Alphabet Reports Q4 Earnings: Mixed Results Spark Concerns

Sales Fall Short, But Earnings Beat Expectations

Alphabet (NASDAQ: GOOG) recently published its Q4 earnings results, revealing a revenue miss alongside earnings that surpassed analysts’ predictions. The tech giant reported sales of $96.5 billion, slightly below the expected $96.6 billion. Earnings came in at $2.15 per share, surpassing the forecast of $2.13. While Google’s cloud business continued to support its growth, it did not meet expectations. Nevertheless, Alphabet is gearing up to invest $75 billion in capital expenditures this year, emphasizing its commitment to an AI-driven future. Following the earnings announcement, shares dipped as investors reacted to the revenue miss and higher-than-expected capital spending.

Stock Performance and Investor Sentiment

Since the beginning of 2024, GOOG stock has yielded a remarkable 37% return, outperforming the S&P 500, which has gained 27%. Investor optimism lies in the anticipated AI growth that could boost Google’s advertising revenue. For those seeking less volatility while still wanting to invest in growth, the High-Quality portfolio, which has delivered over 91% returns since its inception, may be a sound option.

Revenue Growth and Future Projections

Google’s Q4 revenue of $96.5 billion marked a 12% year-over-year increase. This growth was largely driven by its cloud services, which increased 30% to $11.96 billion. Google Search revenue rose 12.5% to $54 billion, and YouTube ad revenue climbed 13.8% to $10.5 billion. Operating margin expanded by 500 basis points year-over-year, reaching 32% in Q4, resulting in a 31% improvement in earnings per share, totaling $2.15. For 2025, analysts expect the company to report revenues of $389 billion and earnings of approximately $9.07 per share.

Stock Outlook and Market Volatility

Despite the positive growth metrics, GOOG stock fell 7% following the earnings announcement. Evaluating the past four years, GOOG’s stock performance has been inconsistent, with greater volatility than the S&P 500 index. The Trefis High Quality (HQ) Portfolio, which includes 30 diverse stocks, has demonstrated significantly lower volatility and has steadily outperformed the S&P 500 during this timeframe. This smoother performance can be attributed to more stable returns across the portfolio compared to individual stocks.

Future Challenges and Valuation Insights

Looking ahead, uncertainties related to the economic outlook, such as potential rate cuts and trade conflicts, raise questions about whether GOOG will replicate the underperformance seen in 2022 or achieve a notable upturn in the coming year. Current valuations suggest a fair price for GOOG at $200 per share, closely aligning with its current market price of about $193. This estimate is based on a projected 22x earnings multiple relative to the anticipated $9.07 per share earnings in 2025. The 22x multiple reflects higher growth potential due to AI initiatives and a robust cloud division, contrasting with its historical average P/E ratio of 18x. Compared to peers like AMZN at a 38x multiple and MSFT at 32x, GOOG trades at a discount, influenced partly by ongoing antitrust investigations alleging monopolistic practices in the search market.

Benchmark Comparisons and Market Context

While GOOG stock may appear fairly valued, it’s beneficial to analyze how Google’s Peers perform against critical metrics. For more insightful comparisons for various companies across different industries, visit Peer Comparisons.

[1] Returns as of 2/6/2025
[2] Cumulative total returns since the end of 2016

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.