Alphabet 2018 Q2 Earnings Call
Good day ladies and gentlemen and welcome to the alphabet, second 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 and 0 on your touch-tone telephone. I'd, now like to turn the conference call over to Ellen West head of investor relations please, go ahead thank. You good afternoon everyone, and welcome to alphabet second, quarter 2018. Earnings, conference call with. Us today our ruth bharat 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, on do. 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, a replay, of the call will be available later, today and, now, I'll turn the call over to Ruth, Thank. You Ellen we, delivered, another quarter, with strong operating. Performance, reflecting. Our focus, on building great experiences. For users, advertisers. And enterprise. Customers, around the world in. Aggregate. We had substantial, revenue growth up, 26%, year-on-year, and up 23%. In constant, currency, sites. Revenues, continue to exhibit strong year-on-year, momentum. Benefiting. From innovation, and secular, growth with mobile search, again leading the way, our. Network, advertising. Business maintained, healthy, growth led by AdMob, and programmatic, advertising. The. Businesses, comprising, other revenues, namely, cloud play. And hardware, again, had substantial, growth our, outline. For today's call is all, begin with results, for the quarter on a consolidated. Basis, for alphabet, focusing, on year-over-year, changes. There. Are two items, to note in our earnings press release. First. We provided, a table to highlight the impact of the European, Commission finds on operating, income net. Income, and EPS, results, in the, second quarters of 2018. And 2017. Second. As discussed, last quarter, our results.
Are Affected, by the new accounting, standard, that changes, the way companies account, for equity security, investments, this. New standard, continues, to result in greater volatility, in oh I and II I'll highlight. The impact on particular, line items, as I review the quarter, I will. Then review results for Google followed, by other bets and we'll 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 thirty two point seven billion or up twenty six percent year-over-year. We. Realized a positive, currency, impact, on our revenues, year-over-year of seven, hundred and sixty eight million were, six hundred and sixty five million after the impact of our hedging program. Turning. To alphabet, revenues by geography, you, can see that our performance, was strong again in all regions, US, revenues, were fourteen, point nine billion up, 21%. Year over year, amia. Revenues, were ten point eight billion up twenty, six percent year-over-year, in. Constant. Currency terms. Amia grew nineteen percent, reflecting. Strengthening, of both, the euro and the, British Pound. AIPAC. Revenues, were five point 1 billion up, 36%. Versus last year and up 34%, in constant, currency, reflecting. Strengthening, of the Japanese, yen and Korean Won other. America's, revenues, were 1.8, billion of 31, percent year-over-year, and, up 34%. In constant, currency, reflecting. Strengthening, of the dollar relative, to the Brazilian rail on, a. Consolidated. Basis, total, cost of revenues including tack which I'll discuss in the Google segment results, was, thirteen, point nine billion up thirty-four, percent year-on-year. Other. Cost of revenues on a consolidated. Basis was 7.5, billion up, 41, percent year-over-year. Primarily. Driven by Google, related expenses. The. Key drivers, were costs. Associated, with our data centers, and other operations. Including. Depreciation, which. Continued. To be affected, by a reallocation, of certain operating, expenses, and. Content. Acquisition costs. Primarily. For YouTube followed, by Hardware, related costs. Operating. Expenses, including. The impact of the EC fine or 16, billion dollars. Excluding. The impact, of the EC fines operating. Expenses, or ten point nine billion in the quarter up, twenty, four percent year-over-year. Once. Again, the biggest increase was, in Rd expenses. Reflecting, our continued, investment. In technical, talent the, growth in sales and marketing expenses, reflects, increases. And sales and marketing headcount. Primarily. For cloud followed. By advertising, investments. In cloud, and the assistant. GNA. Expense, trends in the second quarter were affected, by a number of factors in particular. Performance fees, accrued. In connection, with the recognition, of equity, security, gains which. Were again partially. Offset, by the reallocation, of, certain, expenses from, GNA, primarily. To other cost to revenues. Stock. Based compensation totaled. 2.4. Billion, headcount. At the end of the quarter was eighty nine thousand, and fifty, eight up four.
Thousand, Eight from, last quarter. As in prior quarters, the majority, of new hires were engineers, and product managers, in terms. Of product areas the most sizeable headcount increases, were in cloud for, both technical, and sales roles. Operating. Income was, 2.8. Billion, excluding. The impact of the EC fines operating. Income was, seven point nine billion up fifteen percent versus last year for an operating, margin of twenty four percent, other. Income. And expense was one point four billion which. Includes, 1.1. Billion of gains, and equity security, investments, we. Provide more detail on the line items within oh I and II in our earnings press release, our. Effective, tax rate was twenty four point two percent for the second quarter reflecting. A sizable, impact from the non deductibility, of the EC fine. Net. Income was 3.2 billion in earnings per diluted share were four dollars and fifty four cents, excluding. The impact of the EC fine net income was eight point, three billion in earnings per diluted share were. $11.75. Turning. Now to capex. And operating, cash flow cash. Capex. For the quarter was five point five billion which I'll discuss in the Google segment, results. Operating. Cash flow was 10.1, billion with free cash flow of four point seven billion, we. Ended the quarter with cash and marketable securities. Of approximately. 102. Billion. Let. Me now turn, to our segment financial, results starting. With the Google segment. Revenues. Were thirty two point five billion up twenty, five percent year-over-year. In, terms. Of the revenue detail, Google, Sites revenues, were twenty three point three billion in the quarter of twenty, six percent year-over-year. In, terms. Of dollar growth results, were led again by mobile search with. Strong, contributions. From both YouTube, and desktop. Search. Network. Revenues, were four point eight billion up fourteen. Percent year-on-year. Reflecting. The ongoing, momentum, of AdMob, and programmatic. Other. Revenues, for Google were 4.4. Billion up 37. Percent year-over-year fueled, by cloud, play. And hardware. We.
Continue, To provide monetization. Metrics, in our earnings press release to give you a sense of the price in volume dynamics, of our advertising, businesses. Total. Traffic, acquisition costs, were 6.4, billion or 23 percent of total advertising revenues. And up, 26, percent year-over-year. Total. TAC as a percentage, of total advertising, revenues. Was up year over year primarily. Reflecting. An increase in the site stack rate which, was offset, by a favorable. Revenue Mik shift from network to sites. The. Increase, in the site's tack rate year-over-year was, driven by changes in partner, agreements, and the ongoing shift, to mobile which, carries higher tack this. Quarter, we experienced, a year-on-year decline, in the network tack rate as the result of a favorable, Mik shift within our programmatic business. Google's, stock based compensation totaled. 2.3. Billion for the quarter up 21%. Year over year. Operating. Income was 9 billion of 17, percent versus, last year and the operating, margin was. Twenty seven point six percent. Accrued. Capex, for the quarter was 5.3, billion. Reflecting. Investments, in production, equipment data, center construction and, facilities. Let. Me now turn and talk about other bets other. Bets revenues, were, 145. Million primarily. Generated. By fiber and verily. Operating. Loss was, 732. Million, for the second quarter, other. Bets, accrued, capex, was 10 million dollars, we're. Pleased with our progress across other bets a couple of updates, wham-o. Expanded, its partnership, with fiat-chrysler. With the option to add up to 62,000. Chrysler, pacifica minivans. To its self-driving, fleet and last. Week wham-o announced, that it is driven more, than 8 million, fully, autonomous, miles with, most of those on city, streets a, couple. Of weeks ago X and, that, loon and wing have graduated, to become independent companies, under, alphabet. Graduation. From X, signals. That these companies have reached certain technical and business milestones. And that, their focus is shifting, toward commercialization and. Just. Last week Lewin, indicated. That, it is partnering, with telecom, Kenya, to launch commercial, service in regions. Of Kenya by early 2019. Let. Me close with some observations. On the quarter and our longer-term outlook. First. With, respect to revenues, we're. Pleased with the ongoing, momentum, in our advertising businesses. As discussed. Previously we. Continue, to identify new, opportunities through, innovation, including. The benefits, of applying machine learning, to create more useful experiences. For users and advertisers. Looking. Ahead our, hardware. Business is seasonal. Typically. Experiencing. Lower growth in the third quarter in anticipation. Of the launch of new products, for the holiday season. Second. With respect to profitability, within. Cost, of revenues the biggest component.
Is TAC as, we've. Discussed for the past couple of quarters we expected, the pace of year-on-year growth in sight stack as a percentage, of sites revenue, would, slow after, the first quarter of 2018. And you can see that clearly in our results this quarter as, frequently. Discussed, we do expect, the site stack rate to continue, to increase year-on-year. Reflecting. Ongoing, strength in mobile search al be it at a more moderate pace relative, to the year-on-year increases. Experienced. Over the past several quarters. Within. Op X we continue, to take a disciplined, approach to setting priorities as, we invest for the long-term growth, the. Majority, of our headcount growth continues. To be in technical, roles in engineering, and product management, in terms. Of business areas the largest number of headcount. Additions, were in our cloud business with, hires for engineering, sales and marketing as a. Reminder, headcount. Additions tend to be seasonally, higher in q3, because, that is when we bring on new graduates. As I. Mentioned last quarter, regarding. Sales and marketing we, continue, to expect expenses. To be more heavily weighted toward. The back half of the year to support the holiday season. Another. Factor, to consider in year-on-year comparison's, next quarter is the timing, of two expense, items, in q3. Last year as we. Called out last year there, was a meaningful, benefit, in the third quarter of 2017. From. The shift and timing, of our annual equity, refresh, and also. From the timing, of sales and marketing spend. Which, was more heavily weighted to the fourth quarter. For. Our other bets we remain focused on making progress on a number of commercial opportunities. Across the businesses, while, continuing, to manage investment. Against achievement, of key milestones. Third. With respect to capex, as I discussed, with you last quarter, our commitment, to growth is evident, in the ongoing trend, in capex, investment, we've. Had been investing. Meaningfully, in search and ads consistent. With the opportunities, we see to. Benefit the user and advertiser. Experience, and we. Are investing, in the additional compute power required. To support growth in the number of YouTube, users globally, we're. Also investing. In new businesses, that are growing at a rapid pace and have sizeable compute needs most, notably cloud, the. Investment, pace also, reflects, the importance, of machine learning across all of our products including, search and ads although. Machine, learning is more compute intensive it is increasingly, core to businesses, across alphabet. And opens. Up the possibility. Of accelerated. Innovation in, products, and services in, keeping. With our approach across alphabet. To invest, thoughtfully, for long term value creation we. Remain focused on both performance. And cost, effectiveness, I will.
Now Turn the call over to sundar. Thanks. Through it it's been a busy few months at Google and be, short a lot of what we are working on at events, like Google marketing life brand, cast and of, course our annual, developer conference, Google i/o it. Was exciting to have millions of people join us in person, and via livestream. Tomorrow, I hope you'll tune in to Google cloud next where the great momentum, and innovation, in our cloud business will, be fully on display, the. Common, thread you'll hear on today's call is the benefit of machine learning and AI and how, it's improving our products, and generating. Great results, for, our users, and partners, I also. Hope that everyone, enjoyed the world cup as much as I did I know, our French Googlers, were very excited, I love, the competition and was extremely proud to see positive feedback, about how useful, Google. Translate was for people who traveled to Russia the. App translates, about 143. Billion words a day and during. The World Cup we saw a huge bump in volume in. These simple moments, when you're in an unfamiliar. Place or you don't know the language Google is there to help with, the right information at, the right time this. Is what we aspire to be best at and it's, why billions, of people continue, to put their trust in our products. Today. I'll, start with how AI, is enabling, us to advance a mission of making information accessible, and. Useful, to everyone in new ways then. I'll share updates on our computing, video, and advertising. Platforms, which, are helping our partners succeed and grow and finally. I'll talk about our growing cloud business, let's. Begin with AI helping, our mission, we. Revamp the Google News app in May to great reviews, it. Uses machine learning to highlight top stories, organized for users explore. Topics more deeply with, articles, from a range of trusted news sources if. We believe in the need to deliver high quality information. And news to users and to support. The news industry as we do so, the. Google assistant, is another great product based on machine learning by. The end of this year it'll be available in more than 30 languages, in 80, countries, we. Worked with partners to expand, the number of smart devices that, are now compatible with the Google assistant like. Doorbells, dryers, refrigerators, and, more and connect. With more than 5,000, devices, in the home, at. Google i/o we also highlighted, how AI is improving, Google Maps including. Enhancing, the experience with assists they are features. Through. Our improvements, in machine learning we have seen a 25, X increase in our ability to build maps algorithmically. And we. Have added, 110. Million algorithmic. Lead drawn buildings, to maps since. The beginning of this year and with. Over a billion users we are continuing, to see tremendous growth in maps with. Especially, strong growth in countries like Indonesia, India. And Nigeria each, of which are growing over 50 percent year-on-year. There. Are many more great a I powered, features we rolled out this quarter including, the. New version of Gmail with smart compose, a new. Feature that helps users draft, emails faster, and Google. Photos now such as actions, to, help you bright and share rotate, or archive, a picture. Next. Or computing, video and advertising, platforms, these. Platforms, are providing, real economic, opportunities, for developers. Creators, and publishers in, every, corner of the world last. Year I announced that in the three-year period from 2014, to 2016, we. Paid out over 15, billion dollars in revenue to. Our Creator, publisher. And AB developer, partners in, Europe, Middle East and Africa via. Adsense, YouTube. And Google Play our. Contribution. Is accelerating. In, 2017. Alone we generated, an additional, seven billion dollars for these partners. First. Our computing, platforms, ten. Years ago we launched the first Android phone with a simple idea to build a mobile platform that's, free and open to everyone, today. There are more than 24,000. Devices, at, every, price point from, more than 1300.
Different Brands the. Android, ecosystem supports. Thousands, of phone makers and mobile network operators, who, build and sell Android devices. Millions. Of app developers, around the world who have built their businesses, with Android, and, billions. Of consumers, who can now afford, and use cutting-edge, Android, smartphones. This. Is all supported, by a business, model that, encourages. And enables. This open, ecosystem to thrive. Continuing. This momentum, at i/o we unveiled, a plethora of new features throughout, the Android platform like. Battery, saving features in Android P new. Google assistant capabilities, on various, a new. Android, model, to help developers, optimize, for a variety of devices, and form factors, as. Well as tools to help users understand. And control how, they are spending time on their device our. Investments. In our computing, platforms, as well as an AI and design, are also helping us generate great momentum in. Our made by Google hardware, business across. Pixel, home, neste chromecast. And more, we. Brought Google, home and mini to Ireland, Australia, Spain and Mexico. Additionally. Bringing, the nest and Google teams together is showing early results the. Products, can more seamlessly, work together under, product, development, and go to market are benefiting, from the new alignment there's. A lot more to come here in the next few months. Second. Our video, platform, YouTube is growing tremendously, we. Launched a revamped YouTube music service across 17, countries and, it's receiving great feedback from, users and artists, alike this. Quarter, YouTube rebranded, its subscription, service YouTube, premium, featuring. Originals. Like our hit series Cobra Kai which. Got 41, million views of the first episode, alone. While. Advertising, on YouTube is an incredibly, strong and growing source of income for creators, we, are also investing, in new ways for creators, to generate revenue on the platform, including. Paid, channel memberships. Merchandise. Shelves on YouTube channels and, endorsement. Opportunities through. A company we acquired in 2016. Famebit, in. Fact half. Of the creators that used famebit, in the first three months of 2018. Doubled. Their YouTube revenue and. Third. Are advertising, platforms, which are firing on all cylinders as. We put the power of machine learning into. Marketers, hands at. Google marketing live we, introduced, our newly rebranded advertising. Products a core, product Google ads Google. Marketing plan which provides analytics, and ad-serving. For large marketers, and agencies and, Google. Ad manager, our monetization. Engine, for publishers. We. Also announced a new ad format powered by machine learning called responsive. Search ads it. Automates, the manual process of building text, ads and, optimizes. Them in real-time to show the best performing, ad for, each search query. Advertisers. Also got a first look at local campaigns, and smart, campaigns. Local. Campaigns, are designed exclusively to. Drive foot traffic to local, businesses, and smart. Campaigns, are now the default, for new SMB, advertises, small. Business owners love, the simplicity and the results. This. Quarter we, announced shopping, and commerce partnerships, with leading global retailers, like Terra 4 designed.
To Give people the, power to shop wherever. And however, they want care. For is a great example of, how, we can partner deeply, with companies, bringing. Our shopping, and ads and cloud products, together for them they. Recently chose to migrate from office, to G suite for, their more than 160,000. Employees, and have, selected as as their main cloud provider based. On our ability to support the company's digital, transformation. Speaking. Of our efforts, to help businesses, succeed in the cloud our, cloud business is great momentum it's. A natural, extension of a long time strengths in computing, data centers and machine learning we. Have developed these over many years and they power our own services, in the cloud and are now helping others, this. Week's Google, cloud next event will, have more than 20,000, attendees up. From, over, 2,000 at our cloud conference, in 2016 with. Over 250. Customers, speaking I, won't. Spoil any of the surprises, but I do want to call out Google cloud smo mentum, success. Of our vertical strategy, and customer centric, approach was illustrated, by key wins including, Domino's Pizza, SoundCloud. And Price, Waterhouse Cooper. Target. Is maintained migrating, P areas of its business to, Google cloud platform. Financial. Institutions, are creasing returning to the cloud to, modernize, their systems. Explore. New business models and improve, customer experiences. New. Customers, include, banco, et al in bristl we. Also have a rapidly, growing business, for our specialized, cloudy eye services. AirAsia. Expanded. Its relationship, with us to use machine learning and data analytics. We. Are seeing an acceleration, in business adoption of Chromebooks the. Most secure and cost-efficient. Way for businesses, to enable, their employees, to work in the cloud, in. Q2, unit. Sales of managed Chromebooks, grew, by more than 175. Percent year-over-year and, we. Saw deployments, at customers, like, Veolia and to. Support our growing global, customer base we, continued to invest in new cables, open, new regions in Finland and Los Angeles and announced. The zurich region we. Now have 17, open regions with, three more on the way, before. I close I want to give a quick shout out to the work that we are doing to build great specialized, products, for, the next wave of people coming online for the first time in countries, like India, Indonesia. Brazil, and Nigeria, many. Of whom experienced. The web only, through their mobile phone, this. Is a big area of focus for us through. A great partnership, with the Indian Railways and railTel we've hit our goal of enabling high-speed, public Wi-Fi in, four, hundred train stations, across India, we've. Also rolled out this Google Station model in Indonesia, and Mexico, but more to come soon and to. Help spur AI innovation, in Africa, we, recently announced a new Google, AI research, center in Ghana with, the goal of bringing together top. Machine learning researchers, and engineers to, explore, AI. Research, and applications, in Africa, and beyond of. Course, our commitment, to help communities, and people benefit, from the, digital economy extends. Beyond the products that they use last. Month as part of our broader growth Google effort we, expanded, the Google IT support, professional, certificate, program to, more than 25, community, colleges, in the US this. Will give students an opportunity to learn skills needed. To jumpstart, the carriers in IT support I want. To thank Google is for their hard work which, helps us create products, that billions of people love and use every day with. That I'll hand it back over to Ruth Thank. You cinder and we will now take your questions. Thank. You ladies, and gentlemen on the phone lines if you'd 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 please press the pound key and. Our first question comes from Eric, Sheridan, of UBS your, line is now open, thank. You very much um two questions if I can sundar for you following. Up on your comments, we've seen all of these partnerships, announced, in the commerce space want, to understand, how, those partnerships might evolve over the next couple years what, Google brings to the table for those partners, what it might do for the advertising, services, business as we think long. Term and then we beginning a lot of questions on way moe, in the quarters or any sense you can give us of some of the key investment, milestones. Or. How we should be thinking about capital allocated. To the way Moe business, in the coming year thanks, so much great. On the Commerce on the Commerce friend you know obviously, it's a natural, sector I think for. Us to drive partnerships, you know we already have deep. Advertising. Relationships. With many of these providers. Increasingly. Shopping, as an area where we are beginning to work, together and and. Finally, I think, you. Know cloud, is another important, way by which we. Can start working together so. I do think we are seeing a lot of collection, there I gave, the Kara for example, we. Also announced, a strategy partnership, and significant, investment, in JD comm, the, second largest e-commerce company. In China today. We are already for example in Google Express we are partnering with over, 100 merchants, including national. Retailers, like Walmart. Costco. Target, Walgreens. And, Petsmart so there's, a lot of traction you, know I think we're building upon these relationships, trying, to have more holistic, conversations, across the. Breadth of our offerings, and I think you know I see I see are all being, very synergistic. In, terms of way mo we remain very excited about the opportunity, with Wei mo you've seen, us talk about our progress on a number of fronts I think the main point it is still very early but, in, terms of our progress so. 2018. The focus has been to launch the commercial, rider program, in Phoenix that we've talked about looking to do that by year-end we. Do view that as a first step in building a, more fully rolled out rider program, in the future and as, we've discussed on prior calls we continue. To trial the program in Phoenix with an emphasis on, delivering a safe experience that delights users, we've. Also continued, to build out our vehicle, relationships. You saw announcements, regarding FCA, and Jaguar, we're. Expanding our testing, to more States we're, also working, on additional areas, such as logistics. And, deliveries, we, talked this past quarter about licensing. The technology, for personally, used vehicles, and we're also, focused. On working with cities to help strengthen. Public. Transportation. You know more specifically, your, focus on capex, as. I said we're excited about the long term opportunity but. Creation, of a new market does take time and then on the capex, versus. Op X the way it works is once the commercial program is up and running beyond, what's viewed as more of a development, or R&D, phase, then. Much of the investments, are capex versus effects and that's for cars sensors and any other spend so. You know we're excited we do think it's a, really, important. Market, but it is still very early. Thank. You. Thank. You and our next question comes from Heather, Bellini of Goldman Sachs your line is now open, great. I just, had two questions one, I was wondering if you could talk about what. You've seen thus far with, the rollout of GDP, are anything, you could share with us and just how, that's played out versus, your expectations. At this point and then thunder, as you mentioned with Google next upon us and you. Know you're out you obviously guys are talking very positively, about the business but there are there any more steps you can, share with us even about the growth rates and gee sweet or GCP or combined. And then you know when we think about this business scaling. Over time is there any reason, to think that the, pace of gross margin, progression. Would be materially different than, you know say a sure AWS. At similar revenue, levels. Thank. You Thanks, so they're on, on, GDP, are you know obviously it's, something we've been working on for a long time well, over 18 months but the, rollout just happened. Towards. The end of, second. Quarter so it's a bit early to assess anything, but. You know for us you. Know it's it's been super important, to get it right and we've always been focused on user privacy, but, it's been a big change for a lot of our partners as well and so we're working closely with, our.
Partners And, regulators and, you know and committed, to doing it, right. But it's too early to tell and on. On. Google, next and cloud you know obviously the, conference, is tomorrow. So, you know I will I will hold. For the announcements. Announcements. There, you. Know the, couple. Things G. Suite is definitely, you know I think, seeing. A lot of momentum we you, know definitely have. Noticed in the you, know now I think it's it. Can definitely serve the needs of a large enterprise it's, clear I gave the Kara for example, but, increasingly, we are seeing big companies, take on the migration, so that's been for sure a positive development and. And. On cloud. You. Know I think we. Are investing for the long run we, are definitely seeing seeing. Traction, a. Lot, of our effort you know from a product and technology standpoint we are definitely. There and differentiated. It's. It's been a lot about investing, you, know go to market efforts and, as. We do it both developing. Our in-house, strengths, but as well as partnering, those. Things are beginning to pay dividends, and. You, know hopefully, you'll, hear more, details at tomorrow's conference. Thank. You. Thank. You and our next question comes from Brian Nowak, of Morgan Stanley your, line is now open. Thanks. For taking my question. The first one that the Google assistant, and the hardware, on the Google home minis was, curious if we could just talk about certain early, learnings, and differences. In consumer behavior with, how they interact with those devices, as opposed through, the close to mobile search on the phones and I know you're always very focused on the long-term value, proposition, for your users and advertisers and. We talked about the focus and the hardware is long-term, for users and advertisers then. Suddenly I appreciate your color on India, and Indonesia in the emerging markets talk. About how you're strategically. Trying to position yourself or have, a business, potentially, beyond advertising, and payments, or other other, areas, in the countries, we could please. So. On on Google. Assistant, you, know obviously, we see Google assistant, as, an. Important, evolution. And, you. Know obviously it's. Early days but it's already exciting, to see you. Know people definitely. Are, pushing the boundaries of what they can do with these devices, in, a home control and automation, is a good example of the kind of use case that's. Very very different consumer, behavior, and which, is why our assets. And nest etcetera end up mattering over time so. You know there's a lot more actions, people are trying to get things done, which. Is definitely. You. Know areas. Where we are focused. On but. I think it's important, to understand, that experience. Not just in the context of home and how many but also you. Call mobile experience, how it evolves on the phone and across, the screens you. Will have in your life so we are taking, the. End-to-end user experience in mind and that's where all the investments. We have done over many many years I think will come into play as a product, of all's on. Your. Question. About emerging. Markets you know the, user growth there is, you. Know extraordinary. To see and we, are seeing it across all our products, so all our major. Products, products which have over, a billion users each, they. Are all doing, well in these markets, and so that's. Where most of the growth is going to come from and, so it's an important, area of focus. And we do see unique, opportunities. In these markets, which are you. Know different from the. Mark the, markets we are in here, in our more mature markets you highlighted, payments is a good example and you've. Seen us address that explicitly, with Google, tears in India and so we will look to do more like that and. Beyond. Just getting our products, working better we're going to be opportunistic, we are investing in talent in these countries and there's, a lot of innovation which is going to happen from, these countries both, for their.
Own Markets, and for for the world beyond and we want to be in a position to do that well. Great. Thanks. Thank. You and our next question comes from Doug, Anmuth of JP Morgan your, line is now open. Thanks. For taking the questions so if I could first. For Ruth you talked about the higher cost as you shift to machine, learning driven, business, and also your tech upgrade cycle, around machine, can, you give us a sense of where you are in making those transitions and, absorbing, those investments, from a cost perspective and. Then, send, our mobile, strengths clearly in the quarter you just help us understand, better how machine, learning and AI are, driving, the stronger growth in mobile search and if there's any specific innovations. Or products. You can point to that are driving that outside growth Thanks. So. In. Terms of your. First question and. Kind. Of machine learning and I think you're, kind of getting its cycle, you're. Really seeing it in two places I'm, part of it as they called out is with, respect to. Effects. We're hiring. And, what you're seeing is, the. Investments, were making across, the board it's you know it's its ads it's cloud it's hardware it's the assistant but it is also very much in machine learning and we're really proud. Of the team that we have given the opportunity, set that they're able to, address. And I think, you were trying you were getting more broadly at capex, you, know the way we're, we're. Focused, on capex, as I said. Last. Quarters well we view this as a lens into our outlook for growth. In the required, additional compute. Capacity and, you. Know it there, are a number of growth drivers, there. And. You, know part is is, really, to support growth that we're seeing. In, our, search and ads business, that's really, consistent, with the momentum that, we've commented on today and the exciting, opportunities, that we see to further enhance the user and advertiser experience, it's also. For, our newer businesses as I noted in opening comments, and then very importantly it reflects the importance, of machine learning across our products, including, search in ads.
We've. Talked about this in the past machine learning is more compute intensive but it also opens up more services, and products across. Alphabet. And and, that's what we're investing in to make sure that we've got the the, capacity, with you know best-in-class. Compute. Capacity and. So the, Commun oh the the build is really machines data centers and network infrastructure, and, just. To make sure it and put a fine point on it while we're ensuring that we're well, positioned to support the growth we see we do constantly, remain focused on efficiency per unit of compute, we've talked about that on on many, prior calls and our investing. Here for. Long term value creation thoughtfully. In order to be able to pursue the opportunities. That we see ahead. Of us and. Doug on your question on you. Know how this machine learning driving, the. Mobile search experience, you, know I think the key thing is it's, doing it at a deeper foundational. Level we've obviously used machine learning you, know across-the-board beat or ranking, in, actually understanding, the intent, the context, around the query and and. And getting you the right answer, I think. Experiences. I mean the improvements, are happening continuously, and so, we are you know I would just say we are getting deeper. In. Terms of what we are able to do. In. Terms of specific innovations our parts it's super, important to understand I gave the Translate example, earlier, well. It may seem like a specific. Use case you know it's obviously, obviously we can do translate, well because of machine learning but. Where it helps us is we, want Google, to be the source you think of when you run into a problem and and. The fact that you, know the data shows that during, the World Cup in Russia our usage. Spiked, up to, me shows that when people are, running, into new things new experiences. When they have questions on their mind, Google, is what they are reaching out to and I think and, I think the way we continue, to do that well is, by increasingly, by using machine learning so that's. The depth of which we think about this. Thank. You. Thank. You and our next question comes from Anthony, DiClemente of. Ever course your line is now open. Thank. You very much first, for sundar you talked about Android, and your prepared remarks in, your blog, post you, said that you're concerned that the Android, ruling, from the EC sends a troubling, signal, in favor of proprietary, systems, over open. Platforms, so I wonder, how. Are you thinking about the possible business impact, from this Android ruling, specifically. Untying, the Play Store from search in the chrome Chrome, browser and, does. It in any way change your strategic approach for Android going forward, and then, for, Ruth on the, theme of affects. Investment. Trends if, we isolate just, the other revenue, businesses, cloud play and hardware all, growth, drivers.
But. Clearly structurally, different in terms of the, competitive landscape and, profitability you said most the headcount additions, are in cloud but would. Love to understand more about how you prioritize. Investment. Across cloud, play and hardware those three thank you, you. Know an Android you know I said in my blog post you. Know Android. Has really worked well I think globally, for users for everyone, in the ecosystem, you. Can clearly see there's robust competition, there's. A lot of innovation lower, prices, that is made I'm ROI possible at every price point and so, I think overall it's create more choice for everyone not. Less we. Are deaf you know it's it's we. Are analyzing. The decision, and, I think it's too, early to comment or speculate, beyond. What we've already said, but, we will you know we will always take a constructive, approach will, appeal the Commission's. Decision and take the due process available, to us but. We're also looking forward to finding a solution. Above. All that preserves. You. Know enormous, benefits of Android to users and so on so. There is more work to be done and I, think it'll become clear, as we go along but. I'm confident. That we can find a way to make, sure Android, is available, at, scale to users, everywhere and, in. Terms of your question on investment, priorities I think one of the most important, points to underscore, is, that. One of the biggest opportunities for. Investment, continues, to be in our ads business where we're continuing to invest meaningfully. Given, the. Opportunity, set that we see there sundar comment on some of them as did I you know looking at opportunities to enhance the user experience to. Continue. To improve tools, for advertisers, and, you, know both of which extent, the growth there and that's for, mobile, and what we're increasingly, seeing is as we, focus on mobile the benefits, are cross-platform, and, helped explain the growth we're seeing in in desktop, and YouTube so we, are continuing, to invest here I don't want to leave you with an answer with the notion that the investment, is just going to the newer businesses, and then, more specifically, to your question you. Know what we look at is the. The, opportunity, set the, you. Know we each one of these is different when we start with cloud is sundar commented. Given the core capabilities, that we are. Building upon our technical, infrastructure, security apps, machine. Learning, analytical. Tools our view is that we're, addressing a, rapidly. Growing market with the core, pillars. That are needed to to. Win and what has been the recurring, theme that we've talked about on these calls is the need to, further build out our go-to-market capabilities. And ensure, that we've got the functional requirements, that. Enterprise customers, deserve so it's really looking at the scale of the opportunity, the pace of investment, that can be done effectively and, and. Therefore, position, us well you know our hardware business continues, to deliver significant. Growth particularly. With the sales of the home family of products, and you've, seen us invest there we talked about the HTC, acquisition.
Last Quarter because this is a scale business and the ability to, operate. As effectively as possible underscores. The types of investment, we're making play. Continues. To benefit, from from, broad-based app strength has been a long-standing, strength. Of ours and we're continuing, to invest as. As needed, there. Thank. You both thank. You. And her next question, comes from Mark, Mahaney of RBC, Capital Markets your, line is now open, great. Thanks to questions it, seems like your commentary, on cloud, is very positive it seems like that's also what we're hearing from Microsoft, and my guess is from Amazon what they're seeing do you think we're just had a broad industry, inflection. Point in terms of cloud adoption and any thoughts as to why we're seeing it now and then, on a question, on advertising, there's this big bucket of ad spend it's called trade promotion, spend that's largely been offline I think and, it's almost as big maybe on a global basis as kind of traditional TV brand advertising, any thoughts on that is an opportunity whether, there's. No ability, for that to really migrate, heavily online, and Google's ability to tap into those dollars. Thank you very much. You. Know the first question on on. Cloud, you. Know for sure, you. Know I I do think, there. Is you. Know an. Inflection, point and, and. That's, why it, feels far from a zero-sum game I think all the all the major players are definitely seeing traction. And. And. To me the reason is you know typically when you look at enterprises, you know you Eve once, you've deployed and you have an architecture, you, try and stay on it as long as you can. In. Many many cases. Because. Change is hard but you know this is a case in which the benefits are super clear and and. Over, time, I think there's, a tremendous, cost to your business of, being, on the wrong architecture. Especially if you need to digitally, transform, yourself. You know thinking through the cloud architecture, becomes an important, way by which you're improving your business so. I think at, a foundational. Level it's, it's clearly there on everyone's, minds, it's, not just on you know CEOs. Are asking questions about cloud almost. All businesses. I deal, with I, can clearly see the question is on the mind of their CEO, and so I. Think I think it's important, I also think it's going to be businesses. Are going to embrace multiple, cloud over time too so, I think not only is this early. But, I think it is going to. You. Know transform. And there's a lot of opportunity, here and and. Our goal here is it's, something we view this is something we've built experience, over 20 years and, we. Are thoughtfully. You. Know gaining strength and committed, to it for the very long term. And. Then in terms of kind of trends in advertising. To your question, you. Know we, have. Talked about this quite a bit in the past over 90% of conferences still offline and, we do see a great opportunity for, digital. Play a bigger role in that and tap into our budgets, into. Other budgets, you know that that have traditionally been. Been. There and so we. Are quite focused on the advertising, opportunities, have said and the fact that ad budgets are offline and as. We focus on these are opportunity, and the tools for for. Advertisers. We view that as a another. Opportunity. Thanks. Ruth thanks and our. Thank. You and our next question comes from dan salmon, of BMO Capital Markets, your, line is now open. Hey. Good afternoon everyone thanks for taking. My question sundar you mentioned, in your prepared, remarks, or. Highlighted, at least the launch of local, campaigns, at. Marketing. Live a couple of weeks ago, I. Recognize. That's an initiative that will help drive demand across a number. Of Google properties, but, I'm curious in particular about. Map and. With. It being a product aimed at driving store visits one would, assume apps will play an interesting part in that and. You. Know in the past one we've asked you about maps it was focused. More on getting. The. User experience, right, so, my question is is do you see local campaigns, as, something. That drives a bit of an incremental, level, of monetization, of math thank, you look. I think it's a good question you. Know local. Is an, extraordinary. Use, case in mobile local. Mobile searches are, growing fast than mobile searches for us and, have increased by almost 50% in the last year alone and, we.
Are Continuing. To invest in building a local experience that benefits merchants. Users, and advertisers and. And. Local. Campaigns, is something new, which we announced at. Google, marketing live a couple weeks ago it's, it's a new campaign, where if. You're a local business it's, designed to drive foot. Traffic to you you. Provide us with your budget business, locations, and creatives, and we, use machine learning to automatically. Optimize, that. To appear. Across our properties, right and. Along. With that you've. Rightly noticed, that we are you, know beginning, to experiment, with new ad formats which, we've had in beta but we're pushing on them a bit more in. Maps itself, both, promoted. Places, and place page ads so these. Are important. Ways by which we. Are exploring. The commercial, opportunity, around maps have. Always felt maps is a tremendous, asset we have and. We've. Really focused on the use user, side of things and we will continue to do so because the. Growth is very very, high so we see a lot of headroom and, but. As that experience. You. Know is you. Know we get a better understanding of it we, are developing our views on how, we can bring monetization, experiences. And so these are all, steps. In that direction but. You know we'll take it slowly and we'll continue to evolve it here. Okay. Great thank you. Thank. You and our next question comes from Brent. Phil of Jeffries, your, line is now open. Good. Afternoon Ruth. The US and Asia Business accelerated. Sequentially. Modestly. The. Europe was down a touch, and I think there been many questions around did, gdpr have any impact I knew, sooner so that was too early to call but is that. Just completely, unrelated to to what happened and maybe there's something else that that's, going on that resulted, from from. The small non tech. Yeah. I mean the way we look at it and is we're. Pleased with the the, strength. Each of the regions at. 19. Percent year-on-year, growth and amia on a fixed basis, we're, you, know we're pleased with the strength and the business and as Senator said I think it it is too early to comment on, GDP, are we. Then you, know hope that the, geographic. Split gives you a better sense of what's kind of the dynamics, in each of the various regions, and. As we've, both commented on as. Long as you raised the regional question I've got, a comment, on a pack here really pleased with. The the growth 34%, on a fixed FX basis. And it, underscores, sidharth's, comments, about terrific, products and rapidly growing markets, as, well as a superb, leadership group mobile, strength it's the key there, as well and we're, really pleased about the breadth by country. That. We're seeing we're. Very focused on the region so we as we look across the globe pleased with the the fact that it is all regions, are contributing, nicely. Ok. In a quick follow up for sundar I met you mentioned on the the, cloud business that you're, getting strong traction. Among some of the big financial institutions. One. Of the big questions we get is around the, heavily regulated, industries, like healthcare and financial it. Feels like you're starting to get better, reference ability. There are. You happy with where you sit across the more, heavily regulated, industries, now versus, the, tech focused industries, or. Where you sit right now you. Know definitely and, I think that's where a lot of our, investments. Have gone in right you know getting the necessary certifications needed.
Depending On the industry and and. Building the features that you need and and. You, know that's clearly starting, to have. An impact and and. Both, on, GCP. But as well as G suite and and so. We definitely are going to continue to build out our capabilities, and you. Know we'll be going, after. The opportunities, in these areas, you. Know very seriously. Thank. You. Thank. You and our next question comes from Colin, Sebastian, of Robert, W Baird your line is now open. Ok. Thanks very much I have a couple maybe, first going back to the Commerce, theme, I wanted to ask about shopping, actions, and a level of adoption you might be seeing with that format and more generally, where, you envision, monetization. For Google assistance if we. Should still expect to see more of a transactional. Bent to. That platform, and then UNTAC Ruth I wonder if it's worth adding a little more color perhaps. In the timing, or how much of the second quarter benefited, from the, moderation and growth and insights attack just, so we can get a better sense as to how to. Model that expense item over, the next few quarters Thanks. On. Google. Assistant and shopping actions, you know there you, know I did think it's been exciting to see the. Improvement. There but, you know I still. Would like their experience, they. Evolved a lot more before you, know we we play around with monetization. And. In all of these areas we always have a high bar to make sure the user experience is working well you've, seen us do that with maps or something like that and, you. Know I think today while. We have taken promising, steps of shopping actions, for, all of this to really work well and to delight users, you know I still feel we. Have some work. Ahead of us and that's what we have focused on so we'll. Stay, focused there get the experience, and then that will give us new. Avenues, to monetize. It you know I've seen this with YouTube now beyond. Ads we are experimenting with a lot of new formats, and and. The same thing here so you know I'm pretty confident, of our, ability to do that well if you get the user experience right and. Then in terms of TAC as we've talked about in the past TAC. As a percentage, of revenues is affected, by quite. A number of factors the main point is that we do continue to expect the TAC rate to increase on a year-on-year. Basis. And the primary reason is the one we've talked about with, you in the past it's it's. The underlying shift to mobile which carries higher tack than desktop, so on a year-on-year basis, that's the trend that you're really seeing. Is the ongoing strength of mobile you, know over the past four quarters changes. In partnership, agreements, have also been a driver of increases. In the TAC rate and then there are a host of other factors that we've, talked about they. Can have an impact in any, a quarter like device mix or partner mix or mix of organic, and paid distribution. Points, and, so as, we called out last, quarter, we did expect the pace of year-on-year growth in the site stack rate to slow beginning, in this quarter, the second quarter and you can clearly. See that in the data and as. We've repeatedly, said it, is, most instructive, to focus on year on year changes, given the significance, of this shift to mobile and mobile growth and so, variations. In quarter on quarter moves are less. Instructive. Thank. You. Thank. You and our next question comes from Michael, Nathanson. Of Moffitt Nathanson, your, line is now open Thanks, I wanted for sundar one Puru thunder, firstly you, went through a lot of your initiatives in your opening comments but didn't mention, verily so you talked a bit about what the bottlenecks, are they need to be solid either by you or your, clients before you could scale the very opportunity and then for Ruth you've. Been clearing the capex ramp this dude or you're investing, ahead of growth what. Is usual timeframe do you think do you see where those investments pay off and what. Factors would make the cab x2 sales ratio start, growing even faster from, here so those are my questions.
You. Know broadly you. Know very lease you, know clearly set up as an other bet, and you, know they're doing really. Important, work on health care you. Know if you look at the recent, progress on their you. Know diabetes monitoring. And so on so they're doing deep work and they'll have a lot more to talk about, across. Healthcare you see a big opportunity for both Google and alphabet, it's. A vertical which is very important, for cloud and, you. Know we are obviously, you. Know helping a lot of healthcare partners. Across. Their needs and verily. Is definitely. Doing very, specialized, solutions. In. This area and we'll have a lot more to say on all of this over the course of time. And. Then with respect to. Take. Capex, look. Our you know I think our our view, is that what you're seeing here is an. Aggressive pace of investment, given our outlook for growth and as I've said the. Required additional. Compute. Capacity. We're. Quite focused on on the. You know kind of full resource, utilization, across. Businesses. If I go back a couple of years when we, incorporated. Stock based compensation into. The way we're talking about the businesses, I made the point that that is helpful both, externally. And internally and, looking at resource utilization the, same is clearly, true of of. Capex. And we're quite focused on, long. Term value creation focused. On ensuring. That we're, pursuing attractive. Opportunities, you, know in a prudent. Appropriate. Way to capture the opportunity while making sure that we're looking at the full again resource, requirement. So at this point that's. An interesting, way of framing the question, how, does it grow even faster from here we're, quite focused on this being an aggressive pace and an appropriate one given the opportunities, that we see and it, is across data centers machines, and network, infrastructure, as I said. Thank. You and our final question comes, from the line of Justin, post of Merrill Lynch your, line is now open. Great. Thank you I just want to get into website growth first. Maybe you can help us a little bit understand, strengthen, mobile search or their new 'ti ad formats, or add changes, you mentioned, local anything.
To Call out there and then, just, wondering given the YouTube controversies, last year did YouTube accelerate. This quarter, and and. What are some of the big content, areas that you're investing in thank you. So, in, terms of sites revenue. You. Know I think our view is the ongoing strength, reflects, our focus, on improving. The user experience and, enhancing, tools for advertisers, and both sooner and I have spoken about them, you, know we've got an intense focus on innovation, that we've discussed, previously that's. Enabled us to deliver over a hundred innovations, each quarter, and a. Really exciting area is, the benefit of machine learning it's, it's a valuable driver of our growth not only enhancing. Experiences. For users but you, know the tools that we talked about for, advertisers, and for app developers, really helping them find the right audience, to. Be able to optimize campaigns at, scale to deliver, more relevance, and higher quality ads. Senator, talked about a number of them you know the Google marketing live we really highlighted. What what we're. Seeing there and the benefits whether we're. Talking about responsive. Search ads or local campaigns, smart, shopping campaigns. Another. Great example is a universal, app campaigns. So, you know across the board and again I made this comment previously, but the benefit we're singing. On mobile is. Extending. To the. Growth opportunities, across platforms. Yeah. And you know I would add that a good way to think about it is today, there's a lot of complexity, you need to deal with as an advertiser, and increasingly. We are using machine learning to. Do, all the hard work and get, them to focus on the business problem they're trying to solve and you. Know and that turns, out to be a big. Driver overall, on. YouTube, you know we definitely are. Continuing, to see great product, momentum, it's. The. User adoption and interest and our our. Metrics, are, very. Strong, continues, to grow and and, the growth is global. And we see it across many, many verticals, and and. Overall, we've invested, a lot and, making, sure we. Are delivering the content responsibly. And it's been a big area of focus across. Google, we are investing, a lot in people. To review the content that going on you. Know improving the policies, and, again using machine learning to make all of this work better, and I think people, are noticing it, including, our, advertisers. And you know and and and, they are engaging with the platform more so, I would say overall there's, a lot of momentum there and I'm, excited about it. Thank. You and that, concludes our question, and answer session for today I'd like to turn the conference back over to Ellen West for any closing remarks great. Thanks everyone for joining us today we look forward to speaking with you again in our third quarter, call. Ladies. And gentlemen thank you for participating in, today's conference this.
Does Conclude the program and you may all disconnect everyone. Have a great day.