Alphabet's Revenue Miss in Q4 Isn't the Only Reason Investors Should Be Concerned About the Stock

Alphabet Inc. (NASDAQ: GOOGL), the parent company of Google, recently reported its fourth-quarter and fiscal year 2024 results, with revenues increasing by 12% year over year to $96.5 billion. However, the company's revenue miss in Q4 isn't the only reason investors should be concerned about the stock. In this article, we'll explore the key concerns investors should have beyond the Q4 revenue miss and discuss how these concerns might be addressed in the coming quarters.



1. Regulatory Pressure and Antitrust Litigations:
Alphabet is facing regulatory scrutiny and antitrust litigations, which could significantly impact its operations and revenue generation. The U.S. Department of Justice (DOJ) has ruled that Alphabet has a search monopoly and has asked the court to force the company to divest its Chrome browser and potentially its Android phone operating system, as well as share user and advertiser data. The DOJ has also concluded another case against the company for dominating online ad technology, and the U.K. has announced its objections over Alphabet's ad technology practices.
Addressing these concerns: Alphabet should continue to engage with regulators, work on compliance, and potentially make strategic decisions to address antitrust concerns, such as divesting certain assets or sharing data, to mitigate the impact on its business.

2. Increasing Capital Expenditures (CapEx):
Alphabet is expected to invest approximately $75 billion in capital expenditures in 2025, which could pressure short-term margins and cash flows. This aggressive pursuit of AI technology carries inherent financial risks, especially with capital expenditures escalating.
Addressing these concerns: Alphabet should focus on efficient allocation of resources and operational efficiencies to manage the impact of increased CapEx on short-term financials. The company should also communicate its long-term strategy and expected returns on these investments to reassure investors.

3. Slowdown in YouTube Ad Revenue Growth:
Alphabet's YouTube segment has shown a deceleration in ad revenue growth, dropping from a 21% increase in the first quarter to 13% in the second quarter of 2024. This slowdown is largely attributed to a saturated Connected TV advertising market and competition from other players, notably Amazon.
Addressing these concerns: Alphabet should focus on diversifying its revenue streams, exploring new monetization opportunities, and innovating in its advertising platforms to maintain growth in the face of increased competition.

4. Potential Impact of AI Investments on Short-term Financials:
Alphabet's aggressive pursuit of AI technology carries inherent financial risks, especially with capital expenditures escalating. These expenditures may influence free cash flow and earnings in the short term, necessitating careful management of resource allocation and operational efficiencies.
Addressing these concerns: Alphabet should maintain a balance between investing in AI technology and managing short-term financial performance. The company should also communicate its long-term strategy and expected benefits of AI investments to investors.