RESEARCH NOTE: Alphabet (GOOG, GOOGL) Reports 2023 Q4 Earnings

By Melody Brue - February 1, 2024
Royalty-free photo by Serban Enache via Dreamstime.com

Alphabet Inc., parent company of Google, just reported 2023 fourth-quarter revenue of $86.3 billion, up more than 13% from the same period last year. The results, released on January 30, marked the company’s fourth straight quarter of accelerating sales growth.

On an earnings call, Sundar Pichai, CEO of Alphabet and Google, broke down the business results into four main topics:

  1. AI Investments: With a focus on how these investments benefit the Search function.
  2. Subscriptions Growth: Substantial growth, reaching $15 billion in annual revenue, driven by solid performance in YouTube Premium, YouTube Music, YouTube TV, and Google One.
  3. Cloud Revenues: Crossing $9 billion in revenue for the quarter, with accelerated growth attributed to generative AI and product leadership.
  4. Future Growth Opportunities: Ongoing investments to capitalize in key areas.

 Here’s an overview of the numbers.

Performance versus Expectations

  • Revenue, excluding traffic acquisition costs: $72.32 billion vs. $70.97 billion expected ($63.12 billion in Q4 2022)
  • Adjusted earnings per share: $1.64 vs. $1.59 expected ($1.05 in Q4 2022)
  • Cloud revenue: $9.19 billion vs. $8.95 billion expected ($7.32 billion in Q4 2022)
  • Ad revenue: $65.5 billion vs. $65.8 billion expected ($59.04 billion in Q4 2022)

Other Key Numbers

  • Google Services: Revenues were $76.3 billion, up 12%.
  • Google Search and other advertising: Revenues were $48 billion for the quarter, up 13%—led again by growth in retail.
  • YouTube advertising: Revenues were $9.2 billion, up 16%, driven by direct response and brand advertising.
  • Network advertising: Revenues were $8.3 billion, down 2%.
  • Subscriptions, Platforms, and Devices (previously referred to as Other Revenues): $10.8 billion, up 23%, primarily reflecting growth in YouTube subscription revenues.

Analyst Notes

The company reported ongoing growth in its cloud business, with Google Cloud revenue surpassing expectations at $9 billion, marking a 26% increase from the previous year. This growth is particularly significant because of the role of cloud services in supporting AI development. Despite being in third place behind Amazon (AWS) and Microsoft (Azure) in the cloud computing market, the company continues its efforts to gain market share. The strong demand for vertically integrated AI has created new opportunities for Google Cloud across every product area. The company also credits Cloud growth to a combination of strong direct and indirect channels. Through collaboration with independent software vendors (ISVs), the number of co-sell deals has almost tripled from 2022 to 2023.

The company’s subscription service is now a $15 billion business annually. YouTube is the key driver of subscription revenues. One key component: football. “NFL Sunday Ticket supports our long-term strategy and really helps solidify YouTube’s position as a must-have app on everyone’s TV set,” Philipp Schindler, SVP and CBO of Google, said on the earnings call.

Google also experienced strong demand in the advertising market for the YouTube Sunday Ticket offering. The company should see continued demand for future partnerships following a successful inaugural season. YouTube had more than 90 upfront and scatter advertisers during the first year, with a notable emphasis on NFL Sunday Ticket in-game opportunities.

Moving on to AI, Duet AI—Google’s packaged AI agents for Google Workspace and Google Cloud Platform—has been used by thousands of companies and more than a million trusted testers. A forthcoming update will integrate the powerful new Gemini AI model into the platform. Google Workspace also delivered strong revenue growth, primarily driven by increases in average revenue per seat.

Alphabet Inc. maintains 90% market share in search, but the rise of generative AI raises questions about its ongoing market dominance.

Google’s Pressures

  • Alphabet must deal with antitrust regulations and growing regulatory pressure to end what regulators say are harmful anticompetitive practices.
  • Facebook’s ad business is growing faster than Google’s.
  • TikTok represents a competitive threat to YouTube as younger users turn to the app to create short viral videos.
  • Due to workforce reductions last year, the company recorded severance and related charges of $2.1 billion for 2023. The company anticipates further RIFs this year. More will likely be necessary to support Google’s investments in AI.

Related Recent MI&S Coverage of Google

Google Data Cloud Ignites A Generative AI Renaissance — by Robert Kramer — December 22, 2023

Google Cloud Next 2023 Simplifies Data — by Robert Kramer — November 15, 2023

Google Provides More Details On Its Cloud Generative AI Play At Next Event — by Patrick Moorhead — October 4, 2023

Expanded Partnership Brings OpenText Core Content To Google Workspace — by Melody Brue and Patrick Moorhead — September 14, 2023

Google Showcases ‘A Collaborative Partner’ In An AI-Powered Workspace — by Melody Brue and Patrick Moorhead — May 11, 2023

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Mel Brue is vice president and principal analyst covering modern work and financial services. Mel has more than 25 years of real tech industry experience in marketing, business development, and communications across various disciplines, both in-house and at agencies, with companies ranging from start-ups to global brands. She has built a unique specialty working in technology and highly regulated spaces, such as mobile payments and finance, gaming, automotive, wine and spirits, and mobile content, ensuring initiatives address the needs of customers, employees, lobbyists and legislators, as well as shareholders.