Alphabet Inc. (GOOGL - Class A and GOOG - Class C) makes money through the Google Search engine, YouTube, Google Play, Google Cloud, Chrome browser, and Android mobile operating system. In addition, the company has made considerable investments in the Stadia cloud gaming system, Waymo self-driving vehicles, and other technology initiatives.
Alphabet competes with companies that provide online platforms for connecting people with information and relevant advertising, digital content and application platforms, enterprise cloud services, and more. Major competitors include Amazon.com Inc. (AMZN), Microsoft Corp. (MSFT), Apple Inc. (AAPL), Facebook Inc. (FB), Alibaba Group Holdings Ltd. (BABA), and others.
- Alphabet leverages its search, web browsing, and mobile operating systems to make money through the sale of advertising, apps, subscriptions, hardware, licensing, and service fees.
- Advertising generates the majority of revenue, but Google Cloud revenues are growing.
- Alphabet faces ongoing antitrust investigations by various government agencies.
Alphabet earned $7.0 billion in net income in Q2 2020, which ended June 30, 2020. It was a sharp 30% drop from the company's year-ago net income for Q2 2019. Revenue for the quarter was reported at $38.3 billion, marking a decline of 1.7% from the same three-month period a year ago. Alphabet noted in its quarterly filing that advertising revenue was adversely impacted by the continuing COVID-19 health crisis. However, the overall decline in revenue was partly offset by increases in revenue from Google Cloud and other non-advertising revenues.
Alphabet’s Business Segments
Alphabet separates all business services other than Google operations into ‘Other Bets’. According to the company, “Google is our only reportable segment. None of our other segments meet the quantitative thresholds to qualify as reportable segments; therefore, the other operating segments are combined and disclosed as Other Bets."
Other Bets include Access, Calico, CapitalG, GV, Verily, and X. This catch-all also features developmental and early commercial stage projects, including the Waymo self-driving system, which is undergoing extensive testing in Arizona and other states, and the Stadia cloud gaming system.
The Google segment generated nearly 100% of all Alphabet revenue in Q2 2020 and all of the company's operating income (profit after expenses such as wages, depreciation, and cost of goods sold). Revenue for the segment fell 1.7% to $38.0 billion compared to the year-ago quarter, while operating income declined 26.3% to $7.6 billion.
Advertising generated nearly 79% of Google segment revenue for Q2 2020, which was down from 84% of the segment's revenue in the same quarter a year ago. Google Cloud generated nearly 8% of segment revenue, up from more than 5% in Q2 2019. Other revenue sources, which includes non-advertising revenue from YouTube, comprised about 13% of the segment's total revenue in Q2 2020, up from less than 11% in the same three-month period a year ago.
Paid clicks decelerated to a year-over-year (YOY) rise of 8% in Q2 2020 compared to Q2 2019. Paid clicks had risen 28% between Q2 2018 and Q2 2019. Cost-per-click accelerated its YOY decline to 15% in Q2 2020 from a YOY decline of 11% in the previous year's Q2.
In this segment, revenue fell 8.6% to $148 million in Q2 2020 compared to the same quarter a year ago. The segment comprises less than half a percent of Alphabet's total revenue. The segment posted a operating loss of $1.1 billion for the quarter, an increase from the $989 million operating loss reported in Q2 2019.
This segment has reported an operating loss in every fiscal year since 2016.
(A note that Alphabet reported revenue of $151 million in hedging gains for Q2 2020, which are not included in the above segment breakdowns or in the pie chart. The company also reported an operating loss of $73 million for Q2 related to reconciling items such as corporate administrative gains, hedging gains (losses), and other miscellaneous items not allocated to its individual segments.)
Alphabet’s Recent Developments
The U.S. Justice Department said in July 2019 that it was opening a broad investigation of major technology firms, including Alphabet, to determine whether or not they engage in anticompetitive practices. They are expected to soon make a decision on whether or not they will be making an antitrust complaint against Alphabet. Alphabet is already facing antitrust probes by state attorneys general as well as an ongoing investigation by the U.S. House Judiciary Committee.
How Alphabet Reports Diversity & Inclusiveness
As part of our effort to improve the awareness of the importance of diversity in companies, we offer investors a glimpse into the transparency of Alphabet and its commitment to diversity, inclusiveness, and social responsibility. We examined the data Alphabet releases to show you how it reports the diversity of its board and workforce to help readers make educated purchasing and investing decisions.
Below is a table of potential diversity measurements. It shows whether Alphabet discloses its data about the diversity of its board of directors, C-Suite, general management, and employees overall, as is marked with a ✔. It also shows whether Alphabet breaks down those reports to reveal the diversity of itself by race, gender, ability, veteran status, and and LGBTQ+ identity.
|Google (Alphabet) Diversity & Inclusiveness Reporting|
|Race||Gender||Ability||Veteran Status||Sexual Orientation|
|Board of Directors|
|General Management||✔ (U.S. Only)||✔|
|Employees||✔ (U.S. Only)||✔||✔||✔||✔|
Alphabet Inc. "Form 10-K for the fiscal year ended December 31, 2019," page 7. Accessed Sep. 7, 2020.
Alphabet Inc. "Form 10-Q for the quarterly period ended June 30, 2020," page 4. Accessed Sep. 7, 2020.
Alphabet Inc. "Form 10-Q for the quarterly period ended June 30, 2020," page 34. Accessed Sep. 7, 2020.
Alphabet Inc. "Form 10-Q for the quarterly period ended June 30, 2020," page 31. Accessed Sep. 7, 2020.
Alphabet Inc. "Form 10-Q for the quarterly period ended June 30, 2020," pages 31 & 32. Accessed Sep. 7, 2020.
Alphabet Inc. "Form 10-Q for the quarterly period ended June 30, 2020," page 10. Accessed Sep. 7, 2020.
Alphabet Inc. "Form 10-Q for the quarterly period ended June 30, 2020," page 37. Accessed Sep. 7, 2020.
Alphabet, Inc. "FORM 10-Q for the quarterly period ended December 31, 2018", Page 81. Accessed December 9, 2019.
Alphabet, Inc. "FORM 10-Q for the quarterly period ended September 30, 2019", Page 31. Accessed December. 9, 2019.
Reuters. "U.S. Justice Department going 'full tilt' on tech antitrust probe: official." Accessed Sep. 7, 2020.