Alphabet's Q3 revenue rises 25% but profit misses, shares fall after hours

Results fall short of forecasts

Alphabet, the parent company of Google, reported results for the quarter that ended 30 September on Wednesday, 28 October. Revenue rose 25% from a year earlier to $127.6 billion, slightly below the roughly $128 billion Wall Street had expected. Net profit fell about 25%, to $26.2 billion in some reports and $26.1 billion in others. Earnings per share came in at $2.12 against a $3.02 FactSet consensus, a gap shown in the first chart.

Actual EPS2.12

FactSet consensus3.02

Actual EPS

2.12 USD per share

FactSet consensus

3.02 USD per share

Data from the article text

Part of the profit decline came from an accounting effect of $8.7 billion tied to the value of Alphabet's holdings, mainly because the price of SpaceX shares fell. One measure of revenue net of payments to partners was reported at $111.2 billion, against $111.3 billion expected.

Actual revenue127.6

Expected by Wall Street128

Actual revenue

127.6 USD bn

Expected by Wall Street

128 USD bn

Data from the article text

Advertising slows as cloud doubles

Advertising, the core of Google's business, grew 11% according to one report and about 12% according to another, below the nearly 13% analysts had hoped for. Search advertising revenue reached $63.35 billion, short of the roughly $65 billion analysts had expected. Google Cloud revenue reached $30.7 billion, up 102% in one report and about 103% in another, after growth of roughly 82% in the previous quarter. The cloud gain more than offset the advertising slowdown, as the business leases computing power to other AI companies.

During the results call, an analyst raised the risk that AI agents, interfaces able to carry out tasks on their own, could bypass Google's search engine. OpenAI has crossed $1 billion in advertising revenue, a figure reported without a date.

Spending pushes cash flow negative

Free cash flow, the cash left after expenses and investments, fell to about negative $9 billion. Analysts had expected a deficit of only $36 million. The shortfall reflects heavy spending on AI infrastructure, and one report puts Alphabet's planned investment in new data centers this year at $205 billion. Investors are questioning whether consumer and business demand for AI will justify that spending. Some investors have sold bonds tied to the AI computing providers CoreWeave and Oracle amid that uncertainty, and Anthropic, a leading AI lab, is seeking to go public in what could be the largest-ever initial public offering.

Shares fall and markets slip

Alphabet's shares fell in after-hours trading, by about 9% in some reports and by more than 10% in another. Chief executive Sundar Pichai said in a statement that Google was making progress in AI.

“We're excited by the range of big opportunities ahead of us.”

In early Asian trading, Nasdaq 100 futures dropped 0.9% and S&P 500 contracts slipped 0.4%, as investors weighed mixed earnings from megacap technology companies. The Federal Reserve kept rates steady and did not indicate whether a December hike was likely.