Photo Source: Anna Nekrashevich
Alphabet’s Q4 2024 earnings report showed strong ad revenue growth, but at a slower pace than expected.
The parent company of Google posted a 10.6% year-over-year (YoY) increase in ad revenue, reaching $72.46 billion for the quarter. However, the result fell short of Wall Street forecasts, stoking concerns over Google’s ability to keep up its momentum as market conditions evolve.
Mixed Performance in Google’s Advertising Business
Google’s ad revenue showed mixed growth in Q4 2024, with YouTube and Search leading the charge. YouTube’s revenue rose 13.8% to $10.47 billion, though this marked a slowdown from the previous year. Google Search and other ads rose 12.5% to $54 billion, demonstrating more resilience.
However, Alphabet’s CFO Anat Ashkenazi attributed the overall slowdown to tough year-over-year comparisons, especially from high ad demand by APAC retailers in Q4 2023.
She explained, “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.”
Factors Contributing to the Slowdown
Google’s Q4 performance was significantly impacted by a drop in demand from key APAC-based advertisers like Shein and Temu, who had been major contributors to digital ad growth in 2023 but scaled back spending. This pullback may have been influenced by rising regulatory scrutiny and higher tariffs under President Donald Trump’s policies.
While the U.S. election cycle boosted YouTube ad revenue—spending on YouTube election ads nearly doubling compared to 2020—this wasn’t enough to offset broader softness in the ad market. Meanwhile, Meta outpaced Google, with its ad revenue soaring 21% year-over-year in Q4, benefiting from AI-driven ad targeting that is further challenging Google’s ad dominance.
Google’s Focus on AI and Search Innovation for 2025
Google is doubling down on artificial intelligence (AI) and search innovation to drive long-term growth. The company has rolled out AI Overviews in search and introduced mobile ads within AI-powered search results to further monetise its platform. CEO Sundar Pichai expressed optimism, saying,
“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.”
At the same time, Google Shopping saw a 13% boost in daily active visitors, driven by AI-driven recommendations. However, new competition from DeepSeek, a Chinese AI search engine offering lower-cost alternatives, has raised concerns about market disruption.
Cloud and AI Investments Amid Regulatory Challenges
Google is ramping up its investments in AI and cloud infrastructure, planning to commit $75 billion to these initiatives in 2025. The company is positioning itself as a stronger competitor to Amazon Web Services (AWS) and Microsoft Azure, with Google Cloud’s revenue rising 30% year-over-year.
Regulatory hurdles persist despite these growth efforts. The U.S. Justice Department has advised that Google sell its Chrome browser, a step that could disrupt its ad revenue and fundamentally shift the digital advertising market.