Alphabet Sinks 10% as Free Cash Flow Turns Negative — SkimNews
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- Alphabet shares slumped more than 10% after adjusted earnings of $2.67 per share missed the $3.02 LSEG consensus and revenue of $127.58 billion fell short of the $128.22 billion estimate — the search giant's first top- and bottom-line miss in nearly four years, despite 25% revenue growth and net income falling to $26.17 billion from $34.98 billion.
- Alphabet posted negative free cash flow of $9.07 billion against the $2.70 billion analysts expected, and long-term debt climbed about 479% to $125.1 billion from $21.6 billion a year earlier.
- Alphabet's equity holdings swung from a $99.03 billion revenue windfall in the second quarter, fueled by stakes in SpaceX and Anthropic, to an $8.66 billion loss in the third quarter.
- Alphabet spent $51.36 billion on capital expenditures in the quarter, below the $55.09 billion analysts expected, yet maintained full-year guidance of $195 billion to $205 billion; finance chief Anat Ashkenazi said spending will increase significantly in 2027 to top $300 billion, with more detail promised on the Q4 call.
- Google Cloud revenue more than doubled to $30.7 billion, beating the $28.7 billion estimate, and the unit continued taking share from Amazon Web Services and Microsoft Azure; Thomas Kurian pointed to extraordinary demand from AI labs, capital markets, financial institutions and enterprises, while Jefferies' Brent Thill noted it was the only business to beat — at 103% growth against a Street that wanted 100%.
- Gemini reached 1 billion users, the fastest-growing product in Alphabet's history, with Sundar Pichai citing strong demand for the recently launched Argon Gemini model and saying a Carbon iteration announced Wednesday outperforms Argon "on almost every domain."
- Sundar Pichai said Alphabet's AI investments produced the highest query growth rate of the last five years, even as search revenue rose 12% to $63.35 billion, short of the $64.96 billion estimate.
Why it matters: Alphabet's spending line undershot forecasts — Q3 capex of $51.36 billion versus $55.09 billion expected — but free cash flow was still negative $9.07 billion and long-term debt jumped 479% to $125.1 billion. Investors already wanted returns on more than $200 billion in annual spending, so Cloud's $30.7 billion beat and Gemini's 1 billion users did not stem the sell-off.
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