Alphabet : 2023 Q1 Earnings Press release

Alphabet Announces First Quarter 2023 Results

MOUNTAIN VIEW, Calif. - April 25, 2023 - Alphabet Inc. (NASDAQ: GOOG, GOOGL) today announced financial results for the quarter ended March 31, 2023.

Sundar Pichai, CEO of Alphabet and Google, said: "We are pleased with our business performance in the first quarter, with Search performing well and momentum in Cloud. We introduced important product updates anchored in deep computer science and AI. Our North Star is providing the most helpful answers for our users, and we see huge opportunities ahead, continuing our long track record of innovation."

Ruth Porat, CFO of Alphabet and Google, said: "Resilience in Search and momentum in Cloud resulted in Q1 consolidated revenues of $69.8 billion, up 3% year over year, or up 6% in constant currency. We remain committed to delivering long-term growth and creating capacity to invest in our most compelling growth areas by re-engineering our cost base."

Q1 2023 financial highlights (unaudited)

Our first quarter 2023 results reflect:

1. $2.6 billion in charges related to reductions in our workforce and office space;
2. a $988 million reduction in depreciation expense from the change in estimated useful life of our servers and certain network equipment; and
3. a shift in the timing of our annual employee stock-based compensation awards resulting in relatively less stock-based compensation expense recognized in the first quarter compared to the remaining quarters of the year. The shift in timing itself will not affect the amount of stock-based compensation expense over the full fiscal year 2023.

For further information, please refer to our blog post also filed with the SEC via Form 8-K on April 20, 2023.

The following table summarizes our consolidated financial results for the quarters ended March 31, 2022 and 2023 (in millions, except for per share information and percentages).

		Quarter Ended March 31,
		2022		2023
Revenues	$	68,011	$	69,787
Change in revenues year over year		23 %		3 %
Change in constant currency revenues year over year(1)		26 %		6 %
Operating income	$	20,094	$	17,415
Operating margin		30 %		25 %
Other income (expense), net	$	(1,160)	$	790
Net income	$	16,436	$	15,051
Diluted EPS	$	1.23	$	1.17

1. Non-GAAPmeasure. See the table captioned "Reconciliation from GAAP revenues to non-GAAP constant currency revenues and GAAP percentage change in revenues to non-GAAP percentage change in constant currency revenues" for more details.

Q1 2023 supplemental information (in millions, except for number of employees; unaudited)

Revenues, Traffic Acquisition Costs (TAC), and number of employees
		Quarter Ended March 31,
		2022			2023
Google Search & other	$	39,618	$	40,359
YouTube ads		6,869			6,693
Google Network		8,174			7,496
Google advertising		54,661			54,548
Google other		6,811			7,413
Google Services total		61,472			61,961
Google Cloud		5,821			7,454
Other Bets		440			288
Hedging gains (losses)		278			84
Total revenues	$	68,011		$	69,787
Total TAC	$	11,990	$	11,721
Number of employees(1)		163,906			190,711

1. As of March 31, 2023, the number of employees includes almost all of the employees affected by the reduction of our workforce. We expect most of those affected will no longer be reflected in our headcount by the end of the second quarter of 2023, subject to local law and consultation requirements.

Segment Operating Results

Reflecting DeepMind's increasing collaboration with Google Services, Google Cloud, and Other Bets, beginning in the first quarter of 2023 DeepMind is reported as part of Alphabet's unallocated corporate costs instead of within Other Bets. Additionally, beginning in the first quarter of 2023, we updated and simplified our cost allocation methodologies to provide our business leaders with increased transparency for decision-making. Prior periods have been recast to reflect the revised presentation and are shown in Recast Historical Segment Results below.

As announced on April 20, 2023, we are bringing together part of Google Research (the Brain Team) and DeepMind to significantly accelerate our progress in AI. This change does not affect first quarter reporting. The group, called Google DeepMind, will be reported within Alphabet's unallocated corporate costs beginning in the second quarter of 2023.

		Quarter Ended March 31,
		2022			2023
		(recast)
Operating income (loss):
Google Services	$	21,973	$	21,737
Google Cloud		(706)			191
Other Bets		(835)			(1,225)
Corporate costs, unallocated(1)		(338)			(3,288)
Total income from operations	$	20,094	$	17,415

1. Hedging gains (losses) related to revenue included in unallocated corporate costs were $278 million and $84 million for the three months ended March 31, 2022 and 2023, respectively. For the three months ended March 31, 2023, unallocated corporate costs include charges related to the reductions in our workforce and office space totaling $2.5 billion.

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Additional information relating to the quarter ended March 31, 2023 (unaudited)

Reductions in Our Workforce and Office Space

In January 2023, we announced a reduction of our workforce, and as a result in the first quarter of 2023 we recorded employee severance and related charges of $2.0 billion, representing the majority of expected costs associated with this action. In addition, we are taking actions to optimize our global office space, and as a result we recorded charges related to office space reductions of $564 million in the first quarter of 2023. We may incur additional charges in the future as we further evaluate our real estate needs.

These severance and office space charges are included within our consolidated statements of income for the three months ended March 31, 2023 as follows (in millions):

	Severance and			Office Space			Total
		Related
Cost of revenues	$	461	$	220	$	681
Research and development		835			247			1,082
Sales and marketing		445			35			480
General and administrative		253			62			315
Total charges	$	1,994	$	564	$	2,558

For segment reporting, the substantial majority of these charges are included within unallocated corporate costs in our segment results.

Change in Useful Lives of Our Server and Network Equipment

In January 2023, we completed an assessment of the useful lives of our servers and network equipment and adjusted the estimated useful life of our servers from four years to six years and the estimated useful life of certain network equipment from five years to six years. This change in accounting estimate was effective beginning in fiscal year 2023 and the effect for the three months ended March 31, 2023 was a reduction in depreciation expense of $988 million and an increase in net income of $770 million, or $0.06 per basic and $0.06 per diluted share.

Timing of Our Annual Employee Equity Grants

Beginning in 2023, the timing of our annual employee stock-based compensation awards shifted from January to March. While the shift in timing itself will not affect the amount of stock-based compensation expense over the full fiscal year 2023, it results in relatively less expense recognized in the first quarter compared to the remaining quarters of the year.

Stock Repurchases

On April 19, 2023, the Board of Directors of Alphabet authorized the company to repurchase up to an additional $70.0 billion of its Class A and Class C shares in a manner deemed in the best interest of the company and its stockholders, taking into account the economic cost and prevailing market conditions, including the relative trading prices and volumes of the Class A and Class C shares. The repurchases are expected to be executed from time to time, subject to general business and market conditions and other investment opportunities, through open market purchases or privately negotiated transactions, including through Rule 10b5-1 plans.

Webcast and conference call information

A live audio webcast of our first quarter 2023 earnings release call will be available on YouTube at https:// www.youtube.com/watch?v=76CVRgZUfps. The call begins today at 2:00 PM (PT) / 5:00 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

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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, 2022, 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 March 31, 2023, and may be set forth in other reports and filings we make with the SEC. All information provided in this release and in the attachments is as of April 25, 2023. 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, which are recognized at the consolidated level. 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 and GAAP percentage change in revenues to non-GAAP percentage change in constant currency revenues" included at the end of this release.

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Alphabet Inc.

CONSOLIDATED BALANCE SHEETS

(In millions, except par value per share amounts)

	As of December 31,			As of March 31,
		2022			2023
					(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	21,879	$	25,924
Marketable securities		91,883			89,178
Total cash, cash equivalents, and marketable securities		113,762			115,102
Accounts receivable, net		40,258			36,036
Inventory		2,670			2,315
Other current assets		8,105			8,532
Total current assets		164,795			161,985
Non-marketable securities		30,492			31,213
Deferred income taxes		5,261			6,885
Property and equipment, net		112,668			117,560
Operating lease assets		14,381			14,447
Intangible assets, net		2,084			1,968
Goodwill		28,960			28,994
Other non-current assets		6,623			6,439
Total assets	$	365,264	$	369,491
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	5,128	$	4,184
Accrued compensation and benefits		14,028			9,954
Accrued expenses and other current liabilities		37,866			43,185
Accrued revenue share		8,370			7,816
Deferred revenue		3,908			3,715
Total current liabilities		69,300			68,854
Long-term debt		14,701			13,697
Deferred revenue, non-current		599			610
Income taxes payable, non-current		9,258			9,722
Deferred income taxes		514			542
Operating lease liabilities		12,501			12,799
Other long-term liabilities		2,247			2,373
Total liabilities		109,120			108,597
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.001 par value per share, 100 shares authorized; no shares
issued and outstanding		0			0
Class A, Class B, and Class C stock and additional paid-in capital, $0.001 par
value per share: 300,000 shares authorized (Class A 180,000, Class B 60,000,
Class C 60,000); 12,849 (Class A 5,964, Class B 883, Class C 6,002) and 12,722
(Class A 5,943, Class B 883, Class C 5,896) shares issued and outstanding		68,184			70,269
Accumulated other comprehensive income (loss)		(7,603)			(6,000)
Retained earnings		195,563			196,625
Total stockholders' equity		256,144			260,894
Total liabilities and stockholders' equity	$	365,264	$	369,491

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