Google Q1 Earnings Update!
Beats on all fronts. Strong Search, Cloud, and YouTube Growth
Google stock has had a tough couple of months.
The company has lost a series of antitrust lawsuits that could throttle its dominance.
Additionally, OpenAI’s ChatGPT continues its rise, becoming more popular every day. OpenAI is increasingly seen as a threat to Google’s flagship Search business.
Couple that with an uncertain economy, and a possible recession caused by Trump’s Trade War, and you get a 30% drawdown!
However, despite the various narratives, Sundar Pichai’s Google continues to execute, demonstrating once again that it is one of the best companies out there.
Google just posted a strong Q1 earnings report, sending the stock up 5%.
In this article, I will look at Google’s Q1 2025 results, if you want a more detailed analysis of the business, read my Google Investment Case!
Let’s have a look at this quarter!
1. Search
2. YouTube
3. Cloud
4. Subscriptions, Platforms, and Devices
5. Advertising Network
6. AI and Waymo
7. Consolidated Finances
8. Valuation
9. Conclusion
1. Search
The Search segment earned the company $50.7B, up 9.9% Y/Y!
Looking at the chart above, we see that the segment continues growing steadily, outperforming the expectations of many analysts. However, growth was lower than in the previous quarter, down from 12.5% in Q4, 12.2% in Q3, and 14.4% in Q1 of 2024.
ChatGPT was released in 2022, but you can’t see it on this graph. After it partnered with Microsoft to integrate OpenAI’s models into Bing, it was supposed to take Google’s lunch.
Clearly, that hasn’t happened.
Google maintains a 90% market share in Search engines and is much more resilient than most investors give it credit for.
Experts at Mordor Intelligence believe that the global Search Engine Market will continue growing at 13.59% per year till 2030!
Google is well-positioned to continue growing, although it will likely lose some market share.
Key points from the call:
“Search saw continued strong growth, boosted by the engagement we’re seeing with features like AI Overviews, which now has 1.5 billion users per month.” Sundar Pichai
2. YouTube
Recently, it was the 20th anniversary of YouTube’s first upload. Little did Jawed Karim, the founder of YouTube, know that he had just created a company that would become the most important media company in the world!
With 2.53B monthly active users, YouTube is the largest video streaming platform in the world, that is far from finished monetizing its users.
Advertising revenue grew 10.3% Y/Y to $8.9B!
In the graph above, we see that while growth was slower than 13.8% in Q3 and 20.9% in Q1 2024, the long-term trend continues to be a steady stream upward.
Key points from the call:
1B monthly Podcasts users
125M Premium Subscribers
The reservation-based ad business doubled. It enables larger companies to reserve ads for a pre-determined price without competing in an auction for spots as usual. This gives more price and results certainty and clarity to large businesses.
3. Cloud
The Cloud segment continues to be the crown jewel of the group in terms of growth. The segment grew 28.1% Y/Y and 2.5% Q/Q to $12.26B.
While slower than the 30.1% growth in the previous quarter and 28.4% in Q1 2024, the segment shows strong resilience despite questions on the returns on AI capex investments.
All questions about whether Google can achieve sustained profitability just as AWS are essentially over. In Q1 2025, Cloud delivered $2.177B in operating income up 142% Y/Y and 4% Q/Q, that’s an operating margin of 12.3%.
Key points from the call:
Depreciation is likely to increase significantly as Google’s AI products use a lot of compute, putting strain on data center infrastructure, reducing its useful life. This is something to watch, if AI driven depreciation increases faster than AI driven revenue, margins could come back down.
4. Subscriptions, Platforms, and Devices
I really don’t like this segment reporting. This segment includes YouTube Premium, Android, Google One, Google Workspace, Android, Pixel and other devices.
There are just so many different things included here that it is difficult to understand what is driving this segment.
If Google doesn’t disclose its subscription revenue, then investors can’t apply a higher multiple to that, more steady and predictable part of the business!
In any case, it made $10.379B, a strong increase of 18.8% Y/Y. During the call they said it was mostly thanks to YouTube Premium subscriptions growth.
In the graph above, we can see that the revenue growth jumps around a lot, which could be related to the release of new products in the device division. Growth increased significantly, from 7.8% in the previous quarter, but down from 27.8% in Q3 2024.
Key points from the call:
“Driven by YouTube and Google One, we surpassed 270 million paid subscriptions.” Sundar Pichai
5. Advertising Network
This segment includes all revenue Google makes from showing advertising on third-party websites and apps.
Google made $7.26B from this segment, down 2.1% Y/Y.
In the above graph, we see that this segment has been underperforming, with declining sales for 11 quarters in a row.
The regulators are a bit late to the party, as this segment most recently lost a court case that deemed it a “web advertisement monopoly”.
I think this court case is a nothing burger. Firstly, this segment is relatively small and was the poorest performing anyway, as increased competition and changing advertising market put pressure on growth.
Secondly, it is my understanding that the court’s decision only applies to certain sections of the unit, not all of it.
Thirdly, Google is appealing the decision, so it will take years before any concrete steps need to be taken!
In any case, the remedies that the Judge might decide on will have an immaterial impact on the whole company.
6. AI and Waymo
While some investors continue to doubt Google, the company continues to execute on its AI strategy.
“This quarter was super exciting as we rolled out Gemini 2.5, our most intelligent AI model, which is achieving breakthroughs in performance and is an extraordinary foundation for our future innovation.” Sundar Pichai
Currently, the Gemini weekly active user count is estimated at 42M, significantly below the 400M of ChatGPT. ChatGPT has the first mover advantage and a famous brand, but Google has the data advantage as its Search engine is used by billions of people a day.
As Google rolls out AI summaries, it will improve the user experience while generating a lot of data to improve its AI capabilities. I think some analysts might be overestimating how many people and how quickly they will leave Google for ChatGPT, but time will tell.
Furthermore, Google has the advantage of having its own Cloud infrastructure, meaning it can run queries cheaper than OpenAI, which needs to pay Azure and others for cloud compute. To reduce the costs even further, Google has developed powerful data center chips.
“Ironwood, our 7th generation TPU, is the first designed for inference at scale. It delivers more than 10x improvement in compute power, while being nearly twice as energy power efficient,” Sundar Pichai
Apart from building a decent ChatGPT competitor, Google is investing heavily to create real-life uses of AI. It is adding Gemini models across its entire Android ecosystem, Google Assistant on Android phones now uses Gemini, Android TVs, Android Car systems, and more. Google has an unparalleled ability to distribute AI across the digital ecosystem, whilst ChatGPT needs to negotiate each new partnership.
However, Waymo is the biggest one!
Waymo, Google’s robotaxi service, is currently the clear winner in the autonomous driving race, facilitating more monetised actual robotaxi miles than all other competitors combined.
Despite the criticism from Elon and Tesla bulls, as being an unscalable, glorified taxi running on digital train tracks, Waymo is rapidly scaling up and expanding!
Waymo taxis drove an average of 250 thousand autonomous miles a week in Q1, an increase of 25,000% Y/Y and 25% Q/Q!
Today, Waymo is available in Phoenix, San Francisco, Los Angeles, and Austin.
The company is doing testing and city mapping, and plans to start operations in Miami, Atlanta, and Washington D.C by 2026.
Additionally, Waymo recently partnered with the largest taxi company in Tokyo, which will manage Waymo’s fleet as it begins training AI and mapping Tokyo’s complex streets to begin ride-hailing operations. This will be Waymo’s first international destination.
I don’t know in which multiverse you would call such progress not scalable!
From each new city, Waymo learns and adapts their approach to the next one.
7. Consolidated Finances
Overall, the consolidated group posted a solid financial performance, with Q1 revenues growing 12% to $90.2B!
As we can see in the picture above, income from operations grew by 20% to $30.6B, whilst net income jumped a whopping 46%.
Operating results improved on the account of Google growing cost of sales by just 8%, whilst sales and marketing expenses were reduced by 4%, enabling the operating margin to reach 34%, up from 32.5% in Q1 2024.
This shows that Google is maintaining cost discipline, despite massive AI investments and a tough macro environment!
Google said that net income was supported by $11.2B in unrealized gains from their equity investments. $8B of that came from a single private investment. It is speculated that $8B comes from their investment in SpaceX, but the company hasn’t confirmed it.
EPS grew by 49% to $2.81, faster than the 46% net income growth. This EPS increase was supported by Google spending $15.1B on share repurchases during Q1. EPS is set to continue growing faster than net income, as Google announced plans to increase its repurchase program to $70B, up from $62B it spent in 2024.
Meanwhile, Google posted FCF of $19B up 41%!
FCF is going to be a bit lumpy for a while, as the company accelerates their AI investments.
Capex increased 43% Y/Y to $17.2B, as Google invests in building out the infrastructure to deliver various AI services. In total, the company expects to spend $75B on capex in 2025, significantly above $52.5B it spent in 2024.
8. Valuation
At this moment, I don’t see a need to update the assumptions from the valuation model I made for my Google Investment Case article a few months back.
However, if Trump’s Trade War continues or accelerates, then there could be some short-term downside, from a weaker consumer causing ad rates to fall.
However, long-term, I believe Google’s fundamentals to be strong and the company to be attractively priced!
Nevertheless, as Google’s stock has fallen 15% from where it was when I made the model, I believe it has become an even more attractive investment! Today, it trades for a P/E of 21, down from 26, when I made the previous model.
I see an estimated 95.8% to 193.7% upside in Google’s stock by 2030, a CAGR of 11.9% to 19.7%!
You can read more about the assumptions driving this valuation model in my Google Investment Case article!
9. Conclusion
I think Google trades for an attractive valuation, with enough room to outperform my expectations.
Search is not dying, it will grow at a slower pace than before, and it won’t disappear. While ChatGPT is a real threat, Google has enough resources and talent to successfully compete.
Cloud is showing real strength, with growing revenues and improving margins.
YouTube is the most important media company in the world, generating over $34B a year in ad revenue and growing premium subscribers.
Waymo is growing rapidly and could potentially become a large revenue contributor in 2030, however, I doubt it will be profitable by then.
The lawsuits are unlikely to cause a material slowdown in the next few years, but they are still important to look at. Considering how erratic the current administration is, there is potential for unforeseen negative consequences.
Additionally, a prolonged Trade War that causes a recession could negatively damage advertising revenue, so it is something to look at!
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Good write up. Helps to confirm a few of the same thoughts that I have. Google is going to be just fine!
Fantastic earnings rundown, a big thanks for this.