Quarterly highlights (2025Q2)

Alphabet Inc. on 2025-07-24 has filed its latest earnings for the quarter ending 2025Q2.

• AI Expansion: AI advancements drove robust growth across segments, enhancing search and powering user engagement through innovative features
• YouTube Strength: Revenue growth was strong due to direct response advertising and subscription growth, including premium video offerings
• Cloud Momentum: Google Cloud revenue grew due to AI-driven demand, with large deals and customer base expansion strengthening future prospects
• Subscription Growth: AI-enhanced plans in Google One saw accelerated traction, reflecting strong demand for advanced offerings
• Strategic Investment: Capital expenditures increased to meet cloud and AI demand, reflecting confidence in long-term ROI and margin improvements
• Waymo Advances: Waymo expanded its autonomous service to new cities, increasing territory and user base, while maintaining safety standards
• Financial Performance: Year-over-year revenue and EBITDA increased significantly due to strong demand, driving improved profitability and cash flow.

EPS in Q2 2025 was USD 2.31, representing a 22% increase from Q2 2024. This growth trajectory marks a significant upward trend after a period of fluctuations. The alignment of EPS growth with robust free cash flow signals high-quality and sustainable earnings for Alphabet Inc.

Full-year highlights (2024FY)

• Revenue growth: Revenue reached USD 350.0 billion, a year-over-year increase of 13.9%, primarily driven by online advertising, cloud solutions, and consumer subscriptions
• EBITDA strength: EBITDA improved to USD 135.4 billion, up 38.2% YoY, reflecting operational efficiencies and strong performance across core segments
• Capital expenditure surge: Capex reached USD 52.5 billion, up 62.9% YoY, driven by investments in AI infrastructure and data centers to support growth
• Acquisition activity: Alphabet spent USD 2.9 billion on acquisitions, representing a substantial 492.1% increase YoY, aimed at expanding technological capabilities
• Strategic focus: Alphabet continues prioritizing AI integration into products, enhancing advertising solutions and supporting innovation in AI-driven infrastructure.

Company overview

Business model, strategy & markets

Alphabet Inc. operates globally through Google Services, Google Cloud, and Other Bets segments. Google Services includes ads, Android, Chrome, and YouTube. Google Cloud offers infrastructure and enterprise tools. Other Bets focuses on healthcare and internet services. Headquarters are in Mountain View, California.

Alphabet Inc. operates as a conglomerate with Google as its most significant entity, divided into two primary segments: Google Services and Google Cloud. Google Services generate revenue through advertising and consumer subscriptions, while Google Cloud offers AI-optimized infrastructure and platforms. Alphabet prioritizes AI and innovation, investing significantly in AI research and infrastructure, while maintaining a global presence across more than 100 countries.

Segments & regions

Alphabet Inc.'s revenue composition for fiscal year 2024 shows Google Search & Other representing 56.6%, Google Cloud at 12.4%, Google Subscriptions, Platforms, and Devices at 11.5%, YouTube Ads at 10.3%, and Other segments contributing 9.1%.

In 2024, Alphabet Inc. generated 48.7% of its revenue from the United States, 29.2% from EMEA, 16.2% from the Asia Pacific region, and 5.8% from the Americas excluding the United States.

Key risk factors

Alphabet Inc. encounters several risk factors, including heavy reliance on advertising revenue, which exceeds 75% of total income. Economic downturns and changes in advertising policies and data privacy practices could adversely affect revenue. Moreover, intense competition necessitates substantial investments in R&D. Ongoing material legal proceedings could impact financial outcomes and capital flexibility, with specific effects on reserves remaining undisclosed.

Financial performance

Alphabet Inc. reported a 13.9% increase in revenue to USD 350.0 billion, a 17.0% rise in gross profit to USD 203.7 billion, and a 38.2% surge in EBITDA to USD 135.4 billion, all comparing to 2023. Over the long term, these metrics have demonstrated consistent growth, highlighting Alphabet's strategic focus on cloud solutions, advertising, and AI innovation to underpin sustainable financial performance and margin enhancement.

Growth trends

Revenue and gross profit exhibit momentum deceleration in recent years, with EBITDA lagging further, indicating limited operational leverage gains.

Profitability

Margin profile

Alphabet Inc.'s gross margin increased by 2.8 percentage points year-over-year to 58.2%, showing an improving trend since 2018. The EBITDA margin rose by 6.8 percentage points to 38.7% year-over-year, reflecting significant improvement after a decline in 2022. This increase indicates stronger pricing power and operational efficiency, despite concerns over device sales pressure on consolidated margins.

The company's growth plus EBITDA margin rose to 52.5% in 2024, up 29.6% year-over-year. This improvement reflects a strengthening growth–profitability balance, indicating enhanced earnings quality and long-term sustainability.

Peer margin benchmark

Efficiency metrics

Alphabet Inc. maintains a healthy R&D spend at 14.1% of revenue, aligning with its innovation priorities, while SG&A has decreased to a more efficient 12.0%, indicating improved cost discipline.

Balance sheet strength

Assets & capital

Alphabet Inc.'s financial position reflects strategic capital allocation with non-current assets rising 24.1% year-over-year to USD 286.5 billion, indicating reinvestment in capacity and AI infrastructure. Despite cash reserves decreasing by 2.4% to USD 23.5 billion, they remain adequate for flexibility. Current assets declined 4.9% to USD 140.2 billion, aligning with targeted reinvestments. This balance sheet profile underpins Alphabet's focus on long-term growth through AI-driven initiatives and expansion, supporting its competitive positioning and solvency outlook.

Liabilities & leverage

Alphabet Inc.'s balance sheet reflects strong equity growth of 14.7% year-over-year, indicating effective earnings retention and conservative capital management. With debt reduced by 6.1% year-over-year, leverage remains modest. However, a 3.4% increase in short-term debt and a 6.6% rise in accounts payable suggest increased capital intensity, signaling a potential tightening in liquidity, albeit align with operational demands. Multi-year trends underscore a consistent expansionary path primarily driven by ongoing investments in AI and core infrastructure.

Financial stability

Capital structure

Debt-to-equity, debt-to-assets, and debt-to-capital ratios are classified as low, indicating a conservative leverage posture. Multi-year trends show declining leverage, enhancing equity-financed flexibility and conservative capital structure, reflecting prudent balance and reduced solvency risk.

Liquidity ratios

The current ratio has exhibited a declining trend over the years, now categorized as moderate, indicating acceptable liquidity levels. The cash ratio remains stable and moderate, reflecting a reasonable immediate liquidity cushion.

Leverage

Alphabet Inc.'s financial leverage ratio is classified as low, remaining stable around 1.4 since 2019. This indicates a conservatively financed structure, translating to lower equity risk and bolstered financial robustness, aligning with prudent capital management principles.

Debt coverage

Debt service coverage is classified as high, improving significantly from 2023. Interest coverage is also high, with substantial strengthening evident since 2023. Both high coverages indicate a robust ability to meet debt obligations and reduced insolvency risk.

Cash flow performance

Operating cash flow generated USD 125.3 billion, reflecting the company's ability to generate cash from its business operations. Investing cash flow was USD -45.5 billion, indicating the amount spent on investments to support long-term growth. Financing cash flow stood at USD -79.7 billion, representing capital returned to shareholders.

Capital allocation

Acquisitions and investments

Alphabet Inc. significantly increased its acquisition activity and capital expenditure in 2024, with acquisitions totaling USD 2.9 billion, marking a 492.1% rise from the previous year. The company's capital expenditure reached USD 52.5 billion, a 62.9% increase from 2023. These investments align with strategic priorities focused on technology and infrastructure, particularly in AI and cloud services.

Debt repayment

Alphabet has transitioned to being a net borrower with net debt issuance of USD 0.9 billion in 2024, reversing the deleveraging trend observed over the prior three years. The increased leverage may support strategic investments in AI infrastructure and innovation.

Dividends

Alphabet Inc. initiated dividend payments in 2024 with a 7.4% payout ratio. This retention-led with returns policy suggests the company's preference for reinvesting retained earnings into high-return projects, particularly in AI and cloud infrastructure.

Share buybacks & issuances

Alphabet Inc.'s stock repurchases reflect a deliberate effort to enhance per-share value, as evidenced by the decline in weighted average shares outstanding. The absence of stock issuance underscores a commitment to returning capital to shareholders without introducing dilution.

Capital returns

Strong capital allocation is evident with Alphabet Inc.'s ROIC at 25.8%, significantly above the peer median of 11.7%, indicating durable advantages. Efficient asset use, reflected in the ROA of 22.2%, supports a positive return profile, suggesting disciplined capital returns.

Valuation

As of 2024-12-31 (price per share: 189.3 USD)

Trading multiples

EPS and stock price both increased year-over-year, with EPS growing 37.7% and stock price rising 35.5%. Over time, EPS and stock price have shown periods of pronounced divergence. Valuation appears aligned with EPS growth, reflecting sustainable earnings power.

The company's price-to-earnings (P/E) ratio decreased to 23.3 for 2024 from 23.9 in 2023. This ratio has moderated from higher levels of 29.6 in 2020, indicating a shift toward a more favorable valuation. Currently, the P/E ratio is within the moderate range, suggesting the company is fairly valued relative to its earnings. Management's commentary aligns with this assessment, given Alphabet Inc.'s strategic focus on AI innovation, which may drive future growth, thus justifying the current valuation level.

The EV to EBITDA ratio of Alphabet Inc. decreased from 18.8 in 2021 to 17.2 in 2024, indicating moderate valuation and growth expectations priced into the company's enterprise value.

Yield metrics

The earnings yield for 2024 is 4.3%, while the 10-year Treasury yield is at 4.6%, indicating that equities face a valuation challenge as the earnings yield falls below the Treasury yield, suggesting limited justification for equity risk.

Intrinsic value

Alphabet Inc. is trading at a considerable premium to its Graham Number, reflecting growth and quality pricing. The Book value per share indicates a sound capital base, relevant to its asset-intensive operations. This premium suggests investor confidence in Alphabet's strategic AI investments and operational efficiency.

Disclaimer

This presentation is for informational and educational purposes only and does not constitute investment advice, an offer, or a solicitation to buy or sell any security or financial product. The content herein is based on publicly available information, believed to be accurate and reliable at the time of publication, but no representation or warranty, express or implied, is made as to its accuracy, completeness, or correctness. Any opinions, projections, or forward-looking statements expressed in this material reflect our judgment as of the date of publication and are subject to change without notice. Past performance is not indicative of future results. Investing involves risks, including the potential loss of principal. The recipient is solely responsible for their own investment decisions and should seek independent financial, legal, and tax advice where appropriate. We disclaim any liability for any direct or consequential loss arising from any use of this presentation or its contents.