Press release

Alphabet Announces Second Quarter 2017 Results

MOUNTAIN VIEW, Calif. – July 24, 2017 – Alphabet Inc. (NASDAQ: GOOG, GOOGL) today announced financial results for the quarter ended June 30, 2017.

"With revenues of $26 billion, up 21% versus the second quarter of 2016 and 23% on a constant currency basis, we're delivering strong growth with great underlying momentum, while continuing to make focused investments in new revenue streams," said Ruth Porat, CFO of Alphabet.

Q2 2017 financial highlights

In order to facilitate comparison of current quarter performance to prior periods, this summary table highlights the impact of the $2.7 billion European Commission (EC) fine, which was accrued in Q2 2017:

Q2 2017 summary results reflecting EC fine
Including (GAAP) Excluding
Revenues $26,010 $26,010
Operating income $4,132 $6,868
Net income $3,524 $6,260
Diluted EPS $5.01 $8.90


The following summarizes our consolidated financial results for the quarters ended June 30, 2016 and 2017 (in millions, except for per share information, effective tax rate, and headcount; unaudited), reported on a GAAP basis including the impact of the EC fine:

Three Months Ended
June 30, 2016
Three Months Ended
June 30, 2017
Revenues $21,500 $26,010
Increase in revenues year over year 21 % 21 %
Increase in constant currency revenues year over year 25 % 23 %
Operating income $5,968 $4,132
Operating margin 28 % 16 %
Net income $4,877 $3,524
Diluted EPS $7.00 $5.01
Diluted shares (in thousands) 696,847 703,503
Effective tax rate (ETR) 20 % 19 %
Headcount 66,575 75,606

Q2 2017 supplemental information

Segment revenues and operating results (in millions; unaudited):

Three Months Ended
June 30, 2016
Three Months Ended
June 30, 2017
Google properties revenues $15,400 $18,425
Google Network Members' properties revenues 3,743 4,247
Google advertising revenues 19,143 22,672
Google other revenues 2,172 3,090
Google segment revenues $21,315 $25,762
Other Bets revenues $185 $248
Google operating income* $6,990 $7,803
Other Bets operating loss $(855) $(772)
*The EC fine is included in reconciling items as it is not allocated to Google for segment reporting purposes.

Traffic acquisition costs (TAC) to Google Network Members and distribution partners (in millions; unaudited):

Three Months Ended
June 30, 2016
Three Months Ended
June 30, 2017
TAC to Google Network Members $2,623 $3,042
TAC to Google Network Members as % of Google Network Members' properties revenues 70 % 72 %
TAC to distribution partners $1,352 $2,049
TAC to distribution partners as % of Google properties revenues 9 % 11 %
Total TAC $3,975 $5,091
Total TAC as % of Google advertising revenues 21 % 22 %

Paid clicks and cost-per-click information (unaudited):

Change from Q2 2016 to Q2 2017 (YoY) Change from Q1 2017 to Q2 2017 (QoQ)
Aggregate paid clicks 52 % 12 %
Paid clicks on Google properties 61 % 15 %
Paid clicks on Google Network Members' properties 9 % (5) %
Aggregate cost-per-click (23) % (6) %
Cost-per-click on Google properties (26) % (8) %
Cost-per-click on Google Network Members' properties (11) % 5 %

The EC fine

On June 27, 2017, the EC announced its decision that certain actions taken by Google regarding its display and ranking of shopping search results and ads infringed European competition law. The EC decision imposes a €2.42 billion (approximately $2.74 billion) fine, which we accrued in the second quarter of 2017. The fine is included in “accrued expense and other current liabilities” on our Consolidated Balance Sheet.

Webcast and conference call information

A live audio webcast of our second quarter 2017 earnings release call will be available at https://abc.xyz/investor. 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 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, 2016, and our most recent Quarterly Report on Form 10-Q for the quarter ended March 31, 2017, which are on file with the SEC and are 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 June 30, 2017. All information provided in this release and in the attachments is as of July 24, 2017, 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: operating income, excluding the EC fine; net income, excluding the EC fine; diluted earnings per share, excluding the EC fine; free cash flow; constant currency revenues; and 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. 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 impact for foreign currency fluctuations or our operating performance excluding one-time 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.

Contact

Investor Relations
investor-relations@abc.xyz

Media:
press@abc.xyz

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Q2 financial data
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