Alphabet Announces Third Quarter 2018 ResultsMOUNTAIN VIEW, Calif. October 25, 2018 Alphabet Inc. (NASDAQ: GOOG, GOOGL) today announced financial results for the quarter ended September 30, 2018.“Our business continues to have strong momentum globally, led by mobile search and our many products that help billions of people every day,“ said Ruth Porat, Chief Financial Officer of Alphabet and Google. “Alphabet revenues were $33.7 billion, up 21% versus the third quarter of 2017, and we remain focused on delivering on the opportunities we see.“Q3 2018 financial highlightsThe following summarizes our consolidated financial results for the quarters ended September 30, 2017 and 2018 (in millions, except for per share information, percentages, and number of employees; unaudited) with results for the quarter ended September 30, 2018 affected by gains on equity securities reflected in other income (expense), net (OI unaudited)Segment revenues and operating resultsThree Months EndedSeptember 30, 2017Three Months EndedSeptember 30, 2018Google properties revenues $19,723 $24,054Google Network Members' properties revenues 4,342 4,900Google advertising revenues 24,065 28,954Google other revenues 3,590 4,640Google segment revenues $27,655 $33,594Other Bets revenues $117 $146Google operating income $8,582 $9,490Other Bets operating loss ($650) ($727)Traffic acquisition costs (TAC) to Google Network Members and distribution partnersThree Months EndedSeptember 30, 2017Three Months EndedSeptember 30, 2018TAC to Google Network Members $3,101 $3,427TAC to Google Network Members as % of Google Network Members' properties revenues 71% 70%TAC to distribution partners $2,401 $3,155TAC to distribution partners as % of Google properties revenues 12% 13%Total TAC $5,502 $6,582Total TAC as % of Google advertising revenues 23% 23%Monetization metrics informationChange from Q3 2017 to Q3 2018 (YoY)Change from Q2 2018 to Q3 2018 (QoQ)Paid clicks on Google properties 62 % 10 %Cost-per-click on Google properties (28)% (7)%Impressions on Google Network Members' properties 1 % (1)%Cost-per-impression on Google Network Members' properties 11 % 2 %Q3 2018 impact from equity securitiesThe following summarizes the effects on our Q3 2018 results of an accounting standard (ASU 2016-01) adopted on January 1, 2018 that changed the way companies are required to account for equity security investments. Specifically, all gains and losses, unrealized and realized, on equity security investments must be recognized in OI 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 of foreign exchange rate movements and hedging activities. 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.There are a number of limitations related to the use of non-GAAP financial measures. We compensate for these limitations by providing specific information regarding the GAAP amounts excluded from these non-GAAP financial measures and evaluating these non-GAAP financial measures together with their relevant financial measures in accordance with GAAP.For more information on these non-GAAP financial measures, please see the tables captioned “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.ContactInvestor relations Mediainvestor-relationsabc pressabcAlphabet Inc.CONSOLIDATED BALANCE SHEETS(In millions, except share amounts which are reflected in thousands and par value per share amounts)December 31,2017September 30,2018(unaudited)AssetsCurrent assets:Cash and cash equivalents $ 10,715 $ 13,443Marketable securities 91,156 92,973Total cash, cash equivalents, and marketable securities 101,871 106,416Accounts receivable, net of allowance of $674 and $652 18,336 17,897Income taxes receivable, net 369 170Inventory 749 1,212Other current assets 2,983 4,007Total current assets 124,308 129,702Non-marketable investments 7,813 12,673Deferred income taxes 680 682Property and equipment, net 42,383 55,300Intangible assets, net 2,692 2,448Goodwill 16,747 17,895Other non-current assets 2,672 2,838Total assets $ 197,295 $ 221,538Liabilities and Stockholders EquityCurrent liabilities:Accounts payable $ 3,137 $ 3,789Accrued compensation and benefits 4,581 5,946Accrued expenses and other current liabilities 10,177 15,936Accrued revenue share 3,975 3,878Deferred revenue 1,432 1,752Income taxes payable, net 881 0Total current liabilities 24,183 31,301Long-term debt 3,969 3,986Deferred revenue, non-current 340 317Income taxes payable, non-current 12,812 11,562Deferred income taxes 430 1,318Other long-term liabilities 3,059 3,214Total liabilities 44,793 51,698Commitments and contingenciesStockholders equity:Convertible preferred stock, $0.001 par value per share, 100,000 shares authorized; no shares issued and outstanding 0 0Class A and Class B common stock, and Class C capital stock and additional paid-incapital, $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); 694,783 (Class A 298,470, Class B 46,972,Class C 349,341) and 695,957 (Class A 298,967, Class B 46,880, Class C 350,110)shares issued and outstanding 40,247 43,111Accumulated other comprehensive loss (992) (1,676)Retained earnings 113,247 128,405Total stockholders equity 152,502 169,840Total liabilities and stockholders equity $ 197,295 $ 221,538Alphabet Inc.CONSOLIDATED STATEMENTS OF INCOME(In millions, except per share amounts; unaudited)Three Months Ended Nine Months EndedSeptember 30, September 30,2017 2018 2017 2018Revenues $ 27,772 $ 33,740 $ 78,532 $ 97,543Costs and expenses:Cost of revenues 11,148 14,281 31,316 41,631Research and development 4,205 5,232 12,319 15,385Sales and marketing 3,042 3,849 8,583 11,233General and administrative 1,595 2,068 5,096 6,105European Commission fines 0 0 2,736 5,071Total costs and expenses 19,990 25,430 60,050 79,425Income from operations 7,782 8,310 18,482 18,118Other income (expense), net 197 1,773 693 6,723Income before income taxes 7,979 10,083 19,175 24,841Provision for income taxes 1,247 891 3,493 3,053Net income $ 6,732 $ 9,192 $ 15,682 $ 21,788Basic earnings per share of Class A and B common stock andClass C capital stock $ 9.71 $ 13.21 $ 22.65 $ 31.34Diluted earnings per share of Class A and B common stock andClass C capital stock $ 9.57 $ 13.06 $ 22.30 $ 30.95Alphabet Inc.CONSOLIDATED STATEMENTS OF CASH FLOWS(In millions; unaudited)Three Months Ended Nine Months EndedSeptember 30, September 30,2017 2018 2017 2018Operating activitiesNet income $ 6,732 $ 9,192 $ 15,682 $ 21,788Adjustments:Depreciation and impairment of property and equipment 1,561 2,138 4,272 5,791Amortization and impairment of intangible assets 200 217 617 664Stock-based compensation expense 1,820 2,230 5,832 7,100Deferred income taxes (296) 880 242 723(Gain) loss on debt and equity securities, net 45 (1,353) 67 (5,413)Other 96 38 192 (82)Changes in assets and liabilities, net of effects of acquisitions:Accounts receivable (1,150) (670) (719) 718Income taxes, net 914 (1,235) (865) (1,891)Other assets (1,632) (484) (2,086) (1,240)Accounts payable (61) 316 58 293Accrued expenses and other liabilities 1,434 1,857 3,121 6,457Accrued revenue share 176 107 182 (196)Deferred revenue 33 (23) 228 272Net cash provided by operating activities 9,872 13,210 26,823 34,984Investing activitiesPurchases of property and equipment (3,538) (5,282) (8,877) (18,058)Proceeds from disposals of property and equipment 27 20 81 69Purchases of marketable securities (39,033) (14,299) (78,709) (37,340)Maturities and sales of marketable securities 28,350 9,403 62,588 34,926Purchases of non-marketable investments (177) (386) (871) (1,118)Maturities and sales of non-marketable investments 97 154 215 1,345Acquisitions, net of cash acquired, and purchases of intangible assets (130) (18) (273) (1,452)Proceeds from collection of notes receivable 0 0 1,419 0Net cash used in investing activities (14,404) (10,408) (24,427) (21,628)Financing activitiesNet payments related to stock-based award activities (1,018) (1,253) (3,111) (3,952)Repurchases of capital stock 0 (2,200) (2,745) (6,425)Proceeds from issuance of debt, net of costs 2,698 530 2,698 6,766Repayments of debt (2,706) (555) (2,762) (6,822)Proceeds from sale of subsidiary shares 320 0 800 0Net cash used in financing activities (706) (3,478) (5,120) (10,433)Effect of exchange rate changes on cash and cash equivalents 108 (29) 387 (195)Net increase (decrease) in cash and cash equivalents (5,130) (705) (2,337) 2,728Cash and cash equivalents at beginning of period 15,711 14,148 12,918 10,715Cash and cash equivalents at end of period $ 10,581 $ 13,443 $ 10,581 $ 13,443Reconciliation from net cash provided by operating activities to free cash flow (in millions, unaudited):We provide free cash flow because it is a liquidity measure that provides useful information to management and investors about the amount of cash generated by the business that can be used for strategic opportunities, including investing in our business and acquisitions, and to strengthen our balance sheet.Three MonthsEnded September30, 2018Net cash provided by operating activities $ 13,210Less: purchases of property and equipment (5,282)Free cash flow $ 7,928Free cash flow: We define free cash flow as net cash provided by operating activities less capital expenditures.Reconciliation from GAAP revenues to non-GAAP constant currency revenues (in millions, unaudited):We provide non-GAAP constant currency revenues and growth because they facilitate the comparison of current results to historic performance by excluding the impact of foreign exchange rate movements and hedging activities, which are not indicative of our core operating results.Three Months EndedSeptember 30, 2018Three Months EndedSeptember 30, 2018YoY(using Q3'17's FX rates)QoQ(using Q2'18's FX rates)EMEA revenues (GAAP) $ 10,958 $ 10,958Exclude foreign exchange impact on Q3'18 revenues using Q3'17 rates 123 N/AExclude foreign exchange impact on Q3'18 revenues using Q2'18 rates N/A 398Exclude hedging impact recognized in Q3'18 (49) (49)EMEA constant currency revenues (non-GAAP) $ 11,032 $ 11,307Prior period EMEA revenues, excluding hedging impact (non-GAAP) $ 9,258 $ 10,888EMEA revenue growth (GAAP) 20% 2 %EMEA constant currency revenue growth (non-GAAP) 19% 4 %APAC revenues (GAAP) $ 5,424 $ 5,424Exclude foreign exchange impact on Q3'18 revenues using Q3'17 rates 94 N/AExclude foreign exchange impact on Q3'18 revenues using Q2'18 rates N/A 135Exclude hedging impact recognized in Q3'18 (23) (23)APAC constant currency revenues (non-GAAP) $ 5,495 $ 5,536Prior period APAC revenues, excluding hedging impact (non-GAAP) $ 4,217 $ 5,090APAC revenue growth (GAAP) 29% 7 %APAC constant currency revenue growth (non-GAAP) 30% 9 %Other Americas revenues (GAAP) $ 1,835 $ 1,835Exclude foreign exchange impact on Q3'18 revenues using Q3'17 rates 168 N/AExclude foreign exchange impact on Q3'18 revenues using Q2'18 rates N/A 82Exclude hedging impact recognized in Q3'18 (8) (8)Other Americas constant currency revenues (non-GAAP) $ 1,995 $ 1,909Prior period Other Americas revenues, excluding hedging impact (non-GAAP) $ 1,558 $ 1,849Other Americas revenue growth (GAAP) 19% (1)%Other Americas constant currency revenue growth (non-GAAP) 28% 3 %United States revenues (GAAP) $ 15,523 $ 15,523United States revenue growth (GAAP) 20% 4 %Revenues (GAAP) $ 33,740 $ 33,740Constant currency revenues (non-GAAP) $ 34,045 $ 34,275Prior period revenues, excluding hedging impact (non-GAAP) $ 27,963 $ 32,760Revenue growth (GAAP) 21% 3 %Constant currency revenue growth (non-GAAP) 22% 5 %Non-GAAP constant currency revenues and growth: We define non-GAAP constant currency revenues as total revenues excluding the impact of foreign exchange rate movements and hedging activities, and we use it to determine the constant currency revenue growth on year-on-year and quarter-on-quarter bases. Non-GAAP constant currency revenues are calculated by translating current quarter revenues using prior period exchange rates and excluding any hedging impact recognized in the current quarter. Constant currency revenue growth (expressed as a percentage) is calculated by determining the increase in current quarter non-GAAP constant currency revenues over prior period revenues, excluding any hedging impact recognized in the prior period.Other income (expense), netThe following table presents our other income (expense), net (in millions, unaudited):Three Months EndedSeptember 30,2017 2018Interest income $ 306 $ 481Interest expense (27) (28)Foreign currency exchange losses, net (53) (55)Loss on debt securities, net (46) (29)Gain on equity securities, net 1 1,382Loss and impairment from equity method investments, net (31) (27)Other 47 49Other income (expense), net $ 197 $ 1,773Segment resultsThe following table presents our revenues, operating income (loss), stock-based compensation (SBC), capital expenditures, and depreciation, amortization, and impairment by segment (in millions, unaudited):Three Months EndedSeptember 30,2017(1) 2018Revenues:Google $ 27,655 $ 33,594Other Bets 117 146Total revenues $ 27,772 $ 33,740Operating income (loss):Google $ 8,582 $ 9,490Other Bets (650) (727)Reconciling items(2) (150) (453)Total income from operations $ 7,782 $ 8,310Stock-based compensation(3):Google $ 1,690 $ 2,071Other Bets 94 125Reconciling items(4) 36 34Total stock-based compensation $ 1,820 $ 2,230Capital expenditures:Google $ 3,563 $ 5,643Other Bets 73 55Reconciling items(5) (98) (416)Total capital expenditures $ 3,538 $ 5,282Deprec