Q3 2019 Earnings Call
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I'd now like to hand, the conference over to your Speaker today, Ellen West head of Investor Relations. Please go ahead. Thank you good afternoon, everyone and welcome to alphabets third quarter 2019 earnings conference call with US today, our Sundar Pichai and Ruth Porat No quickly cover the safe Harbor some of the statements that we make.
Today regarding our business performance in operations and our expected level of capital expenditures, maybe considered forward looking and such statements involve a number of risks and uncertainties that could cause actual results to differ materially for more information. Please refer to the risk factors discussed in our most recent Form 10-K .
Filed with the FCC. During this call we will present, both GAAP and non-GAAP financial measures a reconciliation of non-GAAP to GAAP measures is included in todays earnings press release, which is distributed and available to the public through our Investor Relations website located at a B C Dot X Y Z slash invest.
Sure and now I'll turn the call over to Sundar.
Thank you Alan and good afternoon.
Q3 was another great quarter, a Google with strong revenue growth driven by mobile search Youtube and cloud.
We celebrated googles 21st birthday, this quarter, while our mission to organize the world's inflammation and make it universally accessible and useful hasn't changed we've evolved from a company that helps people find answers to accompany the told to get things done.
Since the beginning we've always invested in tackling deep computer science problems that can have a significant impact on society.
The chance to be part of these fundamental engineering challenges. This why so many people wanting to work at Google.
And just the last week, we've announced two significant advances.
First powered by our long term investment in AI, we dramatically improved our understanding of the questions people ask Google search. It's the biggest leap forward for search in the past five years salt possible because of a new type of neural network based technique for natural language processing called Bert which recognizes soda.
Pattinson language and provides more relevant Brussels.
Second, we recently announced a major quantum computing milestone.
It was extraordinarily proud to visit our team in Santa Barbara.
To demonstrate supremacy googles 53 cubic quantum machines Sycamore successfully perform that does computation and just to.
Macy's Hughes use as Google cloud to streamline their operations from the distribution center to the shop floor.
Public sector customers are modernizing their I T systems, with Google cloud, but great results.
For example, the state of <unk> already has more than 36000 employees using a using our products to increase productivity efficiency insecurity and this quarter. It further extended at our relationship.
We continue to extend our cloud services through partners, including a new solution that enables customers to run via married workloads on GCP for the first time.
We announced a cloud region in Nevada, when it launches in 2020, it'll be or salmon cloud region in the U.S.
We also announced a new cloud region in pulp Poland, our seventh in Europe .
Turning to Google products that people use every day.
We are excited about new features launched in maps, including detailed voice cadence, while walking that'll make it possible for people, who have vision impairments or a blind to get around more easily.
You are tools that allow users to see all after flight and hotel reservations in one place.
And another new features that gives transcept writers in 30 countries they ability to see it ride sharing and biking options near their bus or train stop.
In search we made a number of improvements to make it easier for users to find key moments in videos easily find products within the majors via Google Lance and discover new podcast.
Our hardware business is still in its early stages, but we are continuing to build a business and a portfolio of helpful products.
Two weeks ago, we unveiled a new made by Google product lineup, bringing together the best of hardware software and AI.
Our new picks so far and pixel for XL are the first phone so motionsense.
This allows users to use natural gestures to get things done without touching their phone.
The new Google Assistant now gives users the ability to switch seamlessly between apps all by voice.
And the new pixel. The go provides many of the great features of our premium pixel book and a more affordable price point.
We also unveiled a new more powerful mess, many speaker and nest why fly.
Finally, the team is looking forward to launching pixel Bucks a first truly wireless headphones asked for less stadia, our streaming gaming platform, which will soon be available in the U.S.U.K., Canada throughout Europe .
We are encouraged by the positive product reviews, so far but the holidays coming up I think that's a gift for everyone on your list.
On to you to.
Keeping you keep say for our users Creatives and partners, while preserving the openness <unk> platform is our top priority.
This quarter, we continue to update or community guidelines and enforcement to protect uses from harmful canton and we'll keep doing this work.
Your kids music and you premium continue to expand globally and are now available in 71 countries.
In September you've launched its new fashion and beauty destination called you tube slash fashion.
It's designed to meet the growing demand from consumers for better ways to explore and connect with some of your keeps biggest fashion and beauty creators.
And I want to emphasize that actually build all these helpful products, we are committed to giving users more control of their data.
This quarter, we extended one off our most popular features and chrome and you called incognito mode to maps.
We expanded our orderly controls to Youtube history. These controls already enable people to said their location history, and web and app activity to be deleted automatically after three or 18 months.
And to protect everyone safety online the introduce password check up to new feature that tells users if any of their passwords or weak if they've been re used across multiple sites or if they've been compromise somewhere on to that.
Now moving on to how we are helping advertisers.
We are bringing our strengths and machine learning to help advertisers build our ad campaigns.
Machine learning power tools like search auto bidding our great gaining traction.
In fact more than half of hybrid Isis search spend is not optimized to be a full auto bidding.
We now have more than a million addresses using responsive so chats and AD format. We launched a year ago that uses machine learning to create that right that for each search query.
And our new video reach campaigns allow marketers to upload multiple video ads into a single campaign from there we use machine learning to serve the most efficient combination of these ads to held brands reach audiences at scale.
This quarter expanded inventory for our very popular app campaigns to include new surfaces, including Youtube search display video ads on the discover feed.
We also launched you've mastered ads for TV, which enable advertisers to reach audiences right. When they open to your Q back on their connected TV.
One of its fastest growing screens.
It's also important for advertisers to have standardized measurement, that's fair across all media and that delivers insights in a way that fully predicts uses privacy.
If you're making it easier for businesses to do just that.
Our next generation of Google analytics, Unifies Theyve been App measurement reporting for the first time to held businesses I understand that channel is driving the best results.
On a personal note I was in Dallas in October that I saw firsthand, how important Google isn't helping small and medium sized business. This girl.
I got to visit Peacock Alley, abating netback manufacture in Dallas with 75 employees.
They've been using Google ads for over 15 years to help drive traffic to their stores.
<unk> E Commerce is growing 52% in the past here.
The credit the guidance, Google analytics provides as well as Google shopping and product listing ads for that growth.
This isn't the only baby help small businesses grow and try.
Our grow with Google program has help train 3 million Americans and digital skills, including small business owners and entrepreneurs.
Just a few weeks ago, we announced that are 80 professional support certificate training course will expand to hundred community colleges.
It's already held tens of thousands of people perceive fast growing well paying carriers in <unk>.
I'm glad to see more community College colleges offer this pathway to students.
Finally to round out a busy quarter.
Sustainability has always been a core value for us and I'm proud that we had been carbon neutral since 2007.
In September we announced the biggest corporate purchase of renewable energy in history, we are increasing googles existing renewable energy portfolio by more than 40%.
These purchases are happening globally spring the construction of more than $2 billion, new energy infrastructure, including millions of solar panels and hundreds of wind turbines across three continents.
And at our hardware event, we announced that via committing to roughly $150 million Inrone able energy projects in key manufacturing regions.
Our hope is that this will spur even greater investments in sustainability.
So it's been a really great quarter, a personal highlight for me was our take our parents to work day, which we held in September our main campus in mountain view.
It was great to see thousands of parents stakes, such pride and what their kids have building.
I feel the same be none of our work would be possible without our googlers around the world. This quarter was another great example of the mission that brings us all together. Thank you now I'll turn it over to.
Thank you Sundar in the third quarter total revenues of 40.5 billion or up 20% year on year end up 22% in constant currency.
Once again, our results were driven by ongoing strength in mobile search Youtube and cloud.
I will begin with a review of the quarter on a consolidated basis for alphabet focusing on year over year change as I will then review results for Google followed by other bets and conclude with our outlook Sundar and I will then take your questions.
[noise] details of Alpha that consolidated revenues by geographic region are available in our earnings press release.
Regarding our key expense lines on a consolidated basis total cost of revenues, including CAC, which I will discuss in a Google segment was 17.6 billion up 23% year on year.
Other cost of revenues on a consolidated basis was 10.1 billion up 31% year over year, primarily driven by Google related expenses.
The biggest contributor again this quarter was cost associated with our data centers and other operations, including depreciation followed by content acquisition costs, primarily for you to end, mostly for advertising supported content, but also for our newer subscription businesses you to premium.
The you tube TV, which have higher CAC as a percentage of their revenues.
This line also includes the impact of hardware costs, primarily associated with our mid tier pixel three a smart phones.
Operating expenses were 13.8 billion with head count growth being the largest driver of year on year growth for both R&D and sales and marketing, which is reflected in both compensation and facilities expenses.
With respect to R&D the growth was again driven by the addition of engineering talent consistent with our focus on product innovation.
The increase in G., an eight year over year was primarily due to a 554 million dollar charge from our previously announced legal settlement in France.
Stock based compensation totaled 2.6 billion headcount was up 6450 from the second quarter and consistent with prior quarters. The majority of new hires were engineers and product managers.
In terms of product areas. The most sizable head count increases where again in cloud for both technical and sales roles.
Operating income was 9.2 billion up 6% year over year for an operating margin of 23%.
Other income and expense was a loss of 549 million, which primarily reflects the impact of unrealized losses and marketable equity securities.
As of September 30, the unrealized equity gain in the combined portfolio of marketable and non marketable securities with $5.8 billion, we provide more detail on the line items within aligning in our earnings press release.
Net income was 7.1 billion in earnings per diluted share were $10.12.
Turning now to cap acts and operating cash flow.
Cash capex for the quarter was 6.7 billion, which I will discuss in the Google segment results operating cash flow was 15.5 billion, but free cash flow of 8.7 billion.
We ended the quarter with cash and marketable securities of approximately 121 billion.
Let me now turn to our segment financial results starting with the Google segment revenues were 40.3 billion up 20% year over year in terms of the revenue detail. Google sites revenues were 28.6 billion in the quarter up 19% year over year in terms of dollar growth.
<unk> results were led again by mobile search with a strong contribution from Youtube followed by desktop search.
Network revenues were 5.3 billion up 8% year on year continuing to reflect the performance of the primary drivers of growth within network, namely Google AD manager followed by Admob.
Other revenues for Google were 6.4 billion up 39% year over year once again fueled by cloud followed by a strong performance from play.
Within cloud growth in GCP was once again the primary driver of performance with strong customer demand for our compute and data analytics products complemented by ongoing growth in G suite, reflecting both new pricing and see growth.
Within play performance was driven once again by growth in the number of active buyers.
In addition, the line reflects hardware, which continued to benefit from the launch of our pixel three a mid tier smartphones.
[noise], we provide monetization metrics in our earnings press release to give you a sense of the price and volume dynamics of our advertising businesses.
Total traffic acquisition costs were 7.5 billion or 22% of total advertising revenues and up 14% year over year.
Total Tac as a percentage of total advertising revenues was down year over year, reflecting primarily a favorable revenue mix shift from network to sites.
The sites Tac rate increased year over year, primarily due to the impact of the ongoing shift to mobile which carries higher Tac, partially offset by the gross intact free sites revenue is primarily from you too.
In Q3, the network tack rate declined year on year, primarily due to a favorable product mix shift.
Google operating income was 10.9 billion up 14% versus last year and the operating margin was 26.9%.
Google accrued capex for the quarter was 7.2 billion, reflecting investments in office facilities and data centers followed by servers.
Investments in office facilities included the 1 billion dollar acquisition of a portfolio of buildings in Sunnyvale and the purchase a two buildings to expand our presence in the Seattle area.
Moving onto the performance of other bets revenues were $155 million, primarily generated by fiber and barely other bets had an operating loss of 941 million.
I'll note a couple of key accomplishments in other bets.
At Waymo or extending fully driverless opportunities on a small scale to participants in our early rider program in Metro Phoenix. We're also testing long haul truck driving on Arizona freeways.
And we're continuing to test waymo vehicles in various geographies the newest of which is heavy rain testing and southern Florida. In addition, we have begun threed mapping in Los Angeles.
And two weeks ago wing launched its first commercial drone delivery service to homes in Virginia in partnership with Fedex, Walgreens and local Virginia retailer Sugar Magnolia wing is now operating on three continents in early tests deliveries.
I will some up with a few observations on the quarter and our longer term outlook.
Based on the strength of the U.S. dollar today relative to the fourth quarter of last year. We expect continued FX headwinds again in the fourth quarter of 2019.
As a reminder, foreign exchange headwinds affect both revenues and operating income given the majority of our expenses are in the U.S.
With respect to ravenous, we're pleased with the performance of our advertising business. As a reminder, there's variability in year on year revenue growth rates from quarter to quarter as Weve often discussed we manage our business for the long term and not on a quarterly basis and we remain very focused on continuing to enhance the experience for users.
Okay and advertisers over the long term.
Within other revenues. In addition to continued strength in compute Google cloud saw substantial growth from data analytics as customers are seeing the benefits from implementing big query.
<unk> continued to see significant growth in each region globally.
Our new line up of made by Google hardware was announced two weeks ago with pixel for hitting store shelves late last week.
With the introduction of the pixel three a in the second quarter, we expect the seasonality of our hardware business to be moderated somewhat.
Turning to elements of our profitability.
With regard to Google operating expenses.
Well head count growth on an absolute basis and the third quarter was unusually high reflecting the addition of new College hires we do remain on pace for head count growth in 2019 to be inline with growth in 2018.
Our investments in talent support innovation across our businesses and in particular support our ongoing momentum in cloud.
Regarding sales and marketing expenses as I've mentioned on prior calls. These expenses are typically more heavily weighted to the fourth the back half a year and tend to be particularly elevated in the fourth quarter to support the holiday season.
In other bets, we continue to invest meaningfully and thoughtfully for the long term opportunities that we see.
Turning to capital allocation and Capex with respect to capital returns consistent with announcing an increase in our stock buyback authorization last quarter to $25 billion. We were pleased to step up repurchase levels by nearly 60% to 5.7 billion in the third quarter.
In terms of Capex as a reminder, over the last couple of years the split between technical infrastructure and office facilities has averaged a pocs and approximately 70% to 30%.
Due to the sizable purchases of office facilities, we made in Q3 technical infrastructure accounted for only about 60% of total capex and continued to be more heavily weighted to data center construction and servers.
Looking forward, we anticipate the primary driver of Capex investment will continue to be our expected compute requirements, particularly to support ongoing demand for machine learning across our business.
As well as for cloud search and you too.
At this scale of investment we remain very focused on driving efficiency through fleet optimization and tight management of our supply chain in conclusion, we remain confident about the opportunities ahead sender and I will now take your questions.
Thank you as a reminder to ask a question you wanting to press star one on your telephone to withdraw your question. Please press the pound key.
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Standby won't be compiled acuity roster.
And our first question comes from Eric Sheridan from U.S. Your line is now open.
Thanks for taking my question, maybe two if I can for some dark Big picture question, you know it feels like the concept of them computing was sort of prevalence SMB by <unk> recently.
It started what sort of it did have a shift in what I could tell as well I O earlier. This year just talked about what some of the key investment you want to be capitalize on that opportunity to longer term.
How you think Google and maybe broader Ralph that physicians to capitalize on that.
Show up at the product service player. So I guess, maybe Freeport question for the Big picture nature. Thanks, So much.
Oh, Thanks, Eric we are very excited by Oh Division, if I'm in computing and an evolving Dod I think.
It's it's.
It's a continuity in the sense that overtime computing should be more intuitive to users and computing shut up the users not the other way around.
And you know the foundations of all this is all the work we have done with our computing platforms till date, and you know under successful consumer services and no. Other platforms. We have Oh, we have built on I think that's the you know a most of the investments there phones will continue to be at the center all found.
Being computing for the.
Future. So that's that's another important piece, where we are already in mustard and I've been asked me expand beyond them. That's what the made by glue family is focused on our products in your home with our messed family of products and and variables, which we do with a battle us and so on so supply.
Adding that ecosystem somebody or a tall more on the go or work and making sure. It works our investments in AI across the company I think we'll end up playing a key rule <unk> assistant I think they would be at the center of making sure. We can anticipate what users want them so them better.
Thank you.
Thank you and your next question comes from Doug and that's from JP Morgan. Your line is now open.
Thanks for taking my question Sundar, you talked about the new neural network techniques I'm talking about the biggest breakthrough in search in years I'm just help us understand that's impacting how many advertising in monetization side of the business, yet or how that can play out going forward. Thanks.
You know anytime a you know maybe I'll answer it does you know, but we're just you know memo to technique, we are using a and b rolled it out in search now and it just you know obviously anytime b.
Can better make sense of queries that you know, we conserve uses better our search quarterly goes up and and people engage and that's the <unk> engage more sets its part of a longer on a sort of thinks we had been working on but this is one off our bigger breakthroughs in terms of helping improve to search experience in search quality Andrew unbearable.
Help us in a certain set of queries. A you know there are many quarters, which are already working well, but it helps us capture nuance and help understand human context, a better and so I will just characterize this as a big improvement, which improved search quality and creates that virtuous cycle by which people engage more of course lot of times, we did the same techniques and sometime.
So it makes sense on the outside and underlying a you know machine learning techniques and will deploy data as well.
Thank you and our next question comes from Heather Bellini from Goldman Sachs. Your line is now open.
Thank you so much I just wanted to follow up on a couple of the comments you made about about cloud Sundar I was wondering if you can just give us some color on the size of your GCB backlog and maybe even if you just talk about their trajectory and how that's changed over the course of the last year.
And then you mentioned the strengthen the uptake of being query I'm just trying to think through how we should think of the margin.
Level of the service like this versus the traditional compute offerings, where you've seen strength today and just wondering if we start to start to see some positive.
Positive mix shift benefit so some of these.
Premium products start to start to ramp more aggressively thank you.
Yeah. Thanks, It or you know we're all you know I know, we gave some visibility into our cloud business and will continue to do that you know a pretty Arctic Lee and you know the momentum as being great. A you know obviously, a you know ever since Thomas' common. He has continued to invest a you know across the board.
A few of differently focus a lot on scaling up our sales partner.
Operational themes.
And you know, it's playing out well Oh, you know in this business. It's important for you to being asked many didn't situations as possible and get those wins, which you know a cruise overtime and so we're definitely seeing the momentum.
And out of Texas, a huge area of strength for us and it's an area, which Tom and says a lot of expertise in as well and you know liquidity such a strong product. So it's a it's naturally ever you're seeing strength.
And.
You know my sense is you know asked we get you know if I look at Oh, you know the time the percentage of time for which we were eligible compared to two years ago to last year to now I. You know that number is shifting aggressively due to either completing our product feature set.
Or a beat completing some of the certifications we need and so I think a you know there are several strong forward looking indicators and look forward to shutting more direct <unk>.
Thank you.
Thank you and our next question comes from Mark Mahaney from RBC capital markets. Your line is now open.
Can I just ask you to draw a little bit more out on Google maps, I know that so for marketing library earlier in the year that that seems like that's now to stage, where it's going to be better integrated into them I don't know the purchase path or whatever you're making it easier for small businesses to tap into what should be really nicely qualified leads just talk about the pace at which.
That the monetization of that are just the AD opportunities will be offered to small businesses. Thank you.
You mean jendro a local is an important area for us and you know we are continuing to invest a in building a experienced that connects merchants advertisers and users.
You know Google My business has been our major for their hard to the millions of businesses and reach and engage both both through search and maps.
Specifically you know in June and Jim I'll be announced that will expand local campaigns I presume, that's what you're talking about.
You know, it's it's still early and in general we want to make it easier for advertisers, particularly smbs to come to Google and be able to reach users across our set of owned and operated properties. So be search be due to be discolor be maps and that's the baby a inhibition dot.
And about but you know a small and medium business is a big area of focus and a you know maps represents a big a long term opportunity for us.
And just to add on their given you a reference back to GML and I think we talked about this last quarter as well you know our view is that the products. They were introduced a GML. This year like in previous years, there rolled out in phases are adopted overtime and so we don't view the potential impact in this year slate differently than the impact from products that were launched it at previous of.
Events, and so just to kind of keep that in perspective.
Thank you think you Sundar.
Thank you and our next question comes from Lloyd Wamsley.
I'm Deutsche Bank. Your line is now open.
Oh, Thanks, I wanted to ask another one about.
You guys announced earlier this year at GML and that was really a Google shopping and moving that across some of the new different properties like you tube and image search and discover you know can you give us a sense for where you are in that migration kind of over what timeframe should we be thinking about that and then.
Maybe just elaborate a bit on the long term vision of moving choppy functionality into properties like Youtube and and how you think that that experience will evolve. Thanks.
You know in general I think it's a great opportunity for US we see a you know tons of Oh, you know what I would call commercial user journeys across Google, Obviously search a as an important area image search Youtube mobs are all great surfaces by which I think.
Is this come a with a bidding degrees of commercial.
Interest or looking to discover and the times Transactis wall. So you know we've we've started thinking much more holistically about you know what are those experiences and how can we make but better that didn't was helping improve the discovery experience, but when people are interested in that being able to be eat it to make.
<unk> easier to transact, so the kind of being signed in and being able to pay when you want and then of course the fulfillment in logistics, so you're thinking through the end to end experience across all our surfaces.
And and our enlisting, but I, it, but I, but I see the user interest and it's an area that I think.
Well, we have a significant opportunities ahead.
And again these are still earlier stage and it's it's you know we're excited about the longer term impact, but just to again make it clear we're just still in the earlier stages of testing.
Okay. Thank you.
Thank you and our next question comes from Fine No lack from Morgan Stanley . Your line is now open.
Thanks for taking my questions I have to reach it I think you mentioned that desktop search might have been one of the contributor here, Greg Peters touched a little bit about what types of products or they'll get old you're you're still seeing gregs at all desktop search is going presses given given how old the how long it has been around and then some.
All the exciting changes going on with shows people are more relevant et cetera.
The some of the K P eyes that you might or what you're seeing when it comes to query volume is quick rate. Overall response time do what are you seeing this are you confident that you're going to get more and more relevant results for users. Thanks.
So in terms of desktop a you know I described it as a solid contributor to revenue growth and yeah. What we see is that desktop does remain an important form factor for certain more complex half so things like planning vacations or assessing insurance options, but we see is it.
Users continue to go back to desktop notwithstanding the growing utility of mobile and I think one other things that we've been very focused on is that innovations that benefit mobile I'm also enhance the desktop experience for users and advertisers.
And then in terms of you know obviously be of being a you know over time, we have developed a very comprehensive metric for measuring and tracking a search a search quality you know to get to get a sense of such quality and how user satisfaction is.
Through search but to give you a sense. If you know we continue the you know continued to take that were deeper I realize uses sometimes a you know do so just through sessions understanding what is their satisfaction across a session or does that engagement are they getting at what they are looking for those that all some of the deeper work we are.
Our undertaking and and also understanding by would it go how we are you know helping users. There was only a question that on shopping and Commerce. That's an example of the kind of vertical and what can we do to make that experience better help us a vertical on other vertical in which we have a whole Google health team focused on understand.
During the end up experience that would give a you know better experience overall and search so it's a very comprehensive effort and you know we we're constantly looking to do.
Do a deeper and broader at the same time.
Great. Thanks.
Thank you and our next question comes from Colin Sebastian from Baird. Your line is now open.
Thank you I have to Sundar Theres, clearly a lot of innovation happening at Google.
But I'm wondering how how do you think about the increasing scrutiny and oversight, possibly impacting your ability to explore new services or new markets over time and noble ultimately to remain competitive and second Sundar. Ruth you don't often asked about the display network, but just wondering given all the concerns around privacy AD blocking the light.
How do you view this business strategically as part of the overall ecosystem. Thank you.
You know on the on the first Bob you know you know, we consistently want to a work and bundled products that benefit uses and and support the ecosystem and so you know our products and services, you know benefit consumers small and medium businesses I'd prices and.
You know over all Dave helped produce prices and expand choice and so that's our underlying approach I think but just want a you know helps us engage and explain to regulators and we'll continue to do that.
I think that also many new areas of opportunities available for us and in many of these areas and we are the new entrant tend to be create competition and sometimes the competent of pressures can lead to concerns from others and and so that's part of a what's going on a small but daughtery.
As you know in addition to develop markets. We are investing deeply in our you know next billion uses so markets like a pack continued to be a big long opportunities for us as well.
Thank you and our next question comes from Ross Sandler from Barclays. Your line is now often.
Great [noise].
Ruth just it we will wind the clock a little bit when we entered this year are you had called out how some product changes may cause year over year growth rates to fluctuate from time to time.
And we haven't heard on a couple quarters. So as we look out towards like 2020 and beyond do you feel like a lot of the product queues in a good place as far as search and you are concerned in that you know these these product changes might be a little bit more subtle going forward or could we.
Let's turn to having a more meaningful impact in the future just any color there and then on the third quarter. The Asia region. The growth rate was solid, but oh, let's have lower than the prior trends or anything notable to call out on any park. Thank you.
So in terms of the first question like <unk>, you know I think of it as sender and I've talked about where we're pleased with the strength of the business that you've seen here again in the third quarter and as Weve said since the IPO 'em, we don't manage the business to maximize quarterly results and well always do the right thing for the long term.
We're very focused on investing for the long term and I tried to make it clear and an opening comments that you know is as a result quarterly growth can vary and have varied and a you know I think to your question I you know our view is that quarterly growth around the rates you've seen since the beginning of the year.
For us underscore the strength and the vibrancy actually in our business and you know that's particularly true at our size in the last 12 months. Yeah. We've generated over 150 billion in total revenues. That's about 25 billion a growth in the last year and we are continuing to invest in long term opportunities.
And.
I would you know I'd make the point that we do keep Oh lends to the long term in terms of your question about you know geography is oh, yeah, when we look at assets.
Performance on a fixed FX basis around the globe pleased with a the performance again in the third quarter. A you know you you actually point out you're on your growth in a pack in the third quarter was oh that lower than the second quarter that primarily reflected slower growth in the network business and that was in part.
Due to policy changes. It also reflected the fact that the launch of the pixel three a within the second quarter, which I'm boosted the year on year growth rate in the second quarter, but I think also a pleasant your question at 26% year on year growth on a fixed FX basis, you know running at about now 7 billion in quarterly revenues were really.
Pleased with all of the team is doing in the year on year growth rate.
Thank you and your next question comes from Dan Salmon from BMO capital markets. Your line is now open [laughter].
Hi, good afternoon, everyone I'm sort of maybe you could give us a little bit of an update on the discovery. That's a new product that we featured in the past that I know a lot of users are getting more use out of you'll give us I think some updates on monthly active users or do you use in the past any update there would be great or.
Maybe any additional color on sort of Hollywood total amounts of usage goes on there. That's obviously been feature to users a little bit more.
And then second maybe just a follow up for Ruth Sundar I spoke at length about your investments in renewable energy earlier, and maybe keeping with the theme of the earnings call. How you could help us understand.
How about his or her maybe is not helping drive efficiencies across the country or across the company and your operating costs overall thanks.
You know discover is a product we are very excited about a you know I think it it completes the other half of a search you know searches you know we do our mission for our users and be helpful. Then they come to US looking for information discover is the other half where we're proactively understanding what might be most helpful load relevant to them.
And I'm getting it to them and you know we definitely are focused on product quality and making sure. The product is actually helpful to users and and Monday engaged with it they find that a useful and it's definitely we're making progress of our investments and machine learning are helping us wall.
We had definitely able to better anticipate than and give them a information proactively so over time I see it as a a you know important area for US a you know and it's done inflows.
You know, it's part of far a search and knowledge efforts and Ah you know asked we do that you know you can imagine you may have started a cray and search and it's a session maybe you're looking to take a trip somewhere Oh, you researching a particular topic, we maybe able to continue that <unk> session on that use a journey and discover and that.
Creates a virtuous cycle. So these are we wanted to be helpful to users in a way that makes sense for them more continually and the combination of search and discover helps us do though.
Ah and in terms of your question on sustainability, you know what were proud of the work that we're doing we do think that it's a valuable part of what we do and we do consider the impact on the business and and on the financials. It really cuts across every element of what we do what we're doing in our technical <unk> infrastructure the way with.
Talking about our products husband or talked about what we do with our facilities, what we're doing with and I and I think it was about a year ago, we talked about how we are applying.
Machine learning to energy efficiency in our data centers and it did have a net benefit helped us reduce energy consumption not only positive for sustainability, but wasn't efficiency efforts.
Sundar talked about the fact that that we are investing read recently announced a that we are purchasing a making meaningful investment in renewable energy part of our commitment to offset 100% of our electricity use with renewables and in our view this is catalyzing.
Further investment in renewables.
That is going to have a modest short term increasing cost that we think it's it's beneficial to catalyzing. The overall growth in traditional energy. So there are puts and takes net net were proud of the work across everything that we're doing to support sustainability.
Thank you.
And our next question comes from friends tell from Jefferies. Your line is now open.
Again, Brian Your line is now open please check your mute button.
And our next question comes from Stephen Ju from Credit Suisse. Your line is now open.
Thank you. So sundar was wondering if it can put a quantum computing advancement and through some sort of perspective.
I'm going to come to you need for Google has to be exponentially higher versus when you first launch the were wondering if this helps you.
Your arms around the ever increasing compute need.
Further I think you'll find that investors are then patient as you guys are for progress so could talk about what kind of products or services. This will help you create that's your otherwise can you would think about doing before thanks.
You know I mean, how incredibly I'm proud of a work, but the team did and excited about the advancement and into you know the whole industry.
You know I think you know in general you know obviously be relied on advances in computing to be able to do what we do and when we look ahead. A you know we definitely see being able to drive the pace of change. Your fastest is an important need for us is with us I think.
A source of competitive advantage.
You know as asked Morse law FX have a diminished a I think you know we're looking at a variety of a approaches to make sure. We can continue.
Doing what we need to an in Dr. <unk>. This is an important tool into arsenal, while quantum will take a you know many years to really start making a difference a you know we want to be about cutting edge of driving it I do think you know over time for sure a cloud itself Oh, we do see a lot of intra.
<unk> from cloud to cloud customers, particularly in cutting edge of verticals about about quantum computing and so I am so that's an area, but I think all will participate in as a business and more importantly, applying it across auditor <unk> in other words, because we are and be upheld.
Oh, you know as an example, I think we'll be there we will dollar value in the longer.
And as much as we're extremely excited about the long term implications for quantum computing you know part of your question there about arc nearer and nearer term computing requirements given our outlook in particular across Google, We do expect to see ongoing demand for compute investments to support our growth, particularly for machine learning.
Cloud search and Youtube and the trial the the primary driver of the Capex does continue to be our expectations for compute requirements. So investments in technical infrastructure as we've talked about today.
Thank you.
Thank you and our next question comes from Brent fell from Jefferies. Your line is now open.
Thanks, I need a Google had said Sundar just on investments and GCP a year in a really unique situation, having both infrastructure and productivity applications can you just a walk through how you prioritize the two big buckets. There's a lot different ways you can go in GCP in.
Just one follow up with Ruth you alluded to some GC. Some G suite pricing changes and I know there were some prices that were I changed earlier in a year and I I was just curious if you were referring to that price change earlier in the or if there was something new thank you.
You know on I mean, Youre right. I mean, these are two big buckets and you know we treat them directly a you know obviously, we've talked a lot about GCP Ah, but G suite. A you know continues to be very differentiated and a you know we just.
Announced a new leader Javier so people coming in with lots of experience to turbocharge. A this this areas wall and in general there are many <unk> you know G suite customers now with whom we are having a you know GCP conversations and vice versa. So I think in general.
Given we have a big go to market effort. The breadth you have all those has to have.
More conversations and engage a too many different paths and the organization. So it's very synergistic as well and in terms of the G suite pricing <unk> I was referencing the pricing that we announced back in April it's all outlined in a blog post.
Our view with it it was right time increase prices given the ongoing functionality and tools that are included within G suite and as I said it you know in what we're seeing here as an addition to the benefit from the price change. We also continue to happen they seek growth.
Great. Thank you.
Thank you and our final question comes from the line of just imposed from Bank of America Merrill Lynch. Your line is now open.
Great. Thanks, I think I ask on you tube could you talk a little bit about your high level O T. T viewing strategy, obviously subscriptions are growing and maybe give us an update on how your you tube subscription product is doing versus expectations and then on the pay quick growth it decelerated, a 18% or anything to call out there, especially related to.
You tube any change to coverage.
Going on or anything we should know about thank you.
You know a.
Subscriptions is an area. We are definitely a excited about you know we're pleased with the adoption so far across both you music and your team premium.
Are there, but they are now available and 71 countries up from 40 markets at the start up 2018.
So we are definitely scaling that up and be you're seeing a great traction a you tube TV is also doing well I think we just announced the bbsis coming to your TV in July .
Last month, we announce Youtube TV is now.
Launching on select Amazon fire TV devices. So there's definite you know to the user satisfaction on the product is a very high and so we are focused on continuing our expansion.
Building out a great service and building awareness for the service. So a you know overall I think engaging uses a premium offerings on Youtube is the focus for us.
And the efforts while early are definitely showing strong traction.
And then you asked about click growth in the trend there the biggest driver affecting the click trends continues to be the growth of you tube engagement ads as in that the first and second quarter. The rate of you to click growth decelerated in the third quarter that does contain.
New to reflect the changes that we made in early 2018 to really improve the user an advertiser experience and as we've talked about on prior calls I'm that did have an impact I'm on click growth, but as we also talked about they weren't related to a those changes in in 2018 were not related to policy and.
Horsemen actions that you too they had a negligible impact on you to revenues so not a read through.
Thank you.
Thank you and that concludes our question and answer session for today I'd like to turn the conference back over to Alan last for any closing remarks. Thanks, everyone for joining US today, we look forward to speaking with you again on our fourth quarter call. Thank you again and have a good evening.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating and you may now disconnect.
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