ABAB News Logo
Back to Flash News

Alphabet’s Q3 results show slower search ad growth and miss expectations

Alphabet announced third-quarter results on October 28, 2026, with revenue of $127.6 billion, below analysts’ expectations of about $128.2 billion; net profit fell to $26.17 billion, down 25% year over year; adjusted earnings per share were $2.67, below the expected $3.02. Advertising revenue was $82.0 billion, below the expected $83.4 billion; Google Search and other revenue was about $63.4 billion, up 12% year over year, slowing from 17% in the previous quarter. Google Cloud revenue was $30.7 billion, up 103% year over year. Free cash flow was negative $9.1 billion, and the company said this was due to increased investment in AI-related cloud capacity and infrastructure.

Chief Business Officer Philipp Schindler attributed the slowdown in search ad growth to increased use of AI Mode, the search engine’s chat interface, and the company is still experimenting with ads in that interface. After hours, Alphabet shares fell about 10%. In July this year, Max Anderson, a long-time advertiser on Google Ads, posted that traditional search share is being diverted by non-monetized large-model queries, and that Google is charging advertisers more to support revenue figures by loosening keyword matching (expanding exact match to close variants), increasing the actual amount charged, and pushing beyond budget caps; he cited examples saying that even with exact match set, ads may still appear on irrelevant queries and be charged for, with no refund mechanism. That post was discussed again after this earnings report, and multiple advertisers in the interactions mentioned similar experiences of declining matching precision and charges above budget.

Original sources:

  1. Title: Alphabet stock sinks as search woes cause revenue miss, cash burn worsens Publisher: Reuters Publication date: 2026-10-28 URL: https://www.reuters.com/business/alphabets-google-cloud-unit-beats-quarterly-revenue-estimates-steady-ai-demand-2026-10-28/ Source type: media report Verification status: Relevant passages actually read in this round, verification date 2026-10-28 Supporting content: supports the main text on revenue, ad revenue, free cash flow, stock reaction, and Schindler’s attribution to AI Mode; does not prove that the specific mechanism in Anderson’s post actually occurred or was the main cause of the earnings report

  2. Title: Investors turn on Google owner Alphabet after profit miss, ad slowdown and high spending Publisher: The Guardian Publication date: 2026-10-28 URL: https://www.theguardian.com/technology/2026/oct/28/google-alphabet-q3-earnings-report Source type: media report Verification status: Relevant passages actually read in this round, verification date 2026-10-28 Supporting content: supports the decline in net profit, the 12% growth in search revenue, and ad revenue missing expectations; does not prove the advertiser claim details

  3. Title: As someone who has personally spent $500k / mo+ on Google Ads for years... Publisher: Max Anderson (original post by the person involved) Publication date: 2026-07-23 URL: https://x.com/MaxAnderson/status/2080229375773941871 Source type: original post by the person involved Verification status: Full text actually read in this round, verification date 2026-10-28 Supporting content: supports Anderson’s statements and numerical examples in the main text regarding matching expansion, auctions, and budget caps; these are only personal claims and do not prove that Google has systematically implemented the described changes or that they directly correspond to this earnings report

ABAB AI Insight

In his post, Max Anderson said that he has personally spent more than $500,000 per month on Google Ads for years. His core claim points to specific changes in Google’s advertising system: shifting from the historical second-price auction model, in which a bid of $5 with the second-highest bid at $1 would charge only $1.01, toward something closer to first-price charging or charging based on bids and budget caps; and expanding exact match through “close variants” so broadly that ads appear and are charged on queries not explicitly approved by the advertiser. These claims were widely reposted by advertisers after this earnings report, and they contrast with the figures showing search ad growth slowing from 17% to 12% and total ad revenue missing expectations.

Alphabet’s free cash flow turned negative this quarter, mainly because spending on AI infrastructure and third-party cloud capacity accelerated. Search and advertising remain the largest sources of revenue, at about $82.0 billion this quarter. On the earnings call, the company emphasized that total query volume grew year over year, but monetization of commercial queries slowed, and it attributed part of that to AI Mode. Historically, Google has maintained advertiser trust and bidding willingness through second-price auctions and exact matching; if Anderson’s described mechanism changes are accurate, that would amount to increasing monetization intensity per click to make up for declining volume as the search query mix shifts, with some traffic moving to non-ad large-model interfaces.

Unlike platforms such as Meta, which sustain growth through more granular conversion optimization in ad efficiency, the discussion this time at Google centers on the boundary of matching precision and auction rules. Crypto and some programmatic markets have long used more aggressive real-time pricing, but search ads have traditionally sold themselves on high intent and controllable matching. This earnings report shows strong Cloud growth and slower search growth, overlapping in time with Anderson’s summer prediction, but the company did not confirm any systemic adjustment to matching or auction rules in the earnings report.

If complaints from the advertiser side reflect an actual loosening of mechanisms, then short-term revenue support for the search business may come at the cost of lower advertiser ROI, which in turn could affect long-term bidding willingness and ecosystem health. The key indicators to watch are whether search ad growth continues to slow in subsequent quarters and whether Google publicly adjusts its close variants or budget cap rules.

ABAB News · Cognitive law

  1. When search ad growth slows, a platform can maintain apparent revenue by loosening matching and increasing monetization per unit, but this directly reduces advertiser controllability.

  2. The acceleration of AI infrastructure spending and the slowdown in core search monetization appearing at the same time creates tension between short-term extraction from the ad ecosystem and long-term capital investment.