Google Misses On Revenue & Earnings; Shares Sink As Much As $50 After Hours

Alphabet Inc. (NASDAQ: GOOG, GOOGL) today announced financial results for the quarter ended March 31, 2016 and missed earnings and revenue forecasts sending shares down in after hours trading by $50.

Shares are currently down over 6% and have been bouncing down between $40 and $50 a share

Q1 2016 financial highlights

The following summarizes our consolidated financial results for the quarters ended March 31, 2015 and 2016 (in millions, except for per share information; unaudited):

	Three Months Ended March 31, 2015		Three Months Ended March 31, 2016
Revenues	$17,258		$20,257
Increase in revenues year over year	12	%	17	%
Increase in constant currency revenues year over year	17	%	23	%

GAAP operating income	$4,447		$5,342
GAAP operating margin	26	%	26	%
Non-GAAP operating income	$5,650		$6,836
Non-GAAP operating margin	33	%	34	%

GAAP net income	$3,515		$4,207
Non-GAAP net income	$4,461		$5,248

GAAP diluted EPS for Class A and B common stock and Class C capital stock	$5.10		$6.02
Non-GAAP diluted EPS for Class A and B common stock and Class C capital stock	$6.47		$7.50
Diluted shares (in thousands)	689,498		699,311

The following summarizes our segment results where Google is presented as a single segment and all other Alphabet businesses are combined as Other Bets (in millions; unaudited):

	Three Months Ended March 31, 2015	Three Months Ended March 31, 2016
Google segment revenues	$17,178	$20,091
Google operating income	$5,188	$6,272

Other Bets revenues	$80	$166
Other Bets operating loss	($633)	($802)

Q1 2016 consolidated financial summary

Revenues (in millions; unaudited):

	Three Months Ended March 31, 2016	Change from Q1 2015 to Q1 2016 (YoY)	Change from Q4 2015 to Q1 2016 (QoQ)
Revenues	$20,257	17%	(5)%
Constant currency revenues (YoY)	$20,850	23%	N/A
Constant currency revenues (QoQ)	$20,238	N/A	(4)%

Our revenues and constant currency revenues are reconciled in the financial tables following this release.

Costs and expenses

Cost of revenues, operating expenses, SBC expense, and depreciation, amortization, and impairment charges (in millions; unaudited):

	Three Months Ended March 31, 2015		Three Months Ended March 31, 2016
Cost of revenues	$6,356		$7,648
Cost of revenues as % of revenues	37	%	38	%

Operating expenses (other than cost of revenues)	$6,455		$7,267
Operating expenses as % of revenues	37	%	36	%

SBC expense*	$1,203		$1,494
SBC related tax benefits	$(257)		$(453)
Depreciation, amortization, and impairment charges	$1,177		$1,371
*Excludes the expense for awards accounted for as stock-based compensation that will ultimately settle in cash.

Supplemental information (in millions, except for headcount data; unaudited)

	Three Months Ended March 31, 2015		Three Months Ended March 31, 2016
Cash, cash equivalents, and marketable securities	$65,436		$75,264
Net cash provided by operating activities*	$6,722		$7,658
Capital expenditures	$2,927		$2,428
Free cash flow*	$3,795		$5,230
Effective tax rate (ETR)*	24	%	18	%
Headcount	55,419		64,115

Q1 2016 Google segment summary

Revenues and monetization

Google segment revenues by source (in millions; unaudited):

	Three Months Ended March 31, 2015	Three Months Ended March 31, 2016	Change from Q1 2015 to Q1 2016 (YoY)
Google segment
Google websites	$11,932	$14,328	20%
Google Network Members’ websites	3,576	3,692	3%
Google advertising revenues	15,508	18,020	16%
Google other revenues	1,670	2,071	24%
Google segment revenues	$17,178	$20,091	17%

Paid clicks and cost-per-click information (unaudited):

	Change from Q1 2015 to Q1 2016 (YoY)	Change from Q4 2015 to Q1 2016 (QoQ)
Aggregate paid clicks	29 %	(3)%
Paid clicks on Google websites	38 %	(4)%
Paid clicks on Google Network Members’ websites	2 %	4 %

Aggregate cost-per-click	(9)%	0 %
Cost-per-click on Google websites	(12)%	2 %
Cost-per-click on Google Network Members’ websites	(8)%	(12)%

Traffic acquisition costs (TAC) and operating income

TAC to Google Network Members and distribution partners, operating income, and SBC expense (in millions; unaudited):

	Three Months Ended March 31, 2015		Three Months Ended March 31, 2016
TAC to Google Network Members	$2,432		$2,571
TAC to Google Network Members as % of Google Network Members’ revenues	68	%	70	%
TAC to distribution partners	$913		$1,217
TAC to distribution partners as % of Google website revenues	8	%	8	%
Total TAC	$3,345		$3,788
Total TAC as % of Google advertising revenues	22	%	21	%

	Three Months Ended March 31, 2015		Three Months Ended March 31, 2016
Operating income, excluding SBC expense	$6,243		$7,588
SBC expense	$1,055		$1,316
Operating income	$5,188		$6,272