What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2025-02-05 compared with 2024-01-31 · 148 added, 164 removed, 363 unchanged (46% of the section changed)

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we also report all non-Google businesses collectively as Other Bets.

For additional information on our segments, see Part I, Item 1 Business and Note 15 of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.

For further details on our segments, see Part I, Item 1 Business and Note 15 of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.

Trends in Our Business and Financial Effect

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The continuing evolution of the online world has contributed to the growth of our business and our revenues since inception.

We expect that this evolution will continue to benefit our business and our revenues, although at a slower pace than we have experienced historically, in particular after the outsized growth in our advertising revenues during the COVID-19 pandemic.

In addition, we face increasing competition for user engagement and advertisers, which may affect our revenues.

We expect that this evolution will continue to benefit our business and our revenues, although at a slower pace than we have experienced historically.

In addition, we face increasing competition for user engagement and advertisers, including from other developers and providers of AI products and services, which may affect our revenues.

• Users continue to access our products and services using diverse devices and modalities, which allows for new advertising formats that may benefit our revenues but adversely affect our margins.

Our users are accessing our products and services via diverse devices and modalities, such as smartphones, wearables, connected TVs, and smart home devices, and want to be able to be connected no matter where they are or what they are doing.

Our users are accessing our products and services via diverse devices and modalities beyond traditional desktop, such as smartphones, wearables, connected TVs, and smart home devices, and want to be able to be connected no matter where they are or what they are doing.

We are focused on expanding our products and services to stay in front of these trends in order to maintain and grow our business.

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• As online advertising evolves, we continue to expand our product offerings, which may affect our monetization.

As interactions between users and advertisers change, and as online user behavior evolves, we continue to expand our product offerings to serve these changing needs, which may affect our monetization.

For example, revenues from ads on YouTube and Google Play monetize at a lower rate than our traditional search ads.

We also expect to continue to incorporate AI innovations into our products, such as AI in Search, that could affect our monetization trends.

As interactions between users and advertisers change, and as online user behavior evolves, for example with AI, we continue to expand our product offerings to serve these changing needs, which may affect monetization of our products and services.

We expect to continue to incorporate AI innovations into our products, such as AI in Search, that could affect our monetization trends.

When developing new products and services we generally focus first on user experience and then on monetization.

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In addition, movements in foreign exchange rates affect such revenues.

Alphabet Inc.

The shift to online, as well as the advent of the multi-device world, has brought opportunities outside of the U.S., including in emerging markets, such as India.

We continue to invest heavily and develop localized versions of our products and advertising programs relevant to our users in these markets.

This has led to a trend of increased revenues from emerging markets.

This has led to a trend of increased

Alphabet Inc.

revenues from emerging markets.

We expect that our results will continue to be affected by our performance in these markets, particularly as low-cost mobile devices become more available.

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• As we continue to serve our users and expand our businesses, we will invest heavily in operating and capital expenditures.

We continue to make significant research and development investments in areas of strategic focus as we seek to develop new, innovative offerings, improve our existing offerings, and rapidly and responsibly deploy AI across our businesses.

We also expect to increase, relative to 2023, our investment in our technical infrastructure, including servers, network equipment, and data centers, to support the growth of our business and our long-term initiatives, in particular in support of AI products and services.

In addition, acquisitions and strategic investments contribute to the breadth and depth of our offerings, expand our expertise in engineering and other functional areas, and build strong partnerships around strategic initiatives.

We also expect to increase, relative to 2024, our i nvestment in our technical infrastructure, including servers, network equipment, and data centers, to support the growth of our business and our long-term initiatives, in particular in support of AI products and services.

In addition, acquisitions and strategic investments remain important elements in our use of capital and contribute to the breadth and depth of our offerings, expand our expertise in engineering and other functional areas, and build strong partnerships around strategic initiatives.

• We continue to face an evolving regulatory environment, and we are subject to claims, lawsuits, investigations, and other forms of potential legal liability, which could affect our business practices and financial results.

Changes in social, political, economic, tax, and regulatory conditions or in laws and policies governing a wide range of topics and related legal matters, including investigations, lawsuits, and regulatory actions, have resulted in fines and caused us to change our business practices.

As these global trends continue, our cost of doing business may increase, our ability to pursue certain business models or offer certain products or services may be limited, and we may need to change our business practices to comply with evolving regulatory and legal matters.

Examples include the antitrust complaints filed by the U.S.

Department of Justice and a number of state Attorneys General;

legislative proposals and pending litigation in the U.S., EU, and around the world that could diminish or eliminate safe harbor protection for websites and online platforms;

and the Digital Markets Act and Digital Services Act in Europe and various legislative proposals in the U.S.

focused on large technology platforms.

For additional information, see Item 1A Risk Factors and Legal Matters in Note 10 of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.

As these global trends continue, our cost of doing business may increase, our products and services may become less useful, our ability to pursue certain business practices or offer certain products or services may be limited, and we may need to change our business models and operations to comply with evolving regulatory and legal matters.

For additional information, see Part I, Item 1A Risk Factors and Legal Matters in Note 10 of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.

• Our employees are critical to our success and we expect to continue investing in them.

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We generate revenues by delivering relevant, cost-effective online advertising;

cloud-based solutions that provide enterprise customers of all sizes with infrastructure and platform services as well as communication and collaboration tools;

sales of other products and services, such as apps and in-app purchases, and devices;

and fees received for consumer subscription-based products.

cloud-based solutions that provide enterprise customers of all sizes with infrastructure, platform services, and applications;

sales of other products and services, such as fees received for subscription-based products, apps and in-app purchases, and devices.

For additional information on how we recognize revenue, see Note 1 of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.

In addition to the long-term trends and their financial effect on our business discussed above, fluctuations in our revenues have been, and may continue to be, affected by a combination of general factors, including:

In addition to the long-term trends and their financial effect on our business discussed above, fluctuations in our revenues have been and may continue to be affected by a combination of factors, including:

• changes in foreign currency exchange rates;

Alphabet Inc.

• changes in pricing, such as those resulting from changes in fee structures, discounts, and customer incentives;

• general economic conditions and various external dynamics, including geopolitical events, regulations, and other measures and their effect on advertiser, consumer, and enterprise spending;

• new product and service launches;

• new product, service, and market launches;

Alphabet Inc.

• seasonality.

Additionally, fluctuations in our revenues generated from advertising ("Google advertising"), revenues from other sources ("Google subscriptions, platforms, and devices revenues"), Google Cloud, and Other Bets revenues have been, and may continue to be, affected by other factors unique to each set of revenues, as described below.

Additionally, fluctuations in our revenues generated from advertising ("Google advertising"), other sources ("Google subscriptions, platforms, and devices"), Google Cloud, and Other Bets have been, and may continue to be, affected by other factors unique to each set of revenues, as described below.

Google Services

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• traffic growth in emerging markets compared to more mature markets and across various verticals and channels.

Alphabet Inc.

Google subscriptions, platforms, and devices

Google subscriptions, platforms, and devices revenues are comprised of the following:

• consumer subscriptions, which primarily include revenues from YouTube services, such YouTube TV, YouTube Music and Premium, and NFL Sunday Ticket, as well as Google One;

• platforms, which primarily include revenues from Google Play from the sales of apps and in-app purchases;

• consumer subscriptions, which primarily include revenues from YouTube services, such as YouTube TV, YouTube Music and Premium, and NFL Sunday Ticket, as well as Google One;

• platforms, which primarily include revenues from Google Play sales of apps and in-app purchases;

• devices, which primarily include sales of the Pixel family of devices;

• other products and services.

Fluctuations in our Google subscriptions, platforms, and devices revenues have been, and may continue to be, affected by factors in addition to the general factors described above, such as changes in customer usage and demand, number of subscribers, and fluctuations in the timing of product launches.

Alphabet Inc.

Google Cloud revenues are comprised of the following:

• Google Cloud Platform, which generates consumption-based fees and subscriptions for infrastructure, platform, and other services.

These services provide access to solutions such as cybersecurity, databases, analytics, and AI offerings including our AI infrastructure, Vertex AI platform, and Duet AI for Google Cloud;

• Google Workspace, which includes subscriptions for cloud-based communication and collaboration tools for enterprises, such as Calendar, Gmail, Docs, Drive, and Meet, with integrated features like Duet AI in Google Workspace;

These services provide access to solutions such as AI offerings including our AI infrastructure, Vertex AI platform, and Gemini for Google Cloud;

cybersecurity;

and data and analytics;

• other enterprise services.

Fluctuations in our Google Cloud revenues have been, and may continue to be, affected by factors in addition to the general factors described above, such as customer usage.

Fluctuations in our Google Cloud revenues have been, and may continue to be, affected by factors in addition to the general factors described above, such as changes in customer usage and demand.

Revenues from Other Bets are generated primarily from the sale of healthcare-related services, and internet services.

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Certain of our costs and expenses, including those associated with the operation of our technical infrastructure as well as components of our operating expenses, are generally less variable in nature and may not correlate to changes in revenue.

Additionally, fluctuations in compensation expenses may not directly correlate with changes in headcount, in particular due to annual stock-based compensation (SBC) awards that generally vest over four years.

Additionally, fluctuations in employee compensation expenses may not directly correlate with changes in headcount, due to factors such as annual stock-based compensation (SBC) awards that generally vest over four years.

Cost of Revenues

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• Other cost of revenues primarily includes:

◦ compensation expense related to our data centers and other operations such as content review and customer and product support;

◦ content acquisition costs, which are payments to content providers from whom we license video and other content for distribution on YouTube and Google Play (we pay fees to these content providers based on revenues generated or a flat fee);

◦ content acquisition costs, which are payments to content providers from whom we license video and other content for distribution, primarily related to YouTube (we pay fees to these content providers based on revenues generated, subscriber counts, or a flat fee);

◦ depreciation expense related to our technical infrastructure;

◦ employee compensation expenses related to our technical infrastructure and other operations such as content review and customer and product support;

◦ inventory and other costs related to the devices we sell;

Alphabet Inc.

◦ other technical infrastructure operations costs, including network capacity, energy, and equipment costs.

TAC as a percentage of revenues generated from ads placed on Google Network properties are significantly higher than TAC as a percentage of revenues generated from ads placed on Google Search & other properties, because most of the advertiser revenues from ads served on Google Network properties are paid as TAC to our Google Network partners.

Operating Expenses

Alphabet Inc.

Operating expenses are generally incurred during our normal course of business, which we categorize as either R&D, sales and marketing, or general and administrative.

The main components of our R&D expenses are:

• compensation expenses for engineering and technical employees responsible for R&D related to our existing and new products and services;

• depreciation;

• employee compensation expenses for engineering and technical employees responsible for R&D related to our existing and new products and services;

• third-party services fees primarily relating to consulting and outsourced services in support of our engineering and product development efforts.

The main components of our sales and marketing expenses are:

• compensation expenses for employees engaged in sales and marketing, sales support, and certain customer service functions;

• spending relating to our advertising and promotional activities in support of our products and services.

• employee compensation expenses for employees engaged in sales and marketing, sales support, and certain customer service functions;

• spend relating to our advertising and promotional activities in support of our products and services.

The main components of our general and administrative expenses are:

• compensation expenses for employees in finance, human resources, information technology, legal, and other administrative support functions;

• expenses relating to legal matters, including certain fines and settlements;

• employee compensation expenses for employees in finance, human resources, information technology, legal, and other administrative support functions;

• expenses relating to legal and other matters, including certain fines and settlements;

• third-party services fees, including audit, consulting, outside legal, and other outsourced administrative services.

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OI&E, net primarily consists of interest income (expense), the effect of foreign currency exchange gains (losses), net gains (losses) and impairment on our marketable and non-marketable securities, performance fees, and income (loss) and impairment from our equity method investments.

For additional information, including how we account for our investments and factors that can drive fluctuations in the value of our investments, see Note 1 and Note 3 of the Notes to Consolidated Financial Statements included in Part II, Item 8 as well as Item 7A Quantitative and Qualitative Disclosures About Market Risk of this Annual Report on Form 10-K.

For additional information, including how we account for our investments and factors that can drive fluctuations in the value of our investments, see Note 1 and Note 3 of the Notes to Consolidated Financial Statements included in Item 8 as well as Item 7A Quantitative and Qualitative Disclosures About Market Risk of this Annual Report on Form 10-K.

Provision for Income Taxes

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Operating margin 27 % 32 % 5 %

Other income (expense), net $ (3,514) $ 1,424 $ 4,938 NM

Other income (expense), net $ 1,424 $ 7,425 $ 6,001 421 %

Net income $ 73,795 $ 100,118 $ 26,323 36 %

Diluted EPS (2)

NM = Not Meaningful

$ 5.80 $ 8.04 $ 2.24 39 %

(1) See "Use of Non-GAAP Constant Currency Information" below for details relating to our use of constant currency information.

(2) For additional information on the calculation of diluted EPS, see Note 12 of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.

• Revenues were $350.0 billion, an increase of 14% year over year, primarily driven by an increase in Google Services revenues of $32.4 billion, or 12%, and an increase in Google Cloud revenues of $10.1 billion, or 31%.

• Total constant currency revenues, which exclude the effect of hedging, increased 15% year over year.

• Cost of revenues was $133.3 billion, an increase of 6% year over year, primarily driven by increases in content acquisition costs, compensation expenses, and TAC.

The increase in compensation expenses included charges related to employee severance associated with the reduction in our workforce.

Additionally, cost of revenues benefited from a reduction in depreciation due to the change in estimated useful lives of our servers and network equipment.

• Operating expenses were $89.8 billion, an increase of 10% year over year, primarily driven by an increase in compensation expenses and charges related to our office space optimization efforts.

The increase in compensation expenses was largely the result of charges related to employee severance associated with the reduction in our workforce and an increase in SBC expense.

Operating expenses benefited from the change in the estimated useful lives of our servers and certain network equipment.

• Cost of revenues wa s $146.3 billion, an increase of 10% year over year, primarily driven by increases in content acquisition costs, TAC, and depreciation expense.

• Operating expenses were $91.3 billion, an increase of 2% year over year, primarily driven by increases in de preciation expense, employee compensation expenses, and third-party services fees.

These increases were partially offset by reductions in charges related to legal and other matters and charges related to our office space optimization efforts.

The overall increase in employee compensation expenses was partially offset by a reduction in employee severance and related charges.

Other Information:

• In January 2023, we announced a reduction of our workforce, and as a result we recorded employee severance and related charges of $2.1 billion for the year ended December 31, 2023.

In addition, we are taking actions to optimize our global office space.

As a result, exit charges recorded during the year ended December 31, 2023, were $1.8 billion.

In addition to these exit charges, for the year ended December 31, 2023, we incurred $269 million in accelerated rent and accelerated depreciation.

For additional information, see Note 8 of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.

• In January 2023, we completed an assessment of the useful lives of our servers and network equipment, resulting in a change in the estimated useful life of our servers and certain network equipment to six years.

The effect of this change was a reduction in depreciation expense of $3.9 billion for the year ended December 31, 2023, recognized primarily in cost of revenues and R&D expenses.

• Dividend payments to stockholders of Class A, Class B, and Class C shares, which were first paid in June 2024, were $3.5 billion, $519 million, and $3.3 billion, respectively, totaling $7.4 billion for the year ended December 31, 2024.

For additional information, see Note 11 of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.

Alphabet Inc.

• On July 21, 2023, the IRS announced a rule change allowing taxpayers to temporarily apply the regulations in effect prior to 2022 related to U.S.

federal foreign tax credits.

This announcement applies to foreign taxes paid or accrued in the fiscal years 2022 and 2023.

A cumulative one-time adjustment applicable to the prior period for this tax rule change was recorded in 2023 and is reflected in our effective tax rate of 13.9% for the year ended December 31, 2023.

• Repurchases of Class A and Class C shares were $62.2 billion for the year ended December 31, 2023.

• Repurchases of Class A and Class C shares were $11.9 billion and $50.2 billion, respectively, totaling $62.0 billion for the year ended December 31, 2024.

For additional information, see Note 11 of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.

• Employee severance and related charges for the year ended December 31, 2024 were $1.0 billion, a decrease of $1.1 billion as compared to the year ended December 31, 2023.

Office space charges, including accelerated rent and accelerated depreciation, for the year ended December 31, 2024 were $796 million, a decrease of $1.3 billion as compared to the year ended December 31, 2023.

Substantially all of these charges were included in Alphabet-level activities.

• Operating cash flow was $125.3 billion for the year ended December 31, 2024.

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• As of December 31, 2024, we had 183,323 employees.

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Financial Results

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YouTube ads revenues increased $4.6 billion from 2023 to 2024.

The growth was driven by our brand and direct response advertising products, both of which benefited from increased spending by our advertisers.

The growth was driven by our brand advertising products followed by our direct response advertising products, both of which benefited from increased spending by our advertisers.

Google Network

Google Network revenues decreased $1.5 billion from 2022 to 2023, primarily driven by a decrease in Google Ad Manager and AdSense revenues.

Alphabet Inc.

Google Network revenues decreased $953 million from 2023 to 2024, primarily driven by a decrease in Google Ad Manager and AdMob revenues.

Additionally, Google Network revenues were adversely affected by changes in foreign currency exchange rates.

Monetization Metrics

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Changes in cost-per-click and cost-per-impression are driven by a number of interrelated factors including changes in device mix, geographic mix, advertiser spending, ongoing product and policy changes, product mix, property mix, and changes in foreign currency exchange rates.

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Google subscriptions, platforms, and devices

Google subscriptions, platforms, and devices revenues increased $5.6 billion from 2022 to 2023 primarily driven by growth in subscriptions, largely for YouTube services.

The growth in YouTube services was primarily due to an increase in paid subscribers.

Google subscriptions, platforms, and devices revenues increased $1.0 billion from 2021 to 2022 primarily driven by growth in subscription and device revenues, partially offset by a decrease in platform revenues.

The growth in subscriptions was largely for YouTube services, primarily due to an increase in paid subscribers.

The growth in device revenues was primarily driven by increased sales of Pixel devices.

The decrease in platform revenues was primarily due to Google Play, driven by the fee structure changes we announced in 2021 as well as a decrease in buyer spending.

Additionally, the overall increase in Google subscriptions, platforms, and devices revenues was adversely affected by the unfavorable effect of foreign currency exchange rates.

Google Cloud revenues increased $6.8 billion from 2022 to 2023.

Growth was primarily driven by Google Cloud Platform followed by Google Workspace offerings.

Google Cloud's infrastructure and platform services were the largest drivers of growth in Google Cloud Platform.

Google subscriptions, platforms, and devices revenues increased $5.7 billion from 2023 to 2024.

The growth was primarily driven by an increase in subscription revenues, largely from growth in the number of paid subscribers for YouTube services followed by Google One.

Google Cloud revenues increased $10.1 billion from 2023 to 2024 primarily driven by growth in Google Cloud Platform largely from infrastructure services.

Revenues by Geography

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For additional information, see Note 2 of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.

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Use of Non-GAAP Constant Currency Information

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Results on a constant currency basis, as we present them, may not be comparable to similarly titled measures used by other companies and are not a measure of performance presented in accordance with GAAP.

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The following table presents the foreign currency exchange effect on international revenues and total revenues (in millions, except percentages):

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(1) Total constant currency revenues of $352.7 billion for 2024 increased $45.6 billion compared to $307.2 billion in revenues, excluding hedging effect, for 2023.

EMEA revenue growth was favorably affected by changes in foreign currency exchange rates, primarily due to the U.S.

dollar weakening relative to the Euro, partially offset by the U.S.

dollar strengthening relative to the Turkish lira.

EMEA revenue growth was not materially affected by changes in foreign currency exchange rates, as the effect of the U.S.

dollar strengthening relative to the Turkish lira was offset by the U.S.

dollar weakening relative to the British pound and the euro.

APAC revenue growth was unfavorably affected by changes in foreign currency exchange rates, primarily due to the U.S.

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Other Americas revenue growth was unfavorably affected by changes in foreign currency exchange rates, primarily due to the U.S.

dollar strengthening relative to the Argentine peso.

Alphabet Inc.

dollar strengthening relative to the Argentine peso and the Brazilian real.

Costs and Expenses

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Year Ended December 31,

2021 2022 2023

TAC $ 50,886 $ 54,900

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Total cost of revenues as a percentage of revenues 43 % 42 %

Cost of revenues increased $7.1 billion from 2022 to 2023 due to an increase in other cost of revenues and TAC of $5.2 billion and $1.9 billion, respectively.

Cost of revenues increased $13.0 billion from 2023 to 2024 due to an increase in other cost of revenues and TAC of $9.0 billion and $4.0 billion, res pectively.

The increase in TAC from 2023 to 2024 was largely due to an increase in TAC paid to distribution partners, primarily driven by growth in revenues subject to TAC.

The TAC rate decreased from 21.4% to 20.7% from 2023 to 2024 primarily due to a revenue mix shift from Google Network properties to Google Search & other properties.

The TAC rate on Google Search & other revenues and the TAC rate on Google Network revenues were both substantially consistent from 2022 to 2023.

The increase in other cost of revenues from 2022 to 2023 was primarily due to increases in content acquisition costs, largely for YouTube, and compensation expenses, which included $479 million of charges related to employee severance associated with the reduction in our workforce.

Additionally, other cost of revenues benefited from a reduction in depreciation expense due to the change in estimated useful lives of our servers and network equipment.

The increase in other cost of revenues of $11.9 billion from 2021 to 2022 was primarily due to increases in device costs, compensation expenses, depreciation, and equipment-related expenses.

The TAC rate on Google Search & other revenues increased from 2023 to 2024 primarily due to increases related to mobile searches, which carries higher TAC because more mobile searches are channeled through paid access points.

The TAC rate on Google Network revenues was substantially consistent from 2023 to 2024.

The increase in other cost of revenues from 2023 to 2024 was primarily due to increases in content acquisition costs, largely for YouTube, depreciation expense, and other technical infrastructure operations costs.

Research and Development

The following table presents R&D expenses (in millions, except percentages):

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Year Ended December 31,

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Research and development expenses as a percentage of revenues 15 % 14 %

R&D expenses increased $5.9 billion from 2022 to 2023 primarily driven by an increase in compensation expenses of $2.9 billion, $870 million in charges related to our office space optimization efforts, and an increase in depreciation expense of $722 million.

The $2.9 billion increase in compensation expenses was largely the result of a 4% increase in average headcount, after adjusting for roles affected by the reduction in our workforce, and an increase in SBC expense.

Additionally, the increase in compensation expenses included $848 million in employee severance charges associated with the reduction in our workforce.

The $722 million increase in depreciation expense reflected an offsetting benefit of the change in the estimated useful lives of our servers and network equipment.

R&D expenses increased $3.9 billion from 2023 to 2024, primarily driven by increases in employee compensation expenses of $1.5 billion, depreciation expense of $1.4 billion, and third-party services fees of $698 million, partially offset by a reduction in charges related to our office space optimization efforts of $640 million.

The increase in employee compensation expenses was primarily driven by a $1.3 billion increase in SBC expenses, which includes the reduction in valuation-based compensation liabilities related to certain Other Bets recognized in the prior year comparable period, partially offset by a $537 million decrease in severance and related charges.

Sales and Marketing

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Sales and marketing expenses as a percentage of revenues 9 % 8 %

Sales and marketing expenses increased $1.4 billion from 2022 to 2023, primarily driven by an increase in compensation expenses of $1.6 billion, partially offset by a decrease in advertising and promotional activities of $441 million.

The $1.6 billion increase in compensation expenses was largely the result of $497 million in employee severance charges associated with the reduction in our workforce in addition to a combination of other factors, none of which were individually significant.

Alphabet Inc.

Sales and marketing expenses decreased $109 million from 2023 to 2024, due to a combination of factors, none of which were individually significant.

General and Administrative

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General and administrative expenses as a percentage of revenues 5 % 4 %

General and administrative expenses increased $701 million from 2022 to 2023, primarily driven by an increase in compensation expenses of $416 million, which was largely the result of $264 million in employee severance charges associated with the reduction in our workforce in addition to a combination of other factors, none of which were individually significant.

General and administrative expenses decreased $2.2 billion from 2023 to 2024, primarily driven by a reduction in charges related to legal and other matters of $1.3 billion and a decrease in employee compensation expenses of $285 million, primarily due to a decrease in average headcount, in addition to a combination of factors, none of which were individually significant.

Segment Profitability

We report our segment results as Google Services, Google Cloud, and Other Bets.

Additionally, certain costs are not allocated to our segments because they represent Alphabet-level activities.

For further details on our segments, see Part I, Item 1 Business and Note 15 of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.

The following table presents segment operating income (loss) (in millions).

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Total income from operations $ 84,293 $ 112,390

(1) In addition to the costs included in Alphabet-level activities, hedging gains (losses) related to revenue were $2.0 billion and $236 million in 2022 and 2023, respectively.

For the year ended December 31, 2023, Alphabet-level activities include charges related to the reduction in force and our office space optimization efforts totaling $3.9 billion.

In addition, for the year ended December 31, 2023, we incurred $269 million in accelerated rent and accelerated depreciation.

For additional information relating to our workforce reduction and other initiatives, see Note 8 of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.

For additional information relating to our segments, see Note 15 of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.

(1) In addition to the costs included in Alphabet-level activities, hedging gains (losses) related to revenue were $236 million and $211 million in 2023 and 2024 , respectively.

For the years ended December 31, 2023 and 2024 , Alphabet-level activities included substantially all of the charges related to employee severance and our office spa ce charges.

Alphabet Inc.

Google Services

Google Services operating income increased $25.4 billion from 2023 to 2024.

The increase in operating income was primarily driven by an increase in revenues, partially offset by an increase in content acquisition costs and compensation expenses including an increase in SBC expense.

Additionally, operating income benefited from a reduction in costs driven by the change in the estimated useful lives of our servers and certain network equipment.

Google Cloud operating income of $1.7 billion for 2023 compared to an operating loss of $1.9 billion for 2022 represents an increase of $3.6 billion.

The increase in operating income was primarily driven by an increase in revenues, partially offset by an increase in compensation expenses largely driven by headcount growth.

Additionally, operating income benefited from a reduction in costs driven by the change in the estimated useful lives of our servers and certain network equipment.

Other Bets operating loss decreased $541 million from 2022 to 2023 primarily due to growth in revenues as well as a reduction in valuation-based compensation liabilities related to Other Bet companies.

The increase in operating income was primarily driven by an increase in revenues, partially offset by increases in content acquisition costs and TAC.

Additionally, a reduction in employee compensation expenses contributed to the increase in operating income.

Google Cloud operating income increased $4.4 billion from 2023 to 2024.

The increase in operating income was primarily driven by an increase in revenues, partially offset by increases in usage costs for technical infrastructure as well as employee compensation expenses, largely driven by headcount growth.

Other Bets operating loss increased $349 million from 2023 to 2024.

The increase in operating loss was primarily due to an increase in expenses, largely driven by employee compensation expenses in addition to a combination of factors, none of which were individually significant.

The increase in employee compensation expenses was primarily as a result of the reduction in valuation-based compensation liabilities related to certain Other Bets recognized in the prior year comparable period.

Other Income (Expense), Net

The following table presents OI&E, (in millions):

Alphabet Inc.

Year Ended December 31,

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Other income (expense), net $ 1,424 $ 7,425

OI&E, net increased $4.9 billion from 2022 to 2023.

The increase was primarily due to fluctuations in the value of equity securities reflecting market driven changes in the value of our marketable equity securities, investment specific event driven changes in our non-marketable equity securities, and increased interest income due to interest rates.

For additional information, see Note 7 of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.

OI&E, net increased $6.0 billion from 2023 to 2024 primarily due to an increase in net gains on equity securities and a decrease in net losses on foreign currency exchange.

The net gains on equity securities were primarily due to net unrealized gains on non-marketable equity securities driven by fair value adjustments related to observable transactions, partially offset by a decrease in net unrealized gains on marketable equity securities due to market-driven changes.

Foreign currency exchange net losses decreased compared to the prior year primarily due to prior year losses in unhedged currencies.

In January 2025, we recognized an $8.0 billion unrealized gain on our non-marketable equity securities related to our investment in a private company.

The unrealized gain reflects an increase in the fair value measurement of our investment following an observable transaction in January 2025.

For additional information, see Note 3 and Note 7 of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.

Provision for Income Taxes

The following table presents provision for income taxes (in millions, except for effective tax rate):

The following table presents provision for income taxes (in millions, except effective tax rate):

Year Ended December 31,

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Effective tax rate 13.9 % 16.4 %

In 2023, the Internal Revenue Services (IRS) issued a rule change allowing taxpayers to temporarily apply the regulations in effect prior to 2022 related to U.S.

federal foreign tax credits, as well as a separate rule change with interim guidance on the capitalization and amortization of R&D expenses.

A cumulative one-time adjustment applicable to the prior period for these tax rule changes was recorded in 2023.

The effective tax rate decreased from 2022 to 2023, reflecting the effect of the two tax rule changes described above, particularly the change related to foreign tax credits.

The effect of these tax rule changes was partially offset by changes in uncertain tax benefits and a decrease in the U.S.

federal Foreign Derived Intangible Income tax deduction.

The effective tax rate increased from 2023 to 2024.

This increase was primarily due to a one-time adjustment for tax rule changes issued by the Internal Revenue Service (IRS) that affected the 2023 rate related to U.S.

federal foreign tax credits, as well as a separate rule change with guidance on the capitalization and amortization of R&D

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Additionally, a decrease in the 2024 U.S.

federal Foreign Derived Intangible Income tax deduction contributed to an increase in the effective tax rate.

These factors were partially offset by an increase in stock-based compensation-related tax benefits in 2024.

The OECD is coordinating negotiations among more than 140 countries with the goal of achieving consensus around substantial changes to international tax policies, including the implementation of a minimum global effective tax rate of 15%.

While various countries have implemented the legislation as of January 1, 2024, we do not expect a resulting material change to our income tax provision for the 2024 fiscal year.

As additional jurisdictions enact such legislation, we expect our effective tax rate and cash tax payments could increase in future years.

Some countries have already implemented the legislation effective January 1, 2024, and we expect others to follow, however this did not have a material effect on our income tax provision for the 2024 fiscal year.

Financial Condition

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We regularly evaluate our cash and capital structure, including the size, pace, and form of capital return to stockholders.

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The following table presents our cash flows (in millions):

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Our largest source of cash provided by operations are advertising revenues generated by Google Search & other properties, Google Network properties, and YouTube properties.

In Google Services, we also generate cash through consumer subscriptions and the sale of apps and in-app purchases and devices.

In Google Cloud we generate cash through consumption-based fees and subscriptions for infrastructure, platform, collaboration tools, and other cloud services.

In Google Services, we also generate cash through consumer subscriptions, the sale of apps and in-app purchases, and devices.

In Google Cloud, we generate cash through consumption-based fees and subscriptions for infrastructure, platform, applications, and other cloud services.

Our primary uses of cash from operating activities include payments to distribution and Google Network partners, to employees for compensation, and to content providers.

Other uses of cash from operating activities include payments to suppliers for devices, to tax authorities for income taxes, and other general corporate expenditures.

Net cash provided by operating activities increased from 2022 to 2023 due to the increase in cash received from customers, partially offset by increases in cash paid for cost of revenues and operating expenses.

Net cash provided by operating activities increased from 2023 to 2024 due to an increase in cash received from customers, partially offset by an increase in cash payments for cost of revenues and operating expenses.

Cash Used in Investing Activities

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Cash used in investing activities consists primarily of purchases of marketable and non-marketable securities, purchases of property and equipment, and payments for acquisitions.

Net cash used in investing activities increased from 2022 to 2023 due to a decrease in maturities and sales of marketable securities, partially offset by a decrease in payments for acquisitions.

Net cash used in investing activities increased from 2023 to 2024 primarily due to an increase in purchases of property and equipment and purchases of marketable securities, partially offset by increases in maturities and sales of marketable securities.

The increase in purchases of property and equipment is primarily driven by investments in technical infrastructure.

Cash Used in Financing Activities

Cash provided by financing activities consists primarily of proceeds from issuance of debt and proceeds from the sale of interests in consolidated entities.

Cash used in financing activities consists primarily of repurchases of stock, net payments related to stock-based award activities, and repayments of debt.

Net cash used in financing activities increased from 2022 to 2023 due to an increase in repurchases of stock.

Cash used in financing activities consists primarily of repurchases of stock, net payments related to stock-based award activities, payment of dividends, and repayments of debt.

Net cash used in financing activities increased from 2023 to 2024 due to dividend payments and net payments related to stock-based award activities, partially offset by an increase in proceeds from issuance of debt, net of repayments.

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Liquidity and Material Cash Requirements

We expect existing cash, cash equivalents, short-term marketable securities, cash flows from operations and financing activities to continue to be sufficient to fund our operating activities and cash commitments for investing and financing activities for at least the next 12 months and thereafter for the foreseeable future.

We expect exist ing cash, cash equivalents, short-term marketable securities, and cash flows from operations and financing activities to continue to be sufficient to fund our operating activities and cash commitments for investing and financing activities for at least the next 12 months, and thereafter for the foreseeable future.

Capital Expenditures and Leases

We make investments in land and buildings for data centers and offices and information technology assets through purchases of property and equipment and lease arrangements to provide capacity for the growth of our services and products.

We make investments in land, buildings, and servers and network equipment through purchases of property and equipment and lease arrangements to provide capacity for the growth of our services and products.

Capital Expenditures

Our capital investments in property and equipment consist primarily of the following major categories:

• technical infrastructure, which consists of our investments in servers and network equipment for computing, storage, and networking requirements for ongoing business activities, including AI, (collectively referred to as our information technology assets) and data center land and building construction;

• office facilities, ground-up development projects, and building improvements (also referred to as "fit-outs").

Construction in progress consists primarily of technical infrastructure and office facilities which have not yet been placed in service.

Assets not yet in service are those that are not ready for our intended use, including assets in the process of construction or assembly, and consists primarily of technical infrastructure.

The time frame from date of purchase to placement in service of these assets may extend from months to years.

For example, our data center construction projects are generally multi-year projects with multiple phases, where we acquire land and buildings, construct buildings, and secure and install information technology assets.

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During the years ended December 31, 2023 and 2024, we spent $32.3 billion and $52.5 billion on capital expenditures, respectively.

We expect to increase, relative to 2023, our investment in our technical infrastructure, including servers, network equipment, and data centers, to support the growth of our business and our long-term initiatives, in particular in support of AI products and services.

We expect to increase, relative to 2024, our i nvestment in our technical infrastructure, including servers, network equipment, and data centers, to support the growth of our business and our long-term initiatives, in particular in support of AI products and services.

Depreciation of our property and equipment commences when the deployment of such assets are completed and are ready for our intended use.

Land is not depreciated.

For the years ended December 31, 2022 and 2023, our depreciation on property and equipment were $13.5 billion and $11.9 billion, respectively.

For the years ended December 31, 2022 and 2023, we recognized total operating lease assets of $4.4 billion and $2.9 billion, respectively.

As of December 31, 2023, the amount of total future lease payments under operating leases, which had a weighted average remaining lease term of eight years, was $17.7 billion, of which $3.2 billion is short-term.

As of December 31, 2023, we have entered into leases that have not yet commenced with future short-term and long-term lease payments of $657 million and $3.3 billion, that are not yet recorded on our Consolidated Balance Sheets.

For the years ended December 31, 2023 and 2024, our depreciation on property and equipment was $11.9 billion and $15.3 billion, respectively.

For the years ended December 31, 2023 and 2024, we recognized additional operating lease assets of $2.9 billion and $2.5 billion, and additional finance lease assets of $564 million and $313 million, respectively.

As of December 31, 2024, the amount of total future lease payments under operating leases, which had a weighted average remaining lease term of 7.8 years, was $17.0 billion, of which $3.2 billion is short-term, and total future lease payments under finance leases, which had a weighted average remaining lease term of 10.4 years, was $1.9 billion, of which $257 million is short-term.

As of December 31, 2024, we have entered into leases that have not yet commenced with future short-term and long-term lease payments of $773 million and $6.5 billion, respectively, that are not yet recorded on our Consolidated Balance Sheets.

These leases will commence between 2025 and 2028 with non-cancelable lease terms of one to 25 years.

For the years ended December 31, 2023 and 2024, our operating lease expenses (including variable lease costs) were $4.5 billion and $4.7 billion, respectively.

Finance lease costs were not material for the years ended December 31, 2022 and 2023.

Finance lease costs were $504 million and $444 million for the years ended December 31, 2023 and 2024, respectively.

For additional information, see Note 4 of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.

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Net proceeds from this program are used for general corporate purposes.

As of December 31, 2023, we had no commercial paper outstanding.

As of December 31, 2024, we ha d $2.3 billion of short-term commercial paper outstanding.

As of December 31, 2024, we had senior unsecured notes outstanding with a total carrying value of $11.9 billion with short-term and long-term future interest payments of $197 million and $3.4 billion, respectively.

As of December 31, 2024, we had $10.0 billion of revolving credit facilities, $4.0 billion expiring in April 2025 and $6.0 billion expiring in April 2028.

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No amounts have been borrowed under the credit facilities.

As of December 31, 2023, we had senior unsecured notes outstanding with a total carrying value of $12.9 billion with short-term and long-term future interest payments of $214 million and $3.6 billion, respectively.

For additional information, see Note 6 of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.

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We primarily utilize contract manufacturers for the assembly of our servers used in our technical infrastructure and devices we sell.

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In April 2024, the Board of Directors of Alphabet authorized the company to repurchase up to an additional $70.0 billion of its Class A and Class C shares.

As of December 31, 2023, $36.3 billion remains available for Class A and Class C share repurchases.

As of December 31, 2024 , $44.7 billion remained available for Class A and Class C share repurchases.

The following table presents Class A and Class C shares repurchased and subsequently retired (in millions):

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528 $ 62,184 379 $ 62,047

(1) Shares repurchased include unsettled repurchases as of December 31, 2023.

(1) Shares repurchased include unsettled repurchases.

For additional information, see Note 11 of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.

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Dividend Program

During the year ended December 31, 2024 total cash dividends, which were first paid in June 2024, were $3.5 billion, $519 million, and $3.3 billion for Class A, Class B, and Class C shares, respectively.

The company intends to pay quarterly cash dividends in the future, subject to review and approval by the company’s Board of Directors in its sole discretion.

European Commission Fines

In 2017, 2018 and 2019, the EC announced decisions that certain actions taken by Google infringed European competition law and imposed fines of €2.4 billion ($2.7 billion as of June 27, 2017), €4.3 billion ($5.1 billion as of June 30, 2018), and €1.5 billion ($1.7 billion as of March 20, 2019), respectively.

On September 14, 2022, the General Court reduced the 2018 fine from €4.3 billion to €4.1 billion.

We subsequently filed an appeal to the European Court of Justice.

While each EC decision is under appeal, we included the fines in accrued expenses and other current liabilities on our Consolidated Balance Sheets as we provided bank guarantees (in lieu of a cash payment) for the fines.

In 2017, 2018, and 2019, the European Commission (EC) announced decisions that certain actions taken by Google infringed European competition law and imposed fines of €2.4 billion ($2.7 billion as of June 27, 2017), €4.3 billion ($5.1 billion as of June 30, 2018), and €1.5 billion ($1.7 billion as of March 20, 2019), respectively.

In September 2022, the General Court affirmed the EC decision but reduced the 2018 fine from €4.3 billion to €4.1 billion.

We subsequently appealed the General Court's affirmation of the EC decision with the European Court of Justice, which remains pending.

In September 2024, the European Court of Justice rejected our appeal of the 2017 decision and upheld the €2.4 billion fine.

In the third quarter of 2024, we made a cash payment of $3.0 billion for the 2017 shopping fine.

In September 2024, the EU's General Court overturned the 2019 decision and annulled the €1.5 billion fine.

The EC has appealed the General Court's decision to the European Court of Justice.

We included the outstanding EC fines, including any under appeal, in accrued expenses and other current liabilities on our Consolidated Balance Sheets.

For additional information, see Note 10 of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.

As of December 31, 2023 , we had income taxes payabl e of $4.2 billion, of which $2.1 billion was short-term, related to a one-time transition tax payable incurred as a result of the U.S.

Tax Cuts and Jobs Act ("Tax Act").

As permitted by the Tax Act, we will pay the transition tax in annual interest-free installments through 2025.

We also have long-term taxes payable of $6.3 billion primarily related to uncertain tax positions as of December 31, 2023 .

As of December 31, 2024 , we had income taxes payable of $2.7 billion related to a one-time transition tax payable incurred as a result of the U.S.

Tax Cuts and Jobs Act, which is due in 2025.

We also had long-term taxes payable of $8.8 billion primarily related to uncertain tax positions as of December 31, 2024 .

Purchase Commitments and Other Contractual Obligations

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These amounts primarily consist of purchase orders for certain technical infrastructure as well as the non-cancelable portion or the minimum cancellation fee in certain agreements related to commitments to purchase licenses, including content licenses, inventory, and network capacity.

For those agreements with variable terms, we do not estimate the non-cancelable obligation beyond any minimum quantities and/or pricing as of December 31, 2023.

For those agreements

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with variable terms, we do not estimate the non-cancelable obligation beyond any minimum quantities and/or pricing as of December 31, 2024.

In certain instances, the amount of our contractual obligations may change based on the expected timing of order fulfillment from our suppliers.

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When indicators of impairment exist, we prepare quantitative measurements of the fair value of our equity investments using a market approach or an income approach, which requires judgment and the use of unobservable inputs, including discount rates, investee revenues and costs, and comparable market data of private and public companies, among others.

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When the quantitative remeasurements of fair value indicate an impairment exists, we write down the investment to its current fair value.

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Property and Equipment

We assess the reasonableness of the useful lives of our property and equipment periodically as well as when other changes occur, such as when there are changes to ongoing business operations, changes in the planned use and utilization of assets, or technological advancements, that could indicate a change in the period over which we expect to benefit from the assets.

We are subject to income taxes in the U.S.

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Although we believe we have adequately reserved for our uncertain tax positions, no assurance can be given that the final tax outcome of these matters will not be different.

To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will affect the provision for income taxes and the effective tax rate in the period in which such determination is made.

To the extent that the final tax outcome of these matters is different than the amounts recorded, such

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differences will affect the provision for income taxes and the effective tax rate in the period in which such determination is made.

The provision for income taxes includes the effect of reserve provisions and changes to reserves as well as the related net interest and penalties.

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Loss Contingencies

We are regularly subject to claims, lawsuits, regulatory and government investigations, other proceedings, and consent orders involving competition, intellectual property, privacy, data security, tax and related compliance, labor and employment, commercial disputes, content generated by our users, goods and services offered by advertisers or publishers using our platforms, personal injury consumer protection, and other matters.

We are subject to claims, lawsuits, regulatory and government inquiries and investigations, other proceedings, and consent orders involving competition, intellectual property, data privacy and security, tax and related compliance, labor and employment, commercial disputes, content generated by our users, goods and services offered by advertisers or publishers using our platforms, personal injury, consumer protection, and other matters.

Certain of these matters include speculative claims for substantial or indeterminate amounts of damages.

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Until the final resolution of such matters, there may be an exposure to loss in excess of the amount recorded, and such amounts could be material.

Change in Accounting Estimate

In January 2023, we completed an assessment of the useful lives of our servers and network equipment resulting in a change in the estimated useful life of our servers and certain network equipment to six years.

This change in accounting estimate was effective beginning fiscal year 2023.

For additional information, see Note 1 of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis