Alphabet Inc. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Please read the following discussion and analysis of our financial condition and results of operations together with "Note about Forward-Looking Statements" and our consolidated financial statements and related notes included under Item 1 of this Quarterly Report on Form 10-Q as well as our Annual Report on Form 10-K for the fiscal year ended December 31, 2025, including Part I, Item 1A "Risk Factors," as updated in Part II, Item 1A of this Quarterly Report on Form 10-Q. Understanding Alphabet’s Financial Results Alphabet is a collection of businesses — the largest of which is Google. We report Google in two segments, Google Services and Google Cloud, and all non-Google businesses collectively as Other Bets. Supporting these businesses, we have centralized certain AI-related research and development focused on advanced research in AI and developing the frontier models that serve our businesses, which is reported in Alphabet-level activities. For further details on our segments, see Note 15 of the Notes to Consolidated Financial Statements included in Item 1 of this Quarterly Report on Form 10-Q. Revenues and Monetization Metrics We generate revenues by delivering relevant, cost-effective online advertising; cloud-based solutions that provide enterprise customers of all sizes with infrastructure, platform services, and applications; and 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 Part II, Item 8 in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025. In addition to the long-term trends and their financial effect on our business discussed in "Trends in Our Business and Financial Effect" in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2025, fluctuations in our revenues have been and may continue to be affected by a combination of factors, including: • changes in foreign currency exchange rates; • 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, service, and market launches; and • seasonality. 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 Google Services revenues consist of Google advertising as well as Google subscriptions, platforms, and devices revenues. Google Advertising Google advertising revenues are comprised of the following: • Google Search & other, which includes revenues generated on Google search properties (including revenues from traffic generated by search distribution partners who use Google.com as their default search in browsers, toolbars, etc.), and other Google owned and operated properties like Gmail, Google Maps, and Google Play; • YouTube ads, which includes revenues generated on YouTube properties; and • Google Network, which includes revenues generated on Google Network properties participating in AdMob, AdSense, and Google Ad Manager. 35 We use certain metrics to track how well traffic across various properties is monetized as it relates to our advertising revenues: paid clicks and cost-per-click pertain to traffic on Google Search & other properties, while impressions and cost-per-impression pertain to traffic on our Google Network properties. Paid clicks represent engagement by users and include clicks on advertisements by end-users on Google search properties and other Google owned and operated properties including Gmail, Google Maps, and Google Play. Cost-per-click is defined as click-driven revenues divided by our total number of paid clicks and represents the average amount we charge advertisers for each engagement by users. Impressions include impressions displayed to users on Google Network properties participating primarily in AdMob, AdSense, and Google Ad Manager. Cost-per-impression is defined as impression-based and click-based revenues divided by our total number of impressions, and represents the average amount we charge advertisers for each impression displayed to users. As our business evolves, we periodically review, refine, and update our methodologies for monitoring, gathering, and counting the number of paid clicks and the number of impressions, and for identifying the revenues generated by the corresponding click and impression activity. Fluctuations in our advertising revenues, as well as the change in paid clicks and cost-per-click on Google Search & other properties and the change in impressions and cost-per-impression on Google Network properties and the correlation between these items have been, and may continue to be, affected by factors in addition to the general factors described above, such as: • advertiser competition for keywords; • changes in advertising quality, formats, delivery, or policy; • changes in device mix; • seasonal fluctuations in internet usage, advertising expenditures, and underlying business trends, such as traditional retail seasonality; and • traffic growth in emerging markets compared to more mature markets and across various verticals and channels. 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 as YouTube TV, YouTube Music and Premium, and NFL Sunday Ticket, as well as Google One, which offers access to our most capable Gemini models; • 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; and • 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 the timing of product launches. Google Cloud Google Cloud revenues are comprised of the following: • Google Cloud Platform primarily generates consumption-based fees and subscriptions for infrastructure, platform, and other services. These services provide access to solutions such as AI offerings including our enterprise AI infrastructure, Vertex AI platform, and Gemini Enterprise; cybersecurity offerings; and data and analytics solutions. • Google Workspace includes subscriptions for cloud-based communication and collaboration tools for enterprises, such as Gmail, Docs, Calendar, Drive, and Meet, with integrated features like Gemini for Google Workspace. • 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 changes in customer usage, demand, and supply availability. We 36 have signed a limited number of agreements to supply Tensor Processing Units (TPU) hardware to customers who require or provide on-premises infrastructure for specialized, high-scale workloads. We expect to begin recognizing revenues from these agreements later in 2026, with the significant majority to be recognized in 2027. Other Bets Revenues from Other Bets are generated primarily from the sale of autonomous transportation services and internet services. Costs and Expenses Our cost structure has two components: cost of revenues and operating expenses. Our operating expenses include costs related to research and development, sales and marketing, and general and administrative functions. 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 employee compensation expenses may not directly correlate with changes in headcount, due to factors such as annual SBC awards that vest over time. Cost of Revenues Cost of revenues is comprised of TAC and other costs of revenues. • TAC includes: ◦ amounts paid to our distribution partners who make available our search access points and other ad-supported services. Our distribution partners include browser providers, mobile carriers, original equipment manufacturers, and software developers; and ◦ amounts paid to Google Network partners primarily for ads displayed on their properties. • Other cost of revenues primarily includes: ◦ 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, primarily 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; and ◦ other technical infrastructure operations costs, including energy, equipment, and network capacity 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 Operating expenses are generally incurred during our normal course of business, which we categorize as either research and development, sales and marketing, or general and administrative. The main components of our research and development expenses are: • depreciation expense, primarily related to our technical infrastructure; • employee compensation expenses for engineering and technical employees responsible for research and development related to our existing and new products and services; • other technical infrastructure operations costs, including energy, equipment, and network capacity costs; and • 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: 37 • employee compensation expenses for employees engaged in sales and marketing, sales support, and certain customer service functions; and • 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: • 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; and • third-party services fees, including audit, consulting, outside legal, and other outsourced administrative services. Other Income (Expense), Net 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, 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 of the Notes to Consolidated Financial Statements included in Part II, Item 8 as well as Item 7A, “Quantitative and Qualitative Disclosur es About Market Risk” in our An nual Report on Form 10-K for the fiscal year ended December 31, 2025 as well as Note 3 of the Notes to Consolidated Financial Statements included in Item 1 of this Quarterly Report on Form 10-Q. Provision for Income Taxes Provision for income taxes represents the estimated amount of federal, state, and foreign income taxes incurred in the US and the many jurisdictions in which we operate. The provision includes the effect of reserve provisions and changes to reserves that are considered appropriate as well as the related net interest and penalties. For additional information, see Note 1 of the Notes to Consolidated Financial Statements included in Part II, Item 8 in our An nual Report on Form 10-K for the fiscal year ended December 31, 2025 as well as Note 14 of the Notes to Consolidated Financial Statements included in Item 1 of this Quarterly Report on Form 10-Q. Executive Overview The following table summarizes consolidated financial results (in millions, except for per share information and percentages): Three Months Ended March 31, 2025 2026 $ Change % Change Consolidated revenues $ 90,234 $ 109,896 $ 19,662 22 % Cost of revenues $ 36,361 $ 41,271 $ 4,910 14 % Operating expenses $ 23,267 $ 28,929 $ 5,662 24 % Operating income $ 30,606 $ 39,696 $ 9,090 30 % Operating margin 34 % 36 % 2 % Other income (expense), net $ 11,183 $ 37,716 $ 26,533 237 % Net income $ 34,540 $ 62,578 $ 28,038 81 % Diluted net income per share (1) $ 2.81 $ 5.11 $ 2.30 82 % (1) For additional information on the calculation of diluted net income per share, see Note 12 of the Notes to Consolidated Financial Statements included in Item 1 of this Quarterly Report on Form 10-Q. • Revenues were $109.9 billion, an increase of 22% year over year, primarily driven by an increase in Google Services revenues of $12.4 billion, or 16%, and an increase in Google Cloud revenues of $7.8 billion, or 63%. 38 • Cost of revenues was $41.3 billion, an increase of 14% year over year, primarily driven by increases in depreciation expense, TAC, content acquisition costs, and employee compensation expenses, partially offset by an accrual reversal for digital services tax related to the recently repealed law in Canada. • Operating expenses were $28.9 billion, an increase of 24% year over year, primarily driven by increases in employee compensation expenses, advertising and promotional activities, and depreciation expense. Other Information: • Google Cloud has entered into a limited number of agreements to supply multiple gigawatts of TPU hardware to customers who require or provide on-premises infrastructure for specialized, high-scale workloads. Revenues for these transactions are included in our backlog as of March 31, 2026. We expect to begin recognizing revenues from these agreements later in 2026, with the significant majority to be recognized in 2027. In connection with certain of these agreements, we have agreed to provide credit backstops to support third-party data centers and power infrastructure. • In March 2026, we committed to a $40.0 billion investment in a private company consisting of a $10.0 billion capital commitment and $30.0 billion of future capital funding contingent upon the achievement of specified operational and financial milestones. • On March 11, 2026, we completed our acquisition of Wiz for $29.5 billion, after purchase price adjustments and excluding post combination compensation arrangements. Following the close of the acquisition, the financial results are included in our consolidated financial statements within the Google Cloud segment. For additional information on the purchase price allocation, see Note 8 of the Notes to Consolidated Financial Statements included in Item 1 of this Quarterly Report on Form 10-Q. • On March 10, 2026, we completed our acquisition of Intersect for $5.9 billion, after purchase price adjustments. Following the close of the acquisition, the financial results are included in our consolidated financial statements and are allocated to our segments. For additional information on the purchase price allocation, see Note 8 of the Notes to Consolidated Financial Statements included in Item 1 of this Quarterly Report on Form 10-Q. • In March 2026, we entered into a definitive agreement to contribute our ownership interest in GFiber into a newly formed entity. Upon closing, we expect to receive $1.5 billion in cash, a $2.0 billion note receivable, and a 49.99% equity interest. The transaction is expected to close in late 2026. For additional information on the pending divestiture, see Note 8 of the Notes to Consolidated Financial Statements included in Item 1 of this Quarterly Report on Form 10-Q. • In February 2026, Waymo received $16.0 billion in funding, the significant majority of which was funded by Alphabet. • In the first quarter of 2026, we issued senior unsecured notes for net proceeds of $31.1 billion, to be used for general corporate purposes. • OI&E of $37.7 billion for the three months ended March 31, 2026 included net gains on equity securities of $36.9 billion, primarily related to unrealized gains on our non-marketable equity securities. • Operating cash flow was $45.8 billion for the three months ended March 31, 2026. • Capital expenditures, which primarily reflected investments in technical infrastructure, were $35.7 billion for the three months ended March 31, 2026. • As of March 31, 2026, we had 194,668 employees. We are monitoring ongoing developments surrounding geopolitical tension, international trade, and the macroeconomic environment. As a result, we may experience direct and indirect effects on our business, operations, and financial results. Our past results may not be indicative of our future performance, and our financial results may differ materially from historical trends. Financial Results 39 Revenues The following table presents revenues by type (in millions): Three Months Ended March 31, 2025 2026 Google Search & other $ 50,702 $ 60,399 YouTube ads 8,927 9,883 Google Network 7,256 6,971 Google advertising 66,885 77,253 Google subscriptions, platforms, and devices 10,379 12,384 Google Services total 77,264 89,637 Google Cloud 12,260 20,028 Other Bets 450 411 Hedging gains (losses) 260 (180) Total revenues $ 90,234 $ 109,896 Google Services Google Advertising Google Search & other Google Search & other revenues increased $9.7 billion from the three months ended March 31, 2025 to the three months ended March 31, 2026. The overall growth was driven by interrelated factors including increases in search queries resulting from growth in user adoption and usage on mobile devices; growth in advertiser spending; and improvements we have made in ad formats and delivery. Additionally, Google Search & other revenues were favorably affected by changes in foreign currency exchange rates for the three months ended March 31, 2026. YouTube ads YouTube ads revenues increased $956 million from the three months ended March 31, 2025 to the three months ended March 31, 2026. The growth was driven by our direct response advertising products followed by our brand advertising products, both of which benefited from increased spending by our advertisers. Google Network Google Network revenues decreased $285 million from the three months ended March 31, 2025 to the three months ended March 31, 2026, primarily due to a decrease in AdSense revenues, partially offset by an increase in AdMob revenues. Monetization Metrics The following table presents changes in monetization metrics for Google Search & other revenues (paid clicks and cost-per-click) and Google Network revenues (impressions and cost-per-impression), expressed as a percentage, from the three months ended March 31, 2025 to the three months ended March 31, 2026: Google Search & other Paid clicks change 13 % Cost-per-click change 5 % Google Network Impressions change (9) % Cost-per-impression change 6 % Changes in paid clicks and impressions are driven by a number of interrelated factors, including changes in advertiser spending; ongoing product and policy changes; and, as it relates to paid clicks, fluctuations in search queries resulting from changes in user adoption and usage, primarily on mobile devices. 40 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. Google Subscriptions, Platforms, and Devices Google subscriptions, platforms, and devices revenues increased $2.0 billion from the three months ended March 31, 2025 to the three months ended March 31, 2026. The growth was primarily driven by an increase in subscriptions revenues. This increase was primarily due to the contribution from growth in paid subscriptions across both YouTube services and Google One. Additionally, Google subscriptions, platforms, and devices revenues were favorably affected by changes in foreign currency exchange rates for the three months ended March 31, 2026. Google Cloud Google Cloud revenues increased $7.8 billion from the three months ended March 31, 2025 to the three months ended March 31, 2026 primarily driven by growth in Google Cloud Platform largely from infrastructure and platform services. Revenues by Geography The following table presents revenues by geography as a percentage of revenues, determined based on the addresses of our customers: Three Months Ended March 31, 2025 2026 United States 49 % 49 % EMEA 29 % 28 % APAC 16 % 17 % Other Americas 6 % 6 % Hedging gains (losses) 0 % 0 % For additional information, see Note 2 of the Notes to Consolidated Financial Statements included in Item 1 of this Quarterly Report on Form 10-Q. Costs and Expenses Cost of Revenues The following table presents cost of revenues, including TAC (in millions, except percentages): Three Months Ended March 31, 2025 2026 TAC $ 13,748 $ 15,228 Other cost of revenues 22,613 26,043 Total cost of revenues $ 36,361 $ 41,271 Total cost of revenues as a percentage of revenues 40 % 38 % Cost of revenues increased $4.9 billion from the three months ended March 31, 2025 to the three months ended March 31, 2026 due to an increase in other cost of revenues and TAC of $3.4 billion and $1.5 billion, respectively. The increase in TAC from the three months ended March 31, 2025 to the three months ended March 31, 2026 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 20.6% to 19.7% from the three months ended March 31, 2025 to the three months ended March 31, 2026, primarily due to a revenue mix shift from Google Network properties to Google Search & other properties. The TAC rates on Google Search & other revenues was substantially consistent from the three months ended March 31, 2025 to the three months ended March 31, 2026. The TAC rates on Google Network revenues reflected a slight increase from the three months ended March 31, 2025 to the three months ended March 31, 2026 due to a combination of factors, none of which were individually significant. The increase in other cost of revenues from the three months ended March 31, 2025 to the three months ended March 31, 2026 was primarily due to increases in depreciation expense, content acquisition costs, largely for 41 YouTube, and employee compensation expenses, partially offset by an accrual reversal for digital services tax related to the recently repealed law in Canada. Research and Development The following table presents research and development expenses (in millions, except percentages): Three Months Ended March 31, 2025 2026 Research and development expenses $ 13,556 $ 17,032 Research and development expenses as a percentage of revenues 15 % 16 % Research and development expenses increased $3.5 billion from the three months ended March 31, 2025 to the three months ended March 31, 2026, primarily driven by increases in employee compensation expenses of $2.5 billion and depreciation expense of $506 million. Sales and Marketing The following table presents sales and marketing expenses (in millions, except percentages): Three Months Ended March 31, 2025 2026 Sales and marketing expenses $ 6,172 $ 7,606 Sales and marketing expenses as a percentage of revenues 7 % 7 % Sales and marketing expenses increased $1.4 billion from the three months ended March 31, 2025 to the three months ended March 31, 2026, primarily driven by increases in advertising and promotional activities of $600 million, employee compensation expenses of $404 million, and office space impairment charges of $300 million. General and Administrative The following table presents general and administrative expenses (in millions, except percentages): Three Months Ended March 31, 2025 2026 General and administrative expenses $ 3,539 $ 4,291 General and administrative expenses as a percentage of revenues 4 % 4 % General and administrative expenses increased $752 million from the three months ended March 31, 2025 to the three months ended March 31, 2026, primarily driven by increases in employee compensation expenses of $272 million, expenses related to legal and other matters of $208 million, and a combination of other 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 Note 15 of the Notes to Consolidated Financial Statements included in Item 1 of this Quarterly Report on Form 10-Q. 42 The following table presents segment operating income (loss) (in millions): Three Months Ended March 31, 2025 2026 Operating income (loss): Google Services $ 32,682 $ 40,589 Google Cloud 2,177 6,598 Other Bets (1,226) (2,100) Alphabet-level activities (1) (3,027) (5,391) Total income from operations $ 30,606 $ 39,696 (1) Alphabet-level activities primarily reflect expenses related to our shared AI research and development. Google Services Google Services operating income increased $7.9 billion from the three months ended March 31, 2025 to the three months ended March 31, 2026. The increase in operating income was primarily driven by an increase in revenues, partially offset by an increase in TAC. Google Cloud Google Cloud operating income increased $4.4 billion from the three months ended March 31, 2025 to the three months ended March 31, 2026. The increase in operating income was primarily driven by an increase in revenues, partially offset by increases in usage costs for technical infrastructure and employee compensation expenses. Other Bets Other Bets operating loss increased $874 million from the three months ended March 31, 2025 to the three months ended March 31, 2026. The increase in operating loss was primarily driven by an increase in employee compensation expenses and a combination of other factors, none of which were individually significant. Other Income (Expense), Net The following table presents OI&E (in millions): Three Months Ended March 31, 2025 2026 Interest income $ 1,001 $ 1,381 Interest expense (34) (533) Foreign currency exchange gain (loss), net (106) 146 Gain (loss) on debt securities, net 202 (111) Gain (loss) on equity securities, net 9,758 36,915 Income (loss) and impairment from equity method investments, net (22) 60 Other 384 (142) Other income (expense), net $ 11,183 $ 37,716 OI&E, net increased $26.5 billion from the three months ended March 31, 2025 to the three months ended March 31, 2026, primarily due to increases in net unrealized gains on equity securities resulting from fair value adjustments on non-marketable equity securities. For additional information, see Note 3 and Note 7 of the Notes to Consolidated Financial Statements included in Item 1 of this Quarterly Report on Form 10-Q. 43 Provision for Income Taxes The following table presents provision for income taxes (in millions, except effective tax rate): Three Months Ended March 31, 2025 2026 Income before provision for income taxes $ 41,789 $ 77,412 Provision for income taxes $ 7,249 $ 14,834 Effective tax rate 17.3 % 19.2 % The effective tax rate increased from the three months ended March 31, 2025 to the three months ended March 31, 2026. This increase was primarily due to an increase in acquisition-related tax integration costs, partially offset by an increase in SBC-related tax benefits and a discrete tax benefit in connection with the deconsolidation of one of the Bets. The Organization for Economic Cooperation and Development (OECD) published model rules for the implementation of a minimum global effective tax rate of 15%. Many countries have implemented or are in the process of implementing the rules. In January 2026, the OECD introduced new guidance including a "Side-by-Side Safe Harbor" which, if elected, exempts US domestic operations from being taxed by global minimum tax rules. However, it does not exempt foreign subsidiaries from local minimum tax requirements. These rules did not have a material effect on our income tax provision for the three months ended March 31, 2026. As more countries enact these global minimum tax rules, our effective tax rate and cash tax payments could be affected. Financial Condition Cash, Cash Equivalents, and Marketable Securities As of March 31, 2026, we had $126.8 billion in cash, cash equivalents, and short-term marketable securities. Cash equivalents and marketable securities are comprised of time deposits, money market funds, highly liquid government bonds, corporate debt securities, mortgage-backed and asset-backed securities, and marketable equity securities. Sources, Uses of Cash and Related Trends Our principal sources of liquidity are cash, cash equivalents, and marketable securities, as well as the cash flow that we generate from operations. The primary use of capital continues to be to invest for the long-term growth of the business. We regularly evaluate our cash and capital structure, including the size, pace, and form of capital return to stockholders. The following table presents cash flows (in millions): Three Months Ended March 31, 2025 2026 Net cash provided by operating activities $ 36,150 $ 45,790 Net cash used in investing activities $ (16,194) $ (63,389) Net cash provided by (used in) financing activities $ (20,201) $ 25,077 Cash Provided by Operating Activities Our largest source of cash provided by operations are advertising revenues generated by Google Search & other properties, YouTube properties, and Google Network properties. 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. 44 Net cash provided by operating activities increased from the three months ended March 31, 2025 to the three months ended March 31, 2026 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 Cash provided by investing activities consists primarily of maturities and sales of investments in marketable and non-marketable securities. 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 the three months ended March 31, 2025 to the three months ended March 31, 2026 primarily due to an increase in payments for acquisitions, an increase in purchases of property and equipment, driven by investments in technical infrastructure, and an increase in purchases of marketable securities, partially offset by an increase in maturities and sales of marketable securities. Cash Provided by 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 repayments of debt, net payments related to stock-based award activities, and dividend payments. Net cash provided by financing activities for the three months ended March 31, 2026 compared to net cash used in financing activities for the three months ended March 31, 2025 was primarily due to an increase in proceeds from issuance of debt and a decrease in repurchases of stock. Liquidity and Material Cash Requirements We expect existing 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, 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, data center land, and building construction and improvements; and • office facilities, ground-up development projects, and building improvements. Assets not yet in service are those that are not ready for their intended use, including assets in the process of construction or assembly, and consist 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 servers and network equipment. During the three months ended March 31, 2025 and 2026, we spent $17.2 billion and $35.7 billion on capital expenditures, respectively. In 2026, we expect to significantly increase, relative to 2025, our investment in our technical infrastructure, including servers and network equipment and data centers. Depreciation of our property and equipment commences when such assets are ready for their intended use. For the three months ended March 31, 2025 and 2026, our depreciation on property and equipment was $4.5 billion and $6.5 billion, respectively. Leases As of March 31, 2026, the amount of total undiscounted future lease payments under operating and finance leases was $18.8 billion and $2.6 billion, respectively. As of March 31, 2026, we have entered into leases primarily related to data centers that have not yet commenced with future lease payments of $75.6 billion. These leases will commence between 2026 and 2031 with non-cancelable lease terms primarily between one and 25 years. For additional information on leases, see Note 4 of the Notes to Consolidated Financial Statements included in Item 1 of this Quarterly Report on Form 10-Q. 45 Financing As of March 31, 2026, we had senior unsecured notes outstanding with a total carrying value of $79.1 billion. During the first quarter of 2026, we issued fixed-rate senior unsecured notes consisting of: $20.0 billion US dollar-denominated notes with a weighted-average coupon rate of 4.80% and a weighted-average maturity of 15 years; £5.5 billion Sterling-denominated notes with a weighted-average coupon rate of 5.31% and a weighted-average maturity of 31 years; and CHF3.1 billion Swiss Franc-denominated notes with a weighted-average coupon rate of 1.06% and a weighted-average maturity of 10 years. As of March 31, 2026, we had $11.7 billion of credit facilities expiring at various dates through April 2030, of which $1.2 billion was outstanding. The outstanding debt under the credit facilities bears an interest rate of SOFR plus 1.5% to 2.25% that is paid quarterly. We also have a commercial paper program of up to $25.0 billion, which is used for general corporate purposes. As of March 31, 2026, we had no commercial paper outstanding. For additional information, see Note 6 of the Notes to Consolidated Financial Statements included in Item 1 of this Quarterly Report on Form 10-Q. Share Repurchase Program In the three months ended March 31, 2026, there were no repurchases of the company's Class A or Class C shares. In April 2025, the company's Board of Directors authorized a $70.0 billion share repurchase program for its Class A and Class C shares. As of March 31, 2026, $ 69.5 bil lion remained available for Class A and Class C share repurchases. For additional information, see Note 11 of the Notes to Consolidated Financial Statements included in Item 1 of this Quarterly Report on Form 10-Q. Dividend Program In the three months ended March 31, 2026, total cash dividends were $1.2 billion for Class A, $176 million for Class B, and $1.1 billion for Class C shares, respectively. In April 2026, the company's Board of Directors declared a quarterly cash dividend of $0.22 per share, representing a 5% increase from the previous quarterly dividend of $0.21 per share. The dividend is payable on June 15, 2026 to stockholders of record for each of the company's Class A, Class B, and Class C shares as of June 8, 2026. The company has declared a quarterly cash dividend in the current quarter, and 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. Accrued Legal and Regulatory As of March 31, 2026, we had short-term accrued legal and regulatory fines and settlements of $15.6 billion. This amount primarily included EC fines, in addition to accruals related to other legal matters and regulatory fines and settlements. For additional information, see Note 10 of the Notes to Consolidated Financial Statements included in Item 1 of this Quarterly Report on Form 10-Q. Taxes As of March 31, 2026, we had long-term income taxes payable of $12.5 billion primarily related to unrecognized tax benefits. The timing and amount of any payment related to these unrecognized tax benefits are uncertain and cannot be estimated. Purchase Commitments and Other Contractual Obligations As of March 31, 2026, we had material purchase commitments and other contractual obligations totaling $332.4 billion, of which $138.0 billion was short-term. These purchase commitments primarily relate to costs for technical infrastructure and inventory through long-term supply agreements and open purchase orders. Additional contractual obligations include commitments for content licenses and energy take-or-pay contracts. For additional information related to our long-term supply agreements, energy take-or-pay contracts, and content licenses, see Note 10 of the Notes to Consolidated Financial Statements included in Item 1 of this Quarterly Report on Form 10-Q. 46 As of March 31, 2026, we provided backstops in the form of financial guarantees and credit derivatives with maximum potential amount of future payments of $9.0 billion and $28.4 billion, respectively. Upon a default under these backstops, we retain the right to assume the underlying leases for internal use or to sublease to third parties. Under specific conditions or following a predetermined period, we may elect to extinguish the backstop obligation by making a termination payment. For additional information, see Note 3 and Note 10 of the Notes to Consolidated Financial Statements included in Item 1 of this Quarterly Report on Form 10-Q. We have also entered into an agreement to provide up to $33.3 billion of future backstops to support the build-out of data center and energy supply infrastructure, subject to finalization of terms with data center providers. Against this remaining commitment, in April 2026, we entered into an agreement with a data center provider to backstop approximately $15.3 billion. For additional information, see Note 3 of the Notes to Consolidated Financial Statements included in Item 1 of this Quarterly Report on Form 10-Q. Additionally, as of March 31, 2026, we have commitments for a future private investment consisting of a $10.0 billion capital commitment and $30.0 billion of future capital funding contingent upon the achievement of specified operational and financial milestones through 2030, which is accounted for as an equity derivative. We expect to fund $10.0 billion in the second quarter of 2026 in the form of a non-marketable security. For additional information, see Note 3 and Note 5 of the Notes to Consolidated Financial Statements included in Item 1 of this Quarterly Report on Form 10-Q. For agreements with variable terms, we do not estimate the non-cancelable obligation beyond any minimum quantities and/or pricing as of March 31, 2026. In certain instances, the amount of our contractual obligations may change based on the expected timing of order fulfillment from our suppliers. Power purchase and energy agreements without a fixed or minimum commitment are not included. For details on risks related to our manufacturing and supply chain and other risks, refer to Part I, Item 1A, "Risk Factors" in our Annual Report on Form 10-K for the fiscal year ending December 31, 2025. Acquisitions and Divestitures On March 11, 2026, we completed our acquisition of Wiz for $29.5 billion, after purchase price adjustments and excluding post combination compensation arrangements. Following the close of the acquisition, the financial results are included in our consolidated financial statements within the Google Cloud segment. For additional information on the purchase price allocation, see Note 8 of the Notes to Consolidated Financial Statements included in Item 1 of this Quarterly Report on Form 10-Q. On March 10, 2026, we completed our acquisition of Intersect for $5.9 billion, after purchase price adjustments. Following the close of the acquisition, the financial results are included in our consolidated financial statements and are allocated to our segments. For additional information on the purchase price allocation, see Note 8 of the Notes to Consolidated Financial Statements included in Item 1 of this Quarterly Report on Form 10-Q. In March 2026, we entered into a definitive agreement to contribute our ownership interest in GFiber, a wholly owned subsidiary, into a newly formed entity. Upon closing, we expect to receive $1.5 billion in cash, a $2.0 billion note receivable, and a 49.99% equity interest. The remaining interest is expected to be accounted for as an unconsolidated VIE under the equity method of accounting, as we will no longer be the primary beneficiary. The transaction is expected to close in late 2026. For additional information, see Note 8 of the Notes to Consolidated Financial Statements included in Item 1 of this Quarterly Report on Form 10-Q. Critical Accounting Estimates See Part II, Item 7, "Critical Accounting Estimates" in our Annual Report on Form 10-K for the year ended December 31, 2025. There have been no material changes to our critical accounting estimates from our Annual Report on Form 10-K for the year ended December 31, 2025, except for as described below. Business Combinations We allocate the fair value of purchase consideration to the tangible assets acquired, liabilities assumed, and intangible assets acquired based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. When determining the fair values of assets acquired and liabilities assumed, management makes significant estimates and assumptions. We recognize intangible assets acquired in business combinations at fair value as of the acquisition date. Critical estimates in valuing the acquired intangible assets require judgment and the use of unobservable inputs, 47 including future expected cash flows, discount rates, estimated customer attrition rates and anticipated growth, and royalty rate, among others. Other estimates associated with the accounting for acquisitions may change as additional information becomes available regarding the assets acquired and liabilities assumed. Available Information Our website is located at www.abc.xyz, and our investor relations website is located at www.abc.xyz/investor. Access to our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and our Proxy Statements, and any amendments to these reports, is available on our investor relations website, free of charge, after we file or furnish them with the SEC and they are available on the SEC's website at www.sec.gov. We webcast our earnings calls, as well as certain events we participate in or host with members of the investment community, via our investor relations YouTube channel and website. Our investor relations website also provides notifications of news or announcements regarding our financial performance and other items that may be material or of interest to our investors, including SEC filings, investor events, press and earnings releases, and blogs. We also share Google news and product updates on Google’s Keyword blog at https://www.blog.google/ and News From Google page on X at x.com/NewsFromGoogle, and our executive officers may also use certain social media channels, such as X and LinkedIn, to communicate information about earnings results and company updates, which may be of interest or material to our investors. Further, corporate governance information, including our certificate of incorporation, bylaws, corporate governance guidelines, board committee charters, and code of conduct, is also available on our investor relations website under the heading "Governance." The information contained on, or that may be accessed through our websites or our executive officers' social media channels, is not incorporated by reference into this Quarterly Report on Form 10-Q or in any other report or document we file with the SEC, and any references to our websites are intended to be inactive textual references only. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK For quantitative and qualitative disclosures about market risk, refer to Part II, Item 7A, "Quantitative and Qualitative Disclosures About Market Risk" in our Annual Report on Form 10-K for the year ended December 31, 2025.