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    GOOGL
    Earnings call· Jun 2025(Q2 FY25)

    Alphabet Q2 FY25 earnings call GOOGL

    Jul 23, 2025 Source

    Executive summary

    Alphabet Q2 FY25 — Robust AI-driven Growth and Increased Cloud Investment

    Alphabet delivered a strong second quarter, fueled by robust AI integration across its product portfolio, driving double-digit growth in Search, YouTube, and Cloud. Significant demand for AI-powered cloud services led to a substantial increase in CapEx guidance for 2025 and beyond, signaling continued investment in infrastructure. While core advertising and subscriptions performed well, the company navigates a tight supply environment for compute and increased operating expenses, including a notable legal settlement.

    Highlights

    5

    • Consolidated revenue increased 14% year-over-year to $96.4 billion.

    • Google Cloud revenues grew 32% year-over-year to $13.6 billion, with operating margin expanding to 20.7%.

    • Search and other revenues increased 12% year-over-year to $54.2 billion, driven by AI features like AI Overviews and AI Mode.

    • YouTube advertising revenues grew 13% year-over-year to $9.8 billion, with Shorts averaging over 200 billion daily views.

    • Monthly tokens processed across surfaces doubled to over 980 trillion, reflecting strong AI adoption.

    Concerns

    5

    • Total operating expenses increased 20% year-over-year to $26.1 billion, including a $1.4 billion legal charge.

    • Network advertising revenue declined 1% year-over-year to $7.4 billion.

    • Free cash flow in Q2 was $5.3 billion, affected by a sizable sequential increase in CapEx and cash tax payments.

    • Cloud remains in a tight demand-supply environment going into 2026 despite increased investment.

    • Full-year 2025 CapEx guidance was raised to $85 billion, up from a previous estimate of $75 billion, indicating significant future investment.

    Guidance & targets

    8
    CategoryTargetConfidence
    Cloud capacity environment
    tight demand supply environment
    high materiality
    High
    Full-year 2025 CapEx
    $85 billion
    high materiality
    High
    Full-year 2026 CapEx
    further increase
    high materiality
    High
    Q3 Depreciation growth rate
    accelerate further
    medium materiality
    High
    Q3 Headcount additions
    sequential increase
    medium materiality
    High
    Q3 Pixel family launch expense
    reflect expense
    low materiality
    High
    Q3 Revenue FX impact
    tailwind
    medium materiality
    Medium
    H2 2025 Advertising revenues
    negatively impacted
    high materiality
    High

    Segment performance

    7
    SegmentRevenueYoYQoQMargin
    Google Services
    Reflecting strength in Google Search, YouTube advertising, and subscriptions. Operating margin was flat year-on-year, as healthy revenue growth and continued efficiency were partially offset by a legal charge.
    Operating Income: $33.1 billionOperating Margin: 40.1%
    		$82.5 billion12%—$33.1 billion
    Google Search and other
    Growth across all verticals, with largest contributions from retail and financial services.
    		$54.2 billion12%——
    YouTube advertising
    Driven by direct response advertising, followed by brand.
    		$9.8 billion13%——
    Network advertising
    Revenue declined year-over-year.
    		$7.4 billion-1%——
    Subscription platforms and devices
    Primarily reflecting growth in subscription revenues, driven by YouTube subscription offerings and Google One.
    		$11.2 billion20%——
    Google Cloud
    Strong results reflecting growth in GCP across core and AI products, and growth in Google Workspace. Expansion in operating margin driven by strong revenue performance and continued efficiencies, partially offset by higher technical infrastructure usage costs.
    Operating Income: $2.8 billionOperating Margin: 20.7%Operating Margin (prior period): 11.3%Backlog: $106 billionBacklog growth (sequential): 18%Backlog growth (YoY): 38%
    		$13.6 billion32%—$2.8 billion
    Other Bets
    More resources are being allocated to businesses like Waymo, where opportunities for additional value creation are seen.
    Operating Loss: $1.2 billion
    		$373 million——-$1.2 billion

    Operational metrics

    40
    Consolidated revenue
    $96.4 billionup 14% YoY
    Q2 FY25

    Strong momentum across the business.

    Total cost of revenue
    $39 billionup 10% YoY
    Q2 FY25

    Comprised of Tech and Other cost of revenue.

    Tech cost of revenue
    $14.7 billionup 10% YoY
    Q2 FY25

    Part of total cost of revenue.

    Other cost of revenue
    $24.3 billionup 10% YoY
    Q2 FY25

    Part of total cost of revenue.

    Total operating expenses
    $26.1 billionup 20% YoY
    Q2 FY25

    Includes a $1.4 billion legal charge.

    Legal charge
    $1.4 billion
    Q2 FY25

    Related to a settlement in principle of certain legal matters, impacting total operating expenses.

    Consolidated operating income
    $31.3 billionup 14% YoY
    Q2 FY25

    Benefited from strong revenue growth and continued efficiencies, partially offset by legal charge and increased depreciation.

    Consolidated operating margin
    32.4%
    Q2 FY25

    Reflects overall profitability.

    Net income
    $28.2 billionup 19% YoY
    Q2 FY25

    Strong growth in net income.

    Diluted EPS
    $2.31up 22% YoY
    Q2 FY25

    Strong growth in earnings per share.

    Cash and marketable securities
    $95 billion
    Q2 FY25

    Balance at the end of the quarter.

    CapEx
    $22.4 billion
    Q2 FY25

    Vast majority invested in technical infrastructure.

    Stock repurchase
    $13.6 billion
    Q2 FY25

    Capital returned to shareholders.

    Dividend payments
    $2.5 billion
    Q2 FY25

    Capital returned to shareholders.

    Depreciation
    $5 billionup $1.3 billion YoY
    Q2 FY25

    Reflecting growth from increased CapEx investments.

    AI Overviews monthly users
    2 billion
    monthly

    AI Overviews are now powered by Gemini 2.5.

    AI Overviews query growth
    10%
    Q2 FY25

    This growth continues to increase over time.

    AI Mode monthly active users
    100 million
    monthly

    Still rolling out, receiving very positive feedback for longer and more complex questions.

    Google Cloud deals over $250 million
    doubledYoY
    Q2 FY25

    Indicator of strong customer demand for Google Cloud.

    Google Cloud deals over $1 billion
    same numberas all of 2024
    H1 2025

    Reflects significant large deal momentum.

    New GCP customers
    nearly 28%QoQ increase
    Q2 FY25

    Strong growth in customer acquisition for Google Cloud Platform.

    Gemini usage in Cloud
    35xYoY growth
    Q2 FY25

    Driven by over 85,000 enterprises building with Gemini.

    AI agent development kit downloads
    1 millionin less than 4 months
    since launch

    Open source kit for building AI agents.

    Agentspace subscriptions booked
    1 million+
    ahead of GA

    For the open and interoperable enterprise chat search and agent platform.

    YouTube Shorts daily views
    200 billion+
    daily

    Significant engagement on the short-form video platform.

    YouTube U.S. streaming watch time
    12.8%
    June 2025

    According to Nielsen data.

    YouTube ads viewed on CTV screens
    1 billion+
    past 12 months

    Driven by CTV shopping ads and direct marketing opportunities.

    Google Lens search growth
    70%YoY
    Q2 FY25

    One of the fastest-growing query types on Search, with majority being incremental.

    Circle to Search Android devices
    300 million+
    Q2 FY25

    Availability on Android devices, enabling new search capabilities.

    AI Max and Search conversions
    14%more
    Q2 FY25

    Advertisers activating AI Max in Search campaigns typically see this increase.

    Smart Bidding Exploration conversions
    19%increase
    Q2 FY25

    Campaigns using Smart Bidding Exploration see this increase on average.

    Advertisers using AI asset generation tools
    2 million+50% increase YoY
    Q2 FY25

    Tools help businesses generate creative assets for ads.

    Waymo autonomously driven miles
    100 million+
    cumulative

    Reflects scaling and expansion of Waymo's service.

    Monthly tokens processed
    980 trilliondoubled from 480 trillion
    monthly

    Remarkable increase since IO in May, demonstrating growth in AI usage.

    Gemini app monthly active users
    450 million+
    monthly

    Continued strong growth in engagement.

    Gemini app daily requests growth
    50%from Q1
    Q2 FY25

    Strong growth in engagement with the Gemini app.

    AI-powered meeting notes users
    50 million+
    June

    Usage of AI-powered features in Workspace.

    Google Vids monthly active users
    nearly 1 million
    monthly

    New short video product powered by Veo 3.

    BBVA employee time saved with Gemini/Workspace
    nearly 3 hours
    per week

    By automating repetitive tasks, rolling out to 100,000 employees globally.

    Paid clicks
    4%YoY
    Q2 FY25

    Various factors affect this metric, not a primary management target.

    Industry KPIs

    6
    MetricValueDetails
    Family dap dau450 million+users
    CAPEX compute commitments$22.4 billionUSD
    Advertising revenue by segment$54.2 billionUSD
    Share buyback capital returned$13.6 billionUSD
    Ai feature adoption monetization2 billion monthly usersusers
    Custom silicon ai infrastructure70% improvement%

    Product announcements

    17
    ProductTypeDetails
    AI Overviewsupdate
    Gemini 2.5 modelsupdate
    Veo 3launch
    Photo to video featurelaunch
    Android and AI featureslaunch
    Deep Searchroadmap
    Anywhere Cachelaunch
    Rapid Storagelaunch
    Open source agent development kitlaunch
    Agentspacelaunch
    AI-powered calling to local businesseslaunch
    Virtual trial experience for shoppinglaunch
    AI Max and Searchlaunch
    Smart Bidding Explorationupdate
    Asset Studiolaunch
    Creator partnership hublaunch
    New Pixel family of productslaunch

    Deals & partnerships

    2
    PayPalImprove digital commerce experience for merchants and customers.

    PayPal will expand its Google Cloud adoption for AI-driven recommendations, transaction processing, and enhanced security. The partnership also broadens the availability and functionality of PayPal's payment services and capabilities across a range of Google products.

    OpenAICollaboration on Google Cloud.

    OpenAI is partnering with Google on Google Cloud, leveraging Google Cloud as an open platform.

    Risks & headwinds

    6
    Legal charge impact on operating expensesQ2 FY25

    $1.4 billion charge

    Network advertising revenue declineQ2 FY25

    down 1%

    Tight demand-supply environment for Cloud capacitygoing into 2026

    expected to remain tight

    Mitigation: Working hard to increase capacity and improve pace of server deployment; increased CapEx.

    Increased CapEx pressure on P&Longoing, accelerating in Q3

    primarily higher depreciation

    Mitigation: Focus on driving improvements in productivity and efficiency to offset growth in technical infrastructure-related expenses.

    H2 2025 advertising revenue comparisonsH2 2025

    negatively impacted

    FX volatility impact on Q3 revenueQ3 FY25

    could affect impact

    What to watch in Q3 FY25

    5

    Cloud capacity easing

    going into 2026
    Currenttight demand supply environment
    Targeteasing towards 2026

    Why it matters

    Cloud's ability to meet demand directly impacts its revenue growth and market share in the high-growth AI infrastructure space.

    While we have been working hard to increase capacity and have improved the pace of server deployment, we expect to remain in a tight demand supply environment going into 2026.

    Q&A highlights

    7

    How will AI change consumer search behavior and monetization, especially regarding clicks? What's the strategy for YouTube's ad vs. subscription revenue mix?

    Sundar noted AI is expanding how people search, with multimodal interactions growing. He expects new organic experiences to eventually monetize well, but the focus is on organic for now. Philipp stated YouTube values both ad and subscription businesses, with subscriptions growing strongly across YouTube TV, Music, and Premium. They have a deep understanding of monetization for both and will continue a 'double tier strategy' to offer choice.

    “We also have a very deep understanding of the monetization side here. Where are we monetizing more with ads, where can we potentially monetize more with subscriptions. So I think we will continue this as a double tier strategy actively going forward.”

    asked by Eric Sheridan · answered by Philipp Schindler

    3 min read6 chapters

    Detailed Narrative

    01

    AI Integration and Product Momentum

    Alphabet's Q2 FY25 performance was significantly driven by its leadership in AI, with the company shipping new AI features at an incredible pace. AI is positively impacting every part of the business, from Search to YouTube and Cloud. The company's full-stack approach, encompassing AI infrastructure, world-class research, models, and tooling, is enabling the rapid deployment of AI across its products and platforms. Monthly tokens processed across all surfaces have doubled to over 980 trillion, demonstrating widespread AI adoption and usage.

    02

    Search Innovation and User Engagement

    Search delivered double-digit revenue growth, with new AI features driving increased usage. AI Overviews now serve over 2 billion monthly users across 200+ countries and 40 languages, contributing to a 10% increase in queries for relevant types. The new end-to-end AI search experience, AI Mode, has over 100 million monthly active users in the U.S. and India. Multimodal search, combining Lens or Circle to Search with AI Overviews, also saw strong growth, particularly among younger users, indicating evolving search behaviors.

    03

    Google Cloud's Strong Performance and AI Demand

    Google Cloud had a standout quarter with 32% revenue growth and operating margin expansion to 20.7%. This performance was driven by significant customer demand for its comprehensive AI product portfolio. The number of deals over $250 million doubled year-over-year, and the first half of 2025 saw as many $1 billion+ deals as all of 2024. Gemini usage in Cloud grew 35x year-over-year, with over 85,000 enterprises leveraging the models, highlighting the strong traction of Google's AI infrastructure and services.

    04

    YouTube's Diversified Growth and Shorts Success

    YouTube continued its strong performance, with advertising revenues growing 13% year-over-year, led by direct response. Shorts now average over 200 billion daily views, and in some markets, revenue per watch hour equals or exceeds traditional in-stream video. The platform is also diversifying its revenue streams through subscriptions, expanding premium light offerings to 15 new countries and seeing strong growth in YouTube TV, YouTube Music, and Premium, which contributed to a 20% increase in subscription platforms and devices revenue.

    05

    Strategic Capital Investments and Shareholder Returns

    Alphabet significantly increased its full-year 2025 CapEx guidance to $85 billion, up from $75 billion, primarily to meet the surging demand for cloud and AI infrastructure. This investment is focused on servers, data centers, and networking equipment. The company returned $13.6 billion to shareholders through stock repurchases and paid $2.5 billion in dividends during Q2, demonstrating a balanced approach to reinvestment and capital returns. Management expects further CapEx increases in 2026.

    06

    Operational Efficiency and Talent Management

    The company is focused on driving efficiencies to offset increased investments, including leveraging AI tools internally for tasks like software engineering. While R&D investments increased 16%, overall operating expenses rose 20% due to factors like a $1.4 billion legal charge. Management emphasized its competitive position in attracting and retaining AI talent, citing the mission, access to compute resources, and peer collaboration as key factors. Headcount is expected to increase sequentially in Q3, partly due to new graduate hiring.

    AI-generated summary of the company’s earnings call. Not investment advice.