Alphabet Announces Fourth Quarter and Fiscal Year 2015 Results

Alphabet has announced financial results for the quarter and fiscal year ended December 31, 2015.

  • 2015 revenues of $74.5 billion, up 12.9 percent year-over-year
  • Q4 revenues of $21.3 billion, up 18 percent year-over-year
  • Q4 net income $4.9 billion, up from $4.6 billion in 2014
  • Earnings Per Share (EPS) of $7.06, up from $6.79 in 2014
  • Capital expenditures for the quarter were $2.1 billion
  • Google’s effective tax rate was 5%, down from 18% in 2014

“Our very strong revenue growth in Q4 reflects the vibrancy of our business, driven by mobile search as well as YouTube and programmatic advertising, all areas in which we’ve been investing for many years. We’re excited about the opportunities we have across Google and Other Bets to use technology to improve the lives of billions of people,” said Ruth Porat, CFO of Alphabet.

Q4 2015 financial highlights

The following summarizes consolidated financial results for the quarters ended December 31, 2014 and 2015 (in millions, except for per share information; unaudited):
[table style=”table-hover”]

Three Months Ended
December 31, 2014
Three Months Ended
December 31, 2015
Revenues$18,103$21,329
Increase in revenues year over year15%18%
Increase in constant currency revenues year over year18%24%
GAAP operating income$4,399$5,380
GAAP operating margin24%25%
Non-GAAP operating income$5,600$6,816
Non-GAAP operating margin31%32%
GAAP net income*$4,675$4,923
Non-GAAP net income$4,654$6,043
GAAP diluted EPS for Class A and B common stock and Class C capital stock*$6.79$7.06
Non-GAAP diluted EPS for Class A and B common stock and Class C capital stock$6.76$8.67
Diluted shares (in thousands)688,491697,025
*For the three months ended December 31, 2014, GAAP net income and diluted EPS includes net income from discontinued operations.

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Operating income, operating margin, net income, and 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 from continuing operations. Non-GAAP net income and non-GAAP diluted EPS exclude SBC expense from continuing operations, net of the related tax benefits, as well as the impact from net income from discontinued operations. These non-GAAP measures, as well as 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 full year segment results where Google is presented as a single segment and all other Alphabet businesses are combined as Other Bets (in millions; unaudited).

[table style=”table-hover”]

Twelve Months Ended
December 31, 2014
Twelve Months Ended
December 31, 2015
Google segment revenues$65,674$74,541
Google operating income$19,011$23,425
Other Bets revenues$327$448
Other Bets operating loss($1,942)($3,567)

[/table]

Q4 2015 consolidated financial summary

Revenues (in millions; unaudited):
[table style=”table-hover”]

Three Months Ended
December 31, 2015
Change from Q4 2014 to Q4 2015 (YoY)Change from Q3 2015 to Q4 2015 (QoQ)
Revenues$21,32918%14%
Constant currency revenues (YoY)$22,33024%N/A
Constant currency revenues (QoQ)$21,208N/A15%

[/table]

Costs and expenses

Cost of revenues, operating expenses, SBC expense, and depreciation, amortization, and impairment charges (in millions; unaudited):
[table style=”table-hover”]

Three Months Ended
December 31, 2014
Three Months Ended
December 31, 2015
Cost of revenues$6,921$8,188
Cost of revenues as % of revenues38%38%
Operating expenses (other than cost of revenues)$6,783$7,761
Operating expenses as % of revenues37%36%
SBC expense*$1,201$1,436
Tax benefit related to SBC expense$(255)$(316)
Depreciation, amortization, and impairment charges$1,267$1,404
*Excludes the impact from discontinued operations for the three months ended December 31, 2014 and expense for awards accounted for as stock-based compensation that will ultimately settle in cash.

[/table]
Supplemental information (in millions, except for headcount data; unaudited)
[table style=”table-hover”]

Three Months Ended
December 31, 2014
Three Months Ended
December 31, 2015
Cash, cash equivalents, and marketable securities$64,395$73,066
Net cash provided by operating activities$6,364$6,415
Capital expenditures$3,551$2,100
Free cash flow$2,813$4,315
Effective tax rate (ETR)*18%5%
Headcount53,60061,814
*For Q4 2015, effective tax rate reflects impact of certain one-time items in the U.S., specifically the resolution of a multi-year audit with an ETR impact of 9%, as well as the full year impact of the R&D tax credit with an ETR impact of 8%.

[/table]

Q4 2015 Google segment summary

Revenues and monetization

Google segment revenues by source (in millions; unaudited):
[table style=”table-hover”]

Three Months Ended
December 31, 2014
Three Months Ended
December 31, 2015
Change from Q4 2014 to Q4 2015 (YoY)
Google segment
          Google websites$12,429$14,93620%
          Google Network Members’ websites3,8804,1427%
     Google advertising revenues*16,30919,07817%
     Google other revenues1,6882,10024%
Google segment revenues$17,997$21,17818%
*Advertising revenues are generally reported on a gross basis, consistent with GAAP, without deducting TAC.

[/table]
Paid clicks and cost-per-click information (unaudited):
[table style=”table-hover”]

Change from Q4 2014 to Q4 2015 (YoY)Change from Q3 2015 to Q4 2015 (QoQ)
Aggregate paid clicks31%17%
Paid clicks on Google websites40%22%
Paid clicks on Google Network Members’ websites2%1%
Aggregate cost-per-click(13)%(5)%
Cost-per-click on Google websites(16)%(8)%
Cost-per-click on Google Network Members’ websites(8)%7%

[/table]

Traffic acquisition costs (TAC) and operating income

TAC to Google Network Members and distribution partners, operating income, and SBC expense (in millions; unaudited):
[table style=”table-hover”]

Three Months Ended
December 31, 2014
Three Months Ended
December 31, 2015
TAC to Google Network Members$2,656$2,864
TAC to Google Network Members as % of Google Network Members’ revenues68%69%
TAC to distribution partners$968$1,191
TAC to distribution partners as % of Google website revenues8%8%
Total TAC$3,624$4,055
Total TAC as % of Google advertising revenues22%21%
Three Months Ended December 31, 2014Three Months Ended December 31, 2015
Operating income, excluding SBC expense$6,301$8,043
SBC expense$1,078$1,271
Operating income$5,223$6,772

[/table]
Supplemental information (in millions; unaudited)
[table style=”table-hover”]

Three Months Ended
December 31, 2014
Three Months Ended
December 31, 2015
Capital expenditures$3,755$1,781
Depreciation, amortization, and impairment$1,214$1,313

[/table]

Full year 2015 Other Bets summary

Revenues and operating results

Other Bets revenues, operating loss, and SBC expense (in millions; unaudited):
[table style=”table-hover”]

Twelve Months Ended
December 31, 2014
Twelve Months Ended
December 31, 2015
Other Bets revenues$327$448
Operating loss, excluding SBC expense$(1,595)$(3,069)
SBC expense$347$498
Operating loss$(1,942)$(3,567)

Supplemental information (in millions; unaudited)

Twelve Months Ended
December 31, 2014
Twelve Months Ended
December 31, 2015
Capital expenditures$501$869
Depreciation, amortization, and impairment$148$203

[/table]

Stock repurchase

During the fourth quarter of 2015, the company repurchased 2.4 million shares of Alphabet stock for an aggregate amount of $1.8 billion. In January 2016, the board of directors of Alphabet authorized the company to repurchase an additional 514 thousand shares, with a total remaining authorization for future purchases of approximately $3.7 billion. The authorization has no expiration date.

Adjustments to previously reported financial information

In the fourth quarter of 2015, we elected to early adopt Accounting Standards Update 2015-17 “Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes,” which simplifies the presentation of deferred income taxes, on a retrospective basis. Prior period amounts have been adjusted accordingly.

In the second quarter of 2015, we identified an incorrect classification of certain revenues between legal entities, and as a consequence, we revised our income tax expense for periods beginning in 2008 through the first quarter of 2015 in the cumulative amount of $711 million. The income tax amount is not material to the periods impacted and consolidated revenues are not impacted. We elected to revise previously issued consolidated financial statements for the periods impacted.

In the first quarter of 2015, we reclassified revenues primarily related to DoubleClick ad serving software revenues from Google other revenues to Advertising revenues from Google Network Members’ websites. Prior period amounts have been adjusted to conform with our current period presentation.

Google Inc.’s consolidated financial statements

In our Annual Report on Form 10-K for the year ended December 31, 2015, we will also present Google Inc.’s consolidated financial statements, which will have nominal differences from Alphabet’s consolidated financial statements included in this press release.

Webcast and conference call information

A live audio webcast of our fourth quarter 2015 earnings release call will be available at http://abc.xyz/investor. The call begins today at 1:30 PM (PT) / 4:30 PM (ET).

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