Alphabet Inc. (GOOGL) Q4 2025 Earnings Call Transcript

Access earnings results, analyst expectations, report, slides, earnings call, and transcript.

Overview

The earnings call highlights strong financial performance, with record free cash flow and significant growth in Google Services and Cloud revenue. Despite Waymo's losses, optimistic guidance on agentic commerce and AI integration, alongside strategic partnerships, suggest positive sentiment. The Q&A confirms robust growth and innovation, with management addressing supply constraints and efficiency improvements. However, lack of clarity on Gemini's monetization may temper enthusiasm slightly, but overall, the strong earnings and optimistic guidance indicate a positive stock price reaction.

Key Financial Performance

Annual Revenue Alphabet's annual revenues exceeded $400 billion for the first time, representing a 15% year-over-year increase. This growth was driven by strong performance across Search, Cloud, and YouTube, as well as investments in AI.

Search Revenue Search revenue grew 17% year-over-year, driven by broad strength across all major verticals, particularly retail, and improvements in AI-driven query understanding.

YouTube Revenue YouTube's annual revenues surpassed $60 billion, with advertising revenues growing 9% year-over-year. Growth was driven by direct response advertising and strong subscription revenue growth, particularly in YouTube Music and Premium.

Cloud Revenue Cloud revenue grew 48% year-over-year to $17.7 billion in Q4, driven by strong demand for enterprise AI products, infrastructure, and solutions. Backlog grew 55% quarter-over-quarter to $240 billion.

Operating Income Operating income increased 16% year-over-year to $35.9 billion, with an operating margin of 31.6%. Growth was negatively impacted by a $2.1 billion stock-based compensation charge related to Waymo.

Net Income Net income increased 30% year-over-year to $34.5 billion, driven by strong revenue growth and unrealized gains in nonmarketable equity securities.

Free Cash Flow Free cash flow for the full year was $73.3 billion, reflecting strong operating cash flow of $164.7 billion.

Google Services Revenue Google Services revenues increased 14% year-over-year to $95.9 billion, driven by strong growth in Search and subscriptions.

Google Cloud Operating Income Google Cloud's operating income more than doubled year-over-year to $5.3 billion, with an operating margin increase from 17.5% to 30.1%.

Waymo Revenue and Loss Waymo's revenues were $370 million, while operating loss was $3.6 billion, reflecting a $2.1 billion stock-based compensation charge.

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Operating Highlights

Gemini 3: Launched as a major milestone, driving significant user engagement and adoption. Gemini 3 Pro has seen the fastest adoption in Alphabet's history, processing 3x as many daily tokens as its predecessor. The Gemini app has over 750 million monthly active users.

Google Antigravity: New development platform powered by Gemini 3 Pro, enabling autonomous planning and execution of complex software tasks. It has over 1.5 million weekly active users.

AI-powered features: Introduced personal intelligence in AI mode in search, reimagined Chrome as an AI-first browser, and launched Project Genie for interactive world generation.

Pixel 10a: Confirmed upcoming launch as part of the Pixel 10 series.

YouTube: Annual revenues surpassed $60 billion, driven by ads and subscriptions. YouTube remains the #1 streamer in the U.S. for nearly 3 years.

Google Cloud: Revenues grew 48%, with a backlog increase of 55% quarter-over-quarter to $240 billion. Strong demand for AI products and enterprise AI solutions.

Waymo: Expanded to its sixth market, Miami, and plans to expand to multiple cities in the U.S., U.K., and Japan. Surpassed 20 million fully autonomous trips.

AI infrastructure: Lowered Gemini serving unit cost by 78% through model optimizations and efficiency improvements.

Cloud AI accelerators: Served leading enterprises and governments, offering superior performance and cost efficiency.

CapEx investments: Planned $175 billion to $185 billion in 2026 to meet customer demand and scale AI infrastructure.

AI integration: Integrated Gemini 3 into search and other products, enhancing user experience and driving higher engagement.

Partnerships: Collaborated with Apple as their preferred cloud provider and partnered with Reliance Jio to expand Gemini suite access.

Agentic commerce: Introduced a universal commerce protocol for AI-driven shopping experiences.

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Risk or Challenges

Regulatory and Legal Risks: The transcript mentions that Alphabet's forward-looking statements are subject to risks and uncertainties, as outlined in their Forms 10-K and 10-Q. This implies potential regulatory and legal challenges that could impact operations or financial performance.

Supply Chain Constraints: Alphabet's CFO highlighted a 'tight supply environment' impacting Google Cloud's operations, which could hinder the ability to meet customer demand and affect revenue growth.

Increased Operating Expenses: The company reported a significant increase in operating expenses, including a $2.1 billion stock-based compensation charge related to Waymo and higher R&D expenses driven by AI talent acquisition and infrastructure investments. This could pressure profitability.

Capital Expenditure Risks: Alphabet plans to invest $175 billion to $185 billion in 2026 for AI compute capacity and other infrastructure. The availability of supply, pricing of components, and timing of cash payments could introduce variability and financial risk.

Competitive Pressures in AI and Cloud: The transcript highlights Alphabet's focus on AI and cloud services, but also mentions tight competition in these sectors, which could impact market share and profitability.

Economic and Currency Volatility: The CFO noted potential volatility in exchange rates, which could affect revenue and financial performance, particularly in international markets.

Waymo's Financial Impact: Waymo's $2.1 billion stock-based compensation charge and its $16 billion investment round could strain Alphabet's financial resources, especially if Waymo's global expansion does not yield expected returns.

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Guidance & Outlook

2026 CapEx Investments: Anticipated to be in the range of $175 billion to $185 billion to meet customer demand and capitalize on growing opportunities.

AI Infrastructure Efficiency: Lowered Gemini serving unit cost by 78% over 2025 through model optimizations, efficiency, and utilization improvements.

AI Model Adoption: Gemini 3 Pro has seen the fastest adoption of any model in Alphabet's history, processing 3x as many daily tokens on average as its predecessor.

Cloud Revenue Growth: Cloud revenue grew 48% year-over-year, with a backlog increase of 55% quarter-over-quarter to $240 billion, driven by demand for AI products.

Enterprise AI Adoption: Nearly 75% of Google Cloud customers use vertically optimized AI solutions, with enterprise AI products generating billions in quarterly revenues.

YouTube Subscription Growth: Strong growth in YouTube subscriptions, particularly YouTube Music Premium, with plans to launch new YouTube TV packages.

Waymo Expansion: Waymo plans to expand its autonomous service to multiple cities across the U.S., U.K., and Japan, following its largest investment round to date.

AI Monetization in Search: Experimenting with AI mode monetization, including testing ads below AI responses and introducing Direct Offers for exclusive shopper deals.

AI-Powered Ads: Gemini models improve query understanding, enabling better ad matching and monetization of longer, complex searches.

Cloud AI Backlog: Google Cloud's backlog reached $240 billion, more than doubling year-over-year, driven by strong demand for enterprise AI offerings.

CapEx Allocation: Majority of CapEx investments in 2026 will focus on AI compute capacity, cloud customer demand, and strategic investments in Other Bets.

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Shareholder Return Plan

Dividend Payments: In Q4, Alphabet returned capital to shareholders through $2.5 billion of dividend payments.

Share Repurchase: In Q4, Alphabet returned capital to shareholders through $5.5 billion of share repurchase.

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Key Q&A

Q:What progress was made in agentic commerce products in 2025, and what are the expectations for 2026?

A:In 2025, the focus was on laying the foundation for agentic commerce, including making models more robust and developing the Universal Commerce Protocol. The protocol was launched at NRF in January with positive reception. For 2026, the expectation is to integrate these experiences into Gemini and AI Mode, allowing consumers to use these advancements.

Q:What is the long-term vision for integrating content creation tools like Genie into YouTube?

A:The vision is to integrate tools like Genie into YouTube to enhance multimodality and world modeling. The focus is on keeping creators at the center of the experience, ensuring YouTube remains a platform for creator expression.

Q:How is Google addressing the imbalances between demand and capacity for AI, and what are the plans for operating efficiencies?

A:Google is addressing supply constraints by planning long-term investments in capacity and infrastructure. They are also focusing on driving efficiency across the organization, including using AI to improve operations and coding productivity. Approximately 50% of their code is written by coding agents, reviewed by engineers.

Q:How does Google plan to maintain its position in large language models (LLMs) and the potential for TPUs as a revenue stream?

A:Google plans to maintain its position in LLMs through relentless innovation, integrating multimodal models, and offering agentic capabilities. TPUs are part of Google Cloud's offerings, providing customers with a wide choice of accelerators and end-to-end efficiencies in data centers.

Q:What drove YouTube's 9% year-over-year ad revenue growth, and how is AI impacting software companies?

A:YouTube's ad revenue growth was driven by strong direct response growth and retail performance, though impacted by lapping U.S. election spending. AI is seen as an enabling tool for software companies, helping them improve product experiences and drive efficiency.

Q:What is the rationale behind the Universal Commerce Protocol, and how does it impact product discovery?

A:The Universal Commerce Protocol aims to improve user and merchant experiences by making transactions seamless and allowing merchants to showcase offerings. It is foundational for enhancing product discovery and commercial journeys across Google surfaces.

Q:What is the relationship between investment levels and core performance, and what keeps Google executives up at night?

A:Google uses a rigorous framework to allocate investments, balancing near-term and long-term growth while maintaining financial health. Executives are focused on addressing compute capacity constraints and ensuring efficient long-term investments.

Q:What is the growth and retention of the Gemini app, and how does it compare to competitors like ChatGPT?

A:The Gemini app saw extraordinary growth in Q4, with increased engagement and retention globally. It is seen as complementary to other AI-native experiences like AI Mode in search, with no evidence of cannibalization.

Q:How is Google evolving the monetization of AI search activity, and how do partnerships like the one with Apple align with this strategy?

A:Google is enhancing AI search monetization through innovations like AI Overviews and AI Mode, which drive query growth and better ad matching. Partnerships like the one with Apple focus on aligning for mutual success, leveraging AI to enhance user experiences.

Q:Is the Gemini app cannibalizing search activity, and what are the monetization plans for the app?

A:There is no evidence of cannibalization between the Gemini app and search activity. The focus for the Gemini app is currently on the free tier and subscriptions, with potential for ads in the future.

Q:Review of Unclear Management Responses

A:Management avoided directly addressing the potential cannibalization of search by the Gemini app, providing only general statements about growth and complementary usage. Additionally, they did not provide specific details on the monetization timeline for the Gemini app or the exact financial impact of the Universal Commerce Protocol.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

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Alphabet Inc. (GOOGL) Q4 2025 Earnings Call Transcript

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The earnings call highlights strong financial performance, including a 31% increase in EPS and 12% revenue growth. Google Cloud and AI infrastructure continue to expand, and shareholder returns are robust. Despite potential economic risks and increased CapEx, the overall sentiment is positive due to improved operating margins and strategic investments in AI. The Q&A section reflects confidence in future growth and efficiency improvements. Although there are concerns about capacity and economic factors, the optimistic guidance and strategic initiatives suggest a positive stock price movement in the near term.

GOOGL Slides

Alphabet Q4 2025 slides reveal record revenue, Cloud profitability surge

2026-02-04

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