Google's Income Statement Visualized Q4 FY24
Alphabet (GOOG) is making its biggest bet yet on AI infrastructure.
The company plans to invest $75 billion in 2025—a 43% jump from last year—far exceeding expectations of $58 billion. This massive capex ramp will expand AI capacity, but it could also affect near-term free cash flow and margins.
Of course, Alphabet isn’t alone in this AI arms race. Microsoft is investing $80 billion in capex for its current fiscal year ending in June, while Meta is committing up to $65 billion in 2025. All are racing to build the infrastructure needed to support AI demand.
Despite regulatory scrutiny and intensifying competition, Alphabet CEO Sundar Pichai is playing the long game, scaling AI tools across its platforms while defending its dominance in search and advertising.
- Revenue growth decelerated to +12% Y/Y, down from last quarter’s 15%. Despite missing estimates for the first time in two years, Alphabet still saw strength in its two biggest ad channels:
- Search accelerated to +13% Y/Y, boosted by financial services and retail.
- YouTube accelerated to +14% Y/Y, benefiting from US election ads.
- Network ads (which have a lower margin profile) declined (-4% Y/Y), reflecting ongoing competition and a tougher macro backdrop.
- Subscriptions, platforms & devices rose +8% Y/Y, a sharp slowdown from last quarter’s +28% jump. The shift of the Pixel launch to Q3 (from Q4 last year) skewed the year-over-year comparison, partially offsetting subscription growth.
- Cloud remained Alphabet’s fastest-growing segment at +30% Y/Y. It was a steep slowdown from +35% Y/Y in Q3 and fell short of expectations. Growth slowed after four consecutive quarters of acceleration. Why? First, Q4 last year saw a surge in AI deployments, creating a tough comparison. Second, AI demand outpaced supply, constraining growth and prompting the massive capex ramp for FY25.
- Margins got another boost: Operating margin jumped from 27% a year ago to 32% this quarter. This continued improvement points to ongoing cost discipline, particularly in headcount and facilities.
⚖️ Antitrust Challenges
Alphabet continues to navigate major legal challenges:
- 🔎 Search monopoly: The US Department of Justice proposed significant remedies after the August ruling that Google violated antitrust laws in search. Proposed measures include divesting the Chrome browser and potentially parts of Android to curb its dominance. A remedies trial is set for April 2025, with final decisions expected by August.
- 💻 Ad tech monopoly: In late November, the DOJ reiterated that Google monopolized online advertising through anti-competitive acquisitions and practices. A ruling is expected in the coming months, potentially leading to penalties or forced divestments, such as its ad exchange or publisher ad server.
- 🤖 Android Play Store monopoly: Earlier this week, Alphabet appealed a jury’s verdict that found its Play Store an illegal monopoly. The appeal challenges the December 2023 ruling requiring Android to allow alternative app stores and third-party payments. A decision is pending.
- 🌐 International scrutiny: In January, China launched an antitrust investigation focusing on Android’s dominance and its impact on Chinese smartphone makers. The move is widely seen as a response to US trade measures.
Caught between regulators and intensifying competition, Alphabet faces mounting pressure, and the outcomes of these cases could reshape its business.