BREAKINGVIEWS-Alphabet exhibits some worrisome signs of age

The author is a Reuters Breakingviews columnist. The opinions expressed are her own.

By Jennifer Saba

NEW YORK, Feb 4 (Reuters Breakingviews) - Alphabet GOOGL.O is starting to show its age. The 26-year-old search giant disclosed disappointing growth for the fourth quarter, prompting investors to lop 7% off its $2.5 trillion market value. It will be difficult, and expensive, to get a spring back in its step.

The owner of Google and YouTube increased revenue 12%, to $96 billion, from the same three-month stretch a year earlier. It fell short of what analysts had forecast and the 21% growth generated by digital advertising rival Meta Platforms META.O, which owns Facebook and Instagram.

Additionally concerning is that Alphabet, unlike Mark Zuckerberg’s social media empire, also sells cloud computing storage and services. The top line in that division swelled by an impressive 30%, but again was less than what Wall Street expected and only barely kept pace with Microsoft’s MSFT.O competing business.

Against this backdrop is the rapid uptake of generative artificial intelligence that threatens to upend Google’s online search dominance. Like his peers, Alphabet boss Sundar Pichai has turbocharged investment since ChatGPT surfaced in November 2022. Including the $75 billion planned for this year, the company’s capital expenditures are set to double from the three previous years.

There are other worrisome signs of maturation. Alphabet trades at nearly 20 times expected 2026 earnings, according to Visible Alpha, a discount to Meta, Amazon AMZN.O and even Microsoft which is nearly twice as old as Google. For many people, their mid-20s are a time of self-reflection and big life decisions. Alphabet has some of its own to make.

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CONTEXT NEWS

Alphabet, the parent company of Google and YouTube, on Feb. 4 reported a 12% increase in fourth-quarter revenue, to $96 billion, from a year earlier, but fell short of what analysts were expecting, in an indication that it is facing stiffer competition in advertising and cloud computing. Operating income jumped 31%, to about $31 billion, and the margin improved 5 percentage points to 32%.

The company’s stock price fell 7% in after-hours trading to about $193 a share.

Revenue in Google’s cloud business grew 30% during the three-month period ending Dec. 31 and was up 13% in the division that houses online search.

Alphabet CEO Sundar Pinchai said the company expects to invest about $75 billion in capital expenditures in 2025.