Alphabet Q4 2024: Alphabet's financial performance for the fourth quarter of 2024 has garnered attention, particularly due to its slowing revenue growth and significant investments in artificial intelligence (AI).
In the fourth quarter, Alphabet achieved revenues of $96.47 billion, slightly below the market expectation of $96.56 billion. While the gap is minimal, it still affected market confidence. In contrast, the EPS was $2.15, surpassing analysts' forecast of $2.13, indicating resilience in profitability. However, Alphabet shares slide recently. After the earnings report, market concerns about future growth potential led to a significant drop in stock prices.
As Alphabet's core revenue source, the advertising business continues to grow, though some segments are experiencing a slowdown in growth. YouTube ad revenue reached $10.47 billion, exceeding market expectations of $10.23 billion, indicating the ongoing attractiveness of its video advertising. However, Google Cloud revenue was only $11.96 billion, below the market estimate of $12.19 billion, reflecting ongoing challenges in competing with Amazon AWS and Microsoft Azure. Additionally, traffic acquisition costs (TAC) were $14.89 billion, slightly below the market expectation of $15.01 billion, showing some control over customer acquisition costs.
While Alphabet's overall revenue grew by 12%, it has slowed compared to 13% in the same quarter last year. Looking at different business segments, the decline in advertising growth is particularly evident:
Google advertising growth rate was 10.6%, down from 11% year-on-year.
Search business grew by 12.5%, compared to 12.7% last year.
YouTube ad revenue increased by 13.8%, but down from 15.5% last year.
Google Services business grew by 10.2%, lower than 12.4% in the same quarter last year.
These figures indicate that Alphabet's core business growth has entered a mature phase, necessitating the pursuit of new growth drivers, such as strengthening its competitiveness in artificial intelligence (AI) and cloud computing.
In its earnings report, Alphabet announced plans to invest $75 billion in capital expenditures in 2025, significantly higher than the market expectation of $58.84 billion, indicating the company's acceleration in AI infrastructure development. Capital expenditures in Q1 2024 are expected to be between $16 billion and $18 billion, exceeding the market forecast of $14.3 billion.
CFO Anat Ashkenazi stated in a conference call that this capital expenditure will primarily support servers and data centers to bolster Google services, Google Cloud, and DeepMind. With increasing demand for AI technologies, the company is actively expanding its computing infrastructure to maintain a competitive edge.
Although Google Cloud revenue increased by 30% year-on-year, it still fell short of market expectations. Company executives revealed that there is strong demand for AI-related products; however, supply chain issues and limitations in computing resources have prevented some customer demands from being met in a timely manner. Ashkenazi mentioned that Alphabet is facing challenges related to supply-demand tension and plans to continuously expand computing resources throughout the year to address this bottleneck. This highlights that, despite the immense potential in the AI cloud market, supply of computing resources remains a common challenge in the industry.
Alphabet's Other Bets segment (including Verily Life Sciences and Waymo) reported Q4 revenues of $400 million, significantly below market expectations of $616 million, and down 39% from the same period last year. This indicates that non-core businesses are still in a high-investment, low-return development phase.
However, Waymo continues to expand its business operations, currently offering self-driving taxi services in Los Angeles, San Francisco, and Phoenix, with plans to enter Austin and Atlanta in 2025. Additionally, the company announced plans to conduct Waymo tests in Tokyo, marking its first foray into the international market, reflecting Alphabet's confidence in the commercialization of self-driving technology.
Overall, Alphabet's Q4 financial report demonstrates solid profitability, yet the slowdown in revenue growth and underperformance in certain business segments raise market concerns. The deceleration in advertising growth and challenges in the cloud business due to competition and supply constraints contribute to doubts about the sustainability of future growth. However, the company’s significant investments in AI infrastructure show a strong commitment to future technological innovation.
With developments in AI, cloud computing, and Waymo, Alphabet is expected to maintain its leadership position in technology over the long term. In the short term, the company must address market concerns regarding slowing growth momentum and ensure that AI-related investments yield tangible returns to support its stock performance.
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Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.
