10-QPeriod: Q3 FY2016

Alphabet Inc. Quarterly Report for Q3 Ended Sep 30, 2016

Filed November 3, 2016For Securities:GOOGLGOOGGOOGMGOOGN

Summary

Alphabet Inc. (GOOGL) reported strong third-quarter 2016 results, demonstrating continued robust revenue growth and profitability. Total revenues reached $22.45 billion, an increase of 20% year-over-year, driven primarily by the core Google segment which saw a 20% revenue increase to $22.25 billion. This growth was fueled by strong performance in Google websites and Google other revenues, reflecting gains in mobile search, YouTube, Google Play, and Google Cloud. The company maintained healthy profitability, with net income rising to $5.06 billion, a 27% increase from the prior year period. Diluted EPS also saw a significant jump to $7.25 per share. Despite increased investments in R&D and Sales & Marketing, operating income grew to $5.77 billion. Alphabet also ended the quarter with a substantial cash and cash equivalents and marketable securities balance of $83.06 billion, indicating strong financial health and liquidity. The 'Other Bets' segment continues to operate at a loss, but its revenues are growing, albeit from a small base.

Financial Highlights

49 data points
Beta

Revenue

$22.45B

61.3% Gross Margin

Net Income

$5.06B

22.5% Net Margin

EPS (Diluted)

$0.36

Total Assets

$159.95B

Cash & Equivalents

$9.41B

Free Cash Flow

$7.29B

Financial Statements
Beta
Revenue$22.45B
Cost of Revenue$8.70B
Gross Profit$13.75B
R&D Expenses$3.60B
Operating Expenses$16.68B
Operating Income$5.77B
Interest Expense$29.00M
Net Income$5.06B
EPS (Basic)$0.37
EPS (Diluted)$0.36

Key Highlights

  • 1Total revenues grew 20% year-over-year to $22.45 billion for the third quarter of 2016.
  • 2Google segment revenues increased 20% year-over-year to $22.25 billion, driven by strong advertising and other Google revenue streams.
  • 3Net income increased by 27% to $5.06 billion, with diluted EPS reaching $7.25.
  • 4Operating income grew to $5.77 billion, demonstrating continued operational efficiency despite increased R&D and marketing spend.
  • 5The company maintained a strong liquidity position with $83.06 billion in cash, cash equivalents, and marketable securities.
  • 6Other Bets segment revenues grew to $197 million, though the segment continued to operate at a loss ($865 million loss for the quarter).
  • 7Stock-based compensation expense increased significantly, reflecting continued investment in employee talent.

Frequently Asked Questions

Alphabet's core advertising business, primarily within the Google segment, showed strong performance. Google segment revenues grew 20% year-over-year to $22.25 billion. This growth was driven by increases in Google websites revenues, particularly mobile search and YouTube advertising, and also by Google other revenues which includes Google Play and Google Cloud. Paid clicks on Google websites increased 42%, though cost-per-click decreased by 13%, indicating a shift in monetization strategy or ad mix.

The 'Other Bets' segment, which comprises various emerging businesses like Google Fiber, Calico, and Nest, generated $197 million in revenues for the third quarter of 2016, an increase from $141 million in the prior year. However, the segment continued to incur operating losses, with a loss of $865 million reported for the quarter, reflecting ongoing investment in these nascent ventures.

Alphabet maintained a very strong liquidity position, ending the quarter with $83.06 billion in cash, cash equivalents, and marketable securities. The company's operating activities generated significant cash flow of $26.62 billion for the nine months ended September 30, 2016. Investing activities showed substantial deployment of capital in marketable securities, while financing activities included significant share repurchases totaling $3.7 billion in the first six months of 2016.

Yes, the filing mentions ongoing antitrust investigations by the European Commission regarding Google's shopping search results and Android practices, as well as similar investigations in other jurisdictions. Additionally, there are ongoing patent and intellectual property claims, including a significant copyright lawsuit from Oracle concerning Android. While Alphabet believes these matters will not have a material adverse effect, the outcomes are unpredictable.