EX-99.1 2 googexhibit991q32019.htm EXHIBIT 99.1 Exhibit
Exhibit 99.1

Alphabet Announces Third Quarter 2019 Results
MOUNTAIN VIEW, Calif. – October 28, 2019 – Alphabet Inc. (NASDAQ: GOOG, GOOGL) today announced financial results for the quarter ended September 30, 2019.
“I am extremely pleased with the progress we made across the board in the third quarter, from our recent advancements in search and quantum computing to our strong revenue growth driven by mobile search, YouTube and Cloud,” said Sundar Pichai, Chief Executive Officer of Google. “We’re focused on providing the most helpful services to our users and partners, and we see many opportunities ahead.”
“Our businesses delivered another quarter of strong performance, with revenues of $40.5 billion, up 20% versus the third quarter of 2018 and up 22% on a constant currency basis,” said Ruth Porat, Chief Financial Officer of Alphabet and Google. “We continue to invest thoughtfully in talent and infrastructure to support our growth, particularly in newer areas like Cloud and machine learning.”
Q3 2019 financial highlights
The following table summarizes our consolidated financial results for the quarters ended September 30, 2018 and 2019 (in millions, except for per share information, percentages, and number of employees; unaudited):
 
Three Months Ended September 30, 2018
 
Three Months Ended September 30, 2019
Revenues

$33,740

 

$40,499

Increase in revenues year over year
21
%
 
20
%
Increase in constant currency revenues year over year
22
%
 
22
%
 
 
 
 
Operating income(1)

$8,625

 

$9,177

Operating margin(1)
26
%
 
23
%
 
 
 
 
Other income (expense), net(1)

$1,458

 

($549
)
 
 
 
 
Net income

$9,192

 

$7,068

Diluted EPS

$13.06

 

$10.12

Diluted shares (in thousands)
703,859

 
698,199

 
 
 
 
Effective tax rate
9
%
 
18
%
Number of employees
94,372

 
114,096

(1)
Q3 2018 results have been recast to reflect the reclassification of performance fees from general and administrative expenses to other income (expense), net (OI&E) to conform to the current period presentation.
Q3 2019 supplemental information (in millions, except for percentages; unaudited)
Segment revenues and operating results
 
Three Months Ended September 30, 2018
 
Three Months Ended September 30, 2019
Google properties revenues

$24,054

 

$28,647

Google Network Members' properties revenues
4,900

 
5,269
Google advertising revenues
28,954

 
33,916
Google other revenues
4,640

 
6,428
Google segment revenues

$33,594

 

$40,344

Other Bets revenues

$146

 

$155

 
 
 
 
Google operating income

$9,490

 

$10,865

Other Bets operating loss

($727
)
 

($941
)



Traffic acquisition costs (TAC) to Google Network Members and distribution partners
 
Three Months Ended September 30, 2018
 
Three Months Ended September 30, 2019
TAC to Google Network Members

$3,427

 

$3,634

TAC to Google Network Members as % of Google Network Members' properties revenues
70
%
 
69
%
TAC to distribution partners

$3,155

 

$3,856

TAC to distribution partners as % of Google properties revenues
13
%
 
13
%
Total TAC

$6,582

 

$7,490

Total TAC as % of Google advertising revenues
23
%
 
22
%
Monetization metrics information
 
Change from Q3 2018 to Q3 2019 (YoY)
 
Change from Q2 2019 to Q3 2019 (QoQ)
Paid clicks on Google properties
18
 %
 
1
%
Cost-per-click on Google properties
(2
)%
 
3
%
 
 
 
 
Impressions on Google Network Members’ properties
12
 %
 
0
%
Cost-per-impression on Google Network Members’ properties
(3
)%
 
0
%
Webcast and conference call information
A live audio webcast of our third quarter 2019 earnings release call will be available at http://abc.xyz/investor. The call begins today at 2:00 PM (PT) / 5:00 PM (ET). This press release, including the reconciliations of certain non-GAAP measures to their nearest comparable GAAP measures, is also available on that site.
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).
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, 2018, as amended, and our most recent Quarterly Report on Form 10-Q for the quarter ended June 30, 2019 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, 2019. All information provided in this release and in the attachments is as of October 28, 2019. 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 constant currency revenue growth. 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 exchange rate movements and hedging activities. We believe that both management and investors benefit from referring to these non-GAAP financial

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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” included at the end of this release.
Contact
Investor relations
Media
investor-relations@abc.xyz
press@abc.xyz

3



Alphabet Inc.
CONSOLIDATED BALANCE SHEETS
(In millions, except share amounts which are reflected in thousands and par value per share amounts)
 
December 31, 2018
 
September 30,
2019
 
 
 
(unaudited)
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
16,701

 
$
16,032

Marketable securities
92,439

 
105,145

Total cash, cash equivalents, and marketable securities
109,140

 
121,177

Accounts receivable, net of allowance of $729 and $643
20,838

 
20,889

Income taxes receivable, net
355

 
192

Inventory
1,107

 
1,401

Other current assets
4,236

 
4,699

Total current assets
135,676

 
148,358

Non-marketable investments
13,859

 
12,488

Deferred income taxes
737

 
564

Property and equipment, net
59,719

 
69,252

Operating lease assets
0

 
10,341

Intangible assets, net
2,220

 
1,747

Goodwill
17,888

 
18,069

Other non-current assets
2,693

 
2,225

Total assets
$
232,792

 
$
263,044

Liabilities and Stockholders’ Equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
4,378

 
$
4,142

Accrued compensation and benefits
6,839

 
7,399

Accrued expenses and other current liabilities
16,958

 
21,038

Accrued revenue share
4,592

 
4,835

Deferred revenue
1,784

 
1,679

Income taxes payable, net
69

 
131

Total current liabilities
34,620

 
39,224

Long-term debt
4,012

 
4,082

Deferred revenue, non-current
396

 
364

Income taxes payable, non-current
11,327

 
11,355

Deferred income taxes
1,264

 
1,747

Operating lease liabilities
0

 
9,666

Other long-term liabilities
3,545

 
1,637

Total liabilities
55,164

 
68,075

Commitments and contingencies
 
 
 
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); 695,556 (Class A 299,242, Class B 46,636, Class C 349,678) and 690,906 (Class A 299,624, Class B 46,508, Class C 344,774) shares issued and outstanding
45,049

 
49,040

Accumulated other comprehensive loss
(2,306
)
 
(1,196
)
Retained earnings
134,885

 
147,125

Total stockholders’ equity
177,628

 
194,969

Total liabilities and stockholders’ equity
$
232,792

 
$
263,044


4



Alphabet Inc.
CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per share amounts; unaudited)
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2018
 
2019
 
2018
 
2019
Revenues
$
33,740

 
$
40,499

 
$
97,543

 
$
115,782

Costs and expenses:
 
 
 
 
 
 
 
Cost of revenues
14,281

 
17,568

 
41,631

 
50,876

Research and development
5,232

 
6,554

 
15,385

 
18,796

Sales and marketing
3,849

 
4,609

 
11,233

 
12,726

General and administrative
1,753

 
2,591

 
4,920

 
6,722

European Commission fines
0

 
0

 
5,071

 
1,697

Total costs and expenses
25,115

 
31,322

 
78,240

 
90,817

Income from operations
8,625

 
9,177

 
19,303

 
24,965

Other income (expense), net
1,458

 
(549
)
 
5,538

 
3,956

Income before income taxes
10,083

 
8,628

 
24,841

 
28,921

Provision for income taxes
891

 
1,560

 
3,053

 
5,249

Net income
$
9,192

 
$
7,068

 
$
21,788

 
$
23,672

 
 
 
 
 
 
 
 
Basic earnings per share of Class A and B common stock and Class C capital stock
$
13.21

 
$
10.20

 
$
31.34

 
$
34.12

Diluted earnings per share of Class A and B common stock and Class C capital stock
$
13.06

 
$
10.12

 
$
30.95

 
$
33.83


5



Alphabet Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions; unaudited)
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2018
 
2019
 
2018
 
2019
Operating activities
 
 
 
 
 
 
 
Net income
$
9,192

 
$
7,068

 
$
21,788

 
$
23,672

Adjustments:
 
 
 
 
 
 
 
Depreciation and impairment of property and equipment
2,138

 
2,732

 
5,791

 
7,774

Amortization and impairment of intangible assets
217

 
188

 
664

 
594

Stock-based compensation expense
2,230

 
2,624

 
7,100

 
8,149

Deferred income taxes
880

 
(239
)
 
723

 
381

(Gain) loss on debt and equity securities, net
(1,353
)
 
1,479

 
(5,413
)
 
(2,399
)
Other
38

 
(71
)
 
(82
)
 
(119
)
Changes in assets and liabilities, net of effects of acquisitions:
 
 
 
 
 
 
 
Accounts receivable
(670
)
 
(1
)
 
718

 
25

Income taxes, net
(1,235
)
 
185

 
(1,891
)
 
210

Other assets
(484
)
 
(611
)
 
(1,240
)
 
(787
)
Accounts payable
316

 
57

 
293

 
(386
)
Accrued expenses and other liabilities
1,857

 
1,853

 
6,457

 
2,927

Accrued revenue share
107

 
261

 
(196
)
 
201

Deferred revenue
(23
)
 
(59
)
 
272

 
(149
)
Net cash provided by operating activities
13,210

 
15,466

 
34,984

 
40,093

Investing activities
 
 
 
 
 
 
 
Purchases of property and equipment
(5,282
)
 
(6,732
)
 
(18,058
)
 
(17,496
)
Purchases of marketable securities
(14,299
)
 
(36,244
)
 
(37,340
)
 
(80,968
)
Maturities and sales of marketable securities
9,403

 
34,091

 
34,926

 
74,783

Purchases of non-marketable investments
(386
)
 
(404
)
 
(1,118
)
 
(1,499
)
Maturities and sales of non-marketable investments
154

 
91

 
1,345

 
297

Acquisitions, net of cash acquired, and purchases of intangible assets
(18
)
 
(126
)
 
(1,452
)
 
(373
)
Other investing activities
20

 
379

 
69

 
468

Net cash used in investing activities
(10,408
)
 
(8,945
)
 
(21,628
)
 
(24,788
)
Financing activities
 
 
 
 
 
 
 
Net payments related to stock-based award activities
(1,253
)
 
(1,131
)
 
(3,952
)
 
(3,566
)
Repurchases of capital stock
(2,200
)
 
(5,696
)
 
(6,425
)
 
(12,298
)
Proceeds from issuance of debt, net of costs
530

 
0

 
6,766

 
317

Repayments of debt
(555
)
 
(145
)
 
(6,822
)
 
(538
)
Proceeds from sale of interest in consolidated entities
0

 
18

 
0

 
202

Net cash used in financing activities
(3,478
)
 
(6,954
)
 
(10,433
)
 
(15,883
)
Effect of exchange rate changes on cash and cash equivalents
(29
)
 
(122
)
 
(195
)
 
(91
)
Net increase (decrease) in cash and cash equivalents
(705
)
 
(555
)
 
2,728

 
(669
)
Cash and cash equivalents at beginning of period
14,148

 
16,587

 
10,715

 
16,701

Cash and cash equivalents at end of period
$
13,443

 
$
16,032

 
$
13,443

 
$
16,032


6



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.
 
Three Months Ended September 30, 2019
Net cash provided by operating activities
$
15,466

Less: purchases of property and equipment
(6,732
)
Free cash flow
$
8,734

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

7



Reconciliation from GAAP revenues to non-GAAP constant currency revenues (in millions; unaudited):
We provide non-GAAP constant currency revenues and growth because they facilitate the comparison of current results to historic performance by excluding the effect of foreign exchange rate movements and hedging activities, which are not indicative of our core operating results.
 
Three Months Ended September 30, 2019
 
Three Months Ended September 30, 2019
 
YoY
(using Q3'18's FX rates)
 
QoQ
(using Q2'19's FX rates)
EMEA revenues (GAAP)
$
12,667

 
$
12,667

Exclude foreign exchange effect on Q3'19 revenues using Q3'18 rates
456

 
N/A

Exclude foreign exchange effect on Q3'19 revenues using Q2'19 rates
N/A

 
82

Exclude hedging effect recognized in Q3'19
(102
)
 
(102
)
EMEA constant currency revenues (non-GAAP)
$
13,021

 
$
12,647

Prior period EMEA revenues, excluding hedging effect (non-GAAP)
$
10,909

 
$
12,313

EMEA revenue growth (GAAP)
16
%
 
2
%
EMEA constant currency revenue growth (non-GAAP)
19
%
 
3
%
 
 
 
 
APAC revenues (GAAP)
$
6,828

 
$
6,828

Exclude foreign exchange effect on Q3'19 revenues using Q3'18 rates
17

 
N/A

Exclude foreign exchange effect on Q3'19 revenues using Q2'19 rates
N/A

 
(39
)
Exclude hedging effect recognized in Q3'19
(14
)
 
(14
)
APAC constant currency revenues (non-GAAP)
$
6,831

 
$
6,775

Prior period APAC revenues, excluding hedging effect (non-GAAP)
$
5,401

 
$
6,536

APAC revenue growth (GAAP)
26
%
 
4
%
APAC constant currency revenue growth (non-GAAP)
26
%
 
4
%
 
 
 
 
Other Americas revenues (GAAP)
$
2,293

 
$
2,293

Exclude foreign exchange effect on Q3'19 revenues using Q3'18 rates
66

 
N/A

Exclude foreign exchange effect on Q3'19 revenues using Q2'19 rates
N/A

 
(13
)
Exclude hedging effect recognized in Q3'19
(3
)
 
(3
)
Other Americas constant currency revenues (non-GAAP)
$
2,356

 
$
2,277

Prior period Other Americas revenues, excluding hedging effect (non-GAAP)
$
1,827

 
$
2,124

Other Americas revenue growth (GAAP)
25
%
 
8
%
Other Americas constant currency revenue growth (non-GAAP)
29
%
 
7
%
 
 
 
 
United States revenues (GAAP)
$
18,711

 
$
18,711

United States revenue growth (GAAP)
21
%
 
5
%
 
 
 
 
Revenues (GAAP)
$
40,499

 
$
40,499

Constant currency revenues (non-GAAP)
$
40,919

 
$
40,410

Prior period revenues, excluding hedging effect (non-GAAP)
$
33,660

 
$
38,836

Revenue growth (GAAP)
20
%
 
4
%
Constant currency revenue growth (non-GAAP)
22
%
 
4
%
Non-GAAP constant currency revenues and growth: We define non-GAAP constant currency revenues as total revenues excluding the effect of foreign exchange rate movements and hedging activities, and we use it to determine the constant currency revenue growth on year-on-year and quarter-on-quarter bases. Non-GAAP constant currency revenues are calculated by translating current quarter revenues using prior period exchange rates and excluding any hedging effect recognized in the current quarter. Constant currency revenue growth (expressed as a percentage) is calculated by determining the increase in current quarter non-GAAP constant currency revenues over prior period revenues, excluding any hedging effect recognized in the prior period.

8



Other income (expense), net
The following table presents our other income (expense), net (in millions; unaudited):
 
Three Months Ended
 
September 30,
 
2018
 
2019
Interest income
$
481

 
$
631

Interest expense
(28
)
 
(23
)
Foreign currency exchange gain (loss), net
(55
)
 
41

Gain (loss) on debt securities, net
(29
)
 
49

Gain (loss) on equity securities, net(1)(2)
1,382

 
(1,528
)
Performance fees(3)
(315
)
 
227

Loss and impairment from equity method investments, net
(27
)
 
(14
)
Other
49

 
68

Other income (expense), net
$
1,458

 
$
(549
)
(1)  
Approximately $1.5 billion of the loss on equity securities for Q3 2019 represents unrealized losses on equity investments that we hold. Fluctuations in the value of our investments could significantly contribute to the volatility of OI&E in future periods.
(2)
ASU 2016-01, effective January 1, 2018, requires that all gains and losses, unrealized and realized, on equity security investments are recognized in OI&E. For Q3 2019, the net effect of the loss on equity securities of $1.5 billion and the performance fees reversal of $227 million decreased income tax, net income, and diluted EPS by $273 million, $1,028 million, and $1.47, respectively.
(3)
Q3 2018 results have been recast to reflect the reclassification of performance fees from general and administrative expenses to OI&E to conform to the current period presentation.


9



Segment results
The following table presents our revenues, operating income (loss), stock-based compensation (SBC), capital expenditures, and depreciation, amortization, and impairment by segment (in millions; unaudited):
 
Three Months Ended
 
September 30,
 
2018
 
2019
Revenues:
 
 
 
Google
$
33,594

 
$
40,344

Other Bets
146

 
155

Total revenues
$
33,740

 
$
40,499

 
 
 
 
Operating income (loss):
 
 
 
Google
$
9,490

 
$
10,865

Other Bets
(727
)
 
(941
)
Reconciling items(1)
(138
)
 
(747
)
Total income from operations
$
8,625

 
$
9,177

 
 
 
 
Stock-based compensation(2):
 
 
 
Google
$
2,071

 
$
2,470

Other Bets
125

 
117

Reconciling items(3)
34

 
34

Total stock-based compensation
$
2,230

 
$
2,621

 
 
 
 
Capital expenditures:
 
 
 
Google
$
5,643

 
$
7,228

Other Bets
55

 
71

Reconciling items(4)
(416
)
 
(567
)
Total capital expenditures
$
5,282

 
$
6,732

 
 
 
 
Depreciation, amortization, and impairment:
 
 
 
Google
$
2,277

 
$
2,837

Other Bets
78

 
83

Total depreciation, amortization, and impairment
$
2,355

 
$
2,920

(1) 
Reconciling items are generally comprised of corporate administrative costs and other miscellaneous items that are not allocated to individual segments. Reconciling items for the three months ended September 30, 2019 include a $554 million charge from a legal settlement. Performance fees previously included in reconciling items were reclassified for the prior period from general and administrative expenses to OI&E to conform with current period presentation.
(2) 
For purposes of segment reporting, SBC represents awards that we expect to settle in Alphabet stock.
(3) 
Reconciling items are primarily related to corporate administrative costs that are not allocated to individual segments.
(4) 
Reconciling items are related to timing differences of payments, as segment capital expenditures are on an accrual basis while total capital expenditures shown on the Consolidated Statements of Cash Flows are on a cash basis, and other miscellaneous differences.

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