10-QPeriod: Q2 FY2017

Alphabet Inc. Quarterly Report for Q2 Ended Jun 30, 2017

Filed July 25, 2017For Securities:GOOGLGOOGGOOGMGOOGN

Summary

Alphabet Inc. reported robust revenue growth of 21% year-over-year for the second quarter of 2017, reaching $26.0 billion. This growth was primarily driven by strong performance in the Google segment, which saw a 21% increase in revenue, contributing $25.8 billion. "Other Bets" also showed significant growth, with revenues up 34% to $0.2 billion. Despite a substantial European Commission fine of approximately $2.7 billion impacting net income, the company demonstrated operational strength with solid cash flow generation. Total assets grew to $178.6 billion, while stockholders' equity increased to $148.3 billion, indicating a healthy financial position. The company maintained a significant cash and marketable securities balance of $94.7 billion, providing ample liquidity.

Financial Highlights

47 data points
Beta

Revenue

$26.01B

60.1% Gross Margin

Net Income

$3.52B

13.5% Net Margin

EPS (Diluted)

$0.25

Total Assets

$178.62B

Cash & Equivalents

$15.71B

Free Cash Flow

$4.57B

Financial Statements
Beta
Revenue$26.01B
Cost of Revenue$10.37B
Gross Profit$15.64B
R&D Expenses$4.17B
Operating Expenses$21.88B
Operating Income$4.13B
Interest Expense$21.00M
Net Income$3.52B
EPS (Basic)$0.25
EPS (Diluted)$0.25

Key Highlights

  • 1Total revenues reached $26.0 billion, a 21% increase year-over-year, with the Google segment contributing $25.8 billion (21% growth).
  • 2Operating expenses were impacted by a $2.7 billion European Commission fine, leading to a net income of $3.5 billion (down from $4.9 billion in the prior year's quarter).
  • 3Diluted earnings per share were $5.01, reflecting the impact of the fine.
  • 4The company maintained a strong liquidity position with $94.7 billion in cash, cash equivalents, and marketable securities as of June 30, 2017.
  • 5Capital expenditures increased to $5.3 billion for the six months ended June 30, 2017, reflecting ongoing investments in property and equipment.
  • 6Headcount grew to 75,606 employees by the end of the quarter, indicating continued expansion.
  • 7Stock-based compensation expense increased to $2.06 billion for the quarter, reflecting growth in employee incentives.

Frequently Asked Questions

The primary driver of Alphabet's revenue growth was the strong performance of its Google segment, which includes Search, Ads, YouTube, and Google Cloud. This segment experienced a 21% year-over-year increase in revenue, contributing the vast majority of the company's total revenue.

The European Commission imposed a fine of approximately $2.7 billion on Google for antitrust violations related to its shopping search results. This fine was recorded as a charge in operating expenses for the second quarter of 2017, significantly impacting net income and earnings per share for the period. The company is considering an appeal.

Alphabet maintained a very strong liquidity position with $94.7 billion in cash, cash equivalents, and marketable securities as of June 30, 2017. A significant portion of this cash ($57.9 billion) was held by foreign subsidiaries. The company indicated its intent to permanently reinvest these foreign funds and does not foresee a need to repatriate them for U.S. operations. Sources of liquidity also include operating cash flow, a commercial paper program, and a revolving credit facility.

Alphabet's 'Other Bets' segment, comprising various non-reportable ventures like Access, Calico, Verily, and Waymo, showed strong revenue growth of 34% year-over-year, reaching $0.2 billion for the quarter. However, this segment continues to operate at a significant loss, with operating losses of $0.8 billion for the quarter, reflecting ongoing investments in these growth initiatives.