Alphabet (Class A)
What it does
Alphabet reports 3 businesses. In FY2025, Google Services brought in 85%, Google Cloud brought in 15% and Other Bets brought in 0% of revenue.
By region, United States made up 48%, then Europe, Middle East and Africa at 29%.
From Alphabet Inc. (SEC EDGAR), Form 10-K for the fiscal year ended 31 Dec 2025.
Our coverage
Read it through a lens
How it makes money
Where Alphabet's FY2025 revenue came from, what it cost to earn, and what was left for shareholders.
- Income
- Costs and tax
- Profit
- % = share of revenue
Source: Alphabet Inc. (SEC EDGAR), Form 10-K for the fiscal year ended 31 Dec 2025 (5 Feb 2026), statement of income, Notes 2 and 15. FY2025 is the year to 31 Dec 2025. Figures as reported, in US$ millions in the tooltips and table.
Technical: gross margin was 59.7%, operating margin 32.0% and net margin 32.8%. Operating costs and cost of revenue together took 68.0% of revenue.
Plain: of every dollar of sales, about 40 cents paid for making or delivering what was sold, about 28 cents went on running and growing the business, and about 33 cents ended up as profit for shareholders.
Revenue by product
Hedging gains (losses): −US$127M, reported outside the slices above.
Revenue by business
Hedging gains (losses): −US$127M, reported outside the slices above.
Revenue by region
Hedging gains (losses): −US$127M, reported outside the slices above.
See the numbers
| FY2025 | US$M | % of revenue |
|---|---|---|
| Revenue | 402,836 | 100.0% |
| Cost of revenue | −162,535 | 40.3% |
| Gross profit | 240,301 | 59.7% |
| Research and development | −61,087 | 15.2% |
| Sales and marketing | −28,693 | 7.1% |
| General and administrative | −21,482 | 5.3% |
| Operating income | 129,039 | 32.0% |
| Other income (expense), net | 29,787 | 7.4% |
| Profit before tax | 158,826 | 39.4% |
| Income tax | −26,656 | 6.6% |
| Net profit to shareholders | 132,170 | 32.8% |
- Gross profit is revenue less cost of revenue. Alphabet doesn't report the subtotal itself.
- Other income, net was US$29,787M, 19% of profit before tax. Note 7 of the 10-K breaks it down.
- Segment operating income leaves out US$16,760M of Alphabet-level costs, which Alphabet says mainly reflect its shared AI research and development.
Moat rating
Wide moat
8.8 / 10
ROIC averaged 51.2% over FY2021 to FY2025, 40.5 percentage points above a 10.66% cost of capital, and beat it in every year.
Alphabet earns around five times what its capital costs, year after year.
The numbers
10.0 / 10Return on invested capital against cost of capital, internet software
- Average ROIC
- 51.2%
- Average excess return
- +40.5 pp
- Years above the hurdle
- 5 of 5
Spread 10 × 60% + durability 10 × 40% = 10.0
The sources
7.6 / 10Where Alphabet's advantage comes from
- 1. Brand and pricing power7 / 10
Search and other brought in US$224.5B in 2025, 56% of revenue, and Alphabet's operating margin was 32.0%.
Advertisers pay to reach people at the moment they search, and that still brings in more than half of Alphabet's revenue.
- 2. Barriers to entry8 / 10
Research and development of US$61.1B in 2025. Alphabet-level costs, mainly shared AI research, were a further US$16.8B outside its segments.
Matching Google's search, maps and AI means spending tens of billions a year for years before earning much back.
- 3. Switching costs5 / 10
Changing a search engine or browser default takes a few clicks. Google Cloud, with US$58.7B of revenue in 2025, is stickier: its customers face real costs to move.
Anyone can try another search engine today. Habit, not cost, keeps most people on Google.
- 4. Network effects9 / 10
YouTube ads (US$40.4B) and Google Network (US$29.8B) connect advertisers with audiences: more viewers and creators attract more advertisers, which funds more creators.
Creators go where the viewers are, viewers go where the creators are, and advertisers follow both.
- 5. Economies of scale9 / 10
Revenue of US$402.8B in 2025. Google Cloud made US$13.9B of operating income.
Google spreads the cost of its data centres and AI models over billions of users and millions of advertisers.
Return on invested capital: Alphabet Inc. (SEC EDGAR), Form 10-K for the fiscal year ended 31 Dec 2021; Alphabet Inc. (SEC EDGAR), Form 10-K for the fiscal year ended 31 Dec 2022; Alphabet Inc. (SEC EDGAR), Form 10-K for the fiscal year ended 31 Dec 2023; Alphabet Inc. (SEC EDGAR), Form 10-K for the fiscal year ended 31 Dec 2024; Alphabet Inc. (SEC EDGAR), Form 10-K for the fiscal year ended 31 Dec 2025. Hurdle: Aswath Damodaran, NYU Stern, Cost of capital by sector (US), data as of January 2026. Our choice of industry. Damodaran's advertising group has a lower 7.81%, so this is the tougher test.
How we worked out ROIC: operating income after tax, divided by the capital invested at the start of the year. Tax is at the year's effective rate, or the 21% US federal rate where a pre-tax loss or a tax credit makes the effective rate meaningless. Invested capital is shareholders' equity plus borrowings, less cash and short-term investments, from the opening balance sheet in the same 10-K; lease liabilities are left out. This follows Damodaran's definition. The ratios are our calculation from the filed figures, not numbers the company reports.
Lens scores are rasinbunlover's judgment, reviewed 19 Oct 2026. A wide moat is a reason to dig deeper, not a verdict on the price. For education only. Not financial advice.
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