Alphabet (GOOGL) Q3 2025 Earnings Call — October 29, 2025

Date: October 29, 2025 | Source: Alphabet Investor Relations (abc.xyz) Q3 2025 Earnings Call transcript + Motley Fool

Participants:Sundar Pichai (CEO), Philipp Schindler (SVP/CBO), Anat Ashkenazi (SVP/CFO), Jim Friedland (Head of IR).

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Jim Friedland, Head of IR: Welcome to Alphabet's Third Quarter 2025 Earnings Conference Call. With us today are Sundar Pichai, Philipp Schindler and Anat Ashkenazi. During this call, we will present both GAAP and non-GAAP financial measures.

Sundar Pichai, CEO: This was a terrific quarter for Alphabet, driven by double-digit growth across every major part of our business. We are seeing AI now driving real business results across the company. We delivered our first-ever $100 billion quarter. Our revenue number has doubled in five years, and we're firmly in the generative AI era.

Cloud had another great quarter of accelerating growth with AI revenue as a key driver. Cloud backlog grew 46% quarter-over-quarter to $155 billion. And we crossed 300 million paid subscriptions, led by growth in Google One and YouTube Premium.

We are scaling the most advanced chips in our data centers, including GPUs from NVIDIA and our own purpose-built TPUs, and we are the only company providing a wide range of both. Our highly sought-after TPU portfolio is led by our seventh-generation TPU, Ironwood. We're excited that Anthropic recently shared plans to access up to one million TPUs.

Our research leadership is advancing next-frontier technologies. Last week, we announced that our Willow quantum chip achieved a major breakthrough, running an algorithm 13,000x faster than one of the world's best supercomputers.

Turning to Search: AI Mode is already driving incremental total query growth. We rolled out AI Mode globally across 40 languages; it now has over 75 million daily active users. In Q3, revenue from products built on our generative AI models grew more than 200% year-over-year. We have signed more deals over $1 billion through Q3 this year than in the previous two years combined. Nine of the top ten AI labs choose Google Cloud.

On YouTube, our exclusive global NFL broadcast from Brazil drew more than 19 million fans, a record for most concurrent viewers of a live stream. Waymo's growth and momentum are strong, and 2026 is shaping up to be an exciting year.

Philipp Schindler, SVP and CBO: Google Services revenues were $87 billion for the quarter, up 14% year-on-year, driven by accelerated growth in Search and YouTube, partially offset by a year-on-year decline in Network revenues. The 15% increase in Search and Other was led by growth across all major verticals, with the largest contributions from Retail and Financial Services. Search and Other revenues delivered over $56 billion.

Our investments in new AI experiences, such as AI Overviews and AI Mode, continue to drive growth in overall queries, including commercial queries. Rolled out globally in September, AI Max is already used by hundreds of thousands of advertisers — in Q3 alone, AI Max unlocked billions of net new queries. Kayak grew conversion value by 12% in early tests after turning on AI Max.

On YouTube, we saw accelerated revenue growth, with strong growth in YouTube Music & Premium and YouTube TV. Advertisers using target-based bidding on Demand Gen saw conversion value increase by more than 40%.

Anat Ashkenazi, SVP and CFO: We had an outstanding quarter in Q3, delivering double-digit revenue growth across Search and YouTube advertising; Subscriptions, Platforms and Devices; and Google Cloud. Consolidated revenue reached $102.3 billion, a 16% year-over-year increase, or 15% in constant currency.

Total operating expenses increased 28% to $29.7 billion, with G&A increased meaningfully primarily due to the $3.5 billion charge related to the European Commission fine. Operating income increased 9% to $31.2 billion, and operating margin was 30.5%. Excluding the EC fine, operating income increased 22%, and operating margin was 33.9%.

Other income and expenses was $12.8 billion, primarily due to unrealized gains in our non-marketable equity securities portfolio. Net income increased 33% to $35 billion, and earnings per share increased 35% to $2.87.

We generated free cash flow of $24.5 billion in Q3 and $73.6 billion for the trailing twelve months. We ended the quarter with $98.5 billion in cash and marketable securities.

Google Services revenues increased 14% to $87.1 billion. Google Search and Other advertising revenues increased 15% to $56.6 billion. YouTube advertising revenues increased 15% to $10.3 billion. Network advertising revenues of $7.4 billion were down 3%. Subscriptions, Platforms and Devices revenues increased 21% to $12.9 billion.

Google Cloud revenue increased 34% to $15.2 billion. Cloud operating income increased 85% to $3.6 billion, and operating margin increased from 17.1% to 23.7%. Google Cloud's backlog increased 46% sequentially and 82% year-over-year, reaching $155 billion.

In Other Bets, revenues were $344 million, and operating loss was $1.4 billion. CapEx was $24 billion in Q3, with ~60% in servers and 40% in data centers and networking. We returned capital through $11.5 billion of repurchases and $2.5 billion of dividends.

We now expect CapEx in the range of $91 billion to $93 billion for 2025, up from our previous estimate of $85 billion. Looking out to 2026, we expect a significant increase in CapEx, with more detail on our Q4 earnings call. Depreciation increased $1.6 billion year-on-year to $5.6 billion, a growth rate of 41%.

Questions & Answers

Brian Nowak (Morgan Stanley): What factors are you most focused on to ensure a smooth transition for Search and advertisers as you move to a more agentic world? And on Waymo, how far are we from integrating Waymo into core Gemini capabilities?

Philipp Schindler: We see agentic experiences as additive to the way people seek information. We're working on multiple agentic experiences across key verticals such as Travel, Commerce and Shopping. We launched a more visual experience on AI Mode and new agentic checkout, with a partnership with PayPal to help merchants build agentic commerce experiences.

Sundar Pichai: On Waymo, it is an exciting time. Waymo clearly is scaling up, particularly in 2026. With Gemini's multimodal experience, there's a real opportunity to make the in-car experience dramatically better. You'll see newer experiences in 2026 for sure.

Doug Anmuth (JPMorgan): Can you talk about drivers of core Search strength, and where you see opportunities in the core cost base to absorb the rapid growth in infrastructure and depreciation?

Philipp Schindler: Search and Other revenues again delivered growth across all major verticals, led by Retail and Financial Services. AI Overviews is now scaled to over 2 billion users. Paid clicks were up 7% year-on-year and CPCs were up 7% year-on-year. We don't manage to paid clicks and CPC targets, but this is a great baseline.

Anat Ashkenazi: On efficiency, this is not a one-time effort but an ongoing way we manage the business — moderating headcount growth, optimizing our real estate footprint, and optimizing the technical infrastructure build-out. We have a headwind with depreciation increasing alongside CapEx, so we run the business in the most disciplined way while investing for growth.

Michael Nathanson (MoffettNathanson): How is the longer AI Mode query length impacting your ability to drive ROAS? And how do you look at ROIC internally?

Philipp Schindler: AI Mode has over 75 million daily active users, and queries doubled over the quarter. We're testing ads in AI Mode and will continue to test and learn before we expand further.

Anat Ashkenazi: On ROIC, we already generate billions of dollars from AI in the quarter. We have more demand than we have supply. We go through a very rigorous process of assessing what the return could be and over what timeframe before investing for the long term.