goog-20220331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

________________________________________________________________________________________

FORM 10-Q

________________________________________________________________________________________

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to _______

Commission file number: 001-37580

________________________________________________________________________________________

Alphabet Inc.

(Exact name of registrant as specified in its charter)

________________________________________________________________________________________


Delaware			61-1767919
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification Number)

1600 Amphitheatre Parkway

Mountain View, CA 94043

(Address of principal executive offices, including zip code)

(650) 253-0000

(Registrant's telephone number, including area code)


Securities registered pursuant to Section 12(b) of the Act:
Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A Common Stock, $0.001 par value	GOOGL	Nasdaq Stock Market LLC
		(Nasdaq Global Select Market)
Class C Capital Stock, $0.001 par value	GOOG	Nasdaq Stock Market LLC
		(Nasdaq Global Select Market)

________________________________________________________________________________________

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of April 19, 2022, there were 300,763,622 shares of Alphabet’s Class A stock outstanding, 44,359,838 shares of Alphabet's Class B stock outstanding, and 313,376,417 shares of Alphabet's Class C stock outstanding.


Table of Contents			Alphabet Inc.

Alphabet Inc.

Form 10-Q

For the Quarterly Period Ended March 31, 2022

TABLE OF CONTENTS


		Page No.
Note About Forward-Looking Statements		3

PART I. FINANCIAL INFORMATION
Item 1	Financial Statements	5
	Consolidated Balance Sheets - December 31, 2021 and March 31, 2022	5
	Consolidated Statements of Income - Three Months Ended March 31, 2021 and 2022	6
	Consolidated Statements of Comprehensive Income - Three Months Ended March 31, 2021 and 2022	7
	Consolidated Statements of Stockholders' Equity - Three Months Ended March 31, 2021 and 2022	8
	Consolidated Statements of Cash Flows - Three Months Ended March 31, 2021 and 2022	9
	Notes to Consolidated Financial Statements	10
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30
Item 3	Quantitative and Qualitative Disclosures About Market Risk	42
Item 4	Controls and Procedures	42

PART II. OTHER INFORMATION
Item 1	Legal Proceedings	43
Item 1A	Risk Factors	43
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	43


Item 6	Exhibits	44
Signature		45


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Note About Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These include, among other things, statements regarding:

•the ongoing effect of the novel coronavirus pandemic ("COVID-19"), including its macroeconomic effects on our business, operations, and financial results;

•the growth of our business and revenues and our expectations about the factors that influence our success and trends in our business;

•fluctuations in our revenue growth rate and operating margin and various factors contributing to such fluctuations;

•our expectation that the continuing shift from an offline to online world will continue to benefit our business;

•our expectation that the portion of our revenues that we derive from non-advertising revenues will continue to increase and may affect our margins;

•our expectation that our traffic acquisition costs (TAC) and the associated TAC rate will fluctuate, which could affect our overall margins;

•our expectation that our monetization trends will fluctuate, which could affect our revenues and margins;

•fluctuations in our revenue growth, as well as the change in paid clicks and cost-per-click and the change in impressions and cost-per-impression, and various factors contributing to such fluctuations;

•our expectation that we will continue to periodically review, refine, and update our methodologies for monitoring, gathering, and counting the number of paid clicks and impressions;

•our expectation that our results will be affected by our performance in international markets as users in developing economies increasingly come online;

•our expectation that our foreign exchange risk management program will not fully offset our net exposure to fluctuations in foreign currency exchange rates;

•the expected variability of gains and losses related to hedging activities under our foreign exchange risk management program;

•the amount and timing of revenue recognition from customer contracts with commitments for performance obligations, including our estimate of the remaining amount of commitments and when we expect to recognize revenue;

•fluctuations in our capital expenditures;

•our plans to continue to invest in new businesses, products, services and technologies, systems, land and buildings for data centers and offices, and infrastructure, as well as to continue to invest in acquisitions and strategic investments;

•our pace of hiring and our plans to provide competitive compensation programs;

•our expectation that our cost of revenues, research and development (R&D) expenses, sales and marketing expenses, and general and administrative expenses may increase in amount and/or may increase as a percentage of revenues and may be affected by a number of factors;

•estimates of our future compensation expenses;

•our expectation that our other income (expense), net (OI&E), will fluctuate in the future, as it is largely driven by market dynamics;

•fluctuations in our effective tax rate;

•seasonal fluctuations in internet usage and advertiser expenditures, underlying business trends such as traditional retail seasonality, which are likely to cause fluctuations in our quarterly results;

•the sufficiency of our sources of funding;

•our potential exposure in connection with new and pending investigations, proceedings, and other contingencies;


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•the sufficiency and timing of our proposed remedies in response to decisions from the European Commission (EC) and other regulators and governmental entities;

•our expectations regarding the timing, design, and ongoing phased implementation of our new global enterprise resource planning (ERP) system;

•the expected timing, amount, and effect of Alphabet Inc.'s share repurchases;

•our long-term sustainability and diversity goals;

•the unpredictability of the ongoing broader economic effects resulting from the war in Ukraine on our future financial results;

as well as other statements regarding our future operations, financial condition and prospects, and business strategies. Forward-looking statements may appear throughout this report and other documents we file with the Securities and Exchange Commission (SEC), including without limitation, the following sections: Part I, Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in this Quarterly Report on Form 10-Q and Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021. Forward-looking statements generally can be identified by words such as "anticipates," "believes," "estimates," "expects," "intends," "plans," "predicts," "projects," "will be," "will continue," "may," "could," "will likely result," and similar expressions. These forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties, which could cause our actual results to differ materially from those reflected in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this Quarterly Report on Form 10-Q, and in particular, the risks discussed in Part I, Item 1A, "Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, and those discussed in other documents we file with the SEC. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements, except as required by law. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.

As used herein, "Alphabet," "the company," "we," "us," "our," and similar terms include Alphabet Inc. and its subsidiaries, unless the context indicates otherwise.

"Alphabet," "Google," and other trademarks of ours appearing in this report are our property. This report contains additional trade names and trademarks of other companies. We do not intend our use or display of other companies' trade names or trademarks to imply an endorsement or sponsorship of us by such companies, or any relationship with any of these companies.


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PART I. FINANCIAL INFORMATION

ITEM 1.FINANCIAL STATEMENTS

Alphabet Inc.

CONSOLIDATED BALANCE SHEETS

(in millions, except share amounts which are reflected in thousands, and par value per share amounts)


	As of December 31, 2021		As of March 31, 2022
			(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	20,945	$	20,886
Marketable securities	118,704		113,084
Total cash, cash equivalents, and marketable securities	139,649		133,970
Accounts receivable, net	39,304		34,703
Income taxes receivable, net	966		919
Inventory	1,170		1,369
Other current assets	7,054		6,892
Total current assets	188,143		177,853
Non-marketable securities	29,549		30,544
Deferred income taxes	1,284		1,388
Property and equipment, net	97,599		104,218
Operating lease assets	12,959		12,992
Intangible assets, net	1,417		1,313
Goodwill	22,956		23,010
Other non-current assets	5,361		5,778
Total assets	$	359,268	$	357,096
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	6,037	$	3,436

Accrued compensation and benefits	13,889		9,803
Accrued expenses and other current liabilities	31,236		33,051
Accrued revenue share	8,996		8,116
Deferred revenue	3,288		3,198
Income taxes payable, net	808		4,344
Total current liabilities	64,254		61,948
Long-term debt	14,817		14,791
Deferred revenue, non-current	535		499
Income taxes payable, non-current	9,176		9,406
Deferred income taxes	5,257		2,843
Operating lease liabilities	11,389		11,363
Other long-term liabilities	2,205		2,242
Total liabilities	107,633		103,092
Contingencies (Note 9)
Stockholders’ equity:
Preferred stock, $0.001 par value per share, 100,000 shares authorized; no shares issued and outstanding	0		0
Class A, Class B, and Class C stock and additional paid-in capital, $0.001 par value per share: 15,000,000 shares authorized (Class A 9,000,000, Class B 3,000,000, Class C 3,000,000); 662,121 (Class A 300,737, Class B 44,665, Class C 316,719) and 658,763 (Class A 300,763, Class B 44,404, Class C 313,596) shares issued and outstanding	61,774		62,832
Accumulated other comprehensive income (loss)	(1,623)		(4,049)
Retained earnings	191,484		195,221
Total stockholders’ equity	251,635		254,004
Total liabilities and stockholders’ equity	$	359,268	$	357,096

See accompanying notes.


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Alphabet Inc.

CONSOLIDATED STATEMENTS OF INCOME

(in millions, except per share amounts; unaudited)


	Three Months Ended
	March 31,
		2021		2022
Revenues		$	55,314	$	68,011
Costs and expenses:
Cost of revenues		24,103		29,599
Research and development		7,485		9,119
Sales and marketing		4,516		5,825
General and administrative		2,773		3,374
Total costs and expenses		38,877		47,917
Income from operations		16,437		20,094
Other income (expense), net		4,846		(1,160)
Income before income taxes		21,283		18,934
Provision for income taxes		3,353		2,498
Net income		$	17,930	$	16,436




Basic net income per share of Class A, Class B, and Class C stock		$	26.63	$	24.90









Diluted net income per share of Class A, Class B, and Class C stock		$	26.29	$	24.62

See accompanying notes.


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Alphabet Inc.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in millions; unaudited)


	Three Months Ended
	March 31,
		2021		2022
Net income		$	17,930	$	16,436
Other comprehensive loss:
Change in foreign currency translation adjustment		(423)		39
Available-for-sale investments:
Change in net unrealized gains (losses)		(488)		(2,478)
Less: reclassification adjustment for net (gains) losses included in net income		11		148
Net change, net of income tax benefit (expense) of $135 and $633		(477)		(2,330)
Cash flow hedges:
Change in net unrealized gains (losses)		179		114
Less: reclassification adjustment for net (gains) losses included in net income		85		(249)
Net change, net of income tax benefit (expense) of $(50) and $44		264		(135)
Other comprehensive loss		(636)		(2,426)
Comprehensive income		$	17,294	$	14,010

See accompanying notes.


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Alphabet Inc.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In millions, except share amounts which are reflected in thousands; unaudited)


	Three Months Ended March 31, 2021
	Class A, Class B, Class C Stock and Additional Paid-In Capital			Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Total Stockholders’ Equity
	Shares	Amount
Balance as of December 31, 2020	675,222	$	58,510	$	633	$	163,401	$	222,544
Stock issued	1,569	6		0		0		6
Stock-based compensation expense	0	3,788		0		0		3,788
Tax withholding related to vesting of restricted stock units and other	0	(2,234)		0		0		(2,234)
Repurchases of stock	(5,697)	(644)		0		(10,751)		(11,395)
Sale of interest in consolidated entities	0	10		0		0		10
Net income	0	0		0		17,930		17,930
Other comprehensive income (loss)	0	0		(636)		0		(636)
Balance as of March 31, 2021	671,094	$	59,436	$	(3)	$	170,580	$	230,013


	Three Months Ended March 31, 2022
	Class A, Class B, Class C Stock and Additional Paid-In Capital			Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Total Stockholders’ Equity
	Shares	Amount
Balance as of December 31, 2021	662,121	$	61,774	$	(1,623)	$	191,484	$	251,635
Stock issued	1,555	7		0		0		7
Stock-based compensation expense	0	4,547		0		0		4,547
Tax withholding related to vesting of restricted stock units and other	0	(2,895)		0		0		(2,895)
Repurchases of stock	(4,913)	(601)		0		(12,699)		(13,300)
Net income	0	0		0		16,436		16,436
Other comprehensive income (loss)	0	0		(2,426)		0		(2,426)
Balance as of March 31, 2022	658,763	$	62,832	$	(4,049)	$	195,221	$	254,004

See accompanying notes.


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Alphabet Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions; unaudited)


	Three Months Ended
	March 31,
	2021		2022
Operating activities
Net income	$	17,930	$	16,436
Adjustments:
Depreciation and impairment of property and equipment	2,525		3,591
Amortization and impairment of intangible assets	228		191
Stock-based compensation expense	3,745		4,504
Deferred income taxes	1,100		(2,090)
(Gain) loss on debt and equity securities, net	(4,751)		1,437
Other	(255)		140
Changes in assets and liabilities, net of effects of acquisitions:
Accounts receivable	2,794		4,364
Income taxes, net	785		3,820
Other assets	7		(776)
Accounts payable	(982)		(2,373)
Accrued expenses and other liabilities	(3,530)		(3,216)
Accrued revenue share	(444)		(828)
Deferred revenue	137		(94)
Net cash provided by operating activities	19,289		25,106
Investing activities
Purchases of property and equipment	(5,942)		(9,786)
Purchases of marketable securities	(36,426)		(28,462)
Maturities and sales of marketable securities	39,248		29,779
Purchases of non-marketable securities	(646)		(776)
Maturities and sales of non-marketable securities	19		12


Acquisitions, net of cash acquired, and purchases of intangible assets	(1,666)		(173)
Other investing activities	30		355

Net cash used in investing activities	(5,383)		(9,051)
Financing activities
Net payments related to stock-based award activities	(2,184)		(2,916)

Repurchases of stock	(11,395)		(13,300)
Proceeds from issuance of debt, net of costs	900		16,422
Repayments of debt	(937)		(16,420)
Proceeds from sale of interest in consolidated entities, net	10		0
Net cash used in financing activities	(13,606)		(16,214)
Effect of exchange rate changes on cash and cash equivalents	(143)		100
Net increase (decrease) in cash and cash equivalents	157		(59)
Cash and cash equivalents at beginning of period	26,465		20,945
Cash and cash equivalents at end of period	$	26,622	$	20,886

See accompanying notes.


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Alphabet Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1. Summary of Significant Accounting Policies

Nature of Operations

Google was incorporated in California in September 1998 and re-incorporated in the State of Delaware in August 2003. In 2015, we implemented a holding company reorganization, and as a result, Alphabet Inc. ("Alphabet") became the successor issuer to Google.

We generate revenues by delivering relevant, cost-effective online advertising; cloud-based solutions that provide customers with infrastructure and platform services and collaboration tools; sales of other products and services, such as apps and in-app purchases, digital content products, and hardware; and fees received for subscription-based products such as YouTube Premium and YouTube TV.

Basis of Consolidation

The consolidated financial statements of Alphabet include the accounts of Alphabet and entities consolidated under the variable interest and voting models. All intercompany balances and transactions have been eliminated.

Unaudited Interim Financial Information

These unaudited interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (GAAP), and in our opinion, include all adjustments of a normal recurring nature necessary for fair financial statement presentation. Interim results are not necessarily indicative of the results to be expected for the full year ending December 31, 2022. We have made estimates and assumptions that affect the amounts reported and disclosed in the financial statements and the accompanying notes. Actual results could differ materially from these estimates.

These consolidated financial statements and other information presented in this Form 10-Q should be read in conjunction with the consolidated financial statements and the related notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 filed with the SEC.

Note 2. Revenues

Revenue Recognition

The following table presents revenues disaggregated by type (in millions).


	Three Months Ended
	March 31,
		2021		2022
Google Search & other		$	31,879	$	39,618
YouTube ads		6,005		6,869
Google Network		6,800		8,174
Google advertising		44,684		54,661
Google other		6,494		6,811
Google Services total		51,178		61,472
Google Cloud		4,047		5,821
Other Bets		198		440
Hedging gains (losses)		(109)		278
Total revenues		$	55,314	$	68,011


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The following table presents revenues disaggregated by geography, based on the addresses of our customers (in millions):


	Three Months Ended
	March 31,
		2021	2022
United States			$	25,032	45	%	$	31,733	47	%
EMEA(1)			17,031		31		20,317		30
APAC(1)			10,455		19		11,841		17
Other Americas(1)			2,905		5		3,842		6
Hedging gains (losses)			(109)		0		278		0
Total revenues			$	55,314	100	%	$	68,011	100	%

(1) Regions represent Europe, the Middle East, and Africa (EMEA); Asia-Pacific (APAC); and Canada and Latin America ("Other Americas").

Revenue Backlog and Deferred Revenues

As of March 31, 2022, we had $50.5 billion of remaining performance obligations (“revenue backlog”), primarily related to Google Cloud, and expect to recognize approximately half of this amount as revenues over the next 24 months with the remaining to be recognized thereafter. Our revenue backlog represents commitments in customer contracts for future services that have not yet been recognized as revenues. The amount and timing of revenue recognition for these commitments is largely driven by when our customers utilize services and our ability to deliver in accordance with relevant contract terms, which could affect our estimate of revenue backlog and when we expect to recognize such as revenues. Revenue backlog includes related deferred revenue currently recorded as well as amounts that will be invoiced in future periods and excludes contracts with an original expected term of one year or less and cancellable contracts.

We record deferred revenues when cash payments are received or due in advance of our performance, including amounts which are refundable. Deferred revenues primarily relate to Google Cloud and Google other. Total deferred revenue as of December 31, 2021 was $3.8 billion, of which $1.4 billion was recognized as revenues during the three months ended March 31, 2022.

Note 3. Financial Instruments

Debt Securities

We classify our marketable debt securities, which are accounted for as available-for-sale, within Level 2 in the fair value hierarchy because we use quoted market prices to the extent available or alternative pricing sources and models utilizing market observable inputs to determine fair value.

For certain marketable debt securities, we have elected the fair value option for which changes in fair value are recorded in other income (expense), net. The fair value option was elected for these securities to align with the unrealized gains and losses from related derivative contracts. Unrealized net losses related to debt securities still held where we have elected the fair value option were $35 million and $236 million as of December 31, 2021 and March 31, 2022, respectively. As of December 31, 2021 and March 31, 2022, the fair value of these debt securities was $4.7 billion and $5.6 billion, respectively.

The following tables summarize debt securities, for which we did not elect the fair value option, by significant investment categories (in millions):


	As of December 31, 2021
	Adjusted Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Cash and Cash Equivalents		Marketable Securities
Level 2:
Time deposits(1)	$	5,133	$	0	$	0	$	5,133	$	5,133	$	0
Government bonds	53,288		258		(238)		53,308		5		53,303
Corporate debt securities	35,605		194		(223)		35,576		12		35,564
Mortgage-backed and asset-backed securities	18,829		96		(112)		18,813		0		18,813
Total	$	112,855	$	548	$	(573)	$	112,830	$	5,150	$	107,680


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	As of March 31, 2022
	Adjusted Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Cash and Cash Equivalents		Marketable Securities
Level 2:
Time deposits(1)	$	4,690	$	0	$	0	$	4,690	$	4,690	$	0
Government bonds	50,485		58		(1,365)		49,178		0		49,178
Corporate debt securities	36,621		30		(1,043)		35,608		10		35,598
Mortgage-backed and asset-backed securities	18,852		6		(594)		18,264		0		18,264
Total	$	110,648	$	94	$	(3,002)	$	107,740	$	4,700	$	103,040

(1)The majority of our time deposits are domestic deposits.

We determine realized gains or losses on the sale or extinguishment of debt securities on a specific identification method. We recognized gross realized gains of $135 million and $40 million for the three months ended March 31, 2021 and 2022, respectively. We recognized gross realized losses of $136 million and $271 million for the three months ended March 31, 2021 and 2022, respectively. We reflect these gains and losses as a component of other income (expense), net.

The following table summarizes the estimated fair value of investments in marketable debt securities by stated contractual maturity dates (in millions):


	As of March 31, 2022
Due in 1 year or less	$	15,516
Due in 1 year through 5 years	75,938
Due in 5 years through 10 years	4,755
Due after 10 years	12,245
Total	$	108,454

The following tables present fair values and gross unrealized losses recorded to AOCI, aggregated by investment category and the length of time that individual securities have been in a continuous loss position (in millions):


	As of December 31, 2021
	Less than 12 Months				12 Months or Greater				Total
	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Government bonds	$	32,843	$	(236)	$	71	$	(2)	$	32,914	$	(238)
Corporate debt securities	22,737		(152)		303		(5)		23,040		(157)
Mortgage-backed and asset-backed securities	11,502		(106)		248		(6)		11,750		(112)
Total	$	67,082	$	(494)	$	622	$	(13)	$	67,704	$	(507)


	As of March 31, 2022
	Less than 12 Months				12 Months or Greater				Total
	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Government bonds	$	37,948	$	(1,203)	$	3,909	$	(162)	$	41,857	$	(1,365)
Corporate debt securities	27,403		(879)		2,572		(164)		29,975		(1,043)
Mortgage-backed and asset-backed securities	15,415		(532)		1,101		(62)		16,516		(594)
Total	$	80,766	$	(2,614)	$	7,582	$	(388)	$	88,348	$	(3,002)

During the three months ended March 31, 2021 and 2022, we did not recognize significant credit losses and the ending allowance balances for credit losses were immaterial as of December 31, 2021 and March 31, 2022. See Note 6 for further details on other income (expense), net.


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Equity Investments

The following discusses our marketable equity securities, non-marketable equity securities, gains and losses on marketable and non-marketable equity securities, as well as our equity securities accounted for under the equity method.

Our marketable equity securities are publicly traded stocks or funds measured at fair value and classified within Level 1 and 2 in the fair value hierarchy because we use quoted prices for identical assets in active markets or inputs that are based upon quoted prices for similar instruments in active markets.

Our non-marketable equity securities are investments in privately held companies without readily determinable market values. The carrying value of our non-marketable equity securities is adjusted to fair value upon observable transactions for identical or similar investments of the same issuer or impairment (referred to as the measurement alternative). Non-marketable equity securities that have been remeasured during the period based on observable transactions are classified within Level 2 or Level 3 in the fair value hierarchy because we estimate the value based on valuation methods which may include a combination of the observable transaction price at the transaction date and other unobservable inputs including volatility, rights, and obligations of the securities we hold. The fair value of non-marketable equity securities that have been remeasured due to impairment are classified within Level 3.

Gains and losses on marketable and non-marketable equity securities

Gains and losses reflected in other income (expense), net, for marketable and non-marketable equity securities are summarized below (in millions):


	Three Months Ended
	March 31,
		2021		2022
Net gain (loss) on equity securities sold during the period		$	201	$	(74)
Net unrealized gain (loss) on equity securities held as of the end of the period		4,636		(996)
Total gain (loss) recognized in other income (expense), net		$	4,837	$	(1,070)

In the table above, net gain (loss) on equity securities sold during the period reflects the difference between the sale proceeds and the carrying value of the equity securities at the beginning of the period or the purchase date, if later.

Cumulative net gains (losses) on equity securities sold during the period, which is summarized in the following table (in millions), represents the total net gains (losses) recognized after the initial purchase date of the equity security. While these net gains may have been reflected in periods prior to the period of sale, we believe they are important supplemental information as they reflect the economic net gains on the securities sold during the period. Cumulative net gains are calculated as the difference between the sale price and the initial purchase price for the equity security sold during the period.


		Equity Securities Sold
	Three Months Ended
	March 31,
		2021		2022
Total sale price		$	725	$	364
Total initial cost		357		260
Cumulative net gains		$	368	$	104


Table of Contents			Alphabet Inc.

Carrying value of marketable and non-marketable equity securities

The carrying value is measured as the total initial cost plus the cumulative net gain (loss). The carrying values for marketable and non-marketable equity securities are summarized below (in millions):


	As of December 31, 2021
	Marketable Securities		Non-Marketable Securities		Total
Total initial cost	$	4,211	$	15,135	$	19,346
Cumulative net gain (loss)(1)	3,587		12,436		16,023
Carrying value(2)	$	7,798	$	27,571	$	35,369

(1)Non-marketable equity securities cumulative net gain (loss) is comprised of $14.1 billion gains and $1.7 billion losses (including impairment).

(2)The long-term portion of marketable equity securities (subject to long-term lock-up restrictions) of $1.4 billion is included within other non-current assets.


	As of March 31, 2022
	Marketable Securities		Non-Marketable Securities		Total
Total initial cost	$	4,549	$	15,770	$	20,319
Cumulative net gain (loss)(1)	1,586		12,882		14,468
Carrying value(2)	$	6,135	$	28,652	$	34,787

(1)Non-marketable equity securities cumulative net gain (loss) is comprised of $14.9 billion gains and $2.1 billion losses (including impairment).

(2)The long-term portion of marketable equity securities (subject to long-term lock-up restrictions) of $1.5 billion is included within other non-current assets.

Marketable equity securities

The following table summarizes marketable equity securities measured at fair value by significant investment categories (in millions):


	As of December 31, 2021				As of March 31, 2022
	Cash and Cash Equivalents		Marketable Securities		Cash and Cash Equivalents		Marketable Securities
Level 1:
Money market funds	$	7,499	$	0	$	7,820	$	0
Marketable equity securities(1)(2)	0		7,447		0		5,877
	7,499		7,447		7,820		5,877
Level 2:
Mutual funds	0		351		0		258
Total	$	7,499	$	7,798	$	7,820	$	6,135

(1)The balance as of December 31, 2021 includes investments that were reclassified from non-marketable equity securities following the commencement of public market trading of the issuers or acquisition by public entities (certain investments are subject to short-term lock-up restrictions).

(2)As of December 31, 2021 and March 31, 2022 the long-term portion of marketable equity securities (subject to long-term lock-up restrictions) of $1.4 billion and $1.5 billion, respectively, is included within other non-current assets.


Table of Contents			Alphabet Inc.

Non-marketable equity securities

The following is a summary of unrealized gains and losses recorded in other income (expense), net, which are included as adjustments to the carrying value of non-marketable equity securities held as of the end of the period (in millions):


	Three Months Ended
	March 31,
		2021		2022
Unrealized gains on non-marketable equity securities		$	4,678	$	838
Unrealized losses on non-marketable equity securities (including impairment)		(2)		(378)
Total unrealized gain (loss) recognized on non-marketable equity securities		$	4,676	$	460

During the three months ended March 31, 2022, included in the $28.7 billion of non-marketable equity securities held as of the end of the period, $3.1 billion were measured at fair value resulting in a net unrealized gain of $0.5 billion.

Equity securities accounted for under the Equity Method

As of December 31, 2021 and March 31, 2022, equity securities accounted for under the equity method had a carrying value of approximately $1.5 billion and $1.4 billion, respectively. Our share of gains and losses, including impairments, are included as a component of other income (expense), net, in the Consolidated Statements of Income. See Note 6 for further details on other income (expense), net.

Derivative Financial Instruments

We enter into derivative instruments to manage risks relating to our ongoing business operations. The primary risk managed with derivative instruments is foreign exchange risk. We use foreign currency contracts to reduce the risk that our cash flows, earnings, and investment in foreign subsidiaries will be adversely affected by foreign currency exchange rate fluctuations. We also enter into derivative instruments to partially offset our exposure to other risks and enhance investment returns.

We recognize derivative instruments as either assets or liabilities in the Consolidated Balance Sheets at fair value and classify the derivatives primarily within Level 2 in the fair value hierarchy. We present our collar contracts (an option strategy comprised of a combination of purchased and written options) at net fair values where both the purchased and written options are with the same counterparty. For other derivative contracts, we present at gross fair values. We primarily record changes in the fair value in the Consolidated Statements of Income as either other income (expense), net, or revenues, or in the Consolidated Balance Sheets in AOCI, as discussed below.

We enter into master netting arrangements, which reduce credit risk by permitting net settlement of transactions with the same counterparty. Further, we enter into collateral security arrangements that provide for collateral to be received or pledged when the net fair value of certain financial instruments fluctuates from contractually established thresholds. Cash collateral received related to derivative instruments under our collateral security arrangements are included in other current assets with a corresponding liability. Cash and non-cash collateral pledged related to derivative instruments under our collateral security arrangements are included in other current assets.

Cash Flow Hedges

We designate foreign currency forward and option contracts (including collars) as cash flow hedges to hedge certain forecasted revenue transactions denominated in currencies other than the U.S. dollar. These contracts have maturities of 24 months or less.

Cash flow hedge amounts included in the assessment of hedge effectiveness are deferred in AOCI and subsequently reclassified to revenue when the hedged item is recognized in earnings. We exclude the change in forward points and time value from our assessment of hedge effectiveness. The initial value of the excluded component is amortized on a straight-line basis over the life of the hedging instrument and recognized in revenues. The difference between fair value changes of the excluded component and the amount amortized to revenues is recorded in AOCI. If the hedged transactions become probable of not occurring, the corresponding amounts in AOCI are reclassified to other income (expense), net in the period of de-designation.

As of March 31, 2022, the net accumulated gain on our foreign currency cash flow hedges before tax effect was $356 million, which is expected to be reclassified from AOCI into earnings within the next 12 months.


Table of Contents			Alphabet Inc.

Fair Value Hedges

We designate foreign currency forward contracts as fair value hedges to hedge foreign currency risks for our investments denominated in currencies other than the U.S. dollar. Fair value hedge amounts included in the assessment of hedge effectiveness are recognized in other income (expense), net, along with the offsetting gains and losses of the related hedged items. We exclude changes in forward points from the assessment of hedge effectiveness and recognize changes in the excluded component in other income (expense), net.

Net Investment Hedges

We designate foreign currency forward contracts as net investment hedges to hedge the foreign currency risks related to our investment in foreign subsidiaries. Net investment hedge amounts included in the assessment of hedge effectiveness are recognized in AOCI along with the foreign currency translation adjustment. We exclude changes in forward points from the assessment of hedge effectiveness and recognize changes in the excluded component in other income (expense), net.

Other Derivatives

Other derivatives not designated as hedging instruments consist primarily of foreign currency forward contracts that we use to hedge intercompany transactions and other monetary assets or liabilities denominated in currencies other than the functional currency of a subsidiary. Gains and losses on these contracts, as well as the related costs, are recognized in other income (expense), net, along with the foreign currency gains and losses on monetary assets and liabilities.

We also use derivatives not designated as hedging instruments to manage risks relating to interest rates, commodity prices, credit exposures and to enhance investment returns. Additionally, from time to time, we enter into derivatives to hedge the market price risk on certain of our marketable equity securities. Gains (losses) arising from these derivatives are reflected within the "other" component of other income (expense), net and the offsetting recognized gains (losses) on the marketable equity securities are reflected within the gain (loss) on equity securities, net component of other income (expense), net. See Note 6 for further details on other income (expense), net.

The gross notional amounts of outstanding derivative instruments were as follows (in millions):


	As of December 31, 2021		As of March 31, 2022
Derivatives Designated as Hedging Instruments:
Foreign exchange contracts
Cash flow hedges	$	16,362	$	17,817
Fair value hedges	$	2,556	$	2,438
Net investment hedges	$	10,159	$	9,933
Derivatives Not Designated as Hedging Instruments:
Foreign exchange contracts	$	41,031	$	42,338
Other contracts	$	4,275	$	6,052


Table of Contents			Alphabet Inc.

The fair values of outstanding derivative instruments were as follows (in millions):


		As of December 31, 2021
	Balance Sheet Location	Fair Value of Derivatives Designated as Hedging Instruments		Fair Value of Derivatives Not Designated as Hedging Instruments		Total Fair Value
Derivative Assets:
Level 2:
Foreign exchange contracts	Other current and non-current assets	$	867	$	42	$	909
Other contracts	Other current and non-current assets	0		52		52
Total		$	867	$	94	$	961
Derivative Liabilities:
Level 2:
Foreign exchange contracts	Accrued expenses and other liabilities, current and non-current	$	8	$	452	$	460
Other contracts	Accrued expenses and other liabilities, current and non-current	0		121		121
Total		$	8	$	573	$	581


		As of March 31, 2022
	Balance Sheet Location	Fair Value of Derivatives Designated as Hedging Instruments		Fair Value of Derivatives Not Designated as Hedging Instruments		Total Fair Value
Derivative Assets:
Level 2:
Foreign exchange contracts	Other current and non-current assets	$	705	$	26	$	731
Other contracts	Other current and non-current assets	0		76		76
Total		$	705	$	102	$	807
Derivative Liabilities:
Level 2:
Foreign exchange contracts	Accrued expenses and other liabilities, current and non-current	$	163	$	404	$	567
Other contracts	Accrued expenses and other liabilities, current and non-current	0		76		76
Total		$	163	$	480	$	643


Table of Contents			Alphabet Inc.

The gains (losses) on derivatives in cash flow hedging and net investment hedging relationships recognized in other comprehensive income (OCI) are summarized below (in millions):


		Gains (Losses) Recognized in OCI on Derivatives Before Tax Effect
	Three Months Ended
	March 31,
		2021		2022
Derivatives in Cash Flow Hedging Relationship:
Foreign exchange contracts
Amount included in the assessment of effectiveness		$	162	$	135
Amount excluded from the assessment of effectiveness		49		(15)

Derivatives in Net Investment Hedging Relationship:
Foreign exchange contracts
Amount included in the assessment of effectiveness		378		149
Total		$	589	$	269

The effect of derivative instruments on income is summarized below (in millions):

Gains (Losses) Recognized in Income

Three Months Ended

March 31,

2021

2022

Revenues

Other income (expense), net

Revenues

Other income (expense), net

Total amounts presented in the Consolidated Statements of Income in which the effects of cash flow and fair value hedges are recorded