Case Study

Revenue Disaggregation Disclosures: Alphabet Case Study

Take a look at how early adopter, Alphabet Inc., disclosed its disaggregation of revenue in its financials, and see what the SEC had to say about it.

Nov 29, 2018

In a previous article, Disclosures, we described the disclosures required by Accounting Standards Codification (ASC) 606. Now that most public companies have filed their first 10-Qs under the new standard and some have filed 10-Ks, we can provide examples of these disclosures. In this article we focus specifically on the disaggregation of revenue as disclosed by Alphabet Inc.

ASC 606 requires that revenue be disaggregated into categories that help users determine the nature, amount, timing, and uncertainty of revenue and cash flows. Multiple categories may be necessary. In addition, the standard requires companies to disclose how they choose these categories.  ASC 606-10-55-91 provides the following potential categories:

  • Type of good or service (e.g., product or service lines)
  • Geographical region (e.g., country or region)
  • Market or type of customer (e.g., government or non-government customers)
  • Type of contract (e.g., fixed price or unit price)
  • Contract duration (e.g., short-term or long-term)
  • Timing of transfer of goods or services (e.g., at a point in time or over time)
  • Sales channels (e.g., directly to consumers or through intermediaries)

Although the standard provides some illustrations, a few real-life examples can shed some light on how companies have interpreted the requirements.

Alphabet Inc.

Alphabet Inc. is one of the early adopters of ASC 606. After filing its June 30, 2017 10-Q, Alphabet received a comment letter from the Securities and Exchange Commission (SEC) asking for an explanation of its disclosure of the disaggregation of revenue. The SEC was concerned that Alphabet had not provided enough information on how the categories were selected, and why the categories accurately depicted the way revenue and cash flows are affected by economic factors.

Alphabet disaggregated its revenue into the following four categories:

  • Product offering between advertising and other revenues
  • Advertising revenues between Google properties and Google Network Members’ properties
  • Geography
  • Segment presentation

In its response to the SEC, Alphabet explained why these chosen categories are appropriate and useful in explaining how revenue and cash flows vary.

Product offering

Alphabet first disaggregates its revenue by product offering between advertising and other revenues. After evaluating its revenue streams, Alphabet determined that advertising revenues comprise 87 percent of all revenues and is “therefore the only revenue stream which individually warrants separate disclosure.” The remaining 13 percent is labeled “Other Revenues” and includes revenues from Google Play, apps, Google Cloud, hardware, internet and TV services, and several other product offerings. Alphabet explained:

We believe disaggregation of our revenues on the basis of product offering is appropriate because the nature, amount and uncertainty of product revenues vary significantly. Additionally, we note that product lifecycles differ among our product categories, resulting in different economic risk profiles.


Because advertising revenues are so significant to its consolidated results, Alphabet further disaggregates these revenues by Google properties and Google Network Members’ properties. Google properties include a variety of websites and apps produced by Google such as Google Search, Google Maps, Google Finance and Youtube. Google Network Members’ properties include a variety of websites and apps from third party publishers such as AdSense for search, AdSense for content, AdExchange, AdMob, and DoubleClick Bid Manager. Alphabet explained that these two major properties “reflect differences in economic profiles as traffic acquisition costs paid on Google Network Members’ properties are substantially higher as compared to Google Properties.

Alphabet considered disaggregating advertising revenues further into other categories such as product offering, billing method, device type, and other properties.  However, Alphabet ultimately concluded that further disaggregation of advertising revenue based on these categories was unnecessary, explaining:

Our goal is for our customers to reach their target audience, irrespective of the product offering, billing method, device type or property. To achieve our goal, we provide a single underlying offering, online advertising, which does not change based on how our customers purchase advertising inventory.

Notwithstanding this explanation, advertising revenues make up such a significant portion of its consolidated results (87 percent) that analysts and regulators may question whether this disclosure adequately meets the requirements of the standard.  Although the SEC has not requested any additional information from Alphabet regarding this disclosure, analysts who follow Alphabet are likely to push for additional disaggregation of Google properties advertising revenue. For example, analysts may want to know which products (AdWords, DoubleClick Bid Manager, DoubleClick Exchange) are generating the most revenues, and whether Alphabet earns more by a cost-per-click billing method or by the number of times a customer’s ad is displayed on one of its properties. Alphabet’s July 24, 2017 earnings call, suggests analysts want this category of revenue disaggregated further. Alphabet disclosed the following additional information for analysts:

Revenues were $25.8 billion, up 21% year-over-year. In terms of the revenue detail, Google Sites revenues were $18.4 billion in the quarter, up 20% year-over-year. The biggest contributors to growth again this quarter were mobile search and YouTube. Network revenues were $4.2 billion, up 13% year-on-year, reflecting the ongoing strength of programmatic and AdMob.

As much as analysts and investors may want to see more detailed disaggregation in Alphabet’s revenue disclosures, there are a number of reasons why Alphabet may not provide such details. First, Alphabet may not provide more detailed disaggregation because doing so would reveal information Alphabet considers proprietary resulting in a competitive disadvantage. Other reasons for not disaggregating could include pending businesses changes (e.g. AdWords and DoubleClick being rebranded for future earnings call purposes), or the desire to be consistent with other disclosures such as segment reporting, goodwill reporting units, etc. Also, while companies may have a data warehouse with a significant amount of customer and revenue data useful for disaggregation, it may not be considered an “accounting system” in the scope of SOX, and therefore is not sufficiently reliable for external disclosure.

Alphabet’s 10-Q includes several tables that present its disaggregation of revenue. The table below depicts revenues from the two different properties as well as the total. It also shows revenue from other sources and gives total revenues from the past 3 months as well as the past 6 months1.

Three Months Ended June 30, Six Months Ended June 30,
2016 2017 2016 2017
United States $10,035 $12,322 $19,416 $24,091
EMEA 7,485 8,545 14,615 16,636
APAC 2,904 3,730 5,703 7,349
Other Americas 1,076 1,413 2,023 2,684
Total Revenues $21,500 $26,010 $41,757 $50,760

Though Alphabet presents a table depicting the different regions it has chosen for its disaggregation of revenue, it has not explained why it has grouped certain regions together. For example, it combines revenues from Europe, the Middle East, and Africa (EMEA) into one group, and Canada and Latin America (Other Americas) into another.  From an investor’s point of view, these regions may seem quite different from one another and it would be helpful if Alphabet provided an explanation for how it determined the risk profiles of each group and how they differ from each other. It may also be useful to know if Alphabet alone groups these regions in this manner or if other companies like Alphabet use similar regional categorizations.

Segment presentation

Lastly, Alphabet disclosed that the disaggregated revenue amounts are consistent with the amounts in the disclosure of segment presentation found in other areas of its 10-Q.  The reported segments are revenue from Google and revenue from Other Bets.

Google generates revenues primarily from advertising; sales of apps, in-app purchases, and digital content; services fees for cloud offerings; and sales of hardware products.
Revenues from the Other Bets are derived primarily through the sales of internet and TV services through Google Fiber, sales of Nest products and services, and licensing and R&D services through Verily.

Other consideration

In a recent study, Deloitte indicated, that “most adopters (approximately 90 percent) appeared to use two or fewer categories…” The most common categories are product/service type (55 percent), geography (34 percent), contract type (9 percent), and customer type (9 percent). Alphabet used four categories: product offering, property, geography, and segment presentation. Other categories were considered, but not used. For example, disaggregation by timing of revenue recognition was not as relevant because the majority of Alphabet’s revenues are recognized at a point in time. Alphabet also considered disaggregation by sales channel or customer type, disaggregation by contract type and contract duration, and further disaggregation of advertising revenues (mentioned above).

Another point for companies to consider is where to disclose disaggregation of revenue in their financial reports.  The same study by Deloitte (mentioned above) found:

Approximately 60% of companies disclosed disaggregated revenue by category in a newly incorporated revenue footnote, while slightly over 20% disclosed such information in the segment footnote, and approximately 20% disclosed it as part of their footnote for newly adopted accounting pronouncements or another location.

Consistent with the practice of most companies adopting ASC 606, Alphabet created a new revenue footnote to disclose its disaggregation of revenue.


After reading this article, we hope you have a better idea of how to choose categories for your company’s disclosure of revenue that will be useful to investors and other users of your financial statements. For another example of a disclosure of disaggregation of revenue, check out our Ford Motor Company case study.

Resources Consulted

  1. “Information to permit a financial statement user to understand the relationship between disaggregated revenue and the revenue disclosed by reportable segment.”