Key points
- Google search query growth hits a five-year high
- Alphabet's search revenue misses for a second quarter
- ChatGPT reports 1.2 billion weekly users
Alphabet (GOOGL) says Google searches are growing at their fastest year-over-year rate in five years. But its search business brought in barely more revenue than it did three months earlier.
Google Search and related products generated $63.35 billion in the July-to-September quarter, up 12% from a year earlier but only about $80 million more than in April to June. A year ago, that same line grew $2.4 billion between the two quarters, based on my calculations from Alphabet's releases.
That gap is what I keep coming back to: query growth is accelerating, but quarterly revenue barely moved. The figures don't tell us what each search earns. I think AI could be taking bits and pieces of Google's search revenue, even while Google keeps the searches.
Search came in below the $65.0 billion analysts expected, its second straight quarterly miss, according to CNBC. Alphabet shares were down about 11% at around $288 in premarket trading Thursday, as of 8:30 a.m. ET, after the company also missed overall revenue estimates.
Search revenue growth has slowed
Search revenue grew 19% year over year in the first quarter, 17% in the second, and 12% in the third.
Alphabet's executives pointed to currency. They said foreign exchange was the biggest factor behind the slowdown and that the hit would be bigger in the fourth quarter. That's probably part of it. Alphabet's table puts the currency effect on total company revenue growth at about one percentage point from a year earlier, but the release doesn't break out the effect on Search alone. I'd want to see a constant-currency number for Search before I bought currency as the whole story.
Google CEO Sundar Pichai made the company's case in the release: "Our AI investments are driving overall Search query growth, including commercial queries." Google says AI is keeping people searching. What the release doesn't show is whether those searches earn as much as the old ones did.
Google still handles about 9 in 10 searches
None of this means Google is losing search. In August 2024, a federal court concluded that "Google is a monopolist, and it has acted as one to maintain its monopoly." Google's share of worldwide search was 89.9% in September, according to StatCounter, down from a peak of 93.4% in February 2023. Microsoft's (MSFT) Bing nearly doubled its share over the same stretch, to 5.3% from 2.8%.
That's a small slip, and I won't pretend it's a collapse. But StatCounter's search ranking only counts search engines. ChatGPT isn't on the list.
OpenAI says ChatGPT now has 1.2 billion weekly users, up from 900 million in February. ChatGPT has also sold ads since February, so it's now chasing the same ad budgets. Google's own Gemini app has reached one billion users, Pichai said in the release, though he didn't say whether that's a monthly or weekly count. My guess is that some of the questions that used to start in a Google search box now start in a chatbot, and some of those chatbots belong to Google.
Analysts are starting to say it too
Analysts at UBS wrote that the results are "going to bring Search cannibalization fears right back to the forefront." Mizuho's Jordan Klein went further: "This elevates the fear around AI and agentic taking share from Search and YT and hurting their AI monetization narrative."
Gil Luria at D.A. Davidson was more careful. "We would not rush to conclusions based on one quarter, but will definitely need to reassess what the world of agentic commerce means for Google," he wrote.
I agree with Luria on the one-quarter part. Search is still a $63 billion-a-quarter business growing at double digits, and Google Cloud more than doubled its revenue. Put that together, and Google still owns search. I think AI could make some searches less valuable to Google, even if query volumes keep growing. The fourth quarter is the next test. Alphabet already expects currency to hurt more, so if Search slows again while queries keep climbing, I'll be watching to see whether currency still gets the blame.
