Q4 2024 Alphabet Inc Earnings Call

Speaker Change: Welcome, everyone. Thank you for standing by for the Alphabet 4th Quarter and Fiscal Year 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode.

Speaker Change: After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. I would now like to hand the conference over to your speaker today, Jim Friedland, Senior Director of Investor Relations. Please go ahead.

Speaker Change: Thank you. Good afternoon, everyone, and welcome to Alphabet's fourth quarter 2024 earnings conference call. With us today are Sundar Pichai, Philipp Schindler, and Anat Ashkenazi. Now, I'll quickly cover the safe harbor.

Speaker Change: Some of the statements that we make today regarding our business, operations, and financial performance may be considered forward-looking. Such statements are based on current expectations and assumptions that are subject to a number of risks and uncertainties.

Speaker Change: Actual results could differ materially. Please refer to our forms 10-K and 10-Q, including the risk factors. We undertake no obligation to update any forward-looking statement.

Speaker Change: During this call, we will present both GAAP and non-GAAP financial measures. A reconciliation of non-GAAP to GAAP measures is included in today's earnings press release, which is distributed and available to the public through our investor relations website located at

Speaker Change: abc.xyz forward slash investor our comments will be on year-over-year comparisons unless we state otherwise and now I'll turn the call over to Sundar

Sundar Pichai: Thanks Jim and hello everyone. We delivered another strong quarter in Q4 driven by our leadership in AI and our unique full-stack approach.

Speaker Change: We are making dramatic progress across compute, model capabilities, and in driving efficiencies.

Speaker Change: We are rapidly shipping product improvements and seeing terrific momentum with consumer and developer usage.

Speaker Change: And we are pushing the next frontiers from AI agents, reasoning, and deep research to state-of-the-art video, quantum computing, and more.

Speaker Change: In search, AI overviews are now available in more than 100 countries. They continue to drive higher satisfaction and search usage.

Speaker Change: Meanwhile, Circle to Search is now available on over 200 million Android devices.

Speaker Change: In Cloud and YouTube, we said at the beginning of 2024 that we expected to exit the year at a combined annual revenue run rate of over $100 billion.

Speaker Change: We met that goal and ended the year at a run rate of $110 billion.

Speaker Change: We are set up well for continued growth. So today I'll provide an update on our AI progress and how it's improving our core Consumo products.

Speaker Change: Then I'll touch on cloud, YouTube, platforms and devices, and way more. Let's start with AI. Last quarter, I outlined the three areas of our differentiated full-stack approach to AI innovation.

Speaker Change: our leading AI infrastructure, our world-class research, including models and tooling, and our products and platforms that bring these innovations to people at scale.

Speaker Change: First, AI infrastructure. Our sophisticated global network of cloud regions and data centers provides a powerful foundation for us and our customers, directly driving revenue.

Speaker Change: We have a unique advantage because we develop every component of our technology stack, including hardware, compilers, models, and products.

Speaker Change: This approach allows us to drive efficiencies at every level, from training and serving, to developer productivity.

Speaker Change: In 2024, we broke ground on 11 new cloud regions and data center campuses in places like South Carolina, Indiana, Missouri, and around the world. We also announced plans for seven new subsea cable projects, strengthening global connectivity.

Speaker Change: Our leading infrastructure is also among the world's most efficient. Google data centers deliver nearly four times more computing power per unit of electricity compared to just five years ago.

Speaker Change: These efficiencies, coupled with the scalability, cost, and performance we offer, are why organizations increasingly choose Google Cloud's platform. In fact, today, cloud customers consume more than eight times the compute capacity for training and inferencing compared to 18 months ago.

Speaker Change: We'll continue to invest in our cloud business to ensure we can address the increase in customer demand.

Speaker Change: Second, world-class research, including models. In December, we unveiled Gemini 2.0, our most capable AI model yet, built for the agentic era. We launched an experimental version of Gemini 2.0 Flash, our workhorse model with low latency and enhanced performance.

Speaker Change: Flash is already rolled out to the Gemini app and tomorrow we are making 2.0 Flash generally available for developers and customers along with other model updates. So stay tuned.

Speaker Change: Late last year, we also debuted our experimental Gemini 2.0 Flash thinking model.

Speaker Change: The progress to scale thinking has been super fast and the reviews so far have been extremely positive. We are working on even better thinking models and look forward to sharing those with the developer community soon.

Speaker Change: Gemini 2.0's advances in multimodality and native tool use enable us to build new agents that bring us closer to our vision of a universal assistant.

Speaker Change: One early example is Deep Research. It uses agentic capabilities to explore complex topics on your behalf and give key findings along with sources.

Speaker Change: It launched in Gemini Advanced in December and is rolling out to Android users all over the world.

Speaker Change: We are seeing great product momentum with our Consumer Gemini app, which debuted on iOS last November.

Speaker Change: And we have opened up Trusted Tester access to a handful of research prototypes, including Project Mariner, which can understand and reason across information on a browser screen to complete tasks.

Speaker Change: and Project Astra. We expect to bring features from both to the Gemini app later this year.

Speaker Change: We are also excited by the progress of our video and image generation models.

Speaker Change: VO2, our state-of-the-art video generation model, and Imagine 3, our highest quality text-to-image model. These generative media models, as well as Gemini, consistently top industry leaderboards and score top marks across industry benchmarks.

Speaker Change: That's why more than 4.4 million developers are using our Gemini models today, double the number from just six months ago.

Speaker Change: And we continue to drive research breakthroughs in quantum computing. At the end of last year, we announced Willow, our new state-of-the-art quantum computing chip that can reduce errors exponentially as we scale up using more qubits.

Speaker Change: Willow is an important step in our journey to build a useful quantum computer with practical applications.

Speaker Change: This technology holds so much promise, which is why there was real excitement around this breakthrough.

Speaker Change: Third, our products and platforms put AI into the hands of billions of people around the world.

Speaker Change: We have 7 products and platforms with over 2 billion users and all are using Gemini.

That includes Search, where Gemini is powering our AI overviews.

Speaker Change: People use search more with AI overviews and usage growth increases over time as people learn that they can ask new types of questions.

Speaker Change: This behavior is even more pronounced with younger users who really appreciate the speed and efficiency of this new format.

Speaker Change: We are also pleased to see how Circle2Search is driving additional search views and opening up even more types of questions.

Speaker Change: This feature is also popular among younger users. Those who have tried Circle to Search before now use it to start more than 10% of their searches.

Speaker Change: As AI continues to expand the universe of queries that people can ask, 2025 is going to be one of the biggest years for search innovation yet.

Sundar Pichai: Now, let me turn to key highlights from the quarter across cloud, YouTube, platforms and devices, and Waymo.

First, Google Cloud.

Sundar Pichai: Our AI-powered cloud offerings enabled us to win customers such as Mercedes-Benz, MercadoLibre, and Servier.

Sundar Pichai: In 2024, the number of first-time commitments more than doubled compared to 2023.

Sundar Pichai: We also deepen customer relationships. Last year, we closed several strategic deals over $1 billion, and the number of deals over $250 million doubled from the prior year.

Sundar Pichai: Our partners are further accelerating our growth, with customers purchasing billions of dollars of solutions through our cloud marketplace.

Sundar Pichai: We continue to see strong growth across our broad portfolio of AI-powered cloud solutions.

Sundar Pichai: It begins with our AI hypercomputer, which delivers leading performance and cost across both GPUs and TPUs.

Sundar Pichai: These advantages help Citadel with modeling markets and training, and enabled Wayfair to modernize its platform, improving performance and scalability by nearly 25%.

Sundar Pichai: In Q4, we saw strong uptake of Trillium, our 6th generation TPU, which delivers 4x better training performance and 3x greater inference throughput compared to the previous generation.

Sundar Pichai: We also continue our strong relationship with NVIDIA. We recently delivered their H200-based platforms to customers. And just last week, we were the first to announce a customer running on the highly anticipated Blackwell platform.

Sundar Pichai: Vertex usage increased 20x during 2024 with particularly strong developer adoption of Gemini Flash, Gemini 2.0, Imagine 3, and most recently Veo.

Sundar Pichai: We're also seeing strong growth in our AI-powered databases, data analytics, and cybersecurity platforms.

Sundar Pichai: Customers including Radisson Hotels are now using Gemini to search and analyze multimodal data from across multiple clouds.

Sundar Pichai: Our AI-powered threat intelligence and security operations products help customers, including Vodafone and AstraZeneca, identify, protect, and defend against threats.

Sundar Pichai: Our growing portfolio of AI applications is also seeing strong customer adoption.

Sundar Pichai: In Q4, we introduced Google Agent Space, which helps enterprises synthesize data with Google Quality Search, create Gemini-powered agents, and automate transactions for employees.

Sundar Pichai: In addition, we recently gave all Google Workspace business and enterprise customers access to all of our powerful Gemini AI capabilities.

to help boost their productivity.

Sundar Pichai: Moving to YouTube. Needs and data shows YouTube continues to be number one in streaming watch time in the US.

Sundar Pichai: With our share of streaming now at a record high. On election day alone over 45 million viewers across the U.S. watched election related content on YouTube.

Our early investment in podcasts is paying off.

Sundar Pichai: We integrated podcasts into the core YouTube experience, particularly with video. We are now the most frequently used service for consuming podcasts in the U.S., according to a recent Edison report.

Sundar Pichai: This success reflects our long-term approach of investing in emerging trends from mobile to the living room.

Sundar Pichai: We now have over 250,000 creators in the YouTube Shopping Affiliate Program in the U.S. and Korea alone.

Sundar Pichai: We expand YouTube shopping at the end of last year to three additional countries, allowing even more creators to share their favorite products with fans and grow their businesses.

Sundar Pichai: Philipp will talk more about YouTube performance later in the call.

Next, Platforms and Devices.

Sundar Pichai: Google One's performance has been outstanding and is one of our fastest growing subscription products in terms of subscribers and revenue growth.

Sundar Pichai: Last month, we announced the first beta of Android 16 plus new Android updates including a deeper Gemini integration coming to the new Samsung Galaxy S25 series.

Sundar Pichai: We also recently announced Android XR, the first Android platform built for the Gemini era. Created with Samsung and Qualcomm, Android XR is designed to power an ecosystem of next-generation extended reality devices like headsets and glasses.

Sundar Pichai: Finally, a few words on Waymo, which made tremendous progress last year.

safely serving more than 4 million passenger trips.

It's now averaging over 150,000 trips each week and growing.

Sundar Pichai: Looking ahead, Waymo will be expanding its network and operations partnerships to open up new markets, including Austin and Atlanta this year and Miami next year.

Sundar Pichai: And in the coming weeks, Waymo and vehicles will arrive in Tokyo for their first international road trip.

Sundar Pichai: We are also developing the 6th generation Waymo driver, which will significantly lower hardware costs.

Speaker Change: I want to thank our employees around the world for another great quarter. 2025 is going to be exciting and we are all ready for it. Philipp, I'll hand it over to you.

Philipp Schindler: Thanks Sundar and hello everyone. I'll quickly cover performance for the quarter, then frame the rest of my remarks around the progress we're delivering across search, ads, YouTube and partnerships, highlighting the impact AI is having on our business and our customers.

Philipp Schindler: Google's services revenues were $84 billion for the quarter, up 10%, driven primarily by 11% year-on-year growth in advertising revenues.

Philipp Schindler: Strong growth in search and YouTube advertising was partially offset by year-on-year decline in network revenues.

Philipp Schindler: In terms of vertical performance, the 13% increase in search and other revenues was led by financial services followed by retail. The 14% growth in YouTube advertising revenues was driven by strong spend on US election advertising with combined spend from both parties almost doubling from what we saw in the 2020 elections.

Philipp Schindler: Now, in Q4, we saw continued strong growth in revenues from search. We had lots of exciting updates in December, and we're rapidly integrating our AI innovation into our consumer experiences. We've already started testing Gemini 2.0 and AI overviews and plan to roll it out more broadly later in the year.

Philipp Schindler: In search, we're seeing people increasingly ask entirely new questions using their voice, camera, or in ways that were not possible before, like with Circle to Search. We're making these benefits available to more consumers.

Philipp Schindler: Google is already present in over half of journeys where a new brand, product, or retailer are discovered. By offering new ways for people to search, we're expanding commercial opportunities for our advertisers.

Philipp Schindler: Shoppers can now take a photo of a product and, using Lens, quickly find information about the product, reviews, similar products, and where they can get it for a great price. Lens is used for over 20 billion visual search queries every month, and the majority of these searches are incremental.

Philipp Schindler: Retail was particularly strong this holiday season, especially on Black Friday and Cyber Monday, which each generated over $1 billion in ad revenue.

Philipp Schindler: Interestingly, despite the US holiday shopping season being the shortest since 2019, retail sales began much earlier, in October, causing the season to extend longer than anticipated.

Speaker Change: People shop more than a billion times a day across Google. Last quarter, we introduced a reinvented Google Shopping experience, rebuilt from the ground up with AI. This December saw roughly 13% more daily active users on Google Shopping in the U.S. compared to the same period in 2023.

Speaker Change: Closing out on Search with Travel and sharing another interesting trend where we saw spend expand to Travel Tuesday.

Speaker Change: This contributed to 20% year-on-year revenue growth for travel advertisers across Cyber Monday and Travel Tuesday.

Speaker Change: Moving to ads. We continue investing in AI capabilities across media buying, creative and measurement. As I've said before, we believe that AI will revolutionize every part of the marketing value chain. And over the past quarter, we've seen how our customers are increasingly focusing on optimizing their use of AI.

Speaker Change: As an example, Petco used demand-gen campaigns across targeting, creative generation, and bidding to find new pet-parent audiences across YouTube. They achieved a 275% higher return on ad spend and a 74% higher click-through rate than their social benchmarks.

Speaker Change: On media buying, we made YouTube select creator takeovers generally available in the US and will be expanding to more markets this year. Creators know their audience the best and creator takeovers help businesses connect with consumers through authentic and relevant content.

Speaker Change: Looking at creative, we introduced new controls and made reporting easier in PMax, helping customers better understand and reinvest into their best-performing assets.

Speaker Change: Using asset generation in PMax, Event Ticket Center achieved a five times increase in production of creative assets, saving time and effort. They also increased conversions by 300% compared to the previous period when they used manual assets.

Speaker Change: And finally, measurement. Last week we made Meridian, our marketing mix model, generally available for customers, helping more businesses reinvest into creative and media buying strategies that they know work.

Speaker Change: Based on a Nielsen meta-analysis of marketing mix models, on average, Google AI-powered video campaigns on YouTube deliver 17% higher return on advertising spend than manual campaigns.

Speaker Change: Turning to YouTube, we saw robust revenue growth backed by continued growth and watch time across ad supported and premium experiences.

Speaker Change: Our focus here remains on building a streaming platform that enables creators to thrive and unlock the full potential of AI.

Speaker Change: Expanding on our state-of-the-art video generation model, we announced VO2, which creates incredibly high-quality video in a wide range of subjects and styles. It's been inspiring to see how people are experimenting with it. We'll make it available to creators on YouTube in the coming months.

Speaker Change: We continue to invest in helping YouTube creators work with brands. All advertisers globally can now promote YouTube creator videos and ad campaigns across all AI-powered campaign types in Google Ads. And creators can tag partners in their brand videos.

Speaker Change: Sephora used DemandGen's shorts-only channel to boost traffic and brand searches for their holiday gift guide campaign and leveraged creator collaborations to find the best gift. This drove an 82% relative uplift in searches for Sephora Holiday.

Speaker Change: Shorts continues its ascent and is closing the gap with LongForm. In 2024, the monetization rate of Shorts relative to in-stream viewing increased by more than 30 percentage points in the US, and we expect to make additional progress in 2025.

Speaker Change: We're making it easier for advertisers to benefit from shorts on all screens. We're particularly excited by its success on connected TV, which now makes up 15% of shorts viewing in the U.S.

Speaker Change: Using a combination of ad formats, Louis Vuitton reached their overall objectives on both long-form and short-form content.

Speaker Change: Their shorts exceeded the Luxury Goods benchmark for average view duration by 89% for equivalent video lengths, while their long-form content exceeded the benchmark by over 15%, with strong engagement from Gen Z and millennials.

Speaker Change: Looking into the living room, we continue to be number one in streaming watch time in the U.S. for nearly two years, according to Nielsen, and our share of streaming is at a record high. Viewers globally streamed over 1 billion hours of YouTube content daily on their TVs in 2024.

Speaker Change: YouTube makes multi-year investments to tap into shifting consumer behavior. The current surge in living room viewership directly reflects years of work to build the right products and partnerships.

Speaker Change: Creators are now prioritizing high-quality viewing experiences that truly shine on TV screens, inspiring even more viewers to tune in. In fact, the number of creators making majority of revenue from TV is up over 30% year-on-year.

Speaker Change: We have also invested in podcasts, where popular shows like Club Shea Shea and Lex Friedman are increasingly a visual format.

Speaker Change: YouTube creators and viewers are embracing this. In 2024, people watched over 400 million hours of podcasts each month on living room devices alone. YouTube is now the most popular service for podcast listening in the U.S., according to Edison.

Speaker Change: As always, let me wrap with the strong momentum we're seeing in partnerships, where the breadth of what Google has to offer is increasingly being recognized.

Speaker Change: Sundar mentioned our deepening partnership with Samsung. Another expanding partnership is with Citi, who is modernizing its technology infrastructure with Google Cloud to transform employee and customer experiences.

Speaker Change: Using Google Cloud, it will improve its digital products, streamline employee workflows, and use advanced high-performance computing to enable millions of daily computations.

Speaker Change: This partnership also fuels Citi's generative AI initiatives across customer service, document summarization, and search to reduce manual processing.

Speaker Change: With that, allow me a moment to thank Googlers everywhere for their extraordinary commitment and to our customers and partners for their continued trust. Anat, over to you.

Anat Ashkenazi: Thank you, Philipp. We're pleased with the continued momentum we're seeing across the business as Alphabet revenue for 2024 reached $350 billion, up 14% on a reported basis, and 15% in constant currency versus 2023.

Anat Ashkenazi: My comments will focus on year-over-year comparisons for the fourth quarter unless I state otherwise.

Anat Ashkenazi: I will start with the results at the alphabet level and will then cover our segment results. I'll end with some commentary and expectations over the first quarter and full year 2025.

Anat Ashkenazi: We had another strong quarter in Q4 with robust momentum across the business.

Anat Ashkenazi: Consolidated revenue of $96.5 billion increased by 12% in both reported and constant currency.

Anat Ashkenazi: Search remained the largest contributor to revenue growth, followed by cloud.

Anat Ashkenazi: Tech was $14.8 billion, up 6%. We continue to see a revenue mix shift with Google Search growing at double-digit levels while network revenues, which have a much higher tech rate, declined.

Anat Ashkenazi: Other costs of revenue was $25.8 billion, up 9%, with the increase primarily driven by content acquisitions costs, primarily for YouTube, followed by depreciation, due to increasing investments in our technical infrastructure.

Anat Ashkenazi: Growth in content acquisition and depreciation were partially offset by our year-over-year decline in hardware costs due to the shift in timing of our Made by Google launches to the third quarter 2024 compared to the fourth quarter of 2023.

Anat Ashkenazi: In terms of total expenses, the year-over-year comparisons reflect $1.2 billion in exit charges that we took in the fourth quarter of 2023 in connection with actions to optimize our global office space.

Anat Ashkenazi: As previously disclosed, those charges were allocated across the expense lines in other costs of revenue and OpEx based on associated headcount.

Total operating expenses decreased 1% to $24.9 billion.

Anat Ashkenazi: R&D investments increased by 8%, primarily driven by increase in compensation and depreciation expenses partially offset by the impact of charges for office space optimization in the fourth quarter of 2023.

Anat Ashkenazi: Sales and marketing expenses decreased 5%, primarily reflecting the optimization charges last year, as well as declines in compensation and in ads and promotion expenses due to the timing shift of the PIXA launch from Q4 to Q3.

Anat Ashkenazi: G&A expenses declined by 15% reflecting a shift of timing in our charitable contributions as well as the optimization charges last year.

Anat Ashkenazi: Operating Income increased 31% the score to $31 billion dollars and Operating Margin increased to 32% representing 4.6 points of margin expansion.

Anat Ashkenazi: Net income increased 28% to $26.5 billion, and earnings per share increased 31% to $2.15.

Anat Ashkenazi: We delivered free cash flow of $24.8 billion in the fourth quarter and $72.8 billion for the full year 2024.

Anat Ashkenazi: We ended the quarter with $96 billion in cash and marketable securities.

Anat Ashkenazi: Turning to segment results, Google's service revenues increased 10% to $84.1 billion, reflecting the strong momentum across Google Search and YouTube ads.

Anat Ashkenazi: Google Search and other advertising revenues increased by 13% to $54 billion.

Anat Ashkenazi: The robust performance of search was once again broad-based across verticals, led by the financial service vertical, due to strength in insurance followed by retail.

Anat Ashkenazi: YouTube advertising revenue increased 14% to $10.5 billion, driven by brand, followed by direct response advertising.

Anat Ashkenazi: Network advertising revenue of eight billion dollars, we're down four percent.

Anat Ashkenazi: In the fourth quarter, the year-over-year comparison in all of our advertising revenue lines was impacted by the increase in strength in advertising revenue in Q4 2023, in part from APAC-based retailers.

Anat Ashkenazi: Subscription platforms and device revenues increased 8% to $11.6 billion, primarily reflecting growth in subscription revenues, partially offset by the shifting timing of the launch of our made-by-Google devices to the third quarter compared with the fourth quarter in 2023.

Anat Ashkenazi: We continue to have significant growth in our subscription products, primarily due to increase in the number of paid subscribers across YouTube TV, YouTube Music Premium, and Google One.

Anat Ashkenazi: With regards to platform, we saw a slight increase in the growth rate in play, primarily due to a strong increase in the number of buyers.

Anat Ashkenazi: Google's service operating income increased 23% to $32.8 billion, and operating margin increased from 35% to 39%, representing a meaningful margin expansion.

Anat Ashkenazi: Turning to the Google Cloud segment, which continued to deliver very strong results this quarter.

Anat Ashkenazi: Revenue increased by 30% to $12 billion in the fourth quarter, reflecting growth in GCP across core GCP products, AI infrastructure, and generative AI solution. Once again, GCP grew at a rate that was much higher than cloud overall.

Anat Ashkenazi: Healthy Google Workspace growth was primarily driven by increase in average revenue per seat.

Anat Ashkenazi: Google Cloud Operating Income increased to $2.1 billion and Operating Margin increased from 9.4% to 17.5%.

Anat Ashkenazi: We're pleased with the work the cloud team is doing to deliver valuable solutions to the customer and generate revenue growth, as well as its continued focus on driving efficiencies across the cloud business.

Anat Ashkenazi: As for other bets, for the fourth quarter, revenue were $400 million and the operating loss was $1.2 billion.

Anat Ashkenazi: The year-over-year decline in revenue and increase in operating loss primarily reflect a milestone payment in the fourth quarter of 2023 for one of the other bets.

Anat Ashkenazi: Turning to alphabet level activities, the largest component of this line is our investments in AI research and development activities, which support all of alphabet. As a reminder, alphabet level activities have included nearly all severance charges from reductions in workforce and office space charges.

Anat Ashkenazi: In the fourth quarter of 2024, the biggest factor in year-over-year comparison is the $1.2 billion in charges in the fourth quarter of 2023, almost entirely in connection with office space optimization.

Anat Ashkenazi: With respect to CapEx, our reported CapEx in the fourth quarter was $14 billion, primarily reflecting investments in our technical infrastructure, with the largest component being investment in servers, followed by data centers, to support the growth of our business across Google Services, Google Cloud, and Google DeepMind.

Anat Ashkenazi: In Q4, we returned value to shareholders in the form of $15 billion in share repurchases and $2.4 billion in dividend payments. Overall, we returned a total of nearly $70 billion to shareholders in 2024.

Anat Ashkenazi: Turning to 2025, I would like to provide some commentary on several factors that will impact our business performance in both the first quarter and the full year 2025.

Anat Ashkenazi: First, in terms of revenue, I'll highlight two items that will have meaningful impact on Q1 revenue across the company.

Anat Ashkenazi: First, in terms of revenues, I'll highlight two items that will have meaningful impact on Q1 revenues across the company.

Anat Ashkenazi: The first is the impact of foreign exchange rates. At the current spot rates, we expect a larger headwind to our revenues from the strengthening of the U.S. dollar relative to key currencies in Q1 versus Q4 2024.

Anat Ashkenazi: Second is the impact of leap year. We expect a headwind from having one less day of revenue in Q1 2025 compared with leap year in the first quarter of 2024.

Anat Ashkenazi: As for our segments, Google Services, Advertising Revenue in 2025, will be impacted by lapping the strength we experienced in the financial service vertical throughout 2024.

Anat Ashkenazi: And in cloud, given the revenues are correlated with the timing of deployment of new capacity, we could see variability in cloud revenue growth rates depending on when new capacity comes online during 2025.

Anat Ashkenazi: Moving to investments, starting with our expectation for CapEx for the full year 2025. As we mentioned on the Q3 call, as we expand our AI efforts, we expect to increase our investments in capital expenditure for technical infrastructure, primarily for servers, followed by data centers and networking.

Anat Ashkenazi: We expect to invest approximately $75 billion in CapEx in 2025, with approximately $16 billion to $18 billion of that in the first quarter.

Anat Ashkenazi: The expected total investment level may fluctuate from quarter to quarter, primarily due to timing of deliveries and construction schedules.

Anat Ashkenazi: In terms of expenses, first, the increase in our investment in CapEx over the past few years will increase pressure on the P&L, primarily in the form of higher depreciation.

Anat Ashkenazi: In 2024, we saw 28% year-over-year growth and depreciation as we put more technical infrastructure assets into service.

Anat Ashkenazi: Second, we expect some headcount growth in 2025 in key investment areas such as AI and cloud.

Speaker Change: As you just heard from Sundar, we're delivering products and solutions to customers at a rapid pace, building, testing, and launching products faster than ever before. And as I mentioned on the Q3 call, we're doing that while also focusing on driving further efficiencies in how we operate the business.

Anat Ashkenazi: Before we take questions, I'd like to recap the financial results for the year.

Anat Ashkenazi: For the full year 2024, revenue grew by 14%, or by $43 billion, reaching $350 billion.

Anat Ashkenazi: Google Services and Google Cloud each continue to see double-digit revenue growth coupled with margin expansion. YouTube and cloud revenues combine, end of the year, at $110 billion annual run rate.

Anat Ashkenazi: And in 2024, we generate a total income of $112 billion, an increase of 33% from 2023.

Anat Ashkenazi: We're pleased with the momentum we're seeing in AI innovation and monetization.

Anat Ashkenazi: We've been using AI to improve the performance of our ads business for well over a decade, and cloud is generating billions in annual revenue from AI infrastructure and generative AI solutions.

Anat Ashkenazi: We're also excited about the potential to bring new experiences to users that will provide additional opportunities for monetization. And I look forward to sharing more in our progress throughout the year.

Sundar, Philipp, and I will now take your questions.

Speaker Change: Thank you. As a reminder to ask a question, you will need to press star 1 on your telephone. To prevent any background noise, we ask that you please mute your line once your question has been stated. And our first question comes from Brian Nowak with Morgan Stanley. Your line is now open.

Brian Nowak: Thanks for taking my questions. I have two and for Sundar, one for Anat. Sundar, maybe kind of step back on search. There's a, seems like there's a lot of advances to come with Gen AI and agentic possibilities with search.

Brian Nowak: Can you just sort of walk us through your big picture vision over the next few years of how you think about your search product continuing to evolve to stay at the top of the funnel and drive more engagement and monetization for your users and advertisers?

Speaker Change: And then the second one, Anat, I think about 90 days ago, you talked about sort of further efficiencies and areas of simplification on the OpEx space. Can you just sort of walk us through some examples of where you see the potential for further efficiencies to the OpEx space, excluding the DNA step-ups that we have to come in 2025? Thanks.

Brian Nowak: Thanks Brian. On search, you know, obviously, you know, we view...

Speaker Change: I mean this has been a long continual journey. AI overviews has been the next step.

Speaker Change: We are obviously trading on that experience bringing better and better models

Speaker Change: expanding to the number of queries where it works and so on. But there's a lot more to come. You know, I think we'll continue bringing AI in more powerful ways.

Speaker Change: In multimodal ways, things like what we have done with Lens Circle to Search, you can imagine the future with Project Astra. You can also imagine areas like we have done in GemIIni Deep Research, you know, possibilities where, you know, you are

Speaker Change: Really dramatically expanding the types of use cases for which search can work.

Speaker Change: things which don't always get answered instantaneously but can take some time to answer.

Speaker Change: Those are all areas of explorations and you will see us, you know, putting newer experiences in front of users through the course of 2025. And so I do feel the opportunity space with AI, there's a lot of unlock ahead.

Thank you. Have a great day.

Speaker Change: Thanks, and for the question with regards to where do we see or where do I see leverage moving forward and some of the comments I've made on the previous call.

Speaker Change: I certainly see opportunities for further productivity and efficiency, and this is one of our priority areas. And we're going to do that so that we can make sure we continue to invest in areas such as AI and cloud where we see potential for continued growth.

Speaker Change: I'll remain focused on areas that I've mentioned before, which include the technical infrastructure, so the $75 billion in CapEx I mentioned for this year. The majority of that is going to go towards our technical infrastructure, which includes servers and data centers, so ensuring we do that in the most efficient way is critical.

Speaker Change: Second is managing headcount growth and we're going to be investing in areas of growth such as AI and cloud but looking across the organization and moderating that growth will be important. Optimizing the real estate footprint is one of the areas I've mentioned we're continuing to focus on that.

Speaker Change: as well as looking at how we simplify the organization. We previously mentioned bringing like areas together. Sundar talked about bringing some of the AI research.

teams together so that we can operate with increased speed.

but also how we operate within the organization.

Speaker Change: using our own AI tools to help you run the business.

Speaker Change: So we're looking at all that. This is not a one-quarter type of effort. It's going to continue throughout the year, and we're going to continue to focus on that so that we can support the growth in other areas.

Speaker Change: Our next question comes from Doug Anuswood, JPMorgan. Your line is now open.

Speaker Change: Thanks for taking the questions, one for Philipp and one for Anat. Philipp, can you just talk more about the expanded rollout of ads on

Doug Anuswood: AI Overviews, and perhaps what additional things you may have learned in 4Q, and I guess, in particular, just curious if you rolled out to a higher percentage of commercial queries, and is it still fair to say that you're monetizing nearly on par with existing search? And then, Anat, just on the...

Doug Anuswood: On cloud growth, a little bit of de-sell, 3Q to 4Q, but it sounded like you also suggested that your capacity constrained in the fourth quarter. I just wanted to push on that a little bit more. Is that accurate, and is it fair to say that revenue growth could have been higher with much more capacity? Thanks.

Doug Anuswood: So on your first question, first of all, AI overviews, which is really nice to see, continue to drive higher satisfaction and search usage, so that's really good. And as you know, we recently launched the ads within AI overviews on mobile in the US, which builds on our previous rollout of ads above and below.

Doug Anuswood: And as I talked about before, for the AI overviews overall, we actually see monetization at approximately the same rate, which I think really gives us a strong base on which we can innovate even more.

Doug Anuswood: On the cloud question, so first, I'm excited that we ended the quarter at $12 billion and a 30% year-over-year growth, very impressive growth.

Doug Anuswood: And as I've mentioned in the prepared remark, GCP grew at a much higher rate than overall cloud. Two items to think about from a deceleration perspective. The first is we are lapping a very strong core of an ADI deployment in Q4 of 2023.

Doug Anuswood: The second is the one you've alluded to. We do see, and have been seeing, very strong demand for our AI products in the fourth quarter of 2024. And we exited the year with more demand than we had available capacity.

Doug Anuswood: So we are in a tight supply-demand situation, working very hard to bring more capacity online. As I mentioned, we've increased investment in CapEx in 2024, continue to increase in 2025, and we'll bring more capacity throughout the year.

Thank you both.

Speaker Change: Your next question comes from Eric Sheridan with Goldman Sachs. Your line is now open.

Eric Sheridan: Thank you for taking the question. I'll just ask one. Sundar, with the news that came out of China a little over two weeks ago, I think investors have been asking a lot of questions about the long-term

Eric Sheridan: CostCurve for AI as AI moves from the infrastructure layer to the application layer, or from training to inference, and maybe even custom silicon becomes more dominant across the theme. I would love to get your perspective on your take on that news a couple weeks ago and what it might mean for Alphabet longer term. Thank you.

Thanks, Eric.

Speaker Change: observations on DeepSeek. First of all, you know, I think tremendous team. I think they've done very, very good work.

Speaker Change: If you look at, you know, one of the areas in which the Gemini model shines is the period of frontier of cost, performance, and latency. And if you look at all three attributes, I think we lead this period of frontier.

Speaker Change: And I would say both are 2.0 flash models or 2.0 flash thinking models. You know, they are some of the most efficient models out there, including comparing to DeepSeek's V3 and R1, and I think a lot of it is.

Speaker Change: Our strength of the full-stack development into an optimization, our obsession with cost-per-query, all of that, I think, sets us up.

Speaker Change: as well for the workloads had both to serve billions of users across our products.

and on the cloud side.

Speaker Change: You know, the proportion of the spend towards inference compared to training has been increasing, which is good because, you know, obviously inference is to support businesses with good ROIC. And so I think that trend is good.

Speaker Change: I think the reasoning models, if anything, accelerates that trend because, you know, it's obviously scaling up on inference dimension as well. And so I think, look, I think, you know, part of the reason we are so excited about the AI opportunity is...

Speaker Change: We know we can drive extraordinary use cases because the cost of actually using it is going to keep coming down, which will make more use cases feasible, and that's the opportunity space. You know, it's as big as it comes, and that's why you're seeing us invest to meet that moment.

Thank you.

Speaker Change: Your next question comes from Michael Nathanson with Muffet Nathanson. Your line is now open.

Michael Nathanson: Thank you. I have two, one for Philipp and one for Anat. Philipp, question for you is, we're starting to see more AI tools on e-commerce sites, and something like research with AI recommendations.

Michael Nathanson: is on Google Shopping. Can you talk about how that product and other AI tools are impacting shopping behavior, and how that's impacting monetization? And then I guess the $75 billion question Anat is, how do you think about long-term capital intensity for this business?

Speaker Change: It sounds like there's a bit of constraint in terms of getting things built, but how do you think about the modeling of capital intensity going forward? And what are the things that you're looking forward to in terms of whether or not this is the right level of spend? Thank you.

Speaker Change: Look, excellent question. We've been using our advances in AI to make search for products on Google even easier, obviously. And in Q4, we actually introduced quite a transformed Google Shopping experience, which we rebuilt from the ground up with AI.

Speaker Change: and Simplify Your Research. You get an AI-generated brief with top things to consider for your search, plus maybe products that meet your needs. So shoppers very often want low prices, so the new page not only includes deal-finding tools like price comparison, price insights, price tracking throughout, but there's also a new and dedicated personalized deals page where you can browse deals for you, and all this is really built on the backbone of AI, so we think this is a very interesting opportunity.

Speaker Change: And on the question of capital expenditure, and I think you may have two questions in there. One is just the capital intensity and then how would we think about return on that invested capital.

Speaker Change: So on the first one, certainly we're looking ahead, but we're managing very responsibly.

Speaker Change: with a very rigorous even internal governance process looking at how do we allocate the capacity and what would we need to support the customer demand externally, but also across the Google, the Alphabet business.

Speaker Change: And as you've seen in the comment I've just made on cloud, we do have demand that exceeds our available capacity. So we'll be working hard to address that and make sure we bring more capacity online. We do have the benefit of having a very broad business, and we can repurpose capacity, whether it's through Google services or Google Cloud to support.

Speaker Change: As I said, whether it's Search or GDM or Google Cloud Customers, we can do that.

Speaker Change: We also look at every investment that we make to ensure that we're doing it in the most cost-efficient way.

Speaker Change: to optimize our data center. As you know, our strategy is mostly to rely on our own self-design and build data centers, so they're industry-leading in terms of both cost and power efficiency at scale.

Speaker Change: We have our own customized TPUs, they're customized for our own workload, so they do deliver outstanding, superior performance and CapEx efficiency. So we're going to be looking at all that when we make decisions as to how we're going to progress capital investments throughout the coming years.

Thank you.

Speaker Change: Your next question comes from Mark Shmulik with Bernstein. Your line is now open.

Mark Shmulik: Yes, thanks for taking the question. Sundar, I just wanted to follow up to Brian's question from earlier. You know, with your own Project Mariner efforts and a competitor's recent launch,

Mark Shmulik: Seems there's suddenly really strong momentum on AI consumer agents and kind of catching up to that old Google duplex vision. I think when you look a few years ahead, where do you see consumer agents going and really what does it mean to Google search outside of Lens?

Speaker Change: Is there room for both to flourish, or will they eventually be in conflict with each other? Thank you.

Speaker Change: Look, I think first of all, we are definitely seeing a lot of progress in the underlying capabilities of these models.

Speaker Change: and I think we'll be able to do more agentic experiences for our users. Look, I actually think all of this expands the opportunity space. I think, you know...

Speaker Change: Historically, we've had information use cases, but now you can have, you can act on your information needs in a much deeper way.

Speaker Change: It's always been our vision when we have talked about Google Assistant, etc. So I think the opportunity space expands.

Speaker Change: I think there's plenty of, it feels very far from a zero-sum game, there's plenty of room, I think, for many new types of use cases to flourish. And I think for us, you know, we have a clear sense of additional...

Speaker Change: use cases we can start to tackle for our users in Google Search. And all the early work with AI overview shows that users will react positively to that. So, you know, I'm pretty excited about what's ahead.

Ross Sandler: Your next question comes from Ross Sandler with Barclays. Your line is now open.

Thank you.

Ross Sandler: Great, one on infrastructure and then one on the guidance on revenue. So Sundar, if we look at the inference cost per 1 million tokens and...

Ross Sandler: Not the API pricing we see for Gemini versus something like GPT-4, but the raw cost of generating inference tokens on your TPU stack. How much more efficient do you think you guys are in terms of generating 1 million tokens?

Ross Sandler: compared to inference costs running on your cloud peers. Do you see this as an advantage as everything shifts to inference?

Anat Ashkenazi: and then Anat, you called out lapping the financial services category strength.

in 2025 is a bit of a problem for search.

Anat Ashkenazi: Could you quantify a little bit of that? Is that kind of the same as when you guys talk about lapping the Asia outbound advertiser channel? Any numbers you could put around that headwind? Thank you very much.

Anat Ashkenazi: Ross, like, you know, look, the whole TPU project started, our V1 was effectively an inferencing chip, you know, so we've always...

Anat Ashkenazi: Part of the reason we have taken the end-to-end stack approach is so that we can definitely drive a strong differentiation.

Anat Ashkenazi: be at the Pareto frontier we mentioned and I think our full-stack approach and our TPU efforts all play, you know, give a meaningful, meaningful advantage and we plan, you know, you already see that.

Anat Ashkenazi: You know, I know you asked about the cost, but, you know, it's effectively captured, you know, when we price outside, you know, we pass on that differentiation. It's partly why we've been able to bring forward flash models.

at very attractive value props, which is what is driving.

Anat Ashkenazi: Both developer growth, you know, we've doubled our developers to 4.4 million in just about six months. Vertex usage is up 20x last year. And so all of that is a direct result of that approach and, you know, so we'll continue doing that.

Anat Ashkenazi: And on the question regarding my comment on lapping the strength in financial services, this is primarily related to...

Anat Ashkenazi: The structural changes with regards to insurance, it's more specifically within financial services, it was the insurance segment.

Anat Ashkenazi: And we saw that continue, but it was a one-time kind of a step up, and then we saw it throughout the year. I'm not going to give any specific numbers as to what we expect to see in 2025. But I'm pleased with the fact that we're seeing and continuing to see strength.

Anat Ashkenazi: Across really all verticals, including retail, and exiting the year in a position of strength.

Anat Ashkenazi: If anything, I would highlight as you think about the year, the comments I've made about the impact of FX, as well as the fact that we have one less day of revenue in Q1.

Speaker Change: Your next question comes from Justin Post with Bank of America. Your line is now open.

Justin Post: Great. Thank you. A couple for Philipp. You mentioned higher search usage with overviews. Just wondering how you're feeling about overall search usage. You know, is it accelerating as you integrate more AI? I know there's a lot of traffic growth at competitors with AI, but just wondering if you're seeing a real increase in total volumes of information gathering.

Justin Post: And then second, on YouTube, thinking about kind of maybe a move from more professional content to user-generated content. What is that doing for your usage, and how do you think about the margin impact from that? Thank you.

Speaker Change: Maybe just on search usage overall, our metrics are healthy. We are continuing to see...

overall usage, of course, within that AI overviews.

has seen stronger growth, particularly

Speaker Change: across all segments of users, including in younger users, so it's being well-received.

Speaker Change: But overall, I think, you know, through this AI moment, I think Search is continuing to perform well.

Speaker Change: As I said earlier, we have a lot more innovations to come this year. I think the product will evolve even more.

Speaker Change: And I think as you make search, you know, as you give, as you make it more easy for people to interact and ask follow-up questions, etc., I think we have an opportunity to drive further growth.

Speaker Change: And some color on your YouTube question. Look, YouTube ads overall had a very healthy growth. Thank you for driven by brand, followed by direct response.

Speaker Change: are at the center of YouTube success here and they're the number one most important thing we care about and this strong position really gives us a lot of confidence here. Today we have more than 3 million channels that are actually in the YouTube Partner Program which is which is really an incredible program so we're very very confident with the position we have and where this goes.

Thank you.

Speaker Change: And our last question comes from Ken Garowski with Wells Fargo. Your line is now open.

Ken Garowski: Thank you very much. Two, please. I want to focus on Gemini and the consumer-agent side. Sundar, there was some press reports that suggested you have an ambitious goal on growing the usage by the end of 2025. Two questions on that, please.

Ken Garowski: First, how should we think about the approach that you're going to employ to achieve this goal?

Ken Garowski: Is it more aggressive marketing for Gemini as a stay-at-home product?

or is it tighter integration into existing experiences?

Ken Garowski: whether it be search, mail, maps, etc. And then the second one is...

Ken Garowski: How should we think about the future monetization opportunity of Gemini today? It's really a premium subscription offering or a free offering. Over time, do you see an ad component? And anything you can share on that, please. Thank you.

Ken Garowski: First of all, we've had a strong momentum for Gemini on

Ken Garowski: And some of it is we've made it more easily accessible. We've brought it to, for example, with a dedicated app on iOS, which has been super positively received and definitely getting a lot of traction there.

So definitely driving organic growth by putting the product out.

Ken Garowski: We just last week rolled out with our 2.0 series of models. So 2.0 Flash, I mean, I think that's one of the most capable models you can access at the free tier. So that's definitely contributing as well.

Ken Garowski: And so, you know, we are rapidly training. We've had a couple of, you know...

you know, key innovations there, Gemini Live.

Ken Garowski: I think has been definitely a hit with users, as well as for advanced users, Gemini Deep Research. So I think a combination of innovation, continually trading on the product and making it better is driving a lot of usage. And, you know, we'll have a lot more to come as we go this year, you know, and we're obviously.

Ken Garowski: We have a partnership with Samsung, so there are other things which will contribute to it as well. On the monetization side, obviously for now we are focused on free tier and subscriptions.

Ken Garowski: But obviously, you know, you know, as you've seen in Google over time, we always want to lead with user experience and, you know, we do have, you know,

Ken Garowski: but you will see us lead with the user experience. But I do think we're always committed to making the products work and reach billions of users at scale.

Ken Garowski: And, you know, advertising has been a great aspect of that strategy. And so, just like you've seen with YouTube, we'll give people options over time. But for this year, I think you'll see us be focused on the subscription direction.

Thank you.

Speaker Change: Thank you and that concludes our question and answer session for today. I'd like to turn the conference back over to Jim Friedland for any further remarks.

Speaker Change: Thanks everyone for joining us today. We look forward to speaking with you again on our first quarter 2025 call. Thank you and have a good evening.

Speaker Change: Thank you, everyone. This concludes today's conference call. Thank you for participating. You may now disconnect.

Thank you for watching!