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Alphabet Inc. (GOOGL)·Q3 2025 Earnings Summary

Executive Summary

  • Alphabet delivered its first-ever $100B quarter: revenue $102.35B (+16% YoY; +6% QoQ) and EPS $2.87, with operating margin 30.5% GAAP; non-GAAP operating margin 33.9% excluding a $3.5B EC fine .
  • Broad-based strength: Google Services revenue $87.05B (+14% YoY) and Google Cloud revenue $15.16B (+34% YoY), with Cloud operating margin expanding to 23.7% and backlog reaching $155B (+46% QoQ) .
  • Results beat Wall Street: revenue beat by ~$2.2B and EPS beat by ~$0.61 versus S&P Global consensus; 44 revenue and 43 EPS estimates contributed to the consensus (beats driven by topline outperformance and $12.8B OI&E gains) *.
  • CapEx guidance raised materially for 2025 to $91–93B (from ~$85B in Q2 and ~$75B in Q1), reflecting AI infrastructure demand; management flagged Q4 FX tailwind potential and tougher ad comps (U.S. elections) .
  • Dividend: Board declared a $0.21 quarterly dividend payable Dec 15, 2025; ongoing buybacks ($11.5B in Q3) and strong FCF ($24.46B in Q3; $73.55B TTM) support shareholder returns .

What Went Well and What Went Wrong

What Went Well

  • Cloud acceleration: revenue +34% YoY to $15.16B, operating income +85% to $3.59B, margin to 23.7%; backlog reached $155B with more $1B+ deals than prior two years combined .
  • Ads strength: Search & Other +15% to $56.57B led by retail/financials; YouTube ads +15% to $10.26B driven by direct response; monetization of AI Overviews at “approximately the same rate” as baseline .
  • AI adoption: Gemini app at 650M MAUs; AI Mode 75M DAUs in the U.S. with queries doubling QoQ; strong agentic/AI tooling rollouts across ads and Cloud (“full stack approach”) .
    • Quote: “We delivered our first-ever $100 billion quarter… our full stack approach to AI is delivering strong momentum” — Sundar Pichai .

What Went Wrong

  • Legal headwind: $3.5B EC fine recorded in G&A within Google Services; GAAP operating margin compressed to 30.5% vs 33.9% ex-fine .
  • Opex/depreciation pressure: depreciation rose $1.6B YoY to $5.6B (+41%), with growth expected to accelerate in Q4; management cautioned ongoing P&L pressure from infrastructure investments .
  • Network ads softness: Google Network revenue -3% YoY to ~$7.35B; hedging losses of $(207)M impacted consolidated revenue presentation .

Financial Results

MetricQ3 2024Q1 2025Q2 2025Q3 2025
Revenue ($USD Billions)$88.27 $90.23 $96.43 $102.35
Diluted EPS ($USD)$2.12 $2.81 $2.31 $2.87
Operating Income ($USD Billions)$28.52 $30.61 $31.27 $31.23
Operating Margin (%)32.3% 34.0% 32.4% 30.5%
Operating Margin ex EC Fine (%)———33.9%

Segment Revenue and Operating Income

Metric ($USD Billions)Q1 2025Q2 2025Q3 2025
Google Services Revenue$77.26 $82.54 $87.05
Google Cloud Revenue$12.26 $13.62 $15.16
Other Bets Revenue$0.45 $0.37 $0.34
Services Operating Income$32.68 $33.06 $33.53
Cloud Operating Income$2.18 $2.83 $3.59
Other Bets Operating Loss$(1.23) $(1.25) $(1.43)
Alphabet-level Activities$(3.03) $(3.37) $(4.47)

KPIs and Operating Metrics

KPIQ1 2025Q2 2025Q3 2025
Google Search & Other Revenue ($B)$50.70 $54.19 $56.57
YouTube Ads Revenue ($B)$8.93 $9.80 $10.26
Subscriptions/Platforms/Devices ($B)$10.38 $11.20 $12.87
Google Network Ads ($B)$7.26 $7.35 $7.35
TAC ($B)$13.75 $14.71 $14.88
Free Cash Flow ($B)$18.95 $5.30 $24.46
Purchases of Property & Equipment ($B)$17.20 $22.45 $23.95
Employees (000s)185.72 187.10 190.17
Cloud Backlog ($B)——$155

Estimates vs Actuals (S&P Global)

MetricQ3 2025 Consensus*Q3 2025 Actual
Revenue ($USD Billions)$100.14*$102.35
Primary EPS ($USD)$2.26*$2.87
# of Revenue Estimates44*—
# of EPS Estimates43*—
Values retrieved from S&P Global.*

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
CapEx ($USD Billions)FY2025~$85B (Q2 guide) $91–93B (raised) Raised
CapEx ($USD Billions)FY2025~$75B (Q1 guide) $91–93B (raised) Raised significantly
CapEx OutlookFY2026—“Significant increase” expected Raised outlook
FX ImpactQ4 2025—Possible FX tailwind to revenue (volatile) Informational
Ads CompsQ4 2025—Tough YoY comps from 2024 U.S. election spend (esp. YouTube) Headwind
DepreciationQ4 2025—Growth rate to accelerate slightly; Q3 +41% YoY to $5.6B Higher
DividendQ4 2025$0.21 declared for Sept 15, 2025 $0.21 payable Dec 15, 2025 Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 2025)Previous Mentions (Q2 2025)Current Period (Q3 2025)Trend
AI/Technology InitiativesRolled out Gemini 2.5; 15 products using Gemini; AI Overviews 1.5B monthly users; Circle-to-Search/Lens growth “Frontier AI” pace; Cloud annual run-rate >$50B; CapEx guide ~$85B Gemini 2.5 advances; AI Mode 75M DAUs; 650M MAUs; agentic ads (AI Max) and Cloud AI growth; backlog $155B Accelerating
Search MonetizationMonetization of AI Overviews ~same rate; commercial queries rising Strength in Search; AI Overviews/Mode performing; margin benefits Monetization in AI Overviews ~same rate; testing ads in AI Mode; paid clicks +7%, CPC +7% YoY Stable to improving
YouTube PerformanceStrong ads/subscriptions; Shorts monetization narrowing gap in U.S. Robust growth; YouTube ads $9.80B Ads +15% to $10.26B; DR strength; Living Room interactive DR >$1B run-rate; NFL broadcast record Strengthening
Cloud MomentumRevenue +28%; margin 17.8% Revenue +32%; margin 17.1% → 23.7% in Q3; run-rate >$50B Revenue +34%; margin 23.7%; backlog +46% QoQ to $155B; more $1B deals Strong acceleration
Regulatory/LegalProductivity/efficiency focus; legal charges mentioned Legal settlement charge noted EC fine $3.5B; GAAP margin impact; non-GAAP reconciliation provided Near-term headwind
Tax/PolicyCapEx ~$75B; OI&E gains from private investment Senior notes issuance; dividend declared U.S. tax law changes aiding operating cash flow (R&D expensing, accelerated depreciation) Positive to cash flows
Regional TrendsGeography mix YoY: U.S. +13%, EMEA +9–12%, APAC +12–15%, Other Americas +12–23% U.S. +12%, EMEA +11%, APAC +18%, Other Americas +23% YoY U.S. +13%, EMEA +12%, APAC +22%, Other Americas +20% YoY; sequential +5–8% CC Broad-based growth

Management Commentary

  • Pichai: “Alphabet had a terrific quarter… We delivered our first-ever $100 billion quarter… Our full stack approach to AI is delivering strong momentum… Gemini App now has over 650 million monthly active users… Google Cloud accelerated, ending the quarter with $155 billion in backlog” .
  • Schindler: “AI Max and Search is already used by hundreds of thousands of advertisers… unlocked billions of net new queries… Demand Gen improved conversion value by more than 40% for advertisers using target-based bidding” .
  • Ashkenazi: “Operating margin was 30.5%. Excluding the EC fine, operating margin was 33.9%… Other income was $12.8B… We now expect CapEx to be in the range of $91–$93B in 2025… depreciation increased $1.6B YoY to $5.6B” .

Q&A Highlights

  • Agentic experiences monetization: Management views agentic search as additive, expanding queries and commercial opportunities; working on agentic checkout and partnerships (e.g., PayPal), while maintaining user/merchant value .
  • Search monetization and metrics: AI Overviews monetizes at approximately the same rate as baseline ads; testing ads in AI Mode; paid clicks and CPC each +7% YoY .
  • Cloud economics and differentiation: Full-stack AI with custom TPUs and leading models supports margin expansion and large deal wins; infrastructure expected to remain demand-constrained into 2026 .
  • CapEx and depreciation: 2025 CapEx raised to $91–93B; depreciation growth to accelerate in Q4; focus on productivity and infrastructure optimization .
  • YouTube mix: Twin-engine monetization (ads + subscriptions); strong DR adoption (Demand Gen), Living Room interactive DR >$1B run-rate; subscriptions deliver higher gross profit per user .

Estimates Context

  • Q3 2025 results beat S&P Global consensus materially: revenue $102.35B vs $100.14B*, EPS $2.87 vs $2.26*; 44 revenue and 43 EPS estimates in consensus *.
  • Prior quarter also beat: Q2 2025 revenue $96.43B vs $94.04B*, EPS $2.31 vs $2.20* . Values retrieved from S&P Global.

Key Takeaways for Investors

  • Strong topline and EPS beats with broad-based momentum; Cloud’s margin expansion and massive backlog provide multi-quarter visibility, but supply-tightness could constrain near-term upside .
  • Ads engine resilient: Search/YouTube growth, AI Overviews monetization parity, and AI Max unlocking new query surface support sustained revenue growth even as formats evolve .
  • CapEx inflection is a central narrative: guidance raised again (to $91–93B) as Alphabet scales AI infrastructure; expect depreciation/opex pressure to persist into Q4/2026 — model margin trajectory accordingly .
  • OI&E volatility meaningful: $12.8B gain in Q3 lifted EPS; investors should normalize for investment-mark-to-market swings when assessing earnings quality .
  • Dividend and buybacks are durable alongside high FCF ($24.46B Q3; $73.55B TTM), offering downside support to equity while funding AI expansion .
  • Near-term: watch Q4 FX tailwinds, tougher ad comps from 2024 election spending (esp. YouTube), and pace of AI Mode ad testing/rollout as potential stock catalysts .
  • Medium-term thesis: Alphabet’s differentiated AI stack (models + TPUs + products) and Cloud deal flow position it to capture outsized AI spend; execution on monetization in new AI surfaces will drive multiple expansion .