Alphabet : Earnings release for Q2 2023

Alphabet Announces Second Quarter 2023 Results

Announces Plans for Chief Financial Officer Transition and Appointment of President and Chief Investment Officer

MOUNTAIN VIEW, Calif. - July 25, 2023 - Alphabet Inc. (NASDAQ: GOOG, GOOGL) today announced financial results for the quarter ended June 30, 2023.

Sundar Pichai, CEO of Alphabet and Google, said: "There's exciting momentum across our products and the company, which drove strong results this quarter. Our continued leadership in AI and our excellence in engineering and innovation are driving the next evolution of Search, and improving all our services. With fifteen products that each serve half a billion people, and six that serve over two billion each, we have so many opportunities to deliver on our mission."

Ruth Porat, CFO of Alphabet and Google, said: "Our financial results reflect continued resilience in Search, with an acceleration of revenue growth in both Search and YouTube, as well as momentum in Cloud. We continue investing for growth, while prioritizing our efforts to durably reengineer our cost base company-wide and create capacity to deliver sustainable value for the long term."

Q2 2023 Financial Highlights (unaudited)

The following table summarizes our consolidated financial results for the quarters ended June 30, 2022 and 2023 (in millions, except for per share information and percentages).

		Quarter Ended June 30,
		2022		2023
Revenues	$	69,685	$	74,604
Change in revenues year over year		13 %		7 %
Change in constant currency revenues year over year(1)		16 %		9 %
Operating income	$	19,453	$	21,838
Operating margin		28 %		29 %
Other income (expense), net	$	(439)	$	65
Net income	$	16,002	$	18,368
Diluted EPS	$	1.21	$	1.44

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.

Q2 2023 Supplemental Information (in millions, except for number of employees; unaudited)

Revenues, Traffic Acquisition Costs (TAC), and Number of Employees
		Quarter Ended June 30,
		2022			2023
Google Search & other	$	40,689	$	42,628
YouTube ads		7,340			7,665
Google Network		8,259			7,850
Google advertising		56,288			58,143
Google other		6,553			8,142
Google Services total		62,841			66,285
Google Cloud		6,276			8,031
Other Bets		193			285
Hedging gains (losses)		375			3
Total revenues	$	69,685		$	74,604
Total TAC	$	12,214	$	12,537
Number of employees(1)		174,014			181,798

1. The substantial majority of the employees affected by the reduction of our workforce are no longer included in our headcount as of June 30, 2023. We expect most of the remaining employees affected will no longer be reflected in our headcount by the end of 2023, subject to local law and consultation requirements.

Segment Operating Results

As announced on April 20, 2023, we brought together part of Google Research (the Brain team) and DeepMind to significantly accelerate our progress in artificial intelligence (AI). The group, called Google DeepMind, is reported within Alphabet's unallocated corporate costs prospectively beginning in the second quarter of 2023. Previously, the Brain team was included within Google Services.

		Quarter Ended June 30,
		2022			2023
		(recast)
Operating income (loss):
Google Services	$	21,621	$	23,454
Google Cloud		(590)			395
Other Bets		(1,339)			(813)
Corporate costs, unallocated(1)		(239)			(1,198)
Total income from operations	$	19,453	$	21,838

1. In addition to the Alphabet-level costs included in unallocated corporate costs, hedging gains (losses) related to revenue were $375 million and $3 million for the three months ended June 30, 2022 and 2023, respectively.

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Additional Information Relating to the Quarter Ended June 30, 2023 (unaudited)

Reductions in Our Workforce and Office Space

In January 2023, we announced a reduction of our workforce, and as a result we recorded employee severance and related charges of $2.0 billion for the six months ended June 30, 2023. In addition, we are taking actions to optimize our global office space. As a result, total charges recorded during the six months ended June 30, 2023 were $633 million, of which $564 million and $69 million were recorded during the three months ended March 31, 2023 and June 30, 2023, respectively. We may incur additional charges in the future as we further evaluate our real estate needs.

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 was a reduction in depreciation expense of $966 million and $2.0 billion and an increase in net income of $752 million and $1.5 billion, or $0.06 and $0.12 per basic and $0.06 and $0.12 per diluted share for the three and six months ended June 30, 2023, respectively.

Additional Information Regarding Chief Financial Officer Transition and Appointment of President and Chief Investment Officer

Alphabet and Google CFO Ruth Porat will assume the newly created role of President and Chief Investment Officer of Alphabet and Google, effective September 1, 2023. Ruth will continue to serve as CFO, including leading the company's 2024 and long-range capital planning processes, while the company searches for and selects her successor.

In her new role, Ruth will continue to report to Sundar Pichai, Alphabet and Google CEO. Ruth assumed the role of CFO in May 2015 and is the company's longest-serving CFO.

In her new role, Ruth will be responsible for Alphabet's investments in its Other Bets portfolio, working closely with Sundar, and the company's investments in countries and communities around the world. Alphabet's investments span numerous sectors and are engines of economic growth globally. She will also focus on engagement with policymakers and regulators regarding employment, economic opportunity, competitiveness, and infrastructure expansion.

"Ruth has worked to drive financial discipline and returns for shareholders, while spearheading investment to create sustainable, long-term value. As today's results show, we're making good progress and we're committed to continuing this important work," Sundar said. "In her new role, Ruth will strengthen our collaboration with policy makers and shape our corporate investments to have maximum economic impact for people and economies around the world."

"I'm excited about this new role and the opportunity to engage with leaders globally to unlock economic growth via technology and investment," said Ruth. "I'm committed to Google's continued growth and ensuring that our diverse global investments are supported with strong partnership to create opportunities for people and communities, everywhere."

Webcast and Conference Call Information

A live audio webcast of our second quarter 2023 earnings release call will be available on YouTube at https:// abc.xyz/2023-q2-earnings-call/. 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.

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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 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 and our most recent Quarterly Report on Form 10-Q for the quarter ended March 31, 2023, 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 June 30, 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 July 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 June 30,
		2022			2023
					(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	21,879	$	25,929
Marketable securities		91,883			92,403
Total cash, cash equivalents, and marketable securities		113,762			118,332
Accounts receivable, net		40,258			38,804
Inventory		2,670			2,231
Other current assets		8,105			9,421
Total current assets		164,795			168,788
Non-marketable securities		30,492			31,224
Deferred income taxes		5,261			9,357
Property and equipment, net		112,668			121,208
Operating lease assets		14,381			14,469
Intangible assets, net		2,084			1,966
Goodwill		28,960			29,210
Other non-current assets		6,623			6,822
Total assets	$	365,264	$	383,044
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	5,128	$	5,313
Accrued compensation and benefits		14,028			11,260
Accrued expenses and other current liabilities		37,866			49,300
Accrued revenue share		8,370			7,990
Deferred revenue		3,908			3,846
Total current liabilities		69,300			77,709
Long-term debt		14,701			13,705
Deferred revenue, non-current		599			667
Income taxes payable, non-current		9,258			8,753
Deferred income taxes		514			558
Operating lease liabilities		12,501			12,746
Other long-term liabilities		2,247			1,765
Total liabilities		109,120			115,903
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
12,629 (Class A 5,934, Class B 876, Class C 5,819) shares issued and		68,184			72,248
outstanding
Accumulated other comprehensive income (loss)		(7,603)			(5,991)
Retained earnings		195,563			200,884
Total stockholders' equity		256,144			267,141
Total liabilities and stockholders' equity	$	365,264	$	383,044

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