Why were overall third-quarter results mixed?

  • Alphabet’s total third-quarter revenue was 127.6 billion dollars, up 25% year over year but 0.3% below market consensus; year-over-year growth at constant currency was also 25%.
  • Cloud significantly exceeded expectations, but search, YouTube advertising, and other revenue including subscriptions, platforms and devices all fell below consensus, weighing on overall revenue relative to expectations.

Where did cloud growth come from?

  • Third-quarter cloud revenue was 30.7 billion dollars, up 103% year over year, accelerating from 82% in the second quarter and exceeding market consensus by 6.6%.
  • Evercore ISI attributed the growth to strong enterprise demand for AI infrastructure and AI solutions, growth in the core GCP business, and a significant contribution from TPU system sales.
  • Cloud operating profit was 11.1 billion dollars, with an operating margin of 36.2%; operating profit exceeded market consensus by 13.7%.

Which businesses weighed on revenue relative to expectations?

  • Search and other revenue was 63.35 billion dollars, up 12% year over year and 2.5% below market consensus; YouTube advertising revenue was 11.2 billion dollars, up 9% year over year and 2.0% below consensus.
  • Other revenue, including subscriptions, platforms and devices, was 14.3 billion dollars, up 11% year over year and 3.4% below consensus. Google Network revenue was 7.45 billion dollars, up 1% year over year and 3.1% above consensus.

Why did overall profit still fall short despite strong cloud profit?

  • Although cloud operating profit exceeded expectations, Alphabet’s consolidated operating profit was 40.6 billion dollars, 6.1% below the 43.2 billion dollars expected by the market; its overall operating margin was 31.8%.
  • Under US generally accepted accounting principles, earnings per share were 2.12 dollars, 29.7% below market consensus; losses on equity securities had a negative impact of 0.55 dollars per share.
  • Evercore ISI assigned an Outperform rating and a 450 dollar price target, based on a combination of 25 times the firm’s estimate of earnings per share for 2028 and 14 times EBITDA.