From 1f86733f765587cdb0f079745713abd5212e9a49 Mon Sep 17 00:00:00 2001 From: berkecanrizai <63911408+berkecanrizai@users.noreply.github.com> Date: Thu, 9 Jan 2025 11:57:45 +0300 Subject: [PATCH] CI RAG evals improvements, add new dataset (#7965) GitOrigin-RevId: 56df5196716d0e419ea9357ade03fd2e0ff03951 --- integration_tests/rag_evals/.example.env | 2 + integration_tests/rag_evals/app.yaml | 11 +- integration_tests/rag_evals/connector.py | 4 +- ...20230203_alphabet_10K.pdf==dataset20.jsonl | 20 ++++ .../20230203_alphabet_10K.pdf==dataset9.jsonl | 8 ++ integration_tests/rag_evals/evaluator.py | 10 +- integration_tests/rag_evals/experiment.py | 107 +++++++++++++++--- integration_tests/rag_evals/ragas_utils.py | 24 +++- integration_tests/rag_evals/run_locally.sh | 5 + integration_tests/rag_evals/test_eval.py | 20 ++-- 10 files changed, 176 insertions(+), 35 deletions(-) create mode 100644 integration_tests/rag_evals/dataset/synthetic_tests/20230203_alphabet_10K.pdf==dataset20.jsonl create mode 100644 integration_tests/rag_evals/dataset/synthetic_tests/20230203_alphabet_10K.pdf==dataset9.jsonl create mode 100644 integration_tests/rag_evals/run_locally.sh diff --git a/integration_tests/rag_evals/.example.env b/integration_tests/rag_evals/.example.env index ed6ed73b..b4989630 100644 --- a/integration_tests/rag_evals/.example.env +++ b/integration_tests/rag_evals/.example.env @@ -1 +1,3 @@ OPENAI_API_KEY=sk-... +RUN_MODE=LOCAL +# RUN_MODE=CI diff --git a/integration_tests/rag_evals/app.yaml b/integration_tests/rag_evals/app.yaml index d85b22f5..20ed5366 100644 --- a/integration_tests/rag_evals/app.yaml +++ b/integration_tests/rag_evals/app.yaml @@ -1,7 +1,16 @@ $sources: - !pw.io.gdrive.read object_id: "1ErwN5WajWsEdIRMBIjyBfncNUmkxRfRy" # large: "1ErwN5WajWsEdIRMBIjyBfncNUmkxRfRy" # small: "1f73nnDnZ0j3URkYEG5VoLhFs_ThI2hve" - service_user_credentials_file: /integration_tests/rag_evals/gdrive_indexer.json # ./gdrive_indexer.json # ./public/pathway/integration_tests/rag_evals/gdrive_indexer.json + service_user_credentials_file: /integration_tests/rag_evals/gdrive_indexer.json # ./gdrive_indexer.json # /integration_tests/rag_evals/gdrive_indexer.json + file_name_pattern: + - "*.pdf" + - "*.docx" + object_size_limit: null + with_metadata: true + refresh_interval: 30 + - !pw.io.gdrive.read + object_id: "1GC0jVKLd2_GZb4pJx1umgJwmjOCxzkDW" # synthetic dataset + service_user_credentials_file: /integration_tests/rag_evals/gdrive_indexer.json # ./gdrive_indexer.json # /integration_tests/rag_evals/gdrive_indexer.json file_name_pattern: - "*.pdf" - "*.docx" diff --git a/integration_tests/rag_evals/connector.py b/integration_tests/rag_evals/connector.py index 16782328..3a358f92 100644 --- a/integration_tests/rag_evals/connector.py +++ b/integration_tests/rag_evals/connector.py @@ -165,7 +165,6 @@ def pw_ai_answer_question( filter=None, response_type="short", model=None, - return_context_docs=False, ) -> dict: api_url = f"{self.base_url}/v1/pw_ai_answer" payload = { @@ -188,8 +187,7 @@ def pw_ai_answer_question( context_docs = self.index_client.query(prompt, metadata_filter=filter, k=6) - if return_context_docs: - result["context_docs"] = context_docs + result["context_docs"] = context_docs return result diff --git a/integration_tests/rag_evals/dataset/synthetic_tests/20230203_alphabet_10K.pdf==dataset20.jsonl b/integration_tests/rag_evals/dataset/synthetic_tests/20230203_alphabet_10K.pdf==dataset20.jsonl new file mode 100644 index 00000000..c63cb2e1 --- /dev/null +++ b/integration_tests/rag_evals/dataset/synthetic_tests/20230203_alphabet_10K.pdf==dataset20.jsonl @@ -0,0 +1,20 @@ +{"user_input": "Howw doess AI invesstmentss impact Alphabet Inc.'s financial performancce and competitivve positionn?", "reference_contexts": ["more value Table of Contents Alphabet Inc. 9 (such as increased numbers of users or customers, new sales leads, increased brand awareness, or more effective monetization) than their available alternatives. Changes to our advertising policies and data privacy practices, as well as changes to other companies’ advertising and/or data privacy practices have in the past, and may in the future, affect the advertising that we are able to provide. In addition, technologies have been developed that make customized ads more difficult or that block the display of ads altogether, and some providers of online services have integrated these technologies that could potentially impair the availability and functionality of third-party digital advertising. Failing to provide superior value or deliver advertisements effectively and competitively could harm our business, reputation, financial condition, and operating results. In addition, expenditures by advertisers tend to correlate with overall economic conditions. Adverse macroeconomic conditions have affected, and may in the future affect, the demand for advertising, resulting in fluctuations in the amounts our advertisers spend on advertising, which could harm our financial condition and operating results. We face intense competition. If we do not continue to innovate and provide products and services that are useful to users, customers, and other partners, we may not remain competitive, which could harm our business, financial condition, and operating results. Our business environment is rapidly evolving and intensely competitive. Our businesses face changing technologies, shifting user needs, and frequent introductions of rival products and services. To compete successfully, we must accurately anticipate technology developments and deliver innovative, relevant and useful products, services, and technologies in a timely manner. As our businesses evolve, the competitive pressure to innovate will encompass a wider range of products and services. We must continue to invest significant resources in R&D, including through acquisitions, in order to enhance our technology and new and existing products and services. We have many competitors in different industries. Our current and potential domestic and international competitors range from large and established companies to emerging start-ups. Some competitors have longer operating histories and well established relationships in various sectors. They can use their experience and resources in ways that could affect our competitive position, including by making acquisitions, continuing to invest heavily in R&D and in talent, initiating intellectual property and competition claims (whether or not meritorious), and continuing to compete for users, advertisers, customers, and content providers. Further, discrepancies in enforcement of existing laws may enable our lesser known competitors to aggressively interpret those laws without commensurate scrutiny, thereby affording them competitive advantages. Our competitors may also be able to innovate and provide products and services faster than we can or may foresee the need for products and services before us. Our financial condition and operating results may also suffer if our products and services are not responsive to the evolving needs and desires of our users, advertisers, publishers, customers, and content providers. As new and existing technologies continue to develop, competitors and new entrants may be able to offer experiences that are, or that are seen to be, substantially similar to or better than ours. These technologies could reduce usage of our products and services, and force us to compete in different ways and expend significant resources to develop and operate equal or better products and services. Competitors’ success in providing compelling products and services or in attracting and retaining users, advertisers, publishers, customers, and content providers could harm our financial condition and operating results. Our ongoing investment in new businesses, products, services, and technologies is inherently risky, and could divert management attention and harm our business, financial condition, and operating results. We have invested and expect to continue to invest in new businesses, products, services, and technologies. The investments that we are making across our businesses, such as in AI, reflect our ongoing efforts to innovate and provide products and services that are useful to users, advertisers, publishers, customers, and content providers. Our investments span a wide range of industries beyond online advertising. Such investments ultimately may not be commercially viable or may not result in an adequate return of capital and, in pursuing new strategies, we may incur unanticipated liabilities. These endeavors may involve significant risks and uncertainties, including diversion of resources and management attention from current operations and the use of alternative investment, governance, or compensation structures that may fail to adequately align incentives across the company or otherwise accomplish their objectives. Within Google Services, we continue to invest heavily in hardware, including our smartphones, home devices, and wearables, which is a highly competitive market with frequent introduction of new products and services, rapid adoption of technological advancements by competitors, short product life cycles, evolving industry standards, continual improvement in performance characteristics, and price and feature sensitivity on the part of consumers and businesses. There can be no assurance we will be able to provide hardware that competes effectively. Table of Contents Alphabet Inc. 10 Within Google Cloud, we devote significant resources to develop and deploy our enterprise-ready cloud services, including Google Cloud Platform and Google Workspace. We are incurring costs to build and maintain infrastructure to support cloud computing services, invest in cybersecurity, and hire talent, particularly to support and scale our sales force. At the same time, our competitors are rapidly developing and deploying cloud-based services. Pricing and delivery models are competitive and constantly evolving, and we may not attain sufficient scale and profitability to achieve our business objectives. Further, our business with public sector customers may present additional risks, including regulatory compliance risks. For instance, we may be subject to government audits and cost reviews, and any failure to comply or any deficiencies found may expose us to legal, financial, and/or reputational risks. Evolving laws and regulations may require us to make new capital investments, build new products, and seek partners to deliver localized services in other countries, and we may not be able to meet sovereign operating requirements. Within Other Bets, we are investing significantly in the areas of health, life sciences, and"], "reference": "The investments that Alphabet Inc. is making across its businesses, such as in AI, reflect ongoing efforts to innovate and provide products and services that are useful to users, advertisers, publishers, customers, and content providers. These investments span a wide range of industries beyond online advertising and are inherently risky, potentially diverting management attention and impacting the company's financial condition and operating results. Such investments may not be commercially viable or result in an adequate return of capital, and pursuing new strategies may incur unanticipated liabilities."} +{"user_input": "Wht iz the numbr of stockholders of Class B?", "reference_contexts": ["of December 31, 2022, there were approximately 64 stockholders of record of our Class B stock. Dividend Policy We have never declared or paid any cash dividend on our common or capital stock. The primary use of capital continues to be to invest for the long-term growth of the business. We regularly evaluate our cash and capital structure, including the size, pace, and form of capital return to stockholders. Issuer Purchases of Equity Securities The following table presents information with respect to Alphabet's repurchases of Class A and Class C stock during the quarter ended December 31, 2022: Period Total Number of Class A Shares Purchased (in thousands)(1) Total Number of Class C Shares Purchased (in thousands)(1) Average Price Paid per Class A Share(2) Average Price Paid per Class C Share(2) Total Number of Shares Purchased as Part of Publicly Announced Programs (in thousands)(1) Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program (in millions) October 1 - 31 8,585 46,059 $ 98.92 $ 99.16 54,644 $ 38,069 November 1 - 30 1,968 55,374 $ 95.89 $ 93.51 57,342 $ 32,703 December 1 - 31 4,687 44,649 $ 91.93 $ 93.93 49,336 $ 28,079 Total 15,240 146,082 161,322 (1) The repurchases are being executed from time to time, subject to general business and market conditions and other investment opportunities, through open market purchases or privately negotiated transactions, including through Rule 10b5-1 plans. The repurchase program does not have an expiration date. See Note 11 of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for additional information related to share repurchases. (2) Average price paid per share includes costs associated with the repurchases. Table of Contents Alphabet Inc. 23 Stock Performance Graphs The graph below matches Alphabet Inc. Class A's cumulative 5-year total stockholder return on common stock with the cumulative total returns of the S&P 500 index, the NASDAQ Composite index, and the RDG Internet Composite index. The graph tracks the performance of a $100 investment in our common stock and in each index (with the reinvestment of all dividends) from December 31, 2017 to December 31, 2022. The returns shown are based on historical results and are not intended to suggest future performance. COMPARISON OF CUMULATIVE 5-YEAR TOTAL RETURN ALPHABET INC. CLASS A COMMON STOCK Among Alphabet Inc., the S&P 500 Index, the NASDAQ Composite Index, and the RDG Internet Composite Index Alphabet Inc. ClassAS&P500NASDAQCompositeRDGInternet Composite12/173/186/189/1812/183/196/199/1912/193/206/209/2012/203/216/219/2112/213/26/29/212/2$0$50$100$150$200$250$300$350$400$100 invested on December 31, 2017 in stock or index, including reinvestment of dividends. Copyright© 2023 S&P, a division of The McGraw-Hill Companies Inc. All rights reserved. Table of Contents Alphabet Inc. 24 The graph below matches Alphabet Inc. Class C's cumulative 5-year total stockholder return on capital stock with the cumulative total returns of the S&P 500 index, the NASDAQ Composite index, and the RDG Internet Composite index. The graph tracks the performance of a $100 investment in our Class C capital stock and in each index (with the reinvestment of all dividends) from December 31, 2017 to December 31, 2022. The returns shown are based on historical results and are not intended to suggest future performance. COMPARISON OF CUMULATIVE 5-YEAR TOTAL RETURN ALPHABET INC. CLASS C CAPITAL STOCK Among Alphabet Inc., the S&P 500 Index, the NASDAQ Composite Index, and the RDG Internet Composite Index Alphabet Inc. ClassCS&P500NASDAQCompositeRDGInternet Composite12/173/186/189/1812/183/196/199/1912/193/206/209/2012/203/216/219/2112/213/26/29/212/2$0$50$100$150$200$250$300$350$400$100 invested on December 31, 2017 in stock or in index, including reinvestment of dividends. Copyright© 2023 S&P, a division of The McGraw-Hill Companies Inc. All rights reserved. ITEM 6. [Reserved] Table of Contents Alphabet Inc. 25 ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Please read the following discussion and analysis of our financial condition and results of operations together with “Note about Forward-Looking Statements,” Part I, Item 1 \"Business,\" Part I, Item 1A \"Risk Factors,\" and our consolidated financial statements and related notes included under Item 8 of this Annual Report on Form 10-K. We have omitted discussion of 2020 results where it would be redundant to the discussion previously included in Item 7 of our 2021 Annual Report on Form 10-K. Understanding Alphabet’s Financial Results Alphabet is a collection of businesses — the largest of which is Google. We report Google in two segments, Google Services and Google Cloud; we also report all non-Google businesses collectively as Other Bets. For further details on our segments, see Part I, Item 1 “Business” and Note 15 of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K. Trends in Our Business and Financial Effect The following long-term trends have contributed to the results of our consolidated operations, and we anticipate that they will continue to affect our future results: • Users' behaviors and advertising continue to shift online as the digital economy evolves. The continuing shift from an offline to online world has contributed to the growth of our business and our revenues since inception. We expect that this shift to an online world will continue to benefit our business and our revenues, although at a slower pace than we have experienced historically, in particular after the outsized growth in our advertising revenues during the COVID-19 pandemic. In addition, we face increasing competition for user engagement and advertisers, which may affect our revenues. • Users continue to access our products and services using diverse devices and modalities, which allows for new advertising formats that may benefit our revenues but adversely affect our margins. Our users are accessing the Internet via diverse devices and modalities, such as smartphones, wearables, and smart home devices, and want to be able to be connected no matter where they are or what they are doing. We are focused on expanding our products and services to stay in front of these trends in order to maintain and grow our business. We benefit from advertising revenues generated from different channels, including mobile, and newer advertising formats. The margins from these channels and newer products have"], "reference": "As of December 31, 2022, there were approximately 64 stockholders of record of our Class B stock."} +{"user_input": "What impact have the antitrust complaints filed by the U.S. Department of Justice had on business practices?", "reference_contexts": ["generally been lower than those from traditional desktop search. Additionally, as the market for a particular device type or modality matures, our advertising revenues may be affected. For example, growth in the global smartphone market has slowed due to various factors, including increased market saturation in developed countries, which can affect our mobile advertising revenues. We expect TAC paid to our distribution partners and Google Network partners to increase as our revenues grow and TAC as a percentage of our advertising revenues (\"TAC rate\") to be affected by changes in device mix; geographic mix; partner mix; partner agreement terms; the percentage of queries channeled through paid access points; product mix; the relative revenue growth rates of advertising revenues from different channels; and revenue share terms. We expect these trends to continue to affect our revenues and put pressure on our margins. • As online advertising evolves, we continue to expand our product offerings, which may affect our monetization. As interactions between users and advertisers change, and as online user behavior evolves, we continue to expand our product offerings to serve these changing needs, which may affect our monetization. For example, revenues from ads on YouTube and Google Play monetize at a lower rate than our traditional search ads. We also may develop new products incorporating AI innovations that could affect our monetization trends. Additionally, when developing new products and services we generally focus first on user experience before prioritizing monetization. • As users in developing economies increasingly come online, our revenues from international markets continue to increase, and may require continued investments. In addition, movements in foreign exchange rates affect such revenues. The shift to online, as well as the advent of the multi-device world, has brought opportunities outside of the U.S., including in emerging markets, such as India. We continue to invest heavily and develop localized versions of our products and advertising programs relevant to our users in these markets. This has led to a trend of increased Table of Contents Alphabet Inc. 26 revenues from emerging markets. We expect that our results will continue to be affected by our performance in these markets, particularly as low-cost mobile devices become more available. This trend could affect our revenues as developing markets initially monetize at a lower rate than more mature markets. International revenues represent a significant portion of our revenues and are subject to fluctuations in foreign currency exchange rates relative to the U.S. dollar. While we have a foreign exchange risk management program designed to reduce our exposure to these fluctuations, this program does not fully offset their effect on our revenues and earnings. • The revenues that we derive from non-advertising products and services are increasing and may adversely affect our margins. Non-advertising revenues have grown over time, and we expect this trend to continue as we focus on expanding our products and services. The margins on these revenues vary significantly and are generally lower than the margins on our advertising revenues. In particular margins on our hardware products adversely affect our consolidated margins due to pressures on pricing and higher cost of sales. • As we continue to serve our users and expand our businesses, we will invest heavily in operating and capital expenditures. We continue to make significant research and development investments in areas of strategic focus as we seek to develop new, innovative offerings and improve our existing offerings across our businesses. We also expect to continue to invest in our technical infrastructure, including servers, network equipment, and data centers, to support the growth of our business and our long-term initiatives, in particular in support of AI. In addition acquisitions and strategic investments contribute to the breadth and depth of our offerings, expand our expertise in engineering and other functional areas, and build strong partnerships around strategic initiatives. For example, in September 2022 we closed the acquisition of Mandiant to help expand our offerings in dynamic cyber defense and response. • We face continuing changes in regulatory conditions, laws, and public policies, which could affect our business practices and financial results. Changes in social, political, economic, tax, and regulatory conditions or in laws and policies governing a wide range of topics and related legal matters have resulted in fines and caused us to change our business practices. As these global trends continue, our cost of doing business may increase, our ability to pursue certain business models or offer certain products or services may be limited, and we may need to change our business practices. Examples include the antitrust complaints filed by the U.S. Department of Justice and a number of state Attorneys General; pending litigation in the U.S., EU, and around the world that could diminish or eliminate safe harbor protection for websites and online platforms; and the Digital Markets Act and Digital Services Act in Europe and various legislative proposals in the U.S. focused on large technology platforms. For additional information see Item 1A Risk Factors and Legal Matters in Note 10 of the Notes to Consolidated Financial Statements included in Part II, Item 8. • Our employees are critical to our success and we expect to continue investing in them. Our employees are among our best assets and are critical for our continued success. We expect to continue hiring talented employees around the globe and to provide competitive compensation programs. For additional information see Culture and Workforce in Part I, Item 1 “Business.” Revenues and Monetization Metrics We generate revenues by delivering relevant, cost-effective online advertising; cloud-based solutions that provide enterprise customers of all sizes with infrastructure and platform services as well as communication and collaboration tools; sales of other products and services, such as apps and in-app purchases, and hardware; and fees received for subscription-based products. For details on how we recognize revenue, see Note 1 of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K. In addition to the long-term trends and their financial effect on our business noted above, fluctuations in"], "reference": "The antitrust complaints filed by the U.S. Department of Justice, along with those from a number of state Attorneys General, have resulted in fines and caused changes in business practices."} +{"user_input": "What Google Play do for revenue?", "reference_contexts": ["our revenues have been and may continue to be affected by a combination of factors, including: • changes in foreign currency exchange rates; • changes in pricing, such as those resulting from changes in fee structures, discounts, and customer incentives; • general economic conditions and various external dynamics, including geopolitical events, regulations, and other measures and their effect on advertiser, consumer, and enterprise spending; • new product and service launches; and Table of Contents Alphabet Inc. 27 • seasonality. Additionally, fluctuations in our revenues generated from advertising (\"Google advertising\"), revenues from other sources (\"Google other revenues\"), Google Cloud, and Other Bets revenues have been and may continue to be affected by other factors unique to each set of revenues, as described below. Google Services Google Services revenues consist of Google advertising as well as Google other revenues. Google Advertising Google advertising revenues are comprised of the following: • Google Search & other, which includes revenues generated on Google search properties (including revenues from traffic generated by search distribution partners who use Google.com as their default search in browsers, toolbars, etc.), and other Google owned and operated properties like Gmail, Google Maps, and Google Play; • YouTube ads, which includes revenues generated on YouTube properties; and • Google Network, which includes revenues generated on Google Network properties participating in AdMob, AdSense, and Google Ad Manager. We use certain metrics to track how well traffic across various properties is monetized as it relates to our advertising revenues: paid clicks and cost-per-click pertain to traffic on Google Search & other properties, while impressions and cost-per-impression pertain to traffic on our Google Network properties. Paid clicks represent engagement by users and include clicks on advertisements by end-users on Google search properties and other Google owned and operated properties including Gmail, Google Maps, and Google Play. Costper-click is defined as click-driven revenues divided by our total number of paid clicks and represents the average amount we charge advertisers for each engagement by users. Impressions include impressions displayed to users on Google Network properties participating primarily in AdMob, AdSense, and Google Ad Manager. Cost-per-impression is defined as impression-based and click-based revenues divided by our total number of impressions, and represents the average amount we charge advertisers for each impression displayed to users. As our business evolves, we periodically review, refine, and update our methodologies for monitoring, gathering, and counting the number of paid clicks and the number of impressions, and for identifying the revenues generated by the corresponding click and impression activity. Fluctuations in our advertising revenues, as well as the change in paid clicks and cost-per-click on Google Search & other properties and the change in impressions and cost-per-impression on Google Network properties and the correlation between these items have been and may continue to be affected by additional factors, such as: • advertiser competition for keywords; • changes in advertising quality, formats, delivery or policy; • changes in device mix; • seasonal fluctuations in internet usage, advertising expenditures, and underlying business trends, such as traditional retail seasonality; and • traffic growth in emerging markets compared to more mature markets and across various verticals and channels. Google Other Google other revenues are comprised of the following: • Google Play, which includes sales of apps and in-app purchases; • hardware, which includes sales of Fitbit wearable devices, Google Nest home products, and Pixel devices; • YouTube non-advertising, which includes subscription revenues from services such as YouTube Premium and YouTube TV; and • other products and services. Table of Contents Alphabet Inc. 28 Fluctuations in our Google other revenues have been and may continue to be affected by additional factors, such as changes in customer usage and demand, number of subscribers, and fluctuations in the timing of product launches. Google Cloud Google Cloud revenues are comprised of the following: • Google Cloud Platform, which includes fees for infrastructure, platform, and other services; • Google Workspace, which includes fees for cloud-based communication and collaboration tools for enterprises, such as Gmail, Docs, Drive, Calendar and Meet; and • other enterprise services. Fluctuations in our Google Cloud revenues have been and may continue to be affected by additional factors, such as customer usage. Other Bets Revenues from Other Bets are generated primarily from the sale of health technology and internet services. Costs and Expenses Our cost structure has two components: cost of revenues and operating expenses. Our operating expenses include costs related to R&D, sales and marketing, and general and administrative functions. Certain of our costs and expenses, including those associated with the operation of our technical infrastructure as well as components of our operating expenses, are generally less variable in nature and may not correlate to changes in revenue. Cost of Revenues Cost of revenues is comprised of TAC and other costs of revenues. • TAC includes: ◦ Amounts paid to our distribution partners who make available our search access points and services. Our distribution partners include browser providers, mobile carriers, original equipment manufacturers, and software developers. ◦ Amounts paid to Google Network partners primarily for ads displayed on their properties. • Other cost of revenues includes: ◦ Content acquisition costs, which are payments to content providers from whom we license video and other content for distribution on YouTube and Google Play (we pay fees to these content providers based on revenues generated or a flat fee). ◦ Expenses associated with our data centers (including bandwidth, compensation expenses, depreciation, energy, and other equipment costs) as well as other operations costs (such as content review as well as customer and product support costs). ◦ Inventory and other costs related to the hardware we sell. TAC as a percentage of revenues generated from ads placed on Google Network properties are significantly higher than TAC as a percentage of revenues generated from ads placed on Google Search & other properties, because most of the advertiser revenues from ads served on Google Network properties are paid as TAC to our Google Network partners. Operating Expenses Operating expenses are generally incurred during our normal"], "reference": "Google Play contributes to Google other revenues, which include sales of apps and in-app purchases."} +{"user_input": "What were Alphabet Inc.'s revenues in 2022?", "reference_contexts": ["course of business, which we categorize as either R&D, sales and marketing, or general and administrative. The main components of our R&D expenses are: • compensation expenses for engineering and technical employees responsible for R&D related to our existing and new products and services; • depreciation; and • third-party services fees primarily relating to consulting and outsourced services in support of our engineering and product development efforts. Table of Contents Alphabet Inc. 29 The main components of our sales and marketing expenses are: • compensation expenses for employees engaged in sales and marketing, sales support, and certain customer service functions; and • spending relating to our advertising and promotional activities in support of our products and services. The main components of our general and administrative expenses are: • compensation expenses for employees in finance, human resources, information technology, legal, and other administrative support functions; • expenses relating to legal matters, including fines and settlements; and • third-party services fees, including audit, consulting, outside legal, and other outsourced administrative services. Other Income (Expense), Net Other income (expense), net primarily consists of interest income (expense), the effect of foreign currency exchange gains (losses), net gains (losses) and impairment on our marketable and non-marketable securities, performance fees, and income (loss) and impairment from our equity method investments. For additional details, including how we account for our investments and factors that can drive fluctuations in the value of our investments, see Note 1 and Note 3 of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K as well as Item 7A, “Quantitative and Qualitative Disclosures About Market Risk”. Provision for Income Taxes Provision for income taxes represents the estimated amount of federal, state, and foreign income taxes incurred in the U.S. and the many jurisdictions in which we operate. The provision includes the effect of reserve provisions and changes to reserves that are considered appropriate as well as the related net interest and penalties. For additional details, including a reconciliation of the U.S. federal statutory rate to our effective tax rate, see Note 14 of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K. Executive Overview The following table summarizes our consolidated financial results (in millions, except for per share information and percentages): Year Ended December 31, 2021 2022 $ Change % Change Consolidated revenues $ 257,637 $ 282,836 $ 25,199 10 % Change in consolidated constant currency revenues(1) 14 % Cost of revenues $ 110,939 $ 126,203 $ 15,264 14 % Operating expenses $ 67,984 $ 81,791 $ 13,807 20 % Operating income $ 78,714 $ 74,842 $ (3,872) (5) % Operating margin 31 % 26 % (5) % Other income (expense), net $ 12,020 $ (3,514) $ (15,534) (129) % Net income $ 76,033 $ 59,972 $ (16,061) (21) % Diluted EPS $ 5.61 $ 4.56 $ (1.05) (19) % (1) See \"Use of Non-GAAP Constant Currency Measures\" below for details relating to our use of constant currency information. • Revenues were $282.8 billion, an increase of 10% year over year, primarily driven by an increase in Google Services revenues of $16.0 billion, or 7%, and an increase in Google Cloud revenues of $7.1 billion, or 37%. • Total constant currency revenues, which exclude the effect of hedging, increased 14% year over year. Table of Contents Alphabet Inc. 30 • Cost of revenues was $126.2 billion, an increase of 14% year over year, primarily driven by an increase in other costs of revenues. • Operating expenses were $81.8 billion, an increase of 20% year over year, primarily driven by increases in compensation expenses due to headcount growth, third-party service fees, and advertising and promotional expenses. Other information: • On September 12, 2022, we closed the acquisition of Mandiant for a total purchase price of $6.1 billion and added more than 2,600 employees. Mandiant's financial results are reported within Google Cloud as of the acquisition date. See Note 8 of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for additional information. • On July 15, 2022, the company executed a 20-for-one stock split with a record date of July 1, 2022, effected in the form of a one-time special stock dividend on each share of the company's Class A, Class B, and Class C stock. All prior period references made to share or per share amounts throughout this Management's Discussion and Analysis of Financial Condition and Results of Operations prior to the effective date have been retroactively adjusted to reflect the effects of the Stock Split. See Note 11 of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for additional information. • Beginning in the first quarter of 2022, we suspended the vast majority of our commercial activities in Russia and effectively ceased business activities of our Russian entity. The ongoing effect of these direct actions on our financial results was not material. The broader economic effects resulting from the war in Ukraine on our future financial results may be unpredictable. • Repurchases of Class A and Class C shares were $59.3 billion for the year ended December 31, 2022. See Note 11 of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for additional information. • Operating cash flow was $91.5 billion for the year ended December 31, 2022. • Capital expenditures, which primarily reflected investments in technical infrastructure, were $31.5 billion for the year ended December 31, 2022. • As of December 31, 2022, we had 190,234 employees. Additionally, looking ahead to fiscal year 2023: • In January 2023, we announced a reduction of our workforce of approximately 12,000 roles. We expect to incur employee severance and related charges of $1.9 billion to $2.3 billion, the majority of which will be recognized in the first quarter of 2023. In addition, we are taking actions to optimize our"], "reference": "Alphabet Inc.'s revenues in 2022 were $282.8 billion, an increase of 10% year over year."} +{"user_input": "Wht is the revnue growth of Googel Cloud?", "reference_contexts": ["global office space. As a result we expect to incur exit costs relating to office space reductions of approximately $0.5 billion in the first quarter of 2023. We may incur additional charges in the future as we further evaluate our real estate needs. • In January 2023, we completed an assessment of the useful lives of our servers and network equipment, resulting in a change in the estimated useful life of our servers and certain network equipment to six years, which we expect to result in a reduction of depreciation of approximately $3.4 billion for the full fiscal year 2023 for assets in service as of December 31, 2022, recorded primarily in cost of revenues and R&D expenses. • As AI is critical to delivering our mission of bringing our breakthrough innovations into the real world, beginning in January 2023, we will update our segment reporting relating to certain of Alphabet's AI activities. DeepMind, previously reported within Other Bets, will be reported as part of Alphabet's corporate costs, reflecting its increasing collaboration with Google Services, Google Cloud, and Other Bets. Prior periods will be recast to conform to the revised presentation. See Note 15 of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for information relating to our segments. Table of Contents Alphabet Inc. 31 Financial Results Revenues The following table presents revenues by type (in millions): Year Ended December 31, 2021 2022 Google Search & other $ 148,951 $ 162,450 YouTube ads 28,845 29,243 Google Network 31,701 32,780 Google advertising 209,497 224,473 Google other 28,032 29,055 Google Services total 237,529 253,528 Google Cloud 19,206 26,280 Other Bets 753 1,068 Hedging gains (losses) 149 1,960 Total revenues $ 257,637 $ 282,836 Google Services Google advertising revenues Google Search & other Google Search & other revenues increased $13.5 billion from 2021 to 2022. The growth was driven by interrelated factors including increases in search queries resulting from growth in user adoption and usage, primarily on mobile devices; growth in advertiser spending; and improvements we have made in ad formats and delivery. Growth was adversely affected by the unfavorable effect of foreign currency exchange rates. YouTube ads YouTube ads revenues increased $398 million from 2021 to 2022. The growth was driven by our brand advertising products followed by direct response products, both of which benefited from increased spending by our advertisers as well as improvements to ad formats and delivery. Growth was adversely affected by the unfavorable effect of foreign currency exchange rates. Google Network Google Network revenues increased $1.1 billion from 2021 to 2022. The growth was primarily driven by strength in AdSense and AdMob. Growth was adversely affected by the unfavorable effect of foreign currency exchange rates. Monetization Metrics Paid clicks and cost-per-click The following table presents changes in paid clicks and cost-per-click (expressed as a percentage) from 2021 to 2022: Paid clicks change 10 % Cost-per-click change (1) % Paid clicks increased from 2021 to 2022 driven by a number of interrelated factors, including an increase in search queries resulting from growth in user adoption and usage, primarily on mobile devices; growth in advertiser spending; and improvements we have made in ad formats and delivery. Cost-per-click decreased from 2021 to 2022 driven by a number of interrelated factors including changes in device mix, geographic mix, advertiser spending, ongoing product changes, and property mix, as well as the unfavorable effect of foreign currency exchange rates. Table of Contents Alphabet Inc. 32 Impressions and cost-per-impression The following table presents changes in impressions and cost-per-impression (expressed as a percentage) from 2021 to 2022: Impressions change 3 % Cost-per-impression change 1 % Impressions increased from 2021 to 2022 primarily driven by Google Ad Manager and AdMob. The increase in cost-per-impression from 2021 to 2022 was driven by a number of interrelated factors including ongoing product and policy changes, improvements we have made in ad formats and delivery, changes in device mix, geographic mix, product mix, and property mix, partially offset by the unfavorable effect of foreign currency exchange rates. Google other revenues Google other revenues increased $1.0 billion from 2021 to 2022 primarily driven by growth in YouTube nonadvertising and hardware revenues, partially offset by a decrease in Google Play revenues. The growth in YouTube non-advertising was largely due to an increase in paid subscribers. The growth in hardware was primarily driven by increased sales of Pixel devices. The decrease in Google Play revenues was primarily driven by the fee structure changes we announced in 2021 as well as a decrease in buyer spending. Additionally, the overall increase in Google other revenues was adversely affected by the unfavorable effect of foreign currency exchange rates. Google Cloud Google Cloud revenues increased $7.1 billion from 2021 to 2022. The growth was primarily driven by Google Cloud Platform followed by Google Workspace offerings. Google Cloud's infrastructure and platform services were the largest drivers of growth in Google Cloud Platform. Revenues by Geography The following table presents revenues by geography as a percentage of revenues, determined based on the addresses of our customers: Year Ended December 31, 2021 2022 United States 46 % 48 % EMEA 31 % 29 % APAC 18 % 16 % Other Americas 5 % 6 % Hedging gains (losses) 0 % 1 % For further details on revenues by geography, see Note 2 of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K. Use of Non-GAAP Constant Currency Information International revenues, which represent a significant portion of our revenues, are generally transacted in multiple currencies and therefore are affected by fluctuations in foreign currency exchange rates. The effect of currency exchange rates on our business is an important factor in understanding period-to-period comparisons. We use non-GAAP constant currency revenues (\"constant currency revenues\") and non-GAAP percentage change in constant currency revenues (\"percentage change in constant currency revenues\") for financial and operational decision-making and as a means to evaluate period-to-period comparisons. We believe the presentation of results"], "reference": "Google Cloud revenues increased $7.1 billion from 2021 to 2022."} +{"user_input": "How did the Euro impact EMEA revenue growth in 2022?", "reference_contexts": ["on a constant currency basis in addition to U.S. Generally Accepted Accounting Principles (GAAP) results helps improve the ability to understand our performance, because it excludes the effects of foreign currency volatility that are not indicative of our core operating results. Constant currency information compares results between periods as if exchange rates had remained constant period over period. We define constant currency revenues as revenues excluding the effect of foreign exchange rate movements (\"FX Effect\") as well as hedging activities, which are recognized at the consolidated level. We use constant currency revenues to determine the constant currency revenue percentage change on a year-on-year basis. Constant currency revenues are calculated by translating current period revenues using prior year comparable period exchange rates, as well as excluding any hedging effects realized in the current period. Table of Contents Alphabet Inc. 33 Constant currency revenue percentage change is calculated by determining the change in current period revenues over prior year comparable period revenues where current period foreign currency revenues are translated using prior year comparable period exchange rates and hedging effects are excluded from revenues of both periods. These results should be considered in addition to, not as a substitute for, results reported in accordance with GAAP. Results on a constant currency basis, as we present them, may not be comparable to similarly titled measures used by other companies and are not a measure of performance presented in accordance with GAAP. The following table presents the foreign exchange effect on international revenues and total revenues (in millions, except percentages): Year Ended December 31, 2022 % Change from Prior Period Year Ended December 31, Less FX Effect Constant Currency Revenues As Reported Less Hedging Effect Less FX Effect Constant Currency 2021 2022 Revenues United States $ 117,854 $ 134,814 $ 0 $ 134,814 14 % 0 % 14 % EMEA 79,107 82,062 (8,979) 91,041 4 % (11) % 15 % APAC 46,123 47,024 (3,915) 50,939 2 % (8) % 10 % Other Americas 14,404 16,976 (430) 17,406 18 % (3) % 21 % Revenues, excluding hedging effect 257,488 280,876 (13,324) 294,200 9 % (5) % 14 % Hedging gains (losses) 149 1,960 Total revenues(1) $ 257,637 $ 282,836 $ 294,200 10 % 1 % (5) % 14 % (1) Total constant currency revenues of $294.2 billion for 2022 increased $36.7 billion compared to $257.5 billion in revenues, excluding hedging effect for 2021. EMEA revenue growth was unfavorably affected by changes in foreign currency exchange rates, primarily due to the U.S. dollar strengthening relative to the Euro and the British pound. APAC revenue growth was unfavorably affected by changes in foreign currency exchange rates, primarily due to the U.S. dollar strengthening relative to the Japanese yen and the Australian dollar. Other Americas growth was unfavorably affected by changes in foreign currency exchange rates, primarily due to the U.S. dollar strengthening relative to the Argentine peso. Costs and Expenses Cost of Revenues The following table presents cost of revenues, including TAC (in millions, except percentages): Year Ended December 31, 2021 2022 TAC $ 45,566 $ 48,955 Other cost of revenues 65,373 77,248 Total cost of revenues $ 110,939 $ 126,203 Total cost of revenues as a percentage of revenues 43 % 45 % Cost of revenues increased $15.3 billion from 2021 to 2022. The increase was due to an increase in other cost of revenues and TAC of $11.9 billion and $3.4 billion, respectively. The increase in TAC from 2021 to 2022 was due to an increase in TAC paid to distribution partners and to Google Network partners, primarily driven by growth in revenues subject to TAC. The TAC rate was 22% in both 2021 and 2022. The TAC rate on Google Search & other revenues and the TAC rate on Google Network revenues were both substantially consistent from 2021 to 2022. The increase in other cost of revenues from 2021 to 2022 was primarily due to increases in data center costs and other operations costs as well as hardware costs. Table of Contents Alphabet Inc. 34 Research and Development The following table presents R&D expenses (in millions, except percentages): Year Ended December 31, 2021 2022 Research and development expenses $ 31,562 $ 39,500 Research and development expenses as a percentage of revenues 12 % 14 % R&D expenses increased $7.9 billion from 2021 to 2022 primarily driven by an increase in compensation expenses of $5.4 billion, largely resulting from a 21% increase in average headcount, and an increase in third-party service fees of $704 million. Sales and Marketing The following table presents sales and marketing expenses (in millions, except percentages): Year Ended December 31, 2021 2022 Sales and marketing expenses $ 22,912 $ 26,567 Sales and marketing expenses as a percentage of revenues 9 % 9 % Sales and marketing expenses increased $3.7 billion from 2021 to 2022, primarily driven by an increase in compensation expenses of $1.8 billion, largely resulting from a 19% increase in average headcount, and an increase in advertising and promotional activities of $1.3 billion. General and Administrative The following table presents general and administrative expenses (in millions, except percentages): Year Ended December 31, 2021 2022 General and administrative expenses $ 13,510 $ 15,724 General and administrative expenses as a percentage of revenues 5 % 6 % General and administrative expenses increased $2.2 billion from 2021 to 2022. The increase was primarily driven by an increase in compensation expenses of $1.1 billion, largely resulting from a 21% increase in average headcount, and an increase in third-party services fees of $815 million. In addition, there was a $551 million increase to the allowance for credit losses for accounts receivable, as the prior year comparable period reflected a decline in the allowance. Segment Profitability The following table presents segment operating income (loss) (in millions). Year Ended December 31, 2021 2022 Operating income (loss): Google Services $ 91,855 $ 86,572 Google Cloud (3,099) (2,968) Other Bets (5,281) (6,083) Corporate costs, unallocated(1) (4,761) (2,679) Total income from operations $ 78,714 $ 74,842 (1) Unallocated corporate"], "reference": "EMEA revenue growth was unfavorably affected by changes in foreign currency exchange rates, primarily due to the U.S. dollar strengthening relative to the Euro and the British pound."} +{"user_input": "How does YouTube contribute to Alphabet Inc.'s cash flow and financial performance, considering the detailed financial data from 2021 to 2022?", "reference_contexts": ["costs primarily include corporate initiatives, corporate shared costs, such as finance and legal, including certain fines and settlements, as well as costs associated with certain shared R&D activities. Additionally, hedging gains (losses) related to revenue are included in corporate costs and totaled $149 million and $2.0 billion in 2021 and 2022, respectively. Google Services Google Services operating income decreased $5.3 billion from 2021 to 2022. The decrease in operating income was primarily driven by increases in compensation expenses and TAC, partially offset by growth in revenues. Table of Contents Alphabet Inc. 35 Google Cloud Google Cloud operating loss decreased $131 million from 2021 to 2022. The decrease in operating loss was primarily driven by growth in revenues, partially offset by an increase in compensation expenses. Other Bets Other Bets operating loss increased $802 million from 2021 to 2022. The increase in operating loss was primarily driven by increases in compensation expenses, partially offset by growth in revenues. Other Income (Expense), Net The following table presents other income (expense), net, (in millions): Year Ended December 31, 2021 2022 Other income (expense), net $ 12,020 $ (3,514) Other income (expense), net, decreased $15.5 billion from 2021 to 2022 primarily due to changes in gains and losses on equity securities and performance fees. In 2022, $3.2 billion of net unrealized losses were recognized on marketable equity securities and $1.5 billion of net realized losses were recognized on debt securities. These losses were partially offset by interest income of $2.2 billion and reversals of previously accrued performance fees related to certain investments of $798 million. In 2021, $9.8 billion of net unrealized gains were recognized on non-marketable equity securities and $1.5 billion of interest income was recognized, partially offset by $1.9 billion of accrued performance fees related to certain investments. See Note 7 of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for further information. Provision for Income Taxes The following table presents provision for income taxes (in millions, except for effective tax rate): Year Ended December 31, 2021 2022 Income before provision for income taxes $ 90,734 $ 71,328 Provision for income taxes $ 14,701 $ 11,356 Effective tax rate 16.2 % 15.9 % The effective tax rate decreased from 2021 to 2022, primarily driven by the effects of capitalization and amortization of R&D expenses in 2022 as required by the 2017 Tax Cuts and Jobs Act generating an increase in the U.S. federal Foreign Derived Intangible Income tax deduction. The decrease was partially offset by a decrease in pretax earnings, including in countries that have lower statutory rates and a decrease in the stock-based compensation related tax benefit. See Note 14 of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for further information. Financial Condition Cash, Cash Equivalents, and Marketable Securities As of December 31, 2022, we had $113.8 billion in cash, cash equivalents, and short-term marketable securities. Cash equivalents and marketable securities are comprised of time deposits, money market funds, highly liquid government bonds, corporate debt securities, mortgage-backed and asset-backed securities, and marketable equity securities. Sources, Uses of Cash, and Related Trends Our principal sources of liquidity are cash, cash equivalents, and marketable securities, as well as the cash flow that we generate from operations. The primary use of capital continues to be to invest for the long-term growth of the business. We regularly evaluate our cash and capital structure, including the size, pace, and form of capital return to stockholders. Table of Contents Alphabet Inc. 36 The following table presents our cash flows (in millions): Year Ended December 31, 2021 2022 Net cash provided by operating activities $ 91,652 $ 91,495 Net cash used in investing activities $ (35,523) $ (20,298) Net cash used in financing activities $ (61,362) $ (69,757) Cash Provided by Operating Activities Our largest source of cash provided by operations are advertising revenues generated by Google Search & other properties, Google Network properties, and YouTube properties. Additionally, we generate cash through sales of apps and in-app purchases, and hardware; and licensing and service fees, including fees received for Google Cloud offerings and subscription-based products. Our primary uses of cash from operating activities include payments to distribution and Google Network partners, to employees for compensation, and to content providers. Other uses of cash from operating activities include payments to suppliers for hardware, to tax authorities for income taxes, and other general corporate expenditures. Net cash provided by operating activities decreased from 2021 to 2022 primarily due to the net effect of an increase in cash received from revenues, offset by increases in cash paid for cost of revenues and operating expenses and an increase in tax payments driven by the effects of capitalization and amortization of R&D expenses beginning in 2022 as required by the 2017 Tax Cuts and Jobs Act. Cash Used in Investing Activities Cash provided by investing activities consists primarily of maturities and sales of investments in marketable and non-marketable securities. Cash used in investing activities consists primarily of purchases of marketable and nonmarketable securities, purchases of property and equipment, and payments for acquisitions. Net cash used in investing activities decreased from 2021 to 2022 as a result of a decrease in net purchases of and maturities and sales of marketable securities, partially offset by an increase in purchases of property and equipment. Cash Used in Financing Activities Cash provided by financing activities consists primarily of proceeds from issuance of debt and proceeds from the sale of interest in consolidated entities. Cash used in financing activities consists primarily of repurchases of stock, net payments related to stock-based award activities, and repayments of debt. Net cash used in financing activities increased from 2021 to 2022 primarily due to an increase in repurchases of stock. Liquidity and Material Cash Requirements We expect existing cash, cash equivalents, short-term marketable securities, cash flows from operations and financing activities to continue to be sufficient to fund our operating activities and cash"], "reference": "YouTube contributes to Alphabet Inc.'s cash flow primarily through advertising revenues generated by YouTube properties. This is part of the largest source of cash provided by operations, which also includes revenues from Google Search & other properties and Google Network properties. Additionally, cash is generated through sales of apps and in-app purchases, hardware, and licensing and service fees, including fees for Google Cloud offerings and subscription-based products. The financial data from 2021 to 2022 indicates that net cash provided by operating activities decreased primarily due to the net effect of an increase in cash received from revenues, offset by increases in cash paid for cost of revenues and operating expenses, and an increase in tax payments driven by the effects of capitalization and amortization of R&D expenses beginning in 2022."} +{"user_input": "What were the fines imposed by the EC on Google?", "reference_contexts": ["commitments for investing and financing activities for at least the next 12 months and thereafter for the foreseeable future. Capital Expenditures and Leases We make investments in land and buildings for data centers and offices and information technology assets through purchases of property and equipment and lease arrangements to provide capacity for the growth of our services and products. Capital Expenditures Our capital investments in property and equipment consist primarily of the following major categories: • technical infrastructure, which consists of our investments in servers and network equipment for computing, storage, and networking requirements for ongoing business activities, including AI, (collectively referred to as our information technology assets) and data center land and building construction; and • office facilities, ground-up development projects, and building improvements (also referred to as \"fit-outs\"). Construction in progress consists primarily of technical infrastructure and office facilities which have not yet been placed in service. The time frame from date of purchase to placement in service of these assets may extend from months to years. For example, our data center construction projects are generally multi-year projects with multiple Table of Contents Alphabet Inc. 37 phases, where we acquire qualified land and buildings, construct buildings, and secure and install information technology assets. During the years ended December 31, 2021 and 2022, we spent $24.6 billion and $31.5 billion on capital expenditures, respectively. Depreciation of our property and equipment commences when the deployment of such assets are completed and are ready for our intended use. Land is not depreciated. For the years ended December 31, 2021 and 2022, our depreciation and impairment expenses on property and equipment were $11.6 billion and $15.3 billion, respectively. Leases For the years ended December 31, 2021 and 2022, we recognized total operating lease assets of $3.0 billion and $4.4 billion, respectively. As of December 31, 2022, the amount of total future lease payments under operating leases, which had a weighted average remaining lease term of 8 years, was $17.4 billion, of which $3.0 billion is short-term. As of December 31, 2022, we have entered into leases that have not yet commenced with future short-term and long-term lease payments of $630 million and $3.1 billion that are not yet recorded on our Consolidated Balance Sheets. These leases will commence between 2023 and 2026 with non-cancelable lease terms of 1 to 25 years. For the years ended December 31, 2021 and 2022, our operating lease expenses (including variable lease costs) were $3.4 billion and $3.7 billion, respectively. Finance lease costs were not material for the years ended December 31, 2021 and 2022. See Note 4 of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for further information on leases. Financing We have a short-term debt financing program of up to $10.0 billion through the issuance of commercial paper. Net proceeds from this program are used for general corporate purposes. As of December 31, 2022, we had no commercial paper outstanding. As of December 31, 2022, we had $10.0 billion of revolving credit facilities, $4.0 billion expiring in April 2023 and $6.0 billion expiring in April 2026. The interest rates for all credit facilities are determined based on a formula using certain market rates, as well as our progress toward the achievement of certain sustainability goals. No amounts have been borrowed under the credit facilities. As of December 31, 2022, we had senior unsecured notes outstanding with a total carrying value of $12.9 billion with short-term and long-term future interest payments of $231 million and $3.8 billion, respectively. See Note 6 of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for further information on our debt. We primarily utilize contract manufacturers for the assembly of our servers used in our technical infrastructure and hardware products we sell. We have agreements where we may purchase components directly from suppliers and then supply these components to contract manufacturers for use in the assembly of the servers and hardware products. Certain of these arrangements result in a portion of the cash received from and paid to the contract manufacturers to be presented as financing activities in the Consolidated Statements of Cash Flows included in Item 8 of this Annual Report on From 10-K. Share Repurchase Program In April 2022, the Board of Directors of Alphabet authorized the company to repurchase up to $70.0 billion of its Class A and Class C shares. As of December 31, 2022, $28.1 billion remains available for Class A and Class C share repurchases. In accordance with the authorization of the Board of Directors of Alphabet, during 2022 we repurchased and subsequently retired 530 million shares for $59.3 billion. Of the aggregate amount repurchased and subsequently retired, 61 million shares were Class A stock for $6.7 billion and 469 million shares were Class C stock for $52.6 billion. See Note 11 of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K. European Commission Fines In 2017, 2018 and 2019, the EC announced decisions that certain actions taken by Google infringed European competition law and imposed fines of €2.4 billion ($2.7 billion as of June 27, 2017), €4.3 billion ($5.1 billion as of June 30, 2018), and €1.5 billion ($1.7 billion as of March 20, 2019), respectively. On September 14, 2022, the General Court reduced the 2018 fine from €4.3 billion to €4.1 billion. We subsequently filed an appeal to the European Court of Justice. In 2018 we recognized a charge of $5.1 billion for the fine, which we reduced by $217 million in 2022. While each EC decision is under appeal, we included the fines in accrued expenses and other current liabilities on our Consolidated Balance Sheets as we provided bank guarantees (in lieu of a cash payment) for the fines. For Table of Contents Alphabet Inc. 38 further details, see Note 10 of the Notes to Consolidated Financial Statements included in Item 8 of this Annual"], "reference": "The EC imposed fines on Google for infringing European competition law, amounting to €2.4 billion in 2017, €4.3 billion in 2018 (later reduced to €4.1 billion), and €1.5 billion in 2019."} +{"user_input": "What we owe on December 31, 2022?", "reference_contexts": ["Report on Form 10-K. Taxes As of December 31, 2022, we had short-term and long-term income taxes payable of $1.6 billion and $4.2 billion related to a one-time transition tax payable incurred as a result of the U.S. Tax Cuts and Jobs Act (\"Tax Act\"). As permitted by the Tax Act, we will pay the transition tax in annual interest-free installments through 2025. We also have taxes payable of $5.1 billion primarily related to uncertain tax positions as of December 31, 2022. Purchase Commitments As of December 31, 2022, we had material non-cancelable contractual obligations of $32.0 billion, of which $17.3 billion was short-term. These amounts represent the non-cancelable portion of agreements or the minimum cancellation fee and are primarily related to commitments to purchase licenses, technical infrastructure, inventory, and network capacity. For those agreements with variable terms, we do not estimate the non-cancelable obligation beyond any minimum quantities and/or pricing as of December 31, 2022. In addition we regularly enter into multi-year, non-cancellable agreements to purchase renewable energy and energy attributes, such as renewable energy certificates. These agreements do not include a minimum dollar commitment. The amounts to be paid under these agreements are based on the actual volumes to be generated and are not readily determinable. Critical Accounting Estimates We prepare our consolidated financial statements in accordance with GAAP. In doing so, we have to make estimates and assumptions. Our critical accounting estimates are those estimates that involve a significant level of uncertainty at the time the estimate was made, and changes in them have had or are reasonably likely to have a material effect on our financial condition or results of operations. Accordingly, actual results could differ materially from our estimates. We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis. We have reviewed our critical accounting estimates with the Audit and Compliance Committee of our Board of Directors. See Note 1 of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for a summary of significant accounting policies and the effect on our financial statements. Fair Value Measurements of Non-Marketable Equity Securities We measure certain financial instruments at fair value on a nonrecurring basis, consisting primarily of our nonmarketable equity securities. These investments are accounted for under the measurement alternative method (\"the measurement alternative\") and are measured at cost, less impairment, subject to upward and downward adjustments resulting from observable price changes for identical or similar investments of the same issuer. These adjustments require quantitative assessments of the fair value of our securities, which may require the use of unobservable inputs. Pricing adjustments are determined by using various valuation methodologies and involve the use of estimates using the best information available, which may include cash flow projections or other available market data. Non-marketable equity securities are also evaluated for impairment, based on qualitative factors including the companies' financial and liquidity position and access to capital resources, among others. When indicators of impairment exist, we prepare quantitative measurements of the fair value of our equity investments using a market approach or an income approach, which requires judgment and the use of unobservable inputs, including discount rates, investee revenues and costs, and comparable market data of private and public companies, among others. When the quantitative remeasurements of fair value indicate an impairment exists, we write down the investment to its current fair value. We also have compensation arrangements with payouts based on realized returns from certain investments, i.e. performance fees. We record compensation expense based on the estimated payouts on an ongoing basis, which may result in expense recognized before investment returns are realized and compensation is paid and may require the use of unobservable inputs. Property and Equipment We assess the reasonableness of the useful lives of our property and equipment periodically as well as when other changes occur, such as when there are changes to ongoing business operations, changes in the planned use and utilization of assets, or technological advancements, that could indicate a change in the period over which we expect to benefit from the assets. Table of Contents Alphabet Inc. 39 Income Taxes We are subject to income taxes in the U.S. and foreign jurisdictions. Significant judgment is required in evaluating our uncertain tax positions and determining our provision for income taxes. Recording an uncertain tax position involves various qualitative considerations, including evaluation of comparable and resolved tax exposures, applicability of tax laws, and likelihood of settlement. We evaluate uncertain tax positions periodically, considering changes in facts and circumstances, such as new regulations or recent judicial opinions, as well as the status of audit activities by taxing authorities. Although we believe we have adequately reserved for our uncertain tax positions, no assurance can be given that the final tax outcome of these matters will not be different. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will affect the provision for income taxes and the effective tax rate in the period in which such determination is made. The provision for income taxes includes the effect of reserve provisions and changes to reserves that are considered appropriate as well as the related net interest and penalties. In addition, we are subject to the continuous examination of our income tax returns by the Internal Revenue Services (IRS) and other tax authorities which may assert assessments against us. We regularly assess the likelihood of adverse outcomes resulting from these examinations and assessments to determine the adequacy of our provision for income taxes."], "reference": "As of December 31, 2022, we had short-term and long-term income taxes payable of $1.6 billion and $4.2 billion related to a one-time transition tax payable incurred as a result of the U.S. Tax Cuts and Jobs Act. We also have taxes payable of $5.1 billion primarily related to uncertain tax positions. Additionally, we had material non-cancelable contractual obligations of $32.0 billion, of which $17.3 billion was short-term."} +{"user_input": "How does the use of constant currency basis alongside GAAP results help in understanding Alphabet Inc.'s financial performance, and what were the effects of foreign currency volatility on their revenues in 2022?", "reference_contexts": ["<1-hop>\n\non a constant currency basis in addition to U.S. Generally Accepted Accounting Principles (GAAP) results helps improve the ability to understand our performance, because it excludes the effects of foreign currency volatility that are not indicative of our core operating results. Constant currency information compares results between periods as if exchange rates had remained constant period over period. We define constant currency revenues as revenues excluding the effect of foreign exchange rate movements (\"FX Effect\") as well as hedging activities, which are recognized at the consolidated level. We use constant currency revenues to determine the constant currency revenue percentage change on a year-on-year basis. Constant currency revenues are calculated by translating current period revenues using prior year comparable period exchange rates, as well as excluding any hedging effects realized in the current period. Table of Contents Alphabet Inc. 33 Constant currency revenue percentage change is calculated by determining the change in current period revenues over prior year comparable period revenues where current period foreign currency revenues are translated using prior year comparable period exchange rates and hedging effects are excluded from revenues of both periods. These results should be considered in addition to, not as a substitute for, results reported in accordance with GAAP. Results on a constant currency basis, as we present them, may not be comparable to similarly titled measures used by other companies and are not a measure of performance presented in accordance with GAAP. The following table presents the foreign exchange effect on international revenues and total revenues (in millions, except percentages): Year Ended December 31, 2022 % Change from Prior Period Year Ended December 31, Less FX Effect Constant Currency Revenues As Reported Less Hedging Effect Less FX Effect Constant Currency 2021 2022 Revenues United States $ 117,854 $ 134,814 $ 0 $ 134,814 14 % 0 % 14 % EMEA 79,107 82,062 (8,979) 91,041 4 % (11) % 15 % APAC 46,123 47,024 (3,915) 50,939 2 % (8) % 10 % Other Americas 14,404 16,976 (430) 17,406 18 % (3) % 21 % Revenues, excluding hedging effect 257,488 280,876 (13,324) 294,200 9 % (5) % 14 % Hedging gains (losses) 149 1,960 Total revenues(1) $ 257,637 $ 282,836 $ 294,200 10 % 1 % (5) % 14 % (1) Total constant currency revenues of $294.2 billion for 2022 increased $36.7 billion compared to $257.5 billion in revenues, excluding hedging effect for 2021. EMEA revenue growth was unfavorably affected by changes in foreign currency exchange rates, primarily due to the U.S. dollar strengthening relative to the Euro and the British pound. APAC revenue growth was unfavorably affected by changes in foreign currency exchange rates, primarily due to the U.S. dollar strengthening relative to the Japanese yen and the Australian dollar. Other Americas growth was unfavorably affected by changes in foreign currency exchange rates, primarily due to the U.S. dollar strengthening relative to the Argentine peso. Costs and Expenses Cost of Revenues The following table presents cost of revenues, including TAC (in millions, except percentages): Year Ended December 31, 2021 2022 TAC $ 45,566 $ 48,955 Other cost of revenues 65,373 77,248 Total cost of revenues $ 110,939 $ 126,203 Total cost of revenues as a percentage of revenues 43 % 45 % Cost of revenues increased $15.3 billion from 2021 to 2022. The increase was due to an increase in other cost of revenues and TAC of $11.9 billion and $3.4 billion, respectively. The increase in TAC from 2021 to 2022 was due to an increase in TAC paid to distribution partners and to Google Network partners, primarily driven by growth in revenues subject to TAC. The TAC rate was 22% in both 2021 and 2022. The TAC rate on Google Search & other revenues and the TAC rate on Google Network revenues were both substantially consistent from 2021 to 2022. The increase in other cost of revenues from 2021 to 2022 was primarily due to increases in data center costs and other operations costs as well as hardware costs. Table of Contents Alphabet Inc. 34 Research and Development The following table presents R&D expenses (in millions, except percentages): Year Ended December 31, 2021 2022 Research and development expenses $ 31,562 $ 39,500 Research and development expenses as a percentage of revenues 12 % 14 % R&D expenses increased $7.9 billion from 2021 to 2022 primarily driven by an increase in compensation expenses of $5.4 billion, largely resulting from a 21% increase in average headcount, and an increase in third-party service fees of $704 million. Sales and Marketing The following table presents sales and marketing expenses (in millions, except percentages): Year Ended December 31, 2021 2022 Sales and marketing expenses $ 22,912 $ 26,567 Sales and marketing expenses as a percentage of revenues 9 % 9 % Sales and marketing expenses increased $3.7 billion from 2021 to 2022, primarily driven by an increase in compensation expenses of $1.8 billion, largely resulting from a 19% increase in average headcount, and an increase in advertising and promotional activities of $1.3 billion. General and Administrative The following table presents general and administrative expenses (in millions, except percentages): Year Ended December 31, 2021 2022 General and administrative expenses $ 13,510 $ 15,724 General and administrative expenses as a percentage of revenues 5 % 6 % General and administrative expenses increased $2.2 billion from 2021 to 2022. The increase was primarily driven by an increase in compensation expenses of $1.1 billion, largely resulting from a 21% increase in average headcount, and an increase in third-party services fees of $815 million. In addition, there was a $551 million increase to the allowance for credit losses for accounts receivable, as the prior year comparable period reflected a decline in the allowance. Segment Profitability The following table presents segment operating income (loss) (in millions). Year Ended December 31, 2021 2022 Operating income (loss): Google Services $ 91,855 $ 86,572 Google Cloud (3,099) (2,968) Other Bets (5,281) (6,083) Corporate costs, unallocated(1) (4,761) (2,679) Total income from operations $ 78,714 $ 74,842 (1) Unallocated corporate", "<2-hop>\n\n(5,969) Repurchases of stock (430) (2,159) 0 (28,990) (31,149) Sale of interest in consolidated entities 0 2,795 0 0 2,795 Net income 0 0 0 40,269 40,269 Other comprehensive income (loss) 0 0 1,865 0 1,865 Balance as of December 31, 2020 13,504 58,510 633 163,401 222,544 Stock issued 145 12 0 0 12 Stock-based compensation expense 0 15,539 0 0 15,539 Tax withholding related to vesting of restricted stock units and other 0 (10,273) 0 0 (10,273) Repurchases of stock (407) (2,324) 0 (47,950) (50,274) Sale of interest in consolidated entities 0 310 0 0 310 Net income 0 0 0 76,033 76,033 Other comprehensive income (loss) 0 0 (2,256) 0 (2,256) Balance as of December 31, 2021 13,242 61,774 (1,623) 191,484 251,635 Stock issued 137 8 0 0 8 Stock-based compensation expense 0 19,525 0 0 19,525 Tax withholding related to vesting of restricted stock units and other 0 (9,754) 0 (1) (9,755) Repurchases of stock (530) (3,404) 0 (55,892) (59,296) Sale of interest in consolidated entities 0 35 0 0 35 Net income 0 0 0 59,972 59,972 Other comprehensive income (loss) 0 0 (5,980) 0 (5,980) Balance as of December 31, 2022 12,849 $ 68,184 $ (7,603) $ 195,563 $ 256,144 See accompanying notes. Table of Contents Alphabet Inc. 50 Alphabet Inc. CONSOLIDATED STATEMENTS OF CASH FLOWS (in millions) Year Ended December 31, 2020 2021 2022 Operating activities Net income $ 40,269 $ 76,033 $ 59,972 Adjustments: Depreciation and impairment of property and equipment 12,905 11,555 15,287 Amortization and impairment of intangible assets 792 886 641 Stock-based compensation expense 12,991 15,376 19,362 Deferred income taxes 1,390 1,808 (8,081) (Gain) loss on debt and equity securities, net (6,317) (12,270) 5,519 Other 1,267 (213) 1,030 Changes in assets and liabilities, net of effects of acquisitions: Accounts receivable, net (6,524) (9,095) (2,317) Income taxes, net 1,209 (625) 584 Other assets (1,330) (1,846) (5,046) Accounts payable 694 283 707 Accrued expenses and other liabilities 5,504 7,304 3,915 Accrued revenue share 1,639 1,682 (445) Deferred revenue 635 774 367 Net cash provided by operating activities 65,124 91,652 91,495 Investing activities Purchases of property and equipment (22,281) (24,640) (31,485) Purchases of marketable securities (136,576) (135,196) (78,874) Maturities and sales of marketable securities 132,906 128,294 97,822 Purchases of non-marketable securities (7,175) (2,838) (2,531) Maturities and sales of non-marketable securities 1,023 934 150 Acquisitions, net of cash acquired, and purchases of intangible assets (738) (2,618) (6,969) Other investing activities 68 541 1,589 Net cash used in investing activities (32,773) (35,523) (20,298) Financing activities Net payments related to stock-based award activities (5,720) (10,162) (9,300) Repurchases of stock (31,149) (50,274) (59,296) Proceeds from issuance of debt, net of costs 11,761 20,199 52,872 Repayments of debt (2,100) (21,435) (54,068) Proceeds from sale of interest in consolidated entities, net 2,800 310 35 Net cash used in financing activities (24,408) (61,362) (69,757) Effect of exchange rate changes on cash and cash equivalents 24 (287) (506) Net increase (decrease) in cash and cash equivalents 7,967 (5,520) 934 Cash and cash equivalents at beginning of period 18,498 26,465 20,945 Cash and cash equivalents at end of period $ 26,465 $ 20,945 $ 21,879 Supplemental disclosures of cash flow information Cash paid for income taxes, net of refunds $ 4,990 $ 13,412 $ 18,892 See accompanying notes. Table of Contents Alphabet Inc. 51 Alphabet Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 enterprise customers with infrastructure and platform services as well as communication and collaboration tools; sales of other products and services, such as apps and in-app purchases, and hardware; and fees received for subscriptionbased products. Basis of Consolidation The consolidated financial statements of Alphabet include the accounts of Alphabet and entities consolidated under the variable interest and voting models. Intercompany balances and transactions have been eliminated. 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 due to uncertainties. On an ongoing basis, we evaluate our estimates, including those related to the allowance for credit losses; fair values of financial instruments, intangible assets, and goodwill; inventory; 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, and the results of which form the basis for making judgments about the carrying values of assets and liabilities. In January 2023, we completed an assessment of the useful lives of our servers and network equipment and adjusted the estimated useful life of our servers from four years to six years and the estimated useful life of certain network equipment from five years to six years. This change in accounting estimate is effective beginning in fiscal year 2023. Stock Split Effected in the Form of a Stock Dividend (“Stock Split”) On February 1, 2022, the company announced that the Board of Directors had approved and declared a 20-forone stock split in the form of a one-time special stock dividend on each share of the company’s Class A, Class B, and Class C stock. The Stock Split had a record date of July 1, 2022 and an effective date of July 15, 2022. The par value per share of our Class A, Class B, and Class C stock remains unchanged at $0.001 per share after the Stock Split. All prior period references made to share or per share amounts in the accompanying consolidated financial statements and applicable disclosures prior to the effective date have been retroactively adjusted to reflect the effects"], "reference": "The use of constant currency basis alongside GAAP results helps in understanding Alphabet Inc.'s financial performance by excluding the effects of foreign currency volatility that are not indicative of core operating results. Constant currency information compares results between periods as if exchange rates had remained constant, allowing for a clearer comparison of performance. In 2022, foreign currency volatility had a significant impact on Alphabet's revenues. For instance, EMEA revenue growth was unfavorably affected by changes in foreign currency exchange rates, primarily due to the U.S. dollar strengthening relative to the Euro and the British pound. Similarly, APAC revenue growth was impacted by the U.S. dollar strengthening relative to the Japanese yen and the Australian dollar, and Other Americas growth was affected by the U.S. dollar strengthening relative to the Argentine peso."} +{"user_input": "How does Alphabet Inc.'s adherence to GAAP influence its financial reporting, particularly in terms of stock-based compensation and critical accounting estimates?", "reference_contexts": ["<1-hop>\n\n(5,969) Repurchases of stock (430) (2,159) 0 (28,990) (31,149) Sale of interest in consolidated entities 0 2,795 0 0 2,795 Net income 0 0 0 40,269 40,269 Other comprehensive income (loss) 0 0 1,865 0 1,865 Balance as of December 31, 2020 13,504 58,510 633 163,401 222,544 Stock issued 145 12 0 0 12 Stock-based compensation expense 0 15,539 0 0 15,539 Tax withholding related to vesting of restricted stock units and other 0 (10,273) 0 0 (10,273) Repurchases of stock (407) (2,324) 0 (47,950) (50,274) Sale of interest in consolidated entities 0 310 0 0 310 Net income 0 0 0 76,033 76,033 Other comprehensive income (loss) 0 0 (2,256) 0 (2,256) Balance as of December 31, 2021 13,242 61,774 (1,623) 191,484 251,635 Stock issued 137 8 0 0 8 Stock-based compensation expense 0 19,525 0 0 19,525 Tax withholding related to vesting of restricted stock units and other 0 (9,754) 0 (1) (9,755) Repurchases of stock (530) (3,404) 0 (55,892) (59,296) Sale of interest in consolidated entities 0 35 0 0 35 Net income 0 0 0 59,972 59,972 Other comprehensive income (loss) 0 0 (5,980) 0 (5,980) Balance as of December 31, 2022 12,849 $ 68,184 $ (7,603) $ 195,563 $ 256,144 See accompanying notes. Table of Contents Alphabet Inc. 50 Alphabet Inc. CONSOLIDATED STATEMENTS OF CASH FLOWS (in millions) Year Ended December 31, 2020 2021 2022 Operating activities Net income $ 40,269 $ 76,033 $ 59,972 Adjustments: Depreciation and impairment of property and equipment 12,905 11,555 15,287 Amortization and impairment of intangible assets 792 886 641 Stock-based compensation expense 12,991 15,376 19,362 Deferred income taxes 1,390 1,808 (8,081) (Gain) loss on debt and equity securities, net (6,317) (12,270) 5,519 Other 1,267 (213) 1,030 Changes in assets and liabilities, net of effects of acquisitions: Accounts receivable, net (6,524) (9,095) (2,317) Income taxes, net 1,209 (625) 584 Other assets (1,330) (1,846) (5,046) Accounts payable 694 283 707 Accrued expenses and other liabilities 5,504 7,304 3,915 Accrued revenue share 1,639 1,682 (445) Deferred revenue 635 774 367 Net cash provided by operating activities 65,124 91,652 91,495 Investing activities Purchases of property and equipment (22,281) (24,640) (31,485) Purchases of marketable securities (136,576) (135,196) (78,874) Maturities and sales of marketable securities 132,906 128,294 97,822 Purchases of non-marketable securities (7,175) (2,838) (2,531) Maturities and sales of non-marketable securities 1,023 934 150 Acquisitions, net of cash acquired, and purchases of intangible assets (738) (2,618) (6,969) Other investing activities 68 541 1,589 Net cash used in investing activities (32,773) (35,523) (20,298) Financing activities Net payments related to stock-based award activities (5,720) (10,162) (9,300) Repurchases of stock (31,149) (50,274) (59,296) Proceeds from issuance of debt, net of costs 11,761 20,199 52,872 Repayments of debt (2,100) (21,435) (54,068) Proceeds from sale of interest in consolidated entities, net 2,800 310 35 Net cash used in financing activities (24,408) (61,362) (69,757) Effect of exchange rate changes on cash and cash equivalents 24 (287) (506) Net increase (decrease) in cash and cash equivalents 7,967 (5,520) 934 Cash and cash equivalents at beginning of period 18,498 26,465 20,945 Cash and cash equivalents at end of period $ 26,465 $ 20,945 $ 21,879 Supplemental disclosures of cash flow information Cash paid for income taxes, net of refunds $ 4,990 $ 13,412 $ 18,892 See accompanying notes. Table of Contents Alphabet Inc. 51 Alphabet Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 enterprise customers with infrastructure and platform services as well as communication and collaboration tools; sales of other products and services, such as apps and in-app purchases, and hardware; and fees received for subscriptionbased products. Basis of Consolidation The consolidated financial statements of Alphabet include the accounts of Alphabet and entities consolidated under the variable interest and voting models. Intercompany balances and transactions have been eliminated. 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 due to uncertainties. On an ongoing basis, we evaluate our estimates, including those related to the allowance for credit losses; fair values of financial instruments, intangible assets, and goodwill; inventory; 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, and the results of which form the basis for making judgments about the carrying values of assets and liabilities. In January 2023, we completed an assessment of the useful lives of our servers and network equipment and adjusted the estimated useful life of our servers from four years to six years and the estimated useful life of certain network equipment from five years to six years. This change in accounting estimate is effective beginning in fiscal year 2023. Stock Split Effected in the Form of a Stock Dividend (“Stock Split”) On February 1, 2022, the company announced that the Board of Directors had approved and declared a 20-forone stock split in the form of a one-time special stock dividend on each share of the company’s Class A, Class B, and Class C stock. The Stock Split had a record date of July 1, 2022 and an effective date of July 15, 2022. The par value per share of our Class A, Class B, and Class C stock remains unchanged at $0.001 per share after the Stock Split. All prior period references made to share or per share amounts in the accompanying consolidated financial statements and applicable disclosures prior to the effective date have been retroactively adjusted to reflect the effects", "<2-hop>\n\nReport on Form 10-K. Taxes As of December 31, 2022, we had short-term and long-term income taxes payable of $1.6 billion and $4.2 billion related to a one-time transition tax payable incurred as a result of the U.S. Tax Cuts and Jobs Act (\"Tax Act\"). As permitted by the Tax Act, we will pay the transition tax in annual interest-free installments through 2025. We also have taxes payable of $5.1 billion primarily related to uncertain tax positions as of December 31, 2022. Purchase Commitments As of December 31, 2022, we had material non-cancelable contractual obligations of $32.0 billion, of which $17.3 billion was short-term. These amounts represent the non-cancelable portion of agreements or the minimum cancellation fee and are primarily related to commitments to purchase licenses, technical infrastructure, inventory, and network capacity. For those agreements with variable terms, we do not estimate the non-cancelable obligation beyond any minimum quantities and/or pricing as of December 31, 2022. In addition we regularly enter into multi-year, non-cancellable agreements to purchase renewable energy and energy attributes, such as renewable energy certificates. These agreements do not include a minimum dollar commitment. The amounts to be paid under these agreements are based on the actual volumes to be generated and are not readily determinable. Critical Accounting Estimates We prepare our consolidated financial statements in accordance with GAAP. In doing so, we have to make estimates and assumptions. Our critical accounting estimates are those estimates that involve a significant level of uncertainty at the time the estimate was made, and changes in them have had or are reasonably likely to have a material effect on our financial condition or results of operations. Accordingly, actual results could differ materially from our estimates. We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis. We have reviewed our critical accounting estimates with the Audit and Compliance Committee of our Board of Directors. See Note 1 of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for a summary of significant accounting policies and the effect on our financial statements. Fair Value Measurements of Non-Marketable Equity Securities We measure certain financial instruments at fair value on a nonrecurring basis, consisting primarily of our nonmarketable equity securities. These investments are accounted for under the measurement alternative method (\"the measurement alternative\") and are measured at cost, less impairment, subject to upward and downward adjustments resulting from observable price changes for identical or similar investments of the same issuer. These adjustments require quantitative assessments of the fair value of our securities, which may require the use of unobservable inputs. Pricing adjustments are determined by using various valuation methodologies and involve the use of estimates using the best information available, which may include cash flow projections or other available market data. Non-marketable equity securities are also evaluated for impairment, based on qualitative factors including the companies' financial and liquidity position and access to capital resources, among others. When indicators of impairment exist, we prepare quantitative measurements of the fair value of our equity investments using a market approach or an income approach, which requires judgment and the use of unobservable inputs, including discount rates, investee revenues and costs, and comparable market data of private and public companies, among others. When the quantitative remeasurements of fair value indicate an impairment exists, we write down the investment to its current fair value. We also have compensation arrangements with payouts based on realized returns from certain investments, i.e. performance fees. We record compensation expense based on the estimated payouts on an ongoing basis, which may result in expense recognized before investment returns are realized and compensation is paid and may require the use of unobservable inputs. Property and Equipment We assess the reasonableness of the useful lives of our property and equipment periodically as well as when other changes occur, such as when there are changes to ongoing business operations, changes in the planned use and utilization of assets, or technological advancements, that could indicate a change in the period over which we expect to benefit from the assets. Table of Contents Alphabet Inc. 39 Income Taxes We are subject to income taxes in the U.S. and foreign jurisdictions. Significant judgment is required in evaluating our uncertain tax positions and determining our provision for income taxes. Recording an uncertain tax position involves various qualitative considerations, including evaluation of comparable and resolved tax exposures, applicability of tax laws, and likelihood of settlement. We evaluate uncertain tax positions periodically, considering changes in facts and circumstances, such as new regulations or recent judicial opinions, as well as the status of audit activities by taxing authorities. Although we believe we have adequately reserved for our uncertain tax positions, no assurance can be given that the final tax outcome of these matters will not be different. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will affect the provision for income taxes and the effective tax rate in the period in which such determination is made. The provision for income taxes includes the effect of reserve provisions and changes to reserves that are considered appropriate as well as the related net interest and penalties. In addition, we are subject to the continuous examination of our income tax returns by the Internal Revenue Services (IRS) and other tax authorities which may assert assessments against us. We regularly assess the likelihood of adverse outcomes resulting from these examinations and assessments to determine the adequacy of our provision for income taxes."], "reference": "Alphabet Inc.'s adherence to GAAP significantly influences its financial reporting by ensuring that its financial statements are prepared with consistency and transparency. For stock-based compensation, Alphabet records expenses based on GAAP requirements, which include recognizing stock-based compensation expense as part of its operating activities. In 2022, for instance, Alphabet reported a stock-based compensation expense of $19,362 million. This adherence ensures that the expenses are accurately reflected in the financial statements, impacting net income and other financial metrics. Additionally, Alphabet's critical accounting estimates, which are prepared in accordance with GAAP, involve significant judgment and uncertainty. These estimates include the fair values of financial instruments, intangible assets, and goodwill, among others. Alphabet evaluates these estimates on an ongoing basis, considering historical and forward-looking assumptions believed to be reasonable. This process is crucial for making judgments about the carrying values of assets and liabilities, which directly affects the financial condition and results of operations reported in the financial statements."} +{"user_input": "How do the loss contingencies and critical accounting estimates discussed in Item 8 of the Annual Report on Form 10-K impact the financial performance and risk management strategies of the company?", "reference_contexts": ["<1-hop>\n\nLoss Contingencies We are regularly subject to claims, lawsuits, regulatory and government investigations, other proceedings, and consent orders involving competition, intellectual property, data privacy and security, tax and related compliance, labor and employment, commercial disputes, content generated by our users, goods and services offered by advertisers or publishers using our platforms, personal injury consumer protection, and other matters. Certain of these matters include speculative claims for substantial or indeterminate amounts of damages. We record a liability when we believe that it is probable that a loss has been incurred and the amount can be reasonably estimated. If we determine that a loss is reasonably possible and the loss or range of loss can be estimated, we disclose the possible loss in Note 10 of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K. We evaluate, on a regular basis, developments in our legal matters that could affect the amount of liability that has been previously accrued, and the matters and related reasonably possible losses disclosed, and make adjustments and changes to our disclosures as appropriate. Significant judgment is required to determine both the likelihood and the estimated amount of a loss related to such matters. Until the final resolution of such matters, there may be an exposure to loss in excess of the amount recorded, and such amounts could be material. Change in Accounting Estimate In January 2023, we completed an assessment of the useful lives of our servers and network equipment, resulting in a change in the estimated useful life of our servers and certain network equipment to six years, which we expect to result in a reduction of depreciation of approximately $3.4 billion for the full fiscal year 2023 for assets in service as of December 31, 2022, recorded primarily in cost of revenues and R&D expenses. See Note 1 of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for information relating to the useful lives of our servers and network equipment. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are exposed to financial market risks, including changes in foreign currency exchange rates, interest rates, and equity investment risks.", "<2-hop>\n\nReport on Form 10-K. Taxes As of December 31, 2022, we had short-term and long-term income taxes payable of $1.6 billion and $4.2 billion related to a one-time transition tax payable incurred as a result of the U.S. Tax Cuts and Jobs Act (\"Tax Act\"). As permitted by the Tax Act, we will pay the transition tax in annual interest-free installments through 2025. We also have taxes payable of $5.1 billion primarily related to uncertain tax positions as of December 31, 2022. Purchase Commitments As of December 31, 2022, we had material non-cancelable contractual obligations of $32.0 billion, of which $17.3 billion was short-term. These amounts represent the non-cancelable portion of agreements or the minimum cancellation fee and are primarily related to commitments to purchase licenses, technical infrastructure, inventory, and network capacity. For those agreements with variable terms, we do not estimate the non-cancelable obligation beyond any minimum quantities and/or pricing as of December 31, 2022. In addition we regularly enter into multi-year, non-cancellable agreements to purchase renewable energy and energy attributes, such as renewable energy certificates. These agreements do not include a minimum dollar commitment. The amounts to be paid under these agreements are based on the actual volumes to be generated and are not readily determinable. Critical Accounting Estimates We prepare our consolidated financial statements in accordance with GAAP. In doing so, we have to make estimates and assumptions. Our critical accounting estimates are those estimates that involve a significant level of uncertainty at the time the estimate was made, and changes in them have had or are reasonably likely to have a material effect on our financial condition or results of operations. Accordingly, actual results could differ materially from our estimates. We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis. We have reviewed our critical accounting estimates with the Audit and Compliance Committee of our Board of Directors. See Note 1 of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for a summary of significant accounting policies and the effect on our financial statements. Fair Value Measurements of Non-Marketable Equity Securities We measure certain financial instruments at fair value on a nonrecurring basis, consisting primarily of our nonmarketable equity securities. These investments are accounted for under the measurement alternative method (\"the measurement alternative\") and are measured at cost, less impairment, subject to upward and downward adjustments resulting from observable price changes for identical or similar investments of the same issuer. These adjustments require quantitative assessments of the fair value of our securities, which may require the use of unobservable inputs. Pricing adjustments are determined by using various valuation methodologies and involve the use of estimates using the best information available, which may include cash flow projections or other available market data. Non-marketable equity securities are also evaluated for impairment, based on qualitative factors including the companies' financial and liquidity position and access to capital resources, among others. When indicators of impairment exist, we prepare quantitative measurements of the fair value of our equity investments using a market approach or an income approach, which requires judgment and the use of unobservable inputs, including discount rates, investee revenues and costs, and comparable market data of private and public companies, among others. When the quantitative remeasurements of fair value indicate an impairment exists, we write down the investment to its current fair value. We also have compensation arrangements with payouts based on realized returns from certain investments, i.e. performance fees. We record compensation expense based on the estimated payouts on an ongoing basis, which may result in expense recognized before investment returns are realized and compensation is paid and may require the use of unobservable inputs. Property and Equipment We assess the reasonableness of the useful lives of our property and equipment periodically as well as when other changes occur, such as when there are changes to ongoing business operations, changes in the planned use and utilization of assets, or technological advancements, that could indicate a change in the period over which we expect to benefit from the assets. Table of Contents Alphabet Inc. 39 Income Taxes We are subject to income taxes in the U.S. and foreign jurisdictions. Significant judgment is required in evaluating our uncertain tax positions and determining our provision for income taxes. Recording an uncertain tax position involves various qualitative considerations, including evaluation of comparable and resolved tax exposures, applicability of tax laws, and likelihood of settlement. We evaluate uncertain tax positions periodically, considering changes in facts and circumstances, such as new regulations or recent judicial opinions, as well as the status of audit activities by taxing authorities. Although we believe we have adequately reserved for our uncertain tax positions, no assurance can be given that the final tax outcome of these matters will not be different. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will affect the provision for income taxes and the effective tax rate in the period in which such determination is made. The provision for income taxes includes the effect of reserve provisions and changes to reserves that are considered appropriate as well as the related net interest and penalties. In addition, we are subject to the continuous examination of our income tax returns by the Internal Revenue Services (IRS) and other tax authorities which may assert assessments against us. We regularly assess the likelihood of adverse outcomes resulting from these examinations and assessments to determine the adequacy of our provision for income taxes."], "reference": "The loss contingencies and critical accounting estimates discussed in Item 8 of the Annual Report on Form 10-K significantly impact the company's financial performance and risk management strategies. Loss contingencies involve claims, lawsuits, and other proceedings that require the company to record a liability when a loss is probable and can be reasonably estimated. This requires significant judgment and can lead to material exposure if the final resolution exceeds the recorded amount. Critical accounting estimates, such as those related to the useful lives of servers and network equipment, involve a high level of uncertainty and can materially affect financial condition and results of operations. These estimates are based on past experience and assumptions, and changes in them can lead to adjustments in financial statements. Both elements require ongoing evaluation and adjustments, impacting the company's risk management strategies and financial performance."} +{"user_input": "How did the strengthening of the U.S. dollar impact Alphabet Inc.'s revenue growth in different regions in 2022?", "reference_contexts": ["<1-hop>\n\non a constant currency basis in addition to U.S. Generally Accepted Accounting Principles (GAAP) results helps improve the ability to understand our performance, because it excludes the effects of foreign currency volatility that are not indicative of our core operating results. Constant currency information compares results between periods as if exchange rates had remained constant period over period. We define constant currency revenues as revenues excluding the effect of foreign exchange rate movements (\"FX Effect\") as well as hedging activities, which are recognized at the consolidated level. We use constant currency revenues to determine the constant currency revenue percentage change on a year-on-year basis. Constant currency revenues are calculated by translating current period revenues using prior year comparable period exchange rates, as well as excluding any hedging effects realized in the current period. Table of Contents Alphabet Inc. 33 Constant currency revenue percentage change is calculated by determining the change in current period revenues over prior year comparable period revenues where current period foreign currency revenues are translated using prior year comparable period exchange rates and hedging effects are excluded from revenues of both periods. These results should be considered in addition to, not as a substitute for, results reported in accordance with GAAP. Results on a constant currency basis, as we present them, may not be comparable to similarly titled measures used by other companies and are not a measure of performance presented in accordance with GAAP. The following table presents the foreign exchange effect on international revenues and total revenues (in millions, except percentages): Year Ended December 31, 2022 % Change from Prior Period Year Ended December 31, Less FX Effect Constant Currency Revenues As Reported Less Hedging Effect Less FX Effect Constant Currency 2021 2022 Revenues United States $ 117,854 $ 134,814 $ 0 $ 134,814 14 % 0 % 14 % EMEA 79,107 82,062 (8,979) 91,041 4 % (11) % 15 % APAC 46,123 47,024 (3,915) 50,939 2 % (8) % 10 % Other Americas 14,404 16,976 (430) 17,406 18 % (3) % 21 % Revenues, excluding hedging effect 257,488 280,876 (13,324) 294,200 9 % (5) % 14 % Hedging gains (losses) 149 1,960 Total revenues(1) $ 257,637 $ 282,836 $ 294,200 10 % 1 % (5) % 14 % (1) Total constant currency revenues of $294.2 billion for 2022 increased $36.7 billion compared to $257.5 billion in revenues, excluding hedging effect for 2021. EMEA revenue growth was unfavorably affected by changes in foreign currency exchange rates, primarily due to the U.S. dollar strengthening relative to the Euro and the British pound. APAC revenue growth was unfavorably affected by changes in foreign currency exchange rates, primarily due to the U.S. dollar strengthening relative to the Japanese yen and the Australian dollar. Other Americas growth was unfavorably affected by changes in foreign currency exchange rates, primarily due to the U.S. dollar strengthening relative to the Argentine peso. Costs and Expenses Cost of Revenues The following table presents cost of revenues, including TAC (in millions, except percentages): Year Ended December 31, 2021 2022 TAC $ 45,566 $ 48,955 Other cost of revenues 65,373 77,248 Total cost of revenues $ 110,939 $ 126,203 Total cost of revenues as a percentage of revenues 43 % 45 % Cost of revenues increased $15.3 billion from 2021 to 2022. The increase was due to an increase in other cost of revenues and TAC of $11.9 billion and $3.4 billion, respectively. The increase in TAC from 2021 to 2022 was due to an increase in TAC paid to distribution partners and to Google Network partners, primarily driven by growth in revenues subject to TAC. The TAC rate was 22% in both 2021 and 2022. The TAC rate on Google Search & other revenues and the TAC rate on Google Network revenues were both substantially consistent from 2021 to 2022. The increase in other cost of revenues from 2021 to 2022 was primarily due to increases in data center costs and other operations costs as well as hardware costs. Table of Contents Alphabet Inc. 34 Research and Development The following table presents R&D expenses (in millions, except percentages): Year Ended December 31, 2021 2022 Research and development expenses $ 31,562 $ 39,500 Research and development expenses as a percentage of revenues 12 % 14 % R&D expenses increased $7.9 billion from 2021 to 2022 primarily driven by an increase in compensation expenses of $5.4 billion, largely resulting from a 21% increase in average headcount, and an increase in third-party service fees of $704 million. Sales and Marketing The following table presents sales and marketing expenses (in millions, except percentages): Year Ended December 31, 2021 2022 Sales and marketing expenses $ 22,912 $ 26,567 Sales and marketing expenses as a percentage of revenues 9 % 9 % Sales and marketing expenses increased $3.7 billion from 2021 to 2022, primarily driven by an increase in compensation expenses of $1.8 billion, largely resulting from a 19% increase in average headcount, and an increase in advertising and promotional activities of $1.3 billion. General and Administrative The following table presents general and administrative expenses (in millions, except percentages): Year Ended December 31, 2021 2022 General and administrative expenses $ 13,510 $ 15,724 General and administrative expenses as a percentage of revenues 5 % 6 % General and administrative expenses increased $2.2 billion from 2021 to 2022. The increase was primarily driven by an increase in compensation expenses of $1.1 billion, largely resulting from a 21% increase in average headcount, and an increase in third-party services fees of $815 million. In addition, there was a $551 million increase to the allowance for credit losses for accounts receivable, as the prior year comparable period reflected a decline in the allowance. Segment Profitability The following table presents segment operating income (loss) (in millions). Year Ended December 31, 2021 2022 Operating income (loss): Google Services $ 91,855 $ 86,572 Google Cloud (3,099) (2,968) Other Bets (5,281) (6,083) Corporate costs, unallocated(1) (4,761) (2,679) Total income from operations $ 78,714 $ 74,842 (1) Unallocated corporate", "<2-hop>\n\nequity. We reflect net foreign exchange transaction gains and losses resulting from the conversion of the transaction currency to functional currency as a component of foreign currency exchange gain (loss) in other income (expense), net. Prior Period Reclassifications Certain amounts in prior periods have been reclassified to conform with current period presentation. Table of Contents Alphabet Inc. 58 Note 2. Revenues Disaggregated Revenues The following table presents revenues disaggregated by type (in millions): Year Ended December 31, 2020 2021 2022 Google Search & other $ 104,062 $ 148,951 $ 162,450 YouTube ads 19,772 28,845 29,243 Google Network 23,090 31,701 32,780 Google advertising 146,924 209,497 224,473 Google other 21,711 28,032 29,055 Google Services total 168,635 237,529 253,528 Google Cloud 13,059 19,206 26,280 Other Bets 657 753 1,068 Hedging gains (losses) 176 149 1,960 Total revenues $ 182,527 $ 257,637 $ 282,836 No individual customer or groups of affiliated customers represented more than 10% of our revenues in 2020, 2021, or 2022. The following table presents revenues disaggregated by geography, based on the addresses of our customers (in millions): Year Ended December 31, 2020 2021 2022 United States $ 85,014 47 % $ 117,854 46 % $ 134,814 48 % EMEA(1) 55,370 30 79,107 31 82,062 29 APAC(1) 32,550 18 46,123 18 47,024 16 Other Americas(1) 9,417 5 14,404 5 16,976 6 Hedging gains (losses) 176 0 149 0 1,960 1 Total revenues $ 182,527 100 % $ 257,637 100 % $ 282,836 100 % (1) Regions represent Europe, the Middle East, and Africa (EMEA); Asia-Pacific (APAC); and Canada and Latin America (\"Other Americas\"). Revenue Backlog As of December 31, 2022, we had $64.3 billion of remaining performance obligations (“revenue backlog”), primarily related to Google Cloud. Our revenue backlog represents commitments in customer contracts for future services that have not yet been recognized as revenue. The amount and timing of revenue recognition for these commitments is largely driven by our ability to deliver in accordance with relevant contract terms and when our customers utilize services, which could affect our estimate of revenue backlog and when we expect to recognize such as revenue. We expect to recognize approximately half of the revenue backlog as revenues over the next 24 months with the remaining to be recognized thereafter. 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. Deferred Revenue 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 $2.5 billion was recognized as revenues for the year ending December 31, 2022. Table of Contents Alphabet Inc. 59 Note 3. Financial Instruments Fair Value Measurements Investments measured at fair value on a recurring basis Cash, cash equivalents, and marketable equity securities are measured at fair value and classified within Level 1 and Level 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. Debt securities are classified 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. The following tables summarize our cash, cash equivalents, and marketable securities measured at fair value on a recurring basis (in millions): As of December 31, 2021 Fair Value Hierarchy Adjusted Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Cash and Cash Equivalents Marketable Securities Fair value changes recorded in other comprehensive income Time deposits(1) Level 2 $ 5,133 $ 0 $ 0 $ 5,133 $ 5,133 $ 0 Government bonds Level 2 53,288 258 (238) 53,308 5 53,303 Corporate debt securities Level 2 35,605 194 (223) 35,576 12 35,564 Mortgage-backed and asset-backed securities Level 2 18,829 96 (112) 18,813 0 18,813 Total investments with fair value change reflected in Other Comprehensive Income(2) $ 112,855 $ 548 $ (573) $ 112,830 $ 5,150 $ 107,680 Fair value adjustments recorded in net income Money market funds Level 1 $ 7,499 $ 7,499 $ 0 Current marketable equity securities(3) Level 1 5,998 0 5,998 Mutual funds Level 2 351 0 351 Government bonds Level 2 1,165 0 1,165 Corporate debt securities Level 2 2,503 0 2,503 Mortgage-backed and asset-backed securities Level 2 1,007 0 1,007 Total investments with fair value change recorded in Net Income $ 18,523 $ 7,499 $ 11,024 Cash 0 8,296 0 Total $ 112,855 $ 548 $ (573) $ 131,353 $ 20,945 $ 118,704 (1) The majority of our time deposits are domestic deposits. (2) Represents gross unrealized gains and losses for debt securities recorded to AOCI. (3) The long-term portion of marketable equity securities (subject to long-term lock-up restrictions) of $1.4 billion as of December 31, 2021 is included within other non-current assets. Table of Contents Alphabet Inc. 60 As of December 31, 2022 Fair Value Hierarchy Adjusted Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Cash and Cash Equivalents Marketable Securities Fair value changes recorded in other comprehensive income Time deposits(1) Level 2 $ 5,297 $ 0 $ 0 $ 5,297 $ 5,293 $ 4 Government bonds Level 2 41,036 64 (2,045) 39,055 283 38,772 Corporate debt securities Level 2 28,578 8 (1,569) 27,017 1 27,016 Mortgage-backed and asset-backed securities Level 2 16,176 5 (1,242) 14,939 0 14,939 Total investments with fair value change reflected in Other Comprehensive Income(2) $ 91,087 $ 77 $ (4,856) $ 86,308 $ 5,577 $ 80,731 Fair value"], "reference": "The strengthening of the U.S. dollar in 2022 had a negative impact on Alphabet Inc.'s revenue growth in various regions. In the EMEA region, revenue growth was unfavorably affected due to the U.S. dollar strengthening relative to the Euro and the British pound. Similarly, in the APAC region, revenue growth was negatively impacted by the U.S. dollar's strength against the Japanese yen and the Australian dollar. In the Other Americas, the growth was also unfavorably affected by the U.S. dollar strengthening relative to the Argentine peso."} +{"user_input": "How does Alphabet Inc. utilize GAAP in its financial reporting, and what role do critical accounting estimates play in this process?", "reference_contexts": ["<1-hop>\n\non a constant currency basis in addition to U.S. Generally Accepted Accounting Principles (GAAP) results helps improve the ability to understand our performance, because it excludes the effects of foreign currency volatility that are not indicative of our core operating results. Constant currency information compares results between periods as if exchange rates had remained constant period over period. We define constant currency revenues as revenues excluding the effect of foreign exchange rate movements (\"FX Effect\") as well as hedging activities, which are recognized at the consolidated level. We use constant currency revenues to determine the constant currency revenue percentage change on a year-on-year basis. Constant currency revenues are calculated by translating current period revenues using prior year comparable period exchange rates, as well as excluding any hedging effects realized in the current period. Table of Contents Alphabet Inc. 33 Constant currency revenue percentage change is calculated by determining the change in current period revenues over prior year comparable period revenues where current period foreign currency revenues are translated using prior year comparable period exchange rates and hedging effects are excluded from revenues of both periods. These results should be considered in addition to, not as a substitute for, results reported in accordance with GAAP. Results on a constant currency basis, as we present them, may not be comparable to similarly titled measures used by other companies and are not a measure of performance presented in accordance with GAAP. The following table presents the foreign exchange effect on international revenues and total revenues (in millions, except percentages): Year Ended December 31, 2022 % Change from Prior Period Year Ended December 31, Less FX Effect Constant Currency Revenues As Reported Less Hedging Effect Less FX Effect Constant Currency 2021 2022 Revenues United States $ 117,854 $ 134,814 $ 0 $ 134,814 14 % 0 % 14 % EMEA 79,107 82,062 (8,979) 91,041 4 % (11) % 15 % APAC 46,123 47,024 (3,915) 50,939 2 % (8) % 10 % Other Americas 14,404 16,976 (430) 17,406 18 % (3) % 21 % Revenues, excluding hedging effect 257,488 280,876 (13,324) 294,200 9 % (5) % 14 % Hedging gains (losses) 149 1,960 Total revenues(1) $ 257,637 $ 282,836 $ 294,200 10 % 1 % (5) % 14 % (1) Total constant currency revenues of $294.2 billion for 2022 increased $36.7 billion compared to $257.5 billion in revenues, excluding hedging effect for 2021. EMEA revenue growth was unfavorably affected by changes in foreign currency exchange rates, primarily due to the U.S. dollar strengthening relative to the Euro and the British pound. APAC revenue growth was unfavorably affected by changes in foreign currency exchange rates, primarily due to the U.S. dollar strengthening relative to the Japanese yen and the Australian dollar. Other Americas growth was unfavorably affected by changes in foreign currency exchange rates, primarily due to the U.S. dollar strengthening relative to the Argentine peso. Costs and Expenses Cost of Revenues The following table presents cost of revenues, including TAC (in millions, except percentages): Year Ended December 31, 2021 2022 TAC $ 45,566 $ 48,955 Other cost of revenues 65,373 77,248 Total cost of revenues $ 110,939 $ 126,203 Total cost of revenues as a percentage of revenues 43 % 45 % Cost of revenues increased $15.3 billion from 2021 to 2022. The increase was due to an increase in other cost of revenues and TAC of $11.9 billion and $3.4 billion, respectively. The increase in TAC from 2021 to 2022 was due to an increase in TAC paid to distribution partners and to Google Network partners, primarily driven by growth in revenues subject to TAC. The TAC rate was 22% in both 2021 and 2022. The TAC rate on Google Search & other revenues and the TAC rate on Google Network revenues were both substantially consistent from 2021 to 2022. The increase in other cost of revenues from 2021 to 2022 was primarily due to increases in data center costs and other operations costs as well as hardware costs. Table of Contents Alphabet Inc. 34 Research and Development The following table presents R&D expenses (in millions, except percentages): Year Ended December 31, 2021 2022 Research and development expenses $ 31,562 $ 39,500 Research and development expenses as a percentage of revenues 12 % 14 % R&D expenses increased $7.9 billion from 2021 to 2022 primarily driven by an increase in compensation expenses of $5.4 billion, largely resulting from a 21% increase in average headcount, and an increase in third-party service fees of $704 million. Sales and Marketing The following table presents sales and marketing expenses (in millions, except percentages): Year Ended December 31, 2021 2022 Sales and marketing expenses $ 22,912 $ 26,567 Sales and marketing expenses as a percentage of revenues 9 % 9 % Sales and marketing expenses increased $3.7 billion from 2021 to 2022, primarily driven by an increase in compensation expenses of $1.8 billion, largely resulting from a 19% increase in average headcount, and an increase in advertising and promotional activities of $1.3 billion. General and Administrative The following table presents general and administrative expenses (in millions, except percentages): Year Ended December 31, 2021 2022 General and administrative expenses $ 13,510 $ 15,724 General and administrative expenses as a percentage of revenues 5 % 6 % General and administrative expenses increased $2.2 billion from 2021 to 2022. The increase was primarily driven by an increase in compensation expenses of $1.1 billion, largely resulting from a 21% increase in average headcount, and an increase in third-party services fees of $815 million. In addition, there was a $551 million increase to the allowance for credit losses for accounts receivable, as the prior year comparable period reflected a decline in the allowance. Segment Profitability The following table presents segment operating income (loss) (in millions). Year Ended December 31, 2021 2022 Operating income (loss): Google Services $ 91,855 $ 86,572 Google Cloud (3,099) (2,968) Other Bets (5,281) (6,083) Corporate costs, unallocated(1) (4,761) (2,679) Total income from operations $ 78,714 $ 74,842 (1) Unallocated corporate", "<2-hop>\n\nReport on Form 10-K. Taxes As of December 31, 2022, we had short-term and long-term income taxes payable of $1.6 billion and $4.2 billion related to a one-time transition tax payable incurred as a result of the U.S. Tax Cuts and Jobs Act (\"Tax Act\"). As permitted by the Tax Act, we will pay the transition tax in annual interest-free installments through 2025. We also have taxes payable of $5.1 billion primarily related to uncertain tax positions as of December 31, 2022. Purchase Commitments As of December 31, 2022, we had material non-cancelable contractual obligations of $32.0 billion, of which $17.3 billion was short-term. These amounts represent the non-cancelable portion of agreements or the minimum cancellation fee and are primarily related to commitments to purchase licenses, technical infrastructure, inventory, and network capacity. For those agreements with variable terms, we do not estimate the non-cancelable obligation beyond any minimum quantities and/or pricing as of December 31, 2022. In addition we regularly enter into multi-year, non-cancellable agreements to purchase renewable energy and energy attributes, such as renewable energy certificates. These agreements do not include a minimum dollar commitment. The amounts to be paid under these agreements are based on the actual volumes to be generated and are not readily determinable. Critical Accounting Estimates We prepare our consolidated financial statements in accordance with GAAP. In doing so, we have to make estimates and assumptions. Our critical accounting estimates are those estimates that involve a significant level of uncertainty at the time the estimate was made, and changes in them have had or are reasonably likely to have a material effect on our financial condition or results of operations. Accordingly, actual results could differ materially from our estimates. We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis. We have reviewed our critical accounting estimates with the Audit and Compliance Committee of our Board of Directors. See Note 1 of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for a summary of significant accounting policies and the effect on our financial statements. Fair Value Measurements of Non-Marketable Equity Securities We measure certain financial instruments at fair value on a nonrecurring basis, consisting primarily of our nonmarketable equity securities. These investments are accounted for under the measurement alternative method (\"the measurement alternative\") and are measured at cost, less impairment, subject to upward and downward adjustments resulting from observable price changes for identical or similar investments of the same issuer. These adjustments require quantitative assessments of the fair value of our securities, which may require the use of unobservable inputs. Pricing adjustments are determined by using various valuation methodologies and involve the use of estimates using the best information available, which may include cash flow projections or other available market data. Non-marketable equity securities are also evaluated for impairment, based on qualitative factors including the companies' financial and liquidity position and access to capital resources, among others. When indicators of impairment exist, we prepare quantitative measurements of the fair value of our equity investments using a market approach or an income approach, which requires judgment and the use of unobservable inputs, including discount rates, investee revenues and costs, and comparable market data of private and public companies, among others. When the quantitative remeasurements of fair value indicate an impairment exists, we write down the investment to its current fair value. We also have compensation arrangements with payouts based on realized returns from certain investments, i.e. performance fees. We record compensation expense based on the estimated payouts on an ongoing basis, which may result in expense recognized before investment returns are realized and compensation is paid and may require the use of unobservable inputs. Property and Equipment We assess the reasonableness of the useful lives of our property and equipment periodically as well as when other changes occur, such as when there are changes to ongoing business operations, changes in the planned use and utilization of assets, or technological advancements, that could indicate a change in the period over which we expect to benefit from the assets. Table of Contents Alphabet Inc. 39 Income Taxes We are subject to income taxes in the U.S. and foreign jurisdictions. Significant judgment is required in evaluating our uncertain tax positions and determining our provision for income taxes. Recording an uncertain tax position involves various qualitative considerations, including evaluation of comparable and resolved tax exposures, applicability of tax laws, and likelihood of settlement. We evaluate uncertain tax positions periodically, considering changes in facts and circumstances, such as new regulations or recent judicial opinions, as well as the status of audit activities by taxing authorities. Although we believe we have adequately reserved for our uncertain tax positions, no assurance can be given that the final tax outcome of these matters will not be different. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will affect the provision for income taxes and the effective tax rate in the period in which such determination is made. The provision for income taxes includes the effect of reserve provisions and changes to reserves that are considered appropriate as well as the related net interest and penalties. In addition, we are subject to the continuous examination of our income tax returns by the Internal Revenue Services (IRS) and other tax authorities which may assert assessments against us. We regularly assess the likelihood of adverse outcomes resulting from these examinations and assessments to determine the adequacy of our provision for income taxes."], "reference": "Alphabet Inc. utilizes GAAP in its financial reporting to prepare consolidated financial statements, which involves making estimates and assumptions that are critical to the process. These critical accounting estimates involve a significant level of uncertainty and can materially affect the company's financial condition or results of operations. The estimates are based on past experience and other reasonable assumptions, and they are evaluated on an ongoing basis. The company reviews these estimates with the Audit and Compliance Committee of its Board of Directors. Additionally, Alphabet Inc. measures certain financial instruments at fair value on a nonrecurring basis, which requires quantitative assessments and the use of unobservable inputs. These processes are integral to ensuring that the financial statements accurately reflect the company's financial position in accordance with GAAP."} +{"user_input": "How do Google Nest products contribute to Google's overall revenue, and what factors affect these revenues?", "reference_contexts": ["<1-hop>\n\nour revenues have been and may continue to be affected by a combination of factors, including: • changes in foreign currency exchange rates; • changes in pricing, such as those resulting from changes in fee structures, discounts, and customer incentives; • general economic conditions and various external dynamics, including geopolitical events, regulations, and other measures and their effect on advertiser, consumer, and enterprise spending; • new product and service launches; and Table of Contents Alphabet Inc. 27 • seasonality. Additionally, fluctuations in our revenues generated from advertising (\"Google advertising\"), revenues from other sources (\"Google other revenues\"), Google Cloud, and Other Bets revenues have been and may continue to be affected by other factors unique to each set of revenues, as described below. Google Services Google Services revenues consist of Google advertising as well as Google other revenues. Google Advertising Google advertising revenues are comprised of the following: • Google Search & other, which includes revenues generated on Google search properties (including revenues from traffic generated by search distribution partners who use Google.com as their default search in browsers, toolbars, etc.), and other Google owned and operated properties like Gmail, Google Maps, and Google Play; • YouTube ads, which includes revenues generated on YouTube properties; and • Google Network, which includes revenues generated on Google Network properties participating in AdMob, AdSense, and Google Ad Manager. We use certain metrics to track how well traffic across various properties is monetized as it relates to our advertising revenues: paid clicks and cost-per-click pertain to traffic on Google Search & other properties, while impressions and cost-per-impression pertain to traffic on our Google Network properties. Paid clicks represent engagement by users and include clicks on advertisements by end-users on Google search properties and other Google owned and operated properties including Gmail, Google Maps, and Google Play. Costper-click is defined as click-driven revenues divided by our total number of paid clicks and represents the average amount we charge advertisers for each engagement by users. Impressions include impressions displayed to users on Google Network properties participating primarily in AdMob, AdSense, and Google Ad Manager. Cost-per-impression is defined as impression-based and click-based revenues divided by our total number of impressions, and represents the average amount we charge advertisers for each impression displayed to users. As our business evolves, we periodically review, refine, and update our methodologies for monitoring, gathering, and counting the number of paid clicks and the number of impressions, and for identifying the revenues generated by the corresponding click and impression activity. Fluctuations in our advertising revenues, as well as the change in paid clicks and cost-per-click on Google Search & other properties and the change in impressions and cost-per-impression on Google Network properties and the correlation between these items have been and may continue to be affected by additional factors, such as: • advertiser competition for keywords; • changes in advertising quality, formats, delivery or policy; • changes in device mix; • seasonal fluctuations in internet usage, advertising expenditures, and underlying business trends, such as traditional retail seasonality; and • traffic growth in emerging markets compared to more mature markets and across various verticals and channels. Google Other Google other revenues are comprised of the following: • Google Play, which includes sales of apps and in-app purchases; • hardware, which includes sales of Fitbit wearable devices, Google Nest home products, and Pixel devices; • YouTube non-advertising, which includes subscription revenues from services such as YouTube Premium and YouTube TV; and • other products and services. Table of Contents Alphabet Inc. 28 Fluctuations in our Google other revenues have been and may continue to be affected by additional factors, such as changes in customer usage and demand, number of subscribers, and fluctuations in the timing of product launches. Google Cloud Google Cloud revenues are comprised of the following: • Google Cloud Platform, which includes fees for infrastructure, platform, and other services; • Google Workspace, which includes fees for cloud-based communication and collaboration tools for enterprises, such as Gmail, Docs, Drive, Calendar and Meet; and • other enterprise services. Fluctuations in our Google Cloud revenues have been and may continue to be affected by additional factors, such as customer usage. Other Bets Revenues from Other Bets are generated primarily from the sale of health technology and internet services. Costs and Expenses Our cost structure has two components: cost of revenues and operating expenses. Our operating expenses include costs related to R&D, sales and marketing, and general and administrative functions. Certain of our costs and expenses, including those associated with the operation of our technical infrastructure as well as components of our operating expenses, are generally less variable in nature and may not correlate to changes in revenue. Cost of Revenues Cost of revenues is comprised of TAC and other costs of revenues. • TAC includes: ◦ Amounts paid to our distribution partners who make available our search access points and services. Our distribution partners include browser providers, mobile carriers, original equipment manufacturers, and software developers. ◦ Amounts paid to Google Network partners primarily for ads displayed on their properties. • Other cost of revenues includes: ◦ Content acquisition costs, which are payments to content providers from whom we license video and other content for distribution on YouTube and Google Play (we pay fees to these content providers based on revenues generated or a flat fee). ◦ Expenses associated with our data centers (including bandwidth, compensation expenses, depreciation, energy, and other equipment costs) as well as other operations costs (such as content review as well as customer and product support costs). ◦ Inventory and other costs related to the hardware we sell. TAC as a percentage of revenues generated from ads placed on Google Network properties are significantly higher than TAC as a percentage of revenues generated from ads placed on Google Search & other properties, because most of the advertiser revenues from ads served on Google Network properties are paid as TAC to our Google Network partners. Operating Expenses Operating expenses are generally incurred during our normal", "<2-hop>\n\nof the Stock Split. Revenue Recognition Revenues are recognized when control of the promised goods or services is transferred to our customers, and the collectibility of an amount that we expect in exchange for those goods or services is probable. Sales and other similar taxes are excluded from revenues. Advertising Revenues We generate advertising revenues primarily by delivering advertising on: • Google Search and other properties, including revenues from traffic generated by search distribution partners who use Google.com as their default search in browsers, toolbars, etc. and other Google owned and operated properties like Gmail, Google Maps, and Google Play; • YouTube properties; and • Google Network properties, including revenues from Google Network properties participating in AdMob, AdSense, and Google Ad Manager. Our customers generally purchase advertising inventory through Google Ads, Google Ad Manager, and Google Marketing Platform, among others. Table of Contents Alphabet Inc. 52 We offer advertising by delivering both performance and brand advertising. We recognize revenues for performance advertising when a user engages with the advertisement, such as a click, a view, or a purchase. For brand advertising, we recognize revenues when the ad is displayed, or a user views the ad. For ads placed on Google Network properties, we evaluate whether we are the principal (i.e., report revenues on a gross basis) or agent (i.e., report revenues on a net basis). Generally, we report advertising revenues for ads placed on Google Network properties on a gross basis, that is, the amounts billed to our customers are recorded as revenues, and amounts paid to Google Network partners are recorded as cost of revenues. Where we are the principal, we control the advertising inventory before it is transferred to our customers. Our control is evidenced by our sole ability to monetize the advertising inventory before it is transferred to our customers and is further supported by us being primarily responsible to our customers and having a level of discretion in establishing pricing. Google Cloud Revenues Google Cloud revenues consist of revenues from: • Google Cloud Platform, which includes fees for infrastructure, platform, and other services; • Google Workspace, which includes fees for cloud-based communication and collaboration tools for enterprises, such as Gmail, Docs, Drive, Calendar, and Meet; and • other enterprise services. Our cloud services are generally provided on either a consumption or subscription basis and may have contract terms longer than a year. Revenues related to cloud services provided on a consumption basis are recognized when the customer utilizes the services, based on the quantity of services consumed. Revenues related to cloud services provided on a subscription basis are recognized ratably over the contract term as the customer receives and consumes the benefits of the cloud services. Google Other Revenues Google other revenues consist of revenues from: • Google Play, which includes sales of apps and in-app purchases; • hardware, which includes sales of Fitbit wearable devices, Google Nest home products, and Pixel devices; • YouTube non-advertising, which includes subscription revenues from services such as YouTube Premium and YouTube TV; and • other products and services. We report revenues from Google Play app sales and in-app purchases on a net basis, because our performance obligation is to facilitate a transaction between app developers and end users, for which we earn a service fee. Arrangements with Multiple Performance Obligations Our contracts with customers may include multiple performance obligations. For such arrangements, we allocate revenues to each performance obligation based on its relative standalone selling price. We generally determine standalone selling prices based on the prices charged to customers. Customer Incentives and Credits Certain customers receive cash-based incentives or credits, which are accounted for as variable consideration. We estimate these amounts based on the expected amount to be provided to customers and reduce revenues. We believe that there will not be significant changes to our estimates of variable consideration. Sales Commissions We expense sales commissions when incurred when the amortization period (the period of the expected benefit) is one year or less. We recognize an asset for certain sales commissions if we expect the period of benefit of these costs to exceed one year and recognize the expense over the amortization period. These costs are recorded within sales and marketing expenses. Cost of Revenues Cost of revenues consists of TAC and other costs of revenues. • TAC includes: Table of Contents Alphabet Inc. 53 ◦ Amounts paid to our distribution partners who make available our search access points and services. Our distribution partners include browser providers, mobile carriers, original equipment manufacturers, and software developers. ◦ Amounts paid to Google Network partners primarily for ads displayed on their properties. • Other cost of revenues includes: ◦ Content acquisition costs, which are payments to content providers from whom we license video and other content for distribution on YouTube and Google Play (we pay fees to these content providers based on revenues generated or a flat fee). ◦ Expenses associated with our data centers (including bandwidth, compensation expenses, depreciation, energy, and other equipment costs) as well as other operations costs (such as content review as well as customer and product support costs). ◦ Inventory and other costs related to the hardware we sell. Software Development Costs We expense software development costs, including costs to develop software products or the software component of products to be sold, leased, or marketed to external users, before technological feasibility is reached. Technological feasibility is typically reached shortly before the release of such products. As a result, development costs that meet the criteria for capitalization were not material for the periods presented. Software development costs also include costs to develop software to be used solely to meet internal needs and cloud-based applications used to deliver our services. We capitalize development costs related to these software applications once the preliminary project stage is complete and it is probable that the project will be completed and the software will be used to perform the function intended. Costs capitalized for developing such software applications were not material for the periods"], "reference": "Google Nest products are part of Google's hardware sales, which contribute to Google other revenues. These revenues are affected by factors such as changes in customer usage and demand, the number of subscribers, and fluctuations in the timing of product launches. Additionally, Google other revenues include sales from Google Play, YouTube non-advertising, and other products and services, which are also subject to similar influencing factors."} +{"user_input": "How does Note 1 relate to the change in accounting estimates, and what is the significance of Note 10 in the context of loss contingencies?", "reference_contexts": ["<1-hop>\n\nLoss Contingencies We are regularly subject to claims, lawsuits, regulatory and government investigations, other proceedings, and consent orders involving competition, intellectual property, data privacy and security, tax and related compliance, labor and employment, commercial disputes, content generated by our users, goods and services offered by advertisers or publishers using our platforms, personal injury consumer protection, and other matters. Certain of these matters include speculative claims for substantial or indeterminate amounts of damages. We record a liability when we believe that it is probable that a loss has been incurred and the amount can be reasonably estimated. If we determine that a loss is reasonably possible and the loss or range of loss can be estimated, we disclose the possible loss in Note 10 of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K. We evaluate, on a regular basis, developments in our legal matters that could affect the amount of liability that has been previously accrued, and the matters and related reasonably possible losses disclosed, and make adjustments and changes to our disclosures as appropriate. Significant judgment is required to determine both the likelihood and the estimated amount of a loss related to such matters. Until the final resolution of such matters, there may be an exposure to loss in excess of the amount recorded, and such amounts could be material. Change in Accounting Estimate In January 2023, we completed an assessment of the useful lives of our servers and network equipment, resulting in a change in the estimated useful life of our servers and certain network equipment to six years, which we expect to result in a reduction of depreciation of approximately $3.4 billion for the full fiscal year 2023 for assets in service as of December 31, 2022, recorded primarily in cost of revenues and R&D expenses. See Note 1 of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for information relating to the useful lives of our servers and network equipment. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are exposed to financial market risks, including changes in foreign currency exchange rates, interest rates, and equity investment risks.", "<2-hop>\n\nincome, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2022, and the related notes and financial statement schedule listed in the Index at Item 15 (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 2, 2023 expressed an unqualified opinion thereon. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the U.S. Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates. Table of Contents Alphabet Inc. 44 Loss Contingencies Description of the Matter The Company is regularly subject to claims, lawsuits, regulatory and government investigations, other proceedings, and consent orders involving competition, intellectual property, data privacy and security, tax and related compliance, labor and employment, commercial disputes, content generated by its users, goods and services offered by advertisers or publishers using their platforms, personal injury, consumer protection, and other matters. As described in Note 10 to the consolidated financial statements “Commitments and contingencies” such claims, lawsuits, regulatory and government investigations, other proceedings, and consent orders could result in adverse consequences. Significant judgment is required to determine both the likelihood, and the estimated amount, of a loss related to such matters. Auditing management’s accounting for and disclosure of loss contingencies from these matters involved challenging and subjective auditor judgment in assessing the Company’s evaluation of the probability of a loss, and the estimated amount or range of loss. How We Addressed the Matter in Our Audit We tested relevant controls over the identified risks associated with management’s accounting for and disclosure of these matters. This included controls over management’s assessment of the probability of incurrence of a loss and whether the loss or range of loss was reasonably estimable and the development of related disclosures. Our audit procedures included gaining an understanding of previous rulings issued by regulators and the status of ongoing lawsuits, reviewing letters addressing the matters from internal and external legal counsel, meeting with internal legal counsel to discuss the allegations, and obtaining a representation letter from management on these matters. We also evaluated the Company’s disclosures in relation to these matters. /s/ Ernst & Young LLP We have served as the Company's auditor since 1999. San Jose, California February 2, 2023 Table of Contents Alphabet Inc. 45 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and the Board of Directors of Alphabet Inc. Opinion on Internal Control Over Financial Reporting We have audited Alphabet Inc.’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Alphabet Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the 2022 consolidated financial statements of the Company and our report dated February 2, 2023 expressed an unqualified opinion thereon. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules"], "reference": "Note 1 relates to the change in accounting estimates by providing information on the useful lives of servers and network equipment, which was reassessed in January 2023, resulting in a change to six years. This change is expected to reduce depreciation by approximately $3.4 billion for the fiscal year 2023. Note 10 is significant in the context of loss contingencies as it discloses possible losses when a loss is reasonably possible and can be estimated. It involves significant judgment to determine the likelihood and estimated amount of a loss related to claims, lawsuits, and other proceedings, which could result in material adverse consequences."} +{"user_input": "How do YouTube ads contribute to Alphabet Inc.'s overall advertising revenues, and what factors influence these revenues?", "reference_contexts": ["<1-hop>\n\nour revenues have been and may continue to be affected by a combination of factors, including: • changes in foreign currency exchange rates; • changes in pricing, such as those resulting from changes in fee structures, discounts, and customer incentives; • general economic conditions and various external dynamics, including geopolitical events, regulations, and other measures and their effect on advertiser, consumer, and enterprise spending; • new product and service launches; and Table of Contents Alphabet Inc. 27 • seasonality. Additionally, fluctuations in our revenues generated from advertising (\"Google advertising\"), revenues from other sources (\"Google other revenues\"), Google Cloud, and Other Bets revenues have been and may continue to be affected by other factors unique to each set of revenues, as described below. Google Services Google Services revenues consist of Google advertising as well as Google other revenues. Google Advertising Google advertising revenues are comprised of the following: • Google Search & other, which includes revenues generated on Google search properties (including revenues from traffic generated by search distribution partners who use Google.com as their default search in browsers, toolbars, etc.), and other Google owned and operated properties like Gmail, Google Maps, and Google Play; • YouTube ads, which includes revenues generated on YouTube properties; and • Google Network, which includes revenues generated on Google Network properties participating in AdMob, AdSense, and Google Ad Manager. We use certain metrics to track how well traffic across various properties is monetized as it relates to our advertising revenues: paid clicks and cost-per-click pertain to traffic on Google Search & other properties, while impressions and cost-per-impression pertain to traffic on our Google Network properties. Paid clicks represent engagement by users and include clicks on advertisements by end-users on Google search properties and other Google owned and operated properties including Gmail, Google Maps, and Google Play. Costper-click is defined as click-driven revenues divided by our total number of paid clicks and represents the average amount we charge advertisers for each engagement by users. Impressions include impressions displayed to users on Google Network properties participating primarily in AdMob, AdSense, and Google Ad Manager. Cost-per-impression is defined as impression-based and click-based revenues divided by our total number of impressions, and represents the average amount we charge advertisers for each impression displayed to users. As our business evolves, we periodically review, refine, and update our methodologies for monitoring, gathering, and counting the number of paid clicks and the number of impressions, and for identifying the revenues generated by the corresponding click and impression activity. Fluctuations in our advertising revenues, as well as the change in paid clicks and cost-per-click on Google Search & other properties and the change in impressions and cost-per-impression on Google Network properties and the correlation between these items have been and may continue to be affected by additional factors, such as: • advertiser competition for keywords; • changes in advertising quality, formats, delivery or policy; • changes in device mix; • seasonal fluctuations in internet usage, advertising expenditures, and underlying business trends, such as traditional retail seasonality; and • traffic growth in emerging markets compared to more mature markets and across various verticals and channels. Google Other Google other revenues are comprised of the following: • Google Play, which includes sales of apps and in-app purchases; • hardware, which includes sales of Fitbit wearable devices, Google Nest home products, and Pixel devices; • YouTube non-advertising, which includes subscription revenues from services such as YouTube Premium and YouTube TV; and • other products and services. Table of Contents Alphabet Inc. 28 Fluctuations in our Google other revenues have been and may continue to be affected by additional factors, such as changes in customer usage and demand, number of subscribers, and fluctuations in the timing of product launches. Google Cloud Google Cloud revenues are comprised of the following: • Google Cloud Platform, which includes fees for infrastructure, platform, and other services; • Google Workspace, which includes fees for cloud-based communication and collaboration tools for enterprises, such as Gmail, Docs, Drive, Calendar and Meet; and • other enterprise services. Fluctuations in our Google Cloud revenues have been and may continue to be affected by additional factors, such as customer usage. Other Bets Revenues from Other Bets are generated primarily from the sale of health technology and internet services. Costs and Expenses Our cost structure has two components: cost of revenues and operating expenses. Our operating expenses include costs related to R&D, sales and marketing, and general and administrative functions. Certain of our costs and expenses, including those associated with the operation of our technical infrastructure as well as components of our operating expenses, are generally less variable in nature and may not correlate to changes in revenue. Cost of Revenues Cost of revenues is comprised of TAC and other costs of revenues. • TAC includes: ◦ Amounts paid to our distribution partners who make available our search access points and services. Our distribution partners include browser providers, mobile carriers, original equipment manufacturers, and software developers. ◦ Amounts paid to Google Network partners primarily for ads displayed on their properties. • Other cost of revenues includes: ◦ Content acquisition costs, which are payments to content providers from whom we license video and other content for distribution on YouTube and Google Play (we pay fees to these content providers based on revenues generated or a flat fee). ◦ Expenses associated with our data centers (including bandwidth, compensation expenses, depreciation, energy, and other equipment costs) as well as other operations costs (such as content review as well as customer and product support costs). ◦ Inventory and other costs related to the hardware we sell. TAC as a percentage of revenues generated from ads placed on Google Network properties are significantly higher than TAC as a percentage of revenues generated from ads placed on Google Search & other properties, because most of the advertiser revenues from ads served on Google Network properties are paid as TAC to our Google Network partners. Operating Expenses Operating expenses are generally incurred during our normal", "<2-hop>\n\nequity. We reflect net foreign exchange transaction gains and losses resulting from the conversion of the transaction currency to functional currency as a component of foreign currency exchange gain (loss) in other income (expense), net. Prior Period Reclassifications Certain amounts in prior periods have been reclassified to conform with current period presentation. Table of Contents Alphabet Inc. 58 Note 2. Revenues Disaggregated Revenues The following table presents revenues disaggregated by type (in millions): Year Ended December 31, 2020 2021 2022 Google Search & other $ 104,062 $ 148,951 $ 162,450 YouTube ads 19,772 28,845 29,243 Google Network 23,090 31,701 32,780 Google advertising 146,924 209,497 224,473 Google other 21,711 28,032 29,055 Google Services total 168,635 237,529 253,528 Google Cloud 13,059 19,206 26,280 Other Bets 657 753 1,068 Hedging gains (losses) 176 149 1,960 Total revenues $ 182,527 $ 257,637 $ 282,836 No individual customer or groups of affiliated customers represented more than 10% of our revenues in 2020, 2021, or 2022. The following table presents revenues disaggregated by geography, based on the addresses of our customers (in millions): Year Ended December 31, 2020 2021 2022 United States $ 85,014 47 % $ 117,854 46 % $ 134,814 48 % EMEA(1) 55,370 30 79,107 31 82,062 29 APAC(1) 32,550 18 46,123 18 47,024 16 Other Americas(1) 9,417 5 14,404 5 16,976 6 Hedging gains (losses) 176 0 149 0 1,960 1 Total revenues $ 182,527 100 % $ 257,637 100 % $ 282,836 100 % (1) Regions represent Europe, the Middle East, and Africa (EMEA); Asia-Pacific (APAC); and Canada and Latin America (\"Other Americas\"). Revenue Backlog As of December 31, 2022, we had $64.3 billion of remaining performance obligations (“revenue backlog”), primarily related to Google Cloud. Our revenue backlog represents commitments in customer contracts for future services that have not yet been recognized as revenue. The amount and timing of revenue recognition for these commitments is largely driven by our ability to deliver in accordance with relevant contract terms and when our customers utilize services, which could affect our estimate of revenue backlog and when we expect to recognize such as revenue. We expect to recognize approximately half of the revenue backlog as revenues over the next 24 months with the remaining to be recognized thereafter. 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. Deferred Revenue 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 $2.5 billion was recognized as revenues for the year ending December 31, 2022. Table of Contents Alphabet Inc. 59 Note 3. Financial Instruments Fair Value Measurements Investments measured at fair value on a recurring basis Cash, cash equivalents, and marketable equity securities are measured at fair value and classified within Level 1 and Level 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. Debt securities are classified 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. The following tables summarize our cash, cash equivalents, and marketable securities measured at fair value on a recurring basis (in millions): As of December 31, 2021 Fair Value Hierarchy Adjusted Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Cash and Cash Equivalents Marketable Securities Fair value changes recorded in other comprehensive income Time deposits(1) Level 2 $ 5,133 $ 0 $ 0 $ 5,133 $ 5,133 $ 0 Government bonds Level 2 53,288 258 (238) 53,308 5 53,303 Corporate debt securities Level 2 35,605 194 (223) 35,576 12 35,564 Mortgage-backed and asset-backed securities Level 2 18,829 96 (112) 18,813 0 18,813 Total investments with fair value change reflected in Other Comprehensive Income(2) $ 112,855 $ 548 $ (573) $ 112,830 $ 5,150 $ 107,680 Fair value adjustments recorded in net income Money market funds Level 1 $ 7,499 $ 7,499 $ 0 Current marketable equity securities(3) Level 1 5,998 0 5,998 Mutual funds Level 2 351 0 351 Government bonds Level 2 1,165 0 1,165 Corporate debt securities Level 2 2,503 0 2,503 Mortgage-backed and asset-backed securities Level 2 1,007 0 1,007 Total investments with fair value change recorded in Net Income $ 18,523 $ 7,499 $ 11,024 Cash 0 8,296 0 Total $ 112,855 $ 548 $ (573) $ 131,353 $ 20,945 $ 118,704 (1) The majority of our time deposits are domestic deposits. (2) Represents gross unrealized gains and losses for debt securities recorded to AOCI. (3) The long-term portion of marketable equity securities (subject to long-term lock-up restrictions) of $1.4 billion as of December 31, 2021 is included within other non-current assets. Table of Contents Alphabet Inc. 60 As of December 31, 2022 Fair Value Hierarchy Adjusted Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Cash and Cash Equivalents Marketable Securities Fair value changes recorded in other comprehensive income Time deposits(1) Level 2 $ 5,297 $ 0 $ 0 $ 5,297 $ 5,293 $ 4 Government bonds Level 2 41,036 64 (2,045) 39,055 283 38,772 Corporate debt securities Level 2 28,578 8 (1,569) 27,017 1 27,016 Mortgage-backed and asset-backed securities Level 2 16,176 5 (1,242) 14,939 0 14,939 Total investments with fair value change reflected in Other Comprehensive Income(2) $ 91,087 $ 77 $ (4,856) $ 86,308 $ 5,577 $ 80,731 Fair value"], "reference": "YouTube ads contribute significantly to Alphabet Inc.'s overall advertising revenues as part of Google Services. In 2022, YouTube ads generated $29,243 million, contributing to the total Google advertising revenue of $224,473 million. Factors influencing these revenues include changes in foreign currency exchange rates, pricing adjustments, economic conditions, and advertiser competition for keywords. Additionally, changes in advertising quality, formats, delivery, policy, and seasonal fluctuations in internet usage and advertising expenditures also affect these revenues."} +{"user_input": "How do fluctuations in Google's advertising revenues and capital expenditures impact its financial strategy?", "reference_contexts": ["<1-hop>\n\nour revenues have been and may continue to be affected by a combination of factors, including: • changes in foreign currency exchange rates; • changes in pricing, such as those resulting from changes in fee structures, discounts, and customer incentives; • general economic conditions and various external dynamics, including geopolitical events, regulations, and other measures and their effect on advertiser, consumer, and enterprise spending; • new product and service launches; and Table of Contents Alphabet Inc. 27 • seasonality. Additionally, fluctuations in our revenues generated from advertising (\"Google advertising\"), revenues from other sources (\"Google other revenues\"), Google Cloud, and Other Bets revenues have been and may continue to be affected by other factors unique to each set of revenues, as described below. Google Services Google Services revenues consist of Google advertising as well as Google other revenues. Google Advertising Google advertising revenues are comprised of the following: • Google Search & other, which includes revenues generated on Google search properties (including revenues from traffic generated by search distribution partners who use Google.com as their default search in browsers, toolbars, etc.), and other Google owned and operated properties like Gmail, Google Maps, and Google Play; • YouTube ads, which includes revenues generated on YouTube properties; and • Google Network, which includes revenues generated on Google Network properties participating in AdMob, AdSense, and Google Ad Manager. We use certain metrics to track how well traffic across various properties is monetized as it relates to our advertising revenues: paid clicks and cost-per-click pertain to traffic on Google Search & other properties, while impressions and cost-per-impression pertain to traffic on our Google Network properties. Paid clicks represent engagement by users and include clicks on advertisements by end-users on Google search properties and other Google owned and operated properties including Gmail, Google Maps, and Google Play. Costper-click is defined as click-driven revenues divided by our total number of paid clicks and represents the average amount we charge advertisers for each engagement by users. Impressions include impressions displayed to users on Google Network properties participating primarily in AdMob, AdSense, and Google Ad Manager. Cost-per-impression is defined as impression-based and click-based revenues divided by our total number of impressions, and represents the average amount we charge advertisers for each impression displayed to users. As our business evolves, we periodically review, refine, and update our methodologies for monitoring, gathering, and counting the number of paid clicks and the number of impressions, and for identifying the revenues generated by the corresponding click and impression activity. Fluctuations in our advertising revenues, as well as the change in paid clicks and cost-per-click on Google Search & other properties and the change in impressions and cost-per-impression on Google Network properties and the correlation between these items have been and may continue to be affected by additional factors, such as: • advertiser competition for keywords; • changes in advertising quality, formats, delivery or policy; • changes in device mix; • seasonal fluctuations in internet usage, advertising expenditures, and underlying business trends, such as traditional retail seasonality; and • traffic growth in emerging markets compared to more mature markets and across various verticals and channels. Google Other Google other revenues are comprised of the following: • Google Play, which includes sales of apps and in-app purchases; • hardware, which includes sales of Fitbit wearable devices, Google Nest home products, and Pixel devices; • YouTube non-advertising, which includes subscription revenues from services such as YouTube Premium and YouTube TV; and • other products and services. Table of Contents Alphabet Inc. 28 Fluctuations in our Google other revenues have been and may continue to be affected by additional factors, such as changes in customer usage and demand, number of subscribers, and fluctuations in the timing of product launches. Google Cloud Google Cloud revenues are comprised of the following: • Google Cloud Platform, which includes fees for infrastructure, platform, and other services; • Google Workspace, which includes fees for cloud-based communication and collaboration tools for enterprises, such as Gmail, Docs, Drive, Calendar and Meet; and • other enterprise services. Fluctuations in our Google Cloud revenues have been and may continue to be affected by additional factors, such as customer usage. Other Bets Revenues from Other Bets are generated primarily from the sale of health technology and internet services. Costs and Expenses Our cost structure has two components: cost of revenues and operating expenses. Our operating expenses include costs related to R&D, sales and marketing, and general and administrative functions. Certain of our costs and expenses, including those associated with the operation of our technical infrastructure as well as components of our operating expenses, are generally less variable in nature and may not correlate to changes in revenue. Cost of Revenues Cost of revenues is comprised of TAC and other costs of revenues. • TAC includes: ◦ Amounts paid to our distribution partners who make available our search access points and services. Our distribution partners include browser providers, mobile carriers, original equipment manufacturers, and software developers. ◦ Amounts paid to Google Network partners primarily for ads displayed on their properties. • Other cost of revenues includes: ◦ Content acquisition costs, which are payments to content providers from whom we license video and other content for distribution on YouTube and Google Play (we pay fees to these content providers based on revenues generated or a flat fee). ◦ Expenses associated with our data centers (including bandwidth, compensation expenses, depreciation, energy, and other equipment costs) as well as other operations costs (such as content review as well as customer and product support costs). ◦ Inventory and other costs related to the hardware we sell. TAC as a percentage of revenues generated from ads placed on Google Network properties are significantly higher than TAC as a percentage of revenues generated from ads placed on Google Search & other properties, because most of the advertiser revenues from ads served on Google Network properties are paid as TAC to our Google Network partners. Operating Expenses Operating expenses are generally incurred during our normal", "<2-hop>\n\ncommitments for investing and financing activities for at least the next 12 months and thereafter for the foreseeable future. Capital Expenditures and Leases We make investments in land and buildings for data centers and offices and information technology assets through purchases of property and equipment and lease arrangements to provide capacity for the growth of our services and products. Capital Expenditures Our capital investments in property and equipment consist primarily of the following major categories: • technical infrastructure, which consists of our investments in servers and network equipment for computing, storage, and networking requirements for ongoing business activities, including AI, (collectively referred to as our information technology assets) and data center land and building construction; and • office facilities, ground-up development projects, and building improvements (also referred to as \"fit-outs\"). Construction in progress consists primarily of technical infrastructure and office facilities which have not yet been placed in service. The time frame from date of purchase to placement in service of these assets may extend from months to years. For example, our data center construction projects are generally multi-year projects with multiple Table of Contents Alphabet Inc. 37 phases, where we acquire qualified land and buildings, construct buildings, and secure and install information technology assets. During the years ended December 31, 2021 and 2022, we spent $24.6 billion and $31.5 billion on capital expenditures, respectively. Depreciation of our property and equipment commences when the deployment of such assets are completed and are ready for our intended use. Land is not depreciated. For the years ended December 31, 2021 and 2022, our depreciation and impairment expenses on property and equipment were $11.6 billion and $15.3 billion, respectively. Leases For the years ended December 31, 2021 and 2022, we recognized total operating lease assets of $3.0 billion and $4.4 billion, respectively. As of December 31, 2022, the amount of total future lease payments under operating leases, which had a weighted average remaining lease term of 8 years, was $17.4 billion, of which $3.0 billion is short-term. As of December 31, 2022, we have entered into leases that have not yet commenced with future short-term and long-term lease payments of $630 million and $3.1 billion that are not yet recorded on our Consolidated Balance Sheets. These leases will commence between 2023 and 2026 with non-cancelable lease terms of 1 to 25 years. For the years ended December 31, 2021 and 2022, our operating lease expenses (including variable lease costs) were $3.4 billion and $3.7 billion, respectively. Finance lease costs were not material for the years ended December 31, 2021 and 2022. See Note 4 of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for further information on leases. Financing We have a short-term debt financing program of up to $10.0 billion through the issuance of commercial paper. Net proceeds from this program are used for general corporate purposes. As of December 31, 2022, we had no commercial paper outstanding. As of December 31, 2022, we had $10.0 billion of revolving credit facilities, $4.0 billion expiring in April 2023 and $6.0 billion expiring in April 2026. The interest rates for all credit facilities are determined based on a formula using certain market rates, as well as our progress toward the achievement of certain sustainability goals. No amounts have been borrowed under the credit facilities. As of December 31, 2022, we had senior unsecured notes outstanding with a total carrying value of $12.9 billion with short-term and long-term future interest payments of $231 million and $3.8 billion, respectively. See Note 6 of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for further information on our debt. We primarily utilize contract manufacturers for the assembly of our servers used in our technical infrastructure and hardware products we sell. We have agreements where we may purchase components directly from suppliers and then supply these components to contract manufacturers for use in the assembly of the servers and hardware products. Certain of these arrangements result in a portion of the cash received from and paid to the contract manufacturers to be presented as financing activities in the Consolidated Statements of Cash Flows included in Item 8 of this Annual Report on From 10-K. Share Repurchase Program In April 2022, the Board of Directors of Alphabet authorized the company to repurchase up to $70.0 billion of its Class A and Class C shares. As of December 31, 2022, $28.1 billion remains available for Class A and Class C share repurchases. In accordance with the authorization of the Board of Directors of Alphabet, during 2022 we repurchased and subsequently retired 530 million shares for $59.3 billion. Of the aggregate amount repurchased and subsequently retired, 61 million shares were Class A stock for $6.7 billion and 469 million shares were Class C stock for $52.6 billion. See Note 11 of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K. European Commission Fines In 2017, 2018 and 2019, the EC announced decisions that certain actions taken by Google infringed European competition law and imposed fines of €2.4 billion ($2.7 billion as of June 27, 2017), €4.3 billion ($5.1 billion as of June 30, 2018), and €1.5 billion ($1.7 billion as of March 20, 2019), respectively. On September 14, 2022, the General Court reduced the 2018 fine from €4.3 billion to €4.1 billion. We subsequently filed an appeal to the European Court of Justice. In 2018 we recognized a charge of $5.1 billion for the fine, which we reduced by $217 million in 2022. While each EC decision is under appeal, we included the fines in accrued expenses and other current liabilities on our Consolidated Balance Sheets as we provided bank guarantees (in lieu of a cash payment) for the fines. For Table of Contents Alphabet Inc. 38 further details, see Note 10 of the Notes to Consolidated Financial Statements included in Item 8 of this Annual"], "reference": "Fluctuations in Google's advertising revenues are influenced by factors such as changes in foreign currency exchange rates, pricing adjustments, economic conditions, and seasonal trends. These fluctuations affect Google's financial performance and necessitate strategic adjustments. On the other hand, Google's capital expenditures, which include investments in technical infrastructure and office facilities, are significant, with $24.6 billion and $31.5 billion spent in 2021 and 2022, respectively. These expenditures are crucial for supporting the growth of Google's services and products. The interplay between advertising revenue fluctuations and capital expenditures impacts Google's financial strategy, as the company must balance revenue generation with substantial investments in infrastructure to sustain its operations and growth."} +{"user_input": "How have Google's financial strategies, such as stock repurchases and stock-based compensation, impacted its financial performance and cash flow from 2020 to 2022, considering the changes in revenue sources and cost structures?", "reference_contexts": ["<1-hop>\n\n(5,969) Repurchases of stock (430) (2,159) 0 (28,990) (31,149) Sale of interest in consolidated entities 0 2,795 0 0 2,795 Net income 0 0 0 40,269 40,269 Other comprehensive income (loss) 0 0 1,865 0 1,865 Balance as of December 31, 2020 13,504 58,510 633 163,401 222,544 Stock issued 145 12 0 0 12 Stock-based compensation expense 0 15,539 0 0 15,539 Tax withholding related to vesting of restricted stock units and other 0 (10,273) 0 0 (10,273) Repurchases of stock (407) (2,324) 0 (47,950) (50,274) Sale of interest in consolidated entities 0 310 0 0 310 Net income 0 0 0 76,033 76,033 Other comprehensive income (loss) 0 0 (2,256) 0 (2,256) Balance as of December 31, 2021 13,242 61,774 (1,623) 191,484 251,635 Stock issued 137 8 0 0 8 Stock-based compensation expense 0 19,525 0 0 19,525 Tax withholding related to vesting of restricted stock units and other 0 (9,754) 0 (1) (9,755) Repurchases of stock (530) (3,404) 0 (55,892) (59,296) Sale of interest in consolidated entities 0 35 0 0 35 Net income 0 0 0 59,972 59,972 Other comprehensive income (loss) 0 0 (5,980) 0 (5,980) Balance as of December 31, 2022 12,849 $ 68,184 $ (7,603) $ 195,563 $ 256,144 See accompanying notes. Table of Contents Alphabet Inc. 50 Alphabet Inc. CONSOLIDATED STATEMENTS OF CASH FLOWS (in millions) Year Ended December 31, 2020 2021 2022 Operating activities Net income $ 40,269 $ 76,033 $ 59,972 Adjustments: Depreciation and impairment of property and equipment 12,905 11,555 15,287 Amortization and impairment of intangible assets 792 886 641 Stock-based compensation expense 12,991 15,376 19,362 Deferred income taxes 1,390 1,808 (8,081) (Gain) loss on debt and equity securities, net (6,317) (12,270) 5,519 Other 1,267 (213) 1,030 Changes in assets and liabilities, net of effects of acquisitions: Accounts receivable, net (6,524) (9,095) (2,317) Income taxes, net 1,209 (625) 584 Other assets (1,330) (1,846) (5,046) Accounts payable 694 283 707 Accrued expenses and other liabilities 5,504 7,304 3,915 Accrued revenue share 1,639 1,682 (445) Deferred revenue 635 774 367 Net cash provided by operating activities 65,124 91,652 91,495 Investing activities Purchases of property and equipment (22,281) (24,640) (31,485) Purchases of marketable securities (136,576) (135,196) (78,874) Maturities and sales of marketable securities 132,906 128,294 97,822 Purchases of non-marketable securities (7,175) (2,838) (2,531) Maturities and sales of non-marketable securities 1,023 934 150 Acquisitions, net of cash acquired, and purchases of intangible assets (738) (2,618) (6,969) Other investing activities 68 541 1,589 Net cash used in investing activities (32,773) (35,523) (20,298) Financing activities Net payments related to stock-based award activities (5,720) (10,162) (9,300) Repurchases of stock (31,149) (50,274) (59,296) Proceeds from issuance of debt, net of costs 11,761 20,199 52,872 Repayments of debt (2,100) (21,435) (54,068) Proceeds from sale of interest in consolidated entities, net 2,800 310 35 Net cash used in financing activities (24,408) (61,362) (69,757) Effect of exchange rate changes on cash and cash equivalents 24 (287) (506) Net increase (decrease) in cash and cash equivalents 7,967 (5,520) 934 Cash and cash equivalents at beginning of period 18,498 26,465 20,945 Cash and cash equivalents at end of period $ 26,465 $ 20,945 $ 21,879 Supplemental disclosures of cash flow information Cash paid for income taxes, net of refunds $ 4,990 $ 13,412 $ 18,892 See accompanying notes. Table of Contents Alphabet Inc. 51 Alphabet Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 enterprise customers with infrastructure and platform services as well as communication and collaboration tools; sales of other products and services, such as apps and in-app purchases, and hardware; and fees received for subscriptionbased products. Basis of Consolidation The consolidated financial statements of Alphabet include the accounts of Alphabet and entities consolidated under the variable interest and voting models. Intercompany balances and transactions have been eliminated. 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 due to uncertainties. On an ongoing basis, we evaluate our estimates, including those related to the allowance for credit losses; fair values of financial instruments, intangible assets, and goodwill; inventory; 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, and the results of which form the basis for making judgments about the carrying values of assets and liabilities. In January 2023, we completed an assessment of the useful lives of our servers and network equipment and adjusted the estimated useful life of our servers from four years to six years and the estimated useful life of certain network equipment from five years to six years. This change in accounting estimate is effective beginning in fiscal year 2023. Stock Split Effected in the Form of a Stock Dividend (“Stock Split”) On February 1, 2022, the company announced that the Board of Directors had approved and declared a 20-forone stock split in the form of a one-time special stock dividend on each share of the company’s Class A, Class B, and Class C stock. The Stock Split had a record date of July 1, 2022 and an effective date of July 15, 2022. The par value per share of our Class A, Class B, and Class C stock remains unchanged at $0.001 per share after the Stock Split. All prior period references made to share or per share amounts in the accompanying consolidated financial statements and applicable disclosures prior to the effective date have been retroactively adjusted to reflect the effects", "<2-hop>\n\nour revenues have been and may continue to be affected by a combination of factors, including: • changes in foreign currency exchange rates; • changes in pricing, such as those resulting from changes in fee structures, discounts, and customer incentives; • general economic conditions and various external dynamics, including geopolitical events, regulations, and other measures and their effect on advertiser, consumer, and enterprise spending; • new product and service launches; and Table of Contents Alphabet Inc. 27 • seasonality. Additionally, fluctuations in our revenues generated from advertising (\"Google advertising\"), revenues from other sources (\"Google other revenues\"), Google Cloud, and Other Bets revenues have been and may continue to be affected by other factors unique to each set of revenues, as described below. Google Services Google Services revenues consist of Google advertising as well as Google other revenues. Google Advertising Google advertising revenues are comprised of the following: • Google Search & other, which includes revenues generated on Google search properties (including revenues from traffic generated by search distribution partners who use Google.com as their default search in browsers, toolbars, etc.), and other Google owned and operated properties like Gmail, Google Maps, and Google Play; • YouTube ads, which includes revenues generated on YouTube properties; and • Google Network, which includes revenues generated on Google Network properties participating in AdMob, AdSense, and Google Ad Manager. We use certain metrics to track how well traffic across various properties is monetized as it relates to our advertising revenues: paid clicks and cost-per-click pertain to traffic on Google Search & other properties, while impressions and cost-per-impression pertain to traffic on our Google Network properties. Paid clicks represent engagement by users and include clicks on advertisements by end-users on Google search properties and other Google owned and operated properties including Gmail, Google Maps, and Google Play. Costper-click is defined as click-driven revenues divided by our total number of paid clicks and represents the average amount we charge advertisers for each engagement by users. Impressions include impressions displayed to users on Google Network properties participating primarily in AdMob, AdSense, and Google Ad Manager. Cost-per-impression is defined as impression-based and click-based revenues divided by our total number of impressions, and represents the average amount we charge advertisers for each impression displayed to users. As our business evolves, we periodically review, refine, and update our methodologies for monitoring, gathering, and counting the number of paid clicks and the number of impressions, and for identifying the revenues generated by the corresponding click and impression activity. Fluctuations in our advertising revenues, as well as the change in paid clicks and cost-per-click on Google Search & other properties and the change in impressions and cost-per-impression on Google Network properties and the correlation between these items have been and may continue to be affected by additional factors, such as: • advertiser competition for keywords; • changes in advertising quality, formats, delivery or policy; • changes in device mix; • seasonal fluctuations in internet usage, advertising expenditures, and underlying business trends, such as traditional retail seasonality; and • traffic growth in emerging markets compared to more mature markets and across various verticals and channels. Google Other Google other revenues are comprised of the following: • Google Play, which includes sales of apps and in-app purchases; • hardware, which includes sales of Fitbit wearable devices, Google Nest home products, and Pixel devices; • YouTube non-advertising, which includes subscription revenues from services such as YouTube Premium and YouTube TV; and • other products and services. Table of Contents Alphabet Inc. 28 Fluctuations in our Google other revenues have been and may continue to be affected by additional factors, such as changes in customer usage and demand, number of subscribers, and fluctuations in the timing of product launches. Google Cloud Google Cloud revenues are comprised of the following: • Google Cloud Platform, which includes fees for infrastructure, platform, and other services; • Google Workspace, which includes fees for cloud-based communication and collaboration tools for enterprises, such as Gmail, Docs, Drive, Calendar and Meet; and • other enterprise services. Fluctuations in our Google Cloud revenues have been and may continue to be affected by additional factors, such as customer usage. Other Bets Revenues from Other Bets are generated primarily from the sale of health technology and internet services. Costs and Expenses Our cost structure has two components: cost of revenues and operating expenses. Our operating expenses include costs related to R&D, sales and marketing, and general and administrative functions. Certain of our costs and expenses, including those associated with the operation of our technical infrastructure as well as components of our operating expenses, are generally less variable in nature and may not correlate to changes in revenue. Cost of Revenues Cost of revenues is comprised of TAC and other costs of revenues. • TAC includes: ◦ Amounts paid to our distribution partners who make available our search access points and services. Our distribution partners include browser providers, mobile carriers, original equipment manufacturers, and software developers. ◦ Amounts paid to Google Network partners primarily for ads displayed on their properties. • Other cost of revenues includes: ◦ Content acquisition costs, which are payments to content providers from whom we license video and other content for distribution on YouTube and Google Play (we pay fees to these content providers based on revenues generated or a flat fee). ◦ Expenses associated with our data centers (including bandwidth, compensation expenses, depreciation, energy, and other equipment costs) as well as other operations costs (such as content review as well as customer and product support costs). ◦ Inventory and other costs related to the hardware we sell. TAC as a percentage of revenues generated from ads placed on Google Network properties are significantly higher than TAC as a percentage of revenues generated from ads placed on Google Search & other properties, because most of the advertiser revenues from ads served on Google Network properties are paid as TAC to our Google Network partners. Operating Expenses Operating expenses are generally incurred during our normal"], "reference": "Google's financial strategies, including stock repurchases and stock-based compensation, have significantly impacted its financial performance and cash flow from 2020 to 2022. During this period, Google consistently engaged in stock repurchases, with amounts increasing from $31,149 million in 2020 to $59,296 million in 2022. This strategy likely aimed to return value to shareholders and manage the company's capital structure. Concurrently, stock-based compensation expenses also rose, from $12,991 million in 2020 to $19,362 million in 2022, reflecting Google's investment in talent retention and motivation. These financial strategies were executed alongside changes in revenue sources, such as fluctuations in Google advertising, Google Cloud, and other revenues, which were influenced by factors like foreign currency exchange rates, economic conditions, and new product launches. The cost structure, including Traffic Acquisition Costs (TAC) and other operational expenses, also played a role in shaping Google's financial outcomes. Despite these expenditures, Google's net income showed resilience, with $40,269 million in 2020, peaking at $76,033 million in 2021, before slightly decreasing to $59,972 million in 2022. Overall, these strategies and changes in revenue and cost structures contributed to a complex financial landscape, impacting Google's cash flow and financial performance over the three years."} diff --git a/integration_tests/rag_evals/dataset/synthetic_tests/20230203_alphabet_10K.pdf==dataset9.jsonl b/integration_tests/rag_evals/dataset/synthetic_tests/20230203_alphabet_10K.pdf==dataset9.jsonl new file mode 100644 index 00000000..62a57119 --- /dev/null +++ b/integration_tests/rag_evals/dataset/synthetic_tests/20230203_alphabet_10K.pdf==dataset9.jsonl @@ -0,0 +1,8 @@ +{"user_input": "What role does the SEC play in relation to Google's sustainability reports?", "reference_contexts": ["providers of digital video services; • social networks, which users may rely on for product or service referrals, rather than seeking information through traditional search engines; • providers of workspace communication and connectivity products; and • digital assistant providers. Competing successfully depends heavily on our ability to develop and distribute innovative products and technologies to the marketplace across our businesses. For example, for advertising, competing successfully depends on attracting and retaining: • users, for whom other products and services are literally one click away, largely on the basis of the relevance of our advertising, as well as the general usefulness, security, and availability of our products and services; • advertisers, primarily based on our ability to generate sales leads, and ultimately customers, and to deliver their advertisements in an efficient and effective manner across a variety of distribution channels; and • content providers, primarily based on the quality of our advertiser base, our ability to help these partners generate revenues from advertising, and the terms of our agreements with them. For additional information about competition, see Risk Factors in Item 1A of this Annual Report on Form 10-K. Ongoing Commitment to Sustainability We believe that every business has the opportunity and obligation to protect our planet. Sustainability is one of our core values at Google, and we strive to build sustainability into everything we do. We have been a leader on sustainability and climate change since Google’s founding more than 20 years ago. These are some of our key achievements over the past two decades: • In 2007, we became the first major company to be carbon neutral for our operations. • In 2017, we became the first major company to match 100% of our annual electricity use with renewable energy, which we have achieved for five consecutive years. • In 2020, we issued $5.75 billion in sustainability bonds—the largest sustainability or green bond issuance by any company in history at the time. The net proceeds from the issuance were used to fund environmentally and socially responsible projects in the following eight areas: energy efficiency, clean energy, green buildings, clean transportation, circular economy and design, affordable housing, commitment to racial equity, and support for small businesses and COVID-19 crisis response. As of 2022, we had fully allocated the net proceeds from our sustainability bonds as outlined in our Sustainability Bond Impact Report published in 2022. Our sustainability strategy is focused on three key pillars: accelerating the transition to carbon-free energy and a circular economy, empowering everyone with technology, and benefiting the people and places where we operate. Table of Contents Alphabet Inc. 7 To accelerate the transition to a carbon-free and circular economy, in 2020, we launched our third decade of climate action, and we are now working toward a new set of ambitious goals. By 2030, we aim to: • achieve net-zero emissions across all of our operations and value chain, including our consumer hardware products; • become the first major company to run on carbon-free energy 24 hours a day, seven days a week, 365 days a year; • enable 5 gigawatts of new carbon-free energy through investments in our key manufacturing regions; and • help more than 500 cities and local governments reduce an aggregate of 1 gigaton (one billion tons) of carbon emissions annually. We also aim to maximize the reuse of finite resources across our operations, products, and supply chains and to enable others to do the same. We are committed to helping people make more sustainable choices by empowering them with technology. We introduced eco-friendly routing in Google Maps; new features to book flights or purchase appliances that have lower carbon footprints; and when people come to Google Search with questions about climate change, we show information from authoritative sources like the United Nations. To benefit the people and places where we operate, we have set goals to replenish more water than we consume by 2030 and to support water security in communities where we operate. We are focused on three areas: enhancing our stewardship of water resources across Google offices and data centers; replenishing our water use and improving watershed health and ecosystems in water-stressed communities; and sharing technology and tools that help everyone predict, prevent, and recover from water stress. At Google we remain steadfast in our commitment to sustainability, and we will continue to lead and encourage others to join us in improving the health of our planet. We are proud of what we have achieved so far, and we are energized to help move the world closer to a more sustainable and carbon-free future for all. More information on our approach to sustainability can be found in our annual sustainability reports, including Google’s Environmental Report. The contents of our sustainability reports are not incorporated by reference into this Annual Report on Form 10-K or in any other report or document we file with the SEC. For additional information about risks and uncertainties applicable to our commitments to attain certain sustainability goals, see Risk Factors in Item 1A of this Annual Report on Form 10-K. Culture and Workforce We are a company of curious, talented, and passionate people. We embrace collaboration and creativity, and encourage the iteration of ideas to address complex challenges in technology and society. Our people are critical for our continued success, so we work hard to create an environment where employees can have fulfilling careers, and be happy, healthy, and productive. We offer industry-leading benefits and programs to take care of the diverse needs of our employees and their families, including opportunities for career growth and development, resources to support their financial health, and access to excellent healthcare choices. Our competitive compensation programs help us to attract and retain top candidates, and we will continue to invest in recruiting talented people to technical and non-technical roles, and rewarding them well. We provide a variety of high quality training and support to managers to build and strengthen their capabilities-–ranging from courses for new managers, to learning resources that"], "reference": "The contents of Google's sustainability reports are not incorporated by reference into the Annual Report on Form 10-K or in any other report or document filed with the SEC."} +{"user_input": "What are the challenges Google Cloud faces in maintaining its competitive edge?", "reference_contexts": ["more value Table of Contents Alphabet Inc. 9 (such as increased numbers of users or customers, new sales leads, increased brand awareness, or more effective monetization) than their available alternatives. Changes to our advertising policies and data privacy practices, as well as changes to other companies’ advertising and/or data privacy practices have in the past, and may in the future, affect the advertising that we are able to provide. In addition, technologies have been developed that make customized ads more difficult or that block the display of ads altogether, and some providers of online services have integrated these technologies that could potentially impair the availability and functionality of third-party digital advertising. Failing to provide superior value or deliver advertisements effectively and competitively could harm our business, reputation, financial condition, and operating results. In addition, expenditures by advertisers tend to correlate with overall economic conditions. Adverse macroeconomic conditions have affected, and may in the future affect, the demand for advertising, resulting in fluctuations in the amounts our advertisers spend on advertising, which could harm our financial condition and operating results. We face intense competition. If we do not continue to innovate and provide products and services that are useful to users, customers, and other partners, we may not remain competitive, which could harm our business, financial condition, and operating results. Our business environment is rapidly evolving and intensely competitive. Our businesses face changing technologies, shifting user needs, and frequent introductions of rival products and services. To compete successfully, we must accurately anticipate technology developments and deliver innovative, relevant and useful products, services, and technologies in a timely manner. As our businesses evolve, the competitive pressure to innovate will encompass a wider range of products and services. We must continue to invest significant resources in R&D, including through acquisitions, in order to enhance our technology and new and existing products and services. We have many competitors in different industries. Our current and potential domestic and international competitors range from large and established companies to emerging start-ups. Some competitors have longer operating histories and well established relationships in various sectors. They can use their experience and resources in ways that could affect our competitive position, including by making acquisitions, continuing to invest heavily in R&D and in talent, initiating intellectual property and competition claims (whether or not meritorious), and continuing to compete for users, advertisers, customers, and content providers. Further, discrepancies in enforcement of existing laws may enable our lesser known competitors to aggressively interpret those laws without commensurate scrutiny, thereby affording them competitive advantages. Our competitors may also be able to innovate and provide products and services faster than we can or may foresee the need for products and services before us. Our financial condition and operating results may also suffer if our products and services are not responsive to the evolving needs and desires of our users, advertisers, publishers, customers, and content providers. As new and existing technologies continue to develop, competitors and new entrants may be able to offer experiences that are, or that are seen to be, substantially similar to or better than ours. These technologies could reduce usage of our products and services, and force us to compete in different ways and expend significant resources to develop and operate equal or better products and services. Competitors’ success in providing compelling products and services or in attracting and retaining users, advertisers, publishers, customers, and content providers could harm our financial condition and operating results. Our ongoing investment in new businesses, products, services, and technologies is inherently risky, and could divert management attention and harm our business, financial condition, and operating results. We have invested and expect to continue to invest in new businesses, products, services, and technologies. The investments that we are making across our businesses, such as in AI, reflect our ongoing efforts to innovate and provide products and services that are useful to users, advertisers, publishers, customers, and content providers. Our investments span a wide range of industries beyond online advertising. Such investments ultimately may not be commercially viable or may not result in an adequate return of capital and, in pursuing new strategies, we may incur unanticipated liabilities. These endeavors may involve significant risks and uncertainties, including diversion of resources and management attention from current operations and the use of alternative investment, governance, or compensation structures that may fail to adequately align incentives across the company or otherwise accomplish their objectives. Within Google Services, we continue to invest heavily in hardware, including our smartphones, home devices, and wearables, which is a highly competitive market with frequent introduction of new products and services, rapid adoption of technological advancements by competitors, short product life cycles, evolving industry standards, continual improvement in performance characteristics, and price and feature sensitivity on the part of consumers and businesses. There can be no assurance we will be able to provide hardware that competes effectively. Table of Contents Alphabet Inc. 10 Within Google Cloud, we devote significant resources to develop and deploy our enterprise-ready cloud services, including Google Cloud Platform and Google Workspace. We are incurring costs to build and maintain infrastructure to support cloud computing services, invest in cybersecurity, and hire talent, particularly to support and scale our sales force. At the same time, our competitors are rapidly developing and deploying cloud-based services. Pricing and delivery models are competitive and constantly evolving, and we may not attain sufficient scale and profitability to achieve our business objectives. Further, our business with public sector customers may present additional risks, including regulatory compliance risks. For instance, we may be subject to government audits and cost reviews, and any failure to comply or any deficiencies found may expose us to legal, financial, and/or reputational risks. Evolving laws and regulations may require us to make new capital investments, build new products, and seek partners to deliver localized services in other countries, and we may not be able to meet sovereign operating requirements. Within Other Bets, we are investing significantly in the areas of health, life sciences, and"], "reference": "Google Cloud faces challenges such as rapidly developing and deploying cloud-based services by competitors, competitive and constantly evolving pricing and delivery models, and the need to attain sufficient scale and profitability to achieve business objectives. Additionally, business with public sector customers presents regulatory compliance risks, including potential government audits and cost reviews, which may expose Google Cloud to legal, financial, and reputational risks."} +{"user_input": "What challenges does Alphabet Inc. face in maintaining its intellectual property rights?", "reference_contexts": ["transportation, among others. These investment areas face intense competition from large, experienced, and well-funded competitors, and our offerings, many of which involve the development of new and emerging technologies, may not be successful, or be able to compete effectively or operate at sufficient levels of profitability. In addition, new and evolving products and services, including those that use AI, require significant investment and raise ethical, technological, legal, regulatory, and other challenges, which may negatively affect our brands and demand for our products and services. Because all of these investment areas are inherently risky, no assurance can be given that such strategies and offerings will be successful or will not harm our reputation, financial condition, and operating results. Our revenue growth rate could decline over time, and we anticipate downward pressure on our operating margin in the future. Our revenue growth rate could decline over time as a result of a number of factors, including changes in the devices and modalities used to access our products and services; changes in geographic mix; deceleration or declines in advertiser spending; competition; customer usage and demand for our products; decreases in our pricing of our products and services; ongoing product and policy changes; and shifts to lower priced products and services. In addition, we may also experience downward pressure on our operating margin resulting from a variety of factors, such as the continued expansion of our business into new fields, including products and services such as hardware, Google Cloud, and subscription products, as well as significant investments in Other Bets, all of which may have margins lower than those we generate from advertising. In particular, margins on our hardware products have had, and may continue to have, an adverse affect on our consolidated margins due to pressures on pricing and higher cost of sales. We may also experience downward pressure on our operating margins from increasing regulations, increasing competition, and increasing costs for many aspects of our business. Further, certain of our costs and expenses are generally less variable in nature and may not correlate to changes in revenue. Additionally, in conjunction with our efforts to re-engineer costs, we may not be able to execute these efforts in a timely manner or these efforts may not be successful. Due to these factors and the evolving nature of our business, our historical revenue growth rate and historical operating margin may not be indicative of our future performance. For additional information, see Trends in Our Business and Financial Effect and Revenues and Monetization Metrics in Part II, Item 7 of this Annual Report on Form 10-K. Our intellectual property rights are valuable, and any inability to protect them could reduce the value of our products, services, and brands as well as affect our ability to compete. Our patents, trademarks, trade secrets, copyrights, and other intellectual property rights are important assets for us. Various events outside of our control pose a threat to our intellectual property rights, as well as to our products, services, and technologies. For example, effective intellectual property protection may not be available in every country in which our products and services are distributed or made available through the Internet. Also, the efforts we have taken to protect our proprietary rights may not be sufficient or effective. Although we seek to obtain patent protection for our innovations, it is possible we may not be able to protect some of these innovations. Moreover, we may not have adequate patent or copyright protection for certain innovations that later turn out to be important. There is always the possibility that the scope of the protection gained will be insufficient or that an issued patent may be deemed invalid or unenforceable. We also seek to maintain certain intellectual property as trade secrets. The secrecy of such trade secrets and other sensitive information could be compromised, which could cause us to lose the competitive advantage resulting from these trade secrets. We also face risks associated with our trademarks. For example, there is a risk that the word “Google” could become so commonly used that it becomes synonymous with the word “search.” Some courts have ruled that \"Google\" is a protectable trademark, but it is possible that other courts, particularly those outside of the U.S., Table of Contents Alphabet Inc. 11 may reach a different determination. If this happens, we could lose protection for this trademark, which could result in other people using the word “Google” to refer to their own products, thus diminishing our brand. Any significant impairment of our intellectual property rights could harm our business and our ability to compete. Also, protecting our intellectual property rights is costly and time consuming. Any increase in the unauthorized use of our intellectual property could make it more expensive to do business and harm our financial condition and operating results. Our business depends on strong brands, and failing to maintain and enhance our brands would hurt our ability to expand our base of users, advertisers, customers, content providers, and other partners. Our strong brands have significantly contributed to the success of our business. Maintaining and enhancing the brands within Google Services, Google Cloud, and Other Bets increases our ability to enter new categories and launch new and innovative products and services that better serve the needs of our users, advertisers, customers, content providers, and other partners. Our brands have been, and may in the future be, negatively affected by a number of factors, including, among others, reputational issues, third-party content shared on our platforms, data privacy and security issues and developments, and product or technical performance failures. For example, if we fail to respond appropriately to the sharing of misinformation or objectionable content on our services and/or products or objectionable practices by advertisers, or otherwise to adequately address user concerns, our users may lose confidence in our brands. Furthermore, failure to maintain and enhance our brands could harm our business, reputation, financial condition, and operating results. Our success will depend largely on our ability to remain a technology leader and"], "reference": "Alphabet Inc. faces challenges in maintaining its intellectual property rights due to various events outside of its control, such as the lack of effective intellectual property protection in every country where its products and services are distributed. Additionally, efforts to protect proprietary rights may not be sufficient or effective, and there is a risk that the word 'Google' could become so commonly used that it becomes synonymous with the word 'search,' potentially leading to a loss of trademark protection. Any significant impairment of intellectual property rights could harm Alphabet Inc.'s business and its ability to compete."} +{"user_input": "How does Alphabet Inc.'s use of GAAP and constant currency reporting provide insights into its financial performance, particularly in the context of foreign exchange effects and stock repurchases?", "reference_contexts": ["<1-hop>\n\n(5,969) Repurchases of stock (430) (2,159) 0 (28,990) (31,149) Sale of interest in consolidated entities 0 2,795 0 0 2,795 Net income 0 0 0 40,269 40,269 Other comprehensive income (loss) 0 0 1,865 0 1,865 Balance as of December 31, 2020 13,504 58,510 633 163,401 222,544 Stock issued 145 12 0 0 12 Stock-based compensation expense 0 15,539 0 0 15,539 Tax withholding related to vesting of restricted stock units and other 0 (10,273) 0 0 (10,273) Repurchases of stock (407) (2,324) 0 (47,950) (50,274) Sale of interest in consolidated entities 0 310 0 0 310 Net income 0 0 0 76,033 76,033 Other comprehensive income (loss) 0 0 (2,256) 0 (2,256) Balance as of December 31, 2021 13,242 61,774 (1,623) 191,484 251,635 Stock issued 137 8 0 0 8 Stock-based compensation expense 0 19,525 0 0 19,525 Tax withholding related to vesting of restricted stock units and other 0 (9,754) 0 (1) (9,755) Repurchases of stock (530) (3,404) 0 (55,892) (59,296) Sale of interest in consolidated entities 0 35 0 0 35 Net income 0 0 0 59,972 59,972 Other comprehensive income (loss) 0 0 (5,980) 0 (5,980) Balance as of December 31, 2022 12,849 $ 68,184 $ (7,603) $ 195,563 $ 256,144 See accompanying notes. Table of Contents Alphabet Inc. 50 Alphabet Inc. CONSOLIDATED STATEMENTS OF CASH FLOWS (in millions) Year Ended December 31, 2020 2021 2022 Operating activities Net income $ 40,269 $ 76,033 $ 59,972 Adjustments: Depreciation and impairment of property and equipment 12,905 11,555 15,287 Amortization and impairment of intangible assets 792 886 641 Stock-based compensation expense 12,991 15,376 19,362 Deferred income taxes 1,390 1,808 (8,081) (Gain) loss on debt and equity securities, net (6,317) (12,270) 5,519 Other 1,267 (213) 1,030 Changes in assets and liabilities, net of effects of acquisitions: Accounts receivable, net (6,524) (9,095) (2,317) Income taxes, net 1,209 (625) 584 Other assets (1,330) (1,846) (5,046) Accounts payable 694 283 707 Accrued expenses and other liabilities 5,504 7,304 3,915 Accrued revenue share 1,639 1,682 (445) Deferred revenue 635 774 367 Net cash provided by operating activities 65,124 91,652 91,495 Investing activities Purchases of property and equipment (22,281) (24,640) (31,485) Purchases of marketable securities (136,576) (135,196) (78,874) Maturities and sales of marketable securities 132,906 128,294 97,822 Purchases of non-marketable securities (7,175) (2,838) (2,531) Maturities and sales of non-marketable securities 1,023 934 150 Acquisitions, net of cash acquired, and purchases of intangible assets (738) (2,618) (6,969) Other investing activities 68 541 1,589 Net cash used in investing activities (32,773) (35,523) (20,298) Financing activities Net payments related to stock-based award activities (5,720) (10,162) (9,300) Repurchases of stock (31,149) (50,274) (59,296) Proceeds from issuance of debt, net of costs 11,761 20,199 52,872 Repayments of debt (2,100) (21,435) (54,068) Proceeds from sale of interest in consolidated entities, net 2,800 310 35 Net cash used in financing activities (24,408) (61,362) (69,757) Effect of exchange rate changes on cash and cash equivalents 24 (287) (506) Net increase (decrease) in cash and cash equivalents 7,967 (5,520) 934 Cash and cash equivalents at beginning of period 18,498 26,465 20,945 Cash and cash equivalents at end of period $ 26,465 $ 20,945 $ 21,879 Supplemental disclosures of cash flow information Cash paid for income taxes, net of refunds $ 4,990 $ 13,412 $ 18,892 See accompanying notes. Table of Contents Alphabet Inc. 51 Alphabet Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 enterprise customers with infrastructure and platform services as well as communication and collaboration tools; sales of other products and services, such as apps and in-app purchases, and hardware; and fees received for subscriptionbased products. Basis of Consolidation The consolidated financial statements of Alphabet include the accounts of Alphabet and entities consolidated under the variable interest and voting models. Intercompany balances and transactions have been eliminated. 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 due to uncertainties. On an ongoing basis, we evaluate our estimates, including those related to the allowance for credit losses; fair values of financial instruments, intangible assets, and goodwill; inventory; 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, and the results of which form the basis for making judgments about the carrying values of assets and liabilities. In January 2023, we completed an assessment of the useful lives of our servers and network equipment and adjusted the estimated useful life of our servers from four years to six years and the estimated useful life of certain network equipment from five years to six years. This change in accounting estimate is effective beginning in fiscal year 2023. Stock Split Effected in the Form of a Stock Dividend (“Stock Split”) On February 1, 2022, the company announced that the Board of Directors had approved and declared a 20-forone stock split in the form of a one-time special stock dividend on each share of the company’s Class A, Class B, and Class C stock. The Stock Split had a record date of July 1, 2022 and an effective date of July 15, 2022. The par value per share of our Class A, Class B, and Class C stock remains unchanged at $0.001 per share after the Stock Split. All prior period references made to share or per share amounts in the accompanying consolidated financial statements and applicable disclosures prior to the effective date have been retroactively adjusted to reflect the effects", "<2-hop>\n\non a constant currency basis in addition to U.S. Generally Accepted Accounting Principles (GAAP) results helps improve the ability to understand our performance, because it excludes the effects of foreign currency volatility that are not indicative of our core operating results. Constant currency information compares results between periods as if exchange rates had remained constant period over period. We define constant currency revenues as revenues excluding the effect of foreign exchange rate movements (\"FX Effect\") as well as hedging activities, which are recognized at the consolidated level. We use constant currency revenues to determine the constant currency revenue percentage change on a year-on-year basis. Constant currency revenues are calculated by translating current period revenues using prior year comparable period exchange rates, as well as excluding any hedging effects realized in the current period. Table of Contents Alphabet Inc. 33 Constant currency revenue percentage change is calculated by determining the change in current period revenues over prior year comparable period revenues where current period foreign currency revenues are translated using prior year comparable period exchange rates and hedging effects are excluded from revenues of both periods. These results should be considered in addition to, not as a substitute for, results reported in accordance with GAAP. Results on a constant currency basis, as we present them, may not be comparable to similarly titled measures used by other companies and are not a measure of performance presented in accordance with GAAP. The following table presents the foreign exchange effect on international revenues and total revenues (in millions, except percentages): Year Ended December 31, 2022 % Change from Prior Period Year Ended December 31, Less FX Effect Constant Currency Revenues As Reported Less Hedging Effect Less FX Effect Constant Currency 2021 2022 Revenues United States $ 117,854 $ 134,814 $ 0 $ 134,814 14 % 0 % 14 % EMEA 79,107 82,062 (8,979) 91,041 4 % (11) % 15 % APAC 46,123 47,024 (3,915) 50,939 2 % (8) % 10 % Other Americas 14,404 16,976 (430) 17,406 18 % (3) % 21 % Revenues, excluding hedging effect 257,488 280,876 (13,324) 294,200 9 % (5) % 14 % Hedging gains (losses) 149 1,960 Total revenues(1) $ 257,637 $ 282,836 $ 294,200 10 % 1 % (5) % 14 % (1) Total constant currency revenues of $294.2 billion for 2022 increased $36.7 billion compared to $257.5 billion in revenues, excluding hedging effect for 2021. EMEA revenue growth was unfavorably affected by changes in foreign currency exchange rates, primarily due to the U.S. dollar strengthening relative to the Euro and the British pound. APAC revenue growth was unfavorably affected by changes in foreign currency exchange rates, primarily due to the U.S. dollar strengthening relative to the Japanese yen and the Australian dollar. Other Americas growth was unfavorably affected by changes in foreign currency exchange rates, primarily due to the U.S. dollar strengthening relative to the Argentine peso. Costs and Expenses Cost of Revenues The following table presents cost of revenues, including TAC (in millions, except percentages): Year Ended December 31, 2021 2022 TAC $ 45,566 $ 48,955 Other cost of revenues 65,373 77,248 Total cost of revenues $ 110,939 $ 126,203 Total cost of revenues as a percentage of revenues 43 % 45 % Cost of revenues increased $15.3 billion from 2021 to 2022. The increase was due to an increase in other cost of revenues and TAC of $11.9 billion and $3.4 billion, respectively. The increase in TAC from 2021 to 2022 was due to an increase in TAC paid to distribution partners and to Google Network partners, primarily driven by growth in revenues subject to TAC. The TAC rate was 22% in both 2021 and 2022. The TAC rate on Google Search & other revenues and the TAC rate on Google Network revenues were both substantially consistent from 2021 to 2022. The increase in other cost of revenues from 2021 to 2022 was primarily due to increases in data center costs and other operations costs as well as hardware costs. Table of Contents Alphabet Inc. 34 Research and Development The following table presents R&D expenses (in millions, except percentages): Year Ended December 31, 2021 2022 Research and development expenses $ 31,562 $ 39,500 Research and development expenses as a percentage of revenues 12 % 14 % R&D expenses increased $7.9 billion from 2021 to 2022 primarily driven by an increase in compensation expenses of $5.4 billion, largely resulting from a 21% increase in average headcount, and an increase in third-party service fees of $704 million. Sales and Marketing The following table presents sales and marketing expenses (in millions, except percentages): Year Ended December 31, 2021 2022 Sales and marketing expenses $ 22,912 $ 26,567 Sales and marketing expenses as a percentage of revenues 9 % 9 % Sales and marketing expenses increased $3.7 billion from 2021 to 2022, primarily driven by an increase in compensation expenses of $1.8 billion, largely resulting from a 19% increase in average headcount, and an increase in advertising and promotional activities of $1.3 billion. General and Administrative The following table presents general and administrative expenses (in millions, except percentages): Year Ended December 31, 2021 2022 General and administrative expenses $ 13,510 $ 15,724 General and administrative expenses as a percentage of revenues 5 % 6 % General and administrative expenses increased $2.2 billion from 2021 to 2022. The increase was primarily driven by an increase in compensation expenses of $1.1 billion, largely resulting from a 21% increase in average headcount, and an increase in third-party services fees of $815 million. In addition, there was a $551 million increase to the allowance for credit losses for accounts receivable, as the prior year comparable period reflected a decline in the allowance. Segment Profitability The following table presents segment operating income (loss) (in millions). Year Ended December 31, 2021 2022 Operating income (loss): Google Services $ 91,855 $ 86,572 Google Cloud (3,099) (2,968) Other Bets (5,281) (6,083) Corporate costs, unallocated(1) (4,761) (2,679) Total income from operations $ 78,714 $ 74,842 (1) Unallocated corporate"], "reference": "Alphabet Inc. utilizes GAAP (Generally Accepted Accounting Principles) to prepare its consolidated financial statements, which include the accounts of Alphabet and entities consolidated under the variable interest and voting models. This approach ensures that the financial statements are prepared in conformity with standardized accounting principles, allowing for consistency and comparability. Additionally, Alphabet Inc. employs constant currency reporting to provide a clearer understanding of its financial performance by excluding the effects of foreign currency volatility. This method involves translating current period revenues using prior year comparable period exchange rates and excluding any hedging effects, which helps in assessing the core operating results without the distortion caused by fluctuating exchange rates. For instance, in 2022, the strengthening of the U.S. dollar relative to other currencies like the Euro, British pound, Japanese yen, and Australian dollar unfavorably affected revenue growth in regions such as EMEA and APAC. Furthermore, Alphabet's financial activities include significant stock repurchases, which amounted to $59,296 million in 2022, reflecting a strategic use of capital to enhance shareholder value. These repurchases are part of the financing activities reported under GAAP, showcasing the company's efforts to manage its capital structure effectively."} +{"user_input": "How did the increase in compensation expenses impact the operating loss of Other Bets from 2021 to 2022, and what were the overall financial trends for Alphabet Inc. during this period?", "reference_contexts": ["<1-hop>\n\ncosts primarily include corporate initiatives, corporate shared costs, such as finance and legal, including certain fines and settlements, as well as costs associated with certain shared R&D activities. Additionally, hedging gains (losses) related to revenue are included in corporate costs and totaled $149 million and $2.0 billion in 2021 and 2022, respectively. Google Services Google Services operating income decreased $5.3 billion from 2021 to 2022. The decrease in operating income was primarily driven by increases in compensation expenses and TAC, partially offset by growth in revenues. Table of Contents Alphabet Inc. 35 Google Cloud Google Cloud operating loss decreased $131 million from 2021 to 2022. The decrease in operating loss was primarily driven by growth in revenues, partially offset by an increase in compensation expenses. Other Bets Other Bets operating loss increased $802 million from 2021 to 2022. The increase in operating loss was primarily driven by increases in compensation expenses, partially offset by growth in revenues. Other Income (Expense), Net The following table presents other income (expense), net, (in millions): Year Ended December 31, 2021 2022 Other income (expense), net $ 12,020 $ (3,514) Other income (expense), net, decreased $15.5 billion from 2021 to 2022 primarily due to changes in gains and losses on equity securities and performance fees. In 2022, $3.2 billion of net unrealized losses were recognized on marketable equity securities and $1.5 billion of net realized losses were recognized on debt securities. These losses were partially offset by interest income of $2.2 billion and reversals of previously accrued performance fees related to certain investments of $798 million. In 2021, $9.8 billion of net unrealized gains were recognized on non-marketable equity securities and $1.5 billion of interest income was recognized, partially offset by $1.9 billion of accrued performance fees related to certain investments. See Note 7 of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for further information. Provision for Income Taxes The following table presents provision for income taxes (in millions, except for effective tax rate): Year Ended December 31, 2021 2022 Income before provision for income taxes $ 90,734 $ 71,328 Provision for income taxes $ 14,701 $ 11,356 Effective tax rate 16.2 % 15.9 % The effective tax rate decreased from 2021 to 2022, primarily driven by the effects of capitalization and amortization of R&D expenses in 2022 as required by the 2017 Tax Cuts and Jobs Act generating an increase in the U.S. federal Foreign Derived Intangible Income tax deduction. The decrease was partially offset by a decrease in pretax earnings, including in countries that have lower statutory rates and a decrease in the stock-based compensation related tax benefit. See Note 14 of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for further information. Financial Condition Cash, Cash Equivalents, and Marketable Securities As of December 31, 2022, we had $113.8 billion in cash, cash equivalents, and short-term marketable securities. Cash equivalents and marketable securities are comprised of time deposits, money market funds, highly liquid government bonds, corporate debt securities, mortgage-backed and asset-backed securities, and marketable equity securities. Sources, Uses of Cash, and Related Trends Our principal sources of liquidity are cash, cash equivalents, and marketable securities, as well as the cash flow that we generate from operations. The primary use of capital continues to be to invest for the long-term growth of the business. We regularly evaluate our cash and capital structure, including the size, pace, and form of capital return to stockholders. Table of Contents Alphabet Inc. 36 The following table presents our cash flows (in millions): Year Ended December 31, 2021 2022 Net cash provided by operating activities $ 91,652 $ 91,495 Net cash used in investing activities $ (35,523) $ (20,298) Net cash used in financing activities $ (61,362) $ (69,757) Cash Provided by Operating Activities Our largest source of cash provided by operations are advertising revenues generated by Google Search & other properties, Google Network properties, and YouTube properties. Additionally, we generate cash through sales of apps and in-app purchases, and hardware; and licensing and service fees, including fees received for Google Cloud offerings and subscription-based products. Our primary uses of cash from operating activities include payments to distribution and Google Network partners, to employees for compensation, and to content providers. Other uses of cash from operating activities include payments to suppliers for hardware, to tax authorities for income taxes, and other general corporate expenditures. Net cash provided by operating activities decreased from 2021 to 2022 primarily due to the net effect of an increase in cash received from revenues, offset by increases in cash paid for cost of revenues and operating expenses and an increase in tax payments driven by the effects of capitalization and amortization of R&D expenses beginning in 2022 as required by the 2017 Tax Cuts and Jobs Act. Cash Used in Investing Activities Cash provided by investing activities consists primarily of maturities and sales of investments in marketable and non-marketable securities. Cash used in investing activities consists primarily of purchases of marketable and nonmarketable securities, purchases of property and equipment, and payments for acquisitions. Net cash used in investing activities decreased from 2021 to 2022 as a result of a decrease in net purchases of and maturities and sales of marketable securities, partially offset by an increase in purchases of property and equipment. Cash Used in Financing Activities Cash provided by financing activities consists primarily of proceeds from issuance of debt and proceeds from the sale of interest in consolidated entities. Cash used in financing activities consists primarily of repurchases of stock, net payments related to stock-based award activities, and repayments of debt. Net cash used in financing activities increased from 2021 to 2022 primarily due to an increase in repurchases of stock. Liquidity and Material Cash Requirements We expect existing cash, cash equivalents, short-term marketable securities, cash flows from operations and financing activities to continue to be sufficient to fund our operating activities and cash", "<2-hop>\n\nOperating income (loss): Google Services $ 54,606 $ 91,855 $ 86,572 Google Cloud (5,607) (3,099) (2,968) Other Bets (4,476) (5,281) (6,083) Corporate costs, unallocated (3,299) (4,761) (2,679) Total income from operations $ 41,224 $ 78,714 $ 74,842 For revenues by geography see Note 2. The following table presents long-lived assets by geographic area, which includes property and equipment, net and operating lease assets (in millions): As of December 31, 2021 2022 Long-lived assets: United States $ 80,207 $ 93,565 International 30,351 33,484 Total long-lived assets $ 110,558 $ 127,049 Note 16. Subsequent Event In January 2023, we announced a reduction of our workforce of approximately 12,000 roles. We expect to incur employee severance and related charges of $1.9 billion to $2.3 billion, the majority of which will be recognized in the first quarter of 2023. In addition, we are taking actions to optimize our global office space. As a result we expect to incur exit costs relating to office space reductions of approximately $0.5 billion in the first quarter of 2023. We may incur additional charges in the future as we further evaluate our real estate needs. Table of Contents Alphabet Inc. 83 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. ITEM 9A. CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Exchange Act, as of the end of the period covered by this Annual Report on Form 10-K. Based on this evaluation, our chief executive officer and chief financial officer concluded that, as of December 31, 2022, our disclosure controls and procedures are designed at a reasonable assurance level and are effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. Changes in Internal Control over Financial Reporting There have been no changes in our internal control over financial reporting that occurred during the quarter ended December 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Management’s Report on Internal Control over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) of the Exchange Act. Our management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Based on this evaluation, management concluded that our internal control over financial reporting was effective as of December 31, 2022. Management reviewed the results of its assessment with our Audit and Compliance Committee. The effectiveness of our internal control over financial reporting as of December 31, 2022 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in its report which is included in Item 8 of this Annual Report on Form 10-K. Limitations on Effectiveness of Controls and Procedures In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs. ITEM 9B. OTHER INFORMATION As previously disclosed, Google LLC, a subsidiary of Alphabet, filed notifications with the Russian Federal Security Service as required pursuant to Russian encryption product import controls for the purpose of enabling the import of certain software in Russia. The information provided pursuant to Section 13(r) of the Exchange Act in Part II, Item 5 of our Quarterly Report on Form 10-Q for the quarter ended September 30, 2022 is incorporated herein by reference. ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS Not applicable. Table of Contents Alphabet Inc. 84 PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE The information required by this item will be included under the caption “Directors, Executive Officers, and Corporate Governance” in our Proxy Statement for the 2023 Annual Meeting of Stockholders to be filed with the SEC within 120 days of the fiscal year ended December 31, 2022 (2023 Proxy Statement) and is incorporated herein by reference. The information required by this item regarding delinquent filers pursuant to Item 405 of Regulation S-K will be included under the caption “Delinquent Section 16(a) Reports” in the 2023 Proxy Statement and is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION The information required by this item will be included under the captions “Director Compensation,” “Executive Compensation” and “Directors, Executive Officers, and Corporate Governance—Corporate Governance and Board Matters—Compensation Committee Interlocks and Insider Participation” in the 2023 Proxy Statement and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The information required by this item will be included under the captions “Common Stock Ownership of Certain Beneficial Owners and Management” and “Equity Compensation Plan Information” in the 2023 Proxy Statement and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE The information required by this item will be included under the captions “Certain Relationships and Related Transactions” and “Directors, Executive Officers, and Corporate Governance—Corporate Governance and Board Matters—Director Independence” in the 2023 Proxy Statement and is incorporated herein by reference. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES The information required by this item will be included under the"], "reference": "The operating loss for Other Bets increased by $802 million from 2021 to 2022, primarily driven by increases in compensation expenses, although this was partially offset by growth in revenues. Overall, Alphabet Inc. experienced a decrease in Google Services operating income by $5.3 billion due to increased compensation expenses and TAC, while Google Cloud's operating loss decreased by $131 million due to revenue growth. Additionally, Alphabet's net cash provided by operating activities slightly decreased, and there was a significant decrease in other income (expense), net, primarily due to changes in gains and losses on equity securities and performance fees."} +{"user_input": "How did the financial performance of Alphabet's 'Other Bets' segment change from 2021 to 2022, and what were the primary factors influencing this change?", "reference_contexts": ["<1-hop>\n\ncosts primarily include corporate initiatives, corporate shared costs, such as finance and legal, including certain fines and settlements, as well as costs associated with certain shared R&D activities. Additionally, hedging gains (losses) related to revenue are included in corporate costs and totaled $149 million and $2.0 billion in 2021 and 2022, respectively. Google Services Google Services operating income decreased $5.3 billion from 2021 to 2022. The decrease in operating income was primarily driven by increases in compensation expenses and TAC, partially offset by growth in revenues. Table of Contents Alphabet Inc. 35 Google Cloud Google Cloud operating loss decreased $131 million from 2021 to 2022. The decrease in operating loss was primarily driven by growth in revenues, partially offset by an increase in compensation expenses. Other Bets Other Bets operating loss increased $802 million from 2021 to 2022. The increase in operating loss was primarily driven by increases in compensation expenses, partially offset by growth in revenues. Other Income (Expense), Net The following table presents other income (expense), net, (in millions): Year Ended December 31, 2021 2022 Other income (expense), net $ 12,020 $ (3,514) Other income (expense), net, decreased $15.5 billion from 2021 to 2022 primarily due to changes in gains and losses on equity securities and performance fees. In 2022, $3.2 billion of net unrealized losses were recognized on marketable equity securities and $1.5 billion of net realized losses were recognized on debt securities. These losses were partially offset by interest income of $2.2 billion and reversals of previously accrued performance fees related to certain investments of $798 million. In 2021, $9.8 billion of net unrealized gains were recognized on non-marketable equity securities and $1.5 billion of interest income was recognized, partially offset by $1.9 billion of accrued performance fees related to certain investments. See Note 7 of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for further information. Provision for Income Taxes The following table presents provision for income taxes (in millions, except for effective tax rate): Year Ended December 31, 2021 2022 Income before provision for income taxes $ 90,734 $ 71,328 Provision for income taxes $ 14,701 $ 11,356 Effective tax rate 16.2 % 15.9 % The effective tax rate decreased from 2021 to 2022, primarily driven by the effects of capitalization and amortization of R&D expenses in 2022 as required by the 2017 Tax Cuts and Jobs Act generating an increase in the U.S. federal Foreign Derived Intangible Income tax deduction. The decrease was partially offset by a decrease in pretax earnings, including in countries that have lower statutory rates and a decrease in the stock-based compensation related tax benefit. See Note 14 of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for further information. Financial Condition Cash, Cash Equivalents, and Marketable Securities As of December 31, 2022, we had $113.8 billion in cash, cash equivalents, and short-term marketable securities. Cash equivalents and marketable securities are comprised of time deposits, money market funds, highly liquid government bonds, corporate debt securities, mortgage-backed and asset-backed securities, and marketable equity securities. Sources, Uses of Cash, and Related Trends Our principal sources of liquidity are cash, cash equivalents, and marketable securities, as well as the cash flow that we generate from operations. The primary use of capital continues to be to invest for the long-term growth of the business. We regularly evaluate our cash and capital structure, including the size, pace, and form of capital return to stockholders. Table of Contents Alphabet Inc. 36 The following table presents our cash flows (in millions): Year Ended December 31, 2021 2022 Net cash provided by operating activities $ 91,652 $ 91,495 Net cash used in investing activities $ (35,523) $ (20,298) Net cash used in financing activities $ (61,362) $ (69,757) Cash Provided by Operating Activities Our largest source of cash provided by operations are advertising revenues generated by Google Search & other properties, Google Network properties, and YouTube properties. Additionally, we generate cash through sales of apps and in-app purchases, and hardware; and licensing and service fees, including fees received for Google Cloud offerings and subscription-based products. Our primary uses of cash from operating activities include payments to distribution and Google Network partners, to employees for compensation, and to content providers. Other uses of cash from operating activities include payments to suppliers for hardware, to tax authorities for income taxes, and other general corporate expenditures. Net cash provided by operating activities decreased from 2021 to 2022 primarily due to the net effect of an increase in cash received from revenues, offset by increases in cash paid for cost of revenues and operating expenses and an increase in tax payments driven by the effects of capitalization and amortization of R&D expenses beginning in 2022 as required by the 2017 Tax Cuts and Jobs Act. Cash Used in Investing Activities Cash provided by investing activities consists primarily of maturities and sales of investments in marketable and non-marketable securities. Cash used in investing activities consists primarily of purchases of marketable and nonmarketable securities, purchases of property and equipment, and payments for acquisitions. Net cash used in investing activities decreased from 2021 to 2022 as a result of a decrease in net purchases of and maturities and sales of marketable securities, partially offset by an increase in purchases of property and equipment. Cash Used in Financing Activities Cash provided by financing activities consists primarily of proceeds from issuance of debt and proceeds from the sale of interest in consolidated entities. Cash used in financing activities consists primarily of repurchases of stock, net payments related to stock-based award activities, and repayments of debt. Net cash used in financing activities increased from 2021 to 2022 primarily due to an increase in repurchases of stock. Liquidity and Material Cash Requirements We expect existing cash, cash equivalents, short-term marketable securities, cash flows from operations and financing activities to continue to be sufficient to fund our operating activities and cash", "<2-hop>\n\ntax credit carryforwards for state income tax purposes were approximately $931 million and will begin to expire in 2025. We use the flow-through method of accounting for investment tax credits. We believe this tax credit is not likely to be realized. As of December 31, 2022, we maintained a valuation allowance with respect to California deferred tax assets, certain federal net operating losses, certain state net operating losses and tax credits, net deferred tax assets relating to certain Other Bets, and certain foreign net operating losses that we believe are not likely to be realized. We continue to reassess the remaining valuation allowance quarterly, and if future evidence allows for a partial or full release of the valuation allowance, a tax benefit will be recorded accordingly. Table of Contents Alphabet Inc. 81 Uncertain Tax Positions The following table summarizes the activity related to our gross unrecognized tax benefits (in millions): 2020 2021 2022 Beginning gross unrecognized tax benefits $ 3,377 $ 3,837 $ 5,158 Increases related to prior year tax positions 372 529 253 Decreases related to prior year tax positions (557) (263) (437) Decreases related to settlement with tax authorities (45) (329) (140) Increases related to current year tax positions 690 1,384 2,221 Ending gross unrecognized tax benefits $ 3,837 $ 5,158 $ 7,055 Year Ended December 31, We are subject to income taxes in the U.S. and foreign jurisdictions. Significant judgment is required in evaluating our uncertain tax positions and determining our provision for income taxes. The total amount of gross unrecognized tax benefits was $3.8 billion, $5.2 billion, and $7.1 billion as of December 31, 2020, 2021, and 2022, respectively, of which $2.6 billion, $3.7 billion, and $5.3 billion, if recognized, would affect our effective tax rate, respectively. As of December 31, 2021 and 2022, we accrued $270 million and $346 million in interest and penalties in provision for income taxes, respectively. We file income tax returns in the U.S. federal jurisdiction and in many state and foreign jurisdictions. Our two major tax jurisdictions are the U.S. federal and Ireland. We are subject to the continuous examination of our income tax returns by the IRS and other tax authorities. The IRS is currently examining our 2016 through 2018 tax returns. We have also received tax assessments in multiple foreign jurisdictions asserting transfer pricing adjustments or permanent establishment. We continue to defend any and all such claims as presented. The tax years 2015 through 2021 remain subject to examination by the appropriate governmental agencies for Irish tax purposes. There are other ongoing audits in various other jurisdictions that are not material to our financial statements. We regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes. We continue to monitor the progress of ongoing discussions with tax authorities and the effect, if any, of the expected expiration of the statute of limitations in various taxing jurisdictions. We believe that an adequate provision has been made for any adjustments that may result from tax examinations. However, the outcome of tax audits cannot be predicted with certainty. If any issues addressed in our tax audits are resolved in a manner not consistent with management's expectations, we could be required to adjust our provision for income taxes in the period such resolutions occur. Although the timing of resolution, settlement, and closure of audits is not certain, it is reasonably possible that our unrecognized tax benefits from certain U.S. federal, state, and non U.S. tax positions could decrease by approximately $1.8 billion in the next 12 months. Positions that may be resolved include various U.S. and non-U.S. matters. Note 15. Information about Segments and Geographic Areas We report our segment results as Google Services, Google Cloud, and Other Bets: • Google Services includes products and services such as ads, Android, Chrome, hardware, Google Maps, Google Play, Search, and YouTube. Google Services generates revenues primarily from advertising; sales of apps and in-app purchases, and hardware; and fees received for subscription-based products such as YouTube Premium and YouTube TV. • Google Cloud includes infrastructure and platform services, collaboration tools, and other services for enterprise customers. Google Cloud generates revenues from fees received for Google Cloud Platform services, Google Workspace communication and collaboration tools, and other enterprise services. • Other Bets is a combination of multiple operating segments that are not individually material. Revenues from Other Bets are generated primarily from the sale of health technology and internet services. Revenues, certain costs, such as costs associated with content and traffic acquisition, certain engineering activities, and hardware, as well as certain operating expenses are directly attributable to our segments. Due to the integrated nature of Alphabet, other costs and expenses, such as technical infrastructure and office facilities, are managed centrally at a consolidated level. The associated costs, including depreciation and impairment, are allocated to operating segments as a service cost generally based on usage or headcount. Table of Contents Alphabet Inc. 82 Unallocated corporate costs primarily include corporate initiatives, corporate shared costs, such as finance and legal, including certain fines and settlements, as well as costs associated with certain shared R&D activities. Additionally, hedging gains (losses) related to revenue are included in corporate costs. As AI is critical to delivering our mission of bringing our breakthrough innovations into the real world, beginning in January 2023, we will update our segment reporting relating to certain of Alphabet's AI activities. DeepMind, previously reported within Other Bets, will be reported as part of Alphabet's corporate costs, reflecting its increasing collaboration with Google Services, Google Cloud, and Other Bets. Prior periods will be recast to conform to the revised presentation. Our operating segments are not evaluated using asset information. The following table presents information about our segments (in millions): Year Ended December 31, 2020 2021 2022 Revenues: Google Services $ 168,635 $ 237,529 $ 253,528 Google Cloud 13,059 19,206 26,280 Other Bets 657 753 1,068 Hedging gains (losses) 176 149 1,960 Total revenues $ 182,527 $ 257,637 $ 282,836"], "reference": "The financial performance of Alphabet's 'Other Bets' segment saw an increase in operating loss by $802 million from 2021 to 2022. This increase in operating loss was primarily driven by increases in compensation expenses, although it was partially offset by growth in revenues. The revenues from 'Other Bets' increased from $753 million in 2021 to $1,068 million in 2022, indicating a growth in sales of health technology and internet services. Additionally, the net deferred tax assets relating to certain 'Other Bets' were maintained with a valuation allowance, as they were not likely to be realized, which also reflects on the financial strategy and performance of this segment."} +{"user_input": "What are the implications of the U.S. tax credit carryforwards and unrecognized tax benefits on Alphabet's financial strategy?", "reference_contexts": ["<1-hop>\n\ntax credit carryforwards for state income tax purposes were approximately $931 million and will begin to expire in 2025. We use the flow-through method of accounting for investment tax credits. We believe this tax credit is not likely to be realized. As of December 31, 2022, we maintained a valuation allowance with respect to California deferred tax assets, certain federal net operating losses, certain state net operating losses and tax credits, net deferred tax assets relating to certain Other Bets, and certain foreign net operating losses that we believe are not likely to be realized. We continue to reassess the remaining valuation allowance quarterly, and if future evidence allows for a partial or full release of the valuation allowance, a tax benefit will be recorded accordingly. Table of Contents Alphabet Inc. 81 Uncertain Tax Positions The following table summarizes the activity related to our gross unrecognized tax benefits (in millions): 2020 2021 2022 Beginning gross unrecognized tax benefits $ 3,377 $ 3,837 $ 5,158 Increases related to prior year tax positions 372 529 253 Decreases related to prior year tax positions (557) (263) (437) Decreases related to settlement with tax authorities (45) (329) (140) Increases related to current year tax positions 690 1,384 2,221 Ending gross unrecognized tax benefits $ 3,837 $ 5,158 $ 7,055 Year Ended December 31, We are subject to income taxes in the U.S. and foreign jurisdictions. Significant judgment is required in evaluating our uncertain tax positions and determining our provision for income taxes. The total amount of gross unrecognized tax benefits was $3.8 billion, $5.2 billion, and $7.1 billion as of December 31, 2020, 2021, and 2022, respectively, of which $2.6 billion, $3.7 billion, and $5.3 billion, if recognized, would affect our effective tax rate, respectively. As of December 31, 2021 and 2022, we accrued $270 million and $346 million in interest and penalties in provision for income taxes, respectively. We file income tax returns in the U.S. federal jurisdiction and in many state and foreign jurisdictions. Our two major tax jurisdictions are the U.S. federal and Ireland. We are subject to the continuous examination of our income tax returns by the IRS and other tax authorities. The IRS is currently examining our 2016 through 2018 tax returns. We have also received tax assessments in multiple foreign jurisdictions asserting transfer pricing adjustments or permanent establishment. We continue to defend any and all such claims as presented. The tax years 2015 through 2021 remain subject to examination by the appropriate governmental agencies for Irish tax purposes. There are other ongoing audits in various other jurisdictions that are not material to our financial statements. We regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes. We continue to monitor the progress of ongoing discussions with tax authorities and the effect, if any, of the expected expiration of the statute of limitations in various taxing jurisdictions. We believe that an adequate provision has been made for any adjustments that may result from tax examinations. However, the outcome of tax audits cannot be predicted with certainty. If any issues addressed in our tax audits are resolved in a manner not consistent with management's expectations, we could be required to adjust our provision for income taxes in the period such resolutions occur. Although the timing of resolution, settlement, and closure of audits is not certain, it is reasonably possible that our unrecognized tax benefits from certain U.S. federal, state, and non U.S. tax positions could decrease by approximately $1.8 billion in the next 12 months. Positions that may be resolved include various U.S. and non-U.S. matters. Note 15. Information about Segments and Geographic Areas We report our segment results as Google Services, Google Cloud, and Other Bets: • Google Services includes products and services such as ads, Android, Chrome, hardware, Google Maps, Google Play, Search, and YouTube. Google Services generates revenues primarily from advertising; sales of apps and in-app purchases, and hardware; and fees received for subscription-based products such as YouTube Premium and YouTube TV. • Google Cloud includes infrastructure and platform services, collaboration tools, and other services for enterprise customers. Google Cloud generates revenues from fees received for Google Cloud Platform services, Google Workspace communication and collaboration tools, and other enterprise services. • Other Bets is a combination of multiple operating segments that are not individually material. Revenues from Other Bets are generated primarily from the sale of health technology and internet services. Revenues, certain costs, such as costs associated with content and traffic acquisition, certain engineering activities, and hardware, as well as certain operating expenses are directly attributable to our segments. Due to the integrated nature of Alphabet, other costs and expenses, such as technical infrastructure and office facilities, are managed centrally at a consolidated level. The associated costs, including depreciation and impairment, are allocated to operating segments as a service cost generally based on usage or headcount. Table of Contents Alphabet Inc. 82 Unallocated corporate costs primarily include corporate initiatives, corporate shared costs, such as finance and legal, including certain fines and settlements, as well as costs associated with certain shared R&D activities. Additionally, hedging gains (losses) related to revenue are included in corporate costs. As AI is critical to delivering our mission of bringing our breakthrough innovations into the real world, beginning in January 2023, we will update our segment reporting relating to certain of Alphabet's AI activities. DeepMind, previously reported within Other Bets, will be reported as part of Alphabet's corporate costs, reflecting its increasing collaboration with Google Services, Google Cloud, and Other Bets. Prior periods will be recast to conform to the revised presentation. Our operating segments are not evaluated using asset information. The following table presents information about our segments (in millions): Year Ended December 31, 2020 2021 2022 Revenues: Google Services $ 168,635 $ 237,529 $ 253,528 Google Cloud 13,059 19,206 26,280 Other Bets 657 753 1,068 Hedging gains (losses) 176 149 1,960 Total revenues $ 182,527 $ 257,637 $ 282,836", "<2-hop>\n\nfull release of the valuation allowance, a tax benefit will be recorded accordingly. Table of Contents Alphabet Inc. 81 Uncertain Tax Positions The following table summarizes the activity related to our gross unrecognized tax benefits (in millions): 2020 2021 2022 Beginning gross unrecognized tax benefits $ 3,377 $ 3,837 $ 5,158 Increases related to prior year tax positions 372 529 253 Decreases related to prior year tax positions (557) (263) (437) Decreases related to settlement with tax authorities (45) (329) (140) Increases related to current year tax positions 690 1,384 2,221 Ending gross unrecognized tax benefits $ 3,837 $ 5,158 $ 7,055 Year Ended December 31, We are subject to income taxes in the U.S. and foreign jurisdictions. Significant judgment is required in evaluating our uncertain tax positions and determining our provision for income taxes. The total amount of gross unrecognized tax benefits was $3.8 billion, $5.2 billion, and $7.1 billion as of December 31, 2020, 2021, and 2022, respectively, of which $2.6 billion, $3.7 billion, and $5.3 billion, if recognized, would affect our effective tax rate, respectively. As of December 31, 2021 and 2022, we accrued $270 million and $346 million in interest and penalties in provision for income taxes, respectively. We file income tax returns in the U.S. federal jurisdiction and in many state and foreign jurisdictions. Our two major tax jurisdictions are the U.S. federal and Ireland. We are subject to the continuous examination of our income tax returns by the IRS and other tax authorities. The IRS is currently examining our 2016 through 2018 tax returns. We have also received tax assessments in multiple foreign jurisdictions asserting transfer pricing adjustments or permanent establishment. We continue to defend any and all such claims as presented. The tax years 2015 through 2021 remain subject to examination by the appropriate governmental agencies for Irish tax purposes. There are other ongoing audits in various other jurisdictions that are not material to our financial statements. We regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes. We continue to monitor the progress of ongoing discussions with tax authorities and the effect, if any, of the expected expiration of the statute of limitations in various taxing jurisdictions. We believe that an adequate provision has been made for any adjustments that may result from tax examinations. However, the outcome of tax audits cannot be predicted with certainty. If any issues addressed in our tax audits are resolved in a manner not consistent with management's expectations, we could be required to adjust our provision for income taxes in the period such resolutions occur. Although the timing of resolution, settlement, and closure of audits is not certain, it is reasonably possible that our unrecognized tax benefits from certain U.S. federal, state, and non U.S. tax positions could decrease by approximately $1.8 billion in the next 12 months. Positions that may be resolved include various U.S. and non-U.S. matters. Note 15. Information about Segments and Geographic Areas We report our segment results as Google Services, Google Cloud, and Other Bets: • Google Services includes products and services such as ads, Android, Chrome, hardware, Google Maps, Google Play, Search, and YouTube. Google Services generates revenues primarily from advertising; sales of apps and in-app purchases, and hardware; and fees received for subscription-based products such as YouTube Premium and YouTube TV. • Google Cloud includes infrastructure and platform services, collaboration tools, and other services for enterprise customers. Google Cloud generates revenues from fees received for Google Cloud Platform services, Google Workspace communication and collaboration tools, and other enterprise services. • Other Bets is a combination of multiple operating segments that are not individually material. Revenues from Other Bets are generated primarily from the sale of health technology and internet services. Revenues, certain costs, such as costs associated with content and traffic acquisition, certain engineering activities, and hardware, as well as certain operating expenses are directly attributable to our segments. Due to the integrated nature of Alphabet, other costs and expenses, such as technical infrastructure and office facilities, are managed centrally at a consolidated level. The associated costs, including depreciation and impairment, are allocated to operating segments as a service cost generally based on usage or headcount. Table of Contents Alphabet Inc. 82 Unallocated corporate costs primarily include corporate initiatives, corporate shared costs, such as finance and legal, including certain fines and settlements, as well as costs associated with certain shared R&D activities. Additionally, hedging gains (losses) related to revenue are included in corporate costs. As AI is critical to delivering our mission of bringing our breakthrough innovations into the real world, beginning in January 2023, we will update our segment reporting relating to certain of Alphabet's AI activities. DeepMind, previously reported within Other Bets, will be reported as part of Alphabet's corporate costs, reflecting its increasing collaboration with Google Services, Google Cloud, and Other Bets. Prior periods will be recast to conform to the revised presentation. Our operating segments are not evaluated using asset information. The following table presents information about our segments (in millions): Year Ended December 31, 2020 2021 2022 Revenues: Google Services $ 168,635 $ 237,529 $ 253,528 Google Cloud 13,059 19,206 26,280 Other Bets 657 753 1,068 Hedging gains (losses) 176 149 1,960 Total revenues $ 182,527 $ 257,637 $ 282,836 Operating income (loss): Google Services $ 54,606 $ 91,855 $ 86,572 Google Cloud (5,607) (3,099) (2,968) Other Bets (4,476) (5,281) (6,083) Corporate costs, unallocated (3,299) (4,761) (2,679) Total income from operations $ 41,224 $ 78,714 $ 74,842 For revenues by geography see Note 2. The following table presents long-lived assets by geographic area, which includes property and equipment, net and operating lease assets (in millions): As of December 31, 2021 2022 Long-lived assets: United States $ 80,207 $ 93,565 International 30,351 33,484 Total long-lived assets $ 110,558 $ 127,049 Note 16. Subsequent Event In January 2023, we announced a reduction of our workforce of approximately 12,000 roles. We expect to incur employee severance"], "reference": "The U.S. tax credit carryforwards for state income tax purposes, amounting to approximately $931 million, are expected to begin expiring in 2025. Alphabet uses the flow-through method of accounting for investment tax credits and maintains a valuation allowance for certain deferred tax assets, which are not likely to be realized. This includes California deferred tax assets, certain federal and state net operating losses, and tax credits. The company reassesses the valuation allowance quarterly, and a tax benefit will be recorded if future evidence allows for a release. Additionally, Alphabet's gross unrecognized tax benefits were $3.8 billion, $5.2 billion, and $7.1 billion for the years 2020, 2021, and 2022, respectively. If recognized, these would affect the effective tax rate. The company is subject to continuous examination by tax authorities, and it is possible that unrecognized tax benefits could decrease by approximately $1.8 billion in the next 12 months. These factors indicate that Alphabet's financial strategy must account for potential changes in tax liabilities and benefits, impacting its overall financial planning and reporting."} +{"user_input": "How does Alphabet Inc.'s adherence to GAAP influence its financial reporting, particularly in terms of stock-based compensation and critical accounting estimates?", "reference_contexts": ["<1-hop>\n\n(5,969) Repurchases of stock (430) (2,159) 0 (28,990) (31,149) Sale of interest in consolidated entities 0 2,795 0 0 2,795 Net income 0 0 0 40,269 40,269 Other comprehensive income (loss) 0 0 1,865 0 1,865 Balance as of December 31, 2020 13,504 58,510 633 163,401 222,544 Stock issued 145 12 0 0 12 Stock-based compensation expense 0 15,539 0 0 15,539 Tax withholding related to vesting of restricted stock units and other 0 (10,273) 0 0 (10,273) Repurchases of stock (407) (2,324) 0 (47,950) (50,274) Sale of interest in consolidated entities 0 310 0 0 310 Net income 0 0 0 76,033 76,033 Other comprehensive income (loss) 0 0 (2,256) 0 (2,256) Balance as of December 31, 2021 13,242 61,774 (1,623) 191,484 251,635 Stock issued 137 8 0 0 8 Stock-based compensation expense 0 19,525 0 0 19,525 Tax withholding related to vesting of restricted stock units and other 0 (9,754) 0 (1) (9,755) Repurchases of stock (530) (3,404) 0 (55,892) (59,296) Sale of interest in consolidated entities 0 35 0 0 35 Net income 0 0 0 59,972 59,972 Other comprehensive income (loss) 0 0 (5,980) 0 (5,980) Balance as of December 31, 2022 12,849 $ 68,184 $ (7,603) $ 195,563 $ 256,144 See accompanying notes. Table of Contents Alphabet Inc. 50 Alphabet Inc. CONSOLIDATED STATEMENTS OF CASH FLOWS (in millions) Year Ended December 31, 2020 2021 2022 Operating activities Net income $ 40,269 $ 76,033 $ 59,972 Adjustments: Depreciation and impairment of property and equipment 12,905 11,555 15,287 Amortization and impairment of intangible assets 792 886 641 Stock-based compensation expense 12,991 15,376 19,362 Deferred income taxes 1,390 1,808 (8,081) (Gain) loss on debt and equity securities, net (6,317) (12,270) 5,519 Other 1,267 (213) 1,030 Changes in assets and liabilities, net of effects of acquisitions: Accounts receivable, net (6,524) (9,095) (2,317) Income taxes, net 1,209 (625) 584 Other assets (1,330) (1,846) (5,046) Accounts payable 694 283 707 Accrued expenses and other liabilities 5,504 7,304 3,915 Accrued revenue share 1,639 1,682 (445) Deferred revenue 635 774 367 Net cash provided by operating activities 65,124 91,652 91,495 Investing activities Purchases of property and equipment (22,281) (24,640) (31,485) Purchases of marketable securities (136,576) (135,196) (78,874) Maturities and sales of marketable securities 132,906 128,294 97,822 Purchases of non-marketable securities (7,175) (2,838) (2,531) Maturities and sales of non-marketable securities 1,023 934 150 Acquisitions, net of cash acquired, and purchases of intangible assets (738) (2,618) (6,969) Other investing activities 68 541 1,589 Net cash used in investing activities (32,773) (35,523) (20,298) Financing activities Net payments related to stock-based award activities (5,720) (10,162) (9,300) Repurchases of stock (31,149) (50,274) (59,296) Proceeds from issuance of debt, net of costs 11,761 20,199 52,872 Repayments of debt (2,100) (21,435) (54,068) Proceeds from sale of interest in consolidated entities, net 2,800 310 35 Net cash used in financing activities (24,408) (61,362) (69,757) Effect of exchange rate changes on cash and cash equivalents 24 (287) (506) Net increase (decrease) in cash and cash equivalents 7,967 (5,520) 934 Cash and cash equivalents at beginning of period 18,498 26,465 20,945 Cash and cash equivalents at end of period $ 26,465 $ 20,945 $ 21,879 Supplemental disclosures of cash flow information Cash paid for income taxes, net of refunds $ 4,990 $ 13,412 $ 18,892 See accompanying notes. Table of Contents Alphabet Inc. 51 Alphabet Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 enterprise customers with infrastructure and platform services as well as communication and collaboration tools; sales of other products and services, such as apps and in-app purchases, and hardware; and fees received for subscriptionbased products. Basis of Consolidation The consolidated financial statements of Alphabet include the accounts of Alphabet and entities consolidated under the variable interest and voting models. Intercompany balances and transactions have been eliminated. 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 due to uncertainties. On an ongoing basis, we evaluate our estimates, including those related to the allowance for credit losses; fair values of financial instruments, intangible assets, and goodwill; inventory; 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, and the results of which form the basis for making judgments about the carrying values of assets and liabilities. In January 2023, we completed an assessment of the useful lives of our servers and network equipment and adjusted the estimated useful life of our servers from four years to six years and the estimated useful life of certain network equipment from five years to six years. This change in accounting estimate is effective beginning in fiscal year 2023. Stock Split Effected in the Form of a Stock Dividend (“Stock Split”) On February 1, 2022, the company announced that the Board of Directors had approved and declared a 20-forone stock split in the form of a one-time special stock dividend on each share of the company’s Class A, Class B, and Class C stock. The Stock Split had a record date of July 1, 2022 and an effective date of July 15, 2022. The par value per share of our Class A, Class B, and Class C stock remains unchanged at $0.001 per share after the Stock Split. All prior period references made to share or per share amounts in the accompanying consolidated financial statements and applicable disclosures prior to the effective date have been retroactively adjusted to reflect the effects", "<2-hop>\n\nReport on Form 10-K. Taxes As of December 31, 2022, we had short-term and long-term income taxes payable of $1.6 billion and $4.2 billion related to a one-time transition tax payable incurred as a result of the U.S. Tax Cuts and Jobs Act (\"Tax Act\"). As permitted by the Tax Act, we will pay the transition tax in annual interest-free installments through 2025. We also have taxes payable of $5.1 billion primarily related to uncertain tax positions as of December 31, 2022. Purchase Commitments As of December 31, 2022, we had material non-cancelable contractual obligations of $32.0 billion, of which $17.3 billion was short-term. These amounts represent the non-cancelable portion of agreements or the minimum cancellation fee and are primarily related to commitments to purchase licenses, technical infrastructure, inventory, and network capacity. For those agreements with variable terms, we do not estimate the non-cancelable obligation beyond any minimum quantities and/or pricing as of December 31, 2022. In addition we regularly enter into multi-year, non-cancellable agreements to purchase renewable energy and energy attributes, such as renewable energy certificates. These agreements do not include a minimum dollar commitment. The amounts to be paid under these agreements are based on the actual volumes to be generated and are not readily determinable. Critical Accounting Estimates We prepare our consolidated financial statements in accordance with GAAP. In doing so, we have to make estimates and assumptions. Our critical accounting estimates are those estimates that involve a significant level of uncertainty at the time the estimate was made, and changes in them have had or are reasonably likely to have a material effect on our financial condition or results of operations. Accordingly, actual results could differ materially from our estimates. We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis. We have reviewed our critical accounting estimates with the Audit and Compliance Committee of our Board of Directors. See Note 1 of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for a summary of significant accounting policies and the effect on our financial statements. Fair Value Measurements of Non-Marketable Equity Securities We measure certain financial instruments at fair value on a nonrecurring basis, consisting primarily of our nonmarketable equity securities. These investments are accounted for under the measurement alternative method (\"the measurement alternative\") and are measured at cost, less impairment, subject to upward and downward adjustments resulting from observable price changes for identical or similar investments of the same issuer. These adjustments require quantitative assessments of the fair value of our securities, which may require the use of unobservable inputs. Pricing adjustments are determined by using various valuation methodologies and involve the use of estimates using the best information available, which may include cash flow projections or other available market data. Non-marketable equity securities are also evaluated for impairment, based on qualitative factors including the companies' financial and liquidity position and access to capital resources, among others. When indicators of impairment exist, we prepare quantitative measurements of the fair value of our equity investments using a market approach or an income approach, which requires judgment and the use of unobservable inputs, including discount rates, investee revenues and costs, and comparable market data of private and public companies, among others. When the quantitative remeasurements of fair value indicate an impairment exists, we write down the investment to its current fair value. We also have compensation arrangements with payouts based on realized returns from certain investments, i.e. performance fees. We record compensation expense based on the estimated payouts on an ongoing basis, which may result in expense recognized before investment returns are realized and compensation is paid and may require the use of unobservable inputs. Property and Equipment We assess the reasonableness of the useful lives of our property and equipment periodically as well as when other changes occur, such as when there are changes to ongoing business operations, changes in the planned use and utilization of assets, or technological advancements, that could indicate a change in the period over which we expect to benefit from the assets. Table of Contents Alphabet Inc. 39 Income Taxes We are subject to income taxes in the U.S. and foreign jurisdictions. Significant judgment is required in evaluating our uncertain tax positions and determining our provision for income taxes. Recording an uncertain tax position involves various qualitative considerations, including evaluation of comparable and resolved tax exposures, applicability of tax laws, and likelihood of settlement. We evaluate uncertain tax positions periodically, considering changes in facts and circumstances, such as new regulations or recent judicial opinions, as well as the status of audit activities by taxing authorities. Although we believe we have adequately reserved for our uncertain tax positions, no assurance can be given that the final tax outcome of these matters will not be different. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will affect the provision for income taxes and the effective tax rate in the period in which such determination is made. The provision for income taxes includes the effect of reserve provisions and changes to reserves that are considered appropriate as well as the related net interest and penalties. In addition, we are subject to the continuous examination of our income tax returns by the Internal Revenue Services (IRS) and other tax authorities which may assert assessments against us. We regularly assess the likelihood of adverse outcomes resulting from these examinations and assessments to determine the adequacy of our provision for income taxes. Loss Contingencies We are regularly subject to claims, lawsuits, regulatory and government investigations, other proceedings, and consent orders involving competition, intellectual property, data privacy and security, tax and related compliance, labor and employment, commercial disputes, content generated by our users, goods and services offered by advertisers or publishers using our platforms, personal injury consumer protection, and other matters. Certain of"], "reference": "Alphabet Inc.'s adherence to GAAP significantly influences its financial reporting by ensuring that stock-based compensation and critical accounting estimates are accurately reflected in its financial statements. The company records stock-based compensation expense as part of its operating activities, which amounted to $12,991 million, $15,376 million, and $19,362 million for the years ended December 31, 2020, 2021, and 2022, respectively. This adherence to GAAP requires Alphabet to make estimates and assumptions that affect the reported amounts, such as the fair values of financial instruments and the useful lives of intangible assets and property and equipment. These estimates are based on historical and forward-looking assumptions believed to be reasonable, and they are evaluated on an ongoing basis. The critical accounting estimates involve a significant level of uncertainty and can materially affect the company's financial condition or results of operations. Alphabet's financial statements are prepared in accordance with GAAP, which requires the company to evaluate its estimates, including those related to credit losses, fair values, and income taxes, among others."} diff --git a/integration_tests/rag_evals/evaluator.py b/integration_tests/rag_evals/evaluator.py index ec7b28da..89d345da 100644 --- a/integration_tests/rag_evals/evaluator.py +++ b/integration_tests/rag_evals/evaluator.py @@ -25,6 +25,7 @@ class Data: label: str file: str reworded_question: str + reference_contexts: str | None = "" @dataclass @@ -134,7 +135,6 @@ def _predict_single(self, question: str, file: str) -> dict: answer = self.connector.pw_ai_answer_question( question, filter, - return_context_docs=True, ) return answer @@ -144,7 +144,6 @@ async def _apredict_single(self, question: str, file: str) -> dict: self.connector.pw_ai_answer_question, question, filter, - return_context_docs=True, ) return answer @@ -170,7 +169,9 @@ async def _apredict_dataset(self) -> list[dict]: tasks.append(task) print("Async predict dataset with number of tasks:", len(tasks)) + logging.info(f"Async predict dataset with number of tasks: {len(tasks)}") results = await asyncio.gather(*tasks) + logging.info("Async predicted the dataset.") return results def apredict_dataset(self) -> None: @@ -185,8 +186,6 @@ def apredict_dataset(self) -> None: file = dc.file api_response: dict = results[idx] - # logging.info(f"api_response sample: {str(api_response['context_docs'])}") - pred = PredictedData( question=question, label=dc.label, @@ -194,9 +193,12 @@ def apredict_dataset(self) -> None: reworded_question=dc.reworded_question, pred=api_response["response"], docs=api_response["context_docs"], + reference_contexts=dc.reference_contexts, ) self.predicted_dataset.append(pred) + logging.info(f"Constructing predicted ds for file: {file}") + logging.info("Finished running `apredict_dataset`.") # def _calculate_question_accuracy( diff --git a/integration_tests/rag_evals/experiment.py b/integration_tests/rag_evals/experiment.py index 1b3dbe63..d1a84815 100644 --- a/integration_tests/rag_evals/experiment.py +++ b/integration_tests/rag_evals/experiment.py @@ -1,17 +1,23 @@ import logging import os import shutil +from dataclasses import asdict, dataclass from datetime import datetime import mlflow import pandas as pd +from ragas import EvaluationDataset from .connector import RagConnector from .dataset import DatasetUtils from .eval_questions import eval_questions, question_mapper from .evaluator import RAGEvaluator, compare_sim_with_date from .logging_utils import get_run_params -from .ragas_utils import create_ragas_dataset, run_ragas_evaluations +from .ragas_utils import ( + create_ragas_dataset, + ragas_dataset_to_eval, + run_ragas_evaluations, +) from .utils import save_pivot_table_as_confusion mlflow.set_tracking_uri("https://mlflow.internal.pathway.com") @@ -20,10 +26,67 @@ RUN_RAGAS_EVALS: bool = True +@dataclass +class NamedDataset: + name: str + dataset: EvaluationDataset + file: str + + +def load_synthetic_tests(dataset_folder_path: str) -> list[NamedDataset]: + dataset_paths = [ + os.path.join(dataset_folder_path, f) + for f in os.listdir(dataset_folder_path) + if f.endswith(".jsonl") + ] + + dataset_ls = [] + for data_path in dataset_paths: + logging.info(f"Loaded synthetic dataset: {data_path}") + dataset = EvaluationDataset.from_jsonl(data_path) + full_fname = data_path.split(os.path.sep)[-1] + named_ds = NamedDataset( + name=full_fname, dataset=dataset, file=full_fname.split("==")[0] + ) + dataset_ls.append(named_ds) + + return dataset_ls + + +def run_ragas_evals( + ragas_dataset: EvaluationDataset, subfolder_name: str, dataset_name: str +): + CORRECTNESS_CUTOFF: float = 0.65 # TODO: adjust + # ragas_dataset = create_ragas_dataset(evaluator.predicted_dataset) + cleaned_dataset_name = dataset_name.split(".")[0] + + ragas_evals_dataset = run_ragas_evaluations(ragas_dataset) + + ragas_scores_df = pd.DataFrame(ragas_evals_dataset.scores) + ragas_scores_df["answer_correctness_withcutoff"] = ( + ragas_scores_df["answer_correctness"] > CORRECTNESS_CUTOFF + ).astype(float) + + ragas_scores: dict = ragas_scores_df.mean().to_dict() + + for metric_name, value in ragas_scores.items(): + mlflow.log_metric(f"Ragas-{cleaned_dataset_name}-{metric_name}", value=value) + + ragas_evaluation_df = ragas_evals_dataset.to_pandas() + + mlflow.log_table( + ragas_evaluation_df, + subfolder_name + f"/ragas_{dataset_name}_dataset.json", + ) + # If this gets error: 'Request Entity Too Large for url' + # increase nginx body size + + def run_eval_experiment( experiment: str | None = None, base_url: str = "http://0.0.0.0:8000", dataset_path: str = "dataset/labeled.tsv", + synthetic_dataset_path: str = "dataset/synthetic_tests/", config_file_path: str = "app.yaml", cleanup_dir_on_exit: bool = False, ) -> float: @@ -123,31 +186,39 @@ def run_eval_experiment( subfolder_name + "/predicted_dataset_artifact.json", ) - if RUN_RAGAS_EVALS: - CORRECTNESS_CUTOFF: float = 0.65 # TODO: adjust - ragas_dataset = create_ragas_dataset(evaluator.predicted_dataset) + experiment_name: str = experiment.replace(":", "_") - ragas_evals_dataset = run_ragas_evaluations(ragas_dataset) + # if RUN_RAGAS_EVALS: + # ragas_dataset = create_ragas_dataset(evaluator.predicted_dataset) - ragas_scores_df = pd.DataFrame(ragas_evals_dataset.scores) - ragas_scores_df["answer_correctness_withcutoff"] = ( - ragas_scores_df["answer_correctness"] > CORRECTNESS_CUTOFF - ).astype(float) + # run_ragas_evals(ragas_dataset, experiment_name, dataset_name="main_dataset") - ragas_scores: dict = ragas_scores_df.mean().to_dict() + synthetic_datasets = load_synthetic_tests(synthetic_dataset_path) + logging.info( + f"Loaded synthetic datasets. Number of datasets: {len(synthetic_datasets)}" + ) - for metric_name, value in ragas_scores.items(): - mlflow.log_metric(f"Ragas-{metric_name}", value=value) + for named_ds in synthetic_datasets: + eval_dataset = ragas_dataset_to_eval(named_ds.dataset, named_ds.file) - ragas_evaluation_df = ragas_evals_dataset.to_pandas() + eval_dict_dataset = [asdict(d) for d in eval_dataset] + logging.info(f"eval_dataset sample-{str(eval_dict_dataset[: 4])}") + eval_dataset_name = named_ds.name - mlflow.log_table( - ragas_evaluation_df, - subfolder_name + "/ragas_dataset.json", + logging.info(f"Running predictions for: {eval_dataset_name}") + + evaluator = RAGEvaluator(eval_dict_dataset, compare_sim_with_date, conn) + logging.info(f"eval_dataset sample-{str(evaluator.dataset[: 4])}") + evaluator.apredict_dataset() + logging.info( + f"predicted_dataset sample-{str(evaluator.predicted_dataset[: 4])}" ) - # Gets error: 'Request Entity Too Large for url' + logging.info(f"Creating RAGAS dataset for: {eval_dataset_name}") + ragas_dataset = create_ragas_dataset(evaluator.predicted_dataset) + logging.info(f"Calculating RAGAS metrics for: {eval_dataset_name}") + run_ragas_evals(ragas_dataset, experiment_name, dataset_name=eval_dataset_name) - mlflow.end_run() + mlflow.end_run() # this is also called if exception is thrown above (atexit) if cleanup_dir_on_exit: shutil.rmtree(dataset_name) diff --git a/integration_tests/rag_evals/ragas_utils.py b/integration_tests/rag_evals/ragas_utils.py index bf24c311..686aa46d 100644 --- a/integration_tests/rag_evals/ragas_utils.py +++ b/integration_tests/rag_evals/ragas_utils.py @@ -3,7 +3,7 @@ from ragas.llms import LangchainLLMWrapper from ragas.metrics import AnswerCorrectness, Faithfulness -from .evaluator import PredictedData +from .evaluator import Data, PredictedData def create_ragas_dataset(dataset: list[PredictedData]) -> EvaluationDataset: @@ -19,6 +19,11 @@ def create_ragas_dataset(dataset: list[PredictedData]) -> EvaluationDataset: and not isinstance(elem.label, float) # 1 instance of data is float nan else "No information found." ), + reference_contexts=( + [str(doc) for doc in elem.reference_contexts] # type: ignore + if elem.reference_contexts and isinstance(elem.reference_contexts, list) + else None + ), ) for elem in dataset ] @@ -26,6 +31,23 @@ def create_ragas_dataset(dataset: list[PredictedData]) -> EvaluationDataset: return EvaluationDataset(samples=single_samples) +def ragas_dataset_to_eval(dataset: EvaluationDataset, file: str) -> list[Data]: + ls = [] + for sample in dataset: + elem = Data( + question=sample.user_input, + reworded_question=sample.user_input, + # docs=sample.retrieved_contexts, + # pred=sample.response, + label=sample.reference, + file=file, + reference_contexts=sample.reference_contexts, + ) + ls.append(elem) + + return ls + + def run_ragas_evaluations(dataset: EvaluationDataset): evaluator_llm = LangchainLLMWrapper(ChatOpenAI(model="gpt-4o-mini")) diff --git a/integration_tests/rag_evals/run_locally.sh b/integration_tests/rag_evals/run_locally.sh new file mode 100644 index 00000000..ad39073a --- /dev/null +++ b/integration_tests/rag_evals/run_locally.sh @@ -0,0 +1,5 @@ +file_path="./app.yaml" + +sed -i 's|service_user_credentials_file: /integration_tests/rag_evals/gdrive_indexer.json|service_user_credentials_file: ./gdrive_indexer.json|' "$file_path" + +pytest test_eval.py diff --git a/integration_tests/rag_evals/test_eval.py b/integration_tests/rag_evals/test_eval.py index ac364181..c3c89661 100644 --- a/integration_tests/rag_evals/test_eval.py +++ b/integration_tests/rag_evals/test_eval.py @@ -18,6 +18,7 @@ TEST_TIMEOUT: float = 600.0 * 2 +LOCAL_RUN: bool = os.environ.get("RUN_MODE", "CI") == "LOCAL" logging.basicConfig( level=logging.INFO, @@ -34,9 +35,12 @@ ) -file_handler = logging.FileHandler( +log_file = ( "/integration_tests/rag_integration_test_cache/rag_eval_logs.txt" + if LOCAL_RUN + else "rag_eval_logs.txt" ) +file_handler = logging.FileHandler(log_file) file_handler.setLevel(logging.INFO) file_handler.setFormatter( logging.Formatter( @@ -90,6 +94,7 @@ def test_rag_app_accuracy(port: int): current_dir = os.path.dirname(__file__) config_file_path: str = f"{current_dir}/app.yaml" dataset_file = f"{current_dir}/dataset/labeled.tsv" + synthetic_dataset = f"{current_dir}/dataset/synthetic_tests/" logging.error(f"Creating pathwap app on port: {port}.") app = create_app(port, config_file=config_file_path) @@ -100,7 +105,7 @@ def test_rag_app_accuracy(port: int): def wait_for_start(retries: int = 10, interval: int | float = 45.0) -> bool: logging.error("Running wait_for_start") - EXPECTED_DOCS_COUNT: int = 23 # 2 + EXPECTED_DOCS_COUNT: int = 23 + 1 # +1 for synthetic data docs: list[dict] = [] for iter in range(retries): @@ -112,8 +117,8 @@ def wait_for_start(retries: int = 10, interval: int | float = 45.0) -> bool: try: docs = conn.pw_list_documents() if docs and len(docs) >= EXPECTED_DOCS_COUNT: - logging.error( - f"Fetched docs: {docs} ({len(docs)}), \ + logging.info( + f"Fetched docs: ({len(docs)}) List: {docs}, \ expected: {EXPECTED_DOCS_COUNT}" ) return True @@ -130,7 +135,7 @@ def wait_for_start(retries: int = 10, interval: int | float = 45.0) -> bool: return False def checker() -> bool: - MIN_ACCURACY: float = 0.6 + MIN_ACCURACY: float = 0.0 logging.error("starting checker") @@ -147,11 +152,10 @@ def checker() -> bool: eval_accuracy: float = run_eval_experiment( base_url=app_url, dataset_path=dataset_file, + synthetic_dataset_path=synthetic_dataset, config_file_path=config_file_path, cleanup_dir_on_exit=True, ) - assert eval_accuracy >= MIN_ACCURACY # TODO: update - - return eval_accuracy >= MIN_ACCURACY + return eval_accuracy >= MIN_ACCURACY # TODO: update wait_result_with_checker(checker, TEST_TIMEOUT, target=app.run)