Q2 2020 Alphabet Inc Earnings Call
During this call we will present, both GAAP and non-GAAP financial measures reconciliation of non-GAAP to GAAP measures is included in todays earnings press release, which has distributed and available to the public through our Investor Relations website located at a DC Dot X Y Z slash investor and now I'll turn.
The call over to Sundar.
Thank you Jim and thank everyone for joining.
It certainly being a busy b and I'm glad to be here.
I hope everyone are staying safe and well all of us at Google continue to send our deepest gratitude to everyone on the front line for the pandemic all around the world.
I also want to personally thank all our employees, who continue to work so hard to make sure our products and services are available for every one right now.
People looking for important health information Hotheads businesses working to inform customers about opening hours, our delivery options or teachers connecting to their students.
The macroeconomic environment caused by the pandemic created headwinds for our business.
Our revenue declined on a reported basis and as flat year over year on a fixed FX basis.
Like other companies this quarter, we saw that early signs of stabilization as users return to commercial activity online.
This is true across most of our advertising verticals and geographies.
Of course that economy climate remains fragile.
One thing I'd like to call out is our continuing journey to investing and grow new businesses.
We delivered strong growth in our non AD revenues, particularly from cloud Google play and Youtube subscriptions.
This in turn is helping our partners there will a person creators earned revenue and deliver valuable services to people.
We are focused on the steps to build long term value with these opportunities.
Today I'll review the quarter by walking through the four key areas for 2020 that you've heard me mention over the last several quarters.
Creating the most helpful products for everyone, providing the most trusted experiences for our users executing at scale and creating sustainable value.
First creating the most helpful products for everyone.
This has been especially important during this time.
We are focused on providing locally relevant helpful. In authoritative information about coal would in over 70 languages and 200 countries.
There's been an enormous effort across search and all our products.
You do for example, engage with public health officials and over 90 countries and surfaces panels with locally relevant information in response to call. It 90 inquiry.
On Google maps and surge, we now display more than 12000 covered 19 testing centers across 20 countries working with local governments and data providers to source accurate and helpful information.
Using our technical capabilities, we are helping people find more information about local businesses, such as takeout curbside updated hours donations gift cards and virtual services.
But more kids at home, Google play launched a special kits tab with only teacher approved that.
And you tube, we're seeing traction with loan at home asset Thats, a virtual summer camp for kids call Camp Youtube plus a virtual Commencements series.
To help Indian Internet users, we announced the Google for India Digitization funds through.
Through this effort will invest approximately $10 billion over the next five to seven years to accelerate and participate in India's burgeoning digital economy.
Will enable information in local languages and apply technology Nei two important areas like health education and agriculture.
Geo platforms as a first partnership agreement in the fun and we'll work with them to help millions of users in India become owners of smartphones.
Second providing clustered experiences for our users.
Doing even more to predict uses privacy.
Keep information safe and provide high quality information was a key focus this quarter.
In one important update we now said people location history, and web and App activity to delete automatically after 18 months as the default.
We also integrated password checkup into our core security check up to help people detect any instance of the online accounts being compromised.
More than 100 million people have used.
And our 11 beta launched this quarter. Many new features to help people better managed to connected devices.
It contains a significant focus on privacy and security, including more granular control or app permissions and restrictions on apps usage of back on location.
Our exposure notification say pie for Android and iOS develop that Apple launched this quarter.
Designed to empower public health agencies to create apps to help fight the spread of call. It the strongest user privacy safeguards.
As of today authorities have rolled out official lapse in 12 countries to alert people that they were in contact with another person who tested positive for the wires and the addition, isolate and get tested we expect several more apps to launch in the next week or two including the first state apps in the U.S.
We're also focused on election security efforts around the globe, but its removing coordinated foreign influence operations.
Prevent tacking and fishing at times or enforcing our political AD policies that require transparency and prohibit narrow micro targeting.
Moving on now to executing at scale.
All businesses are adjusting to work from home and we are no exception.
While building products across distributor teams was a new for US this experience allowed us to make good use of our infrastructure investments and productivity tools.
Suite products in particular do we'll meet have been absolutely critical and we could quickly reengineered it and made it available widely to help millions of other businesses and organizations connect and collaborate.
One area, where we have executed really well to improve the user and merchant experience in the last year as shopping.
No that we and merchants face incredible competition for consumer attention and wallets, we're helping merchants lower their cost and improve their reach in a few weeks.
They can now listed products for free on the Google shopping tab and on search helping them drive more traffic and making ourselves more comprehensive and useful. We also recently announced that sellers on by on Google will no longer pay as a commission fee.
Yes, we are getting retailers more choice by opening our platform to third party providers, starting with Paypal and shopify.
Trumping adds also continued to be a great tool for merchants.
New visual features for retailers such as smart shopping campaigns that let customers know about free shipping we are continually adding more ways for advertisers to reach arpus.
Now, let me talk about a 40 area building sustainable value.
Which is all about driving business value for our partners and investing smartly new area.
In our advertising business, our focus is on helping businesses find customers as they work to rebuild and regular.
We gave search advertisers the ability to add high quality images to their ads.
Helping shoppers quickly see products to consider and take action faster.
We added features to make medio adds more easily shoppable and browse the below on Youtube as more businesses are shifting to online to offset physical store closures.
For Smbs, we are proud that so many are taking advantage of new features including smart campaigns to reach new online audiences and promoted pins on Google maps to let customers know their businesses that are open.
And to empower businesses to understand in an easy and visual way what products people are searching for during the special circumstances that coed 19 has created the rising retail categories to surface past growing product related categories.
As I mentioned earlier beyond advertising revenue, we see good traction in areas, such as Youtube subscriptions glue play and cloud.
You too premium music and TV subscriptions performed well during the quarter. We are seeing strong demand for these services and our adding content regularly including many viacom networks like.
BT and comedy Central.
In Q2, we will play happened game downloads are up more than 35% year over year, which means that revenue for developers continue to grow.
Let me go but deeper on plan.
In the first half of 2020 technology and innovation proved to be a significant recovery mechanism for businesses.
Those who are shifting to digital and embracing the spirit to innovate our evolving and growing.
Our commitment to bringing innovative products to market building and scaling our go to market organization on strength strengthening our partner network helped us continued to meet the growing needs of our customers this quarter.
We see two distinct trends as businesses embraced the future work.
First the future of business will be more digital.
Customers are choosing Google cloud to either lower their cost by improving operating efficiency or to drive innovation through digital transformation.
Sounds like curing Dr Pepper, Deutsche Bahn, lows, Telefonica, Orange and group or no.
And we are helping many government agencies deliver care for their citizens.
Including the states of Oklahoma in New York here in the U.S, and Italy, and Spain in Europe.
Second the future of work will be more collaborative virtual collaboration is critical in order to adapt and succeed in the change in global landscape.
In Q2, we saw continued demand from customers using G suite to help their employees work from home, including the pro in India and expanded our relationship with the state of Arizona here in the.
Our customers are using G suite tools across industries in new ways.
Whether it be financial advisors working with clients.
Doctors and nurses, turning to tele medicine or teachers educating students with remote learning.
In Q2, we peaked at more than 600 million meet participants in a single week.
As one example, pwc employees reached nearly 10 million hours of video conferencing, and Google meat in a single month.
To make collaboration easier for everyone. We introduced an integrated workspace for GE mail chat meat and drive on mobile and desktop.
Our cloud product strategy is differentiated and our investments in direct tailwind in direct distribution are beginning to delay orders.
Before ammo daughter beds I want to note that our hardware team continues to make good progress and I'm excited by the new upcoming devices, we have coming this fall.
And finally in our other bets.
Waymo announced that Fiat Chrysler automobiles will work that way more said strategic partner for El for autonomous technology crossed our full portfolio.
We also entered into a partnership agreement with the with Volvo car group to work together to integrate the Raimo driver into an all new electric vehicle platform for ride hailing services.
Finally, raimo closed its externally led investment drown, bringing the total funding to $3.2 billion, which includes investment from alphabet.
And when strong delivery service started delivering library books students in Virginia.
In closing an important in an uncertain time into world. We're all grappling with a pandemic and a struggling economy, but also reckoning with centuries of injustice that affect our black communities everyday.
John Lewis is federal today provides a timely reminder of the struggle.
In June we announced a significant package of commitments to help our black plus community internally at Google SLS, the wider black community.
This included product experiences that matter to black users, including the option for business owners to identify their business as black owned in Google maps and search.
We also announced a 175 million dollar economic opportunity package to support black business owners startup founders Jobseekers and developers in addition to Youtube hundred million dollar fun to amplify black creators in order.
They commit to contributing to long term meaningful change, both externally and within Google and with that I'll now turn it over to that.
Thanks Sundar.
We are cautiously encouraged by our results for the second quarter, although mindful of the fragile global economic environment.
Our advertising revenues gradually improved through the corner and our non advertising revenue line haul are strong performance, particularly Google cloud and play.
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 VAT conclude with our outlook for high will then take your questions.
Starting with consolidated Alpha that result, our total revenues in the second quarter were 30.3 billion.
2% year on year flat in constant currency.
You're on your declines in our advertising revenues from search and network or offset by growth in Google other on Google Cloud revenue.
Details of alphabet consolidated revenues by geographic region are available in our earnings press release.
Across each region, we saw a gradual improvement in revenue in the corner with some differences reflecting product mix.
In terms of their foreign exchange impact exchange rate movements resulted in approximately 2% headwind to reported revenue.
Regarding our key expense line on a consolidated basis.
Cost of revenues, including park with 18.6 billion up 7% year on year.
Other cost of revenues on a consolidated basis was 11.9 billion up <unk> 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 driven by content costs for you to TV and our paid you to music and premium subscription services.
Followed by cost for you to advertising supported content.
Operating expenses or 13.4 billion up 7% year on year.
Headcount growth with the largest driver of here on your growth for both R&D and you know.
Secondarily the increase in CNO reflects contributions mainly for covered response on reserves for estimate of credit losses of our customers.
The year on year decline in sales and marketing expenses was due to lower advertising and promotional spend as we pause or rescheduled campaigns.
It could digital format for flagship event.
All three categories benefited from lower T. any expenses.
Stock based compensation totaled 3.3 billion headcount was up 4450 from the first quarter again, the majority of new hires or engineers and product managers in terms of product areas. The most sizable headcount increases where again and Google cloud for both technical and sales rose.
Operating income was 6.4 billion down 30% year over year, and our operating margin in the quarter with 17%.
Other income and expense was 1.9 billion, which primarily reflects an unrealized increase in the market value of the equity securities.
We provide more detail on the line items within a Lionel and our earnings press release.
Our effective tax rate was 15.9% net income was $7 billion and earnings per diluted share or $10.13.
Turning now to Capex, an operating cash flow cash capex for the quarter was 5.4 billion, which I will discuss in the Google segment results.
Operating cash flow with 14 billion with free cash flow of 8.6 billion.
We repurchased $6.9 billion of our shares.
We ended the quarter with cash and marketable security of approximately 121 billion.
Let me now turn to our segment financial results.
Starting with our Google segment.
Revenue for 30 billion down 2% year over year.
I'll now go through the individual advertising revenue line.
Starting with Google search and other advertising revenues, we generated 21.3 billion in revenues in the quarter down 10% year over year in the aggregate with improvement as the quarter progress.
We saw a gradual return and users search activity to more commercial topics throughout the quarter.
Followed by an increase in spending by advertisers.
This resulted in an improvement year on year search revenue trends during the quarter with search revenues essentially flat to last year by the end of June.
You too advertising revenues were 3.8 billion up 6% year on year, driven by ongoing substantial growth in direct response.
Offset by continued decline in brand advertising, which then moderated toward the end of the quarter.
Network advertising revenues were 4.7 billion down 10% year on year with trends improving somewhat toward the ended the quarter as advertiser spend began to return.
Turning to Google cloud, including TCP and G suite revenues were 3 billion for the second quarter up 43% year over here.
TCP, maintaining a strong level of revenue growth it delivered in the first quarter and its revenue growth with it down meaningfully above cloud overall.
TCP growth was again led by our infrastructure offerings, and our data and analytics platform.
Overall, the lower Google cloud revenue growth in the second quarter relative to the first quarter reflects the fact that she sweet lapped a price increase that was introduced in April last year.
He suite maintained a healthy growth in average revenue per seat as well as in seat growth, which does not include customers, who took advantage of our free trials as they shifted their employees to work from home.
Other revenues were 5.1 billion up 26% year over year, primarily driven by growth in play and you tube non advertising revenue.
Within clay App revenues in the second quarter benefited from the impact of very strong growth and the number of active buyers with more people at home looking for entertainment.
And then you tube subscription revenues, we continued to benefit from subscriber growth across its series offerings.
Total traffic acquisition costs were 6.7 billion or 22% of total advertising revenues down 8% year over here.
Total Tac as a percentage of total advertising revenues was up slightly year over year.
Google operating income was 7.6 billion down 26% versus last year and the operating margin was 20%.
Google accrued capex for the quarter was 4.8 billion, reflecting investments in servers data centers and office facility.
Moving onto the performance of other bat.
The second quarter revenues were 140 million, primarily generated by fiber and barely.
The operating loss was 1.1 billion.
Let me and with our outlet as I said earlier adds revenue gradually improved during the quarter across search you too and network.
However, we believe it is premature to gauge the durability of recent trends given the obvious uncertainty of the global macro environment.
As we discussed on last quarters earnings call Global macroeconomic performance has tended to be correlated with AD spend and as a key signal to monitor.
Over the long term, we remain optimistic about the underlying strength of our business.
In terms of Google Cloud, we're pleased with the traction we're having with large customers, who are making multiyear commitments with us.
This is reflected in the strength of our backlog, which ended the quarter at 14.8 billion substantially all of which relates to Google Cloud. This performance is the result of the investments, we're making into the cloud go to market organization.
Google place Q2 results reflect growth in the number of new buyers with accelerated adoption as people stayed home.
Performance also reflects the significant investments we've made in the ecosystem to support developers and users.
Such as successful promotion and adoption of our partners absent games, and new locales around the world and expanding the availability of local forms of digital payments.
Moving on to profitability.
Decline in our search revenues put significant pressure on profitability, which was further impacted by our Gulf <unk> ongoing investments for long term growth.
As I discussed last quarter.
Much of our expense base, both in cost of revenues and Opex is not directly correlated with changes in revenue.
For example, although top and content acquisition costs are obviously tied to revenue.
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.
We remain focused on the user and customer experience.
We continue to invest to support our products.
With respect to operating expenses, although we still expect the pace at head count growth to decelerate somewhat in 2020, we're continuing to higher aggressively in priority areas like cloud, we still expect that head count additions will be seasonally higher in Q3, as we bring on new graduates.
Consistent with prior years, we expect sales and marketing expenses to be more heavily weighted to the back half of the year import impart to support product launches and the holiday season.
Turning to Capex, we continue to expect a modest decrease in the level of total capex and 2020 compared with last year.
This is particularly due to our decision to slow the pace at which we acquire office buildings in the near term as we focus on re imagining the optimal work environment.
This also reflects the slower pace of ground up construction for both our office facilities and data centers due to covert 19.
In terms of technical infrastructure as we discussed last quarter, we anticipate investment to remain at roughly the same level as in 2019 with relatively more spend on servers, then on data center construction and benefiting from our ongoing focus on server efficiency.
With respect to capital allocation or primary use of capital continues to be to support organic growth in our businesses followed by retaining flexibility for acquisitions and investments. We complement these growth drivers with a return of capital as we indicated in our press release today, Our board has authorized the repurchase of up to.
To an additional $20 billion.
Our class C stock, Thank you and Sundar and I will now take your questions.
Thank you as a reminder to ask a question you will need to press Star then one on your telephone to withdraw your question. Please pass to town key.
Typically he background noise, we ask that you. Please meet your line what your question has been state it.
And our first question comes from line, Eric Sheridan from U.P.S. Your line is now it seems.
Thank you, particularly question maybe two if I can person doing one on the commerce initiatives a lot of announcements from the company in the quarter moving towards sort of can you should free up before in both the albatross E. Commerce afterwards, well understand some of the moves you're making strategically as we think dispositions you broadly against obviously ecommerce land.
Keith achieving a lot of pulled forward penetration given the current environment and shrinking on you too obviously, a fairly volatile brands arbitrage to get burned a bit in TV and sometimes it will need some flux what does the opportunities both in the U.S. Yoo globally to go after sort of TV budgets or does the you tube umbrella. Thanks, so much.
On on.
On shopping.
No I spoke a little bit in my remarks, but really excited at the potential there you know team as Phoenix and getting a very well.
Overall, you know uses.
To go with a lot to find the products they're looking for.
But we see an opportunity to enlist and make the experience better.
Sometimes the journeys me failed because they don't find what they're looking for so we want to make sure. It's comprehensive next when people find what they like we want to make it simple for them to transact and so working on that into an experience as being a big focus and obviously, making shuffle merchants or you know really.
In making sure we're open to business for merchants.
We are giving value to them as being a has been to focus.
On the early early indications are that uses are responding.
Positively a you know both in terms of user engagement.
And more importantly, you know giving value back to margins for the investment there. So if somebody is it sort of done door first principles. They want to ensure that Google is the best place for you know merchants to kind of users and so I'm excited by it and you continue to see his focus in this area.
The second was on you tube brand or you know obviously you tube has been doing well in terms of engagement and watch time.
And so we see a long term opportunity there we've added strength on a direct response this fall through this quarter.
But on brand, which was your question you know we are obviously investing not just and you two main product you to previous walls and so you know adiosbarbie can offer a bundle advertisers are interested in streaming and some bringing that bundled together, especially dices enough friends through you tube select a you know.
Is it is a big opportunity as well so we are focused on that.
Thank you.
Thank you and your next question comes from Doug in minutes from JP Morgan. Your line is now open.
Thanks for taking the question I'm I've too.
First Ruth curious if you can just talk about the cost structure, a little bit more we know you will continue to invest to drive growth over the long term I'm just curious how you're thinking about does a good topline we do starts to recover more hopefully over coming quarters.
And then secondly, I know you said that a search trends were flat to last year by the end of June just curious if there's anything you could add drums or what you see more recently over the last month as well thanks.
I think to stack so in terms of.
Cost structure as as we talked about last quarter, we haven't focused on taking steps to enhance efficiency in the near term.
And that being said it as center and I, both net of what you're saying, it's the fact that we do remain focused on investing for the long term started breaking that down in cost of revenues, while tack and content acquisition costs are obviously tied to revenues I'm. There is a sizable percentage of other cots revenues that are not directly correlated.
With revenue growth.
I noted a in opening comments and and we are very focused on the user experience and the overall ecosystem. So we are investing to make sure that were supporting our products are they remain reliable and all environments and then in Opex.
Much of our operating expense is generally less variable and not necessarily correlating to revenues in the near term. So in terms a couple of the items you know, although we do continue to expect there on your head count growth rate to decelerate.
As I noted we are hiring aggressively in priority areas like cloud and so yeah, we're taking near term step to enhance efficiency, but still investing for the long term. So you know we're trying to make sure that we're hitting those those trade off that's trade offs right and as I noted.
We do expect the year on your head count growth rate in 2020 to be down somewhat from the 20% year on year late last year and that's even adjusting for two items that put upward pressure on head count growth you know that first we're moving certain customer support role from third party vendors to Googles in House Operation Center that it's actually.
Opex neutral, but does increase reported spend and then second depending acquisition if that that so we're trying to navigate it.
Appropriately in terms of your second question in terms of.
Search trends and what we saw throughout the quarter I'd say that following a rough and to the first quarter adds revenue gradually improved in the quarter not only in search, but you tube and network and so for search we ended March it up mid teens percentage decline in your.
On your revenues and then as we progressed through the second quarter, we saw a gradual return and use our search activity to more commercial topics and that was followed by an increase in spending by advertisers. So this that resulted in a gradual improvement and year on year search revenue trends in the second quarter. We ended basically flat to last year by the end.
At June.
And.
You know to carry it for it now that we're pleased that adds revenue gradually improved throughout the quarter as I said, we do believe it's premature to say that were out of the Leds given the fragile nature of the macro environment and as you're aware AD spend does tend to be correlated with macroeconomic performance and so the macro back.
Couple of continued to be a key signal to monitor but to your question based on our estimates from the end of June through left quarter. There has been a modest improvement in July.
Great. Thank you for the callers thank you.
Thank you and your next question comes from Heather Bellini from Goldman Sachs. Your line is now open.
Thank you so much I just wanted to ask a question on two questions related to Google Cloud if I could one sundar I was wondering if you could share with us how you seem to change and pace of customers migrating workloads to the cloud given to bid and I'm also wondering if you could share with us kind of the puts and takes in Microsoft talked about this.
A little bit last week with their as your business, but so those that have accelerated workload migration to the cloud how much has that offset the impacted industries or companies that you might be sure surveying, where there were seeing lower utilization than what they normally do as cloud capacity see if you can kinda talk about the puts and takes to the growth as well that'd be great.
Thank you.
Thanks to their Oh, we're all you know.
From my Vantage point.
You know, obviously with Google cloud a they've been in the seemed to scale up, especially on the people side on engineering and go to market and then obviously on a investment side with data centers cloud regions.
And so on and so for me it's been good to see Aspheres scaling up the are executing more effectively.
I've been personally mall in many many conversations last quarter, we had.
Many large customers I'm on the cloud big telco deals and banking views Deutsche Bank as an example, so overall I felt at the moment them with strong you know just generally folks like Ah things were continuing well through the course Uh huh.
It's more a secular interest in.
Digital transformation companies, a deeply thinking long term and planning for us So overall I felt.
As a momentum was there.
And I felt our execution I asked the are scaling up obviously they are scaling up a lot them. So it's you know the combination is working well.
Second question in terms of puts and takes you know overall I think there are.
You know I wouldn't.
I don't know, whether there's anything significant towards me highlighting you know obviously you are right to point out that it doesn't affect everyone. The same but you know nothing significant for me to highlight here today.
Thank you very much.
Thank you and your next question comes from Brian Nowak from Morgan Stanley. Your line is now one thing.
Thanks for taking my questions I've I've to the first one sundar yeah, we we try to always figure out given changes in consumer behavior. I guess, you know as as you have sort of been studying what people have been doing through shelter in place in from the way things are changing from a consumer perspective talk to us about areas Youre most focused on investing in.
And then in driving your teams to create new products to really help consumers with their their changing habits and then the second one Ruth you know I know, it's we certainly look ahead with potentially a larger percentage of the workforce work remote or work from home you know without looking for quantification, maybe just talk to us about some puts and takes areas, where do you could share their efficiency or.
Higher potential cost from a a larger percentage the workforce being remote over the long term. Thanks.
You know the on the first one you know when there is.
The shift online is profound you know we see people engaging in engaging a lot of doing new where things stand they did before people's interest of.
Our broad owning I would say oh across the board and and so for example, you know we are looking for me I'm looking at different types of use a journeys and making sure. The each of them is getting deeper and better. So for example in Google as people start coming for more.
I was related information how is that experience working thinking about that for the long term and investing in it and obviously spoke about shopping earlier and that's been a.
Big focus for us.
Education in general and.
And then we think the small medium businesses and a bigger companies you know thinking through collaboration Veggie Sweet sport and show lists or the investments we had a we're undertaking all that is pretty exciting to me you know, but I would say cutting underneath all that Ah you know maybe why do we didn't talk about it you know really.
He focused on our AI team's doing they miss means they need.
Evolving our next generation TP use and the teams building better them autos embedded I'll go to them all that a you know I think our ability <unk> ability to do more things a you know something I'm really interested in focused on as well. So that's something I'm excited about us along with them.
And then in terms of your question about work from home I, you know I think it's a it's a great point because obviously the so much into a lot of the product work that we're doing in cloud through T. suite et cetera. So at that that's where I would actually start but I. Appreciate what you're asking is how are we looking at our own cost base and.
We called that out last quarter in particular with respect to Capex and you can sort of see it here this quarter. The the main change and Capex has really been we slowed the pace on the office facilities front and what we're looking at is really how to reimagine, what the workplace well look like.
Like we continued to be very much focused on the fact that place and space are important we believe in collaboration Serendipity is key to innovation. So we do view space and office as important and are very focused on what does that mean over the the long term, we've actually opened quite a number of our offices and in fact in 40 countries and do hope to real.
And in many more but your question to what does it mean for overall cost structure, where we're looking at that and with the place you see it now is in our Capex and the way we've been looking at it and our indication that we do expect 2020 will be lower capex on the facility side as a result.
Great. Thank you both.
Thank you and your next question comes from Brent <unk> from Jefferies. Your line is now open.
Thank you I was just curious if you can just comment in terms of some of the near term business trends and anything that's changed as you've gone through the month of July versus what you saw in June.
I'm sure I I already commented on that with respect to to search you know it but tiburon it a bit more and again. This is based on estimates from the end of June through last week. So for you too we ended March with a year on year growth rate in the.
Hi single digits, and that's reflecting us substantial headwind from brand I'm the headwind from brand moderated modestly at the end of the second quarter and then when we saw further improvement in July.
Direct response has been consistently strong.
For network revenues improved toward the end of the second quarter and we have seen a further slight improvement in July.
Obviously three weeks, it's not a quarter, but that's you know based on the the estimates here from the end of June and then sender and I've always said you know when you look at for example, cloud it has maintained its strength.
Consistently and I, you know I'd say that that that with the business. It's growing at this pace its really much more about a secular trend to the move to cloud so really nothing to comment on there.
Thanks for the cone.
Thank you and your next question comes from Justin Post from Bank of America. Your line is smelting.
Great Sundar I don't know how much you can comment on the regulatory environment, but but it's obviously top of mind with the hearings yesterday.
Maybe just characterize it for forgive me right now and are you seeing any progress with the regulatory environment and then and then secondly, we saw the you tube TV price increase.
Pretty interesting business model, but longer term do you see that as really strategic really important for them to do you to brand or do you think you can you haven't really profitable business on that thank you.
You know on the on the regulatory front are you know weve obviously been.
Operating under scrutiny for Awhile and you know we realized.
Our scale you know that's appropriate than we have engaged a you know constructively across jurisdictions and.
You know from my standpoint.
You know okay.
Confident in the approach we take a are focused on uses and in every feet on the evidence and almost all ASV operate then we expand choice. So overall lower prices and it's a you know oral there's a very fast pace of innovation. So it's dynamic im confident dose having said that you know.
Lastly, you know we will.
All paid based on the roof and so to the extent that are any areas, where we need to adopt a we will and as a company I think we will be I think being flexible that on those things is important I think I think the scrutiny is going to be.
Here for a while and so we are committed to working through it.
On on the second question around a you tube a you tube TV yeah.
There is a you know me it's a good question I spoke earlier about even from a brand and how people think about or they are interested in streaming.
So as few TV gets more scale I think I think we will see more opportunities there be it obviously still into early stages of building out the product and.
And just you know recently, we've added a bunch of new channels and and ER and.
Making sure it's working well.
The U.S. you know the TV market is a big part of the advertising market too. So overall you know if he can invest here and scale up I think the synergies you to become more meaningful overtime and so a you know well you know so excited detection the product is getting but still too early.
Thank you.
Okay.
Thank you and your next question comes from Kevin repeat from Evercore. Your line is now open.
Hi, Thanks for taking my question. This one's for Sundar I was hoping you might be able to expand on the earlier comment you made about the.
Strategy, particularly wondering if there's been things over the past five months <unk>. We've done that you thought you know I'm expansion of your strategy or not lose group that strategy might be able to solve for or was that relates to sort of commercialization or monetization or a little anything across the business just really do occur.
Thank you.
You know area <unk>, which was.
First of all you know across the board you know the progress the steep so I'm very happy with the pace at which our R&D on AI is progressing.
And you know for me, it's important that to be a state of the ARCUS accompany a and b, a leading and and you know to me Im excited at the pace at which or engineering and R&D teams are working.
Both across a Google and and deep buying somebody excited about it.
Specifically, we are making good progress in areas like language understanding and Ah you saw some improvements lost here significant improvements in both in search, but you know, but took us a few years to get there, but things like that I see more stuff in the future and so excited by it and the idea that I think.
We have to understand vis-a-vis potential.
Definitely cloud you know, we see to put in show there.
But I think it's been related to Heather's question too I think companies are thinking about migrating workloads and so on but the longer on opportunity of actually using AI to truly have business solutions for you for whatever industry. You are in that seems like there's a lot of potential envious, two very already there and so part of it.
For us connecting the dots internally and bringing it up solutions to our users. We have done. It then a certain part a is but I I see this a bigger opportunity in the future.
Thank you.
Thank you and your next question comes from Ross Sandler from Barclays. Your line is now open.
Good I said two questions first on your subscription. So can you talk about the size of that that area of the business relative to that 50 billion.
We had or about 50% of total you to revenue and then how the faster growth in that area relative to advertising impacting.
You know your long term profitability goals that you too I.
The second question news on a search so it sounds like you know the flat.
Exit run rate you're on your is pretty encouraging if we took on travel I'm guessing, it's it's well above that so how would you characterize the query growth versus just the at auction dynamics, Oh sorta travel across younger categories, where we back to a pre covert levels.
In those areas. Thank you.
So in terms of that the first question, we haven't broken out the specifics within the you to subscription revenues you to you to subscriptions are another rather thing is it's not an advertising revenues and overall as we think about.
The opportunity our view is.
We talked about this only relaunching the subscription product it was really a responsive to what we're hearing from from users and for it you know if we look at it music is a key part of the overall you tube experience. It's an important component of watch time and what we found is that users wanted a and they want a choice and someone at a premium.
To experience with AD free viewing and the ability to download songs and videos and and that was really the impetus. In addition, you to premium provides additional revenue streams for music labels and publishers. So for example in in 2019, you to paint the music industry over $3 billion.
And what we've done is meaningfully ramp our geographic presence from five countries in the beginning of 2018 to 94 countries today and you know early this year, we announced that you to premium at more than 20 million paid subscribers up more than 60% versus the prior year.
So are you know our subscriber numbers have continued to grow there and it really was driven by the goal to give users choice.
Thank you and your next question comes from Colin Sebastian from Baird. Your line is now open.
Oh, Thanks, very much I guess, maybe a follow up to the earlier question on E Commerce.
Beyond the marketplace functionality and some of the free or promotional transactions I wonder how some of the other initiatives are going to play a role.
And things I'm thinking specifically or were you focus before on Google checkout and maps and some of the assistance functionality. How those me play a changing role in commerce I'm on the Google platform. Thank you.
Yeah. Great question, you know I think the bar is you know to have that you know super simple XP and such as delightful and that the of peace of mind them satisfaction in terms of getting the product and being able to that donor them so onto the into and fun. Other matters a lot then.
<unk> part of.
The reason light through the chain just couple of things. We've done you know as he saw we you know we change and you know either mode does commission for merchants to be on the platform and and part of it as a you know by Demoing bad or you know they can take that and invest and be chipping be Delaware a beat the customer.
Her experience and so that that's matters.
Matters I think the overall experience and from our standpoint, the buy on Google or experience is something which deeply missing in you know obviously, our integrations with pay Pal you know our investments.
Underlying had to make sure for.
You know a lot of fuses that it's as close to a one click experience as possible. It is a big part of the investment as well.
Thank you.
Thank you and your final question comes online Mark Me from RBC. Your line is now open.
Okay. Thanks, I want to ask a broad question about Google.
Place or position or whatever in online retailing I asked this because.
Goose also obviously been central search has been central but also you to spin central to Commerce online commerce for the last 20 years, we've gone through this pandemic, where there is a real inflection point she didn't Amazon's results, we see it and Shopifys results and I'm not sure. She then Googles result, so just talk about how you think broadly Google.
His position for that for what's really been like a two or three year pay for it and accelerated ramp up of online retail demand and I know you position to where you want to be position now are the things you need to make to the changes need to make the product and services to be better positioned thanks a lot.
You know, obviously I think as a company our strength comes from the divorce categories in which VSOE uses right and it's not just products and services its white areas, including areas like travels so so its diversified and.
But it also means through uptime to make that are areas of strength, but there are areas of EUR 80, assai, you'll get impacted as well. So I think that's what it's reflected.
In what you see on E Commerce, you're right there at the ecommerce providers are seeing a big inflection point, but in a dollar essential categories like grocery some stuff, which are both in which we don't directly playing but to us. The reason we are doing this long term focused effort on shopping a with the new.
Leadership team is to precisely make sure as a as a platform.
We are improving and asked them to ask the shift continues.
Uhhuh continues to be a important place play, which people come and participate in those journey. So long run I see a growth opportunity with related to.
What we are investing in in that as well not just through search, but a search in the shopping investments, we're making but then you tube a you tube and also helping retailers on the cloud side, it's an area where theres naturally is naturally a lot of interest or two to work to partner with Google infill.
He that as a big opportunity as well.
Thank you Sir.
Thank you and that concludes your question answer session for today I'd like to turn the conference back over to Jim freelance for any closing remarks.
Thanks, everyone for joining us today, we know you all have a busy evening, we look forward to speaking with you again on our third quarter 2020 call. Thank you and have a good evening.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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