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.
- A small group of Google employees announced they have formed a union named the Alphabet Workers Union.
- Google is being sued by the U.S. Justice Department on antitrust violations.
Alphabet earned $11.2 billion in net income in Q3 2020, which ended September 30, 2020. It was a sharp 59.1% rise from the company's year-ago net income for Q3 2019. Revenue for the quarter was reported at $46.2 billion, up 14.0% from the same three-month period a year ago. The third quarter was a sharp rebound from Q2 2020, when advertising revenue was adversely impacted by the COVID-19 pandemic, causing declines in both net income and revenue. Alphabet's stronger Q3 2020 results were driven by increases in advertiser spend in Google Search and YouTube, as well as continued strength in Google Cloud and Play.
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 category also features developmental and early commercial stage projects, including the Waymo self-driving system and the Stadia cloud-gaming system.
The Google segment generated nearly 100% of all Alphabet revenue in Q3 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 rose 14.4% to $46.0 billion compared to the year-ago quarter, while operating income grew 17.2% to $12.6 billion.
Advertising generated about 81% of Google segment revenue for Q3 2020, which was down from 84% of the segment's revenue in the same quarter a year ago. Google Cloud generated over 7% of segment revenue, up from nearly 6% in Q3 2019. Other revenue sources, which includes non-advertising revenue from YouTube, comprised about 12% of the segment's total revenue in Q3 2020, up from 10% in the same three-month period a year ago.
Paid clicks accelerated to a year-over-year (YOY) rise of 27% in Q3 2020 compared to Q3 2019. Paid clicks rose 18% between Q3 2018 and Q3 2019. Cost-per-click accelerated its YOY decline to 15% in Q3 2020 from a YOY decline of 2% in the previous year's Q3.
In this segment, revenue rose 14.8% to $178 million in Q3 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 an operating loss of $1.1 billion for the quarter, an increase from the $941 million operating loss reported in Q3 2019.
This segment has reported an operating loss in every fiscal year since 2016.
(A note that Alphabet reported a hedging loss of $22 million that negatively affected total revenue in Q3 2020, and which is not included in the above segment breakdowns or in the pie chart. The company also reported an operating loss of $273 million for Q3 related to reconciling items such as corporate administrative costs, hedging gains (losses), and other miscellaneous items not allocated to its individual segments.)
Alphabet’s Recent Developments
On January 4, 2021, a small group of Google employees announced that they had joined together to form a union aimed at organizing workers across the company's global operations. The Alphabet Workers Union has the backing of about 200 of the approximately 132,000 workers employed by the company. Representatives of the union say it will be affiliated with Communications Workers of America Local 1400. The immediate goal of the union is not to pursue collective bargaining or formal recognition from Alphabet, but to work towards ensuring that workers are able to speak about the company without suffering repercussions to their careers.
Google announced on October 22, 2020, that it has entered into a Framework Agreement to provide Secure Cloud Services to the federal government of Canada. The agreement enables Google to provide its innovative cloud platform and collaboration technologies to federal agencies of the Canadian government.
On October 6, 2020, after a 16-month investigation into the business practices of tech behemoths Apple, Amazon, Facebook and Alphabet, the House Judiciary subcommittee on antitrust released its recommendations on how to reform laws to avoid the continued emergence of digital monopolies. The Democratic-majority staff presented a nearly 450-page report concluding that the four Big Tech companies dominate the industry in ways that affect the U.S. economy and democracy, suggesting Congress implement changes to antitrust laws that could result in parts of the businesses being separated.
On Oct. 20, 2020, the Justice Department filed suit against Google, launching the first major antitrust suit based on the current round of DOJ antitrust investigations against big tech companies. The suit accuses Google of illegally protecting its dominant position in the search market by making deals with smartphone makers in which Google pays them to make Google the default search engine on their devices.
This was followed up by a suit by 10 attorneys general on Dec. 16, 2020 alleging that Google had made an anti-competition agreement with Facebook regarding online ads, while also overcharging publishers using its monopoly power.
A third suit filed on Dec. 17 by 37 attorneys general alleged that Google maintained a monopoly on internet searches by discriminating against other search engines and online information providers.
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 September 30, 2020," Page 4. Accessed Nov. 4, 2020.
Alphabet Inc. "Form 10-Q for the quarterly period ended June 30, 2020," Pages 4 & 34. Accessed Sep. 7, 2020.
Alphabet Inc. "Alphabet Announces Third Quarter 2020 Results," Page 1. Accessed Nov. 4, 2020.
Alphabet Inc. "Form 10-Q for the quarterly period ended September 30, 2020," Page 32. Accessed Nov. 4, 2020.
Alphabet Inc. "Form 10-Q for the quarterly period ended September 30, 2020," Pages 32 & 33. Accessed Nov. 4, 2020.
Alphabet Inc. "Form 10-Q for the quarterly period ended September 30, 2020," Page 10. Accessed Nov. 4, 2020.
Alphabet Inc. "Form 10-Q for the quarterly period ended September 30, 2020," Page 39. Accessed Nov. 4, 2020.
Alphabet Inc. "Form 10-Q for the quarterly period ended September 30, 2020," Page 33. Accessed Nov. 4, 2020.
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Alphabet, Inc. "FORM 10-Q for the quarterly period ended September 30, 2019", Page 31. Accessed December. 9, 2019.
Business Insider. "More than 200 Google employees have formed a union, and workers are calling it 'a long time coming' after years of turmoil inside the company." Accessed Jan. 9, 2021.
The Wall Street Journal. "Google Employees Form Union to Push for Changes." Accessed Jan. 9, 2021.
Google Cloud. "Google Cloud Awarded Framework Agreement for Secure Cloud Services by Canadian Federal Government." Accessed Nov. 4, 2020.
New York Times. "What Is Happening With the Antitrust Suit Against Google?." Accessed Oct. 22, 2020.
New York Times. "10 States Accuse Google of Abusing Monopoly in Online Ads."
Accessed Dec. 18, 2020.
Wall Street Journal. "More States Hit Google Over Alleged Monopoly Conduct." Accessed Dec. 18, 2020.