01—Abstract
Summary
Summary of the 10-K filed February 3, 2017. Cited figures are marked; the original filing is the authoritative source.
Alphabet Inc.'s 2016 Form 10-K report highlights a year of robust growth, driven primarily by its core Google segment.
Total revenues reached $90.3 billiona, a 20% increase year-over-year, with Google segment revenues accounting for $89.5 billion. The company's core advertising business remains the primary revenue driver, with continued strength in mobile search and YouTube advertising. However, growth in the Google Network Members' properties revenue showed moderation, impacted by shifts in advertising buying and policy changes.
The company's 'Other Bets' segment also demonstrated significant growth, with revenues increasing by 82% to $0.8 billionb, signaling progress in diversifying revenue streams. Investments in research and development, particularly in areas like machine learning and artificial intelligence, remain substantial, underscoring Alphabet's commitment to innovation and future growth. The company's financial position is strong, with $86.3 billion in cash, cash equivalents, and marketable securities as of December 31, 2016, providing ample resources for continued investment and strategic initiatives.
02—Key points
Key Highlights
- Total revenues grew 20% year-over-year to $90.3 billion in 2016.
- Google segment revenues reached $89.5 billion, driven by strong performance in mobile search and YouTube advertising.
- Other Bets segment revenue grew significantly by 82% year-over-year to $0.8 billion.
- Investment in R&D remains a priority, reflecting a commitment to innovation and future growth.
- The company ended the year with a strong liquidity position, holding $86.3 billion in cash, cash equivalents, and marketable securities.
- Traffic acquisition costs (TAC) represent a significant expense, indicating strong partnerships within the advertising ecosystem.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2016, Alphabet Inc. kept $0.22.
- Revenue$90.27B100.0%
- Cost of revenue−$35.14B38.9%
- Gross profit$55.13B61.1%
- Operating costs−$31.42B34.8%
- Operating income$23.72B26.3%
- Interest, other & tax−$4.24B4.7%
- Net income$19.48B21.6%
Where FY2016 revenue went
$90.27B- Cost of revenue: $35.14B, 39% of revenue
- Net income: $19.48B, 22% of revenue
- Other operating costs: $17.47B, 19% of revenue
- R&D: $13.95B, 15% of revenue
- Interest, other & tax: $4.24B, 4.7% of revenue
Kept 22% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2016filed February 3, 2017Financial Statements
FY2016 against FY2015
| Line item | FY2016FY2015 | Change |
|---|---|---|
| Revenue | $90.27B$74.99B | +20.4% |
| Cost of Revenue | $35.14B$28.16B | +24.8% |
| Gross Profit | $55.13B$46.83B | +17.7% |
| R&D Expenses | $13.95B$12.28B | +13.6% |
| Operating Expenses | $66.56B$55.63B | +19.6% |
| Operating Income | $23.72B$19.36B | +22.5% |
| Interest Expense | $124.00M$104.00M | +19.2% |
| Net Income | $19.48B$16.35B | +19.1% |
| EPS (Basic) | $1.42— | — |
| EPS (Diluted) | $1.39— | — |
05—Questions
Frequently Asked Questions
What is the primary source of Alphabet's revenue?
Alphabet's primary source of revenue is online advertising, generated through Google properties (like Google Search, YouTube, Gmail, Maps) and Google Network Members' properties. This includes both performance advertising (pay-per-click) and brand advertising.
How is Alphabet structured, and what are 'Other Bets'?
Alphabet Inc. is a holding company structured to manage its diverse businesses. 'Google' is its largest segment, encompassing core internet products and hardware. 'Other Bets' is a collection of early-stage businesses operating in different industries, such as life sciences (Verily), autonomous driving (Waymo), and other ventures, which are individually not material enough to be reported as separate segments.
What are the key drivers of revenue growth and potential pressures on margins?
Key drivers of revenue growth include the increasing shift of user behavior and advertising spend online, growth in mobile and YouTube engagement, and expansion in international markets. Potential pressures on margins stem from a shift towards mobile and newer advertising formats (which generally have lower margins than traditional desktop search), increased traffic acquisition costs (TAC), and investments in new businesses and technologies which may have lower initial margins.
How does Alphabet manage its significant cash reserves?
Alphabet maintains a strong liquidity position with substantial cash, cash equivalents, and marketable securities. The company intends to retain future earnings and does not currently expect to pay cash dividends. It also has an authorized share repurchase program for its Class C capital stock, indicating a strategy of returning capital to shareholders and managing its equity structure.
06—Continue