Alphabet Q4 2024 earnings call: Steady growth with AI challenges on the horizon

Alphabet continues to demonstrate its leadership in generative AI through significant advancements, particularly with Gemini. The company’s commitment to full-stack development and differentiated AI innovation is evident in its leading infrastructure, world-class research, and scaled product platforms.

Revenue from YouTube and Cloud in 2024 exceeded US$110 billion, surpassing the target of over US$100 billion. Seven of Alphabet’s Gemini-powered products and platforms now serve more than two billion users.

Google Services revenue grew 10.2% year-on-year to US$84.1 billion in Q4 2024, primarily driven by a 12.5% increase in advertising revenue from Google Search & Other, notably in the financial services and retail sectors. This growth comes despite a strong Q4 2023 comparison, which had benefited from significant contributions by APAC-based retailers. Alphabet’s investments in AI-powered advertising solutions continue to accelerate customer adoption, driving strong results in media buying, creative optimization, and measurement.

YouTube revenue rose 13.8% year-on-year to US$10.5 billion in Q4 2024, fueled by U.S. election-related ad spending. Combined spending by the two major parties during the elections doubled compared to 2020.

Meanwhile, revenue from Google Network declined 4.1% year-on-year to US$8.0 billion in Q4 2024, impacted by higher traffic acquisition costs.

Revenue from Google subscriptions, platforms, and devices grew 7.8% to US$11.6 billion, driven by an increase in paid subscribers across YouTube TV, YouTube Music Premium, and Google One. Google Play revenue saw slight growth as the number of buyers increased.

Google Cloud revenue surged 30.1% year-on-year to US$12.0 billion in Q4 2024, fueled by strong demand for core Google Cloud Platform products, AI infrastructure, and generative AI solutions. Operating income from this segment soared 142.2% year-on-year to US$2.1 billion, while the operating margin expanded from 9.4% to 17.5% over the same period. Google Cloud Platform continues to drive long-term profitability, diversify Alphabet’s revenue streams, and strengthen its position in the rapidly growing cloud computing market. Increased revenue per seat was the primary driver of Google Workspace’s growth.

Revenue from Other Bets declined 39.1% year-on-year to US$400 million in Q4 2024, while the segment’s operating loss widened from US$863 million to US$1.2 billion. The deterioration in financial performance was attributed to a milestone payment recognized in Q4 2023.

Total cost of revenues increased 8.1% year-on-year to US$40.6 billion in Q4 2024, driven by higher YouTube content acquisition costs and increased depreciation expenses, reflecting Alphabet’s continued investments in technical infrastructure. These costs were partially offset by lower hardware and marketing expenses, as Made by Google product launches shifted from Q4 to Q3 2024. As part of its cost-reduction and operational consolidation efforts, Alphabet incurred US$1.2 billion in office space restructuring. The company also leverages its own AI tools internally to enhance operational efficiency, including AI-assisted coding to streamline key processes.

Operating income surged 30.7% year-on-year to US$31.0 billion, with operating margin expanding from 27.5% to 32.1% over the same period. Net income rose 28.3% year-on-year to US$26.5 billion.

Capital expenditures totalled US$14 billion in Q4 2024, primarily driven by investments in technical infrastructure, with servers representing the largest component, followed by data centres. Alphabet remains capacity-constrained and plans to invest US$75 billion in capital expenditures in 2025, with US$16 billion to US$18 billion allocated for Q1. Corresponding depreciation expenses will also rise. The company can repurpose capacity to support different business segments, such as Google Services and Google Cloud. Its customized TPUs and self-designed, built-for-purpose data centres enhance cost and power efficiency, contributing to optimized capital expenditures.

Revenue in Q1 2025 is expected to be impacted by a strengthening U.S. dollar. Additionally, Google Services’ advertising revenue will face a challenging year-on-year comparison due to the strong performance in 2024.

Google Services – Google Search & other

Google Search has been significantly enhanced with Gemini, enabling multimodal queries and expanding AI Overviews to over 100 countries, driving higher user satisfaction and engagement. Gemini 2.0 will be integrated into AI Overviews later this year, and AI Overviews in the U.S. now include ads while maintaining Search’s monetization rates. Circle to Search is now available to over 200 million Android users, with strong adoption among younger demographics.

Advancements in Gemini 2.0 are fuelling new agent-based experiences, bringing Google closer to a universal AI assistant. Gemini Advanced features like Deep Research are expanding globally on Android. Developer adoption of Gemini models has doubled in the past six months, now surpassing 4.4 million users.

Google’s shopping and retail initiatives continue to gain momentum, driven by AI-powered innovations. Google Lens now processes 20 billion monthly visual searches, while holiday retail performance was exceptional—Black Friday and Cyber Monday each generated over US$1 billion in ad revenue. The AI-powered Google Shopping platform saw a 13% year-on-year increase in daily active users in the U.S. during December, reflecting higher engagement. Overall, shopping activity on Google exceeded one billion daily interactions, with AI-driven experiences improving product discovery and simplifying research, representing a significant growth opportunity. Travel ad revenue also grew 20% year-on-year across Cyber Monday and the emerging Travel Tuesday.

Google Services – YouTube ads

Overall YouTube Ads grew healthily in Q4 2024, driven by brand advertising, which focuses on building awareness, followed by direct response advertising, which aims to drive immediate action.

YouTube Ads grew steadily in Q4 2024, driven primarily by brand advertising, which focuses on building awareness, followed by direct response advertising, which aims to drive immediate action.

YouTube remains the leader in streaming watch time in the U.S., with its market share reaching a record high. Globally, watch time across platforms increased. On connected TVs, viewers worldwide watched more than one billion hours of YouTube videos daily in 2024. In the U.S., TVs now account for 15% of Shorts views, and an increasing number of creators generate the majority of their revenue from TV-based content. The monetization rate of Shorts improved in 2024 and is expected to rise further in 2025. YouTube’s podcast and shopping initiatives are also experiencing strong growth and expanding their reach.

A Nielsen meta-analysis found that Google AI-powered video campaigns on YouTube deliver a 17% higher return on ad spend than manual campaigns. Advertisers can now integrate YouTube creator videos into their Google Ads campaigns across all AI-powered formats, while creators can tag brand partners in their videos, enhancing monetization opportunities.

Google Services – Google subscriptions, platforms, and devices

Google One revenue saw strong growth, driven by an increasing subscriber base and higher revenue per user. Gemini is expanding to more users through deeper integration into the Android platform.

Gemini gained significant momentum in the app ecosystem, particularly in the latter half of 2024. This growth was fueled by increased accessibility, including the launch of a dedicated iOS app and the free-tier availability of the powerful Gemini 2.0 Flash models.

Google Cloud

Google’s enterprise AI applications are seeing strong customer adoption, with new tools and expanded Gemini access enhancing productivity for Workspace users. Its AI-powered Google Cloud solutions have attracted major customers, including Mercedes-Benz, Mercado Libre, and Servier. Cloud momentum surged in 2024, driven by a more than twofold increase in first-time commitments, expanded relationships with large customers through multiple billion-dollar deals, and strong partner-driven growth generating billions through its marketplace.

Google’s AI hypercomputer, featuring cutting-edge GPUs and TPUs like the new Trillium, is delivering significant performance and cost advantages for customers such as Citadel and Wayfair. Vertex AI saw a fivefold increase in customers and a twentyfold surge in usage, fueled by strong adoption of Gemini, Imagen, and Veo.

Other Bets

Waymo, Alphabet’s largest Other Bet, is a leading autonomous vehicle company in the U.S. In 2024, it completed over 4 million passenger trips, averaging 150,000 trips per week. The company plans to expand to Austin and Atlanta in 2025, followed by Miami in 2026.

For the first time, Waymo will begin international testing in Tokyo in the coming weeks. Additionally, its sixth-generation Waymo Driver is currently in development, aiming to significantly reduce hardware costs.

Key analyst questions

CEO Sundar Pichai acknowledged DeepSeek’s achievement and emphasized the efficiency of Gemini models, citing their superior cost performance and lower latency compared to competitors. Alphabet’s full-stack development and focus on cost per query position it well for future growth across both consumer products and cloud offerings. The increasing proportion of spending on inference over training—further accelerated by reasoning models—underscores its focus on ROI. Lower AI usage costs will unlock a vast range of new use cases and drive significant investment in the field.

An analyst raised concerns about AI consumer agents potentially disrupting or replacing aspects of traditional Google Search. However, AI consumer agents remain in the early stages of development. Pichai believes the competition between AI consumer agents and Google Search is not a zero-sum game. Gemini 2.0 is being designed with agentic use cases in mind, while Google Search continues to explore new opportunities. Early feedback on AI Overviews has been positive.

Alphabet’s end-to-end TPU project, aimed at optimizing cost, latency, and performance, has created a significant competitive advantage, keeping its AI models at the forefront. This strategy enabled the launch of high-value Flash models, contributing to a doubling of developer adoption to 4.4 million in just six months.

Regarding Gemini’s monetization, the current strategy focuses on a free tier and subscription-based models. While long-term advertising potential exists, Alphabet prioritizes user experience. The company is committed to scaling Gemini to billions of users, recognizing that advertising has historically played a key role. However, for now, the primary focus remains on driving growth through subscriptions.

The fifth perspective

Alphabet’s AI leadership, driven by Gemini and full-stack optimization, remains strong despite intensifying competition. The company’s strategic focus on innovation, cost efficiency, and scalability positions it well for long-term growth across both consumer and enterprise markets.

However, given the dynamic and rapidly evolving AI landscape, Alphabet is taking a measured approach for Q1 2025, balancing continued investment with financial discipline. While challenges such as monetization strategies, evolving user behaviours, and market competition remain, the company’s commitment to AI-driven transformation and its track record of adapting to technological shifts reinforce its position as a leader in the industry.