Alphabet Inc (GOOG) NPV C

Alphabet's fourth-quarter revenue rose 13%, ignoring the effect of exchange rates, to reach $86.3bn. The group's core advertising business, where Google Search & other is the biggest contributor, saw revenue rise from $59.0bn to $65.5bn. Google Cloud revenue was up to $9.2bn from $7.3bn.

While overall revenue was better than expected, advertising revenue was below what the market had hoped for.

All cost lines were higher, but the better revenue meant margins improved. Operating profit rose 30.5% to $23.7bn.

Alphabet had net cash of $97.7bn as at the end of December.

The shares fell 5.7% in after-hours trading.

Our view

Google parent Alphabet has caused some concerns.

The tech giant is an advertising business at its core. Marketers spend handsomely to put their products and services in front of Google and YouTube's captive audiences. Last quarter, advertising revenues weren't quite as hot as hoped. And the outlook for the pace of growth this year was a bit woolly.

One area to monitor is to what extent generative AI is diluting the potency of Alphabet's platforms. Search engine culture risks being upended. We're a long way from knowing how this will play out, but it's something Alphabet bears are keeping a close eye on.

For now, we're optimistic Alphabet will retain its edge. Customers are about as sticky as they come. And the flipside of AI for Alphabet is that the technology could help generate more personalised and powerful ads, ultimately attracting and retaining more marketing dollars. For now, this is still in the testing phase.

The roughly 10% year-to-date rally in Alphabet's valuation has been driven by hopes that interest rate cuts might be around the corner - which is good for stock markets. But there's also excitement around Google Cloud. This has only recently hit profitability - an important milestone. We think there's room for Google Cloud to grow from here, especially as companies look to optimise their processes and protect margins. But we're mindful that this landscape will become very competitive, and there's no guarantee that Alphabet will be the one with the winner's rosette at the end.

Despite the exciting opportunities, we expect the path to prosperity to be a bumpy one. It's also going to be a very expensive, with capital expenditure set to rocket. These are things investors should keep in mind.

Competition authorities remain something to be aware of. Alphabet isn't a stranger to substantial fines, and we can't rule out the risk of further action from authorities in the future if the group's dominance strays too far.

Competition is also heating up, with the rise of short-form videos from the likes of TikTok or Instagram reels vying for Alphabet's important YouTube viewers. At this point, there aren't any flashing red indicators, but as the medium develops it's a trend to watch closely.

It's easy to debate the threats and opportunities of this tech giant, but the fact of the matter is, Alphabet has $97.7bn in net cash languishing on the balance sheet. That means it's currently more than able to stomach some disruption and return some cash to shareholders too, though there are no guarantees.

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

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