Shares of Google parent company Alphabet (GOOGL) are down 10% after the technology giant reported a big quarterly earnings miss and said that its free cash flow has turned negative.
The search engine giant announced earnings per share (EPS) of $2.67 U.S., which fell short of the $3.02 U.S. that had been expected on Wall Street.
Revenue in the year’s third quarter totaled $127.58 billion U.S., which missed the consensus expectation of $128.22 billion U.S. Sales were up 25% from a year earlier.
It was Alphabet’s first top-and-bottom-line miss in nearly four years. The 10% decline in GOOGL stock is the biggest ever post-earnings decline for the company.
Importantly, Alphabet reported negative free cash flow of $9.07 billion U.S. as it continues to spend heavily on artificial intelligence (A.I.) infrastructure such as data centres.
Analysts had expected Alphabet to report positive free cash flow of $2.70 billion U.S.
Management at the technology giant said capital expenditures in the third quarter totaled $51.36 billion U.S., which was below the $55.09 billion U.S. anticipated on Wall Street.
However, Alphabet maintained its full-year capital expenditures forecast that calls for spending between $195 billion U.S. and $205 billion U.S.
Executives at the company said that capital expenditures are likely to exceed $300 billion U.S. in 2027 as spending on A.I. accelerates.
Alphabet’s borrowing continues to rise sharply. In Q3, long-term debt at the company increased to $125.1 billion U.S. from $21.6 billion U.S. at the start of the year, an increase of nearly 500%.
There are also signs of a slowdown in Alphabet’s core internet search business. Revenue from search grew 12% to $63.35 billion U.S. in the quarter, below estimates of $64.96 billion U.S.
The lone bright spot in Alphabet’s financial results was its cloud computing business, where revenue more than doubled (up 103% year-over-year) to $30.7 billion U.S.
The cloud growth surpassed the $28.7 billion U.S. expected among analysts. But the strong cloud results did little to overcome what was largely a negative print from Alphabet.
Prior to today (Oct. 29), GOOGL stock had risen 17% over the past 12 months to trade at $321.89 U.S. per share.
