Alphabet Inc., the parent company of Google, reported a 12% increase in revenue year over year, reaching $96.5 billion in the fourth quarter. This growth was primarily driven by robust performances in Google Search and Google Services. Despite these gains, the company's stock fell by 8.5% on Wednesday due to mixed quarterly results and ongoing antitrust investigations.
Google Search, a significant revenue driver that encompasses Google ads, experienced a 12% increase to $54 billion, mirroring the growth seen in the previous quarter. Meanwhile, Google Services, which includes advertising on Google and YouTube, along with subscription services, rose 10% to $84.1 billion during the quarter.
Alphabet also reported a substantial rise in net income, climbing 28% to $26.5 billion, translating to $2.15 per share. However, the company's operating income of $2.1 billion demonstrated a slower growth rate than observed in the previous quarter.
While Alphabet's cloud revenue saw a 30% increase to approximately $12.0 billion, it still fell short of the anticipated $12.2 billion forecasted by analysts. The growth rate for cloud revenue also showed signs of deceleration compared to the previous quarter's impressive 35% gain.
In response to these mixed results, Alphabet outlined ambitious capital expenditure plans for 2025, projecting spending of $75 billion. This figure significantly surpasses the $58.8 billion anticipated by analysts. Approximately $16 billion to $18 billion of this expenditure is expected in the first quarter alone. The company's Chief Financial Officer, Anat Ashkenazi, emphasized that a significant portion of this capital would be allocated to enhancing technical infrastructure, particularly focusing on servers and data centers.
“And if you look at one of the areas in which the Gemini model shines is the Pareto frontier of cost performance in latency. And if you look at all three attributes, I think we are — we lead this period of frontier,” – Anat Ashkenazi
Despite the optimistic outlook on capital expenditures, Alphabet chose not to provide specific revenue or earnings guidance for the upcoming period. Analysts currently set a median price target for Alphabet at $210, suggesting a potential gain of around 9%. The company's price-to-earnings (P/E) ratio stands at 25, which is considered relatively affordable compared to other stocks in the market.
Alphabet is currently under scrutiny from global regulatory bodies. The company faces an antitrust investigation by Chinese authorities, adding to the pressure from a prior antitrust ruling by the U.S. Department of Justice. These legal challenges could impact Alphabet's operations and financial performance in the near future.
The market's reaction to Alphabet's Q4 results reflects both optimism about its revenue growth and concerns regarding its cloud performance and regulatory hurdles. As Alphabet navigates these challenges, it remains committed to investing heavily in its infrastructure, aiming to maintain its competitive edge in the technology sector.