Q3 2023 Alphabet Inc Earnings Call

Welcome everyone. Thank you for standing by for the alphabet third quarter 2023 earnings Conference call.

At this time all participants are in listen only mode. After the speaker presentation, there will be a question and answer session.

Ask a question during the session you will need to press star one on your telephone I would not like to hand, the conference over to your speaker today, Jim Friedland Director of Investor Relations. Please go ahead.

Thank you good afternoon, everyone and welcome to alphabet third quarter 2023 earnings conference call with US today are Sundar, Pichai, Philipp Schindler and Ruth correct.

Now I'll quickly cover the safe Harbor some of the statements that we make today regarding our business operations and financial performance may be considered forward looking such statements are based on current expectations and assumptions that are subject to a number of risks and uncertainties.

Actual results could differ materially.

Please refer to our Form 10-K, including our risk factors section and their Form 10-Qs.

We undertake no obligation to update any forward looking statement.

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.

It is distributed and available to the public through our Investor Relations website located at a B C Dot xyz forward slash investor.

Our comments will be on year over year comparisons unless we state otherwise.

And now I'll turn the call over to Sundar.

Thank you, Jim and Hello, everyone I'm pleased with our business results this quarter, which demonstrates strong growth in search and Youtube.

The momentum in cloud.

Who will turn 25 in September which offered an opportunity to reflect on our progress over the last quarter century and to look ahead to the opportunities enabled by AI. We are so excited and confident about.

Our product momentum continued this quarter as you saw with cloud next made on Youtube and made by Google.

It's all part of our focus on making a more helpful for everyone and we are making good progress across the four areas that we shared last quarter.

First improving knowledge and learning.

This includes our work with the third generate a experience, which is our experiment to bring generative AI capabilities into search.

We've learned a lot from people trying it and we've added new capabilities like incorporating videos and images into responses and generating imagery.

We've also made it easier to understand and debug generated code.

Direct user feedback has been positive with strong growth and adoption.

In August we opened up availability to India, and Japan with more countries and languages to come.

As we add features and expand into new markets, we are engaging with the broader ecosystem and we'll continue to prioritize approaches that add value for our users send valuable traffic to publishers and support a healthy open internet.

But generally I apply to search we can serve a wider range of information needs and answer new types of questions, including those that benefit from multiple perspectives.

We are surfacing more lengths with S G and linking to a wider range of sources on the results page, creating new opportunities for content to be discovered.

Of course ads will continue to play an important role in this new search experience.

People are finding adds helpful here as they provide useful options to take action and connect with businesses.

We'll experiment with new formats native to S. G that used generative AI to create relevant high quality ads customized to every step of the third journey.

The second area, we are focused on is boosting creativity and productivity.

What is particularly helpful. Here, it's a direct interface to a conversation I, let alone and we think of it as an early experiment and complementary experience to Google search.

Bart can now integrate with Google apps and services showing relevant information from workspace maps, Youtube and Google flights and hotels.

They have also improved the gulet feature.

It provides other sources to help people evaluate bart's responses and explore information across the web.

Earlier, this month, we announced assistant with Bard.

Personal assistant powered by a generator of AI.

It combines barge generator and reasoning capabilities with assistance personalized health.

You can interact with it through text voice or images and in the coming months youll be able to opt in on Android and iOS mobile devices.

Unknown Attendee: Welcome everyone. Thank you for standing by for the Alphabet third quarter 2023 earnings conference call. At this time, all participants are in listen only mode.

Our collaborative tools and workspace on Youtube are also part of how we boost creativity and productivity and they are seeing great initial traction.

Unknown Attendee: After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one on your telephone.

Third we are enabling developers businesses and other organizations to build their own transfer made of products and services for.

For example, thousands of customers and partners are already using Google cloud to capture the potential of AI and we'll share more there in a minute.

Jim Friedland: I would not like to hand a conference over to your speaker today, Jim Friedland, Director of Investor Relations. Please go ahead. Thank you.

Jim Friedland: Good afternoon everyone and welcome to Alphabet third quarter 2023 earnings conference call. With us today are Sundar Pichai, Philip Schindler, and Ruth Porat. Now I'll quickly cover the safe harbor. Some of the statements that we make today regarding our business operations and financial performance may be considered forward looking. Such statements are based on current expectations and assumptions that are subject to a number of risks and uncertainties. Actual results could differ materially.

And fourth we are building and deploying AI responsibly, so that everyone can benefit.

One area. We are focused on is making sure people can more easily identify.

When they are encountering AI generated content online.

Using new technology powered by Google Deep mine Syntality images generated by vertex AI can be watermarked in a way that is invisible to the human eye without reducing the image quality.

Jim Friedland: Please refer to our form 10K, including our risk factor section and our form 10Qs. We undertake no obligation to update any forward looking statement. During this call, we will present both GAAP and non-GAP financial measures. A reconciliation of non-GAP 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 abc.xyz forward slash investor. Our comments will be on your your comparisons unless we state otherwise.

Underlying all of this work is the foundational research done by our teams at Google Deep mine and Google Research we.

We are excited to rollout more of what they have been working on soon.

As we expand access to our new AI services, we continue to make meaningful investments in support of our AI efforts.

We remain committed to Durably reengineering, our cost base in order to help create capacity for these investments in support of long term sustainable financial value.

Across alphabet teams are looking at ways to operate as effectively as possible focused on the biggest priorities.

Sundar Pichai: And now I'll turn the call over to Sundar. Thank you Jim and hello everyone. I'm pleased with our business results this quarter, which demonstrates strong growth in search in YouTube and momentum in cloud.

Yeah.

Turning next to Youtube, which saw solid momentum in both its ads and subscription businesses in Q3.

Sundar Pichai: Google turned 25 in September, which offered an opportunity to reflect on our progress over the last quarter century. And to look ahead to the opportunities enabled by AI, we are so excited and confident about our product momentum continued this quarter as you saw with cloud next made on YouTube and made by Google. It's all part of our focus on making AI more helpful for everyone and we are making good progress across the four areas that we shared last quarter.

NFL Sunday ticket is now live and receiving excellent reviews.

Fans love, our multi view feature which can livestream up to four games on a single screen.

We've heard positive feedback from our partners. So their NFL about the new features and live stream reliability.

There is a clear example of our ability to execute big partnerships with excellence and at scale.

I'm really pleased with the growth in engagement on Youtube shots.

We continue to work on closing the monetization gap here shots now average over 70 billion daily views and are watched by over 2 billion signed in users every month.

Sundar Pichai: First, improving knowledge and learning. This includes our work with the search generative experience, which is our experiment to bring generative AI capabilities into search. We've learned a lot from people trying it and we have added new capabilities like incorporating videos and images into responses and generating imagery. We've also made it easier to understand and debug generated code. Direct use of feedback has been positive with strong growth and adoption. In August, we opened up availability to India and Japan with more countries and languages to come.

At made on Youtube in September, we announced new tools that make it easier to create engaging content.

Dream screen as an experimental feature that allows creators to add AI generated video are image backgrounds to shots.

And Youtube create as a new mobile app with a suite of production tools for editing shots longer videos or both.

Next Google cloud.

Seek continued growth with Q3 revenue of $8 $4 billion up 22%.

Sundar Pichai: As we add features and expand into new markets, we are engaging with the broader ecosystem and will continue to prioritize approaches that add value for our users. Then valuable traffic to publishers and support a healthy open internet with generative AI applied to search. We can serve a wider range of information needs and answer new types of questions, including those that benefit from multiple perspectives. AdSense. We are surfacing more links with SGE and linking to a wider range of sources on the results page creating new opportunities for content to be discovered.

Today more than 60% of the world's thousand largest companies, our Google cloud customers.

At cloud next we showcased amazing innovations across our entire portfolio of infrastructure data and AI workspace collaboration and cyber security solutions.

We offer advanced AI optimized infrastructure to train and serve models at scale and today more than half of all fund agenda anyway, I startups, our Google cloud customers. This includes AI 'twenty, one labs contextual elemental cognition writer and more.

Sundar Pichai: Of course, ads will continue to play an important role in this new search experience. People are finding ads helpful here as they provide useful options to take action and connect with businesses. We'll experiment with new formats native to SGE that use Generative AI to create relevant high-quality ads customized to every step of the search journey.

Continued to provide the widest choice of accelerator options or <unk> powered by Nvidia is hedged 100, GPU are generally available and we are winning customers with cloud TPU V. Fyvie, our most cost efficient and versatile accelerator to date.

On top of our infrastructure, our vertex AI platform helps customers build deploy and scale AI powered applications.

Sundar Pichai: The second area we are focused on is boosting creativity and productivity. Bord is particularly helpful here. It's a direct interface to a conversational Earlier this month, we announced Assistant with Bord, a personal assistant powered by Generative AI. It combines Bord's generative and reasoning capabilities with assistance personalized help. You can interact with it through text, voice or images, and in the coming months, you'll be able to opt in on Android and iOS mobile devices. Our collaborative tools in workspace and YouTube are also part of how we boost creativity and productivity, and they are seeing great initial traction.

We offer more than 100 models, including popular third party and open source models.

As well as tools to quickly build search and conversation use cases.

From Q2 to Q3, the number of active generate away I projects on vertex AI grew by seven acts, including Highmark health, which is creating more personalized member materials.

Do what AI was created using Google's, leading large foundation models, and especially trained to help users to be more productive on Google cloud.

We continue expanding its capabilities and integrating it across a wide range of cloud products and services.

We'd do it AI, we are helping leading brands like Paypal and Deutsche Bank boost developer productivity and.

And we are enabling retailers like our ixia and Jim sharp to gain new insights for better and faster business results in.

In fact companies are increasingly using AI for the purpose of finalizing data and customers are choosing Google cloud because we are the only large cloud provider with a unified platform to analyze structured and unstructured data.

Sundar Pichai: Third, we are enabling developers, businesses, and other organizations to build their own transformative products and services. For example, thousands of customers and partners are already using Google Cloud to capture the potential of AI and will share more there in a minute. Fourth, we are building and deploying AI responsibly so that everyone can benefit. One area we are focused on is making sure people can easily identify when they are encountering AI-generated content online.

In workspace thousands of companies and more than a million trusted testers have used to what they are.

They are writing and refining content and Gmail docs, creating originally majors from text within slides organizing data and sheets and more.

These innovations enabled us to provide new services and grow our base of 10 million paying customers, including enterprises like Grupo Buchi, Cardio Unilever and Warner music.

Sundar Pichai: Using new technology powered by Google DeepMind SynthID, images generated by vertex AI can be watermarked in a way that is invisible to the human eye without reducing the image quality. Underlying all this work is the foundational research done by our teams at Google DeepMind and Google Research. We are excited to roll out more of what they've been working on soon. As we expand access to our new AI services, we continue to make meaningful investments in support of our AI efforts.

We also integrated do what AI across our cyber security portfolio to differentiate in the marketplace.

<unk> generated by AI powered assistance and Mandy and threat Intelligence Chronicle security operations and Security Command Center.

This reduces the time security teams spend writing running and refining searches by seven times.

We are the only leading security provider that combines frontline intelligence and expertise.

Sundar Pichai: We remain committed to durably re-engineering our cost base in order to help create capacity for these investments in support of long-term, sustainable financial value. Across alphabet, teams are looking at ways to operate as effectively as possible focused on their biggest priorities.

Modern security operations platform and a trusted cloud foundation, all infused regenerative AI, helping protect customers and partners like BT.

Jack Henry and associates and cover my Meds.

Turning to hardware.

Sundar Pichai: Turning next to YouTube, which saw solid momentum in both its ads and subscription businesses in Q2. N.F.L. Sunday, T.K, is now live and receiving excellent reviews. Fans love our multi-view feature which can live stream up to four games on a single screen. We have heard positive feedback from our partners at the N.F.L, about the new features and live stream reliability. This is a clear example of our ability to execute big partnerships with excellence and its scale.

We unveiled a new product. This month, we introduced our new Pixelate Pixelate pro and pixel watch due to very positive consumer feedback and reviews.

Pixel is the fastest growing smartphone brand in our top markets and the only one that grew in units sold year over ear.

Our portfolio of pixel products are brought to life. Thanks to a combination of foundational technologies, AI, Android and Google tensor.

Google tensor G. III is the third generation of our Taylor Belk chip designed to power transfer made of experiences by bringing the latest in Google AI research directly to our newest phones.

Sundar Pichai: I'm really pleased with the growth and engagement on YouTube shots. We continue to work on closing the monetization gap here. Shots now average over 70 billion daily views and are watched by over 2 billion signed in-uses every month.

Our new AI powered editing features and Google photos on Pixelate, then Pixelate pro remote distractions generate the best shot from multiple imagers and reduce distracting sounds and videos.

Sundar Pichai: At made on YouTube in September, we announced new tools that make it easier to create engaging content. Dream screen is an experimental feature that allows creators to add AI-generated video or image backgrounds to shots. And YouTube create is a new mobile app with a suite of production tools for editing shots, longer videos, or both.

Pixel and our third party ecosystem are powered by Android.

We just released Android 14 with more accessibility features.

I also want to mention Chromebooks, plus a new category, which provides the best of chrome on great hardware.

With built in Google apps and powerful AI capabilities.

Sundar Pichai: Next, Google Cloud. We seek continued growth with Q3 revenue of $8.4 billion up 22%. Today, more than 60% of the world's thousand largest companies are Google Cloud customers. At Cloud Next, we showcase amazing innovations across our entire portfolio of infrastructure, data and AI, workspace collaboration, and cybersecurity solutions. We offer advanced AI-optimized infrastructure to train and serve models at scale. And today more than half of all funded generative AI startups are Google Cloud customers.

We also shared that chromebooks will now get regular automatic updates for 10 years.

More than any other operating system.

In other words, Weibo's onboarding more riders to its commercial ride hailing service as it gradually adds over 100000 people from its San Francisco Waitlist.

Austin will follow as its next ride Hail city.

Windon, Walmart announced a new partnership to provide drone delivery service in the Dallas Fort worth area.

Before handing over to Filip I want to thank our employees around the world who are working to create innovative products and provide great services to people and businesses, who use our products Philip.

Sundar Pichai: This includes AI-21 labs, contextual, elemental cognition, rider and more. We continue to provide the widest choice of accelerator options. Our A3 VMs powered by NVIDIA's H100 GPU are generally available. And we are winning customers with Cloud TPU V5E, our most cost efficient and versatile accelerator to date. On top of our infrastructure, our Vertex AI platform helps customers build, deploy and scale AI-powered applications. We offer more than 100 models, including popular third party and open source models, as well as tools to quickly build search and conversation use cases.

Thanks, Sundar and hi, everyone.

I'll start with our performance for the quarter and then give color into the three key priority areas for ads, Google AI retail and Youtube that we've identified on past calls there's opportunities for long term growth in advertising.

Google services revenues of 68 billion were up 11% year on year.

And Google advertising search and other revenues grew 11% year on year led by solid growth in the retail vertical.

On Youtube ads revenues were up 12% year on year, driven by growth in both brand and direct response and network revenues declined 3% year on year.

Google other revenues were up 21% year on year led by strong growth in Youtube subscription revenues.

Sundar Pichai: From Q3 to Q3, the number of active generative AI projects on Vertex AI, grew by 7x, including high mark health, which is creating more personalized member materials. Duet AI was created using Google's leading large foundation models, and is specially trained to help users to be more productive on Google Cloud. We continue expanding its capabilities and integrating it across a wide range of cloud products and services. With Duet AI, we are helping leading brands like PayPal and Deutsche Bank boost developer productivity.

Let's start with Google AI recent dramatic advances in everything from foundational research models to L. O Lamster generative AI are improving our ability to deliver better performance and profitability for advertisers and more helpful delightful experiences for users.

We covered many innovations last quarter after GMO like our conversational experiencing Google ads significant updates to performance mix and new campaign types like demand Gen.

And as Sundar said, we're continuing to experiment with new AD formats on S. G. It's extremely important to US and then this new experience advertisers still have the opportunity to reach potential customers along the search journeys.

Sundar Pichai: And we are enabling retailers like Arithia and Jim Shark to gain new insights for better and faster businesses. Sales. In fact, companies are increasingly using AI for the purpose of analyzing data and customers are choosing Google Cloud because we are the only large cloud provider with a unified platform to analyze structured and unstructured data. In workspace, thousands of companies and more than a million trusted testers have used to a AI. They are writing and refining content in Gmail and Docs, creating original images from text width and slides, organizing data and sheets and more.

I'll highlight more waste, we're innovating with the best of Google AI as we double click into our core business.

In retail we had a great quarter.

In a market where every dollar counts are proven AI powered solutions like search and Pemex are helping retailers drive reliable strong ROI and meet customers wherever they are across the funnel.

In Q3, we also started prepping retailers for what will be a long holiday season.

Sure some things.

Number one with a maximum number of days between Thanksgiving and Christmas and expectations for many micro peaks beyond cyber five we're arming businesses with insights and planning tools, including <unk> score and performance planner to uncover new opportunities planned budgets and targets to stay competitive and be smarter with their inventory and pricing strategies.

Sundar Pichai: These innovations enable us to provide new services and grow our base of 10 million paying customers, including enterprises like Group of Butchikario, Unilever and Warner Music. We also integrated DuaTAI across our cyber security portfolio to differentiate in the marketplace, providing generative AI-powered assistance in mandate and threat intelligence, chronicle security operations and security command center. This reduces the time, security teams spend writing, running and refining searches by seven times. We are the only leading security provider that combines frontline intelligence and expertise, a modern security operations platform and a trusted cloud foundation, all infused with generative AI, helping product customers and partners like BT, Jack Henry and associates and cover my mess.

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Number two consumer expectations are shifting especially around price and convenience we've seen four X deals Korea during the holidays or this other periods.

75% of users to be able to shop with those offering free shipping.

Retailers are capitalizing on these trends with our differentiated merchant offerings like merchant promotions and fulfillment options and we're making improvements to significantly boost the number of deals shown to shoppers and search. This holiday season look out for more in the coming days about new ways will help shoppers browse deals across the web this year.

Number three no surprise Omnichannel is the way to succeed with our suite of omni product solutions, including local inventory ads omni bidding N P. Mexico store goals retailers big and small are capturing demand and incremental store budgets, while engaging with high value customers.

Innovation continues across our shopping and merchant experiences powered by Google AI.

Sundar Pichai: Turning to hardware, we unveiled our new product this month. We introduced our new pixelate pro and pixel watch 2 to very positive consumer feedback and reviews. Pixel is the fastest growing smartphone brand in our top markets and the only one that grew in units sold year over year. Our portfolio of pixel products are brought to life thanks to our combination of foundational technologies, AI, Android and Google Tensor. Google Tensor G3 is the third generation of our tailor-built chip designed to power transformative experiences by bringing the latest in Google AI research directly to our newest phones.

Our virtual try on tool for apparel launched in June and has been a hit with consumers and brands users engage with virtual try on images at a higher rate or is this a regular brand provided images.

Product studio is another launch from Gmail getting positive feedback in pilot mode and use the best of Jennie O I to help businesses create unique and tailored imagery for free that they can then scale across their channels. We're seeing early merchant test us using it to seasonal wise the content for the holidays.

Let's shift to Youtube.

Worth repeating our intense focus on creator success, coupled with our multi format strategy are at the center of how we think about youtube's longterm growth shorts connected TV and our subscription offerings are key drivers here and we're investing across each to solidify <unk> position as the best place to create the best place to watch the best place to do.

Sundar Pichai: A new AI-powered editing features and Google photos on pixelate and pixelate pro, remote distractions generate the best shot from multiple images and reduce distracting sounds in videos. Pixel and our third-party ecosystem are powered by Android. We just released Android 14 with more accessibility features.

Deliver results.

Sundar mentioned watch time and engagement momentum on shorts as well as our monetization progress. He also covered subscription growth and NFL Sunday ticket.

Sundar Pichai: I also want to mention Chromebooks Plus, a new category which provides the best of Chrome on great hardware with built-in Google apps and powerful AI capabilities. We also shared that Chromebooks will now get regular automatic updates for 10 years more than any other operating system.

As for connected TV, we continue to be the number one overall streaming destination according to Nielsen.

150 million plus people are watching Youtube on CTV screens every month in the U S.

Whether it's music videos NFL Sunday ticket free movies shorts, a continuous stream of Mr. Beast or some other creator led content viewers want choice and variety and we're giving it to them all in one place.

Sundar Pichai: In other bets, weimos onboarding more riders to its commercial ride hailing service as it gradually adds over 100,000 people from its San Francisco waitlist. Austin will follow as its next ride hail city. Wingden Wal-Mart announced a new partnership to provide drone delivery service in the Dallas Fort Worth area. India.

And to help creators and advertisers connect with these billions of euros across moments screens and formats, we're bringing Google AI to awesome, new creation tools in AD solutions.

I will do wonders for creation and storytelling from dream screen, and Youtube, Krage, which sundar talked about to futures that ordered up content in multiple languages flip interim existing assets Remixing could videos and more we're just getting started.

Philippe Schindler: Before handing over to Philippe, I want to thank our employees around the world who are working to create innovative products and provide great services to people and businesses who use our products. Philippe. Thanks, Sundar, and hi everyone.

We're also helping brands breakthrough at speed and scale across the funnel to drive results.

Philippe Schindler: I'll start with our performance for the quarter and then give color into the three key priority areas for ads. Google AI, Retail, and YouTube that we've identified on path calls as opportunities for long-term growth and advertising. Google services revenues of 68 billion were up 11% year on year. In Google advertising search another, revenues grew 11% year on year led by solid growth in the retail vertical. In YouTube ads, revenues were up 12% year on year driven by growth in both brand and direct response. In network, revenues declined 3% year on year. Google other revenues were up 21% year on year led by strong growth in YouTube subscription revenues.

Spotlight moments launched last week and use AI to identify trending content around major cultural moments her brand sponsorship opportunities.

There's video reach campaigns, which are expanding to in feed and short and will be generally available in November AI.

It's helping advertisers find as many people as possible in their ideal audience for the lowest possible price.

Early tests are delivering 54% more reach at 42% lower cost.

And then with video view campaigns AI surfing skippable ads across in stream in feed and shorts and helping advertisers or the maximum number of views at the lowest possible cost.

So far they're driving 40% more viewers on average versus in the stream alone.

Philippe Schindler: Let's start with Google AI. Recent dramatic advances in everything from foundational research models to LLM to generate if AI are improving our ability to do the better performance and profitability for advertisers and more helpful, delightful experiences for users. We covered many innovations last quarter after GML, like our conversational experience in Google ads, significant updates to performance max and new campaign types like Demand Gen. And as Sundar said, we're continuing to experiment with new ad formats on SGE.

Then for Youtube and other feed based surfaces Theres, a new dimension campaign, which launched in April rolled out worldwide last week and was designed for the needs of today's social marketers to engage people as they stream scroll and connect.

It combines video and image ads in one campaign with access to a 3 billion use us across Youtube and Google and the ability to optimize and measure across the funnel using Google AI.

Dementia and is already driving successful brands like Samsung and Toyota.

Philippe Schindler: It's extremely important to us that in this new experience advertisers still have the opportunity to reach potential customers along the search journeys. I'll highlight more ways we're innovating with the best of Google AI as we double-click into our core business.

Before I wrap one quick highlight on our close collaboration and commitment to our most important ecosystems of partners.

In July we launched Google News showcase in the U S. Our curated online user experience and licensing program with more than 150 news publications, 90% of which are local or regional.

Philippe Schindler: In Retail, we had a great quarter. In a market where every dollar counts are proven AI-powered solutions like search and p-max are helping retell us drive reliable strong ROI and meet customers wherever they are across the funnel. In Q3, we also started prepping retailers for what will be a long holiday season.

Globally over 2500 news publications have signed onto news showcase the product is live in 23 countries today.

Our commitment to open access to news and information remains strong.

With that I'll end with a thank you to our customers and partners around the world for their continued trust and collaboration.

Philippe Schindler: Let me share some themes. Number one, with a maximum number of days between Thanksgiving and Christmas and expectations for many micro-peaks beyond cyber-5, we're arming businesses with insights and planning tools, including OptiScore and Performance Planner, to uncover new opportunities, planned budgets and targets to stay competitive and be smarter with the inventory and pricing strategy. Number two, consumer expectations are shifting, especially around price and convenience. We've seen 4x deals queries during the holidays versus other periods.

Googlers everywhere for their incredible hard work and dedication roof over to you.

Thank you tell up we are very pleased with our financial results for the third quarter, driven by meaningful growth in search and Youtube and momentum and cloud my comments will be on a year over year comparisons for the third quarter unless I state otherwise I will start with the results at the alphabet level, followed by segment results and conclude with our <unk>.

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For the third quarter, our consolidated revenues were $76 7 billion up 11% in both reported and constant currency search remained the largest contributor to revenue growth in terms of expenses total cost of revenues was $33 2 billion up 7% primarily.

Philippe Schindler: 75% of users say they'll shop with those offering free shipping. Retailers are capitalizing on these trends with our differentiated merchant offerings like merchant promotions and fulfillment options. And we're making improvements to significantly boost the number of deals shown to shoppers and search this holiday season. Look out for more in the coming days about new ways we'll help shop as pros deals across the web this year.

Reflecting other cost of revenues of $20 6 billion, which was up 6%.

Philippe Schindler: Number three, no surprise, OmniChannel is the way to succeed. With our suite of Omni product solutions, including local inventory ads, Omni bidding and p-max for store goals, retailers begin small capturing demand and incremental store budgets while engaging with high-value customers. Innovation continues across our shopping and merchant experiences powered by Google AI.

Growth here was primarily driven by content acquisition costs, mainly for Youtube subscription offerings.

As noted in our earnings release, the overall increase in data center and other operations costs was partially offset by a reduction in depreciation expense due to the change in estimated useful lives. We made starting in the first quarter of the year.

Philippe Schindler: Hi, our virtual trial and tool for a peril launched in June and has been a hit with consumers and brands. Users engage with virtual trial and images at a higher rate versus regular brand provided images. Product Studio is another launch from GML getting positive feedback in pilot mode. It uses the best of Gen AI to help businesses create unique and tailored imagery for free, that they can then scale across their channels. We're seeing early merchant testers using it to season wise the content for the holidays.

Operating expenses were $22 1 billion up 6%, reflecting the following first an increase in R&D expenses, driven primarily by compensation second an increase in G&A expenses, reflecting the impact of charges related to legal matters and finally sales.

Marketing expenses, which were relatively flat to last year.

Operating income was $21 3 billion up 25% and our operating margin was 28% other.

Philippe Schindler: Let's shift to YouTube. It's worth repeating, our intense focus on creator success coupled with our multi-format strategy are at the center of how we think about YouTube's long-term growth. Short, connected TV and our subscription offerings are key drivers here, and we're investing across each to solidify YouTube's position as the best place to create, the best place to watch, and the best place to deliver results. Sundar mentioned watch time and engagement momentum on shorts as well as our monetization progress.

Other income and expense was a loss of $146 million.

Net income was $19 7 billion. This reflects an effective tax rate of 7% in the third quarter from an IRS change related to the use of foreign tax credits, which had an outsized impact on the third quarter right because the change resulted in a catch up for prior periods.

Philippe Schindler: He also covered subscription growth and NFL Sunday ticket. As for connected TV, we continue to be the number one overall streaming destination according to Nielsen. 150 million plus people are watching YouTube on CTV screens every month in the U.S. Whether it's music videos, NFL Sunday ticket, free movies, shorts, a continuous stream of Mr. Beast or some other creator-led content, viewers want choice and variety, and we're giving it to them all in one place.

We delivered free cash flow of $22 6 billion in the third quarter and 78 billion for the trailing 12 months, we ended the quarter with $120 billion in cash and marketable securities.

As a reminder, our cash balance and free cash flow in the second and third quarters benefited from the deferral of certain tax payments to the fourth quarter of 2023.

As noted in our earnings release on October 16th we made an estimated tax payment of $10 5 billion related to this deferral, which will be reflected in our cash balance and free cash flow in the fourth quarter.

Philippe Schindler: And to help creators and advertisers connect with these billions of viewers across moments, screens and formats, we're bringing Google AI to awesome new creation tools and ad solutions. AI will do wonders for creation and storytelling. From dream screen and YouTube create, which Sundar talked about, to features that audit up content in multiple languages, flip-end trim existing assets, remix and cut videos, and more, we're just getting started. We're also helping brands break through its speed and scale across the funnel to drive results.

Turning to segment results within Google Services revenues were 68 billion up 11%.

Search and other advertising revenues of 44 billion in the quarter were up 11% led again by growth in retail.

Youtube advertising revenues as 8 billion were up 12% driven by both brand advertising and direct response.

Network advertising revenues of $7 7 billion were down 3% other.

Philippe Schindler: Sput-like moments launched last week. It used AI to identify trending content around major cultural moments for brand sponsorship opportunities. There's video reach campaigns, which are expanding to in-feed and short and will be generally available in November. AI is helping advertisers find as many people as possible in their ideal audience for the lowest possible price. Early tests are delivering 54% more reach at 42% lower cost. And then with video view campaigns, AI is serving skippable ads across in-stream in-feed and shorts and helping advertisers earn the maximum number of views at the lowest possible cost. So far they're driving 40% more views on average versus in-stream alone.

Other revenues were $8 3 billion up 21%, primarily reflecting growth in Youtube non advertising revenues driven by subscriber growth in Youtube TV, followed by Youtube music premium tier.

<unk> was $12 6 billion up 7% Google services operating income was $23 9 billion up 27% and the operating margin was 35%.

Turning to the Google Cloud segment revenues were $8 4 billion for the quarter up 22% D. C. P revenue growth remained strong across geographies industries and products, although the Q3 year on year growth rate reflects the impact of customer optimization efforts.

Philippe Schindler: Then for YouTube and other feedback surfaces, there's our new demand-gen campaign, which launched in April, rolled out worldwide last week and was designed for the needs of today's social marketers to engage people as they stream, scroll and connect. It combines video and image ads and one campaign with access to 3 billion users across YouTube and Google and the ability to optimize and measure across the funnel using Google AI. Demandgen is already driving successful brands like Samsung and Toyota.

Workspace also delivered strong revenue growth, primarily driven by increases in average revenue per seat.

Google Cloud had operating income of $266 million and the operating margin was 3%.

As to our other bets for the third quarter revenues were $297 million and the operating loss was $1 2 billion.

Philippe Schindler: Before I wrap, one quick highlight on our close collaboration and commitment to our most important ecosystems and parts. AdSense. In July, we launched Google News Showcase in the US, our curated online news experience and licensing program with more than 150 news publications, 90% of which are local or regional. Globally, over 2,500 news publications have signed onto News Showcase and the product is live in 23 countries today. Our commitment to open access to news and information remains strong.

Turning to our outlook for the business with respect to Google services first within advertising. After a period of historic volatility. We were pleased with the year on year revenue growth of search and Youtube advertising in the third quarter.

Second within other revenues and our Youtube subscription products the substantial growth in revenues primarily reflects subscriber growth looking ahead, a full quarter of NFL Sunday ticket revenues as well as the associated content acquisition costs will be reflected in Q4 results compared to.

Philippe Schindler: With that, I'll end with a thank you. To our customers and partners around the world for the continued trust and collaboration and our Googles everywhere for the incredible hard work and dedication.

Only a few weeks in the third quarter.

Play had solid growth in the third quarter, driven primarily by an increase in the number of buyers with respect to hardware. There is a headwind to revenues in the fourth quarter, reflecting efforts to optimize the portfolio with tighter targeting of our go to market investments as well as the ongoing impact from the difference in launch timing for the pixel six eight and <unk>.

Ruth Porat: Ruth, over to you. Thank you, Philip. We are very pleased with our financial results for the third quarter, driven by meaningful growth in search and YouTube and momentum and cloud.

Ruth Porat: My comments will be on year-over-year comparisons for the third quarter unless I state otherwise. I will start with results at the alphabet level followed by segment results and conclude with our outlook. For the third quarter, our consolidated revenues were 76.7 billion, up 11% in both reported and constant currency. Search remained the largest contributor to revenue growth. In terms of expenses, total cost of revenues was 33.2 billion, up 7%. Primarily reflecting other cost of revenues of 20.6 billion, which was up 6%.

<unk> that we mentioned last quarter.

Turning to Google Cloud, we are pleased with the ongoing customer engagement with G. C. P N work space and the potential benefit of our AI solutions, including infrastructure and services, such as vertex AI and do it well.

We continue to invest aggressively given the significant potential we see while remaining focused unprofitable growth.

In terms of expenses and profitability, we're pleased with our operating performance as we have repeatedly stressed we remain focused on durably reengineering, our cost base to create investment capacity to support our growth priorities. Most important of which is with AI. We have a number of work streams in place.

Ruth Porat: Growth here was primarily driven by content acquisition costs mainly for YouTube subscription offerings. As noted in our earnings release, the overall increase in data center and other operations costs was partially offset by a reduction in depreciation expense. Due to the change in estimated useful lives, we made starting in the first quarter of the year. Operating expenses were 22.1 billion, up 6% reflecting the following. First, an increase in R&D expenses driven primarily by compensation.

First we are maintaining a slower pace of head count growth, reflecting product prioritization and reallocation of talent to support our most important growth opportunities.

We remain focused on optimizing our real estate footprint, including how and where we work to reduce our expense growth as you can see from our earnings release, we incurred $207 million and accelerated rent and depreciation in the third quarter related to these actions.

Ruth Porat: Second, an increase in GNA expenses reflecting the impact of charges related to legal matters. And finally, sales and marketing expenses, which were relatively flat to last year. Operating income was 21.3 billion, up 25% and our operating margin was 28%. Other income and expense was a loss of 146 million. Net income was 19.7 billion. This reflects an effective tax rate of 7% in the third quarter from an IRS change related to the use of foreign tax credits, which had an outsized impact on the third quarter rate because the change resulted in a catch-up for prior periods.

Third we have engineering work streams underway to improve productivity across alphabet.

Given the magnitude of investment in our technical infrastructure, we have a superb team focused on efficiency of our operations. There. We are also making progress in streamlining operations across alphabet through the use of AI.

Finally, there are ongoing work streams that are improving the efficiency of our spend with suppliers and vendors through our central procurement organization.

To be clear across the portfolio of other bad companies. We have also been working to identify opportunities to create sharper focus and to operate more efficiently and effectively.

Ruth Porat: We delivered free cash flow of 22.6 billion in the third quarter and 78 billion for the trailing 12 months. We ended the quarter with 120 billion in cash and marketable securities. As a reminder, our cash balance and free cash flow in the second and third quarters benefited from the deferral of certain tax payments to the fourth quarter of 2023. As noted in our earnings release on October 16th, we made an estimated tax payment of 10.5 billion related to this deferral, which will be reflected in our cash balance and free cash flow in the fourth quarter.

With respect to sequential quarter on quarter trends two further points first cost of sales in the fourth quarter will reflect both higher hardware costs, given pixel family launches as well as increased CAC for Youtube as previously noted.

As usual, we expect sales and marketing expenses to be more heavily weighted to the end of the year in part to support product launches and the holiday season.

Finally, our reported Capex in Q3 was 8 billion driven overwhelmingly by investment in our technical infrastructure with the largest component for servers, followed by data centers, reflecting a meaningful increase in our investments in AI compute.

Ruth Porat: Turning to Segment Results Within Google Services, revenues were 68 billion up 11 percent. Google search and other advertising revenues of 44 billion in the quarter or up 11 percent, let again by growth and re-kill. YouTube advertising revenues of 8 billion or up 12 percent, driven by both brand advertising and direct response. Network advertising revenues of 7.7 billion or down 3 percent. Other revenues were 8.3 billion, up 21 percent, primarily reflecting growth in YouTube non-advertising revenues, driven by subscriber growth in YouTube TV, followed by YouTube Music Premium. Tech was 12.6 billion up 7 percent. Google Services operating income was 23.9 billion, up 27 percent, and the operating margin was 35 percent.

The growth in reported cash Capex in Q3 is somewhat muted due to the timing of supplier payments, which can cause variability from quarter to quarter. We continue to invest meaningfully in the technical infrastructure needed to support the opportunities we see in AI across alphabet and expect elevated.

Levels of investment increasing in the fourth quarter of 2023 and continuing to grow in 2024.

In closing we remain very excited about the opportunities ahead and committed to deliver sustainable financial value.

Thank you Sundar, Philip and I will now take your questions.

Thank you as a reminder to ask a question you will need to press star one on your telephone to prevent any background noise. We ask that you. Please mute your line. Once your question has been asked.

Ruth Porat: Turning to the Google Cloud segment, revenues were 8.4 billion for the quarter, up 22 percent. GCP revenue growth remained strong across geographies, industries and products, although the Q3 year-on-year growth rate reflects the impact of customer optimization efforts. Google Workspace also delivered strong revenue growth, primarily driven by increases in average revenue per seat. Google Cloud had operating income of 266 million and the operating margin was 3 percent.

And our first question comes from Brian Nowak with Morgan Stanley.

Your line is open.

Great. Thanks for taking my questions I have.

Two the first one maybe somewhat of a jump ball, there's there's somewhat of an investor debate about sort of the incremental return on capital to search when it comes to AI.

I know, it's early but are there any examples that you are seeing with SG year Bard on higher utility higher conversion rates more engagements as something thats or show signal around the return that could come from these investments.

Ruth Porat: As to our other bets, for the third quarter, revenues were 297 million and the operating loss was 1.2 billion.

And then the second one was I know you've spoken a lot about and Durably reengineering the cost based bank in the past you've talked about how expenses could grow slower than revenue in 2024 is that sort of still the high level way to think about it or is that potentially changing a bit as investments are continuing.

Ruth Porat: Turning to our outlook for the business, with respect to Google services, first within advertising. After a period of historic volatility, we were pleased with the year-on-year revenue growth of search and YouTube advertising in the third quarter. Second, within other revenues, in our YouTube subscription products, the substantial growth in revenues, primarily reflects subscriber growth. Looking ahead, a full quarter of NFL Sunday ticket revenues, as well as associated content acquisition costs, will be reflected in Q4 results compared to only a few weeks in the third quarter.

Or do you want to take the second part.

Sure. Thanks for that Brian So overall I'm sort of in a truism as you know well that are looking to grow revenues at a faster rate.

Then expenses as we're focused on delivering sustainable financial value of am and so that really takes us to the work streams, which I tried to tick through again those remain the driver there. The real priority. There are those are the efforts that are going to enable us to keep expense growth at moderate as possible while supporting the.

Ruth Porat: Play had solid growth in the third quarter, driven primarily by an increase in the number of buyers. With respect to hardware, there is a headwind to revenues in the fourth quarter, reflecting efforts to optimize the portfolio with tighter targeting of our go-to-market investments, as well as the ongoing impact from the difference in launch timing for the pixel 6A and 7A that we mentioned last quarter. Turning to Google Cloud, we are pleased with the ongoing customer engagement with GCP and workspace and the potential benefit of our AI solutions, including infrastructure and services, such as Vertex AI and Duet.

Investment growth.

It is it's so exciting in front of us in particular around AI.

And to your first part.

Obviously, we see AI as a foundational platform shift and are.

We are excited about the opportunities across our business.

It starts with search and I've been pretty pleased with how the user feedback has been on S. G. We are rolling it out to more users through it all we are making sure the product works well and we are generating value for our ecosystem in that and that adds transition swell.

Ruth Porat: We continue to invest aggressively, given the significant potential we see, while remaining focused on profitable growth. In terms of expenses and profitability, we're pleased with our operating performance, as we have repeatedly stressed, we remain focused on durably re-engineering our cost-based to create investment capacity to support our growth priorities. Most important of which is with AI. We have a number of workstreams in place. First, we are maintaining a slower pace of headcount growth, reflecting product prioritization and reallocation of talent to support our most important growth opportunities.

And I think you know I view this with AI the opportunity to evolve search and assistant over the next decade ahead.

And I think as we've always seen when you continue to invest in both great experiences you can get value on the other side and I do think over time there'll be a newer newer pads just like we've done on Youtube I think you know with that.

Uh huh.

Ruth Porat: Second, we remain focused on optimizing our real-state footprint, including how and where we work to reduce our expense growth. As you can see from our earnings release, we incured 207 million in accelerated rent appreciation in the third quarter related to these actions. Third, we have engineering work streams underway to improve productivity across Alphabet. Given the magnitude of investment in our technical infrastructure, we have a superb team focused on efficiency of our operations there.

The AI work that our subscription models is a possible path as well and obviously all of the AI investments, we are doing a place across cloud too and and you know I'm pretty optimistic about what's ahead, there as well.

Great. Thank you Bill.

Your next question comes from Doug Anmuth with J P. Morgan Your line is open.

Thanks for taking my questions, one for Sundar and one for Ruth.

Sundar you talked a lot about.

Ruth Porat: We are also making progress in streamlining operations across Alphabet through the use of AI. Finally, there are ongoing work streams that are improving the efficiency of our spend with suppliers and vendors through our central procurement organization. And to be clear, across the portfolio of other bet companies, we have also been working to identify opportunities to create sharper focus and to operate more efficiently and effectively. With respect to sequential quarter on quarter trends to further points, first, cost of sales in the fourth quarter will reflect both higher hardware costs given pixel-family launches as well as increased CAC for YouTube as previously noted.

Hey, I was hoping you could talk more about Gemini and how it will differentiate from other models.

The multimodal capabilities and what new experiences or agents do you think it could unlock and how we should think about timing and then also just on cloud I'm, hoping you can talk about some of the factors there on the diesel and cloud and just what Youre seeing in terms of optimizations and is there any sign of new workload.

Deployments taking place.

Ah. Thanks, good questions on on Gemini you know, obviously you know it's a it's a for effort from our combined Google Deep mine team.

Ruth Porat: Second, as usual, we expect sales and marketing expenses to be more heavily weighted to the end of the year in part to support product launches and the holiday season. Finally, our reported CapEx in Q3 was 8 billion. Driven overwhelmingly by investment in our technical infrastructure, with the largest component for servers, followed by data centers, reflecting a meaningful increase in our investments in AI compute. The growth in reported cache CapEx in Q3 is somewhat muted due to the timing of supplier payments, which can cause variability from quarter to quarter.

A very excited at the progress there.

And that's we are working through getting the model ready.

To me.

More importantly, we are just really laying the foundation of what I think of as the next generation series of models will be launching Oh throughout 2024 are the pace of.

Ruth Porat: We continue to invest meaningfully in the technical infrastructure needed to support the opportunities we see in AI across Alphabet and expect elevated levels of investment, increasing in the fourth quarter of 2023, and continuing to grow in 2024.

Innovation is extraordinarily impressive to see we are creating it from the ground up to be multimodal, a highly efficient tool in API integrations and more importantly, laying the platform to enable future innovations as well and you know we are developing Gemini in a way that it is going to be available.

Various sizes and capabilities and we'll be using it immediately across all our products and our internally as well as bringing.

Bringing it out to both develop person cloud customers through vertex. So oh, so I view it as a journey in each generation is going to be better than the other and we are definitely investing in their early results are very promising on cloud.

Ruth Porat: In closing, we remain very excited about the opportunities ahead and committed to deliver sustainable financial value. Thank you.

Jim Friedland: Sundar, Philip and I will now take your questions. Thank you. As a reminder, to ask a question, you will need to press star one on your telephone. To prevent any background noise, we ask that you please mute your line once your question has been asked.

Maybe what I would say is our overall, we definitely started seeing.

And our customers looking to optimize spend we leaned into it to help customers given given some of the challenges they were facing.

And you know and so that was a factor, but we are definitely seeing a lot of interest in in AI are there are many many projects underway now just on vertex alone on a number of projects grew or have an X and so we see signs of stabilization and I'm optimistic about what's ahead.

Brian Nowak: And our first question comes from Brian Novak with Morgan Stanley. Your line is open. Great. Thanks for taking my questions. I have two. The first one, maybe I have just a little bit of a jump ball. There's someone who has an investor debate about sort of the incremental return on capital to search when it comes to AI.

Ruth Porat: I know it's early, but are there any examples that you're seeing with SG YearBard on higher utility, higher conversion rates, more engagement, something to sort of show signal around the return that could come from these investments? In the second one, Ruth, I know you've spoken a lot about durably reengineering the cost space. I think in the past, you talked about how expenses could grow slower than revenue in 2024. Is that sort of still the high level way to think about it, or is that potentially changing a bit as investments are continuing?

Thank you Sundar.

Your next question comes from Eric Sheridan with Goldman Sachs. Your line is now open.

Thank you Sir very much for taking the questions. Two if I could sundar you guys lead over a year ago, starting with performance Max and I wanted to know if we get your updated thoughts on how AI might impact the broader advertising industry, and how you're aligning alphabet, and Google schools, with AI and where it might take the advertising industry in the years ahead.

Ruth Porat: Ruth, do you want to take the second part? Sure, thanks for that, Brian. So overall, that's sort of a truism, as you know well, that looking to grow revenues in a faster rate than expenses is we're focused on delivering sustainable financial value. And so that really takes us to the workstreams, which I tried to tick through, again, those remain the driver. They're the way to enable us to keep expense growth as moderators possible, while supporting the investment growth that is still exciting in front of us, in particular, around AI.

That'd be the first question and then about a year ago, Philip and roof started talking about some of the brand advertising headwinds that Youtube is facing as we start to lap those headwinds how should we think about a broad recovery and brand advertising versus elements are still headwinds that are being faced in the broader AD space, specifically with Youtube. Thank you.

So maybe I take the first one we're very pleased with our performance Max is performing it gives advertisers are really a maximum performance across all inventory from one really airport campaign and it's probably the Ultimate example of AI in action across our ads products to deliver an excellent ROI.

Those using it achieved like on average over 18% more conversions out of some of our cost per action.

Ruth Porat: You know, until first part, you know, obviously we see AI as a foundational platform shift in, you know, our excited about the opportunities across our business. It starts with search, and I've been pretty pleased with how the use of feedback has been on SGE. We are rolling it out to more users through it all. We are making sure the product works well and we are generating value for our ecosystem and that adds transition as well.

So since rolling it out about two years ago. We've continued to expand the features give advertisers traditional ways to steer Hood works M. B a lot of things like account level negative D keywords other other details here.

We launched new lifecycle goals customer life cycle goals, we called him a revamped asset creation flow that really helps business adapt and scale. Their most successful creative so I think that's one to watch.

We will also continue to build our other new P. Max features based on all the advertiser feedback we're seeing so we're very very encouraged by the progress here overall, maybe there was a second part to your question a bit on what we're hearing from the customers out there look driving our iron deficiency is still top of mind for many of you're right. It's a rapidly shift.

Ruth Porat: And I think, you know, I view this as with AI, the opportunity to evolve search and assist in over the next decade ahead. And I think, you know, as we have always seen when you continue to invest in build great experiences, you know, you can get value on the other side. And I do think over time there will be newer paths, just like we have done on YouTube, I think, you know, with the AI work, there are subscription models as a possible path as well. And obviously, all of the AI investments we are doing applies across cloud two, and, you know, I'm pretty optimistic about what's ahead there as well. Great. Thank you, Bill.

And then still quite unpredictable consumer landscape out there or.

Our AI tools are very well received AI G&A are top of mind for everybody really theres a ton of excitement lots of questions about it.

Many many understand the value of nearly 80% of our advertisers already use at least one AI apart search ads product.

And yeah, we were hearing a lot of good feedback on our number one hour ago.

Our ads AI essentials.

Which are really helping to unlock the power of AI and and set up for durable auroi growth on the advertiser.

Douglas Anmuth: Your next question comes from Doug Anmos with JP Morgan. Your line is open. Thanks for taking the questions.

<unk>. This is a those are products like the foundation for data and measurement and things like Google Tag content mode and so on.

Sundar Pichai: One for Sundar and one for Ruth. Sundar, you talked a lot about AI and was hoping you could talk more about Gemini and how we'll differentiate from other models, some of the multi-modal capabilities and what new experiences or agents you think it could unlock and how we should think about timing. And then also just on cloud. I hope you can talk about some of the factors there on the diesel and cloud and just what you're seeing in terms of optimizations and is there any kind of new workload deployment taking place?

And obviously your search and P. Max we talked about it and then all the journey I products all of those different ones. So theres a whole lot of interest in those products out and then onto your second question regarding.

You tube and you know as we said overall year on year growth.

And in revenues was driven by both brand advertising and direct response, but very much to your question. Yes. There was a stabilization in spending by advertisers and we're really pleased about that.

We're particularly pleased about the ongoing performance in the living room and on shorts and as I said, that's both watch time growth and monetization you know I'd say the other thing.

Sundar Pichai: Thanks. Good questions. On Gemini, you know, obviously, you know, it's efforts from our combined Google DeepMind team. I'm very excited at the progress there. And as we're working through getting the model ready, to me, more importantly, you know, we're just really laying the foundation of what I think of as the next generation series of models will be launching throughout 2024. The pace of innovation is extraordinarily impressive to see. We are creating it from the ground up to be multi-modal, highly efficient at tool and API integrations and more importantly, laying the platform to enable future innovations as well.

Benefiting Youtube is the retail strength, we talked about was search retail strength.

In APAC in both search and Youtube and you know that really began in the second quarter continued in the third quarter, but that was another contributor so quite a number of things going on I feel good about the results our team was able to deliver here.

Thank you so much.

Your next question comes from Lloyd Wamsley with UBS. Your line is open.

Oh, great. Thanks for taking the question two if I can.

First as we just think about the rollout of a S. T E across the user base like how far along is that and how do you balance the product rollout and consumer uptake versus monetization in that transition.

Sundar Pichai: And you know, we are developing Gemini in a way that it is going to be available at various sizes and capabilities and we'll be using it immediately across all our products internally as well as bringing it out to both developers and cloud customers through vertex. So, you know, sorry, I viewed as a journey and each generation is going to be better than the other and we are definitely investing and the early results are very promising on cloud.

Then the second one also sort of generally today I related.

How quickly are you guys, finding new ways of optimizing whether that's shrinking model sizes chip efficiencies or anything else.

And do you think it.

Overall capital intensity of the business scales up or do you just find ways to do this more efficiently.

Sundar Pichai: You know, maybe what I would say is overall, you know, we had definitely started seeing in a customer's looking to optimize spend. We leaned into it to help customers, given small the challenges they were facing and, you know, and so that was a factor. But we are definitely seeing a lot of interest in AI. There are many, many projects underway now just on vertex alone on the number of projects grew over 7x. And so, we see science of stabilization and I'm optimistic about what's ahead.

As usage scales anything you could share there would be great. Thanks.

You know on the first part about ESG, we are still you know.

Sundar Pichai: Thank you, Sundar.

And Barry.

Very early days in terms of.

How much we've rolled it out but we are definitely gardner to enough people in a boat.

Geographically across user segments and enough to know that the product is working well it improves the experience and but there are there are areas to improve which we are fine tuning our in our <unk>.

True North here is getting.

Getting the right user experience be worn too and you know I'm pretty comfortable.

Eric Sheridan: Your next question comes from Eric Sheridan with Goldman Sachs. Your line is now open. Thank you, sir. Very much for taking the questions, too, if I could.

Portable seeing the trajectory and we've always worked through these transitions beat from desktop to mobile Ah or from now mobile to.

Philippe Schindler: So now you guys led over a year ago, starting with Performance Max, and I want to know if we did your updated thoughts on how AI might impact the broader advertising industry and how you're aligning Alphabet and Google schools with AI and where it might take the advertising industry in the years. That'd be the first question.

AI enhanced experience. So it's nothing new and I, you know I feel very comfortable that as we go through it the strength of our teams.

What on the organic side as well as add side to drive the right experience for users, including ads will pay dividends, So and I think we'll continue to make improvements and make progress there.

Philippe Schindler: And then about a year ago, Philip and Ruth started talking about some of the brand advertising headwinds that YouTube was facing. As we start to lap those headwinds, as we think about a broad recovery and brand advertising versus elements of still headwinds that are being faced in the broader ad space, specifically with YouTube. Thank you.

On your second question at a high level I would say.

All through the 20th we just celebrated 25 years and of all the things are.

You know as proud about when I looked at the strength of the work we've done across our infrastructure as a company our technical infrastructure as a company and you know various given stages at a given moment in time.

Philippe Schindler: So maybe I take the first one. We're very pleased with how Performance Max is performing. It gives advertisers really a maximum performance across all inventory from one really AI part campaign, and it's probably the ultimate example of AI and action across our ads product, it's a liver and excellent ROI, using it achieved like an average over 18% more conversions at a similar cost for action. So since rolling it out, about two years ago, we've continued to expand the features, give advertisers additional ways to steer how it works, be a lot of things like account level negative key words, other details here.

When we adopted new generations of technology, we have looked at the cost of it but then the.

The curves stay efficiency goes we have driven on top of it has always been phenomenal to see and I see the current moment is no different already through this year are we are we are driving significant efficiencies.

Both in in our models and training costs and service costs and our ability to adapt what's needed to the right use case and so I think we will do everything that is needed to make sure. We are we have the leading AI models and infrastructure in the world bar, None and we will continue driving efficiencies from there.

Philippe Schindler: We launched new lifecycle goals, customer lifecycle goals, we call them revamped asset creation flow, that really helps business adapt and scale the most successful creatives I think that's one to watch. We will also continue to build other new PMAC features based on all the advertising feedback we're seeing, so we're very, very encouraged by the progress here. Overall, maybe there was a second part to your question a bit. On what we're hearing from the customers out there, look, driving ROI and efficiency is still top of mind for many, right?

Okay. Thank you.

Your next question comes from Michael Nathanson with Moffett Nathanson. Your line is now open.

Thank you I may ask you guys, a multi part question on Youtube TV. So firstly.

Philippe Schindler: It's a rapidly shifting and still quite unpredictable consumer landscape out there. Our AI tools are very well received, AI, GNAR, top of mind for everybody. Really, there's a ton of excitement, lots of questions about it. Many, many understand the value, nearly 80% of our advertisers already use at least one AI part search ads product. And yeah, we're hearing a lot of good feedback on number one, our ad AI essentials, which are really helping to unlock the power of AI and set up for durable ROI growth on the advertiser site.

What are the broader objectives forgetting Sunday ticket.

How does it perform versus those objectives, what lessons have you learned from having NFL Sunday ticket and how does that affect your appetite for more sports going forward. Thanks.

Okay.

So as soon I said earlier, we're several weeks into our first season and we're very pleased with how it's going I think in the broader context, you have to look at it as a overall a youtube subscription strategy.

Philippe Schindler: This is those of products like the foundation for data and measurement, things like Google tag, consent mode, and so on. Obviously, search from PMACs, we talked about it and then all the GNAI products, all those different ones. So there's a whole lot of interest in those products.

The great feedback we've gotten so far in the Youtube experience is very very significant people loved the navigation. They love multi view they love the chats and the polls in and frankly people are very happy with a lack of latency or.

Philippe Schindler: And then on to your second question regarding YouTube, as we said, overall, you're on your growth in revenues was driven by both brand advertising and direct response, but very much to your question, yes, there was a stabilization and spending by advertisers, we're really pleased about that. We're particularly pleased about the ongoing performance in the living room and on shorts. And as I said, that's both watch time growth and monetization. I'd say the other thing benefiting YouTube is the retail strength we talked about was search, retail strength in APAC and both search and YouTube.

The number one piece of concrete feedback the team has gotten its actually that people want the ability to pick their own games for multi view, which is the multi use you're awesome feature we started rolling out on Youtube TV.

Give a sense of the ability to basically watch multiple streams here at once and yeah. Overall the teams are working hard to build a fantastic experience and we are really trying to stay focused on getting our first season right in providing the best possible experience really for offense here.

Thank you.

Your next question comes from Justin Post with Bank of America. Your line is now open.

Philippe Schindler: And that really began in the second quarter, continued in the third quarter, but that was another contributor. So quite a number of things going on, feel good about the results that the team was able to deliver here.

Great. Thanks, a couple questions on Q4 can you provide any color on if theres been any pause in advertising around the middle East conflict in October or anything we should be aware of for Q4, and then second when we do think about the Sunday ticket impact.

Unknown Attendee: Thank you so much.

Lloyd Walmsley: Your next question comes from Lloyd Walmsley with UBS. Your line is open. Great, thanks for taking the question.

I know you can't give us revenues or expenses, but overall would that be a headwind to margins in Q4 or something we should be thinking about thank you.

Lloyd Walmsley: Two, if I can. First, as we just think about the rollout of SGE across the user base, like how far along is that, and how do you balance the product rollout and consumer uptake versus monetization in that transition? And then the second one, also sort of gender-indivated, how quickly are you guys finding new ways of optimizing whether that's shrinking model sizes, chip efficiencies, or anything else? And do you think overall capital intensity of business scales up or do you just find ways to do this more efficiently? As usage scales, anything you could share there would be great.

So look on your on the first question. Obviously this is.

E and tragic tragic their networks to talk about what's going on and all of our focus has been on supporting our people there and how our products can be as helpful. As possible in this very painful time broadly.

And and so.

Nothing nothing really to add them and then in terms of the the second question.

On Sunday ticket.

The you know the only thing I tried to call out there is a debt clearly it's this is the first quote full quarter of Sunday ticket that is contributing.

Sundar Pichai: Thanks. You know, the first part about SGE, we are still in very early days in terms of you know, how much we've rolled it out, but we have definitely gotten it out to enough people and both geographically across user segments and enough to know that the product is working well, it improves the experience. But there are areas to improve, which we are fine-tuning. Our true Northears is getting at the right user experience.

Contributing overall to the subscription revenues that we see that some part of other revenues also obviously it is contributing to higher.

Cat are in the in the fourth quarter, so tried to make that.

Make that really clear and as we look longer term yeah, we expect to generate an attractive return over the life of the deal we're continuing to invest in support of this and excited about the additional opportunities that come out of that working with partners to deliver clips and and other opportunities.

Sundar Pichai: We want to, and you know, pretty comfortable seeing the trajectory. And we've always worked through these transitions, beat from desktop to mobile, or from now mobile to, you know, an AI and end experience. It's nothing new, and I feel very comfortable that as we go through it, the strength of our teams, both on the organic side as well as at side to drive the right experience for users, including ads, will pay dividends. So, and I think we'll continue to make improvements and make progress there.

As we said, we've we've heard positive feedback from our partners at the NFL about the new features and live stream reliability and this is really a clear example of.

Our ability to execute big partnerships with excellence at scale and really leverage a lot of the extraordinary magic at Youtube and across Google and that's what we're excited about.

Great. Thank you.

Your next question comes from Ken Koski with Wells Fargo. Your line is now open.

Sundar Pichai: On your second question, you know, at a high level, I would say, all through the 20, we just celebrated 25 years, and of all the things, you know, was proud about when I looked at the strength of the work we have done across our infrastructure as a company, our technical infrastructure as a company. And, you know, various given stages at a given moment in time, when we adopted new generations of technology, we've looked at the cost of it.

Thank you so much two questions. If I may 1st how do you think about the future of <unk>.

Structure of AI driven search capabilities.

Activity remains centralizing, a search bar or will it be decentralizing present in many different applications, including on third party applications.

You alluded to a bar being integrated into multiple Google experiences earlier in the call.

And then the second question is any update on the on the Chrome Cookie deprecation planned to begin in <unk> 24, what have you seen so far based on your early testing of privacy sandbox and what advertiser feedback have you received.

Sundar Pichai: But then the curves, the efficiency curves we have driven on top of it has always been phenomenal to see. And I see the current moment as no different already through this year, we are driving significant efficiencies, both in our models, in training costs, and serving costs, and our ability to adapt what's needed to the right use case. And so, I think we'll do everything that is needed to make sure we have the leading AI models and infrastructure in the world, Bar none, and we'll continue driving efficiencies from there.

Unknown Attendee: Okay, thank you.

On your on your first question look you know I broadly think overdose.

You know people are looking for information or they will always look for it in many many different ways.

You know we've given the product search example people can basically go to Amazon as an example or come.

Come to Google So if you zoom back and take a information view of the world. That's always been many different base to get it and.

And part of our work, we do and making search.

Be world class and give users what they are looking for so that we can get it as much of that intent as possible. So I don't see that changing with mobile that were more ways people could get information, but we worked hard to make search work better in the in a mobile world and similarly, a view with AI.

Michael Nathanson: Your next question comes from Michael Nathanson with Muffet, Nathanson. Your line is now open. Thank you.

Philippe Schindler: I'm going to ask you guys a multi-part question on YouTube TV. So, firstly, what are the broader objectives for getting Sunday ticket? Out of the performers are those objectives. What lessons have you learned from having Gennepel, Sunday ticket? Now, how does that affect your appetite for more sports going forward? Thanks. So, as Sundar said earlier, we're several weeks into our first season and we're very pleased with how it's going, I think, in the broader context, you have to look at it as overall a YouTube subscription strategy.

There'll be many ways people will get information, but it also offers us an opportunity in search and an assistant to take it to the next level and answer use cases, which we couldn't have done before and expand our diverse set of needs where we are we are a so so that's how I see the opportunity ahead.

And to the second part of your question, Yes, Chrome still plans to begin phasing out third party cookies or in the second half of 'twenty four.

And the last several months, our chrome has really made significant progress on the privacy sandbox with API for a developer testing and they're not generally available in chrome.

Philippe Schindler: The great feedback we've gotten so far in the YouTube experience is very, very significant. People love the navigation, they love multi-view, they love the chats and the polls. And frankly, people are very happy with the lack of latency here. The number one piece of concrete feedback, the team has gotten us actually that people want the ability to pick their own games, for multi-view, which is multi-view is the awesome feature we started rolling out on YouTube TV, that gives fans the ability to basically watch multiple streams here at once.

Our ads team is testing a P IV and as we shared back in April of the preliminary results of her interest based ads testing showed that a combination of what we call privacy preserving preserving signals and AI optimization actually provides positive results for businesses are preparing for a cookie less future.

We also recently announced that in Q1 of 24, we plan to Deprecate third party cookies for 1% of Chrome users and this will support developers obviously conducting there are real world experiments.

Philippe Schindler: And, yeah, overall the teams are working hard to build a fantastic experience. And we are really trying to stay focused on getting our first season right and providing the best possible experience really for fans here. Thank you.

To assess the readiness and effectiveness of their a product in this without third party cookies and we're overall encouraged by the ecosystem engagement on privacy sandbox will continue to work with the industry and regulators in all of these technologies can support the transition to a frankly, a more private web.

Unknown Attendee: Your next question comes from Justin Post with Bank of America. Your line is now open. Great. Thanks. A couple of questions on Q4. Can you provide any color on if there's been any pause and advertising around the Middle East conflict in October or anything we should be aware of for Q4? And then second, when we do think about the Sunday ticket impact, I know you can't give us revenues or expenses, but overall, would that be a headwind to margins in Q4 or something we should be thinking about. Thank you.

Thank you.

And our last question comes from Mark Mahaney with Evercore. Your line is now open.

Thank you two questions. Please Ruth you talked about these elevated levels of investments in Q4. It in 24 I'm sorry are you referring to just capex or Capex in total expenses and then on the comments around stabilization in cloud is.

Is this something that you just started to see in the in the September quarter or do you seen that starting earlier in the year and if you just started seeing in the September quarter would you have any thoughts on why you would have seen it why Google Google cloud would've seen it may be later than some of the other hyperscale or thank you.

Sundar Pichai: So look on here on the first question. Obviously, this is a tragic, there are no words to talk about what's going on. And all of our focus has been on supporting our people there and how our products can be as helpful as possible in this very painful time broadly.

So I think what you're referring to is my Capex comment I was trying to make the point that we are committed to meaningfully investing in capex given all the opportunities. We see we do continue to expect elevated levels of investment in our technical infrastructure. It will be increasing in the fourth quarter and talked about some of the difference in time.

Sundar Pichai: And so, you know, nothing really to add. And then in terms of the second question, Sunday ticket, the only thing I tried to call out there is that clearly this is the first full quarter of Sunday ticket that is contributing overall to the subscription revenues that we see. That's some part of other revenues also, obviously, it is contributing to higher CAC in the fourth quarter. So try to make that make that really clear.

Muted timing in the third quarter due to the timing of supplier payments and then tried to make it clear that we will continue to grow capex in 'twenty 'twenty four or more specifically to your question 'twenty 'twenty four aggregate capex will be above the full year 2023.

So so that was the main one and then.

As it relates to cloud.

You know, it's not as Sundar said, let what we're really excited about is the revenue growth does reflect healthy customer adoption across the portfolio and that's infrastructure data analytics security and so we're you know I really.

Sundar Pichai: And as we look longer term, you know, we expect to generate an attractive return over the life of the deal. We're continuing to invest in support of this and excited about the additional opportunities that come out of it, working with partners to deliver clips and other opportunities. You know, as we said, we've heard positive feedback from our partners at the NFL about the new features and live stream reliability. And this is really a clear example of our ability to execute big partnerships with excellence at scale and really leverage a lot of the extraordinary magic at YouTube and across Google. And that's what we're excited about.

I can't comment on others, but we feel good about where we're sitting here and looking for it and we'll let that let you do the forecasting D. C. P growth in the third quarter was above the growth rate for cloud overall, and we feel really really good about the work that they're doing there and then of course. In addition to that is all of that contribution from Google workspace.

Unknown Attendee: Thank you.

Thank you.

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

Thanks, everyone for joining us today, we look forward to speaking with you again on our fourth quarter 2023 call. Thank you and have a good evening.

Ken Gawrelski: Your next question comes from Ken Gawrelski with Wells Fargo. Your line is now open. Thank you so much.

Thank you everyone. This concludes today's conference call. Thank you for participating you may now disconnect.

Sundar Pichai: Two questions if I may. First, how do you think about the future structure of AI-driven search capabilities? Will activity remain centralized in a search bar or will it be decentralized in present in many different applications, including on third party applications? You alluded to a bar being integrated into multiple Google experiences early in the call.

[music].

Sundar Pichai: And then the second question is any update on the Chrome cookie deprecation plan to begin in 1Q24? What have you seen so far based on your early testing of privacy sandbox and whatever has your feedback have you received? On your first question, I broadly think of it as people are looking for information. They've always looked for it in many different ways. We've given the product search example. People can directly go to Amazon as an example or come to Google.

Sundar Pichai: If you zoom back and take an information view of the world, there's always been many different ways to get it. And part of our work we do in making search be world-class and give users what they are looking for us so that we can get it as much of that intent as possible. So I don't see that changing with mobile. There were more ways people could get information, but we worked hard to make search work better in the mobile world.

Both.

Okay.

Yeah.

Okay.

[music].

Sundar Pichai: And similarly, I view with AI, there'll be many ways people get information, but it also offers us an opportunity in search and in assistant to take it to the next level and answer use cases which we couldn't have done before and expand the diverse set of needs where we are sourced. So that's how I see the opportunity ahead.

Sundar Pichai: And to the second part of your question, yes, Chrome still plans to begin phasing our third party cookies in the second half of 24. In the last several months, Chrome has really made significant progress on the privacy sandbox with APIs for developer testing and they're not generally available in Chrome. Our ad team is testing these APIs and as we shared back in April, the preliminary results of our interspace ad testing showed that a combination of what we call privacy preserving signals and AI optimization actually provides positive results for businesses, preparing for a coquelous future.

Sundar Pichai: We also recently announced that into one of 24 we plan to deprecate their party cookies for 1% of Chrome users and this will support developers obviously in conducting their real world experiments to assess the readiness and effectiveness of their products in this without third party cookies. And we're overall encouraged by the ecosystem engagement on privacy sandbox will continue to work with the industry and regulators and how these technologies can support the transition to frankly more private web.

Unknown Attendee: Thank you.

Mark Mahaney: And our last question comes from Mark Mahaney with Evercore. Your line is now open. Thank you to questions, please.

Ruth Porat: Ruth, you talked about these elevated levels of investments in Q4 and in 24. I'm sorry, you were referring to just catbex or catbex and total expenses. And then on the comments around stabilization in cloud, is this something that you just started to see in the September quarter or do you see that starting earlier in the year? And if you just started seeing in the September quarter, would you have any thoughts on why you would have seen it? Why Google Cloud would have seen it maybe later than some of the other hyperscalers? Thank you.

Ruth Porat: So I think what you're referring to is my CapEx comment. I was trying to make the point that we are committed to meaningfully investing in CapEx. Given all the opportunities we see, we do continue to expect elevated levels of investment in our technical infrastructure. It will be increasing in the fourth quarter and talked about some of the difference in timing, muted timing in the third quarter due to the timing of supplier payments.

Ruth Porat: And then tried to make it clear that we will continue to grow CapEx in[inaudible] But we feel good about where we're sitting here and looking forward and we'll let you do the forecasting TCP growth in the third quarter was above the growth rate for cloud overall. And we feel really good about the work that they're doing there. And then, of course, in addition to that is all of the contribution from Google Workspace.

Unknown Attendee: Thank you.

Jim Friedland: And that concludes our question and answer session for today.

Jim Friedland: I'd like to turn the conference back over to Jim Friedland for any further remarks. Thanks everyone for joining us today. We look forward to speaking with you again on our fourth quarter 2023 call.

Unknown Attendee: Thank you and have a good evening. Thank you, everyone.

Unknown Attendee: This concludes today's conference call. Thank you for participating.

Unknown Attendee: You may now disconnect. Thank you.