+ Advertising continued to rebound; growth improved sequentially. Ad revenue in 4Q23 improved sequentially vs 3Q23 (9% YoY) to US$65.5bn (11% YoY), driven largely by Search (+13% YoY) and YouTube Ads (16% YoY). Retail strength in APAC was the standout, with small and medium businesses GOOGL’s fastest-growing channel. AI technology in products like Performance Max and Search Generative Experience continues to also drive higher conversions per dollar for advertisers, and incremental query growth from consumers. We expect AI to continue driving most of the gains in advertising by creating: 1) increasing ROI and value for advertisers; and 2) wider accessibility for customers like SMBs.
+ Monetisation on YouTube improving, with subscription momentum gaining traction. Continuing on from previous quarters, Shorts monetisation has been progressing well as viewership expands. Shorts currently has ~2bn MAUs and ~70bn average daily views. YouTube Music and Premium subscriptions are also scaling well, with an annualised run rate of US$15bn. The first season of NFL Sunday Ticket was the key driver for subscription growth. Although still a very small portion of its business, we anticipate ~20-25% YoY subscription growth in FY24e given the growing user base of YouTube on connected TV.
– Significantly increasing FY24e CAPEX for servers and data centres to support AI work. GOOGL ended 4Q23 with US$11bn in CAPEX, a 45% YoY increase. It also expects “notably larger” levels of CAPEX in FY24e as it remains focused on developing its technical infrastructure (servers and data centres) to support AI development. We are modeling for a ~20% YoY increase in CAPEX for FY24e vs our previous estimates of ~6% YoY.