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Table of Contents



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 September 30, 2019
OR
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 Ampitheatre Parkway
Mountain View, CA 94043
(Address of principal executive offices, including zip code)
(650) 253-000
(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 October 21, 2019, there were 299,628,223 shares of Alphabet’s Class A common stock outstanding, 46,508,584 shares of Alphabet's Class B common stock outstanding, and 343,550,642 shares of Alphabet's Class C capital stock outstanding.




Alphabet Inc.

Alphabet Inc.
Form 10-Q
For the Quarterly Period Ended September 30, 2019
TABLE OF CONTENTS
 
 
Page No.
 
Item 1
 
 
 
 
 
 
Item 2
Item 3
Item 4
 
 
 
Item 1
Item 1A
Item 2
Item 6

i

Alphabet Inc.

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 statements include, among other things, statements regarding:
the growth of our business and revenues and our expectations about the factors that influence our success and trends in our business;
our plans to continue to invest in new businesses, products, services and technologies, systems, facilities, and infrastructure, to continue to hire aggressively and provide competitive compensation programs, as well as to continue to invest in acquisitions;
seasonal fluctuations in internet usage and advertiser expenditures, underlying business trends such as traditional retail seasonality, and macroeconomic conditions, which are likely to cause fluctuations in our quarterly results;
the potential for declines in our revenue growth rate and operating margin;
our expectation that we will continue to take steps to improve the relevance of the ads we deliver and to reduce the number of accidental clicks;
fluctuations in our revenue growth, as well as the change in paid clicks and cost-per-click on Google properties and the change in impressions and cost-per-impression on Google Network Members’ properties, and various factors contributing to such fluctuations;
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 costs related to hedging activities under our foreign exchange risk management program;
our expectation that our cost of revenues, research and development (R&D) expenses, sales and marketing expenses, and general and administrative expenses will increase in dollars and may increase as a percentage of revenues;
our potential exposure in connection with pending investigations, proceedings, and other contingencies;
our expectation that our monetization trends will fluctuate, which could affect our revenues and margins in the future;
our expectation that our traffic acquisition costs (TAC) and the associated TAC rates will fluctuate in the future;
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 the portion of our revenues that we derive from non-advertising revenues will continue to increase and may affect margins;
our expectation that our other income (expense), net (OI&E), will fluctuate in the future, as it is largely driven by market dynamics;
estimates of our future compensation expenses;
fluctuations in our effective tax rate;
the sufficiency of our sources of funding;
fluctuations in our capital expenditures;
our expectations related to the operating structure implemented pursuant to the Alphabet holding company reorganization;
the sufficiency and timing of our proposed remedies in response to the European Commission's (EC) decisions;
the expected timing and amount of Alphabet Inc.'s share repurchases;
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, 2018, as amended and as may be updated in our subsequent Quarterly Reports on Form 10-Q. 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, 2018, as amended, 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-

1

Alphabet Inc.

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.

2

Alphabet Inc.

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, 2018
 
As of
September 30, 2019
 
 
 
(unaudited)
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
16,701

 
$
16,032

Marketable securities
92,439

 
105,145

Total cash, cash equivalents, and marketable securities
109,140

 
121,177

Accounts receivable, net of allowance of $729 and $643
20,838

 
20,889

Income taxes receivable, net
355

 
192

Inventory
1,107

 
1,401

Other current assets
4,236

 
4,699

Total current assets
135,676

 
148,358

Non-marketable investments
13,859

 
12,488

Deferred income taxes
737

 
564

Property and equipment, net
59,719

 
69,252

Operating lease assets
0

 
10,341

Intangible assets, net
2,220

 
1,747

Goodwill
17,888

 
18,069

Other non-current assets
2,693

 
2,225

Total assets
$
232,792

 
$
263,044

Liabilities and Stockholders’ Equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
4,378

 
$
4,142

Accrued compensation and benefits
6,839

 
7,399

Accrued expenses and other current liabilities
16,958

 
21,038

Accrued revenue share
4,592

 
4,835

Deferred revenue
1,784

 
1,679

Income taxes payable, net
69

 
131

Total current liabilities
34,620

 
39,224

Long-term debt
4,012

 
4,082

Deferred revenue, non-current
396

 
364

Income taxes payable, non-current
11,327

 
11,355

Deferred income taxes
1,264

 
1,747

Operating lease liabilities
0

 
9,666

Other long-term liabilities
3,545

 
1,637

Total liabilities
55,164

 
68,075

Commitments and Contingencies (Note 10)

 

Stockholders’ equity:
 
 
 
Convertible preferred stock, $0.001 par value per share, 100,000 shares authorized; no shares issued and outstanding
0

 
0

Class A and Class B common stock, and Class C capital 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); 695,556 (Class A 299,242, Class B 46,636, Class C 349,678) and 690,906 (Class A 299,624, Class B 46,508, Class C 344,774) shares issued and outstanding
45,049

 
49,040

Accumulated other comprehensive loss
(2,306
)
 
(1,196
)
Retained earnings
134,885

 
147,125

Total stockholders’ equity
177,628

 
194,969

Total liabilities and stockholders’ equity
$
232,792

 
$
263,044

See accompanying notes.

3

Alphabet Inc.

Alphabet Inc.
CONSOLIDATED STATEMENTS OF INCOME
(in millions, except per share amounts; unaudited)
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2018
 
2019
 
2018
 
2019
Revenues
$
33,740

 
$
40,499

 
$
97,543

 
$
115,782

Costs and expenses:
 
 
 
 
 
 
 
Cost of revenues
14,281

 
17,568

 
41,631

 
50,876

Research and development
5,232

 
6,554

 
15,385

 
18,796

Sales and marketing
3,849

 
4,609

 
11,233

 
12,726

General and administrative
1,753

 
2,591

 
4,920

 
6,722

European Commission fines
0

 
0

 
5,071

 
1,697

Total costs and expenses
25,115

 
31,322

 
78,240

 
90,817

Income from operations
8,625

 
9,177

 
19,303

 
24,965

Other income (expense), net
1,458

 
(549
)
 
5,538

 
3,956

Income before income taxes
10,083

 
8,628

 
24,841

 
28,921

Provision for income taxes
891

 
1,560

 
3,053

 
5,249

Net income
$
9,192

 
$
7,068

 
$
21,788

 
$
23,672

 
 
 
 
 
 
 
 
Basic net income per share of Class A and B common stock and Class C capital stock
$
13.21

 
$
10.20

 
$
31.34

 
$
34.12

Diluted net income per share of Class A and B common stock and Class C capital stock
$
13.06

 
$
10.12

 
$
30.95

 
$
33.83

See accompanying notes.

4

Alphabet Inc.

Alphabet Inc.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions; unaudited)
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2018
 
2019
 
2018
 
2019
Net income
$
9,192

 
$
7,068

 
$
21,788

 
$
23,672

Other comprehensive income (loss):
 
 
 
 
 
 
 
Change in foreign currency translation adjustment
19

 
(408
)
 
(466
)
 
(326
)
Available-for-sale investments:
 
 
 
 
 
 
 
Change in net unrealized gains (losses)
(120
)
 
153

 
(476
)
 
1,613

Less: reclassification adjustment for net (gains) losses included in net income
29

 
(39
)
 
62

 
(107
)
Net change (net of tax effect of $19, $32, $41, and $223)
(91
)
 
114

 
(414
)
 
1,506

Cash flow hedges:
 
 
 
 
 
 
 
Change in net unrealized gains (losses)
(9
)
 
264

 
92

 
209

Less: reclassification adjustment for net (gains) losses included in net income
(70
)
 
(75
)
 
202

 
(249
)
Net change (net of tax effect of $23, $46, $74, and $23)
(79
)
 
189

 
294

 
(40
)
Other comprehensive income (loss)
(151
)
 
(105
)
 
(586
)
 
1,140

Comprehensive income
$
9,041

 
$
6,963

 
$
21,202

 
$
24,812

See accompanying notes.

5

Alphabet Inc.

Alphabet Inc.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In millions, except share amounts which are reflected in thousands; unaudited)
 
Three Months Ended September 30, 2018
 
Class A and Class B
Common Stock, Class C Capital Stock and
Additional Paid-In Capital
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Retained
Earnings
 
Total
Stockholders’
Equity
 
Shares    
 
Amount    
 
Balance as of June 30, 2018
695,946

 
$
42,243

 
$
(1,525
)
 
$
121,282

 
$
162,000

Common and capital stock issued
1,853

 
21

 
0

 
0

 
21

Stock-based compensation expense
0

 
2,230

 
0

 
0

 
2,230

Tax withholding related to vesting of restricted stock units and other
0

 
(1,252
)
 
0

 
0

 
(1,252
)
Repurchases of capital stock
(1,842
)
 
(131
)
 
0

 
(2,069
)
 
(2,200
)
Net income
0

 
0

 
0

 
9,192

 
9,192

Other comprehensive income (loss)
0

 
0

 
(151
)
 
0

 
(151
)
Balance as of September 30, 2018
695,957

 
$
43,111

 
$
(1,676
)
 
$
128,405

 
$
169,840

 
Nine Months Ended September 30, 2018
 
Class A and Class B
Common Stock, Class C Capital Stock and
Additional Paid-In Capital
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Retained
Earnings
 
Total
Stockholders’
Equity
 
Shares    
 
Amount    
 
Balance as of December 31, 2017
694,783

 
$
40,247

 
$
(992
)
 
$
113,247

 
$
152,502

Cumulative effect of accounting change
0

 
0

 
(98
)
 
(599
)
 
(697
)
Common and capital stock issued
6,906

 
136

 
0

 
0

 
136

Stock-based compensation expense
0

 
7,100

 
0

 
0

 
7,100

Tax withholding related to vesting of restricted stock units and other
0

 
(3,978
)
 
0

 
0

 
(3,978
)
Repurchases of capital stock
(5,732
)
 
(394
)
 
0

 
(6,031
)
 
(6,425
)
Net income
0

 
0

 
0

 
21,788

 
21,788

Other comprehensive income (loss)
0

 
0

 
(586
)
 
0

 
(586
)
Balance as of September 30, 2018
695,957

 
$
43,111

 
$
(1,676
)
 
$
128,405

 
$
169,840

See accompanying notes.

6

Alphabet Inc.

Alphabet Inc.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In millions, except share amounts which are reflected in thousands; unaudited)
 
Three Months Ended September 30, 2019
 
Class A and Class B
Common Stock, Class C Capital Stock and
Additional Paid-In Capital
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Retained
Earnings
 
Total
Stockholders’
Equity
 
Shares    
 
Amount    
 
Balance as of June 30, 2019
694,050

 
$
47,937

 
$
(1,091
)
 
$
145,346

 
$
192,192

Common and capital stock issued
1,616

 
49

 
0

 
0

 
49

Stock-based compensation expense
0

 
2,645

 
0

 
0

 
2,645

Tax withholding related to vesting of restricted stock units and other
0

 
(1,184
)
 
0

 
0

 
(1,184
)
Repurchases of capital stock
(4,760
)
 
(407
)
 
0

 
(5,289
)
 
(5,696
)
Net income
0

 
0

 
0

 
7,068

 
7,068

Other comprehensive income (loss)
0

 
0

 
(105
)
 
0

 
(105
)
Balance as of September 30, 2019
690,906

 
$
49,040

 
$
(1,196
)
 
$
147,125

 
$
194,969

 
Nine Months Ended September 30, 2019
 
Class A and Class B
Common Stock, Class C Capital Stock and
Additional Paid-In Capital
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Retained
Earnings
 
Total
Stockholders’
Equity
 
Shares    
 
Amount    
 
Balance as of December 31, 2018
695,556

 
$
45,049

 
$
(2,306
)
 
$
134,885

 
$
177,628

Cumulative effect of accounting change
0

 
0

 
(30
)
 
(4
)
 
(34
)
Common and capital stock issued
5,931

 
122

 
0

 
0

 
122

Stock-based compensation expense
0

 
8,215

 
0

 
0

 
8,215

Tax withholding related to vesting of restricted stock units and other
0

 
(3,636
)
 
0

 
0

 
(3,636
)
Repurchases of capital stock
(10,581
)
 
(870
)
 
0

 
(11,428
)
 
(12,298
)
Sale of interest in consolidated entities
0

 
160

 
0

 
0

 
160

Net income
0

 
0

 
0

 
23,672

 
23,672

Other comprehensive income (loss)
0

 
0

 
1,140

 
0

 
1,140

Balance as of September 30, 2019
690,906

 
$
49,040

 
$
(1,196
)
 
$
147,125

 
$
194,969

See accompanying notes.



7

Alphabet Inc.

Alphabet Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions; unaudited)
 
Nine Months Ended
 
September 30,
 
2018
 
2019
Operating activities
 
 
 
Net income
$
21,788

 
$
23,672

Adjustments:
 
 
 
Depreciation and impairment of property and equipment
5,791

 
7,774

Amortization and impairment of intangible assets
664

 
594

Stock-based compensation expense
7,100

 
8,149

Deferred income taxes
723

 
381

Gain on debt and equity securities, net
(5,413
)
 
(2,399
)
Other
(82
)
 
(119
)
Changes in assets and liabilities, net of effects of acquisitions:
 
 
 
Accounts receivable
718

 
25

Income taxes, net
(1,891
)
 
210

Other assets
(1,240
)
 
(787
)
Accounts payable
293

 
(386
)
Accrued expenses and other liabilities
6,457

 
2,927

Accrued revenue share
(196
)
 
201

Deferred revenue
272

 
(149
)
Net cash provided by operating activities
34,984

 
40,093

Investing activities
 
 
 
Purchases of property and equipment
(18,058
)
 
(17,496
)
Purchases of marketable securities
(37,340
)
 
(80,968
)
Maturities and sales of marketable securities
34,926

 
74,783

Purchases of non-marketable investments
(1,118
)
 
(1,499
)
Maturities and sales of non-marketable investments
1,345

 
297

Acquisitions, net of cash acquired, and purchases of intangible assets
(1,452
)
 
(373
)
Other investing activities
69

 
468

Net cash used in investing activities
(21,628
)
 
(24,788
)
Financing activities
 
 
 
Net payments related to stock-based award activities
(3,952
)
 
(3,566
)
Repurchases of capital stock
(6,425
)
 
(12,298
)
Proceeds from issuance of debt, net of costs
6,766

 
317

Repayments of debt
(6,822
)
 
(538
)
Proceeds from sale of interest in consolidated entities
0

 
202

Net cash used in financing activities
(10,433
)
 
(15,883
)
Effect of exchange rate changes on cash and cash equivalents
(195
)
 
(91
)
Net increase (decrease) in cash and cash equivalents
2,728

 
(669
)
Cash and cash equivalents at beginning of period
10,715

 
16,701

Cash and cash equivalents at end of period
$
13,443

 
$
16,032

See accompanying notes.

8

Alphabet Inc.

Alphabet Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Nature of Operations and 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 primarily by delivering relevant, cost-effective online advertising.
Basis of Consolidation
The consolidated financial statements of Alphabet include the accounts of Alphabet and entities consolidated under the variable interest and voting models. Noncontrolling interests are not presented separately as the amounts are not material. All intercompany balances and transactions have been eliminated.
Unaudited Interim Financial Information
The Consolidated Balance Sheet as of September 30, 2019, the Consolidated Statements of Income for the three and nine months ended September 30, 2018 and 2019, the Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2018 and 2019, the Consolidated Statements of Stockholders' Equity for the three and nine months ended September 30, 2018 and 2019 and the Consolidated Statements of Cash Flows for the nine months ended September 30, 2018 and 2019 are unaudited. These unaudited interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (GAAP). In our opinion, the unaudited interim consolidated financial statements include all adjustments of a normal recurring nature necessary for the fair presentation of our financial position as of September 30, 2019, our results of operations for the three and nine months ended September 30, 2018 and 2019, and our cash flows for the nine months ended September 30, 2018 and 2019. The results of operations for the three and nine months ended September 30, 2019 are not necessarily indicative of the results to be expected for the year ending December 31, 2019.
These unaudited interim consolidated financial statements 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, 2018, as amended, filed with the SEC.
Use of Estimates
Preparation of consolidated financial statements in conformity with GAAP requires us to make 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. On an ongoing basis, we evaluate our estimates, including those related to bad debt allowance, sales allowances, fair values of financial instruments, intangible assets and goodwill, useful lives of intangible assets and property and equipment, income taxes, and contingent liabilities, among others. We base our estimates on assumptions, both historical and forward looking, that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities.
Recent Accounting Pronouncements
Recently issued accounting pronouncements not yet adopted
In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2016-13 (ASU 2016-13) "Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments", which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss model which requires the use of forward-looking information to calculate credit loss estimates. It also eliminates the concept of other-than-temporary impairment and requires credit losses related to available-for-sale debt securities to be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. These changes will result in earlier recognition of credit losses. We will adopt ASU 2016-13 effective January 1, 2020 with the cumulative effect of adoption recorded as an adjustment to retained earnings. We are currently implementing new credit loss models and updating our processes and controls in preparation for the adoption of ASU 2016-13. The effect on our consolidated financial statements will largely depend on the composition and credit quality of our investment portfolio and the economic conditions and forecasts at the time of adoption. Based on the current composition of our investment portfolio, current market conditions, and historical credit loss activity, the impact on our consolidated financial statements and related disclosures is not expected to be material.

9

Alphabet Inc.

Recently adopted accounting pronouncements
In February 2016, the FASB issued Accounting Standards Update No. 2016-02 (Topic 842) "Leases." Topic 842 supersedes the lease requirements in Accounting Standards Codification Topic 840, "Leases." Under Topic 842, lessees are required to recognize assets and liabilities on the balance sheet for most leases and provide enhanced disclosures. Leases will continue to be classified as either finance or operating.
We adopted Topic 842 effective January 1, 2019. The most significant effects of Topic 842 were the recognition of $8.0 billion of operating lease assets and $8.4 billion of operating lease liabilities and the de-recognition of $1.5 billion of build-to-suit assets and liabilities upon adoption. We applied Topic 842 to all leases as of January 1, 2019 with comparative periods continuing to be reported under Topic 840. In the adoption of Topic 842, we carried forward the assessment from Topic 840 of whether our contracts contain or are leases, the classification of our leases, and remaining lease terms. Our accounting for finance leases remains substantially unchanged. The standard does not have a significant effect on our consolidated results of operations or cash flows. See Note 4 for further details.
Prior Period Reclassifications
Certain amounts in prior periods have been reclassified to conform with current period presentation. Performance fees have been reclassified for all periods from general and administrative expenses to other income (expense), net to align with the presentation of the investment gains and losses on which the performance fees are based. See Note 7 for further details.
Note 2. Revenues
Disaggregated Revenues
The following table presents our revenues disaggregated by revenue source (in millions, unaudited). Sales and usage-based taxes are excluded from revenues.
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2018
 
2019
 
2018
 
2019
Google properties
$
24,054

 
$
28,647

 
$
69,314

 
$
81,664

Google Network Members' properties
4,900

 
5,269

 
14,369

 
15,573

Google advertising revenues
28,954

 
33,916

 
83,683

 
97,237

Google other revenues
4,640

 
6,428

 
13,419

 
18,058

Other Bets revenues
146

 
155

 
441

 
487

Total revenues(1)
$
33,740

 
$
40,499

 
$
97,543

 
$
115,782

(1) 
Revenues include hedging gains (losses) of $80 million and $119 million for the three months ended September 30, 2018 and 2019, respectively, and $(262) million and $364 million for the nine months ended September 30, 2018 and 2019, respectively, which do not represent revenues recognized from contracts with customers.
The following table presents our revenues disaggregated by geography, based on the addresses of our customers (in millions, unaudited):
 
Three Months Ended
 
Nine Months Ended

September 30,
 
September 30,
 
2018
 
2019
 
2018
 
2019
United States
$
15,523

 
46
%
 
$
18,711

 
46
%
 
$
44,600

 
46
%
 
$
53,106

 
46
%
EMEA(1)
10,958

 
32

 
12,667

 
31

 
32,217

 
33

 
36,859

 
32

APAC(1)
5,424

 
16

 
6,828

 
17

 
15,318

 
15

 
19,491

 
17

Other Americas(1)
1,835

 
6

 
2,293

 
6

 
5,408

 
6

 
6,326

 
5

Total revenues(2)
$
33,740

 
100
%
 
$
40,499

 
100
%
 
$
97,543

 
100
%
 
$
115,782

 
100
%
(1) 
Regions represent Europe, the Middle East, and Africa (EMEA); Asia-Pacific (APAC); and Canada and Latin America (Other Americas).
(2) 
Revenues include hedging gains (losses) for the three and nine months ended September 30, 2018 and 2019.
Deferred Revenues
We record deferred revenues when cash payments are received or due in advance of our performance, including amounts which are refundable. The decrease in the deferred revenue balance for the nine months ended September 30,

10

Alphabet Inc.

2019 was primarily driven by the recognition of $1.5 billion of revenues that were included in the deferred revenue balance as of December 31, 2018, offset by cash payments received or due in advance of satisfying our performance obligations.
Note 3. Financial Instruments
Debt Securities
We classify our marketable debt securities 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.
The following tables summarize our debt securities by significant investment categories as of December 31, 2018 and September 30, 2019 (in millions):
 
As of December 31, 2018
 
Adjusted
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
 
Cash and Cash
Equivalents
 
Marketable
Securities
Level 2:
 
 
 
 
 
 
 
 
 
 
 
Time deposits(1)
$
2,202

 
$
0

 
$
0

 
$
2,202

 
$
2,202

 
$
0

Government bonds
53,634

 
71

 
(414
)
 
53,291

 
3,717

 
49,574

Corporate debt securities
25,383

 
15

 
(316
)
 
25,082

 
44

 
25,038

Mortgage-backed and asset-backed securities
16,918

 
11

 
(324
)
 
16,605

 
0

 
16,605

Total
$
98,137

 
$
97

 
$
(1,054
)
 
$
97,180

 
$
5,963

 
$
91,217

 
As of September 30, 2019
 
Adjusted
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
 
Cash and Cash
Equivalents
 
Marketable
Securities
 
(unaudited)
Level 2:
 
 
 
 
 
 
 
 
 
 
 
Time deposits(1)
$
2,100

 
$
0

 
$
0

 
$
2,100

 
$
2,100

 
$
0

Government bonds
55,054

 
471

 
(60
)
 
55,465

 
250

 
55,215

Corporate debt securities
27,127

 
318

 
(8
)
 
27,437

 
12

 
27,425

Mortgage-backed and asset-backed securities
17,295

 
118

 
(39
)
 
17,374

 
0

 
17,374

Total
$
101,576

 
$
907

 
$
(107
)
 
$
102,376

 
$
2,362

 
$
100,014

(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 $5 million and $85 million for the three months ended September 30, 2018 and 2019, respectively, and $44 million and $250 million, for the nine months ended September 30, 2018 and 2019, respectively. We recognized gross realized losses of $34 million and $36 million for the three months ended September 30, 2018 and 2019, respectively, and $106 million and $105 million for the nine months ended September 30, 2018 and 2019, respectively. We reflect these gains and losses as a component of other income (expense), net, in the Consolidated Statements of Income.

11

Alphabet Inc.

The following table summarizes the estimated fair value of our investments in marketable debt securities with stated contractual maturity dates, accounted for as available-for-sale securities and classified by the contractual maturity date of the securities (in millions, unaudited):
 
As of
September 30, 2019
Due in 1 year
$
18,782

Due in 1 year through 5 years
66,825

Due in 5 years through 10 years
3,868

Due after 10 years
10,539

Total
$
100,014


The following tables present gross unrealized losses and fair values for those investments that were in an unrealized loss position as of December 31, 2018 and September 30, 2019, 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, 2018
 
Less than 12 Months
 
12 Months or Greater
 
Total
 
Fair Value
 
Unrealized
Loss
 
Fair Value
 
Unrealized
Loss
 
Fair Value
 
Unrealized
Loss
Government bonds
$
12,019

 
$
(85
)
 
$
23,877

 
$
(329
)
 
$
35,896

 
$
(414
)
Corporate debt securities
10,171

 
(107
)
 
11,545

 
(209
)
 
21,716

 
(316
)
Mortgage-backed and asset-backed securities
5,534

 
(75
)
 
8,519

 
(249</