Alphabet reported for Q3 and lost 10% of its market cap over the evening. The report came out on October 28 at 23:00 Moscow time. Alphabet is the parent company of Google.
It wasn't revenue that let it down, but money. Free cash flow went negative for the second quarter in a row. Free cash flow is the money left over after all capital expenditures.
Why this matters to a trader. Alphabet is one of the largest securities in the Nasdaq-100. Its plunge drags the entire index down with it.
What did the report show?
- $127.58 billion - revenue, +25% year over year, but $365 million below the FactSet consensus of $127.94 billion
- $2.12 - earnings per share versus $2.87 a year earlier and a forecast of $3.01
- $40.58 billion - operating profit versus an expected $43.16 billion
Revenue barely disappointed. The entire blow landed on profit and cash flow.
Where did the money go?
- Loss on the portfolio. Equity securities produced a loss of $8.7 billion and shaved $0.55 off earnings per share. Even if you add those cents back, you get $2.67 - still $0.34 worse than the forecast.
- Capital expenditures. Investment in equipment and data centers amounted to $51.4 billion for the quarter.
- Cash flow in the red. Free cash flow fell to minus $9.1 billion versus minus $5.9 billion a quarter earlier.
- The annual figure collapsed. Over the last 12 months it dropped to $19.7 billion from $53.3 billion in the June reporting.
Was there anything good in the report?
The cloud knocked it out of the park. Google Cloud delivered $30.7 billion, that's +103% versus an expected +89.8%. Margin rose to 36.2% from 35.6%.
But expenses will only grow. CFO Anat Ashkenazi confirmed 2026 capital expenditures at the level of $195-205 billion. The bar had previously been raised from $180-190 billion.
The main thing: Ashkenazi said that in 2027 capex will grow significantly, but did not give specific figures. The FactSet consensus for 2027 is currently $312 billion.
What does this mean for the market?
The index went negative. Nasdaq-100 futures already slid during the Asian session.
- $316.83 - Class C close with a 20-day average of $337.25 and a 50-day average of $338.50
- almost -12% - the drop in tokenized GOOGL
- about $603 thousand - the pool's turnover on Uniswap in five minutes
Uniswap is a decentralized exchange.
The rest of the earnings diverged. Microsoft +3%, Ebay +5%, Carvana +8%, Chipotle +7%, FedEx -2%, Ford -1%. For the dates of the next major events of the season, see the economic calendar, and you can pick a challenge for the indices based on your trading style.
Did you see this gap in the evening session?
Earnings is a rare moment when within minutes you know whether you were right or not. The same 10% plunge on an index, on a deposit of a couple thousand, turns into change from dinner. On a large notional it closes out the month. In prop trading, the trading account is provided by the company: you pay for the evaluation, pass it within its limits, and trade its funds. Earnings season continues, and each such evening session is a reason to understand the mechanics in advance.