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GOOGL Q3 Earnings Miss Estimates, Cloud & Search Aid Top-Line Growth
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Key Takeaways
GOOGL's Q3 revenues jumped 25% to $127.58B, but EPS fell 26% to $2.12.
Google Cloud revenues surged 103% to $30.71B, with a $561B backlog reflecting strong enterprise AI demand.
GOOGL's AI capex more than doubled to $51.36B, driving negative free cash flow of $9.07B in the quarter.
Alphabet (GOOGL - Free Report) reported third-quarter 2026 earnings of $2.12 per share, missing the Zacks Consensus Estimate by 27.89% and declining 26% year over year. The decline primarily reflected unrealized losses on equity securities, including the company’s investment in SpaceX.
Consolidated revenues increased 25% year over year to $127.58 billion. Net revenues, excluding traffic acquisition costs (TAC), increased 27.1% year over year to $111.21 billion, missing the Zacks Consensus Estimate by 0.53%. Google Cloud’s 103% revenue growth and $561 billion backlog highlighted strong enterprise AI demand.
GOOGL’s Services Benefit From Search Growth
Google Services revenues increased 11% year over year to $96.3 billion. Segment operating income rose 17% to $39.16 billion, while operating margin expanded to 40.7% from 38.5% in the year-ago quarter.
Google Search & other revenues advanced 12% to $63.35 billion, driven primarily by retail and finance advertisers. YouTube advertising revenues increased 9% to $11.21 billion, supported by brand advertising and connected-TV demand. Google Network revenues grew 1% to $7.46 billion.
Subscriptions, platforms and devices revenues climbed 11% to $14.29 billion, aided by YouTube subscriptions and Google One AI plans.
Alphabet's Cloud Business Delivers Record Growth
Google Cloud revenues surged 103% year over year to $30.71 billion, driven by demand for AI infrastructure, enterprise AI solutions and core Google Cloud Platform services. Tensor Processing Unit (TPU) system sales also contributed meaningfully to growth.
Cloud backlog reached $561 billion, with management expecting to recognize slightly more than 55% as revenue over the next 24 months.
GOOGL’s AI Adoption Supports Core Businesses
Alphabet’s AI investments continued to support product engagement and enterprise adoption. The Gemini app surpassed one billion users, while first-party model APIs processed nearly 32 billion tokens per minute, increasing 40% sequentially and more than fourfold year over year.
Search query growth reached its highest year-over-year rate in five years. However, lower monetization of AI Mode queries contributed to slower Search revenue growth. Alphabet is expanding advertisements within AI Overviews and AI Mode, including international markets, to capture additional commercial opportunities.
Alphabet’s Operating Margin Expands Despite Costs
Total costs and expenses increased 22% year over year to $87 billion. Research and development expenses climbed 36% year over year to $20.64 billion, primarily reflecting AI-related compensation and depreciation. Sales and marketing expenses increased 22% year over year to $8.8 billion, while general and administrative expenses declined 17% year over year to $6.14 billion.
Consolidated operating income increased 30% year over year to $40.58 billion. Operating margin expanded to 31.8% from 30.5%, reflecting revenue growth exceeding the increase in operating costs.
Google Services segment operating income rose 17% year over year to $39.16 billion, while operating margin expanded to 40.7% from 38.5% in the year-ago quarter. Cloud operating income more than tripled to $11.12 billion from $3.59 billion a year earlier. Operating margin expanded to 36.2% from 23.7%. GOOGL’s Cash Flow Faces Heavy AI Spending
Alphabet ended the third quarter with $265.1 billion in cash, cash equivalents and marketable securities, while long-term debt stood at $125.1 billion. Operating cash flow declined to $42.29 billion from $48.41 billion in the year-ago quarter.
Capital expenditures more than doubled to $51.36 billion, primarily supporting AI infrastructure. Elevated spending resulted in negative free cash flow of $9.07 billion compared with positive free cash flow of $24.46 billion a year earlier. Trailing 12-month free cash flow declined to $19.75 billion.
Alphabet Maintains Its 2026 Capital Spending Outlook
Alphabet maintained its 2026 capital expenditure guidance of $195-$205 billion. The company expects spending to increase significantly in 2027 as it expands technical infrastructure capacity to address sustained AI demand.
Google Cloud TPU system sales are expected to scale further in the fourth quarter, followed by a meaningful revenue ramp in 2027. However, greater reliance on third-party computing capacity is expected to pressure Cloud margins in the near term.
GOOGL also anticipates slightly larger foreign-exchange headwinds in the fourth quarter, particularly across Search and YouTube advertising. Tougher year-over-year Search comparisons, rising depreciation and higher data-center operating costs are expected to remain profitability headwinds.
Zacks Rank & Upcoming Earnings to Watch
Alphabet currently carries a Zacks Rank #3 (Hold).
Both Shopify and AMETEK are expected to report their respective quarterly results on Nov. 3, while Affirm will report its on Nov. 5. Shares of Affirm have dropped 1.5%, while Shopify and AMETEK have returned 4.5% and 20.8%, year to date, respectively.
View the Zacks #1 Rank List
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GOOGL Q3 Earnings Miss Estimates, Cloud & Search Aid Top-Line Growth
Key Takeaways
Alphabet (GOOGL - Free Report) reported third-quarter 2026 earnings of $2.12 per share, missing the Zacks Consensus Estimate by 27.89% and declining 26% year over year. The decline primarily reflected unrealized losses on equity securities, including the company’s investment in SpaceX.
Consolidated revenues increased 25% year over year to $127.58 billion. Net revenues, excluding traffic acquisition costs (TAC), increased 27.1% year over year to $111.21 billion, missing the Zacks Consensus Estimate by 0.53%. Google Cloud’s 103% revenue growth and $561 billion backlog highlighted strong enterprise AI demand.
GOOGL’s Services Benefit From Search Growth
Google Services revenues increased 11% year over year to $96.3 billion. Segment operating income rose 17% to $39.16 billion, while operating margin expanded to 40.7% from 38.5% in the year-ago quarter.
Alphabet Inc. Price, Consensus and EPS Surprise
Alphabet Inc. price-consensus-eps-surprise-chart | Alphabet Inc. Quote
Google Search & other revenues advanced 12% to $63.35 billion, driven primarily by retail and finance advertisers. YouTube advertising revenues increased 9% to $11.21 billion, supported by brand advertising and connected-TV demand. Google Network revenues grew 1% to $7.46 billion.
Subscriptions, platforms and devices revenues climbed 11% to $14.29 billion, aided by YouTube subscriptions and Google One AI plans.
Alphabet's Cloud Business Delivers Record Growth
Google Cloud revenues surged 103% year over year to $30.71 billion, driven by demand for AI infrastructure, enterprise AI solutions and core Google Cloud Platform services. Tensor Processing Unit (TPU) system sales also contributed meaningfully to growth.
Cloud backlog reached $561 billion, with management expecting to recognize slightly more than 55% as revenue over the next 24 months.
GOOGL’s AI Adoption Supports Core Businesses
Alphabet’s AI investments continued to support product engagement and enterprise adoption. The Gemini app surpassed one billion users, while first-party model APIs processed nearly 32 billion tokens per minute, increasing 40% sequentially and more than fourfold year over year.
Search query growth reached its highest year-over-year rate in five years. However, lower monetization of AI Mode queries contributed to slower Search revenue growth. Alphabet is expanding advertisements within AI Overviews and AI Mode, including international markets, to capture additional commercial opportunities.
Alphabet’s Operating Margin Expands Despite Costs
Total costs and expenses increased 22% year over year to $87 billion. Research and development expenses climbed 36% year over year to $20.64 billion, primarily reflecting AI-related compensation and depreciation. Sales and marketing expenses increased 22% year over year to $8.8 billion, while general and administrative expenses declined 17% year over year to $6.14 billion.
Consolidated operating income increased 30% year over year to $40.58 billion. Operating margin expanded to 31.8% from 30.5%, reflecting revenue growth exceeding the increase in operating costs.
Google Services segment operating income rose 17% year over year to $39.16 billion, while operating margin expanded to 40.7% from 38.5% in the year-ago quarter. Cloud operating income more than tripled to $11.12 billion from $3.59 billion a year earlier. Operating margin expanded to 36.2% from 23.7%. GOOGL’s Cash Flow Faces Heavy AI Spending
Alphabet ended the third quarter with $265.1 billion in cash, cash equivalents and marketable securities, while long-term debt stood at $125.1 billion. Operating cash flow declined to $42.29 billion from $48.41 billion in the year-ago quarter.
Capital expenditures more than doubled to $51.36 billion, primarily supporting AI infrastructure. Elevated spending resulted in negative free cash flow of $9.07 billion compared with positive free cash flow of $24.46 billion a year earlier. Trailing 12-month free cash flow declined to $19.75 billion.
Alphabet Maintains Its 2026 Capital Spending Outlook
Alphabet maintained its 2026 capital expenditure guidance of $195-$205 billion. The company expects spending to increase significantly in 2027 as it expands technical infrastructure capacity to address sustained AI demand.
Google Cloud TPU system sales are expected to scale further in the fourth quarter, followed by a meaningful revenue ramp in 2027. However, greater reliance on third-party computing capacity is expected to pressure Cloud margins in the near term.
GOOGL also anticipates slightly larger foreign-exchange headwinds in the fourth quarter, particularly across Search and YouTube advertising. Tougher year-over-year Search comparisons, rising depreciation and higher data-center operating costs are expected to remain profitability headwinds.
Zacks Rank & Upcoming Earnings to Watch
Alphabet currently carries a Zacks Rank #3 (Hold).
Shopify (SHOP - Free Report) , AMETEK (AME - Free Report) and Affirm (AFRM - Free Report) are some other top-ranked stocks in the broader Zacks Computer and Technology sector. Each of the three stocks sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Both Shopify and AMETEK are expected to report their respective quarterly results on Nov. 3, while Affirm will report its on Nov. 5. Shares of Affirm have dropped 1.5%, while Shopify and AMETEK have returned 4.5% and 20.8%, year to date, respectively.