Alphabet : 2023 Q3 Earnings Press release

Alphabet Announces Third Quarter 2023 Results

MOUNTAIN VIEW, Calif. - October 24, 2023 - Alphabet Inc. (NASDAQ: GOOG, GOOGL) today announced financial results for the quarter ended September 30, 2023.

Sundar Pichai, CEO, said: "I'm pleased with our financial results and our product momentum this quarter, with AI- driven innovations across Search, YouTube, Cloud, our Pixel devices and more. We're continuing to focus on making AI more helpful for everyone; there's exciting progress and lots more to come."

Ruth Porat, President and Chief Investment Officer; CFO said: "The fundamental strength of our business was apparent again in Q3, with $77 billion in revenue, up 11% year over year, driven by meaningful growth in Search and YouTube, and momentum in Cloud. We continue to focus on judicious capital allocation to deliver sustainable financial value."

Q3 2023 Financial Highlights (unaudited)

The following table summarizes our consolidated financial results for the quarters ended September 30, 2022 and 2023 (in millions, except for per share information and percentages).

		Quarter Ended September 30,
		2022		2023
Revenues	$	69,092	$	76,693
Change in revenues year over year		6 %		11 %
Change in constant currency revenues year over year(1)		11 %		11 %
Operating income	$	17,135	$	21,343
Operating margin		25 %		28 %
Other income (expense), net	$	(902)	$	(146)
Net income	$	13,910	$	19,689
Diluted EPS	$	1.06	$	1.55

1. Non-GAAPmeasure. See the table captioned "Reconciliation from GAAP revenues to non-GAAP constant currency revenues and GAAP percentage change in revenues to non-GAAP percentage change in constant currency revenues" for more details.

Q3 2023 Supplemental Information (in millions, except for number of employees; unaudited)

Revenues, Traffic Acquisition Costs (TAC), and Number of Employees
		Quarter Ended September 30,
		2022			2023
Google Search & other	$	39,539	$	44,026
YouTube ads		7,071			7,952
Google Network		7,872			7,669
Google advertising		54,482			59,647
Google other		6,895			8,339
Google Services total		61,377			67,986
Google Cloud		6,868			8,411
Other Bets		209			297
Hedging gains (losses)		638			(1)
Total revenues	$	69,092		$	76,693
Total TAC	$	11,826	$	12,642
Number of employees(1)		186,779			182,381

1. Substantially all of the employees affected by the reduction of our workforce were no longer included in our headcount as of September 30, 2023.

Segment Operating Results

As announced on April 20, 2023, we brought together part of Google Research (the Brain team) and DeepMind to significantly accelerate our progress in artificial intelligence (AI). The group, called Google DeepMind, is reported within Alphabet's unallocated corporate costs prospectively beginning in the second quarter of 2023. Previously, the Brain team was included within Google Services.

		Quarter Ended September 30,
		2022			2023
		(recast)
Operating income (loss):
Google Services	$	18,883	$	23,937
Google Cloud		(440)			266
Other Bets		(1,225)			(1,194)
Corporate costs, unallocated(1)		(83)			(1,666)
Total income from operations	$	17,135	$	21,343

1. In addition to the Alphabet-level costs included in unallocated corporate costs, hedging gains (losses) related to revenue were $638 million and $(1) million for the three months ended September 30, 2022 and 2023, respectively.

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Additional Information Relating to the Quarter Ended September 30, 2023 (unaudited)

Reductions in Our Workforce and Office Space

In January 2023, we announced a reduction of our workforce, and as a result we recorded employee severance and related charges of $86 million and $2.1 billion for the three and nine months ended September 30, 2023, respectively. In addition, we are taking actions to optimize our global office space. As a result, exit charges recorded during the three and nine months ended September 30, 2023 were $16 million and $649 million, respectively. In addition to these exit charges, for the three and nine months ended September 30, 2023, we incurred $207 million in accelerated rent and accelerated depreciation. We may incur additional charges in the future as we further evaluate our real estate needs.

For segment reporting, the substantial majority of these charges are included within unallocated corporate costs in our segment results.

Change in Useful Lives of Our Server and Network Equipment

In January 2023, we completed an assessment of the useful lives of our servers and network equipment and adjusted the estimated useful life of our servers from four years to six years and the estimated useful life of certain network equipment from five years to six years. This change in accounting estimate was effective beginning in fiscal year 2023, and the effect was a reduction in depreciation expense of $977 million and $2.9 billion and an increase in net income of $761 million and $2.3 billion, or $0.06 and $0.18 per basic and $0.06 and $0.18 per diluted share for the three and nine months ended September 30, 2023, respectively.

Webcast and Conference Call Information

A live audio webcast of our third quarter 2023 earnings release call will be available on YouTube at https:// www.youtube.com/watch?v=oXQInS9SV2Q. The call begins today at 1:30 PM (PT) / 4:30 PM (ET). This press release, including the reconciliations of certain non-GAAP measures to their nearest comparable GAAP measures, is also available at http://abc.xyz/investor.

We also provide announcements regarding our financial performance, including SEC filings, investor events, press and earnings releases, and blogs, on our investor relations website (http://abc.xyz/investor).

We also share Google news and product updates on Google's Keyword blog at https://www.blog.google/, which may be of interest or material to our investors.

Forward-Looking Statements

This press release may contain forward-looking statements that involve risks and uncertainties. Actual results may differ materially from the results predicted, and reported results should not be considered as an indication of future performance. The potential risks and uncertainties that could cause actual results to differ from the results predicted include, among others, those risks and uncertainties included under the captions "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2022 and our most recent Quarterly Report on Form 10-Q for the quarter ended June 30, 2023, which are on file with the SEC and are available on our investor relations website at http://abc.xyz/investor and on the SEC website at www.sec.gov. Additional information will also be set forth in our Quarterly Report on Form 10-Q for the quarter ended September 30, 2023, and may be set forth in other reports and filings we make with the SEC. All information provided in this release and in the attachments is as of October 24, 2023. Undue reliance should not be placed on the forward-looking statements in this press release, which are based on information available to us on the date hereof. We undertake no duty to update this information unless required by law.

About Non-GAAP Financial Measures

To supplement our consolidated financial statements, which are prepared and presented in accordance with GAAP, we use the following non-GAAP financial measures: free cash flow; constant currency revenues; and percentage change in constant currency revenues. The presentation of this financial information is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP.

We use these non-GAAP financial measures for financial and operational decision-making and as a means to evaluate period-to-period comparisons. We believe that these non-GAAP financial measures provide meaningful supplemental information regarding our performance and liquidity by excluding certain items that may not be indicative of our recurring core business operating results, such as our revenues excluding the effect of foreign

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exchange rate movements and hedging activities, which are recognized at the consolidated level. We believe that both management and investors benefit from referring to these non-GAAP financial measures in assessing our performance and when planning, forecasting, and analyzing future periods. These non-GAAP financial measures also facilitate management's internal comparisons to our historical performance and liquidity as well as comparisons to our competitors' operating results. We believe these non-GAAP financial measures are useful to investors both because (1) they allow for greater transparency with respect to key metrics used by management in its financial and operational decision-making and (2) they are used by our institutional investors and the analyst community to help them analyze the health of our business.

There are a number of limitations related to the use of non-GAAP financial measures. We compensate for these limitations by providing specific information regarding the GAAP amounts excluded from these non-GAAP financial measures and evaluating these non-GAAP financial measures together with their relevant financial measures in accordance with GAAP.

For more information on these non-GAAP financial measures, please see the tables captioned "Reconciliation from net cash provided by operating activities to free cash flow" and "Reconciliation from GAAP revenues to non-GAAP constant currency revenues and GAAP percentage change in revenues to non-GAAP percentage change in constant currency revenues" included at the end of this release.

Contact

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Alphabet Inc.

CONSOLIDATED BALANCE SHEETS

(In millions, except par value per share amounts)

	As of December 31,		As of September 30,
		2022			2023
					(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	21,879	$	30,702
Marketable securities		91,883			89,233
Total cash, cash equivalents, and marketable securities		113,762			119,935
Accounts receivable, net		40,258			41,020
Inventory		2,670			2,957
Other current assets		8,105			12,398
Total current assets		164,795			176,310
Non-marketable securities		30,492			30,907
Deferred income taxes		5,261			10,983
Property and equipment, net		112,668			125,705
Operating lease assets		14,381			14,199
Intangible assets, net		2,084			1,833
Goodwill		28,960			29,146
Other non-current assets		6,623			7,628
Total assets	$	365,264	$	396,711
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	5,128	$	5,803
Accrued compensation and benefits		14,028			12,562
Accrued expenses and other current liabilities		37,866			55,602
Accrued revenue share		8,370			8,025
Deferred revenue		3,908			4,303
Total current liabilities		69,300			86,295
Long-term debt		14,701			13,781
Deferred revenue, non-current		599			884
Income taxes payable, non-current		9,258			8,038
Deferred income taxes		514			528
Operating lease liabilities		12,501			12,550
Other long-term liabilities		2,247			1,433
Total liabilities		109,120			123,509
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.001 par value per share, 100 shares authorized; no shares
issued and outstanding		0			0
Class A, Class B, and Class C stock and additional paid-in capital, $0.001 par
value per share: 300,000 shares authorized (Class A 180,000, Class B 60,000,
Class C 60,000); 12,849 (Class A 5,964, Class B 883, Class C 6,002) and 12,541
(Class A 5,922, Class B 874, Class C 5,745) shares issued and outstanding		68,184			74,591
Accumulated other comprehensive income (loss)		(7,603)			(7,036)
Retained earnings		195,563			205,647
Total stockholders' equity		256,144			273,202
Total liabilities and stockholders' equity	$	365,264	$	396,711

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Alphabet Inc.

CONSOLIDATED STATEMENTS OF INCOME (In millions, except per share amounts, unaudited)

	Quarter Ended September 30,			Year to Date September 30,
		2022			2023			2022			2023
Revenues	$	69,092	$	76,693	$	206,788	$	221,084
Costs and expenses:
Cost of revenues		31,158			33,229			90,861			95,757
Research and development		10,273			11,258			29,233			33,314
Sales and marketing		6,929			6,884			19,384			20,198
General and administrative		3,597			3,979			10,628			11,219
Total costs and expenses		51,957			55,350			150,106			160,488
Income from operations		17,135			21,343			56,682			60,596
Other income (expense), net		(902)			(146)			(2,501)			709
Income before income taxes		16,233			21,197			54,181			61,305
Provision for income taxes		2,323			1,508			7,833			8,197
Net income	$	13,910	$	19,689	$	46,348	$	53,108
Basic earnings per share of Class A, Class B, and Class C
$	1.07	$	1.56	$	3.53	$	4.19
stock
Diluted earnings per share of Class A, Class B, and Class	$	1.06	$	1.55	$	3.50	$	4.16
C stock
Number of shares used in basic earnings per share		13,018			12,581			13,118			12,677
calculation
Number of shares used in diluted earnings per share		13,097			12,696			13,229			12,761
calculation

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Alphabet Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions, unaudited)

	Quarter Ended September 30,			Year to Date September 30,
		2022			2023			2022			2023
Operating activities
Net income	$	13,910	$	19,689	$	46,348	$	53,108
Adjustments:
Depreciation and impairment of property and		3,933			3,671			11,222			10,010
equipment
Amortization and impairment of intangible assets		113			129			505			373
Stock-based compensation expense		4,976			5,743			14,262			16,801
Deferred income taxes		(1,920)			(1,824)			(6,157)			(6,093)
Loss on debt and equity securities, net		1,378			869			3,856			1,294
Other		167			262			369			912
Changes in assets and liabilities, net of effects of
acquisitions:
Accounts receivable, net		(97)			(2,821)			2,298			(1,315)
Income taxes, net(1)		(609)			1,872			(862)			10,392
Other assets		(2,647)			(1,624)			(4,268)			(2,883)
Accounts payable		1,907			223			735			237
Accrued expenses and other liabilities		2,210			3,657			491			(380)
Accrued revenue share		(80)			103			(1,022)			(315)
Deferred revenue		112			707			104			690
Net cash provided by operating activities		23,353			30,656			67,881			82,831
Investing activities
Purchases of property and equipment		(7,276)			(8,055)			(23,890)			(21,232)
Purchases of marketable securities		(17,054)			(13,833)			(67,253)			(49,422)
Maturities and sales of marketable securities		28,713			15,593			84,087			52,642
Purchases of non-marketable securities		(364)			(663)			(1,628)			(2,176)
Maturities and sales of non-marketable securities		6			562			131			743
Acquisitions, net of cash acquired, and purchases of		(5,649)			(126)			(6,885)			(466)
intangible assets
Other investing activities		791			(628)			1,367			(985)
Net cash used in investing activities		(833)			(7,150)			(14,071)			(20,896)
Financing activities
Net payments related to stock-based award activities		(2,041)			(2,432)			(7,221)			(7,157)
Repurchases of stock		(15,392)			(15,787)			(43,889)			(45,313)
Proceeds from issuance of debt, net of costs		15,094			1,248			44,322			9,298
Repayments of debt		(15,768)			(1,414)			(45,350)			(9,621)
Proceeds from sale of interest in consolidated entities,		10			3			10			8
net
Net cash used in financing activities		(18,097)			(18,382)			(52,128)			(52,785)
Effect of exchange rate changes on cash and cash		(375)			(351)			(643)			(327)
equivalents
Net increase in cash and cash equivalents		4,048			4,773			1,039			8,823
Cash and cash equivalents at beginning of period		17,936			25,929			20,945			21,879
Cash and cash equivalents at end of period	$	21,984	$	30,702	$	21,984	$	30,702

1. The three and nine month period ended September 30, 2023 include the effect of the IRS payment deferral relief made available to taxpayers headquartered in designated counties in California. On October 16, 2023, we made an estimated tax payment to the IRS of $10.5 billion that will be reflected in our fourth quarter operating cash flow.

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Segment Results

The following table presents our segment revenues and operating income (loss) (in millions; unaudited):

		Quarter Ended September 30,
		2022			2023
		(recast)
Revenues:
Google Services	$	61,377	$	67,986
Google Cloud		6,868			8,411
Other Bets		209			297
Hedging gains (losses)		638			(1)
Total revenues	$	69,092	$	76,693
Operating income (loss):
Google Services	$	18,883	$	23,937
Google Cloud		(440)			266
Other Bets		(1,225)			(1,194)
Corporate costs, unallocated		(83)			(1,666)
Total income from operations	$	17,135	$	21,343

We report our segment results as Google Services, Google Cloud, and Other Bets:

• Google Services includes products and services such as ads, Android, Chrome, hardware, Google Maps, Google Play, Search, and YouTube. Google Services generates revenues primarily from advertising; sales of apps and in-app purchases, and hardware; and fees received for subscription-based products such as YouTube Premium and YouTube TV.
• Google Cloud includes infrastructure and platform services, collaboration tools, and other services for enterprise customers. Google Cloud generates revenues from fees received for Google Cloud Platform services, Google Workspace communication and collaboration tools, and other enterprise services.
• Other Bets is a combination of multiple operating segments that are not individually material. Revenues from Other Bets are generated primarily from the sale of health technology and internet services.

Certain costs are not allocated to our segments because they represent Alphabet-level activities. These costs primarily include AI-focused shared R&D activities; corporate initiatives such as our philanthropic activities; corporate shared costs such as certain finance, human resource, and legal costs, including certain fines and settlements. Charges associated with reductions in our workforce and office space announced in January 2023 are not allocated to our segments. Additionally, hedging gains (losses) related to revenue are not allocated to our segments.

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Other Income (Expense), Net
The following table presents our other income (expense), net (in millions; unaudited):
	Quarter Ended September 30,
	2022				2023
Interest income	$	615	$	1,066
Interest expense		(101)			(116)
Foreign currency exchange gain (loss), net		(136)			(311)
Gain (loss) on debt securities, net		(731)			(503)
Gain (loss) on equity securities, net(1)		(647)			(366)
Performance fees		54			179
Income (loss) and impairment from equity method investments, net		(99)			(215)
Other		143			120
Other income (expense), net	$	(902)	$	(146)

1. Includes all gains and losses, unrealized and realized, on equity securities. For Q3 2023, the net effect of the loss on equity securities of $366 million and the $179 million of performance fees related to certain investments decreased the provision for income tax, net income, and diluted EPS by $39 million, $148 million, and $0.01, respectively. Fluctuations in the value of our investments may be affected by market dynamics and other factors and could significantly contribute to the volatility of OI&E in future periods.

Reconciliation from Net Cash Provided by Operating Activities to Free Cash Flow (in millions; unaudited):

We provide free cash flow because it is a liquidity measure that provides useful information to management and investors about the amount of cash generated by the business that can be used for strategic opportunities, including investing in our business and acquisitions, and to strengthen our balance sheet.

Quarter Ended

September 30,

2023

Net cash provided by operating activities	$	30,656
Less: purchases of property and equipment		(8,055)
Free cash flow	$	22,601

Free cash flow: We define free cash flow as net cash provided by operating activities less capital expenditures.

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Reconciliation from GAAP Revenues to Non-GAAP Constant Currency Revenues and GAAP Percentage Change in Revenues to Non-GAAP Percentage Change in Constant Currency Revenues (in millions, except percentages; unaudited):

We provide non-GAAP constant currency revenues ("constant currency revenues") and non-GAAP percentage change in constant currency revenues ("percentage change in constant currency revenues"), because they facilitate the comparison of current results to historic performance by excluding the effect of foreign exchange rate movements ("FX Effect") as well as hedging activities, which are recognized at the consolidated level, as they are not indicative of our core operating results.

Non-GAAP constant currency revenues is defined as revenues excluding the effect of foreign exchange rate movements and hedging activities and is calculated by translating current period revenues using prior period exchange rates and excluding any hedging effect recognized in the current period. We calculate the percentage change in constant currency revenues by comparing constant currency revenues to the prior year comparable period revenues, excluding any hedging effect recognized in the prior period.

Revenues by Geography

Comparison from the Quarter Ended September 30, 2022 to the Quarter Ended September 30, 2023

											Quarter Ended September 30, 2023
													% Change from Prior Period
		Quarter Ended				Constant			Less				Constant
		September 30,
								Less FX		Currency	As		Hedging		Less FX		Currency
		2022			2023
						Effect		Revenues		Reported		Effect		Effect		Revenues
United States	$	33,372	$	36,354		$	0	$	36,354		9 %			0 %	9 %
EMEA		19,450			22,661			803			21,858		17 %			5 %	12 %
APAC		11,494			13,126			(270)			13,396		14 %			(3)%	17 %
Other Americas		4,138			4,553			(106)			4,659		10 %			(3)%	13 %
Revenues, excluding hedging effect		68,454			76,694			427			76,267		12 %			1 %	11 %
Hedging gains (losses)		638			(1)
Total revenues(1)	$	69,092	$	76,693				$	76,267		11 %	(1)%	1 %	11 %

1. Total constant currency revenues of $76.3 billion for the quarter ended September 30, 2023 increased $7.8 billion compared to $68.5 billion in revenues, excluding hedging effect for the quarter ended September 30, 2022.

Comparison from the Quarter Ended June 30, 2023 to the Quarter Ended September 30, 2023

											Quarter Ended September 30, 2023
													% Change from Prior Period
		Quarter Ended					Constant			Less				Constant
		June 30,		September		Less FX		Currency	As		Hedging		Less FX		Currency
		2023			30, 2023			Effect		Revenues		Reported		Effect		Effect		Revenues
United States	$	35,073	$	36,354		$	0	$	36,354		4 %			0 %	4 %
EMEA		22,289			22,661			46			22,615		2 %			1 %	1 %
APAC		12,728			13,126			(219)			13,345		3 %			(2)%	5 %
Other Americas		4,511			4,553			59			4,494		1 %			1 %	0 %
Revenues, excluding hedging effect		74,601			76,694			(114)			76,808		3 %			0 %	3 %
Hedging gains (losses)		3			(1)
Total revenues(1)	$	74,604	$	76,693				$	76,808		3 %	0 %	0 %	3 %

1. Total constant currency revenues of $76.8 billion for the quarter ended September 30, 2023 increased $2.2 billion compared to $74.6 billion in revenues, excluding hedging effect for the quarter ended June 30, 2023.

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