Alphabet shares drop over 10% after third-quarter profit falls despite strong revenue growth

Alphabet shares plunged more than 10 percent in after-hours trading on Wednesday, 28 October, after the company missed Wall Street revenue estimates for the third quarter. The stock had already been under pressure since the July earnings announcement.

Earnings Details

Alphabet posted a 25 percent year-on-year rise in revenue to USD 127.6 billion in the September quarter, driven by strong performance in Google Cloud and Search. The technology giant also announced that its annual revenue run rate reached $500 billion, extending its streak of double-digit revenue growth to 13 consecutive quarters. Operating income increased 30 percent year-on-year to $40.6 billion, with an operating margin of 31.8 percent.

Profit Drop

Net income fell to $26.2 billion from $35 billion in the same quarter last year, while diluted earnings per share declined to $2.12 from $2.87. Alphabet attributed the decline to an $8.7 billion loss on equity securities, which reduced net income by $6.7 billion. Google Cloud revenue more than doubled to $30.7 billion, a 103 percent increase fueled by strong demand for artificial intelligence infrastructure, core cloud services, and tensor processing unit systems. Google Services revenue grew 11 percent to $96.3 billion, supported by a 12 percent increase in Google Search and other revenue to $63.4 billion.

Leadership Statements

Chief Executive Officer Sundar Pichai said artificial intelligence investments were contributing to growth in overall Search queries, including commercial searches. He added that the year-on-year growth rate in Search queries reached its highest level in five years. Over the longer term, Alphabet shares have generated wealth for investors, surging 117 percent over the past five years and delivering a return of 1,052 percent since listing.

Context

Publicly traded technology companies often experience sharp stock price movements when their quarterly earnings do not meet the growth expectations set by market analysts. Large corporations frequently balance strong operational growth in specific divisions like cloud computing against non-operating losses or shifting market demands.