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Alphabet Inc Earnings - Analysis & Highlights for Q4 2024
Overview
PositivesNegativesOutlook
- Google Service revenues increased by 10% to $84.1 billion, reflecting the strong momentum across Google Search and YouTube Ads.
- Consolidated revenue of $96.5 billion increased by 12% in both reported and constant currency.
- Subscription platforms and device revenues increased by 8% to $11.6 billion, primarily reflecting growth in subscription revenues.
- Retail was particularly strong this holiday season, especially on Black Friday and Cyber Monday, which each generated over $1 billion in ad revenue.
- The company met its goal of exiting 2024 at a combined annual revenue run rate of over $100 billion in Cloud and YouTube and ended the year at a run rate of $110 billion.
- Total cost of revenue was $40.6 billion, up 8%.
- Network advertising revenue of $8 billion were down 4%.
- The company is in a tight supply-demand situation, working very hard to bring more capacity online.
- The increase in investment in CapEx over the past few years will increase pressure on the P&L, primarily in the form of higher depreciation.
- The company expects a headwind from having one less day of revenue in Q1 2025, compared with leap year in the first quarter of 2024.
- The company expects to exit 2024 at a combined annual revenue run rate of over $100 billion in Cloud and YouTube.
- The company expects to increase its investments in capital expenditure for technical infrastructure, primarily for servers followed by data centers and networking.
Q&A Highlights from Alphabet Inc Earnings Call Q4 2024
- Analyst asked about the company's vision for the Search product and how it plans to evolve to stay at the top of the funnel and drive more engagement and monetization for users and advertisers.
- Sundar Pichai, CEO, explained that the company views Search as a long-term journey and that AI Overviews has been a successful step. He mentioned that the company is bringing better and better models, expanding the number of queries where AI works, and exploring multi-modal ways to use AI, such as Lens and Circle to Search. He also mentioned Project Astra and Gemini Deep Research as areas of exploration. He concluded by saying that the company will continue to bring newer experiences to users through 2025 and that there is a lot of potential for AI.
- Sundar Pichai, CEO, explained that the company views Search as a long-term journey and that AI Overviews has been a successful step. He mentioned that the company is bringing better and better models, expanding the number of queries where AI works, and exploring multi-modal ways to use AI, such as Lens and Circle to Search. He also mentioned Project Astra and Gemini Deep Research as areas of exploration. He concluded by saying that the company will continue to bring newer experiences to users through 2025 and that there is a lot of potential for AI.
- Analyst asked about the company's approach to productivity and efficiency, and how it plans to invest in areas such as AI and Cloud.
- Anat Ashkenazi, CFO, explained that the company sees opportunities for further productivity and efficiency, and that it will continue to invest in areas such as AI and Cloud. She mentioned that the company will focus on technical infrastructure, managing headcount growth, optimizing the real estate footprint, and simplifying the organization. She also mentioned that the company will use its own AI tools to run the business and support growth in other areas.
- Anat Ashkenazi, CFO, explained that the company sees opportunities for further productivity and efficiency, and that it will continue to invest in areas such as AI and Cloud. She mentioned that the company will focus on technical infrastructure, managing headcount growth, optimizing the real estate footprint, and simplifying the organization. She also mentioned that the company will use its own AI tools to run the business and support growth in other areas.
- Analyst asked about the expanded rollout of ads on AI Overviews and what additional things the company may have learned in Q4.
- Philipp Schindler, Chief Business Officer, explained that AI Overviews continue to drive higher satisfaction and Search usage, and that the company recently launched the ads within AI Overviews on mobile in the US, which builds on its previous rollout of ads above and below. He mentioned that the company sees monetization at approximately the same rate, which gives it a strong base on which to innovate even more.
- Philipp Schindler, Chief Business Officer, explained that AI Overviews continue to drive higher satisfaction and Search usage, and that the company recently launched the ads within AI Overviews on mobile in the US, which builds on its previous rollout of ads above and below. He mentioned that the company sees monetization at approximately the same rate, which gives it a strong base on which to innovate even more.
- Analyst asked about Cloud growth and deceleration.
- Anat Ashkenazi, CFO, explained that the company ended the quarter at $12 billion and a 30% YoY growth, which is very impressive. She mentioned that GCP grew at a much higher rate than overall Cloud, and that the company is lapping a very strong quarter of AI deployment in Q4 of 2023. She also mentioned that the company
- Anat Ashkenazi, CFO, explained that the company ended the quarter at $12 billion and a 30% YoY growth, which is very impressive. She mentioned that GCP grew at a much higher rate than overall Cloud, and that the company is lapping a very strong quarter of AI deployment in Q4 of 2023. She also mentioned that the company
- Analyst asked about the efficiency of generating 1 million tokens compared to inference costs running on Cloud peers.
- Sundar Pichai responded that TPU, which started as an inferencing chip, has always been a part of their end-to-end stack approach, allowing them to drive strong differentiation in end-to-end optimizing, not only on a cost basis but also on a latency and performance basis. They plan to continue their full stack approach and TPU efforts, giving them a meaningful advantage.
- Sundar Pichai responded that TPU, which started as an inferencing chip, has always been a part of their end-to-end stack approach, allowing them to drive strong differentiation in end-to-end optimizing, not only on a cost basis but also on a latency and performance basis. They plan to continue their full stack approach and TPU efforts, giving them a meaningful advantage.
- Analyst asked about the acceleration of total volumes of information gathering as AI is integrated.
- Sundar Pichai responded that Search usage is healthy, continuing to see growth on a year-on-year basis, with AI Overviews seeing stronger growth, particularly across all segments of users, including younger users. He also mentioned that they have a lot more innovations to come this year, and the product will evolve even more, giving them an opportunity to drive further growth.
- Sundar Pichai responded that Search usage is healthy, continuing to see growth on a year-on-year basis, with AI Overviews seeing stronger growth, particularly across all segments of users, including younger users. He also mentioned that they have a lot more innovations to come this year, and the product will evolve even more, giving them an opportunity to drive further growth.
- Analyst asked about the impact of FX and the fact that they have one less day of revenue in Q1.
- Anat Ashkenazi responded that the strength in financial services is primarily related to the structural changes with regards to insurance, and they saw that continue throughout the year, but it was a onetime kind of a step-up. He also mentioned that they are seeing strength across all verticals, including retail and exiting the year in a position of strength.
- Anat Ashkenazi responded that the strength in financial services is primarily related to the structural changes with regards to insurance, and they saw that continue throughout the year, but it was a onetime kind of a step-up. He also mentioned that they are seeing strength across all verticals, including retail and exiting the year in a position of strength.
- Analyst asked about YouTube ads growth and the UGC side.
- Philipp Schindler responded that YouTube ads had a very healthy growth in Q4 driven by brand and direct response, with the US election advertising leading brand revenue growth and nearly double the spending from 2020. He also mentioned that they had a strong contribution from finance, retail, and the tech verticals. On the UGC side, he mentioned that they have a very strong position with creators, and their strong position gives them confidence in their ability to continue to succeed.
- Philipp Schindler responded that YouTube ads had a very healthy growth in Q4 driven by brand and direct response, with the US election advertising leading brand revenue growth and nearly double the spending from 2020. He also mentioned that they had a strong contribution from finance, retail, and the tech verticals. On the UGC side, he mentioned that they have a very strong position with creators, and their strong position gives them confidence in their ability to continue to succeed.
