Google Parent Alphabet Reports Third-Quarter Earnings Below Expectations
Alphabet's revenue grew 25% year-over-year, but earnings per share fell short of analyst expectations due to unrealized losses. The company's AI investments are pressuring search ad growth.
Original reporting · adweek.com
Original: “Google Stock Sinks as AI Mode Pressures Search Ad Growth”
Read “Google Stock Sinks as AI Mode Pressures Search Ad Growth” at Adweek →
How this was written. Message Verified wrote this article with a language model from Adweek’s reporting (model: @cf/meta/llama-3.3-70b-instruct-fp8-fast); it describes that reporting rather than adding to it. The original, linked above, is the full story.
Key points from Adweek’s report
- Alphabet's revenue grew 25% year-over-year, but earnings per share fell short of analyst expectations.
- Google's search business saw a slowdown in growth due to foreign exchange rates and lower ad revenue from AI-powered search.
- The company plans to increase ads in its AI search experiences to offset lower monetization.
- Google's AI investments are a key area of focus, with Google Cloud revenue increasing 103% year-over-year.
- The company's significant investments in AI have raised questions about its ability to justify these expenditures.
Alphabet, Google's parent company, released its third-quarter earnings report, showing a 25% increase in revenue compared to the same period last year. The company's total revenue was $127.6 billion, slightly below analyst projections. Google Services, which includes advertising and subscriptions, accounted for $96.3 billion of the total revenue.
Google's search business saw a slowdown in growth, rising 12% compared to 17% in the previous quarter. The company attributed this decline to foreign exchange rates and a decrease in ad spending in certain regions. Additionally, the growing use of Google's AI-powered search experience has resulted in lower ad revenue.
Google's chief business officer stated that the company plans to increase ads in its AI search experiences to offset the lower monetization. The company has seen promising results from ad tests in AI Mode and intends to expand these ads to more users and markets. This move aims to boost revenue from Google's search business.
The company's AI investments are a key area of focus, with Google Cloud revenue increasing 103% year-over-year. Google has committed significant resources to AI infrastructure, including a major investment in Gemini, which has helped create a large number of ad campaign assets. The company believes its AI investments will drive long-term growth.
YouTube remains a major contributor to Google's ad revenue, with ad growth of 9% in the third quarter. The platform's shopping feature is also being expanded, with a partnership with Amazon allowing creators to tag products. This move is expected to increase revenue from YouTube's shopping feature.
Google's significant investments in AI have raised questions about the company's ability to justify these expenditures. The company has committed to large contractual obligations, including a major deal with Anthropic, which may expose Google to greater risk if its partners experience financial difficulties. Google's finance chief noted that the company's capital expenditures are expected to increase significantly in 2027.
The company's shares dropped 11% in after-hours trading following the release of the earnings report. Google's leadership expressed confidence in the company's trajectory, citing the potential for AI-powered advertising models to drive growth. The company plans to continue exploring advertising opportunities within agentic AI experiences. This article is based on reporting by Adweek.
Questions and answers
What was Alphabet's total revenue in the third quarter?
Alphabet's total revenue was $127.6 billion, slightly below analyst projections.
Why did Google's search business see a slowdown in growth?
The company attributed this decline to foreign exchange rates and a decrease in ad spending in certain regions, as well as lower ad revenue from AI-powered search.
What is Google's plan to offset lower monetization from AI-powered search?
The company plans to increase ads in its AI search experiences to offset lower monetization, with plans to expand these ads to more users and markets.
