Alphabet's profit and revenue missed Wall Street forecasts, sending shares down about 9 per cent after hours as AI spending drove free cash flow negative.
Business Standard reported that the shares fell about 9 per cent, reaching $295.20 within an hour of the market's close. In extended trading, they fell more than 10 per cent, The Straits Times and The National reported.
Revenue climbed 25 per cent to $127.6 billion in the July-to-September period, compared with a year earlier. Still, it came in just below analysts' estimates: $127.97 billion in a FactSet poll and $128.2 billion in LSEG data.
Net income was $26.17 billion, down from $34.98 billion a year before. An $8.7 billion loss on equity investments weighed on the result.
The company earned $2.12 a share on a reported basis. Adjusted earnings per share came in at $2.67, short of Wall Street targets of $3.02. Estimates had been close to $3 a share, at $2.99 and around $3.01. It wasn't immediately clear whether the reported per-share figures were comparable with the estimates.
The equity loss reverses gains booked a year earlier and in the second quarter, driven largely by stakes in SpaceX and a private company Bloomberg later identified as Anthropic.
Advertising slows as search growth cools
Advertising revenue was about $82 billion, below the $83.4 billion analysts expected. The gap was roughly $1.41 billion, The Straits Times reported.
Google Search and other revenue grew 12 per cent from a year earlier to $63.4 billion, down from 17 per cent growth in the previous quarter and 19 per cent in the first. It also fell short of an average estimate of $64.9 billion.
Elsewhere in the group, Google Services generated $96.3 billion of revenue, up 11 per cent. At $11.2 billion, YouTube advertising revenue was 9 per cent higher. Google Network brought in $7.5 billion, little changed, while subscriptions, platforms and devices generated $14.3 billion, compared with $12.9 billion a year earlier.
Group operating income rose 30 per cent to $40.6 billion, a margin of 31.8 per cent.
The catch-all Alphabet-level activities line, which carries much of the company's AI research, lost $7.66 billion in operating income.
Cloud doubles and its backlog builds
Google Cloud was the clear bright spot. Revenue more than doubled to $30.71 billion in the quarter ended 30 September, up 103 per cent from $15.2 billion and above estimates.
Cloud operating income tripled to $11.1 billion, up from $3.6 billion in the year-ago quarter. The division ended the quarter with a backlog of $561 billion. Alphabet expects to recognise more than 55 per cent of it as revenue over the next 24 months.
The bill for AI shows up in cash
Free cash flow was negative $9.1 billion in the quarter, the second consecutive deficit. By LSEG's measure, it was negative $9.07 billion, against analysts' expectations that the company would come close to breaking even.
The cash burn increased from $5.9 billion in the previous quarter. That quarter had been the first time Alphabet had gone negative in 22 years as a public company.
Chief Financial Officer Anat Ashkenazi said capital expenditure will rise substantially in 2027, after a forecast of $195 billion to $205 billion for 2026.
Alphabet, Microsoft, Amazon and Meta are projected to spend well over $700 billion between them in 2026 to expand AI data centres, chips and high-performance networking capacity.
Globally, Google Cloud is the third-largest cloud provider, behind Amazon Web Services and Microsoft's Azure. Google has fallen behind Anthropic and OpenAI in AI coding tools in recent months.
Pichai points to demand and capacity
We are working hard to bring more capacity online to meet this long-term demand. At the same time, we're seeing strong demand for our TPU systems across a wide range of customers, and we expect that to continue as we scale
Our year-over-year query growth rate is the highest it's been in the last five years
Google is extending high-quality advertising in AI Overviews and AI Mode to a wider range of users and queries, Philipp Schindler, Google's Chief Business Officer, said. The company is also bringing ads in AI Mode to international markets and introducing multi-turn ads in the United States.
Pichai said the Gemini app had reached one billion users, making it Google's fastest-growing product in history. First-party model APIs processed nearly 32 billion tokens a minute, up 40 per cent on the quarter and more than four times the level a year earlier.
Google rolled out Gemini 4 Argon in the quarter and announced the new Gemini 4 Carbon model.
now on a half-trillion dollar revenue run rate. Our deep full stack approach is driving momentum across the business
What the figures look like side by side
| Reported | Consensus | Source of estimate | |
|---|---|---|---|
| Revenue | $127.6bn | $127.97bn | FactSet |
| Revenue | $127.6bn | $128.2bn | LSEG |
| Net income | $26.17bn | ||
| EPS | $2.12 | $2.99 | Wall Street |
| Adjusted EPS | $2.67 | $3.02 | Wall Street |
| Advertising | $82.01bn | $83.4bn | Analysts |
| Cloud revenue | $30.71bn | ||
| Cloud operating income | $11.1bn | ||
| Free cash flow | -$9.1bn | near break-even | LSEG |
The outlets disagree on several of these lines. One account put revenue at $127.58 billion, while two others reported $127.6 billion. A fourth reported sales excluding partner payouts of $111.2 billion against a projection of $111.3 billion. One outlet put advertising at $82.01 billion, another at about $82 billion. Free cash flow was negative $9.1 billion in two accounts and negative $9.07 billion in a third.
What we know
- Revenue rose 25 per cent to $127.6 billion.
- Net income was $26.17 billion, down from $34.98 billion a year earlier.
- Free cash flow was negative for a second consecutive quarter.
- Cloud revenue more than doubled to $30.71 billion.
Still unclear
- Whether the reported earnings per share are directly comparable with analyst estimates.
- How much of the after-hours share decline will hold at the market open.
