Document
Alphabet Announces Third Quarter 2020 Results
MOUNTAIN VIEW, Calif. – October 29, 2020 – Alphabet Inc. (NASDAQ: GOOG, GOOGL) today announced financial results for the quarter ended September 30, 2020.
“We had a strong quarter, consistent with the broader online environment,” said Sundar Pichai, Chief Executive Officer of Alphabet and Google. “It’s also a testament to the deep investments we’ve made in AI and other technologies, to deliver services that people turn to for help, in moments big and small.”
“Total revenues of $46.2 billion in the third quarter reflect broad based growth led by an increase in advertiser spend in Search and YouTube as well as continued strength in Google Cloud and Play,” said Ruth Porat, Chief Financial Officer of Alphabet and Google. “We remain focused on making the right investments to support long term sustainable value.”
Q3 2020 financial highlights
The following table summarizes our consolidated financial results for the quarters ended September 30, 2019 and 2020 (in millions, except for per share information and percentages; unaudited).
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Quarter Ended September 30, |
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2019 |
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2020 |
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| Revenues |
$40,499 |
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$46,173 |
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| Increase in revenues year over year |
20 |
% |
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14 |
% |
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Increase in constant currency revenues year over year(1)
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22 |
% |
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15 |
% |
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| Operating income |
$9,177 |
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$11,213 |
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| Operating margin |
23 |
% |
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24 |
% |
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Other income (expense), net
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($549) |
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$2,146 |
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| Net income |
$7,068 |
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$11,247 |
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| Diluted EPS |
$10.12 |
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$16.40 |
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(1) Non-GAAP measure. See the table captioned “Reconciliation from GAAP revenues to non-GAAP constant currency revenues” for more details.
Q3 2020 supplemental information (in millions, except for number of employees; unaudited)
Revenues, Traffic Acquisition Costs (TAC) and number of employees
The following table summarizes our revenues, total TAC and number of employees.
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Quarter Ended September 30, |
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2019 |
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2020 |
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| Google Search & other |
$24,741 |
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$26,338 |
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YouTube ads(1)
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3,804 |
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5,037 |
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| Google properties |
28,545 |
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31,375 |
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| Google Network Members' properties |
5,251 |
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5,720 |
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| Google advertising |
33,796 |
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37,095 |
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| Google Cloud |
2,379 |
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3,444 |
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Google other(1)
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4,050 |
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5,478 |
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| Google revenues |
40,225 |
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46,017 |
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| Other Bets revenues |
155 |
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178 |
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| Hedging gains (losses) |
119 |
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(22) |
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| Total revenues |
$40,499 |
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$46,173 |
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| Total TAC |
$7,490 |
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$8,166 |
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| Number of employees |
114,096 |
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132,121 |
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(1) YouTube non-advertising revenues are included in Google other revenues.
Segment operating results
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Quarter Ended September 30, |
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2019 |
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2020 |
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| Google operating income |
$10,746 |
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$12,589 |
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| Other Bets operating loss |
($941) |
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($1,103) |
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Webcast and conference call information
A live audio webcast of our third quarter 2020 earnings release call will be available on YouTube at https://youtu.be/_EFJ_2QuRk4. 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, 2019, and our most recent Quarterly Report on Form 10-Q for the quarter ended June 30, 2020 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, 2020. All information provided in this release and in the attachments is as of October 29, 2020. 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 exchange rate movements and hedging activities. 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” included at the end of this release.
Contact
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| Investor relations |
Media |
| investor-relations@abc.xyz |
press@abc.xyz |
Alphabet Inc.
CONSOLIDATED BALANCE SHEETS
(In millions, except share amounts which are reflected in thousands and par value per share amounts)
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As of December 31, |
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As of
September 30, |
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2019 |
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2020 |
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(unaudited) |
| Assets |
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| Current assets: |
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| Cash and cash equivalents |
$ |
18,498 |
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$ |
20,129 |
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| Marketable securities |
101,177 |
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112,467 |
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| Total cash, cash equivalents, and marketable securities |
119,675 |
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132,596 |
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| Accounts receivable, net |
25,326 |
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24,925 |
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| Income taxes receivable, net |
2,166 |
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588 |
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| Inventory |
999 |
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835 |
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| Other current assets |
4,412 |
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5,425 |
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| Total current assets |
152,578 |
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164,369 |
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| Non-marketable investments |
13,078 |
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14,656 |
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| Deferred income taxes |
721 |
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972 |
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| Property and equipment, net |
73,646 |
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81,636 |
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| Operating lease assets |
10,941 |
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11,946 |
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| Intangible assets, net |
1,979 |
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1,520 |
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| Goodwill |
20,624 |
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20,870 |
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| Other non-current assets |
2,342 |
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3,274 |
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| Total assets |
$ |
275,909 |
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$ |
299,243 |
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| Liabilities and Stockholders’ Equity |
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| Current liabilities: |
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| Accounts payable |
$ |
5,561 |
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$ |
4,391 |
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| Accrued compensation and benefits |
8,495 |
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8,747 |
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| Accrued expenses and other current liabilities |
23,067 |
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25,631 |
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| Accrued revenue share |
5,916 |
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6,030 |
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| Deferred revenue |
1,908 |
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2,302 |
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| Income taxes payable, net |
274 |
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1,099 |
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| Total current liabilities |
45,221 |
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48,200 |
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| Long-term debt |
4,554 |
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13,902 |
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| Deferred revenue, non-current |
358 |
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454 |
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| Income taxes payable, non-current |
9,885 |
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8,616 |
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| Deferred income taxes |
1,701 |
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1,973 |
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| Operating lease liabilities |
10,214 |
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10,984 |
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| Other long-term liabilities |
2,534 |
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2,194 |
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| Total liabilities |
74,467 |
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86,323 |
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| Commitments and contingencies |
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| Stockholders’ equity: |
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| Convertible preferred stock, $0.001 par value per share, 100,000 shares authorized; no shares issued and outstanding |
0 |
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0 |
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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); 688,335 (Class A 299,828, Class B 46,441, Class C 342,066) and 677,724 (Class A 300,641, Class B 45,915, Class C 331,168) shares issued and outstanding |
50,552 |
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57,307 |
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| Accumulated other comprehensive income (loss) |
(1,232) |
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46 |
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| Retained earnings |
152,122 |
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155,567 |
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| Total stockholders’ equity |
201,442 |
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212,920 |
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| Total liabilities and stockholders’ equity |
$ |
275,909 |
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$ |
299,243 |
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Alphabet Inc.
CONSOLIDATED STATEMENTS OF INCOME
(In millions, except share amounts which are reflected in thousands and per share amounts; unaudited)
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Quarter Ended September 30, |
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Year to Date September 30, |
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2019 |
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2020 |
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2019 |
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2020 |
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| Revenues |
$ |
40,499 |
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$ |
46,173 |
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$ |
115,782 |
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$ |
125,629 |
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| Costs and expenses: |
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| Cost of revenues |
17,568 |
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21,117 |
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50,876 |
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58,652 |
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| Research and development |
6,554 |
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6,856 |
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18,796 |
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20,551 |
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| Sales and marketing |
4,609 |
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4,231 |
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12,726 |
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12,632 |
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| General and administrative |
2,591 |
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2,756 |
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6,722 |
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8,221 |
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| European Commission fines |
0 |
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0 |
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1,697 |
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0 |
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| Total costs and expenses |
31,322 |
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34,960 |
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90,817 |
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100,056 |
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| Income from operations |
9,177 |
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11,213 |
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24,965 |
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25,573 |
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| Other income (expense), net |
(549) |
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2,146 |
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3,956 |
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3,820 |
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| Income before income taxes |
8,628 |
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13,359 |
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28,921 |
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29,393 |
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| Provision for income taxes |
1,560 |
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2,112 |
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5,249 |
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4,351 |
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| Net income |
$ |
7,068 |
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$ |
11,247 |
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$ |
23,672 |
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$ |
25,042 |
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| Basic earnings per share of Class A and B common stock and Class C capital stock |
$ |
10.20 |
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$ |
16.55 |
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$ |
34.12 |
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$ |
36.69 |
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| Diluted earnings per share of Class A and B common stock and Class C capital stock |
$ |
10.12 |
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$ |
16.40 |
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$ |
33.83 |
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$ |
36.38 |
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| Number of shares used in basic earnings per share calculation |
692,741 |
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679,449 |
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693,860 |
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682,561 |
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| Number of shares used in diluted earnings per share calculation |
698,199 |
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685,851 |
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699,677 |
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688,381 |
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Alphabet Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions; unaudited)
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Quarter Ended September 30, |
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Year to Date September 30, |
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2019 |
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2020 |
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2019 |
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2020 |
| Operating activities |
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| Net income |
$ |
7,068 |
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$ |
11,247 |
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$ |
23,672 |
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$ |
25,042 |
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| Adjustments: |
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| Depreciation and impairment of property and equipment |
2,732 |
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3,289 |
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7,774 |
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9,366 |
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| Amortization and impairment of intangible assets |
188 |
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189 |
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594 |
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606 |
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| Stock-based compensation expense |
2,624 |
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3,195 |
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8,149 |
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9,768 |
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| Deferred income taxes |
(239) |
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136 |
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381 |
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(280) |
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| (Gain) loss on debt and equity securities, net |
1,479 |
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(2,015) |
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(2,399) |
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(3,055) |
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| Other |
(71) |
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206 |
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(119) |
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875 |
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| Changes in assets and liabilities, net of effects of acquisitions: |
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| Accounts receivable |
(1) |
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(3,601) |
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25 |
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(1,079) |
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| Income taxes, net |
185 |
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(69) |
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210 |
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469 |
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| Other assets |
(611) |
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(233) |
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(787) |
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(592) |
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| Accounts payable |
57 |
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420 |
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(386) |
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(269) |
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| Accrued expenses and other liabilities |
1,853 |
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2,990 |
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2,927 |
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|
891 |
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| Accrued revenue share |
261 |
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|
969 |
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201 |
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277 |
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| Deferred revenue |
(59) |
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|
280 |
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(149) |
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428 |
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| Net cash provided by operating activities |
15,466 |
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17,003 |
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40,093 |
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42,447 |
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| Investing activities |
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| Purchases of property and equipment |
(6,732) |
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(5,406) |
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(17,496) |
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(16,802) |
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| Purchases of marketable securities |
(36,244) |
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(40,821) |
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(80,968) |
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(104,932) |
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| Maturities and sales of marketable securities |
34,091 |
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31,877 |
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74,783 |
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97,751 |
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| Purchases of non-marketable investments |
(404) |
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(553) |
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(1,499) |
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(1,864) |
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| Maturities and sales of non-marketable investments |
91 |
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|
125 |
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297 |
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598 |
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| Acquisitions, net of cash acquired, and purchases of intangible assets |
(126) |
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(13) |
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(373) |
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(368) |
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| Other investing activities |
379 |
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(406) |
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|
468 |
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125 |
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| Net cash used in investing activities |
(8,945) |
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(15,197) |
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(24,788) |
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(25,492) |
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| Financing activities |
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| Net payments related to stock-based award activities |
(1,131) |
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(1,357) |
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(3,566) |
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(4,073) |
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| Repurchases of capital stock |
(5,696) |
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(7,897) |
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(12,298) |
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(23,245) |
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| Proceeds from issuance of debt, net of costs |
0 |
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|
9,863 |
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|
317 |
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|
11,761 |
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| Repayments of debt |
(145) |
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(61) |
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(538) |
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(2,043) |
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| Proceeds from sale of interest in consolidated entities, net |
18 |
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(2) |
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|
202 |
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2,462 |
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| Net cash provided by (used in) financing activities |
(6,954) |
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|
546 |
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(15,883) |
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(15,138) |
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| Effect of exchange rate changes on cash and cash equivalents |
(122) |
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35 |
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|
(91) |
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|
(186) |
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| Net increase (decrease) in cash and cash equivalents |
(555) |
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|
2,387 |
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(669) |
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1,631 |
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| Cash and cash equivalents at beginning of period |
16,587 |
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|
17,742 |
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|
16,701 |
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18,498 |
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| Cash and cash equivalents at end of period |
$ |
16,032 |
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$ |
20,129 |
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$ |
16,032 |
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$ |
20,129 |
|
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.
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Quarter Ended
September 30, 2020 |
| Net cash provided by operating activities |
$ |
17,003 |
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| Less: purchases of property and equipment |
(5,406) |
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| Free cash flow |
$ |
11,597 |
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Free cash flow: We define free cash flow as net cash provided by operating activities less capital expenditures.
Reconciliation from GAAP revenues to non-GAAP constant currency revenues (in millions, except percentages; unaudited):
We provide non-GAAP constant currency revenues and the non-GAAP 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 and hedging activities, which are not indicative of our core operating results.
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Quarter Ended September 30, 2020 |
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YoY
(using Q3'19's FX rates) |
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QoQ
(using Q2'20's FX rates) |
| EMEA revenues (GAAP) |
$ |
13,924 |
|
|
$ |
13,924 |
|
| Exclude foreign exchange effect on Q3'20 revenues using Q3'19 rates |
(250) |
|
|
N/A |
| Exclude foreign exchange effect on Q3'20 revenues using Q2'20 rates |
N/A |
|
(605) |
|
| EMEA constant currency revenues (non-GAAP) |
$ |
13,674 |
|
|
$ |
13,319 |
|
| Prior period EMEA revenues (GAAP) |
$ |
12,565 |
|
|
$ |
11,363 |
|
| EMEA revenue percentage change (GAAP) |
11 |
% |
|
23 |
% |
| EMEA constant currency revenue percentage change (non-GAAP) |
9 |
% |
|
17 |
% |
|
|
|
|
| APAC revenues (GAAP) |
$ |
8,458 |
|
|
$ |
8,458 |
|
| Exclude foreign exchange effect on Q3'20 revenues using Q3'19 rates |
1 |
|
|
N/A |
| Exclude foreign exchange effect on Q3'20 revenues using Q2'20 rates |
N/A |
|
(180) |
|
| APAC constant currency revenues (non-GAAP) |
$ |
8,459 |
|
|
$ |
8,278 |
|
| Prior period APAC revenues (GAAP) |
$ |
6,814 |
|
|
$ |
6,945 |
|
| APAC revenue percentage change (GAAP) |
24 |
% |
|
22 |
% |
| APAC constant currency revenue percentage change (non-GAAP) |
24 |
% |
|
19 |
% |
|
|
|
|
| Other Americas revenues (GAAP) |
$ |
2,371 |
|
|
$ |
2,371 |
|
| Exclude foreign exchange effect on Q3'20 revenues using Q3'19 rates |
304 |
|
|
N/A |
| Exclude foreign exchange effect on Q3'20 revenues using Q2'20 rates |
N/A |
|
(35) |
|
| Other Americas constant currency revenues (non-GAAP) |
$ |
2,675 |
|
|
$ |
2,336 |
|
| Prior period Other Americas revenues (GAAP) |
$ |
2,290 |
|
|
$ |
1,839 |
|
| Other Americas revenue percentage change (GAAP) |
4 |
% |
|
29 |
% |
| Other Americas constant currency revenue percentage change (non-GAAP) |
17 |
% |
|
27 |
% |
|
|
|
|
| United States revenues (GAAP) |
$ |
21,442 |
|
|
$ |
21,442 |
|
| United States revenue percentage change (GAAP) |
15 |
% |
|
19 |
% |
|
|
|
|
| Hedging gains (losses) |
$ |
(22) |
|
|
$ |
(22) |
|
| Revenues (GAAP) |
$ |
46,173 |
|
|
$ |
46,173 |
|
| Constant currency revenues (non-GAAP) |
$ |
46,250 |
|
|
$ |
45,375 |
|
Prior period revenues, excluding hedging effect (non-GAAP)(1)
|
$ |
40,380 |
|
|
$ |
38,146 |
|
| Revenue percentage change (GAAP) |
14 |
% |
|
21 |
% |
| Constant currency revenue percentage change (non-GAAP) |
15 |
% |
|
19 |
% |
(1) Total revenues and hedging gains (losses) for the quarter ended September 30, 2019 were $40,499 million and $119 million, respectively. Total revenues and hedging gains (losses) for the quarter ended June 30, 2020 were $38,297 million and $151 million, respectively.
Non-GAAP constant currency revenues and percentage change: 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 percentage change on year-on-year and quarter-on-quarter basis. 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 percentage change 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.
Other income (expense), net
The following table presents our other income (expense), net (in millions; unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Quarter Ended |
|
|
|
September 30, |
|
|
|
2019 |
|
2020 |
|
|
|
|
| Interest income |
$ |
631 |
|
|
$ |
460 |
|
|
|
|
|
| Interest expense |
(23) |
|
|
(48) |
|
|
|
|
|
| Foreign currency exchange gain (loss), net |
41 |
|
|
(84) |
|
|
|
|
|
| Gain (loss) on debt securities, net |
49 |
|
|
116 |
|
|
|
|
|
Gain (loss) on equity securities, net(1)(2)
|
(1,528) |
|
|
1,899 |
|
|
|
|
|
| Performance fees |
227 |
|
|
(135) |
|
|
|
|
|
| Income (loss) and impairment from equity method investments, net |
(14) |
|
|
26 |
|
|
|
|
|
| Other |
68 |
|
|
(88) |
|
|
|
|
|
| Other income (expense), net |
$ |
(549) |
|
|
$ |
2,146 |
|
|
|
|
|
(1)Includes 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)All gains and losses, unrealized and realized, on equity security investments are recognized in OI&E. For Q3 2020, the net effect of the gain on equity securities of $1,899 million and the performance fees of $135 million increased the provision for income tax, net income, and diluted EPS by $370 million, $1,394 million, and $2.03, respectively.
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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Quarter Ended |
|
|
|
September 30, |
|
|
|
2019 |
|
2020 |
|
|
|
|
| Revenues: |
|
|
|
|
|
|
|
Google(1)
|
$ |
40,225 |
|
|
$ |
46,017 |
|
|
|
|
|
| Other Bets |
155 |
|
|
178 |
|
|
|
|
|
Hedging gains (losses)(1)
|
119 |
|
|
(22) |
|
|
|
|
|
| Total revenues |
$ |
40,499 |
|
|
$ |
46,173 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Operating income (loss): |
|
|
|
|
|
|
|
Google(1)
|
$ |
10,746 |
|
|
$ |
12,589 |
|
|
|
|
|
| Other Bets |
(941) |
|
|
(1,103) |
|
|
|
|
|
Reconciling items(1)(2)
|
(628) |
|
|
(273) |
|
|
|
|
|
| Total income from operations |
$ |
9,177 |
|
|
$ |
11,213 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation(3):
|
|
|
|
|
|
|
|
| Google |
$ |
2,470 |
|
|
$ |
2,921 |
|
|
|
|
|
| Other Bets |
117 |
|
|
130 |
|
|
|
|
|
Reconciling items(4)
|
34 |
|
|
66 |
|
|
|
|
|
| Total stock-based compensation |
$ |
2,621 |
|
|
$ |
3,117 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Capital expenditures: |
|
|
|
|
|
|
|
| Google |
$ |
7,228 |
|
|
$ |
5,465 |
|
|
|
|
|
| Other Bets |
71 |
|
|
120 |
|
|
|
|
|
Reconciling items(5)
|
(567) |
|
|
(179) |
|
|
|
|
|
| Total capital expenditures |
$ |
6,732 |
|
|
$ |
5,406 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Depreciation, amortization, and impairment: |
|
|
|
|
|
|
|
| Google |
$ |
2,837 |
|
|
$ |
3,383 |
|
|
|
|
|
| Other Bets |
83 |
|
|
95 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total depreciation, amortization, and impairment |
$ |
2,920 |
|
|
$ |
3,478 |
|
|
|
|
|
(1)Hedging gains (losses), which were previously included in Google revenues, are presented separately.
(2)Reconciling items are generally comprised of corporate administrative costs, hedging gains (losses) and other miscellaneous items that are not allocated to individual segments. Reconciling items for the quarter ended September 30, 2019 include a $554 million charge from a legal settlement.
(3)For purposes of segment reporting, SBC represents awards that we expect to settle in Alphabet stock.
(4)Reconciling items are primarily related to corporate administrative and other costs that are not allocated to individual segments.
(5)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.
