# Earnings Special: Alphabet Disappoints Wall Street on Revenue & Income

An episode of [Bloomberg Tech](https://invisiblenetwork.ai/podcast/1611767434), 28 Oct 2026, 11 min.

Audio: https://podtrac.com/pts/redirect.mp3/traffic.omny.fm/d/clips/e73c998e-6e60-432f-8610-ae210140c5b1/41764a4f-fc64-4e11-89ba-ae7c0030ab5e/6c817cdb-bfe3-41ed-a24e-b4f10158d208/audio.mp3?utm_source=Podcast&in_playlist=9caafc41-289c-4115-995d-ae7c0030ab75

Alphabet reported quarterly sales and profit in the third quarter that fell short of expectations, a sign that the firm is failing to generate enough return to justify its massive investments in AI. The stock fell in late trading. Google’s parent company said sales, excluding partner payouts, were $111.2 billion for the three months that ended Sept. 30, just below the $111.3 billion that analysts had projected on average. Alphabet reported net income of $2.12 a share, falling far below Wall Street’s estimate of $2.99. The company’s shares were down as much as 8.5% in after-hours trading. For instant reaction and analysis, Bloomberg Businessweek Daily hosts Carol Massar and Tim Stenovec speak with Bloomberg Tech host Ed Ludlow. See omnystudio.com/listener for privacy information.

## Transcript

[0:02] Speaker 1: Bloomberg Audio Studios.
[0:04] Speaker 2: Podcasts. Radio. News.
[0:09] Speaker 1: This is a breaking news update from Bloomberg.
[0:12] Speaker 3: Instant reaction and analysis from our 3,000 journalists and analysts
[0:17] Speaker 3: around the world.
[0:19] Speaker 4: I'm going to go to Alphabet. Third quarter, Google search
[0:22] Speaker 4: and other revenue. That is coming in a little light.
[0:24] Speaker 3: $ 63. 35 billion.
[0:25] Speaker 1: The street estimate was $ 64. 85 billion. Google services revenue. That
[0:27] Speaker 1: came in light.
[0:27] Speaker 3: $ 96.
[0:27] Speaker 1: 3 versus $ 98. 4, the estimate on the street. Third quarter cap.
[0:38] Speaker 4: X, $ 51.
[0:39] Speaker 1: 36 billion. That's below the street estimate.
[0:43] Speaker 2: Of $ 55. 78 billion. I'm taking a look at Google shares. Yeah,
[0:47] Speaker 2: they are falling in the aftermarket. So we are actually
[0:50] Speaker 2: seeing some disappointment in terms of some of the numbers.
[0:53] Speaker 2: Third quarter revenue, XTAC.
[0:55] Speaker 4: An important number here, $ 111. 21 billion. Slightly light. The street
[1:00] Speaker 4: looking for $ 111. 29 billion. Third quarter Google Cloud revenue. That
[1:05] Speaker 4: came in better, slightly. $ 30. 71 billion versus an.
[1:08] Speaker 1: Estimate of $ 29. 1 billion. Here's a number.
[1:11] Speaker 4: Gemini app has reached 1 billion users.
[1:15] Speaker 3: Yeah. Also, did you see the tokens number here?
[1:18] Speaker 1: What's the token?
[1:18] Speaker 3: This is pretty wild. Alphabet is now talking about processing
[1:23] Speaker 3: about 32 billion tokens per minute. That's the model APIs,
[1:27] Speaker 3: Alphabet says. Alphabet also surpassing 150 million YouTube music and
[1:31] Speaker 3: premium subs. And, Carol, that now turning into a redhead.
[1:34] Speaker 3: Gemini app has reached 1 billion users. Third quarter cloud
[1:37] Speaker 3: revenue coming in just above estimates.
[1:39] Speaker 4: At $ 30.
[1:39] Speaker 1: 71 billion.
[1:41] Speaker 4: Investors definitely not impressed. Our Ed Ludlow, host of Bloomberg
[1:45] Speaker 4: Tech on Bloomberg TV, is with us. I know, Ed,
[1:47] Speaker 4: you've been listening. We're watching, continuing to see pressure on Alphabet.
[1:52] Speaker 3: Julia Love and Dave Alba with a write-through from the
[1:54] Speaker 3: Bloomberg News team. Writing that the quarterly sales and profit
[1:57] Speaker 3: for the company fell short of expectations, a sign that
[2:00] Speaker 3: the company is failing to generate enough return to justify
[2:02] Speaker 3: its massive investments in AI. Your quick take on the
[2:07] Speaker 3: top-line miss and the bottom-line miss. Was the top-line miss
[2:10] Speaker 3: an indication to you that search is being cannibalized a
[2:16] Speaker 3: little bit by these LLMs finally?
[2:19] Speaker 4: Yeah.
[2:21] Speaker 5: Yeah, I mean, the data doesn't answer your question. So
[2:24] Speaker 5: like Google search is really mixed. Overall search revenue missed
[2:28] Speaker 5: by about $ 1. 5 billion, which is a significant miss, right,
[2:33] Speaker 5: in this environment against Wall Street consensus, but informed by
[2:37] Speaker 5: what they were talking about last quarter. But, you know,
[2:40] Speaker 5: Google says very explicitly that AI is driving growth in
[2:46] Speaker 5: search queries, right? So the use, like people going to search,
[2:52] Speaker 5: is getting a benefit from AI. But in terms of revenue,
[2:55] Speaker 5: like the monetizable amount, you know, it's not in line
[2:59] Speaker 5: with expectations. It's growing 12%. You know, it's hard. I
[3:03] Speaker 5: don't know the answer.
[3:04] Speaker 2: Sorry.
[3:06] Speaker 1: So where's the disconnect?
[3:08] Speaker 3: But, Ed, this is, I mean, this is the golden goose.
[3:09] Speaker 3: This is what Larry and Sergey invented, you know, decades ago.
[3:14] Speaker 3: A better way to give us information... and then sell
[3:18] Speaker 3: it next to companies that want to reach you. And
[3:22] Speaker 3: I would argue that out of Silicon Valley, the only
[3:24] Speaker 3: company that's perhaps done a better job doing that is
[3:27] Speaker 3: Mark Zuckerberg's company. But for search, Alphabet owns it. This
[3:32] Speaker 3: is their business. And the concern a year ago or
[3:35] Speaker 3: 18 months ago was that the LLMs would eat into that.
[3:40] Speaker 3: And we got over the last few quarters an indication
[3:42] Speaker 3: that that wasn't happening. Everyone was like, oh, don't freak out.
[3:45] Speaker 3: We're going to be fine. does it seem like it's
[3:48] Speaker 3: going to be fine? Because if people are still getting
[3:50] Speaker 3: the answer they want, but Alphabet's not monetizing it the
[3:53] Speaker 3: way that they're used to, then that could be an issue.
[3:55] Speaker 5: So search is still the golden goose. And from a
[3:58] Speaker 5: scale perspective, like in the quarter, it's more than half
[4:01] Speaker 5: of revenue. So the AI question matters. is the action
[4:05] Speaker 5: that this company's taken, which is putting AI overviews or
[4:09] Speaker 5: AI mode in search, they're saying that it is increased
[4:12] Speaker 5: use of search. But are they able to increase usage
[4:16] Speaker 5: without damaging monetization? We don't have a conclusive answer based
[4:21] Speaker 5: on the fact that search revenue is overall missed. But
[4:24] Speaker 5: you'd bet, wouldn't you, that the analysts will ask exactly
[4:28] Speaker 5: that question on the call. Okay, Google or Alphabet Management
[4:32] Speaker 5: searches up But the financials of this are changing. Explain
[4:36] Speaker 5: that to us.
[4:37] Speaker 1: Right. And it goes to that bigger question, right?
[4:40] Speaker 4: We still think about this company as a search engine company.
[4:44] Speaker 4: And how is AI changing it? Is it giving it
[4:47] Speaker 4: increased ROI to some extent, right, on its main business?
[4:51] Speaker 4: Like whether or not they're seeing the payoff from all
[4:53] Speaker 4: this investment. It kind of is as simple as that.
[4:57] Speaker 5: Yeah, I would say, like, you know, search grew 12%. Yeah.
[5:00] Speaker 5: But search revenues did not grow 12%. What's up with that?
[5:04] Speaker 5: Pretty simple. I would also say, like, there's another part
[5:08] Speaker 5: of the business, which is advertising, right? And advertising also
[5:11] Speaker 5: missed by, like, well above $ 1. 5 billion as well. So, like,
[5:15] Speaker 5: something's going on there in the advertising broadly.
[5:19] Speaker 3: But those two.
[5:21] Speaker 1: Yeah, sorry.
[5:22] Speaker 5: Yeah.
[5:23] Speaker 3: Those two businesses inextricably linked. I mean, I think that
[5:27] Speaker 3: the challenge here is like, to me, this seems existential.
[5:31] Speaker 3: I mean, where was a business we cover about this
[5:33] Speaker 3: a year ago? Julia Love worked on this story, and
[5:37] Speaker 3: it was all about how Alphabet was trying to adapt
[5:41] Speaker 3: Google and search for the next generation. We spoke to
[5:44] Speaker 3: a small business owner last week who has had to
[5:46] Speaker 3: completely change her business, and it's getting killed as a
[5:50] Speaker 3: result of the changes that Google has made. She's now
[5:52] Speaker 3: trying to optimize for the LLMs. Christina Stembel of Farm
[5:56] Speaker 3: Girl Flowers. That's right, because there's search queries. Because the
[5:58] Speaker 3: search queries are not leading to her business. So I'm
[6:01] Speaker 3: just wondering if there's a link there, Carol.
[6:02] Speaker 1: Yeah, I think it's a good question.
[6:05] Speaker 4: Investors are certainly weighing in.
[6:09] Speaker 1: We continue to see Alphabet down more than 7.5%.
[6:12] Speaker 4: Just to recap, we're talking with our Ed Ludlow, host
[6:16] Speaker 4: of Bloomberg Tech, as he continues to pore over the results. Alphabet,
[6:20] Speaker 4: the headline reporting quarterly sales and profit that fell short
[6:22] Speaker 4: of expectations. a sign that the company is failing to
[6:25] Speaker 4: generate enough return to justify its massive investments in AI.
[6:30] Speaker 4: I mean, still a lot.
[6:33] Speaker 1: $ 111.
[6:33] Speaker 4: 2 billion were sales, ex-partner payouts for the three months
[6:37] Speaker 4: ending September 30th, but it was still below or just below.
[6:41] Speaker 3: The $ 111.
[6:41] Speaker 1: 3 billion that analysts had projected. It's costing a lot.
[6:46] Speaker 4: Again, the narrative that has changed in the last three
[6:48] Speaker 4: years about where's the payoff on all of this. And
[6:51] Speaker 4: let's just remind everybody on Microsoft, continue to watch that
[6:55] Speaker 4: one as well. It's up about 4.3%. Microsoft reported better
[6:59] Speaker 4: than expected cloud revenue, suggesting the company continues to reap
[7:02] Speaker 4: the benefits. of its massive investment in AI.
[7:05] Speaker 1: What's the difference?
[7:06] Speaker 4: None of these companies are exactly the same here, Ed.
[7:09] Speaker 4: I mean, but we tend to kind of put them
[7:11] Speaker 4: all in the same bucket, these hyperscalers, but they all
[7:14] Speaker 4: have different core businesses.
[7:16] Speaker 5: Okay, free cash flow. I mean, going into these earnings print,
[7:20] Speaker 5: that is the comparison that you make. So in the quarter,
[7:23] Speaker 5: Alphabet had negative free cash flow of $ 9. 1 billion, which
[7:28] Speaker 5: actually shows worsening free cash flow from last quarter was
[7:32] Speaker 5: just under $ 6 billion. Compare and contrast, kind of fun.
[7:35] Speaker 5: Microsoft had free cash flow of almost $ 19 billion. And
[7:39] Speaker 5: if you just take those hyperscaler names or the Mag7,
[7:43] Speaker 5: and you look at the stock, their performance since last
[7:46] Speaker 5: quarter's earnings, or year-to-date, the best performers are those throwing
[7:50] Speaker 5: off cash, Nvidia, Apple. The worst performers in the stock
[7:54] Speaker 5: market are those with negative free cash flow. And so
[7:58] Speaker 5: you can't take like the search miss in isolation with Alphabet.
[8:02] Speaker 5: You have to look at all of it. And so
[8:04] Speaker 5: the cloud growth is amazing, astonishing. The spending we know about,
[8:09] Speaker 5: but now, you know, Wall Street has this high bar
[8:12] Speaker 5: where it's looking at the negative free cash flows. And
[8:14] Speaker 5: that also is a factor in this reaction. Microsoft has
[8:17] Speaker 5: good free cash flow.
[8:19] Speaker 1: I'm going to give you props.
[8:20] Speaker 4: You said it on surveillance this morning with Tom and Paul,
[8:23] Speaker 4: just saying that Wall Street is increasingly, they care about
[8:25] Speaker 4: free cash flow, right? You're these publicly held entities.
[8:28] Speaker 1: You're spending a lot of money.
[8:30] Speaker 3: People are looking.
[8:31] Speaker 4: And investors can be fickle for each specific story, but
[8:35] Speaker 4: they're increasingly, they care about this stuff and we're seeing
[8:37] Speaker 4: it play out.
[8:38] Speaker 3: Hey, Ed, I want to talk a little about the
[8:40] Speaker 3: other business over at Alphabet. And forgive us for sticking
[8:43] Speaker 3: on Alphabet, but this is the one.
[8:45] Speaker 1: That really has my attention. Are you talking about YouTube?
[8:47] Speaker 3: No, I'm talking about the CapEx coming in below estimates
[8:51] Speaker 3: at $ 51. 36 billion. And Ed already mentioned the growth of cloud.
[8:57] Speaker 3: Google cloud revenue grew 103% in a different world, Ed.
[9:01] Speaker 3: And by a different world, I mean a different quarter.
[9:04] Speaker 3: Those two things that I just read would be greeted
[9:09] Speaker 3: by investors sending shares the other way.
[9:13] Speaker 5: Okay, but this is what I mean by you can't
[9:14] Speaker 5: take any of these data points in isolation. So CapEx
[9:18] Speaker 5: in the quarter was actually slightly below expectations. I think
[9:20] Speaker 5: it was like 51.4 billion, right? But if you just
[9:23] Speaker 5: take where they are nine months into the year, Alphabet
[9:27] Speaker 5: spent about $ 132 billion. They guided that for this year.
[9:31] Speaker 5: CapEx will be in the range $ 195 to $ 205 billion.
[9:35] Speaker 5: That's a lot. A year ago, in any given quarter,
[9:40] Speaker 5: Alphabet was spending like $ 25 billion. Now that obviously is
[9:44] Speaker 5: tracking way ahead of that. So the cloud growth is
[9:48] Speaker 5: there and growth in the operating income from it as well.
[9:52] Speaker 5: But again, balance it against the spending commitment and how
[9:56] Speaker 5: deeply that is putting them into free negative free cash
[10:00] Speaker 5: flow irrespective of their operating cash flow and i'm not
[10:03] Speaker 5: i'm not an accountant or forensic guy by any means
[10:05] Speaker 5: but yeah i think that's the math people.
[10:07] Speaker 4: Are doing but you gotta keep looking at it but
[10:09] Speaker 4: he plays one on tv he does play one on
[10:11] Speaker 4: tv he does it pretty well he does it pretty
[10:13] Speaker 4: well all right ed ledlow uh you know we always
[10:15] Speaker 4: appreciate you jumping on with us and walking through these
[10:17] Speaker 4: earnings uh no one like you uh Ed Ludlow.
[10:21] Speaker 1: He'll be continuing to cover this. He is the host
[10:23] Speaker 1: of Bloomberg Tech.
[10:23] Speaker 4: Catch them and catch him and his team on Bloomberg
[10:26] Speaker 4: Television at 11 a.m.
[10:27] Speaker 1: Wall Street time.

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