Wall Street cuts Google search ad forecasts after Q3 miss

Wall Street analysts have cut their forecasts for Google's search advertising business after Alphabet reported third-quarter results that missed expectations. Analysts now expect search ad growth of about 10% in the December quarter, according to Investor's Business Daily. The cut follows the stock's worst single-day drop on record, and it comes as Google's own AI search tools bring in less ad money per query than traditional search.investors.com

Lower bar for the December quarter

Analysts polled by FactSet expect fourth-quarter search ad revenue of $69.857 billion, up 10%. Visible Alpha's consensus calls for 9.6% growth to $69.473 billion, IBD reported. That would continue a slowdown. Search revenue growth went from 19% in the first quarter to 17% in the second and 12% in the third, CNBC noted. Executives said foreign exchange was the biggest reason for the slowdown and that the currency drag would be larger in the fourth quarter.cnbc.com+1

Alphabet's earnings release, published October 28, showed that "Google Search & other" revenue rose 12% to $63.35 billion. Total revenue climbed 25% to $127.6 billion, and search query growth was the fastest in five years. Search revenue still fell short of the roughly $64.9 billion analysts expected, CNBC reported.sec.gov+1

AI Mode's monetization gap

On the earnings call, Chief Business Officer Philipp Schindler said FX and certain advertising categories drove the slowdown. He added that "the strong growth in AI Mode queries had an impact because of the lower monetization we were seeing in AI Mode," according to a call transcript. Chief Executive Sundar Pichai said AI Mode queries are on average three times longer than traditional searches. Google is now expanding AI Mode ads to international markets and launching multi-turn ads in the U.S., Digiday reported.digiday.com+1

"While query growth reached a five-year high, monetization appears to be challenged," said Citizens analyst Andrew Boone, who downgraded the stock, CNBC reported. UBS analysts wrote that the results bring "Search cannibalization fears right back to the forefront," according to CNBC.cnbc.com+1

Record sell-off

Alphabet shares fell 12.6% on Thursday, October 29, a record decline that dragged down the Nasdaq Composite, Reuters reported. The drop erased about $500 billion in market value. Free cash flow also weighed on the stock. It came in at negative $9.07 billion, far worse than the $2.7 billion deficit analysts expected, CNBC reported. Capital spending rose 114% from a year earlier to $51.4 billion, IBD noted.cnbc.com+2

The lower estimates leave Alphabet a clearer test. Its next earnings call, expected February 2, 2027, will show whether ads inside its AI tools can make up for weaker search ad growth.