As expected, Alphabet has today shared its earnings results for the first quarter of 2016. The company is reporting revenue of $20.3 billion, which is up from $17.3 billion in the same quarter last year, but misses analyst expectations. Additionally, the company reports a net income of $3.5 billion for the first quarter of 2016. Based on these results, Alphabet stock is down over 4 percent in after-hours trading.
Last quarter, Q4 2015, Alphabet reported strong earnings of $21.3 billion billion in revenue and $3.97 billion in net income. These numbers made the company’s stock soar and even led to Alphabet, albeit it briefly, overtaking Apple as the world’s most valuable company.
As usual, Alphabet is hold an earnings call with investors and members of the press to further break down numbers from its Q1 2016 earnings release. You can follow along via the livestream below and we’ll have coverage of any notable tidbits the company reveals.
You can find the full earnings release from Alphabet below, as well.
Alphabet Announces First Quarter 2016 Results
MOUNTAIN VIEW, Calif. – April 21, 2016 – Alphabet Inc. (NASDAQ: GOOG, GOOGL) today announced financial results for the quarter ended March 31, 2016.
“Our Q1 results represent a tremendous start to the year with 17% revenue growth year on year and 23% growth on a constant currency basis. We’re thoughtfully pursuing big bets and building exciting new technologies, in Google and our Other Bets, that position us well for long term growth,” said Ruth Porat, CFO of Alphabet.
Q1 2016 financial highlights
The following summarizes our consolidated financial results for the quarters ended March 31, 2015 and 2016 (in millions, except for per share information; unaudited):
| Three Months Ended March 31, 2015 |
Three Months Ended March 31, 2016 |
|||
|---|---|---|---|---|
| Revenues | $17,258 | $20,257 | ||
| Increase in revenues year over year | 12 | % | 17 | % |
| Increase in constant currency revenues year over year | 17 | % | 23 | % |
| GAAP operating income | $4,447 | $5,342 | ||
| GAAP operating margin | 26 | % | 26 | % |
| Non-GAAP operating income | $5,650 | $6,836 | ||
| Non-GAAP operating margin | 33 | % | 34 | % |
| GAAP net income | $3,515 | $4,207 | ||
| Non-GAAP net income | $4,461 | $5,248 | ||
| GAAP diluted EPS for Class A and B common stock and Class C capital stock | $5.10 | $6.02 | ||
| Non-GAAP diluted EPS for Class A and B common stock and Class C capital stock | $6.47 | $7.50 | ||
| Diluted shares (in thousands) | 689,498 | 699,311 | ||
Operating income, operating margin, net income, and earnings per share (EPS) are reported on a GAAP and non-GAAP basis. Non-GAAP operating income and non-GAAP operating margin exclude stock-based compensation (SBC) expense. Non-GAAP net income and non-GAAP diluted EPS exclude SBC expense, net of the SBC related tax benefits. These non-GAAP measures, as well as free cash flow, an alternative non-GAAP measure of liquidity, and non-GAAP constant currency revenues and growth, are described and reconciled to the corresponding GAAP measures at the end of this release.
The following summarizes our segment results where Google is presented as a single segment and all other Alphabet businesses are combined as Other Bets (in millions; unaudited):
| Three Months Ended March 31, 2015 |
Three Months Ended March 31, 2016 |
|
|---|---|---|
| Google segment revenues | $17,178 | $20,091 |
| Google operating income | $5,188 | $6,272 |
| Other Bets revenues | $80 | $166 |
| Other Bets operating loss | ($633) | ($802) |
Q1 2016 consolidated financial summary
Revenues (in millions; unaudited):
| Three Months Ended March 31, 2016 |
Change from Q1 2015 to Q1 2016 (YoY) | Change from Q4 2015 to Q1 2016 (QoQ) | |
|---|---|---|---|
| Revenues | $20,257 | 17% | (5)% |
| Constant currency revenues (YoY) | $20,850 | 23% | N/A |
| Constant currency revenues (QoQ) | $20,238 | N/A | (4)% |
Our revenues and constant currency revenues are reconciled in the financial tables following this release.
Costs and expenses
Cost of revenues, operating expenses, SBC expense, and depreciation, amortization, and impairment charges (in millions; unaudited):
| Three Months Ended March 31, 2015 |
Three Months Ended March 31, 2016 |
|||
|---|---|---|---|---|
| Cost of revenues | $6,356 | $7,648 | ||
| Cost of revenues as % of revenues | 37 | % | 38 | % |
| Operating expenses (other than cost of revenues) | $6,455 | $7,267 | ||
| Operating expenses as % of revenues | 37 | % | 36 | % |
| SBC expense* | $1,203 | $1,494 | ||
| SBC related tax benefits | $(257) | $(453) | ||
| Depreciation, amortization, and impairment charges | $1,177 | $1,371 | ||
| *Excludes the expense for awards accounted for as stock-based compensation that will ultimately settle in cash. | ||||
Supplemental information (in millions, except for headcount data; unaudited)
| Three Months Ended March 31, 2015 |
Three Months Ended March 31, 2016 |
|||
|---|---|---|---|---|
| Cash, cash equivalents, and marketable securities | $65,436 | $75,264 | ||
| Net cash provided by operating activities* | $6,722 | $7,658 | ||
| Capital expenditures | $2,927 | $2,428 | ||
| Free cash flow* | $3,795 | $5,230 | ||
| Effective tax rate (ETR)* | 24 | % | 18 | % |
| Headcount | 55,419 | 64,115 | ||
| *In Q1 2016, we adopted Accounting Standards Update No. 2016-09, “Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting,” which addresses, among other items, updates to the presentation and treatment of certain tax benefits related to SBC. Prior period balances related to the consolidated statements of cash flows as well as free cash flow have been adjusted accordingly for comparative purposes. The impact from the changes in the treatment of such tax benefits in Q1 2016 resulted in a favorable ETR impact of 4%. | ||||
Q1 2016 Google segment summary
Revenues and monetization
Google segment revenues by source (in millions; unaudited):
| Three Months Ended March 31, 2015 |
Three Months Ended March 31, 2016 |
Change from Q1 2015 to Q1 2016 (YoY) | |
|---|---|---|---|
| Google segment | |||
| Google websites | $11,932 | $14,328 | 20% |
| Google Network Members’ websites | 3,576 | 3,692 | 3% |
| Google advertising revenues | 15,508 | 18,020 | 16% |
| Google other revenues | 1,670 | 2,071 | 24% |
| Google segment revenues | $17,178 | $20,091 | 17% |
Paid clicks and cost-per-click information (unaudited):
| Change from Q1 2015 to Q1 2016 (YoY) | Change from Q4 2015 to Q1 2016 (QoQ) | |
|---|---|---|
| Aggregate paid clicks | 29 % | (3)% |
| Paid clicks on Google websites | 38 % | (4)% |
| Paid clicks on Google Network Members’ websites | 2 % | 4 % |
| Aggregate cost-per-click | (9)% | 0 % |
| Cost-per-click on Google websites | (12)% | 2 % |
| Cost-per-click on Google Network Members’ websites | (8)% | (12)% |
Traffic acquisition costs (TAC) and operating income
TAC to Google Network Members and distribution partners, operating income, and SBC expense (in millions; unaudited):
| Three Months Ended March 31, 2015 |
Three Months Ended March 31, 2016 |
|||
|---|---|---|---|---|
| TAC to Google Network Members | $2,432 | $2,571 | ||
| TAC to Google Network Members as % of Google Network Members’ revenues | 68 | % | 70 | % |
| TAC to distribution partners | $913 | $1,217 | ||
| TAC to distribution partners as % of Google website revenues | 8 | % | 8 | % |
| Total TAC | $3,345 | $3,788 | ||
| Total TAC as % of Google advertising revenues | 22 | % | 21 | % |
| Three Months Ended March 31, 2015 | Three Months Ended March 31, 2016 | |||
| Operating income, excluding SBC expense | $6,243 | $7,588 | ||
| SBC expense | $1,055 | $1,316 | ||
| Operating income | $5,188 | $6,272 | ||
Supplemental information (in millions; unaudited)
| Three Months Ended March 31, 2015 |
Three Months Ended March 31, 2016 |
|
|---|---|---|
| Capital expenditures | $2,678 | $2,036 |
| Depreciation, amortization, and impairment | $1,137 | $1,317 |
Q1 2016 Other Bets summary
Revenues and operating results
Other Bets revenues, operating loss, and SBC expense (in millions; unaudited):
| Three Months Ended March 31, 2015 |
Three Months Ended March 31, 2016 |
|
|---|---|---|
| Other Bets revenues | $80 | $166 |
| Operating loss, excluding SBC expense | $(516) | $(657) |
| SBC expense | $117 | $145 |
| Operating loss | $(633) | $(802) |
Supplemental information (in millions; unaudited)
| Three Months Ended March 31, 2015 |
Three Months Ended March 31, 2016 |
|
|---|---|---|
| Capital expenditures | $157 | $280 |
| Depreciation, amortization, and impairment | $40 | $54 |
Stock repurchase
In Q1 2016, we repurchased 3.2 million shares of Alphabet Class C capital stock for an aggregate amount of $2.3 billion, of which $2.1 billion was paid during the quarter. The total remaining authorization for future repurchases is approximately $1.4 billion. The authorization has no expiration date.
Adoption of new accounting guidance
In Q1 2016, we early adopted Accounting Standards Update No. 2016-09 “Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting,” which changes several aspects of the accounting for share-based payments, including income tax consequences and classification on the consolidated statement of cash flows. Starting this quarter, certain tax benefits are reflected in our consolidated statement of income, whereas they were previously recognized in equity. Additionally, our consolidated statements of cash flows now present such tax benefits as an operating activity and the prior period is adjusted accordingly.
Webcast and conference call information
A live audio webcast of our first quarter 2016 earnings release call will be available at https://abc.xyz/investor. The call begins today at 1:30 PM (PT) / 4:30 PM (ET). This press release, including the reconciliations of certain non-GAAP measures to their nearest comparable GAAP measures, is also available on that site.
We also announce investor information, including news and commentary about our business and financial performance, SEC filings, notices of investor events and our press and earnings releases, on our investor relations website.
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, 2015, which is on file with the SEC and is available on our investor relations website at https://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, 2016. All information provided in this release and in the attachments is as of April 21, 2016, and 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: non-GAAP operating income, non-GAAP operating margin, non-GAAP net income, non-GAAP diluted EPS, free cash flow, non-GAAP constant currency revenues, and non-GAAP constant currency revenue growth. 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. Our management believes 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 impact for foreign currency fluctuations or our operating performance excluding not only non-cash charges, such as SBC expense, but also discrete cash charges that are infrequent in nature. 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.
For more information on these non-GAAP financial measures, please see the tables captioned “Reconciliations of non-GAAP results of operations to the nearest comparable GAAP measures,” “Reconciliation from net cash provided by operating activities to free cash flow,” and “Reconciliation from GAAP revenues to non-GAAP constant currency revenues” included at the end of this release.
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