Alphabet : 01.26.2017 Alphabet Announces Fourth Quarter and Fiscal Year 2016 Results more

MOUNTAIN VIEW, Calif. - January 26, 2017 - Alphabet Inc. (NASDAQ: GOOG, GOOGL) today announced financial results for the quarter and fiscal year ended December 31, 2016.

'Our growth in the fourth quarter was exceptional -- with revenues up 22% year on year and 24% on a constant currency basis. This performance was led by mobile search and YouTube. We're seeing great momentum in Google's newer investment areas and ongoing strong progress in Other Bets,' said Ruth Porat, CFO of Alphabet.

Q4 2016 financial highlights

The following summarizes our consolidated financial results for the quarters ended December 31, 2015 and 2016 (in millions, except for per share information; unaudited):

Revenues	$21,329		$26,064
Increase in revenues year over year	18	%	22	%
Increase in constant currency revenues year over year	24	%	24	%
GAAP operating income	$5,380		$6,639
GAAP operating margin	25	%	25	%
Non-GAAP operating income	$6,816		$8,485
Non-GAAP operating margin	32	%	33	%
GAAP net income	$4,923		$5,333
Non-GAAP net income	$6,043		$6,593
GAAP diluted EPS for Class A and B common stock and Class C capital stock	$7.06		$7.56
Non-GAAP diluted EPS for Class A and B common stock and Class C capital stock	$8.67		$9.36
Diluted shares (in thousands)	697,025		700,221

Operating income, operating margin, net income, and diluted 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, 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):

Google segment revenues	$21,179	$25,802
Google operating income	$6,744	$7,883
Other Bets revenues	$150	$262
Other Bets operating loss	$(1,213)	$(1,088)

Q4 2016 consolidated financial summary

Revenues (in millions; unaudited):

Revenues	$26,064	22%	16%
Constant currency revenues (YoY)	$26,079	24%	N/A
Constant currency revenues (QoQ)	$26,096	N/A	17%

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):

Cost of revenues	$8,188		$10,661
Cost of revenues as % of revenues	38	%	41	%
Operating expenses (other than cost of revenues)	$7,761		$8,764
Operating expenses as % of revenues	36	%	34	%
SBC expense*	$1,436		$1,846
SBC related tax benefits	$(316)		$(586)
Depreciation, amortization, and impairment charges	$1,404		$1,687
*Excludes the expense for awards accounted for as stock-based compensation that we expect to ultimately settle in cash.

Supplemental information (in millions, except for headcount data; unaudited)

Cash, cash equivalents, and marketable securities	$73,066		$86,333
Net cash provided by operating activities	$6,609		$9,413
Capital expenditures	$2,102		$3,078
Free cash flow	$4,507		$6,335
Effective tax rate (ETR)	5	%	22	%
Headcount	61,814		72,053

Our free cash flow is reconciled in the financial tables following this release.

Q4 2016 Google segment summary

Revenues and monetization

Google segment revenues by source (in millions; unaudited):

Google properties	$14,936	$17,968	20%
Google Network Members' properties	4,142	4,431	7%
Google advertising revenues	19,078	22,399	17%
Google other revenues	2,101	3,403	62%
Google segment revenues	$21,179	$25,802	22%

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

Aggregate paid clicks	36%	20%
Paid clicks on Google properties	43%	23%
Paid clicks on Google Network Members' properties	7%	6%
Aggregate cost-per-click	-15%	-9%
Cost-per-click on Google properties	-16%	-11%
Cost-per-click on Google Network Members' properties	-19%	0%

Traffic acquisition costs (TAC) and operating income

TAC to Google Network Members and distribution partners, operating income, and SBC expense (in millions; unaudited):

TAC to Google Network Members	$2,864		$3,082
TAC to Google Network Members as % of Google Network Members' properties revenues	69	%	70	%
TAC to distribution partners	$1,191		$1,766
TAC to distribution partners as % of Google properties revenues	8	%	10	%
Total TAC	$4,055		$4,848
Total TAC as % of Google advertising revenues	21	%	22	%
	Three Months Ended December 31, 2015		Three Months Ended December 31, 2016
Operating income	$6,744		$7,883
SBC expense*	$1,278		$1,653
Operating income, excluding SBC expense	$8,022		$9,536
*Excludes the expense for awards accounted for as stock-based compensation that we expect to ultimately settle in cash.

Supplemental information (in millions; unaudited)

Capital expenditures	$1,787	$2,888
Depreciation, amortization, and impairment	$1,313	$1,586

Q4 2016 Other Bets summary

Revenues and operating results

Other Bets revenues, operating loss, and SBC expense (in millions; unaudited):

Other Bets revenues	$150	$262
Operating loss	$(1,213)	$(1,088)
SBC expense*	$131	$161
Operating loss, excluding SBC expense	$(1,082)	$(927)
*Excludes the expense for awards accounted for as stock-based compensation that we expect to ultimately settle in cash.

Supplemental information (in millions; unaudited)

Capital expenditures	$193	$504
Depreciation, amortization, and impairment	$70	$101

Webcast and conference call information

A live audio webcast of our fourth quarter 2016 earnings release call will be available at http://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, as updated by the Form 8-K filed on May 3, 2016, and our most recent Quarterly Report on Form 10-Q for the quarter ended September 30, 2016, 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 Annual Report on Form 10-K for the year ended December 31, 2016. All information provided in this release and in the attachments is as of January 26, 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: 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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Q4 financial data
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