Q1 2020 Earnings Call

[music].

Ladies and gentlemen, thank you for standing by and welcome to the Alpha that first quarter 2020 earnings Conference call.

This time, all participants are in listen only mode.

After the speakers presentation, there will be a question and answer session.

Asked the question. During this session you will need to press star one on your telephone.

If you acquire any further assistance please press star zero.

And the conference over Q Speaker today, Jim Free Atlanta Director of Investor Relations. Please go ahead. Thank you Candice.

Good afternoon, everyone and welcome to alphabet first quarter 2020 earnings conference call with US today are Sundar Pichai in Ruth Porat.

Now I'll quickly go over the Safe Harbor.

Some of the statements that we make today regarding our business operations and financial performance, including the effect of the Cobot 19 pandemic on those areas maybe considered forward looking.

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.

And in our form 10-Q for the quarter ended March 31st 2020 expected to be filed with the FCC later today.

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 investor.

I'll now turn over the call this into.

Thank you Jim and good afternoon, everyone.

Last spoke with you in early February no one could have imagine how much the word would change and I was telling me.

Our thoughts are with everyone was being impacted by coal would 19, especially those who have lost loved ones or their livelihood.

The challenging moment for the world.

Through it all we gotta incredibly grateful for all up they essentially workers on the front blind spots. This crisis.

From healthcare workers and first responders.

The grocery store clerks and delivery workers.

The teachers grappling with new technology to help children the under mostly.

To all the scientists and researchers working hard to double up vaccines and treatment.

And many others, who are leading through these difficult time.

Thank you.

People, so that's what toll and show us the power of human recipients will need that energy and resolve the month in years ahead.

Today, there is still a great deal of uncertainty regarding the path to recovery.

But there are some things that begin to understand better, but the patents b or C.

For example, it's clear from data that people are being more cautious and are seeking authoritative advice and guidance to predict that family's health and safety.

Returned to normal economic activity depends on how effectively societies manage the spread up the wider.

There's no one size fits all and the timing and pay so February will be from location to location.

There's a long time effort.

It's also clear that this is the first major pandemic taking place in their digital world.

Many parts of the economy or else able to continue some semblance of normality, thanks to advances and remote work online shopping delivery options home entertainment and Tele medicine.

At the same time newer technologies like AI, Bluetooth exposure notifications and three D printing are being used to help fight the disease head on.

No fear that once they emergency has passed the blood was not up to see.

Some social norms would change and many businesses are speaking to us looking to reinvent their operations.

We've seen that the most pressing concern of small and large business is right now this business continuity.

Solving for issues like employee safety.

Dramatic fall so just in demand.

Flight chains and managing remote workforce.

Ultimately, we'll see a longtime acceleration of movement from businesses to digital services.

Including increased online work education medicine shopping and entertainment.

These changes will be significant and lasting.

Given the tough challenges. So many are facing it's been a huge privileged to be able to help people and businesses at this moment.

Today's call I'll cover four areas.

Just a mention some of the ways the of Marshall the resources and product development to help.

Second let's talk about how people are using our products are this unprecedented moment.

Third.

Talk about our business.

Especially our advertising business, which was significantly impacted of last few weeks the corner.

I'll close with our investment plan and focus for the rest of the.

In the early days of the crisis, we weren't able to put in motion number up if lets quickly.

As a testament to strategic areas that'd be invested over recent years products that people trust, our technical leadership and innovation deep partnerships highly skilled workforce.

Scaling roughly and so far operations.

I've been proud of all these efforts and what they say about our company.

Give just a few examples.

First we've been working with health care providers, researchers authorities and communities.

Let's come back to life.

Our community mobility reports health authorities see not brigade, how social distancing requirements are working.

There really is tested thousands of people in California, and that's partnered with Rite aid to bring free testing the eight additional states.

Google Cloud is forming deep partnerships, such tests with leading healthcare provider at C. healthcare Dawn defend data around ice you bet availability ventilator supplies and testers.

And you may have read about our exposure notification partnership with Apple designed specifically and carefully to protect uses privacy, while helping public health authorities and governments manage countries reopening.

Second.

We are working hard to provide accurate an authoritative information to people using our services.

In search we have launched a number of features such as up to date answers from health authorities and remote medical care options.

On you tube we are quickly.

Moving content that violates policy and raising authoritative content from new solving sensation Sun exposure.

Up to last week, our goal with 19 in full panels have had 20 billion impressions.

Third we are playing a role in supporting businesses and workers that are hurting because of the downtime.

In March we made a commitment upwards of $800 million.

So both small businesses and crisis response efforts through a combination of grants small business loans and at the credits.

And the Google News initiative, it's offering financial support to thousands of small medium and local news publishers to a journalism emergency really fun.

We've also be AD serving fees for news publishers globally on AD manager for the next five month.

Turning to the way people are using our products.

People are relying on Google services more than ever.

As a strong but I could mention off the value of for products, particularly in important enogen moment.

As a few examples we've seen a significant rice in search activity to put it into perspective in the U.S. karnow Addus related so Chuck could video to speak with four times greater than during the peak of the Super Bowl.

People are spending significantly more time on the Android apps downloads of apps from Google play rising 30% from February to March.

You to watch time, that's also significantly increased one area in particular is life streams I Hope you saw Andrea boat show. The on you tube live on Easter, which has had over 39 million views it was truly beautiful.

Hundred million students in educators are using Google classroom doubled the number from the beginning of March.

We've seen a massive increase in demand for chromebooks.

Analysts have reported a 400% increase during the week of March 21st year over year.

Schools and businesses in particular are using our secure videoconferencing platform meat.

Last week, we surpassed a significant milestones are now, adding roughly 3 million new uses each day and have seen at 30 fold increase in usage. Since January that are now over 100 million Beatty meat meeting parts, but.

Stay tuned for much more.

Turning to our business, let me touch on our performance this quarter.

Q1 was in many ways the tale of two quarters for our advertising business. The first two months of the quarter a strong.

In March we experienced a significant and southern slow down an AD revenues the timing of to slowdown correlated to the locations and sectors impacted by the widest and related shut down orders.

As the impact of course with 19 came into view be delayed some add launches and prioritized supporting our customers as many I'd just to their strategy.

We are focused on products that'd be can help most had prices and merchants during the crisis.

For example, under our new leader of Commerce spin it already last week, we announced that merchants can list products and Google shopping for free.

Being widely rolled it out in the U.S., but more countries to come and the response has been positive.

Overall record already in the AD spend will depend on a return to economic activity.

There are two key aspects of our business that give us confidence about the future.

First as we saw after 2008 one of the strongest features of search to studies can be I'd just quickly. So it's relatively easy it to turn off and then back on and marketers cetus highly cost effective and ROI based.

Second our business is more diversified down it was in 2008.

For example club.

In the public sector, we're helping governments delivered pretty cool health and social services.

We are supporting the state of New York, New online unemployment application system acid deals with a significant increase in demand.

In retail be of health Loblaw went off Canadas largest food retailers and wayfair scale to support exponential traffic increase.

We are helping communication companies adapt to new behavior patents.

Waterfall is using <unk>, Google cloud platform to help but analyzed network traffic flows to keep everyone connected and be a helping entity technologies keep real time online games stay up and running.

Institutions like Lloyds bank, our digitally transforming their businesses and be a helping even more businesses to the same two new partnerships with accenture eight TNT and piece systems.

We now have more than 6 million paying G suite customers.

G suite is helping Netflix and German manufacturer.

Case up compressors transition quickly to the more work like Twitter Shopify retailer Snooks and Italian bank freedom are using meet for things like all hands and customer meetings.

Elsewhere across the business.

You tube subscriptions continue to grow.

T. Miss launch do you acute kits in 15, new countries around the world since the beginning of the year.

And rolled out new features to make cuts focus channels safer.

Android previewed Android 11, which include seamless fiveg connectivity and the smarter keyboard, but the faster messaging experience.

And as I mentioned, we have seen significant growth in play.

There are now over 2.5 billion monthly active pay devices.

Right.

And then hardware, we saw a decline and device activations in the quarter due to falling consumer demand globally.

But I'm excited about the product road map ahead for the year, including yesterday's launch of pixel butts to.

Finally, moving onto our focus for rest of the year.

We are taking a long view and continuing to invest in a long term priorities.

But I being thoughtful and the shock to.

So we made the decision to slow down the pace of hiring for the remainder of 2025.

While maintaining momentum in a small number of strategic area.

We had also recalibrating the focus and pay so far investments in areas like data centers and machines and nonbusiness essential marketing and travel.

We'll also continue to talk fully manager other bets portfolio.

They more raised $2.25 billion in its first external investment drown a terrific validation off their technology and long term business model.

Vein fall, a surgeon deliveries and new users increasing its daily volume fivefold with great momentum in test programs in Australia and Virginia.

I'd, Google will continue to be focused on four key areas that I outlined in the last earnings call.

First creating the most helpful products for everyone.

Particularly at the time or people, who rely on us for information work education and entertainment.

Second providing the most trusted experiences for our users.

This includes our efforts to tackle misinformation and digital threats.

Hi, solar cell work to safeguard consumer privacy.

Third executing at scale.

I've been proud of how we continued to work so cohesively and productivity even that the distributed workforce will continue to build on the internal tools support systems and infrastructure, we have built over the years.

And finally, creating sustainable value.

We'll be optimizing to be our data centers work and prioritizing strategic areas of investment that'd be need to support our users and partners.

Let me express my thanks to our employees for their herculean efforts under these difficult circumstances.

Why did that road ahead for everyone. It's uncertain, we'll continue to support our users communities and partners.

And Bill all emerged together from this moment. Thank you and please take care everyone overdraft.

Thanks and there.

Our results for the first quarter are a tale of two corridor with strong results across our revenue line for January and February followed by an it brought to climb in March and our advertising revenues.

Government globally instituted stay at home orders in response to cope with Merrill pool.

Same time, even through March our non advertising revenue line maintain their strong performance.

Particularly Google cloud.

I'll provide more details on the impact that the crisis as I review that Google segment revenue result from conclude with an update to the outlets that I shared on our fourth quarter call.

Darren I will then take your question.

Starting with consolidated alphabet result in the first quarter. Our total revenues were 41.2 billion.

13% year on year end up 15% in constant currency driven by search you too and cloud.

Details and alphabet consolidated revenues by geographic region are available in our earnings press release.

Short advertising results reflect in large part the nature and timing of actions around the globe.

In response to Cathedral pool.

Climbing a pack with more muted then what we have seen and the rest of the world given me on even impact of coal that as well as the composition of our revenues in the region.

Impact in the rest of World began later on with more acute by the end of the quarter.

In terms of the foreign exchange impact exchange rate movements resulted in a modest headwind to reported revenues.

Regarding our key expense lines on a consolidated basis total cost of revenues, including power with $19 billion up 19% year on year.

Other cost of revenues on a consolidated basis was 11.5 billion up 26% year over year, primarily driven by Google related expenses.

He gets factor here again, this quarter or cost associated with our data center on other operations, including depreciation and then content acquisition cost primarily for you to advertising supported Concorde.

Followed by content costs for you to TV and our paid you to music premium subscription services.

Operating expenses were $14.2 billion with headcount growth being the largest driver of year on year growth per R&D on sales and marketing expenses.

For GE it all the biggest driver of expense growth with a trivial attributable to a reserve for estimated credit deterioration as a result of coking coal.

Stock based compensation totaled 3.2 billion headcount was up 4149 from the fourth quarter.

Again, the majority of new hires were engineers and product manager.

In terms of product areas, the most sizable headcount increases where again and Google cloud for both technical and sales rolls.

Operating income with $8 billion down 4% year over year, excluding the impact at the peak fine in the first quarter of last year for an operating margin of 19%.

Other income and expense with a lot of $220 million driven primarily by losses in equity securities.

We provide more detail on the line items within Oh wining in our earnings press release.

Our effective tax rate with 11.9% <unk>.

Net income was $6.1 billion and earnings per diluted share were $9.87.

Turning now to Capex and operating cash flow cash capex for the quarter with $6 billion, which I will discuss in the Google segment results.

Operating cash flow with $11.5 billion with free cash flow a $5.4 billion.

We repurchased $8.5 billion of our shares.

We ended the quarter with cash and marketable securities of approximately $117 billion.

Let me now turn to our segment financial results.

Starting with our Google segment.

Revenues were 41 billion up 14% year over year.

Well now go to the individual advertising revenue line.

Starting with Google search and other advertising revenues.

We generated 20 point $4.5 billion in revenues in the quarter.

It was up 9% year over year. This reflects strong year on year growth for the first two months of the quarter.

In March revenues began to decline and ended the month at a mid teens percentage decline in year on year revenues.

Although users search activity increase.

Their interest shifted to left commercial topic.

In addition, there was also reduced spending by our advertisers.

You too the advertising revenues or $4 billion up 33% year on year.

Significant you tube revenue growth persisted until late in the first quarter with different performance trajectory for the brand and direct response component.

Direct response continued to have substantial year on year growth throughout the entire quarter.

Brand advertising growth accelerated in the first two months of the quarter, but began to experience a headwind in mid March.

As a result by the end of March total you to the ads revenue growth had decelerated to a year on year growth rate in the high single digits.

Network advertising revenues were $5.2 billion up 4% year on year with healthy year on year growth for the first two months of the quarter. We ended March at a year on year percentage decline in network revenues in the low double digits.

Turning to Google cloud, including TCP, and T. Sweet revenues were $2.8 billion for the first quarter up 52% year over year, driven by significant growth at TCP and ongoing strong growth at Ti sleep.

Once again the growth rate of GCP was meaningfully higher than that of cloud overall.

GDP growth was led by our infrastructure offerings, and our data and analytics platform.

We're pleased with the ongoing growth in T. suite, which continues to reflect growth in both seat count on average revenue per seat.

With respect to the implications of the global crisis for Google Cloud, we're proud of the accelerated traction we achieved across sectors.

Including public sector, and health care for disease monitoring and control working with leading retailers on demand forecasting working with companies across media and communication to enhance their customer surface.

And across industries.

Apply tayne optimization.

In the first quarter other revenues were $4.4 billion up 23% year over year, primarily driven by growth in you tube non advertising revenues and play.

[noise] you to its contribution to other revenues benefited from subscriber growth across its various offerings.

We didn't play App revenues continued to benefit from strong growth in the number of active buyers in the first quarter. In addition in the latter part of the quarter. We started to see an increase in user engagement in app as well as in digital content.

Total traffic at acquisition costs were $7.5 billion or 22% of total advertising revenues and up 9% year over year.

Total Tac as a percentage of total advertising revenues was down slightly year over year, reflecting once again, a favorable revenue mix shift from network to Google properties.

Google operating income was $9.3 billion up 1% versus last year and the operating margin was 23%.

Google accrued capex for the quarter with $5.7 billion, reflecting investments in data center.

Followed by servers and office facilities.

Moving onto the performance of other bets for the first quarter revenues were $135 million, primarily generated by fiber and barely.

Operating loss was $1.1 billion for the first quarter.

Let me now conclude with our thoughts on the impact of the global crisis on our revenues and investments, including an update on the outlook I shared on our fourth quarter earnings call.

We remain optimistic about the underlying strength of our business over the long term on a daily basis, our products play an important role for consumers and businesses globally. This has been evident through out the crisis and the usage metrics that sundar referenced earlier.

Where humboldt that users continue to turn to us as much as they do at a time of global need an uncertainty we take that responsibility very seriously.

Users clearly, our depending on us to provide useful and accurate information.

They are looking to Youtube for information education, and entertainment constantly that they study create and work from home.

They are using our G suite products to collaboratively communicate connect and work.

Although users may not be focused as much on purely commercial activities right now over the long term the value we provide to billions of users globally serves us well.

Our previous investments and technical infrastructure ensure that we have the capacity and resilience to meet the increased demand from our users in this extraordinary time.

We are redoubling, our efforts to help our advertising customers and partners by sharing insights and developing new tool to keep them connected to their customers and help them be best positioned for recovery.

In terms of more specific product points I will start with search advertising, where our financial results are driven in part by users search behavior.

At the inception of the crisis the increase in user interest with for information about covert 19 and related non commercial topics.

We have seen some very early signs of recovery and commercial search behavior by users.

It's not clear how durable or monetizable this behavior will be.

In order to gauge the ongoing potential financial impact to our business from kind of at 19, a key signal to monitor is macro economic performance, which has tended to be correlated with advertising spend.

As of today, we anticipate that the second quarter will be a difficult one for our advertising business.

As we moved beyond the crisis and the global economy Normalizes. This should be reflected in our advertising revenues, but it would be premature to comment on timing given all the variables here.

In terms of Google Cloud, we remain very pleased with the execution by the team reflected in the ongoing pace of customer adoption of both GCP industry specific solutions and G suite collaboration tools to help businesses operate efficiently and effectively.

Moving on to profitability.

Well pack and content acquisition costs are obviously tied to revenues.

There is a sizable percentage of items and other cost of revenues that are generally less variable in nature, such as depreciation and operations costs of our technical infrastructure as well as for activities like customer support and content review.

Much of our operating expense, it's also not directly correlated to changes in revenue.

Given that we're faced with a global crisis of uncertain depth and duration, we have been focused on taking steps to enhance efficiency, including slowing the pace of hiring and some categories of marketing it spend as well as further enhancing machine utilization.

More specifically with respect to the pace of hiring last quarter I indicated that the rate of head count growth in 2020 would be slightly higher than the 20% growth in 2019.

We now anticipate a deceleration in head count growth that should start to be visible in the third quarter and continue into the fourth quarter.

Although we are focused on these and other steps to moderate the overall pay seven definite we remain committed to the long term opportunities for which we are well positioned. So we will continue to invest in these areas, including search machine learning and Google cloud.

Finally with respect to Capex.

On the fourth quarter call, we shared our expectation that investments in both technical infrastructure and office facilities would increase compared to 2019.

We now anticipate a modest decrease in the level of total capex and 2020 compared with last year.

The biggest change in our outlook, it's a reduction in global office facility investments due to both the need deposit most of our ground up construction and sit out in response to cope at 19, and our decision to slow down the pace at which we acquire office buildings.

In terms of technical infrastructure, we expect a moderate reduction to our forecast relative to the beginning of the here given the impact of Cobot 19, a data center construction delays as well as the benefit of our ongoing focus on server efficiency.

Overall, we anticipate technical infrastructure investment to remain at roughly the same level as in 2019 with relatively more spend on servers then on data center construction.

Thank you and send her and I will now take your questions.

Thank you as a reminder to ask the question you will need to press star one on your telephone to withdraw your question. Please press the pound key to prevent any background noise. Yeah. Such you. Please neutral on what your question has been stated.

And our first question comes from Eric Sheridan from me. The S. Your line is now open.

Thanks for taking my question and hope all is so she could well what's isn't one of the gene there.

Yes, two questions if I can warm the only comment with respect to direct response arbitraging on you tube, we'd love to get a little more color on how a direct response arbitraging. Your dad units continue to evolve and perform and how advertisers are using those units as part of the broader advertising goals and then maybe root for you I'm on.

The comment on expenses, just want to understand a little bit of how much of what your messaging on expenses is efficiency gains that you were important 2020 before we got to cope with the team who choose a elements of the cost structure and then should we examined <unk> as a result dependable. Thanks so much.

Eric Thanks, Thanks for the vicious we are on on you tube direct response, a you know be definitely a you know seeing traction there.

I think.

I think <unk> area, but it really works well for example is.

App installs that's a great example of that gaming is another good example of but Ah. So you don't and be are working on it trading and making the formats. We're better so that you know it applies to more context as well.

But in general I think businesses are learning to adapt <unk> you know obviously, we've had great success its search and so we're bringing a lot of those learnings and you know you're shutting it but.

Customers and so you know you we expect to see more traction there over time.

And on your second question I like the way you framed it yes, we do have efficiency efforts that we started a then we had going as we enter this year, but as a result of what we're seeing and they environment.

Our view was that we shouldn't really double down on those and so when we go through the various areas that I mentioned, we had started here with an expectation about really optimizing head count around the various areas. What we have determined is we're going to at this point slow the pace of hiring to be very clear, we're continuing to higher.

But were slowing the pace of up hiring and that's helping as we're driving the you know a deeper look into how do you optimize within each area.

The same is true for example, and in some of the comments on.

Marketing <unk>, Yeah, we are continuing to invest in marketing as you know well sales and marketing line. The majority of it is head count related and we do continue to invest here in ads and in particular in cloud as it relates to the marketing component, namely ads and promo spend we did reduce it relative to.

Our plans in the beginning of year and we continue to have a healthy budget for ads in parallel, particularly in digital support many business areas, but as with the other areas of investment, we're really focused on optimizing across products and services and with a physical events cancel for much of the air marketing spend is also reduce and so that's.

Another example, with machines and servers.

We've been focused on efficiency at the fleet for sometime now this is giving us the opportunity to push that even further so where were looking at the operating environment and saying we should continue to lean into the efficiency programs. We can it does help us free up some resources for the growth areas that continue to be a priority, but it's it is an excel.

This way, so where we were.

And so much.

Thank you and your next question comes from Doug Anmuth from JP Morgan. Your line is now open.

Great. Thanks for taking the questions one for Sunday, everyone for route first or you just talked about how once the crisis has passed world will not will see I'm curious if you could just elaborate a little bit more on how you think alphabet comes out stronger on the other side of this downturn.

In the Ruth maybe taking a question on expenses <unk>, a little bit further just give you any more opportunity or be more disciplined or diligent on costs on the other side as well. Thank you.

Thanks, Doug.

It's a good question and you know we had thinking deeply about it as well in general I would say to high you know the highest level opportunities across everywhere, we see.

Ah you know businesses thinking deeper about the shift to digital and you know and that's true across.

You know marketing cloud.

<unk> in it every place we see that trend and you know and so part of this is making sure our investments Delaware badly with respect to that shift. So if you look at advertising you know people who in the past.

You know man debated things like you know how do I get virtual Showrooming you know not all are really thinking about it a you know people who may have been hesitant to ship their budgets do <unk> or are looking through moments like this and trying to get all about working better.

You know cloud is an obvious area you know every company has been thinking about digital transformation.

But they are you asking the questions deeper Oh, you know for example, let's give data center understand a fixed costs through something like this and do you doing going through moments like that and you're thinking about the opportunity harder so across everything we do a b surge be do you tube upbeat plate be cloud a I think be our.

Investing to capitalize on this long term opportunity.

And I would say overall outbid us well when you look at investments like being on being a you know you can imagine a you know into future. These things working while you know can play a significant droll and even even in the limited idiots being disciplined we clearly saw its put in shown through a moment like this so.

The bidding on those big trends.

And to your other question if I understood it correctly, you're asking about the durability of somebody efficiency efforts.

You know it I think that that the way I would answer that is after a decade of growth there have to be opportunities for added efficiency and we've been focused on that for for some time, but painful times like this put a spotlight and on an urgency around.

Taking a bit making sure you're focused on the levers that you have and hopefully those and still the right kinds of health metrics et cetera against what you're managing so.

I would say that the intent most certainly is that that these are our are durable in that sense to ensure that we're operating effectively and efficiently as we can be and I just need to reiterate answer and I. Both said this.

We remain committed to investing for the long term. So we're you know we're not compromising where we need to invest for long term growth. We're trying to make sure that each dollar of investment is a well managed.

Thank you book.

Thank you and your next question comes from Heather Bellini from Goldman Sachs. Your line is Alison.

Great. Thank you so much for taking the question. We paid two questions do you actually first I wanted to thank you for the color around the growth you're seeing it you were exiting the quarter and <unk> business and you know there's been some signs from from different partners are different companies that AD spending was still down considerably.

He has actually improved a little bit maybe some green shoots from the decline that you might have been referencing at the end of March any chance you can give us some or the type of growth youve been seeing <unk> for the first you know kind of Threed four weeks for the quarter. Just you know kind of just to help level.

And then just in regards to the provision you mentioned didn't gionee relating to credit deterioration is there a chance you can you can tell us the amount that vision and do you expect to have to do that began in the second quarter. Thank you.

Thank you for the so.

In terms of adds revenue yeah, they as I said in an opening comments.

Our ads doesn't that's a key signal to monitor is a macroeconomic performance, which had tended to be correlated with AD spend and and I think it's premature for me to to comment on the trend.

In terms of what we saw in the first quarter you know what they said for search and other revenues they were up 9% year on year for the quarter, but in March revenues began to decline and then ended the month at a mid teens percentage decline in year on year revenues and then with you too we had strong revenue growth until late in the quarter.

When trajectories for direct response and brand diverged and as I said direct response, that's continued substantial had against substantial go throughout the quarter, while brand that began to experience I'm a sizeable headwind starting in mid March. So by the end of March total he to adds revenue growth had decelerated to here on your growth rate.

In the high single.

Digits, and then you know for for the second quarter so far.

You know it I think it's premature to gauge given uncertainty in the environment and a few weeks, obviously, it's not a quarter.

So in such an unprecedented crisis I would not want you to extrapolate from just a couple of weeks that being said you know the decline in our search another adds revenue was abrupt in March and although we're seeing some early signs at this point that users are returning to more commercial behavior.

It's not clear how durable or monetizable that will be so you know based on our our estimates from the end of March through last week for search we haven't seen further deterioration in the percentage of your on your revenue clients up for you to direct response has remained strong however, we.

Sina continued decline in brand advertising and it's really too early to add more I think that the main point, though as a few weeks, obviously, it's not a quarter and given it is such an unprecedented environment I would not extrapolate pennies comments for the full quarter.

And then I tell you had the second question yeah. The <unk>.

Sorry, you know that that was very helpful. Thank you.

Everybody and then she DNA that you mentioned quite a good paint the credit provision that you said you check I just was wondering if you could share the if it makes the an acute later tonight. It will hearing if you could show that it will be in the <unk>. It will be an acute later tonight.

Okay. Thank you.

Thank you and your next question comes from Michael Nathanson from Moffettnathanson. Your line is helping thanks. Thanks I wanted to fund our once Ruth.

Sure people asked you about about your priorities you talked about and I Wonder you just step back and think about what this crisis, we'll do the other side and maybe where we orienting <unk> Oh your priority so perhaps.

Where are you would should spend in the long term to maybe take advantage of where this is going in.

We appreciate the color on you tube just want to dig into more if you can give us any sense. If you choose geography Israeli difference by they change by geography that really.

Thanks.

You know in terms of Oh World priorities, you know I would see.

You know we've always taken a long term viewed through you know one thinking through the article for things that going you know and our deep focus on <unk>. It's an example of Stockton been convinced for a while that you know those trends will play out into long term and so if anything true woman.

Like that the strong foundation to be built a you know allows us to.

Turning to be able to invest in our long term areas. So he's a good example effect.

The shift or time on computing to ambient computing is something they're gonna be deeply committed to and continue to invest there.

Cloud and.

Productivity software for businesses of all sizes.

It is a de beauty of investment and so you know so the thesis still domain. So we continue to focus and he read we think the actual work. We're doing is based on deep technology deep computing deep comp you know computational scale.

Is the kind of investments, we think still it's time to best of time through things like back.

Beyond that'd be a you know actively looking at how user patents are emerging. So for example, you know E. Commerce is an area and you saw us respond a true there's a with the changes to be announced on our shopping property and and going for comprehensiveness, there and with new leadership.

Place.

You're gonna be making sure we work on the user experience there and so when we're looking at ships be it a videoconferencing with Oh go meet and G suite.

And then adopting and investing in those areas as well so that's how you know approaching it.

And then in terms of the geographic breakdown for you too we haven't worked that down although I think as you know well we have a breakdown for the major regions around the world and to give you a little more color. There you know in mid February revenue growth across the business began to decelerate in a pack.

Although as I noted the decline in APAC was more me to just give any on even impact of 'cause it in the nature of our business across the region and then the impact in EMEA was first evident in mid February with a steeper fall off in March and and the second week of March. We then salt results in the U.S. as well as other men.

Because fall off shortly but nothing more specific byproduct.

Thank you route.

Thank you and your next question comes from Fine No lack from Morgan Stanley. Your line is now often.

Thanks for taking my questions as to the first one is just to go back to your comments around the the early signs of improvement and behavior in search I I know, it's early in doing over extrapolate, but just any more detail on the types of behavior, seeing a which verticals or which categories are which geography is rushing served.

The first sign of of Green shoots on the search side.

And then Sundar you go back to your comments about the the shift toward digital opportunities or digital transformation.

We talked to us about as you sort of look back over the last couple of years. It what you've done on the SMB side, and what are sort of one or two of the key hurdles, where you see you really need to invest and build more comprehensive SMB products for post recovery.

You know maybe it can give color both on the SMB in a bit on that site to Oh on <unk> you know on day, if somebody a side you know it's an area we have been investing for awhile and no. Obviously, we have assets both across.

AD words, Google maps school, my business, and obviously, providing them, but G suite and the tools to.

Ah you know get there because their business running so I I don't think we have a we have a lot of touch points, but they focus has been simplifying it making its more of a one cohesive easy experience, making sure. It works both from mobile that there is a truly lightweight AD words expedient so that they can get.

On boarded a quicker and and so reducing raising the work they need to and also where time, bringing technologies like AI to just make it all that much simpler and seamless for them.

And it's going to be a continued focus for us and especially scaling this up and making sure. It works internationally, one less while I believe we have theater metrics and targets internally and you know we are aligning the teams better to get there and a you know you will see as she has to do more.

On the outside a question a you know to your question about you know maybe I can give more qualitative cover two towards what said earlier.

And you know we.

The good thing about search ads and and you know direct response on Youtube as well, but search primarily used that.

You know, it's an extraordinarily.

Effective system, it's a transparent system.

Have a very clear sense, if ROI, it's very measurable highly cost effective.

And so we've always seen and be soldiers in 2008 us well people respond in the short term, but the recoveries also fast when it comes back and so it tends to work. It is very diversified not just geographically by different verticals and even through moments like that.

We do see business is responding to demand shift and you know so we see through our system. If people suddenly you're looking for office furniture, or even pajama us a the system response, right then and so you see the dynamic nature of it I.

I mentioned earlier people are really thinking about the shift to digital so Philip Bondar Adsteam are super engaged with our customers helping them.

I think through the opportunities through moments like that you know I gave earlier.

Earlier example, you know if you're.

If you're thinking about cars and you've been hesitant to do virtual car Showrooming now's the time, you're beginning to have those conversations and a deeper way.

There are budgets, which are shifting in certain cases summit for large customers maybe the they've spent a lot of money on live sports that just clearly on hold so they're looking to shift some of those budgets into a into a you know opportunities they see.

But you know having said that you know there are large sectors of the economy, which are affected or things like travel and our large partners and customers are impacted and so we clearly see the impact of stock and that's the color a that gave us well.

Great. Thanks Center.

Thank you and our next question comes from Brent <unk> from Jefferies. Your line is now open.

Good afternoon.

Curious if you could just give us a little more color crush SMB and enterprise any common threads you saw between those two segments.

You know maybe.

You know, we we have had tremendous momentum on G suite and you know feed fee can you know all of Google works. This way products like Cimino, Google Docs are filled from the ground up.

To really help people would be productive and collaborative you know distributed work and Ron.

That's what we're clearly seeing traction there Google me to seeing great traction and you know I gave a you know I mentioned some use a momentum there, but we have more announcements coming up including a they did the speak and so we're seeing a tremendous traction and engagement on on G suite.

On on on cloud a you know the shift to digital has been a deep trend and it's kind of thing people are you know really engaged on it a you know earlier talked about you can imagine.

You know if you're a customer and you have data centers. You know these are fixed cost when you go through moments like those.

So people are really looking at opportunities there and so our teams are super engage you know, but you know I do want to knowledge, you know <unk> no small a small businesses across across the world or a deeply impacted you know as a company we've been on several efforts to support Oh.

Small and medium businesses and be are.

Going to be deeply engaged with them, but you know I think I think it's a tough.

Joining me at all on I'm, a you know we look forward to working with them to help them through this.

Thank you.

Your next question comes from Dan Salmon from BMO capital markets. Your line is now open.

Good afternoon, everyone to thanks for taking the question Sundar I wanted to return to those long term initiatives that you walked through earlier in the one that was.

Most close to your core business in the changes that you were announced this week for for shopping.

Could you explain a little bit more about the reasons for making those changes in extending to free listings are creating the free listings.

And what drove you to make that decision now and then related follow up for a roof.

Same question essentially but as we think about his financial impact is such a change.

Imagine this is one of those things, which may qualify as a causing maybe some.

Some variability in the quarter to quarter rate, but but something that benefits all parties over the long term I think you. So we've often visited these sorts of changes, but any color you can add on inserted a near and long term impact of the Google shopping changes would be great too.

You know so.

You know going through a moment like this you know it's very clear you know <unk> part affords me schoolwork wireless you know people come.

Across a diverse stranger meats, and that's true for shopping be spend time discovering.

And you know comprehensiveness really matters. That's all we can have a great user experience and so.

You know as we've been thinking about this space, we realize some visible organic search works.

For us to truly give that comprehensiveness and the quality of expedience you know we need.

You know we need the Vitesse catalog possible and then be a good at ranking had been providing and matching users to what they're looking for and so if you know eat is it is Ah you know made a lot of sense for us and you know just looking through the range of expense experience is people who are seeking out through the Coca Cola would.

Trying to make you know validated it even more and then.

Obviously, we had been we've been executing really hard there, but you know leadership in place and and so be saw the opportunity to go back to our first principles and improve the comprehensiveness a one off the tricky thinks about when you do that is making sure. A you know you don't have spamming you're managing.

Giving people good quality experiences and that's where you know our deep or partnership a beat with pay Pal and other providers with it'd be good quality signals and really improved experience asked me brew comprehensiveness of both of them are.

Going hand in hand, and ask Steve demonstrated with search wouldn't be improved organic experience. The advertising experience also gives an opportunity and the system works well and so I'm really excited about this change I, it's too early and but it's been very positively received and you're going to see us.

And they experience in this area deeply you know why do we talk about shopping online radio better be are investing and building, but I'd Foundation is with Google pay and and Oh, you know we have great leadership there in a small we've been executing a volatile weather for the past here and the growth on a Google best being strong and so being able to bring all affected.

<unk> along with a strong players like pay pilots, it's not will help us give give great experience for our uses here.

And in terms of your question about the financial implications of of the effort you know, there's really not much to add here today I would just say I'm sorry, I Echo centers comment were excited to have the leading the effort and as such I said at the outset he'll have the priority has creating sustainable financial value. When we have a leader who is a demonstrated.

Track record of doing that so we're excited about what he is building here with the team.

Okay. Thank you both.

Thank you and your next question comes from Justin Post from Bank of America. Your line is now open.

Great appreciate it all the advertising a beach in March.

Just wondering your cloud growth is obviously quite stable in a in a low fiftys any impact in March on workloads or a slowdown in new customer pipeline and then maybe secondary if you could talk about what's what could be the benefit for cloud as we get to the other side of this more more work from home or just just.

Greetings and secular changes in cloud that that might come about from this thank you.

[noise], you know role and cloud the you know the interest and the momentum remains strong you know, you're obviously, making a lot of progress both of gross GCP and GE speed and Ah you know why did we find <unk> you know our offerings are getting deeper and you know we really are helping customers.

I'm a deeper standpoint, you know so we see all momentum there are cases fair, even though you know.

The deal trajectories, the same and you know we have the when things are taking a bit longer a you know naturally as you would expect a you know or customers that have impacted through moments like this to so I would say eaten up time to a a closing some some larger deals.

Our our impacted but you know the companys if anything you know.

All the way at a CEO level, a lot of thinking about the shift to digital seen a deeper way and I think that's that's a that's longer term trends we are very excited about.

You know, obviously consumption gets impacted depending on the sectors, which companies all rim and you know one so does that have some correlation with the general underlying.

Performance of that sector and so that's something we'll have to wait and see how would the lumps but are the teams are doing.

Doing well and it's it's and it's an area where we are committed to the of course, we are on and Ah Ah investing BP for the longer.

And you asked about kind of.

Key to a you know nothing to highlight there just to reiterate what's under a said we're really pleased with the Q1 performance for both TCP and de suite and the dynamics.

Affecting clatter, obviously very different than those from ads and just to build on centers comments with a little more on.

On G suite and some of our opening comments you and its work from home environment, what we're seeing as significant interest from from governments and companies looking for work for home solutions. So just to add one more example.

Cambridge Health plan to the U.S. health system with a 140000 patience and they relied on T. suite to support their staff and caregivers string cobot 19, helping them connect the cost across hospitals health centers that are from a home and it's just you know yet. Another example of.

How how we're able to be present helpful useful and this time.

Thank you.

Thank you and your next question comes from Kevin will be from Evercore ISI. Your line is now open.

Hi, Thanks for taking my question guys, one for Sundar and then one for route.

Another question for you really relates to the resiliency you're seeing it to direct response keys to have you. Two boys are there specific factors or is it a question mix of advertisers there that's sustaining the growth and then the question for route.

Highlighted that you know this is giving you an opportunity to refocus on cost discipline. It looks like that he capital returns by way of buyback were for me you know quite strong in the quarter has this affected your thoughts on on buybacks you peppercorns going forward. Thanks.

Got it maybe.

Stepping back a you know I would say, we're all world seems strong momentum on you tube people or Ah Tony do you do you you know or.

Watch time, that's increased across the board or people are looking for you know our authoritative news content you know viewership on you tube has increased significantly.

You know compared to last year do so in in many ways through the time to make people are using.

Using Youtube and and the trends are global across.

North America, EMEA, and Asia, and ER, and you're supposed to because while.

You don't direct response or you know I do think I think people are you know, it's it's a journey and people who have been investing or seeing a but it is cost effective and so over time.

More people are looking at it our sales teams are doing an excellent job, helping our customers to understand the opportunities there and so being able to bring all of stock to bear indicates the app campaigns, we have done it but the uniqueness of up campaign. So we've just made it easier.

I said, if a customer not to think about whether you're trying to do this across so Joe you tube and a you know bring a bring to simple holistic solution. So all of all of that is impacting I mentioned gaming go earlier, you know when you think about things like on boxing and product reviews. A you know those are natural home for.

Transactions as well.

I already mentioned about all the work we're doing now on on Commerce. All stock you know I you know looking forward to those integrations coming into you tube and working but for us well and so those are some of the a longer term opportunities.

You are working working hard to get to experience right and building the foundation for the future.

And then on your second question on capital returns Oh, we believe a share repurchase program for us appropriately sized isn't responsible on the current environment based on our capital allocation framework and our cash balance.

Beginning of the air I indicated that we expected to repurchase shares at a pace at least consistent with the fourth quarter on the remaining authorization and that remains our view for the second quarter.

Thank you and your final question comes online must meet from RBC. Your line is now one thing.

Okay. Thanks in terms of the.

Maybe less worse or are somewhat positive trends at the end you mentioned this recovery will modest move up in consumer.

Commercial search queries have you also seen a small improvement in advertiser interest or advertiser interest and running campaigns. I think you said both of those factors kind of deteriorated in March one of them came back to the other come back to do you also see advertisers starting to come back and then secondly that you to result in the March quarter was phenomenally strong given what happened.

In the amongst those March two you tube. He was that a comp issue was the comp much easier. It sounds like January February could have been up strong 40% year over year. So is there any color as such as comps easy comps or was there something that fundamentally changed because that kind of material acceleration. Thank you.

So yeah as I tried to do you really clear and my my response that his question I would not extrapolate from my comments for the full quarter. It's early just getting able in early read and there's really not much more to add and then then what I indicated. So it was you know I'm not nothing more.

Our to add there and then.

Maybe just to reiterate what drew said earlier and I said that you know searched Institute.

People respond to changes in search faster Brian trails. So brand is maybe slower to change both on the downside on the upside and searches a you know much faster to attack as well and so you know anything I think that's worth keeping in mind.

But overall look we see a vibrant system advertisers or.

Definitely very engaged and looking at it and you know we are seeing active conversations between our teams and our large advertisers where they're trying to understand the demand shifts and how they can respond and so you know overall they see the bullets from uses uses that are engaging with Google you tube and core product.

So this isn't a <unk> and you know wild obviously, there's an impact on the economy and we're not immune deduct the engagement from advertisers across our products and with our teams as being a very robust.

Thank you and that concludes our question and answer session for today I'd like to turn the conference back over to Jim free land for any closing remarks.

Thanks, everyone for joining us today, we look forward to speaking with you again on our second quarter 2020 call. Thank you and have a good evening.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program you may now disconnect.

[noise].

Ladies and gentlemen, thank you for standing by and welcome to the Alpha that fourth quarter 2019 earnings Conference call.

This time, all participants are in listen only mode.

After the speakers presentation, there will be a question and answer session.

To ask a question. During this session you will need to press Star then one on your telephone.

If you require any further assistance. Please press star then zero.

I would now like to him the conference over to your Speaker today, Ellen West head of Investor Relations. Please go ahead. Thank you Candice good afternoon, everyone and welcome to alphabet fourth 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 in 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.

So you see.

During this call we will present, both GAAP and non-GAAP financial measures a reconciliation of non-GAAP to GAAP measures is included in today's 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 investor and now I'll turn the.

<unk> over to Sundar.

Thank you Adam and good afternoon, everyone. It's a privilege to join the call as the CEO boat alphabet and Google After four years as CEO of Google.

I'd like to start by thanking Larry uncertainty for giving all of us at Google Timeless mission endearing values and an opportunity to have an impact on the world.

There's a lot I want to covered today and I also want to leave plenty of time for any questions. You may have for me Andrew.

As you've seen in our press release, we've added new revenue disclosures to give greater insight into our business.

Search another Google properties continue to drive greater cells with total revenues in 2019 of $98 billion and strong growth.

Most of really pleased with two off or newer growth areas.

You tube reached $15 billion and adds revenues in 2019 growing at 36 person compared with 2080.

And it now has over 20 million music and premium paid subscribers and over 2 million Youtube TV paid subscribers.

Ending 2019, EUR 3 billion dollar annual run rate in EWP subscriptions and other non advertising revenues.

Google Cloud and a 29 team at a more than $10 billion run rate up 53% year on year, driven by significant growth in GCP.

The growth rate of GCB was meaningfully higher than that of cloud overall and GCP grow trade accelerated from 2018 to 29 team.

Before I talk about the highlights of the quarter I want to take a step back and give some early thoughts about my approach to managing alphabet and other bets.

We've always taken a long term view investing in deep computer science and technology.

The important trends like the wider adoption an application of artificial intelligence ambient computing and the moved to the cloud underline our investments across Google and our other alphabet companies.

Our work in health care is a great example of how our investments in these areas allows us to deliver solutions across an entire sector.

Google Cloud works with hospitals, and health care providers to securely manage their patients data.

Data that is much more secure in the cloud done in paper costs are on premises.

Our AI teams that Google also work with partners to apply to help them on their patients, but it's developing better health systems or helping with the diagnosis and deduction of disease.

Among better broader efforts are other bets very early in Calico are also partnering with industry leaders do use AI and cloud technologies to improve clinical trials research and drug development.

Our thesis has always been to apply these deep computer science capabilities across Google and our other bets to grow and develop into new areas.

The alphabet structure allows us to have a portfolio of different businesses with different time horizons without trying to stretch a single management team across different areas.

We'll continue to take a long term view managing the portfolio with the discipline and rigor needed to deliver long term returns.

Many or for other bets are getting to the stage read it now make sense for them to partner closely with other players and investors in the industry.

Ramos technological leadership as widely reported its cars of drum and 20 million minds across more than 25 U.S. cities.

They most now serving over 1500 monthly active writers in Metro Phoenix and continue scaling fully driverless by matching early adopters with driverless vehicles and charging for these rights.

I see more looks to its evolution as a business it's focusing on strategic partnerships. For example, it's working closely with Oems and other businesses to build out ride hailing and dairy business lines.

And very leaves an example, if a company in the portfolio that's outside investors Silver Lake and Temasek Aswell as its own board will consider opportunities for some of our other bets to take some less steps overtime.

Now onto highlights from the quarter first search unrelated Google properties.

As I mentioned on our last call our neural network based technique for natural language processing called book is the biggest advancement in search in the last five years. It now impacts 10% of searches and in Q4, we rolled it out in over 70 languages.

In maps, we're celebrating our 15th anniversary very soon and the past year be brought reliable deductions to 600, I'm 30 million additional people in locations that previously been Feldman.

We added asked many buildings to maps using ml into any 19, that's we've added using all techniques in the previous ticket.

The all these improvements user growth was strong and the range of things people are doing with Google maps continues to expand as well.

The Google Assistant now helps more than 500 million monthly users across 90 countries get things done across smarts makers and smart displays phones DVS cars and more.

Shopping and commerce is another exciting area.

We are making strong leadership hires in this area to help build a thriving business for partner So falls sizes.

For the Black Friday, and cyber Monday holiday weekend, where you had the largest number of daily shoppers on Google Dot com ever in our history.

Throughout the entire holiday shopping season, we also expanded the selection of products on Google due to a fourx uptick in a number of U.S. merchants participating in a shopping actions program.

Second you.

Speaking of shopping people can now easily byproducts and you tubes home feed and search results, making it possible for advertisers to reach even more audiences.

Try searching for Puma Shoestring view on Youtube to see an example.

All all the related content on Youtube like on boxing and beauty videos, there's a format people love and it delivers a simple nvidia buying experience.

A huge focus is continuing our work to keep you up safe for users creators and advertisers.

You may have seen a blockbuster today about our work to promote authoritative content and remote misleading information about the upcoming 2020 elections. For example, we're applying or deceptive content policies to reduce misleading information about voting locations or the census process.

As I mentioned earlier, we are pleased with your tubes growth in advertising and subscriptions and we're also pleased with the old either so its from other revenue options, we offer creators, including memberships Brown integrations merchandise and ticket sales.

Continuing on now to cloud.

We're really pleased with the momentum we are seeing in cloud year on year, the number of deals over $50 million more than doubled.

The investments in clouds go to market expansion are resulting in customer momentum.

Wayfair is one of the many retailers who successfully Ryan holiday operations on Google Cloud.

In addition, lows, which began transitioning off its legacy E Commerce system in late 2018 to Google Cloud worked with US during this year speak holiday buying season to improve the stability of their ecommerce site.

What noting at peak time customers in our Black Friday Slash Cyber Monday program used fourx, the compute resources compared to previous here and our platform experienced hundred person uptime.

Lufthansa group, so using our AI solutions to develop new tools that will improve air travel all patients.

The U.S. postal service also chose Google cloud AI to improve business processes and customer experience.

We have recently signed a 10 year agreement could sabre to help them improve operations and develop new airline and hospitality services.

Finally, Google other revenue.

Android continues to thrive I'm proud to announce that over $80 billion as being owned by double up was around the world from Google play showing the popularity of our platform. There are now over 2 billion active monthly users of Google play.

Hardware is still in the early stages of delivering on our vision for ambient computing.

Our home devices demonstrate how this mission can come to life in creating the home of the future with our newness many nest hub Max selling well over the holidays. Following on from the picks up three which sold well last year.

But fixed before we continue to build out our capabilities and are keenly focused on execution.

Delivering great user experiences and broadening our distribution.

And our pending acquisition of fit, but we'll give US a foundation embeddables I'm excited about a roadmap ahead across our products.

Overall in 2020, our teams that Google are focusing on four key things first creating the most helpful products for everyone.

We're really focused on ensuring that our products like search maps and assistant are helping people in their daily lives.

Second providing the most trusted experiences for our users we are doing lots of fourk, the keep improving user privacy and security while also keeping harmful canton off our systems.

Third executing at scale.

This would show up us more seamless products across various surfaces and platforms like the Google assistant.

Deeper partnerships and better use of our shared infrastructure.

For example, Activision Blizzard recently chose school as a strategic partner using Google Cloud computing infrastructure, you do for live streaming and our AI tools.

Putting together these multi product partnerships helps us unlock great opportunities for our partners.

Unfold, creating sustainable value. This means optimizing our usage of computing resources and also growing business. This business opportunities in areas like Youtube cloud play hardware and beyond.

So as you can see there's a lot happening at the company under real sense of excitement and focus.

I want to tanker employees for all the great work in 2019 with that I'll turn it over to really and I look forward to your questions. Thank center, we're very pleased with our strong 2019 results with total alphabet revenues of $162 billion up 18% year on year or 20%.

In constant currency in dollar terms. This represents an increase of $25 billion in revenues relative to 2008 pool.

I will review, our quarterly and annual results, including our new revenue disclosures and conclude with our outlook Center and I will then take your questions.

Starting with consolidated Alpha that results in the fourth quarter. Our total revenues were 46.1 billion up 17% year on year end up 19% in constant currency.

Our results were driven by ongoing strength in search Youtube and Google cloud offset by a decline in hardware revenues.

Details of Alpha that's 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 attack was 21 billion up 17% year on year.

Other cost of revenues on a consolidated basis was 12.5 billion up 19% year over year, primarily driven by Google related expenses.

The biggest factors here again, this quarter or costs associated with our data centers and other operations, including depreciation.

And then content acquisition costs, primarily for you too and mostly for advertising supported content and what has been a seasonally strong quarter for you too but also for our newer paid you to music and premium subscription services as well as you to TV, which have higher content Act.

Position costs as a percentage of their revenues.

These were partially offset by a declining costs associated with lower hardware south.

Operating expenses were 15.8 billion with head count growth being the largest driver of year on year growth for R&D and sales and marketing expenses.

Headcount drive spoke compensation and related facilities expenses.

After head count growth the biggest driver in R&D expenses was an increase in valuation based compensation charges and certain other bets.

Stock based compensation totaled 2.6 billion head count was up 4803 from the third quarter and up 20% over 2008 pool.

Again, the majority of new hires were engineers and product managers.

In terms of product areas. The most sizable headcount increases where again in Google cloud for both technical and sales roles, including the impact of the look or acquisition, which closed in December.

Operating income was 9.3 billion up 13% year over year for an operating margin of 20%.

Other income and expense was 1.4 billion, which primarily reflects an increase in the market value of certain publicly traded equities as well as a non cash gain from the early transaction, we provide more detail on the line items within Oh I any in our earnings press release.

Our effective tax rate was there a 0.3% for the fourth quarter and was 13% for the full year the fourth quarter E. T. R reflects the impact of discrete items, including the resolution of multiyear audits.

As you've seen in prior years E. T. R can vary on a quarterly data.

Net income was 10.7 billion an earnings per diluted share were $15.35.

Turning now to Capex and operating cash flow.

Cash capex for the quarter was 6 billion, which I will discuss in the Google segment results.

Operating cash flow was 14.4 billion with free cash flow of 8.4 billion. We ended the quarter with cash and marketable securities of approximately 120 billion.

Let me now turn to our segment financial results starting with the Google segment revenues were 45.8 billion up 17% year over year and if the of course is on a gap or floating FX basis.

Google search and other advertising revenues were 27.2 billion in the quarter up 17% year over year, reflecting ongoing momentum in mobile and desktop.

You too the advertising revenues were 4.7 billion up 31% year on year, driven by substantial growth in direct response and ongoing healthy growth in brand advertising, which remains the largest component.

[noise] network advertising revenues were 6 billion up 8% year on year led by growth in Google AD manager.

Turning to Google cloud, including GCP and G suite revenues for 2.6 billion for the fourth quarter up 53% year over year, driven by significant growth at TCP and ongoing strong growth at G suite.

The growth rate of GCP was meaningfully higher than that of cloud overall GCP growth was led by our infrastructure offerings and our data and analytics platform.

We also saw strong uptake of our multi cloud and those offering.

Ongoing growth and G suite continue to reflect growth in both SMB and enterprise segments Endo seat count and average revenue per seat.

The other revenues line now consists of Google play followed by hardware and you to non advertising services, mainly its subscription offerings you to premium you to music and you tube TV.

In the fourth quarter. Other revenues were 5.3 billion up 10% year over year, primarily driven by growth in you tube and play offset by declines in hardware.

You too contribution to other revenues benefited from subscriber growth across its various offerings.

We didn't play App revenues had strong growth driven by an increase in the number of active buyers.

Total traffic acquisition costs were 8.5 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 once again.

Favorable revenue mix shift from network to Google properties.

Google operating income was 11.5 billion up 20% versus last year and the operating margin was 25%.

Google accrued capex for the quarter was 6.6 billion, reflecting investments in data centers, followed by servers and office facilities.

Moving onto the performance of other bets for the full year 2019 revenues were 659 million up 11% versus 2018, primarily generated by fiber in their early.

Operating loss for other bets with 4.8 billion for the full year 2019 versus an operating loss of 3.4 billion in 2018.

Let me conclude 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 first quarter of last year. We expect continued FX headwinds again in the first quarter of 2020.

With our expanded revenue disclosures this quarter I'll talk about the revenue and investment outlook for each of these newly disclosed component parts.

First with respect to search and other advertising.

Although we don't report search revenues on a fixed FX basis, the delta between fixed and floating go growth rates at the alpha that level is a good proxy for the effect on search revenues.

Or headwind of approximately two percentage points into 2019.

At our scale, we're pleased with our rate of growth for 2019, and see ample opportunity going forward.

What's exciting for us as we look ahead at search and other Google properties is the ongoing opportunity to support users and advertisers with new adds experiences and improved measurement.

Second with respect to you tube advertising.

At a year on year growth rate of more than 30% in the fourth quarter. We're pleased with the ongoing strength in opportunity at you tube.

We see substantial continuing opportunity in direct response as well as with brand advertisers.

As Sundar shared earlier, the non advertising services at you to mainly from subscriptions reached a 3 billion dollar revenue run rate in the fourth quarter.

We continue to invest across you too to grow over the long term any AD supported portion if you too we pay out a majority of revenues to our creators reflected in our content acquisition costs on top of that there are other expenses, including infrastructure and networking costs as well the costs of our content response.

Ability efforts to keep you to safe for users creators and advertisers.

We're also investing meaningfully to grow our subscriptions, which have higher content acquisition cost ratios.

Turning next to Google cloud.

We're very confident that there is an enormous opportunity here the plays to our core strengths.

We're pleased with the growth trajectory of GCP, which we see in customer momentum the growing size of the average contract and of course revenues.

The traction we're having with large customers, who are making multiyear commitments with us is reflected in our backlog, which ended the year at 11.4 billion substantially all of which relates to Google cloud.

Given our position as a challenger we're investing aggressively focused on building out our go to market capabilities executing against our product road map and extending the global footprint of our infrastructure focused on 21 markets and six industries.

In terms of hardware as Sundar noted in his opening remarks, we remain focused on the long term opportunity with ambient computing.

We believe our strengths in AI and software give us an advantage and providing seamless experiences to users wherever they are across multiple surfaces.

We've been investing heavily in developing our capabilities in hardware engineering as well as building out supply and physical distribution chains, and we've created a multibillion dollar revenue business in the past three years.

We're looking forward to our acquisition of fit that which will add strong capabilities and wearables and advance our vision of ambient computing for the Android ecosystem.

As we look at the near term product Road map, we continue to execute at a measured pace.

In other bets, we are sharpening our focus on the metrics and milestones against which capital allocation is determined and we continue to assess where external capital is additive to governance and execution.

I'll now turn to the investments, we're making in head count and in Capex to support the growth opportunities, we see across alphabet.

With respect to head count in 2019 alphabet head count grew by 20%, reflecting investments in key areas such as cloud.

Overall, we expect the growth rate of head count to be slightly higher in 2020 due to the combined impact of investment in priority areas plus the decision to move certain vendor functions in house as well as from the plant impact of that that that acquisition.

On S.P.C. as a reminder, our full year equity refresh grants are made to employees. During the first quarter of 2020, and you will see the step up in our first quarter results.

In terms of Capex in 2020, we intend to increase our investment in both technical infrastructure and office facilities versus 2019.

Within technical infrastructure at the investments in particular support ongoing demand for machine learning across our business as well as for cloud search ads and you to.

Relative to 2019, we anticipate relatively more spend on servers, then on data center construction.

At this scale of investment we remain very focused on driving efficiency through fleet optimization and tight management of our supply chain.

Finally on capital returns in the fourth quarter, we repurchased $6.1 billion of shares which was more than double the amount of repurchase in the fourth quarter of 2018.

As of yearend, we had $21 billion remaining in the program and are focused on executing on the remaining authorization at a pace that is at least consistent with what you saw in the fourth quarter.

In conclusion, we remain very confident about the opportunities across alphabet and in our ability to continue to deliver at the steady pace we've shown.

So darn I will now take your questions.

<unk>.

As a reminder to ask the question you on each press Star then one on your telephone.

Withdraw your question. Please press the pound <unk> to prevent any background noise. We ask that you. Please meet your line. Once your question has been stated.

And our first question comes from Heather Bellini from Goldman Sachs. Your line is how often.

Hi, Thank you very much on Barnes group, and I guess I I'm sure you're going to here, that's a million times night, but thank you. So much for the enhanced disclosure I think isn't the best Google color alphabet call I've done on since I've covered the company's though so thank you again, if enough a lot of stuff here.

Just wanted to focus a little bit of on GCP and the comments that you made and either if you want to think about that's for Google Cloud collectively are just for GCP just given the revenue run rate that you're at yeah. How do we think about D. The gross margin profile of this fits.

This is it fair to look at some of the other cloud players when they were disclosing similar run rates to get a sense what their gross margins were or is there a reason why your business might look slightly different. Thank you so much again.

Oh, Thank you for those comment so Ah, yes, first and foremost obviously I'm really pleased with with the momentum near GCP had fantastic revenue momentum in the fourth quarter and as as we noted is growing it up and meaningfully higher pace than than Google Cloud overall terms of your margin question. You know look I think our our view.

As obviously the competitive dynamics in the cloud market are very different today, we are investing aggressively given the opportunity I wish I tried to make clear in in opening comments.

Given the opportunity we see in the momentum we're having we we've accelerated our investment in our go to market team and as we've talked about before we've set a goal to triple the size of the Salesforce or also I'm focused on building out our product roadmap and extending the global footprint of our infrastructure and I'll leave that the forecasting to you.

Thank you.

Thank you and your next question comes from Eric Sheridan from Me V. S. Your line is now open.

Thanks, So much maybe two parts if I can just wonder if you first a lot of innovation company put on display over the past your Bruce talked in her should afford commentary section about sustainability of growth and outperformance going forward. What are you. Most excited about when you see probably trying to align oh, what improves consumer.

Utility along with what continues to drive growth into various segments of the business that would be number one and true maybe for you talked about variability of revenue last quarter going into Q4, but unless I missed that I don't think to use the same word again in Q4, what would you expect thing in terms of variability in Q4 and then.

We could give on how that played out or how we should be thinking about variability of revenue going forward. Thanks. So much.

Yeah, Eric I Didnt.

Overall, I presume you mean across everything we do and if that's the case a you know I mean I am I mean, the trends we are seeing a and you've been investing on it for a while but you know applying it I'm actually driving use cases to users. So for example.

You know using AI to dramatically improve a natural language processing to make them person over so it's just sort of better as a kind of opportunity I'm excited by you know when I look at we do see a lot of commercial experiences across our properties speed search or Youtube.

On the opportunity to create a better experience there and hence bring more value to our users that's something which we see as a big opportunity.

And across our businesses be Youtube cloud play our hardware. In addition to search you know we are you know seen strength in a lot of de serious and and we share a common technological approach across all of them and so that gives us a synergistic way to approach these areas as well.

And then on your second question, you know <unk> <unk> and our scale, where we're pleased with the rate of growth in 2019 here in search or ads business overall, and we do see ample opportunity ahead. When we talk about variability of revenue, yes. The way we've talked about it in the past.

I'm very much holds true, which is where we we don't manage for any particular quarter. We manage focused on what's in the best that's for users and and with a lot of testing that goes around it and so I was really the point is there will be variability and and we're focused on continued the continued long term.

The opportunity and we do see that opportunity on the ads opportunity to be significant you know apart from the secular shift to digital 'em. We continue to be very focused on the the benefit from better measurement better AD delivery better user experience. Our view is that all helps grow the addressable market, but there will be variability overtime.

Because we're very focused on what's in the right long term interest.

Thank you.

Thank you and your next question comes from Doug and met from JP Morgan. Your line is now open.

Great. Thanks for taking my questions I'm, one for Sundar and one for Ruth Sundar first just hoping you could talk more about Google cloud great to see the 10 billion dollar run rate I'm. Just curious if you can help gauge the progress over the past year than where do you think the biggest areas of differentiation why I'm in an increasingly competitive space.

And then Ruth can you just give some of your latest thoughts on balancing growth and profitability across the Google segment and other bets as you enter this year.

Do you see additional opportunities to drive a increase profitability without impacting the long term potential of the business. Thanks.

Doug on cloud you know I think.

Maybe maybe a few thoughts on a small to progress we made last year and talk about the different situation. What you asked about as well.

You know definitely under Thomas' leadership, a you know I think we have.

Clearly focused on you know six industry verticals across to anyone markets and so doubling down on those so foods.

<unk>, bringing in a lot of new products and compliance certification, so effectively expanding the time, which we serve a roof mentioned the team is on track to Triple a our sales force in three years, including bringing in a number of senior strategic hires.

And supplementing it with a channel partnership program.

I think.

The progress have seen in customer focus with our customer success organization and the contracting framework have all been a great progress for us.

Overall, you know.

Every time, we are in especially in one of these larger deals. They are effectively looking for a technology partner. So differentiation is not just what we bring to table in terms of cloud a that'd be of differentiated differentiated capabilities.

But in many cases, it's what we bring us Google. So if you take an area like health care all investments, we make in health care across Google and in some cases alphabet.

If you look at Sabre the partnership we can bring to them across our you know experience working traveled verticals as well. So I think Oh, you know and over time I also think <unk> AI based industry specific solutions. We are working on a will end up being a differentiating factor as well.

And in terms of your second question investing for growth and how we balanced growth and profitability you know that the approach to capital allocation and the pace of investing and continues to be guided by the same three drivers that we've talked about previously first and also.

And is investing to support the long term earnings growth and the opportunities that we see there second we do remain focused on optimizing investments within each product area and then third as we've talked about on prior calls is investing to support operational excellence and that includes things like driving efficiencies in our.

Technical infrastructure, which I spoke about you know when we look at the biggest investment areas within Google We as we've talked about already on this call I'm continued to be focused on investing to support the growth that we see it starts with search you know while also investing to build new businesses and we've talked.

About a couple of them already today cloud is clearly an area, where we're investing aggressively in hardware. We've been investing heavily you know by developing our capabilities and hardware engineering as well as building out supplying physical distribution chains and then in you too as I mentioned in opening comments we.

Thank you to build out our subscription services its still in the early days, there and we're making a sizable investment to build it out taking a long term view here. So Oh, you know we are leaning into investing for long term growth that's been a core principle here and remain such a while looking at where.

Can we optimize within portfolios and where can operational efficiencies be additive.

Great. Thank you though.

Thank you and your next question comes from Brian Nowak from Morgan Stanley. Your line is now open.

Thanks for taking my question I've I've to just a center I thought your 2020 focal points really helpful. Creating the most helpful products for everyone and then the most trusted experience for users [noise].

I was curious kind of focus in those comments on payments and you to even a lot of payments strategies over the last couple of years. So talk about what types of investments are products using you need to really remove friction and drive better payment adoption and then on the you tube side. If you sort of look at how people are using you to now from an engagement perspective.

[noise] what types of changes do you foresee you need to make an order really making them more helpful products to drive engagement, even higher on a that you do platform. Thanks.

Well, Brian things on on that on a payment side.

You know clearly you know I spoke earlier about the kind of experience is people see across our properties, including people do come up with an intent to discover learn and commercially engages wall and when they're looking to transact payments ends up playing a critical role a sort of less friction you have it.

Tends to work better so they've been really focused on doing that and getting more off our uses set up in the right state a we've had a lot of traction with our payments product over the past.

18 months, a we had a tremendously successful launch in India from which we view learnt a lot of features and we are bringing that and we are revamping our payments products globally, and so I'm excited by that rollout, which is coming up in 2020, I think that will make the experience better.

On the you tube side, you know wall <unk> I guess your questions about you know.

How are uses engaging with a part of overall you know all our user metrics are very strong the global in nature and increasingly be seen we see newer verticals beginning to grow a small so you do bus working horizontally.

Well at scale and for Us, it's making sure as an ecosystem. It works better so the content there. They experience. This there are improving or are we take or condoms responsibility works easily which makes more content creators engage and and makes it the more valuable part product for advertisers as well.

Paul.

Also supplementing the confidence you'll see there with other types of you know exercising things be merchandising ticket sales you know when we make it contextually relevant to what we've done in search and so chats over time, if he can bring that how do you tube and we see an opportunity I think I think that sets us up although the for the long.

From there.

Great. Thanks.

Thank you and our next question comes from Brent Thill from Jefferies. Your line is now open.

Thanks, Ruth and in North America was there anything that was abnormally unusual or Facebook had cited some weakness in North America. It looks like your North America number was relatively weak versus the last four years is or was there any nominally that we should be aware of thank you.

Thanks for that so the to the regional break down also reflects product mix within regions. The U.S. here on your growth rate does reflect a decline in hardware revenues relative to what was a fairly strong hardware revenue growth rate in Fourq you 18.

Much more to call out than that.

Thank you.

Your next question comes from Stephens you from Credit Suisse. Your line is now open.

Thank you so sundar I guess some of the more cross product lines synergies are showing up in an integrated software and hardware effort stuff like the pixel book.

You've come up through the rights or Google, So you're about to be pretty sensitive to the various interest across various teams, but you know we're wondering what you may be looking to do break down I guess, what might have been more of a side note effort.

And googles history. Thanks.

You know I think you know I spoke about execution at scale and and so for US that means you know you have these product areas, which are focused on better users, but VR setting up teams, which cut across all these areas and make sure. They can bring the synergies and work at scale. So last year, we set up.

<unk> core infrastructure team, which looks at things like you know how does the use of journey work across a watershed infrastructure engineers can you sort of you don't reinvent the wheel in multiple areas. How can we commonly deploy <unk> across all these products. So I think that's.

It's been a good example of bringing teams together I on other big area by reinvested like back to breakdown silos is our partnerships are we set up a global partnership steam and our ability to bring a common Google perspective to our big Global partners. It's how does a strike me.

The new partnerships I mentioned Activision Blizzard as an example on day work can be very synergistic with cloud as well to my point earlier when people engage with us on cloud, they're looking for their interest in a bigger digital transformation across the board Google Assistant is a great example of because.

We are focused on the user experience cuts across.

Several of our product areas as being a great mechanism by which we can break down silos, the small, but but it's a great question I spend a lot of time on it.

Thank you.

Thank you and our next question comes from Dan Salmon from BMO capital markets. Your line is now open.

Hi, Good afternoon, everyone I had a two questions one clarifying one for Ruth and then maybe big picture one for Sundar Ruth you a distinguished between a group of brand advertising and direct response on you tube. A those comments were very clear I just want to follow up and actually just how you make that distinction between Brandon direct response is it a different price.

I think models at the presence of AD revenue share with a creator are both would just be curious on that distinction.

And then two sundar the Big picture one you know we have heard others in the ecosystem talk about headwinds from targeting growing.

Certainly there are a regulatory changes it also apply to you.

You made some some changes to various Google advertising platforms and of course or an owner of of two of the largest most important platforms and chrome and the and the Android operating system I could ask your billion things on that last one, but what I'd really like to ask is the big picture question. If we roll up these sort of things for your total advertising business.

How important are changes here to your topline growth are you seeing a notable headwinds from these types of changes in the ecosystem as well thanks.

So on the first one currently we have a again this quarter talked about.

Brand and and direct response and as we've talked about in prior quarters. A you know brand is growing at a healthy pace and remains the largest component of of you tube ads. Direct response is growing continues to grow at a very substantial growth. The distinction here is the formats for direct response, we're letting brands.

Insert a tailored call to action in the video ads, such as signing up for a newsletter scheduling an appointment or down lighting downloading an app or booking a trip things are those sort that's why I. It's it's that direct response category.

Oh and on a broader questions about headwinds you know <unk> you know it's something.

You know, we always a need to take a look at you know we.

Try to stay focused on.

Uses and our partners and be realized for these things to scale. You know you need to make sure. The ecosystem is working well and and so we had engaged in these issues and and and we anticipate then structurally work on them early on so it's how we broadly approach these things and so there is nothing no.

Double to call out out of them you know a you know there will be continued.

You know changes in these ecosystems and you know our ability to anticipate and adopt husky a key to the years ahead.

Thank you.

And our next question comes from Justin Post from Bank of America Merrill Lynch. Your line is now open great. Thank you I'd like to last couple of bigger picture things on the new disclosure. So so first on you to monetization. She me about 2 billion users, it's about seven or $8 per user just wondering how you feel about that monetization level given.

All that you said, you're seeing there and is there significant room to raise that when you compare to other social networks and then secondly on the cloud backlog a very strong number 11.4 versus our I ask cash revenue rate just wondering about how strong the new deals have been that you've signed the last six months.

Sounds like really good traction there and then the profitability of these deals how you feel about that thank you.

Yeah I'm of course around a you tube <unk> I do think bidders a lot of opportunity ahead, you're right. It's a platform working at scale.

I think a root spoke a little bit of about brand and direct response had been dr. sponsors a huge growth area for us and and increasingly I think a when you look at the fact that people are consuming a lot of goods and services you know as part of that experience in Youtube, how can we create better commerce experience.

It is also is a big opportunity for us so looking across I think a there is a more room a significantly more room over the mid to long time on monetization levels and so I think we see that as a.

Big opportunity in our investing for it on cloud are definitely you know we are increasingly doing a much larger deals and and you know these deals can sometimes span beyond Florida swaps and they can touch a many areas. So as an example.

If youre an automotive company, a we can be talking to you across cloud Android auto in some cases, they know they all happened to be strong platforms, a partner sound odd rising side as well. So these are large deals and and you know we do want to build these in a sustainable way so that becomes so the <unk>.

No well and so profitability has been something they're very focused on as well and you know just to add a little more to that you know a where you see.

The 11.4 billion a backlog number it is you know for US we view it as a way to quantify the traction on that we're having and as you know well in the enterprise face. These these tend to grow overtime and profitability as such comes across the the cohorts. However at the point that we were trying to make into.

I've made a couple of times here on the call is we are investing aggressively in crop cloud overall, given the opportunity that we see and the momentum we're having and we'll continue to do so.

Thank you.

Thank you and our next question comes from Youssef Squali from Suntrust. Your line is how often.

Okay, great. Thank you two quick ones first truth has a shortened holiday season and much of an impact on your search business in North America, and then Sundar.

As you talk about automation machine learning AI, how much of advertisers search spend is now on auto bidding and how do you think smart buildings effective is affecting spending growth and pricing. Thank you.

So on the holiday shopping season that there's really nothing to highlight there what we find is their seasonal puts and takes in any given period, so really nothing to know.

Oh.

On.

No I don't have specific numbers to here, but you know a tad here, but you don't effectively we do see significant traction in these areas and advertisers are leveraging the features we have we are bringing your tier beats moderating water bidding Oh, there's tremendous traction.

With our advertisers here.

Thank you.

Thank you and our next question comes from Kevin Murphy from Evercore. Your line is now open.

Hi, Thanks for taking my question.

Really for Sundar.

As you think about the risk profile of some of your businesses like Waymo barely in health care, how do you manage those risks, which you know likely in a scenario where autonomous cars have somaxon or something like that having those in house and the perhaps brand damage that could do to Google versus what you could do if those were entirely separate entered.

Prizes I know, they're all held under the name, but umbrella, but just sort of big picture. How you think about managing that risk over time. Thank you.

Thanks, Kevin you know we are you know as I spoke earlier in the mid amongst you know part of the reason we are making sure.

We are investing in a proper governance structures a movie don't try to scale as a management across these important area. Some of these are.

You know have a regulatory aspects to it we are for some of these beds this ball and but at least a great example, a we've we've.

Brought an outside investors people with expertise.

And and setting a proper boats structures and governance for these so I think those all help and you know will continue to you know a you know evaluate these on a periodic basis and bring that rigor and discipline, but I do think also but gives a more flexible framework. If you will to both have.

The independents, when we need a but where we can have a common chad synergies like our AI investments bring back to bear as well.

Thanks.

Thank you and your next question comes from Mark Mahaney from RBC. Your line is now often.

Hi, This is Ben on for Mark. Thanks for taking my question Ruth I, just kind of want to double click on something you said before in terms of other bets kinda like a sharpening focus on yes. The allocation. There was that kind of is that kind of circling signaling more of the same or is that kind of.

Potentially maybe prioritizing.

Investments more towards like share buybacks and stuff like that as opposed to like base I'm trying to ask.

Should be expected greater rush rationalization of the other bets segment going forward is it more of the same thanks a lot.

So as I was added 10, saying is that when we look at the other bets and execution, we've talked over time about.

Measuring them against specific metrics and milestones operating business technology.

Financial performance and we and we look at that as we calibrate the pace of investment the approach to investments and we're continuing to do that we're putting up a sharper focus on it as Sundar indicated a looking at where does it make sense.

It too.

Work with the extra capital as we did with nearly as an example, but the bigger point as we continue to invest for the long term and when we look at our capital return approach, it's very consistent with what we've talked about previously the primary use of capital continues to be.

To support long term growth in Google and in other bets and then it's about 'em strategic investments and on top of that return of capital to shareholders.

Thank you.

Thank you and our next question comes from Ross Sandler from Barclays. Your line is now often.

Two questions.

Google segment margin lived through strong in the fourth quarter figures first time, a mix shift actually helped you guys from margin perspective. So we can you just talk about how how much was up margin increase year on year was from the hardware business dropping off first is improving or elsewhere and then as you move forward you mentioned that headcount.

Going to accelerate the 2020 <unk> isn't grocery your your view or just or more of the study you kind of increase for the second question.

On on you too.

A lot of discussion here about direct response in parts and the opportunity there what percent of Robert I was a advertisers or or barring surge only versus a booking surgeon you choose a at this stage and.

It looks like from your new disclosure that you do decelerate a little bit in the fourth quarter and any color on or what's driving out relative to the full year like 19 group. Thank you.

Okay I'm, so taking the first part of that in terms of the the operating margin in the fourth quarter. There were a number of discrete items in the fourth quarter last year until 2018. So that did result in a favorable Google Opinc year on year comparison for this year and as you said the other cost of sales does.

Reflect lower expenses related to hardware in Q4 in particular versus.

Last year, but I think the main point to leave you with is that we do intend to continue to invest aggressively to support growth in the areas that that we already talked about quite a bit on this call in search and cloud in hardware and in Youtube.

In terms of headcount you know I tried to break it out in my closing comments that it starts with those areas, putting head count, but behind the areas, where we're investing up for the long term and then we have a couple of additional factors that that are somewhat.

You know expected to boost the year on year growth rate. Yeah. One is bringing some support in house, that's opex neutral and the other is that that that acquisition.

In terms of the third part of your question I'm, just trying to recall at the.

Did the in terms of or the next I'm not sure there's much to out there.

Thank you and your final question comes on line of Colin Sebastian from Baird. Your line is now open.

Thank you I guess first just given the focus and new leadership team in Commerce I was wondering if you could talk a little bit more about the opportunities you see for innovation there at the transactional part of the funnel and then as a quick follow up on the acceleration in GCP beyond the size of the deals where their particular product areas like.

Query or something else worth worth calling out that might have inflected to drive that acceleration.

Great on on Commerce, you know I'm really excited build reddys here. He brings a lot of experience and you mentioned the transactional part of off to funnel and I think it's maybe a very brings a lot of experience given its prior work, but we definitely see opportunity to improve in indoors.

<unk> user experience in terms of how we present, our roussos, the visual nature of it making that experience more delightful and when people are interested in something you know how do you make it more seamless.

To complete the transaction and bringing in deep partnerships.

With merchants and retailers to making that happen. So excited about the opportunity there and you know and that's why we are investing.

On GCP you know we did see you know it's been a lot to do with bringing to bear a all the resources, we have an engaging well well on these deals and execution, but there has been great and it's definitely we see strong traction in a day done out of picks.

And so our strength there as a company, it's definitely a contributing significantly asked well thus our overall leadership in <unk>.

Thank you.

Thank you and that concludes our question and answer session for today I'd like turn the conference back over to Ellen West for any further remarks, thanks, everyone for joining US today, we look forward to speaking with you again on our first quarter 2020 conference call. Thank you and have a good evening.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating and you may now disconnect.

[noise] [noise], ladies and gentlemen, thank you for standing by and welcome to the Alpha that third quarter 2019 earnings call.

At this time, all participants' lines are in listen only mode.

After the speakers presentation, there will be a question and answer session.

Ask a question. During this session you want me to press Star then one on your telephone.

If you require any further assistance. Please press Star then zero I.

I'd now like to hand, the conference over to your Speaker today, Alan last head of Investor Relations. Please go ahead.

Thank you good afternoon, everyone and welcome to alphabet third quarter 2019 earnings conference call with US today, our Sundar Pichai and Ruth Porat now 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 may.

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 gap 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 investor and now I'll turn the call over to Sundar.

Thank you Alan and good afternoon.

Q3 was another great quarter at 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 information and make it universally accessible and useful hasn't changed we've evolved from a company that helps people find answers to accompany that helps you get things done.

Since the beginning we've always invested in tackling beep computer science problems that can have a significant impact on society.

The chance to be part of these fundamental engineering challenges is why so many people wanting to work at Google.

And just the last week, we announced two significant advances.

First powered by our long term investment in AI, we dramatically improved our understanding of the questions people ask schools search.

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 subtle 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 machine Sycamore successfully performed at best computation, and just 200 seconds decorative taken the most powerful supercomputers much longer time to accomplish.

It's the Hello, a woman we've been waiting for and represents a distinct milestone in our effort to harness the principles of quantum mechanics to solve computational problems.

Turning from quantum's to the quarter.

Today I'll talk about the momentum we saw across the business and the last three months.

First cloud.

We saw customer momentum across multiple areas under promise this leadership.

In September we announced a landmark partnership with Mayo clinic.

Using Google cloud to secure and store data on understand insights at scale Mayo clinic will partner with us in many ways.

Together, we'll work to transform patient than punishing experiences identify new methods of diagnosing diseases Kinda clinical research and find new models for delivering patient care.

National Australia Bank recently added Google cloud to its multi cloud strategy to how the company better use data and deliver new and improved customer experiences.

Deutsche a bar so group the fourth largest stock exchange group worldwide relies on Google cloud to help them navigate the twin challenge of modernizing their digital operations and addressing significant regulatory requirements.

The retailers are also turning to cloud solutions to help make the shopping experience a seamless and personalized as possible. For example, Macy's use uses Google cloud to streamline their operations from the distribution center to the shop floor.

Public sector customers are modernizing their I'd systems with Google cloud with Great Brussels.

For example, the state it probably is going to already has more than 36000 employees using the using our products to increase productivity efficiency and security and this quarter. It further extended 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 and 2020, it would be or cement cloud region in the U.S.

Also announced a new cloud region, and <unk>, Poland, our seventh in Europe.

Turning to googles products that people use every day.

We are excited about new features launched in maps, including detailed voice cadence, while walking that would make it possible for people, who are vision impairments or a blind to get around more easily.

You tools that allow users to see all of their flight and hotel reservations in one place.

And on of the New features that gives transit writers in 30 countries. They ability to see it ride sharing and biking options, you know that a 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 lens and discover new podcast.

Our hardware business is still in its early stages, but we're continuing to build a business on the portfolio of helpful products.

Two weeks ago, we unveiled a new made by Google product lineup, bringing together the best of hardware software an AI.

Our new picks so for big so for XL are the first phones motionsense.

This allows users to use natural just just 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.

The new pixel. The go provides many of the great features of our premium pixel book and a more affordable price point.

He also unveiled a new more powerful mess, many speaker and nest why fly.

Finally, the team is looking forward to launching pixel buds first truly wireless headphones hospitalist stadia, our streaming gaming platform, which will soon be available in the U.S. UK, Canada throughout Europe.

We are encouraged by the positive product review, so far the holidays coming up I think there's a gift for everyone on your list.

Onto you to.

Keeping you tube say for our users Creatives and partners, while preserving the openness off a platform as a top priority.

This quarter, we continue to abate or community guidelines and enforcement to predict uses from harmful canton and we'll keep doing this work.

You too music mute your premium continue to expand globally and are now available in 71 countries.

In September you've launched its new fashion and beauty destination called Youtube slash fashion.

It's designed to meet the growing demand from consumers feel better ways to explore I'm kinda could 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 off their data.

This quarter, we extended one off or most popular feature some crewman you'd you'd called incognito mode to maps.

We expanded our order to lead controls to Youtube history. These controls already enable people to said their location history and wed been up activity due to be deleted automatically after three or 18 months.

And to protect everyone safety online be introduced password check up to new feature that dose users if any of their passwords or beat if they've been re used across multiple sites or if they've been compromise somewhere on the 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 surcharge for bidding our great gaining traction.

In fact more than half of hundred 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 the 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.

Held brands reach audiences at scale.

This quarter expanded inventory for our very popular apps campaigns to include new surfaces, including Youtube search display video ads and the discover feed.

We also launched you've mastered apps for TV, which enable advertisers to reach audiences right. When they open the you tube out on the connected TV.

One of its fastest growing screens.

It's also important for advertisers to have standardized measurement that span across all media and that delivers insights in the 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 help businesses understand the 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 businesses grow.

I got to visit Peacock Alley, abating netback manufacture in Dallas with somebody for employees.

They've been using Google ads for over 15 years to help drive traffic to their stores.

The E Commerce is growing 52% in the past here.

The credit the guidance Google amount of Dick's provides us with us Google shopping and product listing ads for that growth.

This isn't the only baby hubs small businesses grow and try.

Our grow with Google program has held train 3 million Americans and digital skills, including small business owners and entrepreneurs.

Just a few weeks ago, we announce it or I'd professional support so if he could training course will expand to hundred community colleges.

It's already held tens of thousands of people perceive fast growing both being carriers the Nike suppose.

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 have 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 supporting the construction of more than $2 billion, new energy infrastructure.

Including millions of solar panels, and hundreds of wind turbines across three continents.

On that our hardware to them and we announced that via committing to roughly $850 million inrone able to energy projects.

Key manufacturing regions.

Our hope is that this will spur even greater investments and sustainably.

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 but our main campus in mountain view.

It was great to see thousands of parents sticks, such pride and what their kids are building.

I feel the same be none of her work would be possible the daughter Googlers around the world. This quarter was another great example of the mission that brings is all together. Thank you now I'll turn it over <unk>.

Thank you Sundar in the third quarter total revenues of 40.5 billion were 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 changes 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's 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 Tac, which I will discuss in the 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 costs associated with our data centers and other operations, including depreciation followed by content acquisition costs, primarily for you tube and mostly for advertising supported content, but also for our newer subscription businesses you to premium and.

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 head count 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 or 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 here 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 it 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, we're extending fully driverless opportunities on a small scale to participants in our early writer 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 three d. 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 revenues were 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 we've 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 cloud continued to see significant growth in each region globally.