Alphabet Inc 10-Q for FY2020 Q3

Alphabet Inc. (GOOGL)

10-Q 2020-10-30 For: 2020-09-30

Added on April 10, 2026

About this 10-Q

Alphabet Inc filed this 10-Q on October 30, 2020, covering the quarter ended September 30, 2020 (FY2020 Q3).

Headline figures

Quarter ended September 30, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $46.17B; up 14.0% from $40.5B a year earlier
Net income: $11.25B; up 59.1% from net income of $7.07B a year earlier
Diluted EPS: $16.40; up 62.1% from $10.12 a year earlier

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Delaware			61-1767919
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification Number)


Securities registered pursuant to Section 12(b) of the Act:
Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A Common Stock, $0.001 par value	GOOGL	Nasdaq Stock Market LLC
		(Nasdaq Global Select Market)
Class C Capital Stock, $0.001 par value	GOOG	Nasdaq Stock Market LLC
		(Nasdaq Global Select Market)


		Page No.
Note About Forward-Looking Statements		1

PART I. FINANCIAL INFORMATION
Item 1	Financial Statements (unaudited)	3
	Consolidated Balance Sheets - December 31, 2019 and September 30, 2020	3
	Consolidated Statements of Income - Three and Nine Months Ended September 30, 2019 and 2020	4
	Consolidated Statements of Comprehensive Income - Three and Nine Months Ended September 30, 2019 and 2020	5
	Consolidated Statements of Stockholders' Equity - Three and Nine Months Ended September 30, 2019 and 2020	6
	Consolidated Statements of Cash Flows - Nine Months Ended September 30, 2019 and 2020	8
	Notes to Consolidated Financial Statements	9
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	35
Item 3	Quantitative and Qualitative Disclosures About Market Risk	49
Item 4	Controls and Procedures	51

PART II. OTHER INFORMATION
Item 1	Legal Proceedings	53
Item 1A	Risk Factors	53
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	68


Item 6	Exhibits	69
Signature		71


	As of December 31, 2019		As of September 30, 2020
			(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	18,498	$	20,129
Marketable securities	101,177		112,467
Total cash, cash equivalents, and marketable securities	119,675		132,596
Accounts receivable, net	25,326		24,925
Income taxes receivable, net	2,166		588
Inventory	999		835
Other current assets	4,412		5,425
Total current assets	152,578		164,369
Non-marketable investments	13,078		14,656
Deferred income taxes	721		972
Property and equipment, net	73,646		81,636
Operating lease assets	10,941		11,946
Intangible assets, net	1,979		1,520
Goodwill	20,624		20,870
Other non-current assets	2,342		3,274
Total assets	$	275,909	$	299,243
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	5,561	$	4,391

Accrued compensation and benefits	8,495		8,747
Accrued expenses and other current liabilities	23,067		25,631
Accrued revenue share	5,916		6,030
Deferred revenue	1,908		2,302
Income taxes payable, net	274		1,099
Total current liabilities	45,221		48,200
Long-term debt	4,554		13,902
Deferred revenue, non-current	358		454
Income taxes payable, non-current	9,885		8,616
Deferred income taxes	1,701		1,973
Operating lease liabilities	10,214		10,984
Other long-term liabilities	2,534		2,194
Total liabilities	74,467		86,323
Contingencies (Note 10)
Stockholders’ equity:
Convertible preferred stock, $0.001 par value per share, 100,000 shares authorized; no shares issued and outstanding	0		0
Class A and Class B common stock, and Class C capital stock and additional paid-in capital, $0.001 par value per share: 15,000,000 shares authorized (Class A 9,000,000, Class B 3,000,000, Class C 3,000,000); 688,335 (Class A 299,828, Class B 46,441, Class C 342,066) and 677,724 (Class A 300,641, Class B 45,915, Class C 331,168) shares issued and outstanding	50,552		57,307
Accumulated other comprehensive income (loss)	(1,232)		46
Retained earnings	152,122		155,567
Total stockholders’ equity	201,442		212,920
Total liabilities and stockholders’ equity	$	275,909	$	299,243


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2019		2020		2019		2020
Revenues	$	40,499	$	46,173	$	115,782	$	125,629
Costs and expenses:
Cost of revenues	17,568		21,117		50,876		58,652
Research and development	6,554		6,856		18,796		20,551
Sales and marketing	4,609		4,231		12,726		12,632
General and administrative	2,591		2,756		6,722		8,221
European Commission fines	0		0		1,697		0
Total costs and expenses	31,322		34,960		90,817		100,056
Income from operations	9,177		11,213		24,965		25,573
Other income (expense), net	(549)		2,146		3,956		3,820
Income before income taxes	8,628		13,359		28,921		29,393
Provision for income taxes	1,560		2,112		5,249		4,351


Net income	$	7,068	$	11,247	$	23,672	$	25,042






Basic net income per share of Class A and B common stock and Class C capital stock	$	10.20	$	16.55	$	34.12	$	36.69









Diluted net income per share of Class A and B common stock and Class C capital stock	$	10.12	$	16.40	$	33.83	$	36.38


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


	Three Months Ended September 30, 2019
	Class A and Class B Common Stock, Class C Capital Stock and Additional Paid-In Capital			Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Total Stockholders’ Equity
	Shares	Amount
Balance as of June 30, 2019	694,050	$	47,937	$	(1,091)	$	145,346	$	192,192
Common and capital stock issued	1,616	49		0		0		49
Stock-based compensation expense	0	2,645		0		0		2,645
Tax withholding related to vesting of restricted stock units and other	0	(1,184)		0		0		(1,184)
Repurchases of capital stock	(4,760)	(407)		0		(5,289)		(5,696)

Net income	0	0		0		7,068		7,068
Other comprehensive income (loss)	0	0		(105)		0		(105)
Balance as of September 30, 2019	690,906	$	49,040	$	(1,196)	$	147,125	$	194,969


	Nine Months Ended September 30, 2019
	Class A and Class B Common Stock, Class C Capital Stock and Additional Paid-In Capital			Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Total Stockholders’ Equity
	Shares	Amount
Balance as of December 31, 2018	695,556	$	45,049	$	(2,306)	$	134,885	$	177,628
Cumulative effect of accounting change	0	0		(30)		(4)		(34)
Common and capital stock issued	5,931	122		0		0		122
Stock-based compensation expense	0	8,215		0		0		8,215
Tax withholding related to vesting of restricted stock units and other	0	(3,636)		0		0		(3,636)
Repurchases of capital stock	(10,581)	(870)		0		(11,428)		(12,298)
Sale of interest in consolidated entities	0	160		0		0		160
Net income	0	0		0		23,672		23,672
Other comprehensive income (loss)	0	0		1,140		0		1,140
Balance as of September 30, 2019	690,906	$	49,040	$	(1,196)	$	147,125	$	194,969


	Three Months Ended September 30, 2020
	Class A and Class B Common Stock, Class C Capital Stock and Additional Paid-In Capital			Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Total Stockholders’ Equity
	Shares	Amount
Balance as of June 30, 2020	681,215	$	55,937	$	(296)	$	151,681	$	207,322
Common and capital stock issued	1,669	15		0		0		15
Stock-based compensation expense	0	3,230		0		0		3,230
Tax withholding related to vesting of restricted stock units and other	0	(1,339)		0		0		(1,339)
Repurchases of capital stock	(5,160)	(536)		0		(7,361)		(7,897)

Net income	0	0		0		11,247		11,247
Other comprehensive income (loss)	0	0		342		0		342
Balance as of September 30, 2020	677,724	$	57,307	$	46	$	155,567	$	212,920


	Nine Months Ended September 30, 2020
	Class A and Class B Common Stock, Class C Capital Stock and Additional Paid-In Capital			Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Total Stockholders’ Equity
	Shares	Amount
Balance as of December 31, 2019	688,335	$	50,552	$	(1,232)	$	152,122	$	201,442
Common and capital stock issued	6,185	158		0		0		158
Stock-based compensation expense	0	9,865		0		0		9,865
Tax withholding related to vesting of restricted stock units and other	0	(4,076)		0		0		(4,076)
Repurchases of capital stock	(16,796)	(1,648)		0		(21,597)		(23,245)
Sale of interest in consolidated entities	0	2,456		0		0		2,456
Net income	0	0		0		25,042		25,042
Other comprehensive income (loss)	0	0		1,278		0		1,278
Balance as of September 30, 2020	677,724	$	57,307	$	46	$	155,567	$	212,920


	As of December 31, 2019
	Adjusted Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Cash and Cash Equivalents		Marketable Securities
Level 2:
Time deposits(1)	$	2,294	$	0	$	0	$	2,294	$	2,294	$	0
Government bonds	55,033		434		(30)		55,437		4,518		50,919
Corporate debt securities	27,164		337		(3)		27,498		44		27,454
Mortgage-backed and asset-backed securities	19,453		96		(41)		19,508		0		19,508
Total	$	103,944	$	867	$	(74)	$	104,737	$	6,856	$	97,881


	As of September 30, 2020
	Adjusted Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Cash and Cash Equivalents		Marketable Securities
	(unaudited)
Level 2:
Time deposits(1)	$	2,009	$	0	$	0	$	2,009	$	2,009	$	0
Government bonds	59,073		1,023		(9)		60,087		1,264		58,823
Corporate debt securities	28,632		678		(20)		29,290		17		29,273
Mortgage-backed and asset-backed securities	17,149		381		(13)		17,517		0		17,517
Total	$	106,863	$	2,082	$	(42)	$	108,903	$	3,290	$	105,613


	As of September 30, 2020
Due in 1 year or less	$	21,943
Due in 1 year through 5 years	67,496
Due in 5 years through 10 years	5,237
Due after 10 years	13,204
Total	$	107,880


	As of December 31, 2019
	Less than 12 Months				12 Months or Greater				Total
	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Government bonds	$	6,752	$	(20)	$	4,590	$	(10)	$	11,342	$	(30)
Corporate debt securities	1,665		(2)		978		(1)		2,643		(3)
Mortgage-backed and asset-backed securities	4,536		(13)		2,835		(28)		7,371		(41)
Total	$	12,953	$	(35)	$	8,403	$	(39)	$	21,356	$	(74)


Table of Contents			Alphabet Inc.


Table of Contents			Alphabet Inc.


Table of Contents			Alphabet Inc.


Table of Contents			Alphabet Inc.


	Equity Securities Sold
	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2019		2020		2019		2020
Total sale price	$	445	$	1,389	$	1,074	$	2,888
Total initial cost	133		1,146		460		1,831
Cumulative net gains	$	312	$	243	$	614	$	1,057


	As of December 31, 2019
	Marketable Securities		Non-Marketable Securities		Total
Total initial cost	$	1,935	$	8,297	$	10,232
Cumulative net gain(1)	1,361		3,056		4,417
Carrying value	$	3,296	$	11,353	$	14,649


	As of September 30, 2020
	Marketable Securities(2)		Non-Marketable Securities		Total
	(unaudited)
Total initial cost	$	2,438	$	9,615	$	12,053
Cumulative net gain(1)	2,596		3,304		5,900
Carrying value	$	5,034	$	12,919	$	17,953


		As of December 31, 2019
	Balance Sheet Location	Fair Value of Derivatives Designated as Hedging Instruments		Fair Value of Derivatives Not Designated as Hedging Instruments		Total Fair Value
Derivative Assets:
Level 2:
Foreign exchange contracts	Other current and non-current assets	$	91	$	253	$	344
Other contracts	Other current and non-current assets	0		1		1
Total		$	91	$	254	$	345
Derivative Liabilities:
Level 2:
Foreign exchange contracts	Accrued expenses and other liabilities, current and non-current	$	173	$	196	$	369
Other contracts	Accrued expenses and other liabilities, current and non-current	0		13		13
Total		$	173	$	209	$	382


		As of September 30, 2020
	Balance Sheet Location	Fair Value of Derivatives Designated as Hedging Instruments		Fair Value of Derivatives Not Designated as Hedging Instruments		Total Fair Value
		(unaudited)
Derivative Assets:
Level 2:
Foreign exchange contracts	Other current and non-current assets	$	291	$	189	$	480
Other contracts	Other current and non-current assets	$	0	$	13	$	13
Total		$	291	$	202	$	493
Derivative Liabilities:
Level 2:
Foreign exchange contracts	Accrued expenses and other liabilities, current and non-current	$	167	$	175	$	342
Other contracts	Accrued expenses and other liabilities, current and non-current	$	0	$	453	$	453
Total		$	167	$	628	$	795


	Gains (Losses) Recognized in OCI on Derivatives Before Tax Effect
	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2019		2020		2019		2020
Derivatives in Cash Flow Hedging Relationship:
Foreign exchange contracts
Amount included in the assessment of effectiveness	$	325	$	(37)	$	277	$	331
Amount excluded from the assessment of effectiveness	6		(23)		(13)		(20)

Derivatives in Net Investment Hedging Relationship:
Foreign exchange contracts
Amount included in the assessment of effectiveness	328		(371)		309		(412)
Total	$	659	$	(431)	$	573	$	(101)


	Gains (Losses) Recognized in Income
	Three Months Ended
	September 30,
	2019				2020
	Revenues		Other income (expense), net		Revenues		Other income (expense), net
Total amounts presented in the Consolidated Statements of Income in which the effects of cash flow and fair value hedges are recorded	$	40,499	$	(549)	$	46,173	$	2,146

Gains (Losses) on Derivatives in Cash Flow Hedging Relationship:
Foreign exchange contracts
Amount of gains (losses) reclassified from AOCI to income	$	93	$	0	$	(28)	$	0
Amount excluded from the assessment of effectiveness recognized in earnings based on an amortization approach	26		0		6		0
Gains (Losses) on Derivatives in Fair Value Hedging Relationship:
Foreign exchange contracts
Hedged items	0		(35)		0		14
Derivatives designated as hedging instruments	0		35		0		(14)
Amount excluded from the assessment of effectiveness	0		4		0		0
Gains (Losses) on Derivatives in Net Investment Hedging Relationship:
Foreign exchange contracts
Amount excluded from the assessment of effectiveness	0		62		0		20
Gains (Losses) on Derivatives Not Designated as Hedging Instruments:
Foreign exchange contracts	0		(233)		0		382
Other Contracts	0		0		0		(181)
Total gains (losses)	$	119	$	(167)	$	(22)	$	221


	As of December 31, 2019
							Gross Amounts Not Offset in the Consolidated Balance Sheets, but Have Legal Rights to Offset
	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Consolidated Balance Sheets		Net Presented in the Consolidated Balance Sheets		Financial Instruments			Cash Collateral Received		Non-Cash Collateral Received		Net Assets Exposed
Derivatives	$	365	$	(21)	$	344	$	(88)	(1)	$	(234)	$	0	$	22

	As of September 30, 2020
							Gross Amounts Not Offset in the Consolidated Balance Sheets, but Have Legal Rights to Offset
	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Consolidated Balance Sheets		Net Presented in the Consolidated Balance Sheets		Financial Instruments			Cash Collateral Received		Non-Cash Collateral Received		Net Assets Exposed
	(unaudited)
Derivatives	$	511	$	(18)	$	493	$	(315)	(1)	$	(121)	$	(1)	$	56


	As of December 31, 2019
							Gross Amounts Not Offset in the Consolidated Balance Sheets, but Have Legal Rights to Offset
	Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Consolidated Balance Sheets		Net Presented in the Consolidated Balance Sheets		Financial Instruments			Cash Collateral Pledged		Non-Cash Collateral Pledged		Net Liabilities
Derivatives	$	390	$	(21)	$	369	$	(88)	(2)	$	0	$	0	$	281

	As of September 30, 2020
							Gross Amounts Not Offset in the Consolidated Balance Sheets, but Have Legal Rights to Offset
	Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Consolidated Balance Sheets		Net Presented in the Consolidated Balance Sheets		Financial Instruments			Cash Collateral Pledged		Non-Cash Collateral Pledged		Net Liabilities
	(unaudited)
Derivatives	$	813	$	(18)	$	795	$	(315)	(2)	$	0	$	(444)	$	36


	Operating Leases
Remainder of 2020	$	446
2021	2,182
2022	2,048
2023	1,869
2024	1,616
Thereafter	6,775
Total future lease payments	14,936
Less imputed interest	(2,417)
Total lease liability balance	$	12,519


	Maturity	Coupon Rate	Effective Interest Rate	As of December 31, 2019		As of September 30, 2020
						(unaudited)
Debt
2011-2016 Notes Issuances	2021 - 2026	2.00% - 3.63%	2.23% - 3.73%	$	4,000	$	4,000
2020 Notes Issuance	2025 - 2060	0.45% - 2.25%	0.57% - 2.33%	—		10,000
Future finance lease payments, net(1)				711		1,196
Total debt				4,711		15,196
Unamortized discount and debt issuance costs				(42)		(173)
Less: Current portion of Notes(2)				—		(999)
Less: Current portion future finance lease payments, net(1)(2)				(115)		(122)
Total long-term debt				$	4,554	$	13,902


	Foreign Currency Translation Adjustments		Unrealized Gains (Losses) on Available-for-Sale Investments		Unrealized Gains (Losses) on Cash Flow Hedges		Total
Balance as of December 31, 2018	$	(1,884)	$	(688)	$	266	$	(2,306)
Cumulative effect of accounting change	0		0		(30)		(30)
Other comprehensive income (loss) before reclassifications	(326)		1,613		222		1,509
Amounts excluded from the assessment of hedge effectiveness recorded in AOCI	0		0		(13)		(13)
Amounts reclassified from AOCI	0		(107)		(249)		(356)
Other comprehensive income (loss)	(326)		1,506		(40)		1,140
Balance as of September 30, 2019	$	(2,210)	$	818	$	196	$	(1,196)


		Gains (Losses) Reclassified from AOCI to the Consolidated Statements of Income
		Three Months Ended				Nine Months Ended
		September 30,				September 30,
AOCI Components	Location	2019		2020		2019		2020
Unrealized gains (losses) on available-for-sale investments
	Other income (expense), net	$	49	$	93	$	145	$	496
	Benefit (provision) for income taxes	(10)		(20)		(38)		(105)
	Net of tax	39		73		107		391
Unrealized gains (losses) on cash flow hedges
Foreign exchange contracts	Revenue	93		(28)		306		138
Interest rate contracts	Other income (expense), net	1		1		4		4
	Benefit (provision) for income taxes	(19)		4		(61)		(28)
	Net of tax	75		(23)		249		114
Total amount reclassified, net of tax		$	114	$	50	$	356	$	505


	Google		Other Bets		Total Consolidated
Balance as of December 31, 2019	$	19,921	$	703	$	20,624
Acquisitions	204		0		204


Foreign currency translation and other adjustments	46		(4)		42
Balance as of September 30, 2020	$	20,171	$	699	$	20,870


	As of December 31, 2019
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Patents and developed technology	$	4,972	$	3,570	$	1,402
Customer relationships	254		30		224
Trade names and other	703		350		353
Total	$	5,929	$	3,950	$	1,979


	Three Months Ended September 30,
	2019						2020
	Class A		Class B		Class C		Class A		Class B		Class C
Basic net income per share:
Numerator
Allocation of undistributed earnings	$	3,059	$	475	$	3,534	$	4,973	$	763	$	5,511

Denominator
Number of shares used in per share computation	299,835		46,515		346,391		300,411		46,108		332,930



Basic net income per share	$	10.20	$	10.20	$	10.20	$	16.55	$	16.55	$	16.55
Diluted net income per share:
Numerator

Allocation of undistributed earnings for basic computation	$	3,059	$	475	$	3,534	$	4,973	$	763	$	5,511


Reallocation of undistributed earnings as a result of conversion of Class B to Class A shares	475		0		0		763		0		0
Reallocation of undistributed earnings	(24)		(4)		24		(53)		(7)		53
Allocation of undistributed earnings	$	3,510	$	471	$	3,558	$	5,683	$	756	$	5,564




Denominator
Number of shares used in basic computation	299,835		46,515		346,391		300,411		46,108		332,930
Weighted-average effect of dilutive securities
Add:
Conversion of Class B to Class A common shares outstanding	46,515		0		0		46,108		0		0

Restricted stock units and other contingently issuable shares	381		0		5,077		47		0		6,355
Number of shares used in per share computation	346,731		46,515		351,468		346,566		46,108		339,285



Diluted net income per share	$	10.12	$	10.12	$	10.12	$	16.40	$	16.40	$	16.40


	Nine Months Ended September 30,
	2019						2020
	Class A		Class B		Class C		Class A		Class B		Class C
Basic net income per share:
Numerator
Allocation of undistributed earnings	$	10,218	$	1,588	$	11,866	$	11,004	$	1,697	$	12,341

Denominator
Number of shares used in per share computation	299,493		46,549		347,818		299,934		46,266		336,361



Basic net income per share	$	34.12	$	34.12	$	34.12	$	36.69	$	36.69	$	36.69
Diluted net income per share:
Numerator

Allocation of undistributed earnings for basic computation	$	10,218	$	1,588	$	11,866	$	11,004	$	1,697	$	12,341


Reallocation of undistributed earnings as a result of conversion of Class B to Class A shares	1,588		0		0		1,697		0		0
Reallocation of undistributed earnings	(83)		(13)		83		(103)		(14)		103
Allocation of undistributed earnings	$	11,723	$	1,575	$	11,949	$	12,598	$	1,683	$	12,444




Denominator
Number of shares used in basic computation	299,493		46,549		347,818		299,934		46,266		336,361
Weighted-average effect of dilutive securities
Add:
Conversion of Class B to Class A common shares outstanding	46,549		0		0		46,266		0		0

Restricted stock units and other contingently issuable shares	448		0		5,369		105		0		5,715
Number of shares used in per share computation	346,490		46,549		353,187		346,305		46,266		342,076



Diluted net income per share	$	33.83	$	33.83	$	33.83	$	36.38	$	36.38	$	36.38


	Unvested Restricted Stock Units
	Number of Shares	Weighted- Average Grant-Date Fair Value
Unvested as of December 31, 2019	19,394,236	$	1,055.22
Granted	11,635,680	$	1,394.72
Vested	(8,437,980)	$	1,071.16
Forfeited/canceled	(951,715)	$	1,150.93
Unvested as of September 30, 2020	21,640,221	$	1,228.65


	As of September 30, 2020		12-Month Average as of September 30, 2020
Risk Category - Interest Rate	$	169	$	153


Period	Total Number of Shares Purchased (in thousands) (1)	Average Price Paid per Share (2)		Total Number of Shares Purchased as Part of Publicly Announced Programs (in thousands) (1)	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program (in millions)
July 1 - 31	1,454	$	1,513.19	1,454	$	31,245
August 1 - 31	1,592	$	1,561.67	1,592	$	28,758
September 1 - 30	2,114	$	1,518.52	2,114	$	25,547
Total	5,160			5,160