Alphabet(GOOGL) - 2024 Q1 - Quarterly Results

Executive Summary & Q1 2024 Highlights CEO and CFO Commentary Alphabet reported strong Q1 2024 performance driven by Search, YouTube, and Cloud, with significant momentum in AI innovation - CEO Sundar Pichai highlighted strong performance from Search, YouTube, and Cloud, emphasizing the company's momentum in the 'Gemini era' and leadership in AI research and infrastructure[1] - CFO Ruth Porat noted strong financial results with $80.5 billion in revenues, up 15% year-on-year, and expansion of operating margin, attributing success to revenue strength and cost reengineering[1] Consolidated Financial Performance Overview Alphabet's consolidated financial results for Q1 2024 show substantial growth across key metrics, with revenues increasing by 15% year-over-year to $80.5 billion and net income rising significantly to $23.7 billion Q1 2024 Consolidated Financial Highlights | Metric | Q1 2023 (Millions USD) | Q1 2024 (Millions USD) | YoY Change (%) | | :-------------------------- | :--------------------- | :--------------------- | :------------- | | Revenues | $69,787 | $80,539 | 15% | | Operating Income | $17,415 | $25,472 | - | | Operating Margin | 25% | 32% | 7% pts | | Other Income (Expense), Net | $790 | $2,843 | - | | Net Income | $15,051 | $23,662 | - | | Diluted EPS | $1.17 | $1.89 | - | - Revenues increased by 15% year-over-year (16% in constant currency) to $80,539 million[3] - Operating income grew to $25,472 million, resulting in an operating margin of 32%, up from 25% in Q1 2023[3] Q1 2024 Supplemental Financial Information Segmental Revenue and Key Metrics Google Services and Google Cloud demonstrated strong revenue growth in Q1 2024, with Google Services reaching $70.4 billion and Google Cloud achieving $9.6 billion Q1 2024 Segmental Revenues and Key Metrics | Segment / Metric | Q1 2023 (Millions USD) | Q1 2024 (Millions USD) | | :----------------------------------- | :--------------------- | :--------------------- | | Google Search & other | $40,359 | $46,156 | | YouTube ads | $6,693 | $8,090 | | Google Network | $7,496 | $7,413 | | Google advertising | $54,548 | $61,659 | | Google subscriptions, platforms, and devices | $7,413 | $8,739 | | Google Services total | $61,961 | $70,398 | | Google Cloud | $7,454 | $9,574 | | Other Bets | $288 | $495 | | Total revenues | $69,787 | $80,539 | | Total TAC | $11,721 | $12,946 | | Number of employees | 190,711 | 180,895 | - Google Services revenue increased to $70,398 million in Q1 2024 from $61,961 million in Q1 2023[5] - Google Cloud revenue grew to $9,574 million in Q1 2024 from $7,454 million in Q1 2023[5] - The number of employees decreased from 190,711 in Q1 2023 to 180,895 in Q1 2024[5] Segmental Operating Results Google Services and Google Cloud significantly improved their operating income in Q1 2024, with Google Cloud's operating income increasing nearly fivefold Q1 2024 Segment Operating Income (Loss) | Operating Income (Loss) | Q1 2023 (Millions USD) | Q1 2024 (Millions USD) | | :---------------------- | :--------------------- | :--------------------- | | Google Services | $21,737 | $27,897 | | Google Cloud | $191 | $900 | | Other Bets | ($1,225) | ($1,020) | | Alphabet-level activities | ($3,288) | ($2,305) | | Total income from operations | $17,415 | $25,472 | - Google Cloud's operating income increased from $191 million in Q1 2023 to $900 million in Q1 2024[7] - Alphabet announced the consolidation of AI model development teams from Google Research and Google DeepMind to accelerate AI progress, effective Q2 2024[6] Shareholder Returns Alphabet initiated a quarterly cash dividend program and authorized an additional $70.0 billion for stock repurchases, signaling a commitment to returning capital to shareholders Dividend Program Alphabet's Board of Directors approved the initiation of a cash dividend program, declaring a $0.20 per share dividend payable on June 17, 2024, with intentions for future quarterly payments - Alphabet's Board of Directors approved the initiation of a cash dividend program[8] - A cash dividend of $0.20 per share was declared, payable on June 17, 2024, to stockholders of record as of June 10, 2024[8] - The company intends to pay quarterly cash dividends in the future, subject to Board approval[8] Stock Repurchases The Board authorized an additional $70.0 billion for repurchases of Class A and Class C shares, to be executed opportunistically based on market conditions - Alphabet's Board of Directors authorized the repurchase of up to an additional $70.0 billion of its Class A and Class C shares[9] - Repurchases are expected to be executed from time to time through open market purchases or privately negotiated transactions, considering economic cost and market conditions[9][10] Operational Adjustments Employee severance and related charges significantly decreased in Q1 2024 compared to the prior year, reflecting a reduction in restructuring costs Employee Severance and Related Charges Employee severance and related charges for Q1 2024 amounted to $716 million, a substantial $1.3 billion decrease compared to Q1 2023, distributed across various expense categories - Employee severance and related charges for Q1 2024 were $716 million[11] - This represents a $1.3 billion decrease in severance and related charges compared to Q1 2023[11] - These charges were allocated across cost of revenues ($153 million), research and development ($247 million), sales and marketing ($217 million), and general and administrative expenses ($99 million)[11] Consolidated Financial Statements Consolidated Balance Sheets The consolidated balance sheets provide a snapshot of Alphabet's financial position as of March 31, 2024, detailing assets, liabilities, and stockholders' equity Consolidated Balance Sheets (Selected Items) | Item | As of Dec 31, 2023 (Millions USD) | As of Mar 31, 2024 (Millions USD) | | :-------------------------------------- | :-------------------------------- | :-------------------------------- | | Total cash, cash equivalents, and marketable securities | $110,916 | $108,090 | | Total current assets | $171,530 | $165,471 | | Property and equipment, net | $134,345 | $143,182 | | Total assets | $402,392 | $407,350 | | Total current liabilities | $81,814 | $76,997 | | Total liabilities | $119,013 | $114,506 | | Total stockholders' equity | $283,379 | $292,844 | Consolidated Statements of Income The consolidated statements of income present Alphabet's revenues, costs, and net income for the quarter ended March 31, 2024, showing significant growth in profitability Consolidated Statements of Income (Selected Items) | Item | Q1 2023 (Millions USD) | Q1 2024 (Millions USD) | | :---------------------------------- | :--------------------- | :--------------------- | | Revenues | $69,787 | $80,539 | | Cost of revenues | $30,612 | $33,712 | | Research and development | $11,468 | $11,903 | | Sales and marketing | $6,533 | $6,426 | | General and administrative | $3,759 | $3,026 | | Total costs and expenses | $52,372 | $55,067 | | Income from operations | $17,415 | $25,472 | | Other income (expense), net | $790 | $2,843 | | Income before income taxes | $18,205 | $28,315 | | Provision for income taxes | $3,154 | $4,653 | | Net income | $15,051 | $23,662 | | Diluted earnings per share | $1.17 | $1.89 | Consolidated Statements of Cash Flows The consolidated statements of cash flows detail Alphabet's cash generation and usage from operating, investing, and financing activities for the quarter ended March 31, 2024 Consolidated Statements of Cash Flows (Selected Items) | Item | Q1 2023 (Millions USD) | Q1 2024 (Millions USD) | | :---------------------------------- | :--------------------- | :--------------------- | | Net cash provided by operating activities | $23,509 | $28,848 | | Net cash used in investing activities | ($2,946) | ($8,564) | | Net cash used in financing activities | ($16,568) | ($19,714) | | Net increase (decrease) in cash and cash equivalents | $4,045 | $445 | | Cash and cash equivalents at end of period | $25,924 | $24,493 | Detailed Segment Results Segment Revenues and Operating Income (Loss) Alphabet's Q1 2024 segment results show robust revenue and operating income growth for Google Services and Google Cloud, while Other Bets continued to operate at a loss, albeit a reduced one Q1 2024 Segment Revenues | Segment | Q1 2023 (Millions USD) | Q1 2024 (Millions USD) | | :------------------ | :--------------------- | :--------------------- | | Google Services | $61,961 | $70,398 | | Google Cloud | $7,454 | $9,574 | | Other Bets | $288 | $495 | | Hedging gains (losses) | $84 | $72 | | Total revenues | $69,787 | $80,539 | Q1 2024 Segment Operating Income (Loss) | Operating Income (Loss) | Q1 2023 (Millions USD) | Q1 2024 (Millions USD) | | :---------------------- | :--------------------- | :--------------------- | | Google Services | $21,737 | $27,897 | | Google Cloud | $191 | $900 | | Other Bets | ($1,225) | ($1,020) | | Alphabet-level activities | ($3,288) | ($2,305) | | Total income from operations | $17,415 | $25,472 | Segment Descriptions and Unallocated Costs Alphabet's operations are categorized into Google Services, Google Cloud, and Other Bets, with certain corporate and AI-focused R&D costs managed at the Alphabet-level and not allocated to segments - Google Services generates revenue primarily from advertising, consumer subscriptions (YouTube TV, Music, Premium, NFL Sunday Ticket, Google One), and sales of apps, in-app purchases, and devices[26] - Google Cloud revenues are primarily from consumption-based fees and subscriptions for Google Cloud Platform services, Google Workspace tools, and other enterprise services[26] - Other Bets revenues are mainly from healthcare-related and internet services[26] - Alphabet-level activities include AI-focused shared R&D, general AI model development, corporate initiatives, shared corporate costs (finance, HR, legal), and charges related to employee severance and office space reductions[26] Other Financial Items Other Income (Expense), Net Breakdown Alphabet's Other Income (Expense), Net significantly increased to $2.8 billion in Q1 2024, primarily driven by a substantial gain on equity securities, which positively impacted net income and diluted EPS Q1 2024 Other Income (Expense), Net | Item | Q1 2023 (Millions USD) | Q1 2024 (Millions USD) | | :---------------------------------------- | :--------------------- | :--------------------- | | Interest income | $797 | $1,061 | | Interest expense | ($80) | ($94) | | Foreign currency exchange gain (loss), net | ($210) | ($238) | | Gain (loss) on debt securities, net | ($293) | ($462) | | Gain (loss) on equity securities, net | $377 | $2,243 | | Performance fees | $118 | $104 | | Income (loss) and impairment from equity method investments, net | ($51) | ($26) | | Other | $132 | $255 | | Other income (expense), net | $790 | $2,843 | - Net gain on equity securities increased significantly from $377 million in Q1 2023 to $2,243 million in Q1 2024[29] - The net effect of the gain on equity securities and reversal of performance fees increased the provision for income tax, net income, and diluted EPS by $493 million, $1.9 billion, and $0.15, respectively, in Q1 2024[29] Non-GAAP Financial Measures & Reconciliations About Non-GAAP Financial Measures Alphabet utilizes non-GAAP financial measures to provide supplemental insights into its core business performance and liquidity, facilitating period-to-period comparisons and investor analysis - Non-GAAP measures used include free cash flow, constant currency revenues, and operating expenses/margin excluding severance and office space charges[14] - These measures are intended to provide meaningful supplemental information by excluding items not indicative of recurring core business operating results, such as foreign exchange rate movements and hedging activities[14] - The company believes these non-GAAP measures are useful for management's decision-making, internal comparisons, and for investors and analysts to assess business health and performance[14] Free Cash Flow Reconciliation Alphabet's free cash flow for Q1 2024 was $16.8 billion, calculated by deducting capital expenditures from net cash provided by operating activities, providing insight into cash available for strategic opportunities Q1 2024 Free Cash Flow Reconciliation | Item | Q1 2024 (Millions USD) | | :-------------------------------------- | :--------------------- | | Net cash provided by operating activities | $28,848 | | Less: purchases of property and equipment | ($12,012) | | Free cash flow | $16,836 | - Free cash flow is defined as net cash provided by operating activities less capital expenditures[31] Constant Currency Revenues Reconciliation Alphabet provides constant currency revenues to facilitate comparison of current results to historic performance by excluding the effect of foreign exchange rate movements and hedging activities, which are not indicative of core operating results Revenues by Geography (YoY) In Q1 2024, all geographic regions showed year-over-year revenue growth, with the United States leading at 18% (both as reported and constant currency), and EMEA, APAC, and Other Americas also contributing positively Q1 2024 Revenues by Geography (YoY Comparison) | Region | Q1 2023 (Millions USD) | Q1 2024 (Millions USD) | Constant Currency Revenues (Millions USD) | % Change (As Reported) | % Change (Constant Currency) | | :-------------- | :--------------------- | :--------------------- | :---------------------------------------- | :--------------------- | :--------------------------- | | United States | $32,864 | $38,737 | $38,737 | 18% | 18% | | EMEA | $21,078 | $23,788 | $23,584 | 13% | 12% | | APAC | $11,681 | $13,289 | $13,728 | 14% | 18% | | Other Americas | $4,080 | $4,653 | $4,805 | 14% | 18% | | Total revenues | $69,787 | $80,539 | $80,854 | 15% | 16% | Revenues by Geography (QoQ) Compared to Q4 2023, Q1 2024 revenues decreased across all geographic regions, with total revenues declining by 7% (both as reported and constant currency), reflecting typical seasonal patterns Q1 2024 Revenues by Geography (QoQ Comparison) | Region | Q4 2023 (Millions USD) | Q1 2024 (Millions USD) | Constant Currency Revenues (Millions USD) | % Change (As Reported) | % Change (Constant Currency) | | :-------------- | :--------------------- | :--------------------- | :---------------------------------------- | :--------------------- | :--------------------------- | | United States | $41,995 | $38,737 | $38,737 | (8)% | (8)% | | EMEA | $25,010 | $23,788 | $23,428 | (5)% | (6)% | | APAC | $13,979 | $13,289 | $13,204 | (5)% | (6)% | | Other Americas | $5,176 | $4,653 | $4,725 | (10)% | (9)% | | Total revenues | $86,310 | $80,539 | $80,094 | (7)% | (7)% | Total Revenues — Prior Year Comparative Periods (Q1 2022 vs Q1 2023) Total revenues for Q1 2023 increased by 3% year-over-year compared to Q1 2022, reaching $69.8 billion, with a 6% increase on a constant currency basis Total Revenues (Q1 2022 vs Q1 2023) | Item | Q1 2022 (Millions USD) | Q1 2023 (Millions USD) | Constant Currency Revenues (Millions USD) | % Change (As Reported) | % Change (Constant Currency) | | :------------------------------------ | :--------------------- | :--------------------- | :---------------------------------------- | :--------------------- | :--------------------------- | | Revenues excluding hedging effect | $67,733 | $69,703 | $71,877 | 3% | 6% | | Hedging gains (losses) | $278 | $84 | - | - | - | | Total revenues | $68,011 | $69,787 | $71,877 | 3% | 6% | - Constant currency revenues exclude the effect of foreign exchange rate movements and hedging activities to provide a clearer view of core operating results[33] - The calculation involves translating current period revenues using prior period exchange rates and excluding hedging effects[33] Operating Measures Excluding Severance and Office Space Charges Excluding severance and office space charges, Alphabet's operating expenses increased by 5% and operating income grew by 31% in Q1 2024, demonstrating improved underlying operational efficiency and profitability Q1 2024 Operating Measures Excluding Severance and Office Space Charges | Item | Q1 2023 (Millions USD) | Q1 2024 (Millions USD) | % Change | | :----------------------------------------------------------------- | :--------------------- | :--------------------- | :------- | | Other cost of revenues, excluding severance and related and office space charges | $18,210 | $20,613 | 13% | | Operating expenses, excluding severance and related and office space charges | $19,883 | $20,792 | 5% | | Operating income, excluding severance and related and office space charges | $19,973 | $26,188 | 31% | | Operating margin, excluding severance and related and office space charges | 29% | 33% | 4% pts | - Excluding severance and related and office space charges, operating expenses increased by 5% year-over-year[42] - Operating income, excluding these charges, grew by 31% to $26,188 million, with the operating margin expanding by 4 percentage points to 33%[42] Additional Information Webcast and Conference Call Information Information for accessing the live audio webcast of Alphabet's Q1 2024 earnings release call and related materials is provided, including the YouTube link and investor relations website - A live audio webcast of the Q1 2024 earnings call was available on YouTube[12] - The press release and non-GAAP reconciliations are available on Alphabet's investor relations website (http://abc.xyz/investor)[12](index=12&type=chunk) Forward-Looking Statements This section contains a standard disclaimer regarding forward-looking statements, advising that actual results may differ materially due to various risks and uncertainties detailed in SEC filings - The press release contains forward-looking statements that involve risks and uncertainties, and actual results may differ materially from predictions[13] - Potential risks are detailed in the Annual Report on Form 10-K and Quarterly Report on Form 10-Q filed with the SEC[13] Contact Information Contact details for investor relations and media inquiries are provided for Alphabet Inc - Investor relations contact: investor-relations@abc.xyz[16] - Media contact: press@abc.xyz[16]