Shares in Alphabet fell by double digits from Wednesday evening into Thursday trading, removing hundreds of billions of dollars of market value from a company worth $4tn, after third-quarter profits came in well below what Wall Street had expected.
Net profit for the July-to-September period slid 25% from a year earlier to $26.2bn, or $2.12 a share, short of the forecasts of analysts surveyed by FactSet. The Guardian put the fall in market value at about $500bn.
Revenue went the other way, rising 25% to $127.6bn, although even that was slightly below the roughly $128bn analysts had forecast.
Advertising revenue grew 11% to $82bn, short of expectations. Search, still the company's largest source of income, rose 12% to $63.4bn, a slowdown from 17% growth in the previous quarter. YouTube, now the most-watched content provider on American television screens, saw advertising revenue grow 9% to $11.2bn, down from 13% growth in the previous quarter. YouTube Music and Premium passed 150 million subscribers worldwide, including trials.
Google Cloud, which rents computing power and AI tools to businesses, was the exception. Its revenue more than doubled, rising 103% to $30.7bn, ahead of expectations, with operating income tripling to $11.1bn. The company credited sales of its in-house AI chips, known as TPUs, which it is also selling to outside firms in a growing challenge to the market leader Nvidia. OpenAI is reported to be planning to buy some of them.
The quarter also included an $8.7bn loss on equity investments, which Alphabet attributed to its stake in SpaceX, whose shares have struggled since the company went public in June.
The Other Bets division, which includes the robotaxi company Waymo, reported revenue of $372m and an operating loss of $2bn. Waymo now provides more than 500,000 paid rides a week across 15 American metropolitan areas and is aiming for a million a week by the end of the year.
The company had maintained heavy spending on AI through the quarter while reporting a slowdown in its advertising business, which was the combination Wall Street disliked.
The two figures at the centre of this deserve to be set side by side. In three months, Alphabet earned $26.2bn. In roughly eighteen hours, it was relieved of about $500bn.
That is a ratio of a little over nineteen to one. Our analysts have done the division and report that the market removed nineteen quarters of profit, four years and nine months of earning money, in response to a single quarter of earning slightly less of it than expected.
This newspaper regards the exchange rate as the important disclosure. A dollar of disappointment now costs nineteen dollars of company, which is the clearest price yet published for the gap between a result and a forecast.
The rate is not uniform across the business, which complicates planning. Google Cloud grew 103% and was rewarded with the same Thursday as everyone else. Our analysts conclude that growth is priced against what was anticipated rather than against what occurred, and that the only dependable way to be worth more by the afternoon is to have been thought worth less in the morning.
The arithmetic should concentrate minds in Mountain View. At about $500bn removed per quarter missed, eight consecutive disappointments would exhaust the entire $4tn, after which the company would have to be run on revenue alone, of which it has $127.6bn a quarter and rising.
The Department of Unnecessary Research has established the safe operating condition. Alphabet may earn whatever it likes, provided nobody is expecting more.