Alphabet 2018 Q1 Earnings Call
Good. Day ladies and gentlemen and welcome to the alphabet Inc first quarter. 2018. Earnings call at. This time all participants are, in a listen-only mode, later, we will conduct a question and answer session and instructions, will be given at that time if. Anyone should acquire operator assistance please press star than 0 on your touch-tone telephone. I'd now like to turn the conference over to ellen, west head up investor relations please go ahead thank. You good afternoon everyone, and welcome to alphabets, first quarter, 2018. Earnings conference call with. Us today are Ruth Porat and sundar, Pichai now. I'll quickly cover the safe harbor, some. Of the statements that we make today may be considered forward-looking, including. Statements regarding, our future investments, our long-term growth, and innovation the. Expected performance, of, our businesses, and our, expected level of capital expenditures. These. Statements, involve a number of risks and, uncertainties that, could cause actual, results, to differ materially. For. More information, please refer to the risk factors discussed in our Form 10-k, for. 2017. Filed, with the SEC. Undo. Reliance, should not be placed on any forward-looking, statements and, they, are made based on assumptions, as of today we. Undertake, no obligation to, update them during. This call we will present both gap and non gap financial, measures a. Reconciliation. Of GAAP to non-gaap, measures, is included, in today's earnings press release as you. Know we distribute, our earnings release through our, investor, relations website, located, at. ABC. X Y Z slash. Investor, this. Call is also being webcast from, our IR website where. Replay, of the call will be available later today and now, I'll turn the call over to Ruth, Thank. You Ellen we. Delivered, on going, strong revenue, growth up 26%, year-on-year, and up 23%. In constant, currency, the. Sustained, outstanding. Performance, insights revenues, in particular, reflects. The combined benefits. Of innovation and, secular. Growth with, mobile search again, leading the way, robust.
Growth In network revenues, was again led by our programmatic, business. Ongoing. Substantial. Growth in other revenues, namely. Cloud hardware. And play, continues. To highlight the growing contribution. Of our non ads opportunities. Our, outline. For, today's call is first, I'll review the quarter on a consolidated. Basis, for alphabet, focusing. On year-over-year, changes. Second. I will review, results for Google and then. Other bets as we. Highlighted, in our earnings press release our results, this quarter, were affected, by a new accounting, standard, that changes, the way companies account, for equity security, investments. I'll. Highlight the impact, on particular, line items, as I review the quarter I will. Then conclude, with our outlook. Sundar. Will then discuss business and product highlights after which we will take your questions. Starting. With a summary, of alphabets, consolidated. Financial performance for, the quarter our total. Revenues, of 31. Point 1 billion or up 26, percent year-over-year, we. Realized a positive, currency, impact on our revenues year-over-year of 1.3. Billion, or 1.1. Billion after the impact of our hedging program. Turning. To alphabets, revenue by geography you, can see that our performance was, strong again, in all regions, US. Revenues, were 14 point 1 billion of 20%. Year-over-year. Amia. Revenues, were ten point five billion up 29%. Year-over-year. In, constant. Currency terms. Amia grew 21%. Reflecting. Strengthening, of both the euro and the British Pound. AIPAC. Revenues, were four point eight billion up 33, percent versus. Last year and up, 30 percent in constant. Currency. Reflecting. Strengthening. Of the Japanese, yen and Australian. Dollar other. America. Revenues, were 1.7. Billion up 36. Percent year-over-year and, up 35, percent in, constant, currency on, a. Consolidated. Basis, total cost of revenues including, tack which, I'll discuss in the Google segment, results, was thirteen point five billion up, 37%. Year-on-year. Other. Cost, of revenues, on a consolidated. Basis, was 7.2. Billion up, 39, percent year-over-year. Primarily. Driven by Google, related expenses. The. Key drivers, were first, costs. Associated. With our data centers and other operations. Including. Depreciation, which. Was affected, by a reallocation. Of certain, operating, expenses, primarily, from GNA. Second. Content, acquisition cost, primarily. For YouTube and finally, Hardware, related costs. Operating. Expenses, were ten point seven billion up 27%, year-over-year, with. The biggest increase in R&D. Expenses. Reflecting. Our continued, investment. And technical talent, the. Growth in sales and marketing expenses. Reflects. Advertising. Investments, in cloud and hardware, as well as the assistant. GNA. Expense, treads were affected, this quarter by a number of factors, in particular. Performance fees, accrued, in connection, with the recognition, of equities, security, gains which. Were partially, offset, by the reallocation, of, certain, expenses from GNA, primarily. To other costs to revenues and the, benefit of the uber litigation, settlement. Stock. Based, compensation, total. 2.5. Billion the. Quarter-on-quarter. Step up reflects, the full year equity refresh. Grant to employees, at the beginning of the quarter and the biannual, grant, to s VPS. Headcount. At the end of the quarter was, 80. 5050. Up four. Thousand, nine hundred and forty people from last quarter, including. Just over two thousand, people who joined at the end of January when, we closed our previously, announced deal, with HTC. As, in. Prior quarters, the majority, of new hires or engineers. And product, managers, in terms. Of product areas the most sizable, headcount, increases, were, the additions, from HTC. Followed. By hiring and cloud for both technical, and sales, roles. Operating. Income was seven billion up seven percent versus last year and the operating margin was twenty two percent other. Income, and expense was 3.5, billion, which. Includes, three billion of primarily, unrealized. Gains in equity, security, investments, recognized. Under the new accounting standard, we. Provide more detail, on the line items within Orion II, in our earnings press release our. Effective. Tax rate was 11% for the first quarter as outlined. In our earnings press release this, includes, a five percentage. Point reduction from. The release of a deferred tax, assets value. A ssin allowance, which, offset, the income tax expense on the equity security, gains, net. Income, was, nine point four billion and earnings, per diluted share, were, thirteen dollars and 33 cents as indicated.
In The table in our earnings press release these. Results, reflect an increase in net income of 2.4 billion and three dollars and forty cents in earnings, per diluted share due, to the impacts, from the gains on equity, security, investments, we've already discussed. Turning. Now to capex, and operating, cash flow, cash. Capex. For the quarter was seven point three billion which, I'll discuss in the Google segment results. Operating. Cash flow was eleven point six billion with free cash flow of four point three billion, we. Ended the quarter with cash and marketable securities. Of approximately, one hundred and three billion, let. Me now turn to our segment financial. Results. Starting. With the Google segment, revenues. Were thirty 1 billion up twenty, six percent year-over-year. In terms. Of the revenue detail, Google. Sites revenues, or twenty two billion in the quarter up twenty, six percent year-over-year. Led, again by mobile search complemented. By solid, growth from desktop, search and strong, performance, from YouTube. Network. Revenues, were four point six billion up sixteen, percent year-on-year. Reflecting. The ongoing, momentum, of programmatic, and AdMob. Other. Revenues, for Google were four point five billion, up 36. Percent year-over-year fueled. By cloud, hardware. And play as a. Reminder the hardware revenues, in this line now include our nest business, and prior. Periods, were restated. We. Continue, to provide monetization. Metrics, in our earnings press release to give you a sense of the price and volume dynamics. Of our advertising, businesses, as. We previously, announced we made a change this quarter, to, impression based monetization. Metrics, for our network business given the ongoing growth. Of programmatic. Total. Traffic acquisition costs, were 6.3. Billion or 24%. Of, total advertising revenues. And up, 36, percent, year-over-year. This. Year on your increase, in sight stack as a percentage, of sites revenues, as well as Network TAC as a percentage, of network revenues, continues. To reflect the fact that our strongest, growth areas namely, mobile search and programmatic, carry. Higher TAC. Total. TAC as a percentage, of total advertising revenues. Was up year-over-year. Reflecting. Primarily, an increase, in the site stack rate which, was modestly, offset, by a favorable, revenue, mix shift from network to sites the. Increase in the site stack rate year-over-year was, driven by changes in partner, agreements, and the ongoing shift to mobile which carries higher TAC the. Underlying, trend affecting, the network TAC rate year-over-year, continues. To be the shift to programmatic, which carries higher tech, Google's. Stock based compensation total. 2.3. Billion for the quarter up 22, percent year-over-year. Operating. Income was eight point four billion up twelve percent versus last year and the operating, margin was, twenty seven percent. Accrued. Capex, for the quarter was seven point seven billion, reflecting. Investments, in facilities, production. Equipment and data center construction. Facilities. Was the largest component of capex this quarter due, primarily to, the 2.4. Billion dollar purchase, of Chelsea, market that we announced in March, let. Me now turn and talk about other bets for. The first quarter other, BET's revenues, were 150. Million primarily, generated. By fiber and verily as a. Reminder, nest, results, are now reported, as part of the Google segment with revenues, reflected, in the Google other revenues, line. Operating. Loss was, 571. Million, for the first quarter other. Bets, accrued, capex, was 55, million, we're. Pleased with our progress across other bets a couple. Of updates, at. Way mo we have achieved five million miles of driving on city streets, adding the latest, million, in just three months we.
Also Announced, a long-term partnership, with Jaguar. Land Rover for, their fully electric, I paced vehicles. Verily. Is seeing good progress with on duo its joint, venture with Sanofi the, companies made its diabetes, management, platform, commercially. Available in, three states, with Blue, Cross Blue Shield of, Arkansas. And South Carolina, and anthems. Health plan in Georgia. Let. Me close with some observations. On the quarter and our, longer-term outlook. First. With respect to revenues, the. Opportunity, set ahead of us is quite extraordinary, and, we remain focused on investment, to support long-term revenue and profit growth we. Have both the business confidence, to invest appropriately. In the next phase of innovation, as well as clarity, about some very compelling opportunities. That, in our judgment will enable us to create shareholder value we're. Pleased with the continued, momentum of, our revenue growth again this quarter, reflecting. Strong underlying, trends, across our business which, are amplified, by a relentless, focus on innovation, not. Only in our newer businesses like. Cloud and hardware but in our sights business. Specifically. We're excited by the still sizeable, opportunity, in search advertising led, by mobile at, 26. Percent year-on-year, revenue, growth in our sights business, we, continue, to benefit from our investments, to enhance the user an advertiser. Experience. Second. With respect to profitability, within. Cost of revenues the biggest component, is TAC while. We expect site stack to continue, to increase as a percentage of. Revenues, reflecting. Ongoing, strength in mobile search we. Continue, to anticipate that. The pace of year-over-year growth in, sight stack as a percentage, of site's revenues, will, slow beginning. In this second, quarter, within. Op X as I said last quarter, we are continuing, to support, our priority, investment, areas within. Rd this, is reflected, in increased, headcount, particularly. For technical roles. Sales. And marketing is similarly, elevated. To support these areas, both, in the quarter and full and for, the full year and we, expect expenses. To remain more heavily, weighted toward, the back half of the year to support the holiday season, as. You've. Seen in prior quarters. GNA. Can be a more difficult line, to forecast, in particular. This quarter we have the impact of the accrual for performance. Fees related. To the equity, gains previously. Discussed, partially. Offset, by the reallocation, of some expenses, to other cost of revenues and the uber legal sentiment. We.
Appreciate, The importance of prioritization, and are keenly focused on the steps we can take to, make the right investments. With the proper intensity, while being diligent about long term plans and returns, for. Our other bets we remain focused on moving toward commercial, applications. In a number of areas with. A continued, focus on calibrating. Investment, to metrics for success. Third. With respect to capex, our. Commitment, to growth is evident, in the trend in capex, investments, almost. Equally, split this quarter, between compute, capacity and facilities. Our, facilities. Spend in Google dominated. By the Chelsea, Market acquisition. Reflects. That we favour owning, rather than leasing real estate when we see good opportunities. With. Respect to compute, capacity the. Largest component of capex, is for machines then. That, incorporates, the latest technologies. We. Are also investing. In data center growth and increased network capacity through, undersea, cables, these. Combined, investments. Will expand, our compute capacity to. Support our growth outlook, across Google, including, machine learning, the assistant, and cloud in many. Respects, these investments, underscore, my opening comment about both, our confidence, and clarity about future opportunities with. Our focus on proprietary solutions. That enable us to deliver the secure, reliable. High-performing. Compute, infrastructure, to, support new and emerging products, and services, for our users, advertisers. And enterprise. Customers, I will. Now turn the call over to sundar. Thanks. Ruth the, end of q1 is always an exciting time as we prepare for our annual developer, conference, Google, IO computing. Is evolving at a rapid rate and we can't wait to share what's next and how, we are tackling important, issues I want. To call out an important, highlight from q1 the. Google News initiative, that we unveiled in March, over. The years we have worked closely with the news industry to address key challenges, through projects, like accelerated. Mobile pages. We. Are building on that partnership, with a 300, million dollar investment to, elevate, and strengthen quality. Journalism. As. Part of this effort we announced more than a dozen new products, including, subscribe.
At Google developed. In close collaboration with, publishers, which. Lets you use your Google account to buy a subscription on, participating, news sites, we've. Had overwhelming. Interest since. The launch we have heard from more than 300 news, publishers, who, are interested, in subscribe, at Google. We. Also introduced new tools for journalists, and improvements. To our platforms. To, ensure, that we are surfacing, accurate. Quality, content where it matters most. Today. I'll quickly talk about how machine learning is helping us advance that mission then. I'll highlight progress, in our three big areas cloud. YouTube, and hardware and share, updates on our computing, and advertising. Platforms. First. Machine. Learning and making information accessible to everyone our. Own ml. Powered products, like Google photos and Google lends gets. Better every, day the. Google assistant is a great example of this. In the home we have added over 200, new device partners that work with our system just in the last four months alone we. Now partner, with all major manufacturers. Of connected, devices for the home in the US, all. Told, the Google assistant can now help you with over 1 million actions, including. New things like reminding, you to buy bread when you get to the store or sending, money to France or if, you want to get a rideshare home. For. A concept, we unveiled, at i/o less than 2 years ago this. Is great progress. AI. Is also unlocking, new opportunities. For everyone. Just. In the last few months we have seen some amazing, applications, from. Dairy farmers, in Georgia are using tensorflow to, improve the health of their herds to our, own Google researchers, who figured out how to use ML techniques to. Assess a person's risk of a heart attack the. Possibilities. Of AI in, healthcare, are truly, exciting, at. A recent tensorflow, summit, we. Introduced, tensorflow, hub making. It easier, for developers to, share, and reuse models, so. That we can work together to tackle even, more problems, and get, to better ideas faster. Our. Investments. In this area are held because of our specialized, tensor. Processing, units, which. Are specifically, designed to be highly, efficient, for machine learning applications. Of.
Course. We continue to advance Google's, core mission, in other ways too we. Recently launched, our Google Go app in 26, African, countries, this. App reduces. The amount of data needed to display search results, by 40 percent and, we. Continue, to invest in ways to give people granular. And easy controls, over their information across, all our products. Every. Single day nearly 20 million people visit, my account which, gives them options to, review their Google security privacy, and add settings. Additionally. Tools like security, checkup and privacy, checkup prompt people to keep their account secure and control, their data settings. Now. Turning, to a three big areas cloud. YouTube and Hardware last. Quarter we had some, writing metrics about the progress of Google cloud including, that, we passed a billion dollars per quarter in 2017. In. Q1 we, saw increasing, momentum we. Are growing across the board and are also signing, significantly. Larger, more strategic, deals for cloud our. Security, capabilities, the easy-to-use advanced. Data analytics and, machine learning solutions. And the, secure and industry-leading, collaboration. Platform G suite G suite our winning customers over Google. Cloud is growing well some. Examples, of new technologies, announced, in the quarter include. Cloud, auto mo which, makes it easier, for companies without machine, learning expertise, to build complex, neural nets and more. Than 20 new security, products. Our. Global, infrastructure, continues. To expand, to support demand. We. Commissioned, three new subsea cables, and announced, new regions in Canada, Japan Netherlands. And Saudi Arabia, bringing. Our total of recently, launched and upcoming regions, to 20. G. Suite has reached a point where it can serve all the, needs of a large enterprise and as a result the growth asset an inflection, point the. Suite is growing from strength, to strength we. Believe our secure environment, is an important, factor in driving enterprise, customer, wins, G. Suite customers, like colgate-palmolive, company tell. Us that no one offers a better combination of hardware network. And data security. In. Q1 we also sign agreements, with customers, like Airbus. And, Thailand's. Chrome, toy bank as. A result, G suite revenue growth accelerated. In q1, next. YouTube. The. Platform, continues, to grow as millions, of creators, build communities, and find opportunity, on YouTube over. The last year, channels, earning six figures annually, grew more than 40 percent this. Quarter, Diwali, paas video for new rules became. The hundredth, video on YouTube to, reach 1, billion views, we. Are also investing, in new experiences, like live content, where we see tremendous momentum one. Recent example was, our exclusive, Coachella, live stream which, had more than 41, million live views from, all over the world Coachella. Was YouTube's most-viewed live, music, festival, ever. And no.
Surprise Beyonce. Was the most viewed Coachella, performance, ever on YouTube. Even. As we invest in new experiences, we. Stay very focused on making sure that YouTube remains, a safe platform with, great content, we. Are aggressively, combatting content. That violates our strict policies, through. A combination of, user and machine flags. Over. Six million videos, removed in q4 we're first flat by our machine systems, and over. 75%, of those videos were, removed before receiving, a single view we. Also changed, our monetization, requirements. To better identify creators. Who contribute, positively to, the community, and drive. More, ad revenue to, them. Moving. To Hardware this. Quarter we welcome Ness to the Google Hardware team to supercharge, our efforts. Nestor's. Building industry-leading. Products, for the home including. New additions, like the nest hello, doorbell and nest temperature, sensor in. 2017. They, sold more devices, than the previous, two years combined. They. Are an incredibly, talented team, but, fantastic, momentum. Google. Home continues, to be super popular and we are making it available in many more countries, just. Recently we launched launched, Google home and many in India and Singapore and, the, response has been terrific, our. Early, 2018 Net. Promoter scores, ranked. Among the highest in the industry across. All product, categories, this. Shows how how. Much love people have for made, by Google consumer. Hardware devices and makes. Us even more excited, for what's ahead. This. Great momentum across our computing platforms, like Android and, chrome at. Mobile, World Congress a new generation of Android partner devices, was introduced, including. Android one phones like, the Nokia 7 plus, Android. One pairs high quality hardware at a secure and streamlined. Software, experience from Google. This, quarter we launched, the ace of Chromebook tap 10 the, first Chrome OS tablet, designed. Specifically, for education. It. Is a secure, and easily, shareable tablet, equipped. With all the Chromebook, features that educators. And students, love and, finally. Our advertising. Platforms. We. Continue, to make Google search and shopping the best places for people to find and buy products, from a range of merchants. We. Recently announced, shopping. Actions allowing, customers to easily buy, from their choice of participating, retailers, on the Google assistant, and search with. The universal, cart across. Mobile desktop. And even Google home this. Is also really helping retailers, early. Testing showed that participating, retailers, see. An average, increase in basket, size of about 30%. YouTube. Is delivering, great results for advertisers, to. Help brands reach broad audiences, on YouTube with. Even, more flexibility. We. Introduced. TrueView. For reach which optimizes in-stream. Ads to. Reach a wide audience in. Beta. Testing nine, out of ten campaigns, drove, a significant. Lift in ad recall, with, an average lift, of nearly 20%, we. Are also helping small, businesses, take advantage of video with the expansion of YouTube director on site to, over 170, US, cities this. Gives SMBs, access.
To A professional, film maker to create and edit their, video ads. Finally. We remain focused on investing, in our publisher, partners, last. Year we, paid twelve. Point six billion dollars, to publishing partners in our ad network we. Recently announced, Adsense. Auto ads this. Uses machine learning to, analyze athlete, placements. On a publishers, page and show, ads when. They are likely to perform well while, providing a good user experience. Google. Success depends not just on the success of our partners, but, also on, the community's, very work, we. Recently announced a rolling study halls program, for rural areas across. 12 states. It equips school buses with Wi-Fi, devices. And onboard, educators, so, that students, with long commutes can get their homework done during, the trip, we're. Also making long-term, investments, in our offices, and data centers around the country, last. Month we announced the purchase of Manhattan's, Chelsea market building and in. Tennessee in Alabama we broke ground on two new data centers, which. Will have a big economic impact, on the local economies. These. Investments, are made hand-in-hand, with our commitment, to sustainability. In. 2017. We officially, met our goal to purchase enough renewable energy, to match all the electricity, consumed. By our operations. Around the world I, want. To close by saying thank you to our employees, it's, been a particularly, tough few weeks for the Google family especially, at YouTube I'm so. Proud of the resilience that our employees, have shown and, I'm so grateful for the support we've gotten across the industry and from, the community thank, you. On. The phone lines if you would like to ask a question at this time please press star, and then the number one key on your touch-tone telephone. If. Your question has been answered or, you wish to remove yourself from the queue you may press the pound key once. Again if you'd like to ask a question at this time please press star one and our. First question comes from Douglas, Anmuth of JPMorgan your, line is now open. Thanks. For taking a question Ruth. Just first on the accounting, change mister something you could clarify, we're. Trying to normalize that is it right we would be adding back about, six hundred and thirty-two million to operating. Income and then reducing, EPS by, 340. And then just on the EPS side perhaps adjusting, for. The tax rate and then, just, in terms of the business, I just wanted to ask about way moe if you could talk a little bit about just the latest timing, for the commercial launch in Phoenix and how. Quickly you'd look to expand to other markets, and then, just how you're thinking about the, technology and, whether you'll lyse it to others license, it to others going forward or keep it more proprietary. For Windows services, thanks sure, so, on the accounting standard we tried to lay out all the come opponent parts clearly, on the cover of the earnings. Release so that you would have it all in one place I think you summarized. It right but I just direct, everybody to the earnings, release you. Know the net of which was the gain from the equity investments, was 2.4, billion to. Net income that is net of performance, fees as well as the. Release of a deferred tax assets that we have so, it does reflect 3 billion in gains. And, I think you you know this but this. Quarter the accounting, standard requires marks for everything. Where, there's an observable raise, so, these are unrealized, the majority, of them are unrealized. Not, actually monetized, by alphabet. And then the performance P's are, calculated. Based on investment. Returns, they're accrued, but not paid, until an exit event occurs. And they do appear, in OP X and as, you noted there's also therefore, the the. Benefit, that flows through on, the tax line and that is five percentage, points of. Benefit. Offset, to the, effective. Tax rate for the quarter as. It relates to your, way no question, I think. There was a lot in there we do remain very excited, about the opportunity, with Wei MO and our, continued, progress on multiple fronts it is still very, early in. Terms of our progress this year is about offering a service that is saved that works that delights users, in the Phoenix area, the. Ryder program, in Phoenix is open to members of the public and riders will. Use a way mo app to heal one of our fully self-driving, cars, without a driver at the wheel and will pay for the service, we've, also had progress on the vehicle partnerships.
As I mentioned in my opening comments, last. Month wham-o announced, it signed a long-term strategic partnership. With Jaguar, beginning. With a collaboration, to, design. And manufacture self-driving. Ipace. Vehicles, for way most transportation, service. These, are all electric, cars, this. New partnership in the vehicles adds, to our strong position, with FCA, and the production of the cars begins, in 2020, and then, we are expanding our testing to more States we're also working. On additional areas, like applying the technology to legit, sticks and deliveries, and working. With cities to help strengthen public, transportation. And, for personal use vehicles, and you know, we as we've talked about on a bunch of calls the opportunity, is here for us because we started with safety and we remain a leader in safety and we do believe that's the foundation, for, success and it builds on the all, the testing, miles that we've done so you, know we keep coming back to when you create vehicles that drive themselves safely, we think there's a lot of potential uses, and business. Opportunities, and that's what we're focused on. Thank. You Rick thank. You and our next question comes from Heather Bellini of Goldman Sachs your, line is now open. Great. Thank you I wanted, to ask, two. Quick questions one, just, one, on gdpr than one on cloud on. GDP. Are is just wondering if you could share with us kind of any. Impact, you're thinking about if the implementation. Occurs. Later in May and so, any thoughts you could you could share there would be great and then on cloud thunder you had mentioned you're seeing a lot of momentum you said gee sweet I believe accelerated. In q1 I was wondering if there was any color on the GCP, side that you could share from, a growth perspective if. That. Business accelerated. Or not and you, know kind of how were the how are the deal sizes training for that business in particular thank, you. Great. Maybe I'll do the GDP, our first, you. Know GDP, our you, know I realize is a fairly. New public, topic but for us it's. Not new, you. Know we started, working on GDP, our compliance, over. 18 months ago and, have. Been very very engaged on it it's, really important, and we care about getting it right and overall. We've long had a very robust and strong privacy, program, at Google too so. We, are committed to meeting requirements on May 25th, and also the long term. We. Are working, very closely with advertisers, publishers and. Our partners, and. And. You know will also update all, the privacy, policies, and controls we provide uses a worldwide, so. It's, it's a big effort we. Are very committed to it you, know we are very, focused. On getting it right by our users and partners, and, that's. Where our focus is now on. On. Heather. On cloud. I. Guess. Your question was about, overall. Growth, and you know we are continuing, the momentum has been very. Strong on cloud as well you. Know we hadn't talked about gee suite March and so we highlight it at the momentum there but cloud is continuing, its. Great growth. We. Are seeing it across the board, things. Worth I would call out as we are seeing larger deals as well we. Are seeing good synergies, between G, suite and cloud, areas. Where we have done acquisitions. Like Apogee, they. Are beginning to work in terms of driving. Synergies, to cloud and. You. Know and the, efforts. We are beginning to put put, together with our partners. You. Know that is beginning to bear fruit as well so, we. Have you. Know go to market programs now with ASAP Cisco, and Salesforce and, I think I think, we are beginning to see early. Results, from that and you know and hopefully that translates into, more. Momentum going forward. Thank. You. Thank. You and our next question comes from Eric Sheridan of UBS your, line is now open. Thank. You very much for taking the question maybe two for sundar if I can one on mobile search called, continue, to call that out as a as a point. Of strength and the results what are you most excited about in terms of either product, innovation, or, the ability to get consumers, to adopt mobile search more broadly on devices. Globally. Which could lead to more ad budgets, moving into mobile search and then. On Hardware you've. Now been through two years of sort of pixel devices, you've, made the aqua, hire of the hcc engineers, can, give us a sense of what you've learned so far from your hardware efforts, and how that might evolve product, innovation, or go to market strategies, long term thanks, so much, good. You know on mobile, search you. Know for me you, know mobile obviously. Raises, the bar and and.
If. You look at the evolution of search you, know we you know we gave from we, evolved, to. To stay ahead of user expectations. And we evolved from just providing, links to answers. I just, feel at a high level the next big evolution, we are, doing. As part of mobile search and assistant, is, to actually help, users, complete actions, to help get, things done and you. Know it's really hard to do at scale and that's. The work we are doing. And. And as, we do that, you know it'll impact just not, just assistant, but mobile search more broadly and obviously. There as a commercial. Impact, as well so we continue. To be very excited, about the opportunities, there, on. Hardware. You know the exciting, part for us is you know now you. Know I think you, know we have all the end-to-end capabilities. Of a world-class, you. Know hardware organization. Along. With the quality of the software organizations. We've always had, and. In this area it it truly takes long-term planning and so. For. Example if you think about silicon etc the longer you can do it the, more advantages. You have and, and, so we you know I definitely feel we, are taking, the steps towards being. Able to do this well for the long term part, of that obviously. Involves. Scaling, up our go-to-market strategies. Both. In the US and internationally. So. That we can drive. Drive. Adoption you. Know I said earlier our Net, Promoter scores, show. That we, are right up there with the best in class devices. And and. Across, all the products we have not just our pixel across our Ness family and everything we do so. The opportunity, is clearly there we're, going to lean into it and, you. Know it it takes two to three years to really, get. To the scale where we want to see it and but we are committed to getting there. Thank. You so much. Thank. You and our next question comes from Mark Mahaney of, RBC Capital Markets your, line is now open, great. Things I want to follow up on Heather's question on gdpr and the question I want to ask is I understand, that you're you. Know working for a long time to make sure that you're compliant, but do you think that gdpr or other regulation, that you see on the horizon is likely to impact, materially. The, targeting. Capabilities about. That advertisers, have on Google is there something in the regulation, that's going to make Google and its, properties, less attractive, to advertisers that's. The action question I want to ask thank you. Thanks. Mark. You. Know about. Everything, else you, know as we're working through GDP are we are making sure we we're focused on getting the user experience, right for our users and our partners, but. To clarify your question further, you, know first of all it's important to understand that most of our ad business is search where. We rely, on very, limited, information essentially. What is in the keywords. To show a relevant, ad or product, and so. You, know you. Know we've been preparing this for, 18. Months and I think I think, you know we've focused on getting the compliance, right it'll be a years long effort and you, know we are helping not just us but, our publishers, and partners, but, overall we think we'll, be able to do all that you, know with a positive, impact for users, and publishers, and advertisers and. Answer, our business. Ok. Thank you senator. Thank. You and our next question comes from Brian Nowak, of Morgan Stanley your line is now open. Thanks. For taking my questions if two the, first one on desktop, search so it's nice to hear that you're your, oldest business is still growing just, curious could you give one or two tangible. Examples, or products, that are still driving the, desktop, search growth and, sender understanding always focus on user experience at a high level what, do you see is the the, biggest areas for potential further improvement, in bestop, search and, let me ask you the same question, about YouTube, what are sort of the biggest areas of tension that you're focused on improving from a user perspective on YouTube right now. So. On you know on desktop search, sorry. You see a question on the, user experience on desktop search how do we see improvements. You. Know look I mean the same. First. Of all users are having cross-device. Experiences. Cross screen experiences. Right so I think, your desktop search, piense mobile search everything goes hand in hand and you, know every. You. Know all the work we are doing to make mobile search better translates. To desktop search as well areas, where desktop search historically. Has been a bit behind is in terms of things like identity. And payments, and having. All that work well to. Enhance the user experience and, with. Chrome now we are investing a lot in those areas as well and I think that will contribute, overall, to, improvements, there on.
YouTube. You. Know there, are many many areas we are focused. On YouTube, you. Know, they're. Always very, focused, on making sure they. Are supporting. Emerging formats, beat mobile. Live streaming, or emerging. Formats, like VR, and so. That's. An area of focus for us we're. Also really looking at what are all new monetization options, for, creators beyond, advertising, so, beats subscriptions, features. Like super chat which we've launched are very popular, we have beta testing, sponsorships. Merchandise. Merchandising. And concert. Ticketing etcetera right so these are all areas by which we. Are improving and. And. Obviously there are additional areas, like music, and YouTube TV which are seeing great. Momentum as well. Great. Thanks. Thank. You and our next question comes from Ross Sandler of Barclays, your line is now open. Great. Just, two questions please um. America's. Revenue. Accelerated. Nicely, on a currency, neutral, basis is a geography. That rarely comes up on these calls so any, color about what's driving that acceleration. And, the, sustainability, of what's, going on in. The Americas region and, then, Ruth, a question, on site stack, so. I know you said the pace. Of D leverage is. Going to start to improve next, quarter, is. This something that we should expect, to happen for. A year, and then and then kind of normalize, back to a. Pretty, steady pace of D leverage or is. This, are we over some critical threshold, and we should either see the trend, of. Moderating. Deleverage, continued for several years into the future, Thanks so on. Your first question other, Americas, you know I would. Say like the other regions, really pleased with the strength we have across, the region's is obviously, one of these smaller ones so growing. At a slightly. Faster clip, and really pleased with the broad, strength there it, starts, with the site's, revenue strength but on top of that they benefited, from hardware. Devices launching. In some additional markets, over. The past year and then. In terms of TAC, you. Know I I, would, say there's not much to add to what we've already said after, some a. Kind, of sustained period, of stronger, increases, we, were pleased last quarter to be able to signal that this court of that pace of change is, slowing and you know I'll just leave it at that for now. Thank. You and our next question comes from Anthony. DiClemente of Evercore your, line is now open. Okay. Thank you for taking my questions I have two one for Ruth and one force in Duluth, on on catbacks, even, if we excluded, the Chelsea Market one-timer. The. Growth in capex is really, substantial even. On a kind of recurring basis should we expect. That sort of dramatic growth, or or step-up, in the growth rate and ongoing capex, to can continue, throughout the year or you know other than the Chelsea Market one time or were there any it. Was any reason to think that it was timing in terms of the timing uh, front. End waited it's the first quarter for capex, and then secondly on on sundar just a question, on YouTube and your media. Strategy, at a higher level in view, of the. Success of other competitive. Subscription, TV products, out there internet, video products you just talk about YouTube. Red, and any thoughts on ways you can accelerate growth, for. Your YouTube subscription, video products, whether that baby, organic. Investment, in content, original production, or or even via acquisition, thank, you so. In terms of capex, you. Know it's it's about equally. Split between facilities. And our technical infrastructure, and is you, know we had the, the, 2.4, billion per, in New York as, well as this continued, ground-up development, projects facilities. Does tend to be lumpier, over time we are continuing, with the ground-up development, projects, and, you know as a reminder we do favor owning rather than the leasing real estate when we see good opportunities, and that has served us well over the years but.
I Think more to your question, with respect to technical. Infrastructure, that. Reflects. Investments, in compute, power to support growth that we see across Google and the largest component is on machines it's, also on data centers and undersea, cables. In, on machines, the biggest contributor. Is. The demand that we're seeing so in particular, it's the expanding, application, of machine. Machine. Learning efforts across alphabet. Plus the requirements, for cloud and search in YouTube, and then, secondarily. The increased cost of newer technologies, you, know CPUs, memory Network, so I think the you know really to answer your question most directly, it. Reflects, the demand that we're seeing so I would want to suggest you. Know a one-off in terms of the investments, were making in technical infrastructure, and. Then in terms of the data centers we are investing, globally we currently have over, 20 sites on four continents and that's under differing stages of construction as, sundar. Noted and you, know that it's across the u.s. Tennessee Alabama South, Carolina, Iowa so we're really building out to support the growth that we're seeing. Thank. You. Sorry. On the second, question on on, YouTube. You. Know for sure you. Know the adoption, and feedback across both, YouTube bread and YouTube music has, been. Great. To see we. Are doing. A lot more work, there you will see as continued. In missed further and develop, those offerings, better. And, and as part of that you. Know further drive adoption, so. For example. YouTube. Origionally, end up playing a big part in YouTube's read, subscriptions, and so. Far we've launched in a handful of markets, and will continue to roll it out to more markets there and on. YouTube music that you know we are working, on enhancing, the product and I think there's, definitely great. Opportunities, there as well. Okay. Thank you very much. Thank. You our next question comes from dan salmon of BMO Capital Markets, your line is now open I. Good. Afternoon everyone sundar, two, for you first, during. The quarter where there were some reports of, changes. In leadership at your search and AI divisions, functionally, sounds. Like separating, leadership. Over those two, very. Large important, businesses, for the company could, you talk a little bit more about that and how that may impact broader. Strategy for, the company and. Then second, a little, bit more tactical one on your advertising business, you launched, shopping. Actions during the corridor with a, paper. Sale model. Pricing, model and I was just curious to hear what type, of feedback you were getting from advertisers, that, led. To a. Product, with that pricing, model in particular any other features of shopping actions, that you think are important to highlight. Thanks. Stan on on you. Know we. Obviously you. Know. Search. Has, been leading, the company, in terms of how, they. Have been adopting, machine, learning and AI and it's really working well through. Search in assistant. We. We sense that you know obviously as a AI first, company, AI cuts, across everything. We do in Google and so. As an organization it's, a horizontal organization which, needs to serve all, our areas. And in some ways to change, reflects. That and you. Know when we, have very. Capable, leaders Jeff. Who runs you. Know was the founder, of Google brain and, you, know and and you, know really well positioned to lead our AI efforts, and and and. Benes been at Google since, the early days of search started, in Google in 2000, and as. Been a driving search for over 18 years and so we are very excited and I we think the changes will serve the company well on, on. Your second thing the, question was on. Shopping. Actions. And. In particular the, price for sale pricing, model. Oh, you. Know so I think we you know we announced, the, the this, new service in March, and. The. Feedback has been very positive I, mentioned, earlier which, is you. Know for retailers, when they are testing, this they, see it drives an increase in basket, size so that means users are interacting with the product well. And you know that's all I have to share for now it's still early days. Ok, great thank you. Thank. You and our next question comes from Colin Sebastian of Robert beard your line is now open, great. Thanks a couple, for me please first, on the cloud business wondering, if you could provide any color, at least on the relative, momentum, you're seeing in that segment from infrastructure. Services, compared, to platform. Or software. Services, and, then, related to the, the, adoption, of AMT. I guess a key. Question we get asked is whether, that ultimately. Changes, usage, and maybe you have some perspective on this from Android but in.
The Ecosystem, between mobile, web pages and, and an app usage, if you're seeing any shift. Among users between. Those formats, thank you. You. Know the first question of cloud you know look, I mean I you, know I think the main thing I would say is you know. The fundamental. Drivers of adoption of Google, cloud you. Know based on what we hear back from customers. Is, you. Know our advantage, in data analytics and machine learning the. Fact that we really support, open agile developer, environment kubernetes. Has literally. Become the standard for for. Workloads, and. And. And the fact that we. Are open in terms of how we approach this space security. Is becoming, a big differentiator, for us and and. You. Know something, we've been leading for a while and I think that's driving. It G. Suite as I called out earlier, you. Know his, is a good synergistic, driver, you. Know G suite is doing well and. Clearly. A very unique offering, and it's gotten very comprehensive. And so, I think overall it comes together well, on, your second question around amp you, know amp has been you. Know definitely. Very. Successful. It's, really, made publisher, content much. More friendly for users, in terms of latency and the user experience, and hence you. Know that option has been great for sure, amp has definitely, helped the mobile web and, that's. One part of the big reasons we, did it. You, know mobile web is still a big part of how users consume content especially. Around news, and so. You, know us, investing, there clearly. Clearly. Makes a difference I guess if you know for example you, know when we look at I don't Jack you or doctor and their. Mobile page loading times are now or ninety percent faster and now, they are integrating, the Google payment request API that. Reduces checkout times from two, minutes to thirty seconds or so so, things like that you know we're gonna constantly stay on improving the mobile web and that, plays a big part in how our ecosystem, works. Thank. You. Thank. You and our next question comes from Michael Nathanson, of Moffat Nathanson, your line is now open thank. You I have two one for Sumner one Ruth first. In sundar key give us any sense of how. Google home consumers, are using searching these devices, differently then maybe. The traditional ways of search and you're, finding in those homes is it added up to the overall search activity, and then, for Ruth you look at the, last page your press release where.
You've Shown, the new monetization metrics, you, see a real increase in the cost per impression on network. Sites so. Can you talk about maybe, what's happening there is there a mix if types of publishers types of products or is that just market, inflation, Thanks. Look. For sure in a google home gives, rise to a lot of new. And unique use. Cases, you. Know actions, are a big part of it. You know call, mom it's a good, example of something you say to Google home a lot I, like, you know which is different than what you would say to search. We. See this as a you, know good complementary. Thing you, know you will see search embrace, some. Of the capabilities you find in Google assistant, in Google home and and vice versa, and so overall. I view. This as additive. In the long term. And and. We, are definitely just. Getting started there. And. Then on the network. Monetization. Trends first just. To give people a bit more color when we launched the Adsense businesses. Our network revenues were largely clicked based and over time there's, been a meaningful mix change in our business given, the strong growth in programmatic, which is impression, based so. As a result this shift now covers more. Of the business and then in terms of the question, on. Impression. Growth versus CPM, growth you, know as we've discussed on Prior calls the, network business is actually, a number. Of different businesses, and then within, that we had flat year-on-year growth, in, in. The number of impressions that was driven by efforts, to. Improve user experience through, a reduction of less relevant, ads and AFC and so these, changes had, a positive, impact on the year-on-year growth in CPM and then, the trend in impressions, and CPMs, can, clearly be volatile from quarter two quarters we're optimizing for the user publisher, and advertiser, but it really goes to the efforts that we made. Thank. You and our next question comes from Brent Stila Jefferies your line is now open. Good. Afternoon. Just. As a question regarding, any changes, on your framework, for growth versus, operating margins the last few quarters you've seen steady top-line, acceleration. Yet. The margins were down so you just talk about how you think about it a high, level four for this year any changes, from from the past, yeah. It's an important question as, we talked. About on many many calls we. Have in and remain focused on supporting, long-term revenue, and profit, growth and we, think the opportunity, set ahead of us is quite extraordinary, and as, I, said in opening comments, just given, our confidence. And as we're looking forward we. Want to make sure we're investing appropriately, in the next phase of innovation, and we. Have clarity, about some very compelling opportunities. And in our judgment, that, enables, us to maximize shareholder value, so, we're, taking the steps really to put in place the the, support, for long term you, know longer term growth. Part, of what I'm saying you can see in our sites revenue growth tried to make that clear and opening comments, we see this, consistent. Strong momentum globally. And we're really excited about the, still sizeable, opportunity, led by mobile search and so, we're continuing to invest to enhance the user an advertiser, experience. And thereby. Extend, the growth in our ads business you. Can see this also in the trend on capex, spend as I noted you, know in our opening comments the in the, investments. Were making they're really, provide. The compute capacity to support our growth outlook, and that's supporting, the, opportunities, that come out of machine learning and, the assistance, and then, we also see extraordinary upside, in the, newer markets as sooners talked about most notably cloud.
Computing, And hardware and so we're investing, to. Support the long term growth opportunity. There and then. Finally, when we look at the, market, opportunity. In both self-driving, cars and life sciences, our judgment, is it makes sense to place the kinds of investments that we, are and with all of this what you know what also hasn't changed as we appreciate the importance of prioritization. And picking our spots and we're, keenly focused on steps we can take to both make the right investments. With the proper intensity while being diligent about long term plans. In return so at a high level the. Approach, hasn't, changed you're seeing the investments, here. Thank. You. Thank. You and our final question comes from one of Steven, Chu of Credit Suisse your, line is now open. Okay. Thank you so you know sundar I think one of the themes, that you as a management team has talked about has, been to I guess democratized. Advertising. With AI to. Help SM bees who may have found advertising. Across Google's. App products to be perhaps, overwhelming. So you, know can you talk about the rate of uptake among the smaller advertisers and, whether or not this is helping to catalyze, growth, and new budgets, and where. These guys might otherwise have not been able to advertise before. There's. SMBs, and then there's local also, so what, will be the plan to get this technology into the hands of folks, who will want to use them okay thank you look. I mean this is a big, focus for us and, you, know today, SMB. These are you know play a big big. Role in our ecosystem, and. You know we we are doing a lot of stuff to support them across. The board right and from. You. Knows from, things like, in. Our offerings, to help SMBs, get an online presence, create, a website be. Discovered, in local, search, and, and, Google. Maps so. We you know we do a lot of. Detail. Detail. Work, to. Make sure SMBs. Are working. Well we, are also doing a lot of stuff on, local. Local, as well including, efforts are even around local services, so we have very specific initiatives. This, is gonna be mean it's actually to, us it's a bread and butter of what, we do here and so there's a lot of effort underway not. To mention the fact that we provide G suite for. Businesses, as they scale up as well so it's it's an end to an offering and, and. We'll continue. To see as a Miss Moore here. Thank. You. Thank. You and that concludes our, question in the intercession, for today I'd like to turn the conference back over to Ellen West frame closing remarks thanks. Everyone for joining us today we look forward to speaking with you again on our second quarter call. Ladies. And gentlemen thank you for participating in, today's conference this, does conclude the program and you may all disconnect.