TLDR
- Alphabet (GOOGL) stock fell about 12% to $285.31 after its Q3 EPS of $2.12 missed the $2.97 estimate.
- An $8.7 billion equity securities loss cut $0.55 from EPS, and operating income still rose 30% to $40.58 billion.
- Google Cloud revenue grew 103%, ahead of Azure at 48% and AWS at 37%.
- Search ad spending growth slowed to 12% from 17%, and free cash flow was negative $9.065 billion.
- Goldman Sachs cut its target to $385 from $435 but kept its Buy rating, and Barron’s also stayed with Buy.
Alphabet (GOOGL) stock dropped about 12% after earnings ended a run of 12 straight quarterly beats. It traded at $285.31 Thursday morning, down 12.18% on the day.
The decline left the stock more than 30% below its May high of $404.47. Barron’s put the one-day loss in market value at about $560 billion.
GAAP EPS came in at $2.12, below the $2.97 consensus. An $8.7 billion loss on equity securities took $0.55 off that figure.
Revenue was $127.58 billion, close to the $127.83 billion estimate. It grew 24.6% from a year ago.
Operating income rose 30% to $40.58 billion. Wall Street had looked for about $43 billion.
Search Slows, Cloud Surges
Search and other revenue reached $63.35 billion, up 12%. That fell short of expectations.
Ad spending on Google search grew 12%, down from 17% last quarter. YouTube ad spending grew 9%, down from 13%.
Google Cloud revenue grew 103%. Azure grew 48% and AWS grew 37%.
Management cited a $561 billion backlog, up 256%. About 55% of it is expected to turn into revenue within 24 months.
Compute availability is the main limit on faster growth. CEO Sundar Pichai said the Gemini app has reached one billion users.
Pichai also said year-over-year query growth is the highest in five years. Management described AI searches as additive to the business, not a drain on it.
Spending, Valuation and Analyst Views
Capital spending hit $51.355 billion in the quarter. Free cash flow came in at negative $9.065 billion.
Management repeated 2026 capex guidance of $195 billion to $205 billion. It expects a further material increase in 2027.
Goldman Sachs cut its price target to $385 from $435 and kept its Buy rating. It says the stock trades at about 18x its 2027 EPS estimate.
Barron’s also stuck with its Buy call. It notes Alphabet trades at 18 times forward earnings, against 19 for the S&P 500 and 36 for Apple.
Analysts were split on the quarter. Melius analyst Ben Reitzes called it evidence of secular decline, while KeyBanc’s Justin Patterson called it an “air pocket” and said search headwinds are transitory.
Of 62 analysts tracked, 57 rate the stock Buy or Strong Buy. Alphabet stock last traded at $279.84, down 1.11%, within a 52-week range of $270.00 to $408.10.
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