01—Abstract
Summary
Summary of the 10-K filed February 5, 2019. Cited figures are marked; the original filing is the authoritative source.
Alphabet Inc.'s 2018 10-K report highlights a year of significant revenue growth and substantial investment in future innovation.
The company reported revenues of $136.8 billiona, a 23% increase year-over-year, driven primarily by its Google segment, which encompasses its core advertising, cloud, and hardware businesses. This growth was achieved despite increasing competition and evolving user behaviors, such as the ongoing shift to mobile and new advertising formats. Alphabet continued its strategy of long-term investment, with significant expenditures in research and development and capital expenditures for data centers and infrastructure.
The company also detailed its "Other Bets" segment, which, while not individually material, represents a strategic commitment to exploring speculative, high-reward projects. The report also addresses significant regulatory scrutiny, including substantial fines from the European Commission related to antitrust concerns, which impacted the company's net income in 2017 and 2018. Despite these challenges, Alphabet maintained strong operating cash flow and a robust balance sheet, demonstrating its financial resilience and ongoing commitment to innovation.
02—Key points
Key Highlights
- Reported total revenues of $136.8 billion, a 23% increase year-over-year, driven by strong performance in the Google segment.
- Google segment revenues reached $136.2 billion, representing 99.6% of total revenues, with "Other Bets" contributing $595 million.
- Significant investments in R&D ($21.4 billion) and capital expenditures ($25.1 billion) underscore the company's commitment to innovation and infrastructure.
- Operating expenses (excluding cost of revenues) totaled $50.9 billion, reflecting investments in personnel and growth initiatives.
- Net income was $30.7 billion, with diluted EPS of $43.70, significantly impacted by a $7.5 billion increase in 'Other income (expense), net', largely due to unrealized gains on equity securities.
- The company incurred substantial European Commission fines totaling $7.8 billion in 2017 and 2018, impacting profitability.
- Stock repurchase programs continued, with $8.6 billion authorized for Class C stock repurchases in 2018, and $1.7 billion remaining at year-end.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2018, Alphabet Inc. kept $0.22.
- Revenue$136.82B100.0%
- Cost of revenue−$59.55B43.5%
- Gross profit$77.27B56.5%
- Operating costs−$49.75B36.4%
- Operating income$27.52B20.1%
- Interest, other & tax$3.21B2.3%
- Net income$30.74B22.5%
Where FY2018 revenue went
$136.82B- Cost of revenue: $59.55B, 44% of revenue
- Other operating costs: $28.33B, 21% of revenue
- Operating income: $27.52B, 20% of revenue
- R&D: $21.42B, 16% of revenue
Kept 20% as operating income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2018filed February 5, 2019Financial Statements
FY2018 against FY2017
| Line item | FY2018FY2017 | Change |
|---|---|---|
| Revenue | $136.82B$110.86B | +23.4% |
| Cost of Revenue | $59.55B$45.58B | +30.6% |
| Gross Profit | $77.27B$65.27B | +18.4% |
| R&D Expenses | $21.42B$16.63B | +28.8% |
| Operating Expenses | $109.30B$84.68B | +29.1% |
| Operating Income | $27.52B$26.18B | +5.1% |
| Interest Expense | $114.00M$109.00M | +4.6% |
| Net Income | $30.74B$12.66B | +142.7% |
| EPS (Basic) | $2.21$0.91 | +142.0% |
| EPS (Diluted) | $2.19$0.90 | +142.8% |
05—Questions
Frequently Asked Questions
What was Alphabet's revenue growth in 2018, and what were the primary drivers?
Alphabet reported total revenues of $136.8 billion in 2018, representing a 23% increase year-over-year (22% on a constant currency basis). The primary driver was the Google segment, which includes advertising, cloud services, and hardware, with revenues growing by 23% to $136.2 billion. Growth was particularly strong in mobile search and YouTube video advertising.
How did the European Commission fines impact Alphabet's financial performance?
Alphabet incurred significant fines from the European Commission related to antitrust investigations. A €2.4 billion ($2.7 billion) fine was recognized in Q2 2017, and a €4.3 billion ($5.1 billion) fine was recognized in Q2 2018. These fines, while appealed, impacted the company's net income and were reflected as a charge in "Total costs and expenses" and "European Commission fines" within the Consolidated Statements of Income.
What is the role of the 'Other Bets' segment, and how is it performing?
The 'Other Bets' segment comprises Alphabet's businesses outside of Google, such as Waymo, Verily, and Access (internet and TV services). While these businesses are in various stages of development and are not individually material, they represent a strategic investment in long-term, high-reward projects. In 2018, 'Other Bets' generated $595 million in revenue, an increase of 25% year-over-year, though they typically operate at a loss as they are in development phases.
How is Alphabet managing its substantial cash reserves and returning value to shareholders?
Alphabet maintained a strong liquidity position with $109.1 billion in cash, cash equivalents, and marketable securities as of December 31, 2018. The company continued its share repurchase program, authorizing $8.6 billion for Class C capital stock repurchases in 2018. Alphabet does not currently pay cash dividends and does not expect to do so in the foreseeable future, focusing instead on reinvesting in its business and returning capital through repurchases.
06—Continue