For the quarter ended 2026-06-30, Alphabet scores 19.35 on the Rule of 40. For the same quarter a year earlier it scored 19.29.
A composite indicator that lands within six hundredths of a point of where it was a year ago is normally telling you nothing happened. Here it is doing the opposite. Both of the numbers it is built from moved by more than ten points, in opposite directions, and the metric absorbed the whole thing.
The two halves
| Alphabet, quarter ended June 30 | 2025 | 2026 | change |
|---|---|---|---|
| Revenue growth, YoY | 13.79% | 24.23% | +10.44 |
| Free-cash-flow margin | 5.50% | −4.89% | −10.38 |
| Rule of 40 | 19.29 | 19.35 | +0.06 |
The halves are rounded to two decimals and the score is computed before rounding, which is why the 2026 column appears to sum a hundredth short. The change column is the one that reconciles: 10.44 against 10.38 leaves 0.06, and that is the entire year of movement in the headline number.
Alphabet gave up ten points of cash margin and bought ten points of growth with it. The exchange rate was almost exactly one to one, so the sum stayed still.
A sum cannot show you a trade
Our explainer lists six things the Rule of 40 does not tell you — valuation, revenue quality, how easily a single quarter is gamed, its bias against heavy investment, its sector limits, and how much stock compensation slips past it. It does not list this one, and this one is structural rather than circumstantial.
Two of those six stopped being abstractions this week, and both are worth reading against this quarter because they fail differently. Netflix's quarterly score fell 32 points while its trailing-twelve-month score moved three — the single-quarter bullet arriving without anyone gaming anything, just a cost the company deliberately weights to the first half. And the four companies the explainer holds up as the metric working properly pay between 14.5% and 21.5% of revenue in stock compensation, enough to drop two of the four under 40 if you subtract it — the answer to a sentence in that list which had never been tested. Netflix's is a failure of window, the stock-compensation one a failure of omission. Alphabet's is neither: its halves are correct, its window is a full year, and the number is still silent.
The score is an addition. Addition is commutative and it is lossy: 24.23 plus −4.89 and 13.79 plus 5.50 are the same statement about a business only if you believe a point of growth and a point of cash margin are interchangeable. The metric is built on exactly that assumption — it is the assumption that makes the comparison between a company growing 80% at −30% margins and one growing 15% at 30% margins possible at all. The cost of the assumption is that a company can move a long way along the trade-off and the number will not report it.
That is not a defect in the arithmetic. It is what the arithmetic is for. But it means a stable score is evidence of nothing on its own, and the composition has to be read separately.
What the trade actually was
Alphabet's cash half went negative on capital expenditure, not on operations. Operating cash flow rose 40.8% year over year, from $27,747M to $39,069M — a strong result by itself. Capital expenditure rose 100.1% over the same span, from $22,446M to $44,924M, which is more cash than the business produced in the quarter. Free cash flow came out at −$5,855M against $5,301M a year earlier.
We covered that quarter when it landed, along with the market's reaction to it, and there is no need to relitigate it here. The point for this piece is narrower: every one of those movements is large, and the indicator this site is named after registered their combined effect as six hundredths of a point.
The same quarter, scored two ways
Our companion piece on Meta, published alongside this one, says Alphabet's score fell 11.65 points. This piece says it was unchanged. Both are correct, and the difference between them is the argument for reading composition.
That 11.65 is sequential — the score was 31.00 for the quarter ended 2026-03-31 and 19.35 for the quarter ended 2026-06-30. This piece compares June against June. The two framings disagree because the June quarter has been Alphabet's weakest for free cash flow in each of the last three years: the FCF margin in that quarter ran 15.88% in 2024, 5.50% in 2025 and −4.89% in 2026, below the March quarter every time, and a sequential comparison out of a March quarter walks straight into that pattern.
The year-over-year framing controls for the seasonality. The sequential framing does not. But note which way the correction cuts, because it is not the flattering direction: controlling for seasonality does not rescue the quarter, it removes the alibi. Sequentially you could tell yourself a June quarter always looks like this. June against June, the cash half still fell more than ten points — and the score still says nothing, because the growth half happened to rise by the same amount.
Neither single number describes the year. One says collapse, the other says stasis, and the business did neither.
What the metric got right
It is worth being fair to the indicator, because the same property that made it blind here made it immune to something worse in the same filing.
Alphabet's reported diluted EPS for the quarter was $9.11, of which $6.26 came from a $99,031M unrealized gain on equity securities — a non-cash mark-to-market swing. Core diluted EPS excluding it was about $2.85. Any earnings-based composite would have printed a spectacular number off the back of a paper gain.
The Rule of 40 is built from revenue and free cash flow, so it never saw it. The metric missed the trade that mattered and ignored the gain that didn't, and both for the same reason: it only looks at two lines.
Meta made the same trade and did not get the same rate
Meta's June quarter moved the same way and the score did not stay still. Its growth half went from 21.61% to 27.96%; its free-cash-flow margin went from 18.99% to 2.87%; its score went from 40.60 to 30.83. Meta paid substantially more margin than it collected in growth, so the sum moved. We wrote that quarter up separately, both as an earnings reaction and as a Rule of 40 story.
Both scores here use this site's house definition of free cash flow — operating cash flow minus capital expenditure — applied identically to both companies and both years. Alphabet reports free cash flow the same way. Meta does not, and the gap that opens up is handled in full in the piece linked above.
Same trade, two exchange rates, and the Rule of 40 only reports the one where the halves fail to cancel. There is no threshold in the formula that catches the other case, and there cannot be.
What to do with it
The practical version of this is short: on a Rule of 40 score, the number is the least informative part.
The composition is already on the page. Wherever this site has the history to compute a score, it prints the two inputs directly beneath it, labelled Revenue Growth YoY and FCF Margin, separated by a plus sign — Alphabet's reads 24.2% and −4.9% under a 19.3. That layout is the answer to this article, and it was already there. The score alone would have told a reader checking in a year apart that nothing changed at Alphabet. The two lines under it say the company stopped converting revenue to cash and started converting it to growth instead, which is a different company than the one they last looked at.
Our explainer closes on the right question, and this quarter is the case that makes it load-bearing rather than rhetorical: what's the score composed of, and where is it heading?
Alphabet figures are from this site's capture of the 8-K Item 2.02 Exhibit 99.1 filed as accession 0001652044-26-000066 and cross-checked against the IR earnings release: revenue $119,796M against $96,428M, operating cash flow $39,069M against $27,747M, capital expenditure $44,924M against $22,446M, free cash flow −$5,855M against $5,301M, diluted EPS $9.11 including $6.26 from a $99,031M net gain on equity securities. Quarterly growth rates, free-cash-flow margins and scores — including the 2024 and 2026 Q1 comparisons — are computed from our stored Alphabet data, which matches the capture on both quarters. Meta figures are from our stored Meta data and its capture, accession 0001628280-26-050596. Free-cash-flow margin and the Rule of 40 are computed throughout on this site's house definition, operating cash flow minus capital expenditure, as set out in our explainer.