockholder approvals, 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 goodwillis 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 toclose later this year. Upon 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 understandingclose 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 trancheacquisition, Mandiant will be part 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.Google Cloud segment.
Note 10.8. 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, 2022 were as follows (in millions):
| | | | | | | | | | | | | | | | | | | | | | | |
| Google Services | | Google Cloud | | Other Bets | | Total |
| Balance as of December 31, 2021 | $ | 19,826 | | | $ | 2,337 | | | $ | 793 | | | $ | 22,956 | |
| Acquisitions | 9 | | | 86 | | | 0 | | | 95 | |
| Foreign currency translation and other adjustments | (36) | | | (4) | | | (1) | | | (41) | |
| Balance as of March 31, 2022 | $ | 19,799 | | | $ | 2,419 | | | $ | 792 | | | $ | 23,010 | |
|
| | | | | | | | | | | |
| | 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 |
|
Information regarding purchased intangible assets was as follows (in millions): | | | | | | | | | | | | | | | | | |
| As of December 31, 2021 |
| | Gross
Carrying
Amount | | Accumulated
Amortization | | Net
Carrying
Amount |
| Patents and developed technology | $ | 4,786 | | | $ | 4,112 | | | $ | 674 | |
| Customer relationships | 506 | | | 140 | | | 366 | |
| Trade names and other | 534 | | | 295 | | | 239 | |
| Total definite-lived intangible assets | 5,826 | | | 4,547 | | | 1,279 | |
| Indefinite-lived intangible assets | 138 | | | — | | | 138 | |
| Total intangible assets | $ | 5,964 | | | $ | 4,547 | | | $ | 1,417 | |
| | | | | | | | | | | | | | | | | |
| As of March 31, 2022 |
| Gross
Carrying
Amount | | Accumulated
Amortization | | Net
Carrying
Amount |
| Patents and developed technology | $ | 4,613 | | | $ | 4,080 | | | $ | 533 | |
| Customer relationships | 506 | | | 166 | | | 340 | |
| Trade names and other | 418 | | | 109 | | | 309 | |
| Total definite-lived intangible assets | 5,537 | | | 4,355 | | | 1,182 | |
| Indefinite-lived intangible assets | 131 | | | 0 | | | 131 | |
| Total intangible assets | $ | 5,668 | | | $ | 4,355 | | | $ | 1,313 | |
For all intangible assets acquired and purchased during the three months ended March 31, 2022, patents and developed technology have a weighted-average useful life of 3.7 years, and trade names and other have a weighted-average useful life of 5.6 years.
Amortization expense relating to purchased intangible assets was $203$217 million and $194$191 million for the three months ended September 30, 2016March 31, 2021 and 2017, respectively, and $629 million and $600 million for the nine months ended September 30, 2016 and 2017,2022, respectively.
As of September 30, 2017, expected
Expected amortization expense relatingrelated to purchased intangible assets for eachheld as of the next five years and thereafter areMarch 31, 2022 was as follows (in millions, unaudited)millions):
| | | | | |
| Remainder of 2022 | $ | 363 | |
| 2023 | 274 | |
| 2024 | 244 | |
| 2025 | 116 | |
| 2026 | 71 | |
| Thereafter | 114 | |
| Total | $ | 1,182 | |
Note 9. Contingencies
|
| | | |
| Remainder of 2017 | $ | 193 |
|
| 2018 | 726 |
|
| 2019 | 615 |
|
| 2020 | 493 |
|
| 2021 | 459 |
|
| Thereafter | 397 |
|
| | $ | 2,883 |
|
Indemnifications
Note 11. ContingenciesIn the normal course of business, including to facilitate transactions in our services and products and corporate activities, we indemnify certain parties, including advertisers, Google Network partners, customers of Google Cloud offerings, lessors, and service providers with respect to certain matters. We have agreed to 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 time within which an indemnification claim can be made and the amount of the claim. In addition, we have entered into indemnification agreements with our officers and directors, and our bylaws contain similar indemnification obligations to our agents.
It is not possible to make a reasonable estimate of the maximum potential amount under these indemnification agreements due to the unique facts and circumstances involved in each particular agreement. Additionally, we have a limited history of prior indemnification claims and 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 March 31, 2022, we did not have any material indemnification claims that were probable or reasonably possible.
Legal Matters
Antitrust Investigations
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. On November 10, 2021, the General Court rejected our appeal, and we subsequently filed an appeal with the European Court of Justice on January 20, 2022.
On July 18, 2018, the EC announced 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, which remains pending. On October 29, 2018, we implemented changes to certain of our Android distribution practices. We recognized a charge of $5.1 billion for the fine in the second quarter of 2018.
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, which remains pending. We recognized a charge of $1.7 billion for the fine in the first quarter of 2019.
While each EC decision is under appeal, we included the fines in accrued expenses and other current liabilities on our Consolidated Balance SheetSheets as we provided bank guarantees in(in lieu of a cash paymentpayment) for the fine.fines.
From time to time we are subject to formal and informal inquiries and investigations on competition matters by regulatory authorities in the United States (U.S.), Europe, and other jurisdictions. 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 on October 20, 2020 alleging that Google violated U.S. antitrust laws relating to Search and Search advertising. Separately, on December 16, 2020, a number of state Attorneys General filed an antitrust complaint against Google 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. On April 20, 2016,June 22, 2021, the EC issued an SO regarding certain Android distributionopened a formal investigation into Google's advertising technology business practices. On July 14, 2016,7, 2021, a number of state Attorneys General filed an antitrust complaint against us 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. We believe these complaints are without merit and will defend ourselves vigorously. The DOJ, state Attorneys General, and EC issued an SO regarding the syndication of AdSense for Search. We responded to the SOs and continue to respond to the EC's informational requests. There is significant uncertainty as to the outcomes of these investigations; however, adverse decisions could result in fines 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 openedtheir investigations into certain aspects of our business practices. In November 2016, we respondedbusiness. We continue to cooperate with federal and state regulators in the CCI Director General's report with interim findings of competition law infringements regarding searchU.S., the EC, and ads.other regulators around the world.
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, regulatory and government investigations, and other proceedings, and consent decrees involving competition, (such as the pending EC investigations described above), intellectual property, privacy and cybersecurity, 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 currently have a number of privacy investigations and suits ongoing in multiple jurisdictions. Such claims, suits, regulatory
and government investigations, and other proceedings, and consent decrees could result in substantial fines and penalties, injunctive relief, ongoing auditing and monitoring 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.
We have ongoing legal matters in Russia. We do not believe these ongoing legal matters will have a material adverse effect on our business, consolidated financial position, results of operations, or cash flows.
Certain of our outstanding legal matters include speculative, claims for substantial or indeterminate amounts of damages.monetary amounts. 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 on a monthly basis, 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. Significant judgment is required to determine both the 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.
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.
For information regarding income tax contingencies, see Note 14.
13.
Note 12. Net Income Per Share10. Stockholders' Equity
The following table sets forthShare Repurchases
In April 2021, the computationBoard of basic and diluted net income per shareDirectors of Alphabet authorized the company to repurchase up to $50.0 billion of its Class C stock. In July 2021, the Board of Directors of Alphabet approved an amendment to the April 2021 authorization, permitting the company to repurchase both Class A and Class B common stockC shares 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 capital stock (in millions, except share amounts which are reflected in thousands, and per share amounts, unaudited):
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | 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 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Nine 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 | $ | 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 | 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 |
|
| 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 |
|
For the periods presented above, the net income per share amounts are the sameshares. As of March 31, 2022, $4.1 billion remains available for Class A and Class B commonC share repurchases under the amended authorization.
In accordance with the authorizations of the Board of Directors of Alphabet, during the three months ended March 31, 2022, we repurchased and subsequently retired 4.9 million aggregate shares for $13.3 billion. Of the aggregate amount repurchased and subsequently retired during the three months ended March 31, 2022, 0.2 million shares were Class A stock for $660 million and 4.7 million shares were Class C stock for $12.6 billion.
In April 2022, 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 capitalshares 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.
Stock Split Effected in Form of Stock Dividend (“Stock Split”)
On February 1, 2022, the company announced that the Board of Directors had approved and declared a 20-for-one stock becausesplit in the holdersform of a one-time special stock dividend on each class are entitledshare of the company’s Class A, Class B, and Class C stock. The Stock Split is subject to equal per share dividends or distributions in liquidation in accordance withstockholder approval of an amendment to the company’s Amended and Restated Certificate of Incorporation to increase the number of Alphabet Inc.authorized shares of Class A, Class B, and Class C stock to accommodate the Stock Split.
If approval is obtained, each of the company’s stockholders of record at the close of business on July 1, 2022 (the “Record Date”), will receive, after the close of business on July 15, 2022, a dividend of 19 additional shares of the same class of stock for every share held by such stockholder as of the Record Date.
Note 13. Stockholders’ Equity11. Net Income Per Share
The following table sets forth the computation of basic and diluted net income per share of Class A, Class B, and Class C stock (in millions, except share amounts which are reflected in thousands, and per share amounts): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, |
| | 2021 | | 2022 |
| | Class A | | Class B | | Class C | | Class A | | Class B | | Class C |
| Basic net income per share: | | | | | | | | | | | |
| Numerator | | | | | | | | | | | |
| Allocation of undistributed earnings | $ | 8,011 | | | $ | 1,221 | | | $ | 8,698 | | | $ | 7,481 | | | $ | 1,109 | | | $ | 7,846 | |
| | | | | | | | | | | |
| Denominator | | | | | | | | | | | |
| Number of shares used in per share computation | 300,800 | | | 45,840 | | | 326,580 | | | 300,478 | | | 44,535 | | | 315,158 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Basic net income per share | $ | 26.63 | | | $ | 26.63 | | | $ | 26.63 | | | $ | 24.90 | | | $ | 24.90 | | | $ | 24.90 | |
| Diluted net income per share: | | | | | | | | | | | |
| Numerator | | | | | | | | | | | |
| | | | | | | | | | | |
| Allocation of undistributed earnings for basic computation | $ | 8,011 | | | $ | 1,221 | | | $ | 8,698 | | | $ | 7,481 | | | $ | 1,109 | | | $ | 7,846 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Reallocation of undistributed earnings as a result of conversion of Class B to Class A shares | 1,221 | | | 0 | | | 0 | | | 1,109 | | | 0 | | | 0 | |
| Reallocation of undistributed earnings | (119) | | | (16) | | | 119 | | | (95) | | | (12) | | | 95 | |
| Allocation of undistributed earnings | $ | 9,113 | | | $ | 1,205 | | | $ | 8,817 | | | $ | 8,495 | | | $ | 1,097 | | | $ | 7,941 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Denominator | | | | | | | | | | | |
| Number of shares used in basic computation | 300,800 | | | 45,840 | | | 326,580 | | | 300,478 | | | 44,535 | | | 315,158 | |
| Weighted-average effect of dilutive securities | | | | | | | | | | | |
| Add: | | | | | | | | | | | |
| Conversion of Class B to Class A shares outstanding | 45,840 | | | 0 | | | 0 | | | 44,535 | | | 0 | | | 0 | |
| | | | | | | | | | | |
| Restricted stock units and other contingently issuable shares | 18 | | | 0 | | | 8,833 | | | 5 | | | 0 | | | 7,375 | |
| Number of shares used in per share computation | 346,658 | | | 45,840 | | | 335,413 | | | 345,018 | | | 44,535 | | | 322,533 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Diluted net income per share | $ | 26.29 | | | $ | 26.29 | | | $ | 26.29 | | | $ | 24.62 | | | $ | 24.62 | | | $ | 24.62 | |
For the periods presented above, the net income per share amounts are the same for Class A, Class B, and Class C 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 12. Compensation Plans
Stock-Based Compensation
For the three months ended September 30, 2016March 31, 2021 and 2017,2022, total stock-based compensation (SBC) expense was $1,902 million$3.8 billion and $1,881 million,$4.5 billion, including amountsamounts 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.of $3.7 billion and $4.4 billion, respectively.
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): |
| | | | | | |
| | 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 |
|
| | | | | | | | | | | |
| | Unvested Restricted Stock Units |
| | Number of
Shares | | Weighted-
Average
Grant-Date
Fair Value |
| Unvested as of December 31, 2021 | 16,894,713 | | | $ | 1,626.13 | |
| Granted | 6,698,922 | | | $ | 2,758.02 | |
| Vested | (2,431,649) | | | $ | 1,691.60 | |
| Forfeited/canceled | (536,815) | | | $ | 1,848.92 | |
| Unvested as of March 31, 2022 | 20,625,171 | | | $ | 1,980.24 | |
As of September 30, 2017,March 31, 2022, there was $14.0$38.9 billion of unrecognized compensation cost related to unvested employee RSUs. This amount is expected to be recognized over a weighted-average period of 2.52.8 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. 13. Income Taxes
The following table presents provision for income taxes (in millions, except for effective tax rate):
| | | | | | | | | | | | | | | |
| | | Three Months Ended |
| | | March 31, |
| | | | | 2021 | | 2022 |
| Income before provision for income taxes | | | | | $ | 21,283 | | | $ | 18,934 | |
| Provision for income taxes | | | | | $ | 3,353 | | | $ | 2,498 | |
| Effective tax rate | | | | | 15.8 | % | | 13.2 | % |
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. Our totalTotal gross unrecognized tax benefits were $5.4$5.2 billion and $5.1$5.4 billion as of December 31, 20162021 and September 30, 2017,March 31, 2022, respectively. Our totalTotal unrecognized tax benefits that, if recognized, would affect our effective tax rate were $4.3$3.7 billion and $3.9$3.9 billion as of December 31, 20162021 and September 30, 2017,March 31, 2022, 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 11.9.
Note 15.14. 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, andhardware, 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; sales of apps and in-app purchases, digital content products, and digital content;hardware; and fees received for subscription-based products such as YouTube Premium and YouTube TV.
•Google Cloud includes Google’s infrastructure and platform services, collaboration tools, and other services for enterprise customers. Google Cloud generates revenues from fees received for cloud offerings;Google Cloud Platform services, Google Workspace collaboration tools, and sales of hardware products.
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 health technology and internet and TV services through Google Fiber, sales of Nest products and services, and licensing and R&D services through Verily.
services.Revenues, cost of revenues,certain costs, such as costs associated with content and traffic acquisition, certain engineering activities, and hardware, as well as certain operating expenses are generally directly attributedattributable to our segments. Inter-segment revenuesDue to the integrated nature of Alphabet, other costs and expenses, such as technical infrastructure and office facilities, are managed centrally at a consolidated level. The associated costs, including depreciation and impairment, are allocated to operating segments as a service cost generally based on usage or headcount.
Unallocated corporate costs primarily include corporate initiatives, corporate shared costs, such as finance and legal, including certain fines and settlements, as well as costs associated with certain shared R&D activities. Additionally, hedging gains (losses) related to revenue are included in corporate costs.
Our operating segments are not presented separately, as these amounts are immaterial. Our Chief Operating Decision Maker does not evaluate operating segmentsevaluated using asset information. Prior period segment
The following table presents information has been recast to conform to the current period segment presentation.
Information about segments
during the periods presented were as follows (in
millions, unaudited)millions):
| | | | | | | | | | | | | | | |
| | | | Three Months Ended |
| | | March 31, |
| | | | | | 2021 | | 2022 |
| Revenues: | | | | | | | |
| Google Services | | | | | $ | 51,178 | | | $ | 61,472 | |
| Google Cloud | | | | | 4,047 | | | 5,821 | |
| Other Bets | | | | | 198 | | | 440 | |
| Hedging gains (losses) | | | | | (109) | | | 278 | |
| Total revenues | | | | | $ | 55,314 | | | $ | 68,011 | |
|
| | | | | | | | | | | | | | | |
| | 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 |
|
| | | | | |
| 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.Alphabet Inc. |
|
| | | | | | | | | | | | | | | |
| | 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) and depreciation, amortization, and impairment are included in segment operating income (loss) as shown below (in millions, unaudited):
|
| | | | | | | | | | | | | | | |
| | 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 our long-lived assets by geographic area (in millions):
|
| | | | | | | |
| | 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 |
|
| | | | | | | | | | | | | | | |
| | | | Three Months Ended |
| | | March 31, |
| | | | | | 2021 | | 2022 |
| Operating income (loss): | | | | | | | |
| Google Services | | | | | $ | 19,546 | | | $ | 22,920 | |
| Google Cloud | | | | | (974) | | | (931) | |
| Other Bets | | | | | (1,145) | | | (1,155) | |
| Corporate costs, unallocated | | | | | (990) | | | (740) | |
| Total income from operations | | | | | $ | 16,437 | | | $ | 20,094 | |
For revenues by geography, see Note 2.
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, 2021 | | As of
March 31, 2022 |
| Long-lived assets: | | | |
| United States | $ | 80,207 | | | $ | 85,341 | |
| International | 30,351 | | | 31,869 | |
| Total long-lived assets | $ | 110,558 | | | $ | 117,210 | |
| |
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, 2021, including Part I, Item 1A "Risk Factors."
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. Other Bets include earlier stage technologies that are further afield from our core Google business. For further details on our segments, see Note 14 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 billionSeasonality 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.
Capitalare affected by seasonal fluctuations in internet usage, advertising expenditures, were $3.5 billion.
Headcount increased to 78,101 as of September 30, 2017.
Information about Segments
We operate ourand underlying business in multiple operating segments. 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 combined and disclosed below as Other Bets.
Our reported segments are described below:
Google – Google includes our main internet productstrends, such as Search, Ads, Commerce, Maps, YouTube,traditional retail seasonality. Additionally, our non-advertising revenues, including those generated from Google Cloud, Android, Chrome,Google Play, hardware, and Google PlayYouTube, may be affected by fluctuations driven by changes in pricing, digital content releases, fee structures, new product and service launches, and other market dynamics, as well as our hardware initiatives. Our technical infrastructureseasonality.
Revenues and some newer efforts like virtual realityMonetization Metrics
Google Services
Google Services revenues consist of revenues generated from advertising (“Google advertising”) as well as revenues from other sources (“Google other revenues”).
Google Advertising
Google advertising revenues are also included in Google. Google generates revenues primarily from advertising; sales of apps, 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.
See Note 15comprised of the Notes to Consolidated Financial Statements includedfollowing:
•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 Part I, Item 1 of this Quarterly Report on Form 10-Q for further information. Prior period segment information has been recast to conform to the current period segment presentation.
Revenues
The following table presents our revenues, by segment and revenue source (in millions, unaudited):
|
| | | | | | | | | | | | | | | |
| | 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 |
|
Google segment
The following table presents our Google segment revenues (in millions, unaudited)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 assessingpertain to traffic on Google Search & other properties, while impressions and cost-per-impressions pertain to traffic on our advertising revenue performance, we present information regarding the percentage change in the number of "paid clicks" and "cost-per-click" for our Google properties and Google Network Members'partners’ 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 refined 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, 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 affected and may continue to fluctuate because ofbe affected by various factors, including:
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 advertising quality, formats, delivery or policy;
•changes in device mix;
•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 or formats;•general economic conditions and various external dynamics, including the effect of COVID-19, geopolitical events, regulations and other measures;
changes in device mix;•seasonality; and
•traffic growth in emerging markets compared to more mature markets and across various advertising verticals and channels;channels.
a shiftGoogle Other
Google other revenues are comprised of the following:
•Google Play, which includes sales of apps and in-app purchases and digital content sold in the proportionGoogle Play store;
•Devices and Services, which includes sales of non-clickhardware, including Fitbit wearable devices, Google Nest home products, and Pixel phones;
•YouTube non-advertising, which includes YouTube Premium and YouTube TV subscriptions; and
•other products and services.
Google Cloud
Google Cloud revenues are comprised of the following:
•Google Cloud Platform, which includes fees for infrastructure, platform, and other services;
•Google Workspace, which includes fees for cloud-based collaboration tools for enterprises, such as Gmail, Docs, Drive, Calendar and Meet; and
•other enterprise services.
Other Bets
Revenues from Other Bets are generated primarily from the sale of health technology and internet services.
For further details on how we recognize revenue, 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, 2021.
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 these 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 the changes in revenue.
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.
◦Amounts paid to Google Network partners primarily for ads displayed on their properties.
•Other cost of revenues includes:
◦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).
◦Expenses associated with our data centers (including bandwidth, compensation expenses, depreciation, energy, and other equipment costs) as well as other operations costs (such as content review as well as customer and product support costs).
◦Inventory and other costs related to the hardware we sell.
The cost of revenues as a percentage of revenues generated from ads placed on Google Network properties andare significantly higher than the cost of revenues 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 Members' properties including an increase in programmaticare 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 reservation based advertising buying;marketing, or general and administrative.
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 evolution of the online advertising market, our investments in new business strategies, changes in our product mix, and shifts in the geographic mixThe main components of our revenues. We also expect thatR&D expenses are:
•compensation expenses for engineering and technical employees responsible for R&D related to our revenue growth rate will continueexisting and new products and services;
•depreciation; and
•professional services fees primarily related to be affected by evolving user preferences, the acceptance by usersconsulting and outsourcing services.
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 related to legal matters, including fines and settlements; and
•professional 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 inoutsourcing services.
Other Income (Expense), Net
Other income (expense), 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 details, 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, 2021 as well as Note 3 of the Notes to Consolidated Financial Statements included in Item 1 of this Quarterly Report on Form 10-Q.
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 details, 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, 2021 as well as Note 13 of the Notes to Consolidated Financial Statements included in Item 1 of this Quarterly Report on Form 10-Q.
Executive Overview
The following table summarizes consolidated financial results (in millions, except per share information, percentages, and number of employees): | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | | | |
| March 31, | | | | |
| | 2021 | | 2022 | | $ Change | | % Change |
| Consolidated revenues | | $ | 55,314 | | | $ | 68,011 | | | 12,697 | | | 23 | % |
| Change in consolidated constant currency revenues | | | | | | | | 26 | % |
| | | | | | | | |
| Cost of revenues | | $ | 24,103 | | | $ | 29,599 | | | $ | 5,496 | | | 23 | % |
| Operating expenses | | $ | 14,774 | | | $ | 18,318 | | | $ | 3,544 | | | 24 | % |
| | | | | | | | |
| Operating income | | $ | 16,437 | | | $ | 20,094 | | | $ | 3,657 | | | 22 | % |
| Operating margin | | 30 | % | | 30 | % | | | | 0 | % |
| | | | | | | | |
| Other income (expense), net | | $ | 4,846 | | | $ | (1,160) | | | $ | (6,006) | | | (124) | % |
| | | | | | | | |
| Net Income | | $ | 17,930 | | | $ | 16,436 | | | $ | (1,494) | | | (8) | % |
| Diluted EPS | | $ | 26.29 | | | $ | 24.62 | | | $ | (1.67) | | | (6) | % |
| | | | | | | | |
| Number of Employees | | 139,995 | | | 163,906 | | 23,911 | | 17 | % |
| | | | | | | | |
| | | | | | | | |
•Revenues were $68.0 billion, an increase of 23% year over year, primarily driven by an increase in Google propertiesServices segment revenues of $10.3 billion or 20% and an increase in Google Cloud segment revenues of $1.8 billion or 44%.
•Cost of revenues was $29.6 billion, an increase of 23% year over year, driven by increases in other costs of revenues and TAC.
•Operating expenses were $18.3 billion, an increase of 24% year over year, primarily driven by headcount growth and increases in advertising and promotional expenses.
Other information
•During the first quarter of 2022, we suspended the vast majority of our commercial activities in Russia and effectively ceased business activities of our Russian entity. These direct actions did not have a material effect on our financial results. The ongoing broader economic effects resulting from the war in Ukraine on our future financial results may be unpredictable.
•We entered into an agreement to acquire Mandiant, a leader in dynamic cyber defense and response, in March 2022 for $23.00 per share, in an all-cash transaction valued at approximately $5.4 billion, net of cash and debt. See Note 7 of the Notes to the Consolidated Financial Statements included in Item 1 of this Quarterly Report on Form 10-Q for additional information.
•Repurchases of Class A and Class C shares were $13.3 billion. In April 2022, 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. See Note 10 of the Notes to the Consolidated Financial Statements included in Item 1 of this Quarterly Report on Form 10-Q for additional information.
•The company announced in February 2022 that the Board of Directors had approved and declared a 20-for-one stock split in the form of a one-time special stock dividend on each share of the company’s Class A, Class B, and Class C stock. See Note 10 of the Notes to Consolidated Financial Statements included in Item 1 of this Quarterly Report on Form 10-Q for additional information.
•Operating cash flow was $25.1 billion, primarily driven by revenues generated from our advertising products.
•Capital expenditures of $9.8 billion reflects the increase in purchases of office facilities.
Financial Results
Revenues
The following table presents revenues by type (in millions): | | | | | | | | | | | | | | | |
| | | | Three Months Ended |
| | | March 31, |
| | | | | | 2021 | | 2022 |
| Google Search & other | | | | | $ | 31,879 | | | $ | 39,618 | |
| YouTube ads | | | | | 6,005 | | | 6,869 | |
| Google Network | | | | | 6,800 | | | 8,174 | |
| Google advertising | | | | | 44,684 | | | 54,661 | |
| Google other | | | | | 6,494 | | | 6,811 | |
| Google Services total | | | | | 51,178 | | | 61,472 | |
| Google Cloud | | | | | 4,047 | | | 5,821 | |
| Other Bets | | | | | 198 | | | 440 | |
| Hedging gains (losses) | | | | | (109) | | | 278 | |
| Total revenues | | | | | $ | 55,314 | | | $ | 68,011 | |
Google Services
Google advertising revenues
Google Search & other
Google Search & other revenues increased $7.7 billion from the three months ended March 31, 2021 to the three months ended March 31, 2022. The overall growth was driven by interrelated factors including increases in search queries resulting from growth in user adoption and usage, primarily on mobile devices, growth in advertiser spending, and improvements we have made in ad formats and delivery.
YouTube ads
YouTube ads revenues increased $864 million from the three months ended March 31, 2021 to the three months ended March 31, 2022. The growth was driven by our brand and direct response advertising products. Growth for our brand advertising products was primarily driven by increased spending by our advertisers. Growth for our direct response advertising products was primarily driven by increased advertiser spending as well as improvements to ad formats and delivery.
Google propertiesNetwork
Google Network revenues (in millions, unaudited),increased $1.4 billion from the three months ended March 31, 2021 to the three months ended March 31, 2022. The growth was primarily driven by strength in AdSense and AdMob.
Monetization Metrics
Paid clicks and cost-per-click
The following table presents year-over-year changes in our paid clicks and cost-per-click (expressed as a percentage): | | | | | | | |
| Three Months Ended March 31, | | |
| |
| 2022 | | |
| | | |
| | | |
| Paid clicks change | 16% | | |
| Cost-per-click change | 8% | | |
|
| | | | | | | | | | | | | | | |
| | 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 | )% |
Google properties revenues consist primarily of 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.;
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 properties revenuesPaid clicks increased $3,634 million from the three months ended September 30, 2016March 31, 2021 to the three months ended September 30, 2017. The growth was primarilyMarch 31, 2022, driven by increasesa number of interrelated factors, including an increase in mobile search queries resulting from ongoing growth in user adoption and usage, as well as continuedprimarily on mobile devices; growth in advertiser activity. We also experienced growth in desktop search due tospending; and improvements we have made in ad formats and delivery, as well as growthdelivery.
The increase in YouTube driven primarily by video advertising.
Our Google properties revenues increased $9,734 millioncost-per-click from the ninethree months ended September 30, 2016March 31, 2021 to the ninethree months ended September 30, 2017. The growthMarch 31, 2022 was primarily driven by increasesa number of interrelated factors including changes in mobile search resulting from ongoing growth in user adoption and usage, as well as continueddevice mix, geographic mix, growth in advertiser activity. We also experienced growthspending, ongoing product changes, and property mix.
Impressions and cost-per-impression
The following table presents year-over-year changes 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.impressions and cost-per-impression (expressed as a percentage): | | | | | | | |
| | | |
| Three Months Ended March 31, | | |
| 2022 | | |
| Impressions change | 5% | | |
| Cost-per-impression change | 17% | | |
The number of paid clicks through our advertising programs on Google propertiesImpressions increased from the three and nine months ended September 30, 2016March 31, 2021 to the three and nine months ended September 30, 2017 due toMarch 31, 2022, primarily driven by growth in YouTube engagement ads, increasesGoogle Ad Manager and AdMob. The increase in mobile search queries,cost-per-impression from the three months ended March 31, 2021 to the three months ended March 31, 2022 was driven by a number of interrelated factors including ongoing product and policy changes, improvements we have made in ad formats and delivery, and continued global expansion of our products, advertisers and user base. 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 from the three and nine months ended September 30, 2016 to the three and nine months ended September 30, 2017. The decrease in cost-per-click was primarily driven by continued growth in YouTube engagement ads where cost-per-click remains lower than on our other advertising platforms. The decrease in cost-per-click was also impacted by changes in device mix, propertygeographic mix, product mix, geographic mix, ongoing product changes, and fluctuations of the U.S. dollar compared to certain foreign currencies.property mix.
Google Network Members' properties
The following table presents our Google Network Members' propertiesother 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' propertiesother revenues increased $610$317 million from the three months ended September 30, 2016March 31, 2021 to the three months ended September 30, 2017.March 31, 2022. The growth was primarily driven by strengthYouTube non-advertising, largely due to an increase in both programmatic advertising buying and AdMob.paid subscribers. The overall growth was partially offset by a decline in Google Play revenues largely driven by fee structure changes we announced in 2021.
Our Google Network Members' propertiesCloud
Google Cloud revenues increased $1,430 million$1.8 billion from the ninethree months ended September 30, 2016March 31, 2021 to the ninethree months ended September 30, 2017.March 31, 2022. The growth was primarily driven by strength in both programmatic advertising buyingGCP followed by Google Workspace offerings. Google Cloud's infrastructure and AdMob, offset by a decline in our traditional AdSense businesses andplatform services were the general strengtheninglargest drivers 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.GCP.
Google other revenues
The following table presents our Google other revenues (in millions, unaudited):
|
| | | | | | | | | | | | | | | |
| | 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 | % |
Google other revenues consist primarily of revenues from:
•Apps, in-app purchases, and digital content in the Google Play store;
Google Cloud offerings; and
Hardware.
Our Google other revenues increased $972 million from the three months ended September 30, 2016 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 was primarily driven by revenues from 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 from the three months ended September 30, 2016 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, 2017 was primarily driven by revenues from sales of Nest branded hardware, Fiber internet and TV services, and Verily licensing and R&D services.
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 | % |
| | | | | | | | | | | | | | | |
| Three Months Ended | | |
| | March 31, | | |
| | 2021 | | 2022 | | | | |
| United States | 45 | % | | 47 | % | | | | |
| EMEA | 31 | % | | 30 | % | | | | |
| APAC | 19 | % | | 17 | % | | | | |
| Other Americas | 5 | % | | 6 | % | | | | |
For the amounts offurther details on revenues by geography, 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 Constant Currency Revenues and Constant Currency Revenue GrowthPercentage Change
The impacteffect of currency exchange rates on our business is an important factor in understanding period 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 non-GAAP percentage change in constant currency revenue growthrevenues 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 exchange rate movements and hedging activities, and use it 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.
The following table presents the foreign exchange impacteffect on our international revenues and total revenues (in millions, unaudited)except percentages): | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | | | |
| | March 31, | | | | |
| 2021 | | 2022 | | % Change from Prior Year | | | | |
| EMEA revenues | $ | 17,031 | | | $ | 20,317 | | | 19 | % | | | | |
| EMEA constant currency revenues | | | 21,628 | | | 27 | % | | | | |
| | | | | | | | | |
| APAC revenues | 10,455 | | | 11,841 | | | 13 | % | | | | |
| APAC constant currency revenues | | | 12,440 | | | 19 | % | | | | |
| | | | | | | | | |
| Other Americas revenues | 2,905 | | | 3,842 | | | 32 | % | | | | |
| Other Americas constant currency revenues | | | 3,923 | | | 35 | % | | | | |
| | | | | | | | | |
| United States revenues | 25,032 | | | 31,733 | | | 27 | % | | | | |
| | | | | | | | | |
| Hedging gains (losses) | (109) | | | 278 | | | | | | | |
| Total revenues | $ | 55,314 | | | $ | 68,011 | | | 23 | % | | | | |
| Revenues, excluding hedging effect | $ | 55,423 | | | $ | 67,733 | | | | | | | |
| Exchange rate effect | | | 1,991 | | | | | | | |
| Total constant currency revenues | | | $ | 69,724 | | | 26 | % | | | | |
|
| | | | | | | | | | | | | | | |
| | 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 | % |
ForEMEA revenue growth from the three months ended September 30, 2017, our revenues from EMEA were favorably impactedMarch 31, 2021 to the three months ended March 31, 2022 was unfavorably affected by changes in foreign currency exchange rates, primarily becausedue to the U.S. dollar weakenedstrengthening relative to the Euro. For
APAC revenue growth from the ninethree months ended September 30, 2017, our revenues from EMEA wereMarch 31, 2021 to the three months ended March 31, 2022 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.
ForOther Americas revenue growth from the three months ended September 30, 2017, our revenues from Other Americas were favorably impactedMarch 31, 2021 to the three months ended March 31, 2022 was not materially affected by changes in foreign currency exchange rates, primarily because the U.S. dollar weakened relative 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.rates.
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 | | |
| | March 31, | | |
| | 2021 | | 2022 | | | | |
| TAC | $ | 9,712 | | | $ | 11,990 | | | | | |
| Other cost of revenues | 14,391 | | | 17,609 | | | | | |
| Total cost of revenues | $ | 24,103 | | | $ | 29,599 | | | | | |
| Total cost of revenues as a percentage of revenues | 43.6 | % | | 43.5 | % | | | | |
|
| | | | | | | | | | | | | | | |
| | 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.Cost of revenues increased $2,449 million$5.5 billion from the three months ended September 30, 2016March 31, 2021 to the three months ended September 30, 2017 and increased $6,839 million from the nine months ended September 30, 2016 to the nine months ended September 30, 2017March 31, 2022. The increase was due to various factors, including (1) traffic acquisition costs, (2) data center costs which include depreciation, labor (including SBC), energy, bandwidth,increases in other cost of revenues and other equipment costs, (3) content acquisition costs as a resultTAC of increased activities related to YouTube,$3.2 billion and (4) hardware related costs.$2.3 billion, respectively.
The increase in TAC to distribution partners was driven 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 cost 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 and related costs; and
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, 2016March 31, 2021 to the three months ended September 30, 2017.March 31, 2022 was due to increases in TAC paid to distribution partners and to Google Network partners, primarily driven by growth in revenues subject to TAC. The TAC rate increased from 21.7% to 21.9% from the three months ended March 31, 2021 to the three months ended March 31, 2022 due to a combination of factors none of which were individually significant. The TAC rate on Google Search & other properties revenues and the TAC rate on Google Network revenues were both substantially consistent from three months ended March 31, 2021 to the three months ended March 31, 2022.
The increase in other cost of revenues from the three months ended March 31, 2021 to the three months ended March 31, 2022 was primarily due to increases in data center and other operations costs, including depreciation expense, as well as content acquisition costs primarily for YouTube.
Research and Development
The following table presents R&D expenses (in millions, except percentages): | | | | | | | | | | | | | | | |
| Three Months Ended | | |
| | March 31, | | |
| | 2021 | | 2022 | | | | |
| Research and development expenses | $ | 7,485 | | | $ | 9,119 | | | | | |
| Research and development expenses as a percentage of revenues | 13.5 | % | | 13.4 | % | | | | |
R&D expenses increased $1.6 billion from the three months ended March 31, 2021 to the three months ended March 31, 2022. The increase was primarily primarily due to an increase in labor and facilities-related costscompensation expenses of $363$944 million, largely resulting from a 17%14% 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.headcount.
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 | | 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 as a percentage of revenues | 11.5 | % | | 11.0 | % | | 11.5 | % | | 10.9 | % |
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. | | | | | | | | | | | | | | | |
| Three Months Ended | | |
| | March 31, | | |
| | 2021 | | 2022 | | | | |
| Sales and marketing expenses | $ | 4,516 | | | $ | 5,825 | | | | | |
| Sales and marketing expenses as a percentage of revenues | 8.2 | % | | 8.6 | % | | | | |
Sales and marketing expenses increased $477$1.3 billion from the three months ended March 31, 2021 to the three months ended March 31, 2022 primarily driven by an increase in compensation expenses of $599 million and an increase in advertising and promotional activities of $494 million. The increase in compensation expenses was largely due to a 21% increase in headcount. The increase in advertising and promotional activities was driven by both increased spending in the current period and a reduction in spending in the prior year comparable period due to COVID-19.
General and Administrative
The following table presents general and administrative expenses (in millions, except percentages): | | | | | | | | | | | | | | | |
| Three Months Ended | | |
| | March 31, | | |
| | 2021 | | 2022 | | | | |
| General and administrative expenses | $ | 2,773 | | | $ | 3,374 | | | | | |
| General and administrative expenses as a percentage of revenues | 5.0 | % | | 5.0 | % | | | | |
General and administrative expenses increased $601 million from the three months ended September 30, 2016March 31, 2021 to the three months ended September 30, 2017.March 31, 2022. The increase was primarily due todriven by an increase in advertising and promotionalcompensation expenses of $251 million, largely resulting from increases in marketing and promotion-related expenses for our hardware products and Cloud offerings. In addition, there was an increase in labor and facilities-related costs of $151$292 million, largely resulting from a 5%19% increase in headcount, partially offset by the shift in the timing of our annual equity refresh cycle.headcount.
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 AdministrativeSegment Profitability
The following table presents our general and administrative expensessegment operating income (loss) (in millions, unaudited):millions). | | | | | | | | | | | | | | | |
| Three Months Ended | | |
| March 31, | | |
| 2021 | | 2022 | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | |
| | | | | | | |
| Operating income (loss): | | | | | | | |
| Google Services | $ | 19,546 | | | $ | 22,920 | | | | | |
| Google Cloud | (974) | | | (931) | | | | | |
| Other Bets | (1,145) | | | (1,155) | | | | | |
Corporate costs, unallocated(1) | (990) | | | (740) | | | | | |
| Total income from operations | $ | 16,437 | | | $ | 20,094 | | | | | |
|
| | | | | | | | | | | | | | | |
| | 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(1)Unallocated corporate costs primarily of:
Labor and facilities-relatedinclude corporate initiatives, corporate shared costs, including SBC, for employees in our facilities,such as finance human resources, information technology, and legal, organizations;
Depreciationincluding certain fines and equipment-related expenses;
Professional services fees primarilysettlements, as well as costs associated with certain shared R&D activities. Additionally, hedging gains (losses) related to outside legal, audit, information technology consulting,revenue are included in corporate costs.
Google Services
Google Services operating income increased $3.4 billion from the three months ended March 31, 2021 to the three months ended March 31, 2022. The increase was due to growth in revenues, partially offset by increases in TAC, compensation expenses, and outsourcing services; andcontent acquisition costs.
Amortization of certain intangible assets.Google Cloud
General and administrative expensesGoogle Cloud operating loss decreased $229$43 million from the three months ended September 30, 2016March 31, 2021 to the three months ended September 30, 2017.March 31, 2022. The decrease in operating loss was primarily due to a decreasedriven by growth in labor and facilities-related costs of $184 million, partly resulting from the shiftrevenues, partially offset by an increase in the timing of our annual equity refresh cycle, as well as decreases in miscellaneous general and administrative expenses, and reduced allocations.primarily driven by compensation expenses.
General and administrative expensesOther Bets
Other Bets operating loss increased $135$10 million from the ninethree months ended September 30, 2016March 31, 2021 to the ninethree months ended September 30, 2017.March 31, 2022. The increase in operating loss 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 wasprimarily driven by compensation expenses, partially offset by an increase in labor and facilities-related costs of $59 million,revenues.
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), net (in millions, unaudited)millions):
| | | | | | | | | | | | | | | |
| Three Months Ended | | |
| | March 31, | | |
| | 2021 | | 2022 | | | | |
| Other income (expense), net | $ | 4,846 | | | $ | (1,160) | | | | | |
| | | | | | | |
|
| | | | | | | | | | | | | | | |
| | 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)(expense), net, decreased $81 million$6.0 billion from the three months ended September 30, 2016March 31, 2021 to the three months ended September 30, 2017. This decrease wasMarch 31, 2022, primarily drivendue to gains and losses on equity securities and changes in accrued performance fees. In the three months ended March 31, 2022, $1.5 billion of net unrealized losses were recognized on marketable equity securities, partially offset by losses recorded$460 million of net unrealized gains on non-marketable equity securities and a $233 million reversal of previously accrued performance fees related to marketable andcertain investments. In the three months ended March 31, 2021, a net unrealized gain of $4.7 billion was recognized on non-marketable investments. These losses wereequity securities, partially offset by reduced costs$665 million of our foreign currency hedging activities.accrued performance fees.
Other income (expense), net, increased $477 million from the nine months ended September 30, 2016 to the nine months ended September 30, 2017. This increase was primarily driven by reduced costs of our foreign currency hedging activities and decreased losses on marketable investments.
The costs of our foreign exchange hedging activities recognized in other income (expense), net, are primarily a functionSee Note 3 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, | | |
| 2021 | | 2022 | | | | |
| Income before provision for income taxes | $ | 21,283 | | | $ | 18,934 | | | | | |
| Provision for income taxes | $ | 3,353 | | | $ | 2,498 | | | | | |
| Effective tax rate | 15.8 | % | | 13.2 | % | | | | |
|
| | | | | | | | | | | | | | | |
| | 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 2.6% from the three months ended September 30, 2016March 31, 2021 to the three months ended September 30,March 31, 2022. The decrease was primarily due to a benefit driven by the effects of capitalization and amortization of research and development expenses starting in 2022 as required by the 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, 2016 to the three months ended September 30, 2017 as a result ofTax Cuts and Jobs Act generating an increase in taxable income year over year.the U.S. federal Foreign-Derived Intangible Income tax deduction.
Our effective tax rate remained flat from the nine months ended September 30, 2016 to the nine months ended September 30, 2017. Our provision for income taxes increased from the nine months ended September 30, 2016 to the nine months ended September 30, 2017 as a result of an increase in taxable income year over year.
Our future effective tax rate could be adversely affected by earnings being lower than anticipated in countries that have lower statutory ratesFinancial 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, 2022, we had $100.1$134.0 billion in cash, cash equivalents, and short-term marketable securities. CashCash equivalents and marketable securities are 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 our operations. We have a short-term debt financing programThe primary use of upcapital continues to $5.0 billion through the issuance of commercial paper. Net proceeds from this program are used for general corporate purposes. We had no commercial paper outstanding as of September 30, 2017. We have a $4.0 billion revolving credit facility expiring in February 2021. The interest ratebe to invest for the credit facility is determined based on a formula using certain market rates. Aslong-term growth of September 30, 2017, no amounts were outstanding under the credit facility.business. We believe thatregularly evaluate our sourcescash and capital structure, including the size, pace and form of funding will be sufficientcapital return 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.stockholders.
As of September 30, 2017, we have senior unsecured notes outstanding due in 2021, 2024, and 2026 with a total carrying value of $3.9 billion and a total estimated fair value of $4.0 billion.
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. 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.
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 December 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.
For the nine months ended September 30, 2016 and 2017,following table presents our cash flows were as follows (in millions, unaudited)millions):
| | | | Nine Months Ended | | Three Months Ended |
| | September 30, | | March 31, |
| | 2016 | | 2017 | | 2021 | | 2022 |
| Net cash provided by operating activities | $ | 26,623 |
| | $ | 26,823 |
| Net cash provided by operating activities | $ | 19,289 | | | $ | 25,106 | |
| Net cash used in investing activities | $ | (26,463 | ) | | $ | (24,427 | ) | Net cash used in investing activities | $ | (5,383) | | | $ | (9,051) | |
| Net cash used in financing activities | $ | (7,440 | ) | | $ | (5,120 | ) | Net cash used in financing activities | $ | (13,606) | | | $ | (16,214) | |
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, 2022, 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.
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.
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, 2016,2021, which could adversely affect our business, financial condition, results of operations, cash flows, and the trading price of our commonstock.