Figure 1 – Main events of Alphabet

Alphabet1

1.History Google is an accidental misspelling of googol, which represents the number 1 followed by one

hundred zeroes, this is meant to represent the large quantities of information the search engine

is meant to organize and make available.

Before 2015 – Google

It originally started as an algorithm for the

dissertation project of various Stanford

University PhD students, which they jokingly

nicknamed “BackRub” due to its job of

analyzing the web’s back links2. They wanted to

understand the World Wide Web’s shape, and

attempt to organize it.

The “web crawler” started working on March

1996, where it started to analyze and sort the

websites available. The search engine’s first

version was launched on Stanford’s website on

August 1996, where it used more than half of its

bandwidth.

Google.com was registered on September 15,

1997 and was formally incorporated on

September 4th, 1998.

From then on, its fame skyrocketed and became a worldwide phenomenon due to its

straightforward design and wide availability of information.3

1 Case written by Èlia Adroher, Marta Elorduy, María Flores, Maria Huertas and Abel Rosado and supervised by professor Oriol Amat. Universitat Pompeu Fabra, 2020. 2 "Origin of the name "Google" - Stanford Graphics." https://graphics.stanford.edu/~dk/google_name_origin.html.

2

Over the years, Google started expanding its horizons, now just not focusing on their original

founding mission from back in ’98 — “to organize the world’s information and make it

universally accessible and useful,”4 they started to create other branches of their company, in

2001 they created Google Earth, in 2004 they created Gmail, in 2006 they purchased

YouTube, in 2008 they created Google Chrome, which are just some amongst the big array of

new endeavors of the company in the 2000s. These new additions made them a big threat to all

other technological companies, and they soon skyrocketed to be one of the largest companies

in the world.5

Since 2015 - Alphabet

On Monday the 10th of August 2015, Larry Page (Google co-founder together with Sergey

Brin) announced Google’s new operating structure in a blog post called “G is for Google”. The

article starts by doing a brief recapitulation of Google’s highlights, defining its values and main

objectives. It stated that the company was in a good trend, but they believed that they could do

even better.

With this intention, they created Alphabet: a conglomerate of independent companies, being

Google the largest. Page became the CEO and Brin adopted the role of president. Sundar

Pichai, the senior vice president of product, was appointed Google’s CEO.

Alphabet Inc. replaced Google Inc. as the publicly traded entity and their shares continued

trading on Nasdaq but as Alphabet’s shares. Google became a wholly owned subsidiary.

This measure was made in order to allow business units to operate independently and move

faster.

In December 3, 2019 it was announced that Page and Brin would step down as CEO and

President of Alphabet, and that Sundar Pichai would become the new CEO of Alphabet while

continuing to be the CEO of Google.

3 "“Google Was Not a Normal Place”: Brin, Page ... - Vanity Fair." https://www.vanityfair.com/news/2018/07/valley-of-genius-excerpt-google.

4 "2015 Founders' Letter - Investor Relations - Alphabet." https://abc.xyz/investor/founders-letters/2015/.

5 Stross, Randall. Planet Google: One Company’s Audacious Plan to Organize Everything We Know. Free Press, 2009.

3

$283,35 $333,25

$384,96 $435,83

$479,20 $517,51

21,4% 17,6% 15,5% 13,2% 10,0% 8,0%

45,9% 50,1% 53,6% 56,6% 58,8% 60,5%

0,0%

10,0%

20,0%

30,0%

40,0%

50,0%

60,0%

70,0%

80,0%

90,0%

100,0%

$-

$100,00

$200,00

$300,00

$400,00

$500,00

2018 2019 2020 2021 2022 2023

Digital ad spending worldwide, 2018-2023 billions, % change and % of media ad spending

Digital ad spending %change % of total media ad spending

à Figure 3 – Worldwide largest net digital ad revenues in 2019. Data: eMarketer

↑ Figure 2 – Digital Ad Spending Worldwide, 2018-2023 in billions, % change and % of total media ad spending. Data: eMarketer

2.Industry analysis and competitors Most of Alphabet’s income comes from Google (actually, Google accounts for 99.6% of the

total revenue of Alphabet). Within Google, 86.4% of revenue is generated by the online/digital

advertising services it offers. Thus, the digital advertising industry and the smartphone industry

are relevant to Alphabet.

2.1 Digital Advertising Industry

Digital advertising sales have increased constantly over time, and in 2019 they are expected to

account for half of the global advertising market6. Also, in 2019 online advertising has been

bigger than traditional advertising (print and television) in the US7, and it is expected to

continue its growth.

When it comes to the future, as it has been said, this industry is expected to continue growing,

but at a slower pace, as can be seen in Figure 2.

Google is by far the world’s major digital ad seller, as can be seen in Figure 3, and it has faced

a constant increase in the revenue generated by them over time.

6 Source: https://www.emarketer.com/content/global-digital-ad-spending-2019

7https://www.vox.com/2019/2/20/18232433/digital-advertising-facebook-google-growth-tv-print-emarketer-2019, based on a graph from eMarketer

4

2.1.1 Competitors

- Facebook: thanks to being and owning the most popular social network platforms8, it is the

world’s second digital advertising seller, and 98.4% of its revenue in 2018 depended on it9.

- Alibaba: a Chinese company that focuses on e-commerce and cloud computing, among

others. E-commerce platforms offer lots of digital advertising “slots”, and Alibaba is the

leading e-commerce company in China10, an important market11 when it comes to e-

commerce.

- Amazon: like Alibaba, Amazon offers “slots” of digital ads in its services, which include e-

commerce and AI assistants, among others. It is the major e-commerce retailer in the US,

although its market share has recently decreased.12

2.1.2 SWOT of the digital advertising industry

The SWOT is the report on main Strengths, Weaknesses, Opportunities and Threats found in

the company being analyzed. Strengths and opportunities need to be reinforced to increase

profits while weaknesses and threats need to be corrected in order to avoid further problems.

Opportunities and threats give a general vision about the industry which can help the company

in consolidating its position within its competitors.

In the digital advertising industry, we can see that the main advantage is the growth of the

industry and one of the negative points is the quickness of changes and the increasing

consciousness of consumers in respect to what they consume. Figure 4 shows the full SWOT

analysis of the digital advertising industry.

8 https://www.statista.com/statistics/274773/global-penetration-of-selected-social-media-sites/ 9https://investor.fb.com/investor-news/press-release-details/2019/Facebook-Reports-Fourth-Quarter-and-Full-Year-2018-Results/default.aspx 10https://www.emarketer.com/chart/219511/top-10-retailers-china-ranked-by-retail-ecommerce-sales-share-2018-of-total-retail-ecommerce-sales 11 https://contentstorage-nax1.emarketer.com/8301175ad722ff1c3654b2f770293c67/7115_original 12 https://www.bloomberg.com/news/articles/2019-06-13/emarketer-cuts-estimate-of-amazon-s-u-s-online-market-share

5

Figure 4 – SWOT of the digital advertising industry

STRENGTHS

- Increasing advertising sales.

- Decrease of the paper advertising, which is substituted by internet advertising, continuously increasing.

- High reputation, and this strong reputation and higher market share allows Alphabet to access even more information.

- Search engine, to increase the visibility and traffic of ads. This is an added value for the firms.

WEAKNESSES

- Raising awareness from the consumers.

- Rapid changes of the industry, which makes it hard to keep up.

- Under investigation for its advertising practices, which can generate bad publicity13.

- Competition is very fierce, and trends are

constantly changing, in order to succeed in this market, they need to be one step ahead of changing consumer preferences. Once a website becomes dear to consumers’ hearts then it is hard to sway them from that website, i.e. Google’s attempt at Google+.

OPPORTUNITIES

- Constant growth of the global advertising market.

- High level of engagement.

- Business makes at least 2$ of revenue for each 1$ spent on google ads.

THREATS

- Has strong, well-known competitors in the market.

- Ad-block systems have become widespread, with increasing popularity.14

- Increase in market regulation lately, due to the

impact digital advertising has on an individual’s daily life.

2.2 Smartphone industry

Other important segments within Google are tied to the smartphone industry: Android is the

world’s leading mobile OS (see Figure 5), and smartphone manufacturers that use Android

have to pre-install on their phones some Google Apps such as Search, Maps or Gmail. All of

these are deeply tied to Google’s ad revenue, as the more people who use Google’s services,

the more Google ads they see.

Moreover, Google has recently entered the smartphone manufacturing industry, selling at the

time of writing the fourth iteration of its flagship: the Google Pixel.

13 https://edition.cnn.com/2019/09/03/tech/states-antitrust-investigation-google/index.html 14 "Google Struggles to Justify Why It's Restricting Ad Blockers in ...." https://www.vice.com/en_us/article/evy53j/google-struggles-to-justify-making-chrome-ad-blockers-worse

6

The smartphone industry gained mainstream popularity when the iPhone was introduced in

2007. One year later, the first smartphone running Android was introduced in the market.

Since then, this industry has grown steadily introducing several new features, and many

companies have entered the market too.

Smartphone shipments have increased over time, and in 2021 it is expected that 40% of the

world’s population will own a smartphone.

Smartphone shipments, however, have not increased at such a large rate since 2015, and in

2018 less smartphones were sold than the year before for the first time. (See Figure 6). One

explanation may be the lack of substantial changes in smartphone models, something that

could change with the introduction of foldable displays. But uncertainty is still present due to

the commercial war between the US and China, being the latter one of the fastest growing

markets of this industry.

This uncertainty clearly affects Android and Google apps, and thus Google Ads’ revenue.

The smartphone industry is very dynamic, and innovation is constant.

60,2 27,23

3,24 2,66

1,37 1,3 3,91

Mobile & Tablet Operating System Market Share Worldwide (Jan 2009 - Oct 2019)

Android iOS Series 40 Unknown SymbianOS Windows Other

← Figure 6 – Shipments of the principal smartphone manufacturers, worldwide per year since 2007 until 2018. Source: Statista

↑ Figure 5 – Market share of mobile and tablet operating systems worldwide between Jan. 2009 and Oct. 2019. Source: Statcounter.

7

2.2.1 Competitors Google’s hardware division will not be considered when analyzing Alphabet’s competitors

(every company in Figure 4 would be a competitor), but instead it will be considered as

competitor a smartphone manufacturer that uses a different OS than Android. The reason is

that the OS (with all the advertising opportunities it offers, as explained before) is more

relevant for Alphabet’s revenues.

- Apple: the iPhone is the world’s second most shipped smartphone, and it runs iOS. In

recent years, as seen in Figure 4, iPhone sales have decreased, especially in China15.

- Huawei: Huawei’s shipments and popularity have increased during previous years, together

with Xiaomi, in China. While Huawei sales outside China are, at that moment, no

competition for Google, it is important to note that all smartphones sold in China can’t use

the Google Play Store Services (that is the majority of Google Apps, as well as its app

store, that come preinstalled in most Android smartphones and that allows Google to have

profits from mobile advertisement). Huawei wouldn’t be considered a competitor (after all,

all smartphones in China can’t have the Google Play Store Services installed) if it weren’t

because some people around the world purchase Chinese editions of Xiaomi smartphones,

and these users become a missed opportunity for Google’s digital advertising.

It is also worth mentioning the current situation between the US and China: if the US

finally prohibits its companies from trading with Huawei, any Huawei smartphone will not

have Android or Google Play Store Services installed (instead, the company has already

announced that they will run HarmonyOS, a new mobile OS). This would harm Google by

turning one of the world’s biggest smartphone manufacturers into a direct competitor.

15 https://www.bbc.com/news/business-48110709

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Figure 7 – SWOT of the smartphone industry

2.1.2 SWOT of the smartphone industry

In the smartphone industry the general analysis is similar to the one in digital advertising: the

main strength is the growth of the market. Hence, a growing market is characterized by high

competition and very dynamic changes that may be difficult to keep up with, which in fact are

the main disadvantages.

Figure 7 shows the full SWOT analysis of the smartphone industry.

STRENGTHS

- Very versatile products when it comes to OS.

- A smartphone can be used to accomplish a wide range of tasks, becoming an indispensable tool for many people.

- Innovation can create new necessities for consumers, forcing them to buy a new model before they expected or before its useful life finishes.

WEAKNESSES

- As it is a very dynamic industry, innovation can create new costs in the manufacturing process of the final product.

- There’s a lot of competition.

- Possible problems and risks with stock: sometimes it doesn’t meet demand16 and harms the reputation of the company.

OPPORTUNITIES

- Growing mobile advertising industry17.

- Indian market growing18.

- Invest in innovation and obtaining new patents.

THREATS

- The US and China commercial war.

- Slowdown of smartphone sales in developed countries.

16https://www.gsmarena.com/get_ready_to_wait_for_the_google_pixel_2_and_pixel_2_xl-news-27572.php 17 https://www.theverge.com/2018/9/19/17877970/xiaomi-ads-settings-menu-android-phones 18https://venturebeat.com/2019/01/25/indias-smartphone-market-grew-by-10-in-2018-bucking-global-slowdown/

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3.Present situation of the company Products and services offered

As Larry Page says in the article “G is for

Google”, “Alphabet is mostly a collection of

companies”, as it is greatly diversified in its

subsidiaries. They are as different from

internet products to health efforts to

investment.

Google is established as the number one

search engine (it enjoys 88.61% of the

market search)19 and is so renowned that “to

google” is an entry in the dictionary20. It

contains lots of different platforms such as

YouTube (to share videos), Maps (online

maps with GPS navigator included),

Translator (to translate texts), Chrome (an

internet browser), etc.

On the apps sector, Alphabet is the leading

company in mobile applications in the US

based on audience/downloads.21

From the other bets, Google Fiber is a high-speed internet service, Calico is dedicated to

research in biotechnology, GV provides venture capital funding to new companies, Waymo is a

Self-Driving Car...

The company is constantly increasing the expenses in the R&D department. In 2018, they

spent $21,419 million (21.4 billion), an increase in $5mil compared to 2017. 22

19 "Google Fast Facts - CNN." https://www.cnn.com/2014/06/30/business/google-fast-facts/index.html..

20 "Google | Definition of Google by Merriam-Webster." https://www.merriam-webster.com/dictionary/google..

21 https://www.statista.com/statistics/579102/leading-mobile-app-publishers-user-us

22 https://www.statista.com/statistics/507858/alphabet-google-rd-costs/

Figure 8 – Alphabet’s main subsidiaries.

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Customers and distribution channels

Alphabet has a wide range of customers for every service, and monetization is also different:

- Business customers: they use services that are specific for companies such as G Suite, the

Google Cloud or Google’s advertising platform. These services are subscription based, and

only some of them (like Google My Business) are free, although they are used to gather

data about companies and attract these companies to other subscription-based products.

- Consumers: use services like Google Search, Google Maps, Gmail, Google Drive,

YouTube, Android, etc. These services are free to use, although Alphabet uses them to put

their own advertisements and generate profit, as well as to gather data from customers to

make their products more competitive, such as traffic updates on Google Maps or making

their AI more powerful thanks to Google Assistant’s users.

Recently, Google has been introducing subscription-based services for the general public

too, like Google One, Stadia, or YouTube Premium plans.

Finally, Google also sells hardware.

- Phone Makers: as has already been explained, every smartphone manufacturer that ships

their phones with Android pays a fee to Google, that develops the OS.

- Projects that need financing are also users of Alphabet’s companies such as GV and Capital

G.

The distribution channels for most of Alphabet’s products is the Internet, although they are

increasing their presence in physical stores, where they sell hardware units.

Key success factors

Alphabet is an incredibly successful company, but what is it that made it that way and has kept

it that way?

Back when Google started it was able to market itself as an incredibly user-friendly and

straightforward service, and it was a spearhead for the new digital era the world was embarking

on. Google became a household name, and everyone’s go-to search engine. Google was

successful in organizing information and ranking it in terms of relevance for the user and is

great at understanding what is trying to be found, which made it especially attractive to

consumers.

11

At first Google was not monetized, due to the fact that Brin and Page were vastly against

adding ads to a search engine, in a paper they wrote in college they even said that it would just

make for biased searches, when they wanted to provide relevant and academic information.

Slowly but surely, however, Google agreed to start advertising with simple text ads that were

targeted at the specific words that the user searched. With the creation of AdWords, Google

was able to create revenue without disrupting this perfected database, and they also did it

without excluding any of its existing user base. AdWords came to generate revenue

automatically based on an impressions system, and revolutionized digital advertising as we

know it. Later came the creation of AdSense, a database that used Google’s information and

allowed private businesses to include Google ads on their webpages. This led to the purchase

and creation of sites from Google which maximized the amount of ad-driven revenue, for

example, YouTube.

Ads were nowhere near Google’s initial business plan, however; now, Google is highly

dependent on it, but this turned out to be an advantage, because Google’s attractiveness lies in

its dedication to innovation and technological advances, and having this very large, very

profitable, and very stable source of income allows them to continue and expand on their

innovative ventures without having to worry about these projects not being successful.

Google’s market charm comes from this, a dedication to keeping a company with a culture of a

campus with constantly flowing new ideas, and no fear in jumping face-first into risky projects.

This was just consolidated with the creation of the Alphabet group, a way to take advantage in

an ambidextrous approach of these two realities, to be able to benefit from having a solid and

stable company like Google that guaranteed profits with its positioning on the world market,

and the freedom to have “moon shot” projects that could have an incredible future, but with no

guarantees, given their experimental nature.

And failure for Alphabet is not necessarily a bad thing, as these subsidiaries have been able to

take unsuccessful projects23 and turn them into a better version of these endeavors. For

example, Pixel was created from the knowledge acquired in the Nexus phones, and they are

now a lot more successful in the smartphone market. Google Play services for AR was born

from Tango, because it now has way less hardware requirements in order to provide high-

23 "Killed by Google: Google Graveyard." https://killedbygoogle.com/

12

quality augmented reality24. Another example is QuickOffice, a Microsoft Office replacement

that had a very small impact in the market, as it was outshined by the original Microsoft

creation, which was replaced with Google Drive, whose multiuser capabilities was

breakthrough technology at the time of launch.

When Alphabet has not found a way to launch a product successfully or reinvent an idea in

order to break into an already existing market, Alphabet has historically purchased those

companies that had been able to make it, and integrate it into its group to adopt their

technology and brand, as they did with YouTube.

Alphabet has successfully created a worldwide brand of innovation and has become a staple in

modern society, with an estimated 63,000 searches happening every second.25

4. Main problems or challenges the company is facing now Alphabet is currently facing different problems that will have to be solved soon. These are the

most important ones:

Alphabet announced in December 3rd, 2019 that Larry Page and Sergey Brin had decided to

step down as CEO and President of Alphabet respectively, and that Sundar Pichai, previously

the CEO of Google, would also become the CEO of Alphabet.26 Both parts assured through

different mediums that Alphabet would continue to work with the same structure, although

they also left room for changes27.

Following this announcement, questions arose as to whether Alphabet will continue to be

organized as has it been for more than four years or some changes will happen. While

separating Google from other less profitable companies allows the first to have better financial

results, Alphabet has propitiated the appearance of duplicates like Nest and Google’s hardware

division, or new conflicts of interest between divisions that do not have the same goal

anymore. For instance, Google Fiber was created to give people fast and reliable internet

connections, and although it had losses, it was thought that the better internet connection

24 "Google's Project Tango is shutting down because ARCore is ...."https://www.theverge.com/2017/12/15/16782556/project-tango-google-shutting-down-arcore-augmented-reality

25 https://ardorseo.com/blog/how-many-google-searches-per-day-2019/ 26 https://abc.xyz/investor/news/releases/2019/1203/

27 https://blog.google/inside-google/alphabet/letter-from-larry-and-sergey

13

people had, the more they would use Google or YouTube. After it was converted into a

company independent from Google within Alphabet, losses became a central issue and

expansion plans are now halted.

The new CEO will have to consider both the benefits and tradeoffs from this type of internal

organization and make, if necessary, the appropriate changes.

Nowadays, Google is facing challenges related to its workers. In recent years there have been

various problems among the so-called Googlers and some decisions taken by managers. One

example are the Google walkouts that followed decisions related to how a sexual harassment

case was handled28 or about YouTube’s content policies regarding hate speech against the

LGBTQ community, which also lead to a walkout in some Pride Parades in 2019. This issue is

of great importance, as most of Alphabet’s innovation stems from its workers (Googlers are

encouraged to use 20% of their time to do innovative projects that may end up being a core

product of the company, such as Gmail or AdSense).

Another issue that Alphabet will have to face are the increasing concerns about content policy

and how to deal with “fake news”. Recently there’s been controversy regarding what content

should be allowed in YouTube: where is the line between the right to free speech and

protection from hate speech? Another important challenge is the need to develop mechanisms

that detect contents that break YouTube’s policy when they are being uploaded, so that videos

of hate crimes are not uploaded to the platform, as happened recently with the Christchurch

mosque shooting.29

Google’s algorithm sometimes propagates “fake news”, another challenge that must be

addressed.

In recent years privacy awareness has increased worldwide. New policies such as the GDPR

(General Data Protection Regulation) or scandals such as Cambridge Analytica have put

pressure over technological companies to disclose how and when do they use data from their

users, and also increase the decision power of users to decide exactly what kind of data they

want to keep private or be used by technological companies. Google uses a lot of data from

their users and is now on a mission to be more “privacy friendly”30, although scandals related

28 https://www.nytimes.com/2018/11/01/technology/google-walkout-sexual-harassment.html 29 https://www.washingtonpost.com/technology/2019/03/15/facebook-youtube-twitter-amplified-video-christchurch-mosque-shooting/ 30 https://www.blog.google/technology/safety-security/keeping-privacy-and-security-simple-you/

14

to this topic keep appearing.31In a world where consumers awareness about privacy keeps

increasing, Alphabet must try to adapt to this concerns.

As a result of being a very innovative company in a very dynamic industry, some products or

services don’t meet initial expectations and end up being cut. This is the case, for example, of

Google+ or Google Talk, and while it may be good to cut back investment on services that do

not generate the desired results, this lack of commitment to maintain services may have

negative effects on the reputation of the company and thus worsen adoption rates of future

services.

These cases also affect the reputation of the company: Google’s motto is “Don’t be evil” and

Alphabet’s is “Do the right thing”. More than sentences, these mottos represent a corporate

philosophy32, that could be threatened by these scandals or concerns of the public view.

Finally, Google has been repeatedly accused of breaching antitrust rules, especially in the

European Union. Every year large amounts of cash must be used to pay for these fines33, and

new investigations are constantly being started. Alphabet will have to take measures to reverse

this situation.

31 “Google’s ‘Project Nightingale’ Gathers Personal Health Data on Millions of Americans” https://www.wsj.com/articles/google-s-secret-project-nightingale-gathers-personal-health-data-on-millions-of-americans-11573496790 32 https://abc.xyz/investor/other/google-code-of-conduct/ 33 https://ec.europa.eu/commission/presscorner/detail/en/IP_19_1770

15

5. Questions 1. Conduct a qualitative analysis of Alphabet.

2. Conduct a quantitative analysis of Alphabet. 3. Identify the strengths and weaknesses of Alphabet’s accounts. 4. Make a cause and effect diagram of Alphabet. 5. From the point of view of a credit institution, decide if you would grant Alphabet a loan or

not. 6. Alphabet’s liquidity ratio is way higher than the industry average. Is it good or is it a sign

that the company is allocating its assets inefficiently? 7. Alphabet has a way higher equity percentage than the rest of the industry. Is it better to be

financed this way? 8. Recommendations and demonstrations.

16

6. Appendix Figure 9. Alphabet balance sheets from 2015 to 2019 (data in 000 euros)

Average sector in %34

Average sector with

profits in %35

Sept. 30, 201936

% 2018 % 2017 % 2016 % 2015 %

Non-current assets 75 35.94 114686 43.6 97116 41.7 72987 36.9 62098 37.1 57357 38.8

Intangible assets 20.46 7.66 1747 0.66 2220 0.95 2692 1.36 3307 1.97 3847 2.61

Fixed assets 7.83 26.2 69252 26.33 59719 25.65 42383 21.48 34234 20.44 29016 19.6

Long-term financial investments

- - 12488 4.75 13859 5.95 78313 39.69 5878 3.51 5183 3.51

Deferred income taxes - - 564 0.21 737 0.32 680 0.34 383 0.23 251 0.17

Goodwill - - 18069 6.87 17888 7.68 16747 8.49 16468 9.83 15869 10.7

Other non-current assets - -- 12566 4.78 2693 1.16 2672 1.35 1819 1.09 3181 2.16

Current Assets 25 64.06 148358 56.4 135676 58.3 124308 63.1 105408 62.9 90114 61.1

Inventory 0.99 0.62 1401 0.53 1107 0.47 749 0.38 268 0.16 - -

Accounts receivable 9.44 32.62 20889 7.94 20838 8.95 18336 9.29 14137 8.44 11556 7.84

Short-term financial investments

- - 105145 39.97 92439 39.71 91156 46.2 73415 43.83 56517 38.3

Income taxes receivable - - 192 0.07 355 0.15 369 0.19 95 0.06 1903 1.29

Cash and cash equivalents 6.6 12.53 16032 6.09 16701 7.17 10715 5.43 12918 7.71 16549 11.2

Other current assets - - 4699 1.79 4236 1.82 2983 1.51 4575 2.73 3589 2.43

Total Assets 100 100 263044 100 232792 100 197295 100 167497 100 147461 100

Net Equity 51.7 50.07 194969 74.12 177628 76.3 152502 77.3 139036 83 120331 81.6

Share capital 18.15 6.63 49049 18.65 45049 19.35 40247 20.4 36307 21.68 32982 22.3

Reserves - - 147125 55.93 134885 57.94 113247 57.4 105131 62.77 89223 60.5

Accumulated other comprehensive loss

- - (1196) (0.45) (2306) (0.99) (992) (0.5) (2402) (1.43) (1874) (1.2)

Non-current Liabilities 15.86 6.27

28851 10.97 20544 8.83 20610 10.45 11705 6.99 7820 5.3

34 Average computed with data from Amadeus database of 286 European companies from the “Information services” sectors and classified as very-big-size companies in 2016. 35 Average computed with the 50 companies with the highest ROE from the former selection. 36 Unaudited

17

Long term loans 11.41 5.05 4082 1.55 4012 1.72 3969 2.01 3935 2.35 1995 1.35

Non-current deferred revenue - - 354 0.13 369 0.16 340 0.17 202 0.12 151 0.1

Non-current income taxes payable

- - 11355 4.32 11327 4.87 12812 6.49 4677 2.79 3663 2.48

Deferred income taxes - - 1747 0.66 1264 0.54 430 0.22 226 0.13 189 0.13

Other long-term liabilities - - 11303 4.3 3545 1.52 3059 1.55 2665 1.59 1822 1.24

Current Liabilities 32.44 43,66 39224 14.91 34620 14.87 24183 12.26 16756 10 19310 13.0

9

Account payable and other short-term operating debts

22.09 7.78 4142 1.57 4378 1.88 3137 1.59 2041 1.22 7584 5.14

Short term accruals 4.49 9.61 33272 12.65 28389 12.19 9733 4.93 13062 7.8 10636 7.21

Deferred revenue - - 1679 0.64 1784 0.77 1432 0.73 1099 0.00 788 0.53

Income taxes payable - - 131 0.05 69 0.03 881 0.45 554 0.33 302 0.2

Total Equity and Liabilities 100 100 263044 100 232792 100 197295 100 167497 100 147461 100

18

Figure 10. Alphabet income statement from 2015 to 2019 (data in millions of $, except per share amounts)

Average sector in

%

Average sector with

profits in %

2019 % 2018 % 2017 % 2016 % 2015 %

Revenues 100 100 115782 100 136819 100 110855 100 90272 100 74989 100

Cost of materials (41.72) (27.59) (50876) (43.94) (59549) (43.52) (45583) (41.12) (35138) (38.92) (28164) (37.56)

Gross margin 58.28 72.41 64906 56.06 77270 56.48 65272 58.88 55134 61.08 46825 62.44

Adjustments of research and development

- - (18796) (16.23) (21419) (15.65) (16625) (15) (13948) (15.45) (12282) (16.38)

Adjustments of sales and marketing

- - (12726) (10.99) (16333) (11.94) (12893) (11.63) (10485) (11.61) (9047) (12.06)

General and administrative adjustments

- - (6722) (5.81) (8126) (5.94) (6872) (6.2) (6985) (7.74) (6136) (8.18)

European Commission

fines - - (1697) (1.47) (5071) (3.71) (2736) (2.47) - - - -

OPERATING RESULT (EBIT)37

15.01 13.84 24965 21.56 26321 19.24 26146 23.59 23716

26.27 19360 25.82

Financial income 2.06 0.2 4442 4.07 8906 6.63 1543 1.39 1308 1.12 1151 1.13

Financial expenses (3.26) (0.24) (486) (0.65) (314) (0.35) (496) (0.45) (874) (0.64) (860) (0.74)

FINANCIAL RESULT (1.2) (0.04) 3956 3.42 8592 6.28 1047 0.94 434 0.48 291 0.39

Earnings before taxes 13.81 13.8 28921 24.98 34913 25.52 27193 24.53 24150 26.75 19651 26.21

Income Tax (2.84) (2.2) (5249) (4.53) (4177) (3.05) (14531) (13.11) (4672) (5.18) (3303) (4.4)

37 In Alphabet’s public consolidated income statement, depreciation, amortization and impairment are included in their sector’s operating expenses but they are also presented apart as “Total depreciation, amortization, and impairment as presented on the Consolidated Statements of Cash Flows” which are shown in a Figure 3.

19

NET INCOME 10.97 11.6 23672 20.45 30736 22.46 12662 11.42 9478 21.58 16348 21.8

Figure 11. Alphabet total depreciation, amortization and impairment

Average sector

Average sector with

profits

2019 % 2018 % 2017 % 2016 % 2015 %

Total depreciation, amortization,

and impairment

- - 8368 7.23 9035 6.6 6915 6.24 6144 6.81 5063 6.75

Figure 12. Alphabet ratios from 2015 to 2019

Average sector

Average sector w/profits

2019 2018 2017 2016 2015

DEBT AND CAPITALIZATION

Debt = Liability / Assets 0.48 0.5 0.26 0.24 0.23 0.17 0.18

Debt Quality = Current Liabilities / Total Liabilities 0.67 0.87 0.58 0.63 0.54 0.59 0.71

Repayment Capacity = Cash flow /Loans 0.58 2.48 3.93 4.16 2.7 3.28 -

Cost of debt = Financial Expenses / Loans 0.15 0.18 0.12 0.08 0.12 0.22 0.43

Financial Expenses = Financial Expenses / Sales 0.03 0.00 0.04 0.02 0.04 0.08 0.1

LIQUIDITY

Liquidity = Current Assets / Current Liabilities 0.77 1.48 3.78 3.92 5.15 6.29 4.67

Treasury = Debtors + Cash / Current Liabilities 0.49 1.03 0.94 1.08 1.2 1.6 1.46

Acid Test = Cash / Current Liabilities 0.2 0.29 0.41 0.48 0.44 0.77 0.86

Z (UPF) = -3,9 + 1,28 CA/CL+ 6,1 E/A+ 6,5 NI/A+ 4,8 NI/E - - 6.61 7.41 8.16 10.67 8.47

Working Capital (real) (euros)= Current assets – Current liabilities - - 109.134 101.056 100.125 88.652 70.804

20

Working Capital Needs (euros)= Operating current assets – Operating current liabilities

- - - 8463.8

- 4855 10407.15 4714.8 - 2109.5

Operating CA = Inventory + Clients + Other operating CA + Minimum cash required

- - 28950.2 27912 23277.15 19817.8 16110.5

Operating CL = Suppliers + Other operating CL + Accruals - - 37414 32767 12870 15103 18220

Working Capital Surplus (euros) - - 117597.8 105911 89717.85 83937.2 91133.5

ASSETS MANAGEMENT

Non-current assets turnover = Sales / Non-current assets 0.81 0.58 1 1.40 1.50 1.45 1.30

Current assets turnover = Sales / Current assets 2.39 3.25 0.78 1.01 0.90 0.86 0.83

DEADLINES

Inventories days = Stocks / Daily cost of sales - - 10 7 6 3 -

Days receivable (days) = Clients / Daily Sales 70 78 66 56 60 57 56

Days payables (days) = Suppliers / Daily cost of sales 42 42 30 27 25 21 98

SALES and GROWTH

Sales growth = Last year’s sales / Previous year sales - - 0.85 1.23 1.22 1.2 -

PROFITABILITY, SELF-FINANCING AND GROWTH

Return on assets = EBIT / Assets 0.07 0.23 0.09 0.11 0.13 0.14 0.13

Return on equity = Net Income / Equity 0.24 0.85 0.12 0.17 0.08 0.14 0.14

Cash flow / Sales 0.14 0.14 0.14 0.12 0.10 0.14 -

Cash flow / Assets 0.07 0.13 0.06 0.07 0.05 0.08 -

21

Figure 13. Breakdown of profitability

ROE ROI EBIT/Sales Sales /Assets (Assets/Equity) x (EBT/EBIT) Net Profit/EBT

Average sector 0.24 0.07 0.15 0.53 1.78 0.81

Average sector with profits 0.85 0.14 0.14 1.6 1.99 0.84

2019 0.12 0.094 0.22 0.44 1.56 0.82

2018 0.17 0.11 0.19 0.59 1.74 0.88

2017 0.08 0.13 0.24 0.56 1.35 0.47

2016 0.14 0.14 0.26 0.53 1.22 0.80

2015 0.14 0.13 0.26 0.51 1.24 0.83

22

Figure 14. Alphabet cash flow statement from 2016 to 2019 (data in millions of dollars)

2019 2018 2017 2016

A) CASH FLOWS FROM OPERATING ACTIVITIES

1) EBT 28,921 34,913 27,193 24,150

2) Adjustments 14,380 11,473 15,838 12,442

(+) Amortization of fixed assets 594 871 812 877

(+/-) Depreciation 7,774 8,164 6,103 5,267

(-) Allocation of grants - - - -

(-) Financial income - - - -

(+) Financial expenses

• (gain) loss on debt and equity securities • deferred income taxes • stock based compensation expense

6,131 3,481 9,974 6,738

Other (+/-) (119) (189) 294 376

3) Change in current capital 1,831 4,676 (4,078) (3,219)

(+/-) Inventory - - - -

(+/-) Debtors and other accounts receivable

• accounts receivable

25 (2,169) (3,768) (2,578)

(+/-) Other current assets

• accrued revenue shares • other assets

(586) (724) (1,209) 905

(+/-) Creditors and other accounts payable

• accounts payable

(386) 1,607 731 110

(+/-) Other current liabilities

• accrued expenses and other liabilities • deferred revenue

2,778 8,885 5,281 1,886

23

4) Other cash flows from operating activities 210 (2,251) 8,211 3,125

(-) Income tax payment / (+) Income tax revenue 210 (2,251) 8,211 3,125

5) Cash flows from operating activities (1+2+3+4) 45,342 48,811 47,164 36,498

B) CASH FLOW FROM INVESTING ACTIVITIES

6) Payment for investments (-) (100,336) (78,861) (107,420) (99,244)

7) Divestments costs (+)

• proceeds from disposal of property and equipment • maturities and sales of marketable securities • maturities and sales of non-marketable investments • investments in reverse repurchase agreements

75,080 50,357 76,010 68,079

Other investing activities 468 - - -

8) Cash flows from investing activities (6+7) (24,778) (28,504) (31,410) (31,165)

C) CASH FLOW FROM FINANCING ACTIVITIES

10) Collections and payments for instruments of financial liabilities

• net payments related to stock-based award activities • repurchase of capital stock • proceeds from issuance of debt, net of costs • repayments of debt • proceeds from sale of subsidiary shares • proceeds from sale of interest in consolidated entities

(15,883) (13,179) (8,298) (8,332)

11) Payment of dividends and remuneration of other equity instruments - - - -

D) Effect of variation in foreign currency (91) (302) 405 (170)

12) Cash flows from financing activities (9+10+11) (15,833) (13,179) (8,298) (8,332)

E) INCREASE / DECREASE IN CASH AND CASH EQUIVALENTS (5+8+12) (669) 5,986 (2,203) (3,631)

Cash and cash equivalents at the beginning of the year 16,701 10,715 12,918 16,549

Cash and cash equivalents at the end of the year 16,032 16,701 10,715 12,918