Alphabet sells attention and computing capacity. Most of the money comes from advertisers who pay when a user clicks or views an ad next to a search result, a YouTube video or a partner's website; the rest from consumers paying for subscriptions, apps and devices, and from companies renting infrastructure, AI models and software through Google Cloud. Three segments are reported — Google Services, Google Cloud and Other Bets — with a fourth unallocated line carrying shared research on the general AI models, corporate costs and certain fines. Advertising was 73.2% of revenue against 77.4% two years earlier, and 190,820 people worked there at year end.
The business in one page
Revenue was $402,836 million, up 15.1%, and the operating margin held at 32.0% while the gross margin widened from 56.6% to 59.7%. Search & other grew 13.4% to $224,532 million with both halves of its pair rising: paid clicks +6% and cost-per-click +7%. Google Cloud grew 35.8% to $58,705 million and its operating margin went from 5.2% to 23.7% in two years, with 50.4 cents of each additional revenue dollar reaching operating income. Net cash was $59.8 billion even after gross debt rose from $30.4 billion to $67.0 billion, and diluted shares fell 3.9% in two years.
Three things sit against that. Free cash flow grew 0.7% while net income grew 32.0%, because capital expenditure rose 74.1% to $91,447 million: $78,600 million of plant is not yet in service and no in-service dates are given, while purchase commitments of $149,100 million and leases signed but not commenced of $58,500 million exceed the year's capex. The return on capital added in the year was about half the return on the capital already in place. And $24.1 billion of pre-tax income, 15.2% of it, is gains on equity securities — mostly unrealised revaluations of private holdings, with a further $32.0 billion recognised in January 2026.
Figures for 3 fiscal years, taken from the Key Metrics tables of each annual report. When a later filing restates a figure, we use the figure reported for that year's own filing.
Key metrics
| Metric | FY2023 | FY2024 | FY2025 |
|---|---|---|---|
| Revenue | $307.4B | $350.0B | $402.8B |
| Gross margin | 56.6% | 58.2% | 59.7% |
| Operating margin | 27.4% | 32.1% | 32.0% |
| Net margin (GAAP) | 24.0% | 28.6% | 32.8% |
| Operating cash flow | $101.7B | $125.3B | $164.7B |
| Capex | $32.3B | $52.5B | $91.4B |
| Free cash flow | $69.5B | $72.8B | $73.3B |
| Stock-based compensation | $22.5B | $22.8B | $25.0B |
| Dividends + buybacks | $61.5B | $69.6B | $55.8B |
| Net cash | – | $65.2B | $59.8B |
| Total debt | – | $30.4B | $67.0B |
| Shareholders’ equity | – | $325.1B | $415.3B |
| Effective tax rate | 13.9% | 16.4% | 16.8% |
| Our construction: NOPAT on year-end invested capital (42.2% on average capital) | – | 42.3% | 37.5% |
How Alphabet makes money
Competitive advantage
The document shows little, and only that is used: no customer exceeded 10% of revenue in any of the three years, Search & other grew 13.4% with paid clicks and cost-per-click both rising, and research spending rose 23.8% to $61,087 million, 15.2% of revenue.
The company calls its AI-optimised infrastructure a key differentiator, which the document does not measure.
It does record that a US court found against Google on Search distribution in August 2024, and that the December 2025 remedy requires sharing certain search data with, and offering syndication services to, certain competitors. Part of what has protected Search is now under a court order whose cost is not estimated.
Whether the advantage is widening or narrowing cannot be established from the filing.
Pricing power
Cost-per-click on Search rose 7% while paid clicks rose 6%, so price contributed slightly more than volume to the growth of the main line.
On Google Network cost-per-impression also rose 7%, but impressions fell 7% and revenue declined 1.9%.
The company attributes price changes to device mix, geographic mix, advertiser spending, product and policy changes, property mix and exchange rates, so the 7% cannot be read as a price increase on the same product.
The traffic acquisition cost rate fell from 20.7% to 20.3%, which the company attributes to mix while rates on each channel were substantially consistent: Alphabet kept more of each advertising dollar because the Network line shrank, not because it negotiated better terms.
Transparency of growth
Growth in FY2025 was organic: acquisitions net of cash were $1,592 million and no business combination is presented for the year. Wiz and Intersect close in 2026.
Foreign currency is not quantified as a contribution to growth, and hedging swung by 0.1% of revenue.
The segment and geographic splits reconcile to total revenue, with the residual disclosed as hedging gains and losses.
The shift in mix is toward lines the document itself says carry lower margins: Cloud, subscriptions and devices, with advertising down from 77.4% to 73.2% of revenue in two years.
Scalability
The gross margin widened from 56.6% to 59.7% in two years, because cost of revenues grew more slowly than revenue in both years, and sales and marketing fell to 7.1% of revenue.
The lines that did not scale were research and development, up 23.8%, and general and administrative, up 51.4% on expenses related to legal and other matters.
Depreciation is the line to watch: up 38.0% to $21,136 million, from 3.9% of revenue in FY2023 to 5.2%.
With $78,600 million of assets not yet depreciating, the operating leverage visible in the gross margin has a cost already on the balance sheet that has not yet reached the income statement.
Catalysts identified in the filing
- Backlog conversion
Of the $242,800 million revenue backlog, just over half is expected to become revenue within 24 months, against FY2025 Cloud revenue of $58,705 million.
- Capacity entering service
$78,600 million of plant not yet in service will start producing revenue — and depreciation — as it is placed in service.
- Wiz inside Google Cloud
The $32,000 million all-cash acquisition is expected to close in 2026 and will become part of the Cloud segment; Intersect is expected in the first half.
- Cash taxes
The July 2025 US tax law has certain changes effective in 2026, in a year when cash taxes fell to $21.5 billion from $27.4 billion. The document does not quantify the law's share.
- January 2026 revaluation gains
About $32,000 million of unrealised gains recognised in January 2026 will raise reported net income. They are a revaluation, not cash, and can reverse.
Financial analysis
Click any line to chart it.
| Income statement · $ millions | FY2023 | FY2024 | FY2025 | Where in the filing |
|---|---|---|---|---|
| Revenues | 307,394 | 350,018 | 402,836 | IS, Revenues |
| % change year on year | – | 13.9% | 15.1% | computed |
| Cost of revenues | 133,332 | 146,306 | 162,535 | IS, Cost of revenues |
| Gross profit (calculated) | 174,062 | 203,712 | 240,301 | Revenues − Cost of revenues |
| % gross margin | 56.6% | 58.2% | 59.7% | computed |
| Research and development | 45,427 | 49,326 | 61,087 | IS |
| Sales and marketing | 27,917 | 27,808 | 28,693 | IS |
| General and administrative | 16,425 | 14,188 | 21,482 | IS |
| Total operating expenses (calculated) | 89,769 | 91,322 | 111,262 | Sum of the three lines; FY2024–25 match MD&A "Operating expenses" |
| Income from operations | 84,293 | 112,390 | 129,039 | IS |
| % operating margin | 27.4% | 32.1% | 32.0% | computed |
| Other income (expense), net | 1,424 | 7,425 | 29,787 | IS; Note 7 |
| — of which interest income | 3,865 | 4,482 | 4,337 | Note 7 |
| — of which interest expense (net of capitalized interest) | (308) | (268) | (736) | Note 7 |
| — interest capitalized | 181 | 194 | 447 | Note 7, footnote 1 |
| — FX gain (loss), net | (1,238) | (409) | (382) | Note 7 |
| — gain (loss) on debt securities, net | (1,215) | (1,043) | 540 | Note 7; Note 3 |
| — gain (loss) on equity securities, net | 392 | 3,714 | 24,080 | Note 7; Note 3 |
| — equity method income (loss) and impairment | (628) | (188) | 281 | Note 7 |
| — other | 556 | 1,137 | 1,667 | Note 7 |
| Income before income taxes | 85,717 | 119,815 | 158,826 | IS |
| Provision for income taxes | 11,922 | 19,697 | 26,656 | IS; Note 14 |
| Net income | 73,795 | 100,118 | 132,170 | IS (no separate NCI line; net loss attributable to NCI "not material", included in OI&E "other", Note 5) |
| % net margin | 24.0% | 28.6% | 32.8% | computed |
| Basic EPS (US$) | 6 | 8 | 11 | IS; Note 12 |
| Diluted EPS (US$) | 6 | 8 | 11 | IS; Note 12 |
| Weighted-average shares, basic (mn) | 12,630 | 12,319 | 12,116 | Note 12, consolidated column |
| Weighted-average shares, diluted (mn) | 12,722 | 12,447 | 12,230 | Note 12, consolidated column |
| TAC | not available | 54,900 | 59,926 | MD&A, Cost of revenues table (FY2023 not in this document) |
| Other cost of revenues | not available | 91,406 | 102,609 | MD&A |
| TAC rate (TAC / advertising revenues) | not available | 21 | 20 | MD&A (company figure) |
| Advertising and promotional expense (US$ bn) | 9 | 9 | 10 | Note 1 |
| Balance sheet · $ millions | FY2024 | FY2025 | Where in the filing |
|---|---|---|---|
| Cash and cash equivalents | 23,466 | 30,708 | BS |
| Marketable securities | 72,191 | 96,135 | BS |
| Cash, cash equivalents and marketable securities | 95,657 | 126,843 | BS |
| — of which marketable equity securities | 4,813 | 6,313 | Note 3 |
| Accounts receivable, net | 52,340 | 62,886 | BS |
| Other current assets | 15,714 | 16,309 | BS |
| Total current assets | 163,711 | 206,038 | BS |
| Non-marketable securities | 37,982 | 68,687 | BS; Note 3 |
| Deferred income taxes (asset) | 17,180 | 9,113 | BS |
| Property and equipment, net | 171,036 | 246,597 | BS; Note 7 |
| Operating lease assets | 13,588 | 15,221 | BS |
| Goodwill | 31,885 | 33,380 | BS; Note 9 |
| Other non-current assets | 14,874 | 16,245 | BS |
| Total assets | 450,256 | 595,281 | BS |
| Accounts payable | 7,987 | 12,200 | BS |
| Accrued compensation and benefits | 15,069 | 17,546 | BS |
| Accrued expenses and other current liabilities | 51,228 | 55,557 | BS; Note 7 |
| Accrued revenue share | 9,802 | 10,864 | BS |
| Deferred revenue (current) | 5,036 | 6,578 | BS |
| Total current liabilities | 89,122 | 102,745 | BS |
| Long-term debt | 10,883 | 46,547 | BS; Note 6 |
| Income taxes payable, non-current | 8,782 | 9,531 | BS |
| Operating lease liabilities (non-current) | 11,691 | 12,744 | BS |
| Other long-term liabilities | 4,694 | 8,449 | BS |
| Total liabilities | 125,172 | 180,016 | BS |
| Stock and additional paid-in capital | 84,800 | 93,126 | BS |
| Accumulated other comprehensive income (loss) | (4,800) | (1,916) | BS |
| Retained earnings | 245,084 | 324,055 | BS |
| Total stockholders' equity | 325,084 | 415,265 | BS |
| — of which noncontrolling interests (inside APIC) | 4,200 | 3,400 | Note 5 ("$4.2 billion and $3.4 billion") |
| — of which redeemable NCI | 1,100 | 841 | Note 5 |
| Shares issued and outstanding (mn) | 12,211 | 12,088 | BS |
| Cash flow statement · $ millions | FY2023 | FY2024 | FY2025 | Where in the filing |
|---|---|---|---|---|
| Net cash provided by operating activities | 101,746 | 125,299 | 164,713 | CF |
| Depreciation of property and equipment | 11,946 | 15,311 | 21,136 | CF |
| Stock-based compensation expense (CF line) | 22,460 | 22,785 | 24,953 | CF |
| Deferred income taxes | (7,763) | (5,257) | 8,348 | CF |
| Loss (gain) on debt and equity securities, net | 823 | (2,671) | (24,620) | CF |
| Other non-cash adjustments | 4,330 | 3,419 | 2,108 | CF |
| Change in working capital (sum of seven CF lines) | (3,845) | (8,406) | 618 | CF, "Changes in assets and liabilities" |
| Purchases of property and equipment (capex) | (32,251) | (52,535) | (91,447) | CF |
| Free cash flow (CFO − capex) | 69,495 | 72,764 | 73,266 | calculated |
| Acquisitions, net of cash acquired, and purchases of intangibles | (495) | (2,931) | (1,592) | CF |
| Repurchases of stock (cash) | (61,504) | (62,222) | (45,709) | CF |
| Dividend payments | 0 | (7,363) | (10,049) | CF |
| Net payments related to stock-based award activities | (9,837) | (12,190) | (14,167) | CF |
| Proceeds from issuance of debt, net of costs | 10,790 | 13,589 | 64,564 | CF |
| Repayments of debt | (11,550) | (12,701) | (32,427) | CF |
| Proceeds from sale of interest in consolidated entities | 8 | 1,154 | 400 | CF |
| Cash paid for income taxes, net of refunds | 19,164 | 27,353 | 21,526 | Note 14 |
| Capex included in accrued liabilities and accounts payable (non-cash) | 7,435 | 10,326 | 15,090 | CF, supplemental |
| Employees at year-end | not available | not available | 190,820 | Item 1; MD&A |
| Per share · $ per diluted share | FY2023 | FY2024 | FY2025 | Where in the filing |
|---|---|---|---|---|
| Revenue | 24.16 | 28.12 | 32.94 | computed |
| Net income | 5.80 | 8.04 | 10.81 | computed |
| Free cash flow | 5.46 | 5.85 | 5.99 | computed |
| Shareholders' equity | – | 26.12 | 33.95 | computed |
Computed on the weighted average diluted share count the filing reports (12,230 in FY2025, 12,447 in FY2024, 12,722 in FY2023, in millions), checked against the diluted earnings per share printed in the filing.
| Ratios · percent | FY2023 | FY2024 | FY2025 | Where in the filing |
|---|---|---|---|---|
| Returns and margins | ||||
| Revenue growth | – | 13.9% | 15.1% | computed |
| Gross margin | 56.6% | 58.2% | 59.7% | from the statements |
| Operating margin | 27.4% | 32.1% | 32.0% | from the statements |
| Net margin | 24.0% | 28.6% | 32.8% | from the statements |
| Our construction: NOPAT on year-end invested capital (42.2% on average capital) | – | 42.3% | 37.5% | our construction |
| Effective tax rate | 13.9% | 16.4% | 16.8% | from the statements |
| Cash | ||||
| Operating cash flow / revenue | 33.1% | 35.8% | 40.9% | computed |
| Capital expenditure / revenue | 10.5% | 15.0% | 22.7% | computed |
| Free cash flow / revenue | 22.6% | 20.8% | 18.2% | computed |
| Stock-based compensation / revenue | 7.3% | 6.5% | 6.2% | computed |
| Dividends and buybacks / free cash flow | 88.5% | 95.6% | 76.1% | computed |
| Balance sheet | ||||
| Total debt / equity | – | 9.4% | 16.1% | computed |
| Net cash / equity | – | 20.1% | 14.4% | computed |
Every ratio is computed from the figures in the statements on the left; none is a target or a benchmark.
The three statements as the filing presents them, with the note or schedule each line comes from. Percentage rows are computed from the lines above them; nothing is restated. Negative figures are the ones the filing itself signs as negative.
Operating measures
| Measure | FY2025 | FY2024 | Change / detail | Where in the filing |
|---|---|---|---|---|
| Search: paid clicks | +6% | not in this filing | change only; the filing publishes no level and no prior-year change | MD&A, Monetization Metrics |
| Search: cost-per-click | +7% | not in this filing | change only; the filing publishes no level and no prior-year change | MD&A, Monetization Metrics |
| Search & other revenue | $224,532M | $198,084M | +13.4%; the pair implies +13.4% | Note 2 |
| Cloud revenue | $58,705M | $43,229M | +35.8% | Note 2; Note 15 |
| Cloud operating margin | 23.7% | 14.1% | 5.2% in FY2023 | Note 15 |
| Revenue backlog | $242,800M | not disclosed | primarily Google Cloud; just over half within 24 months | Note 2 |
| Traffic acquisition cost rate | 20.3% | 20.7% | share of advertising revenue paid to partners | computed from Note 2 |
| Google Network: impressions | −7% | not disclosed | cost-per-impression +7%; revenue −1.9% | MD&A |
| Property and equipment not yet in service | $78,600M | not disclosed | no in-service dates given | Note 7 |
| Purchase commitments | $149,100M | not disclosed | 0.92x cost of revenues; $113,000M short-term | MD&A |
| Leases signed, not yet commenced | $58,500M | not disclosed | commencing between 2026 and 2031 | Note 4 |
| Deferred revenue | $8,600M | $6,000M | +43.3% | Note 2 |
| Accrued fines and settlements | $15,594M | $9,830M | 12.1% of operating income | Note 7 |
| Employees | 190,820 | not disclosed here | Item 1 |
Documents behind these figures: Form 10-K for the fiscal year ended December 31, 2025 — FY2023-FY2025 · 2026 Proxy Statement — ownership, compensation, related parties
Key risks
The main weaknesses and risks identified in the latest annual report, in the order the report presents them.
- Free cash flow grew 0.7% while net income grew 32.0%
Operating cash flow rose 31.5% to $164,713 million, but capital expenditure rose 74.1% to $91,447 million, leaving free cash flow at $73,266 million against $72,764 million. Free cash flow covers 55.4% of net income, against 94.2% two years earlier.
- The capital added earns about half what the capital in place earns
Return on year-end invested capital fell from 42.3% to 37.5% while reinvestment rose to 66.4% of NOPAT. $78,600 million of plant is not yet in service, the document gives no in-service dates, allocates no assets or capex to segments and publishes no capacity in physical units.
- A sixth of pre-tax profit is revaluation, not operations
Gains on equity securities of $24.1 billion were 15.2% of pre-tax income, mostly unrealised adjustments on private holdings: cumulative upward adjustments reached $44,485 million. Without them earnings grew about 16% rather than 32%, and a further $32.0 billion was recognised in January 2026.
- Commitments outside the balance sheet exceed the year's capex
Purchase commitments of $149,100 million, leases signed but not commenced of $58,500 million, credit derivatives on third-party data-centre leases with a notional of $16,940 million against zero a year earlier, and financial guarantees of $5,700 million. The company has begun to finance and guarantee capacity outside its own balance sheet.
- The rulings are already adverse and none is costed
A US court found against Google on Search distribution, and the December 2025 remedy requires it to share certain search data with and offer syndication services to competitors. For the ad tech cases, the Digital Markets Act investigations and the private follow-on actions the document states it cannot estimate a possible loss. Loss contingencies are the auditor's only Critical Audit Matter.
Open questions the filing does not answer
- How does capital expenditure split between maintenance and expansion, and between segments? The document gives neither, and no capacity in physical units.
- When will the $78,600 million of plant not yet in service enter service? No dates are given, so the depreciation that follows cannot be placed in time.
- What were the levels of paid clicks and cost-per-click, and what was the backlog a year earlier? Only changes are published for the first two, and no comparative for the third.
- What revenue comes from AI features, and what will the Search remedies cost? Neither is quantified; the company says only that it may monetise differently than historically.
- What loss range applies to the ad tech cases and the Digital Markets Act investigations? The filing states it cannot estimate a possible loss for any of them.
- What are management's Class C holdings? Ownership is incorporated by reference to the proxy statement.
At $313 the market capitalises Alphabet at $3,786.4 billion: 28.95 times diluted earnings, 33.8 times earnings excluding the securities gains, 51.7 times free cash flow for a yield of 1.93%, and an owner-earnings yield of 1.28% once share-based pay is treated as a cost. The distance between the two earnings multiples is the revaluation gains; the distance between the two cash yields is share-based pay. The cash yield is low because free cash flow carries $70.3 billion of capital expenditure above depreciation: on a maintenance proxy the yield is 3.13%, and the gap between the two is the expansion the price is paying for.
The reading holds if assets placed in service lift operating profit faster than invested capital — visible as a rising incremental return and a Cloud margin that keeps widening. It fails if depreciation grows faster than revenue once the $78.6 billion under construction is in service, if the Search pair weakens, or if the January 2026 gains reverse in later notes. Three things are not in the document and would change the reading: capex split between maintenance and expansion or by segment, the in-service dates, and the cost of the Search remedies ordered in December 2025.
Strengths
- Search still grows on both halves of its pair
Paid clicks rose 6% and cost-per-click 7% on a line of $224,532 million, and the two compound to 13.4% against the 13.4% reported for Search & other: volume and price are rising in roughly equal parts, and the metrics reconcile with the revenue line.
- Cloud's margin went from 5.2% to 23.7% in two years
Revenue of $58,705 million, up 35.8%, with operating income of $13,910 million: 50.4 cents of each additional revenue dollar reached operating income. Inside the segment, employee compensation grew 7.6% while revenue grew 35.8%. A revenue backlog of $242,800 million stands behind it.
- Net cash survived a doubling of debt
Gross debt including operating leases rose from $30,437 million to $66,997 million, and net cash is still $59,846 million. Interest expense is 0.57% of operating income and the long-term notes equal 0.36 years of it. $10 billion of revolving facilities are undrawn and no commercial paper is outstanding.
- Per-share growth ahead of total growth
Diluted shares fell 3.9% in two years, from 12,722 million to 12,230 million, on $45,709 million of repurchases at an average of $189.16. Revenue per diluted share rose from $24.16 to $32.94.
- Operating income carries every recurring cost
Fines and settlements included: accrued fines rose from $9,830 million to $15,594 million and sit inside operating income, and the 10-K excludes nothing through adjusted measures.
Last year’s watch-list, checked against this filing
| What we flagged | What happened | Result |
|---|---|---|
| Prior-year targets | The 10-K publishes no numerical margin, revenue or capex targets, and the FY2024 filing was not supplied, so the comparison cannot be made. | NOT VERIFIABLE - no targets in the document |
| Dividend increase of 5% to $0.21 per quarter, April 2025 | Carried out; dividends declared per share rose from $0.60 to $0.83 and $10,049 million was paid. | DONE - carried out |
| Share repurchase authorisations of $70.0 billion | $45,709 million of cash repurchases in FY2025 at an average of $189.16, with $69,500 million remaining available at year end. | IN PROGRESS - authorisation open |
| Capital expenditure expected to increase significantly relative to 2025 | Stated in this filing, after capex rose 74.1% to $91,447 million and with $78,600 million of plant not yet in service. | TO BE CHECKED NEXT YEAR |
| Wiz to close in 2026, Intersect in the first half; just over half the backlog to become revenue within 24 months; signed leases to commence between 2026 and 2031 | All stated in this filing; none yet verifiable. | TO BE CHECKED NEXT YEAR |
What to watch in the next filing
- Property and equipment not yet in service, $78,600 million, and depreciation, $21,136 million. Their transfer into service and the growth of depreciation against revenue will show whether the capacity earns, and a third balance sheet will turn the incremental return into a series.
- Paid clicks and cost-per-click, +6% and +7%, and the traffic acquisition cost rate, 20.3%. They are where the Search remedies and AI-based search will first show on the main revenue line.
- Cumulative upward adjustments on private holdings, $44,485 million before the January 2026 gains. The FY2026 notes will show how much of the revaluation held, was realised or reversed.
- Google Cloud operating margin, 23.7%, and the revenue backlog, $242,800 million. With Wiz inside the segment they will show whether capacity converts into profitable revenue.
- Credit derivatives and financial guarantees, $16,940 million and $5,700 million, both new this year. A payment under them would be the first sign of strain among the counterparties financing capacity for Alphabet.
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