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This transcript is provided for the convenience of investors only, for a full recording please see the Q2 2019 Earnings Call webcast. Alphabet Q2 2019 Earnings Call July 25, 2019 Candice (Operator): Good day ladies and gentlemen, and welcome to the Alphabet second quarter 2019 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 require operator assistance, please press star and then zero on your touch-tone telephone. Id now like to turn the conference over to Ellen West, Head of Investor Relations. Please go ahead. Ellen West, VP Investor Relations: Thank you. Good afternoon, everyone, and welcome to Alphabets second quarter 2019 earnings conference call. With us today are Sundar Pichai and Ruth Porat. Now Ill quickly cover the Safe Harbor. Some of the statements that we make today regarding our business performance and operations, and our expected level of capital expenditures may be considered forward-looking, and such statements involve a number of risks and uncertainties that could cause actual results to differ materially. For more information, please refer to the risk factors discussed in our most recent Form 10-K filed with the SEC. During this call, we will present both GAAP and non-GAAP financial measures. A reconciliation of non-GAAP to GAAP measures is included in todays earnings press release, which is distributed and available to the public through our Investor Relations website located at abc/investor. And now Ill turn the call over to Sundar. Sundar Pichai, CEO Google: Thanks, Ellen. Q2 was an exciting quarter at Google. We made several big announcements at I/O, YouTubes Brandcast, and Google Marketing Live. They are all part of our broader vision to build a more helpful Google for everyone. When we say everyone, we mean users, developers, creators, partners, advertisers and, all the customers of our growing Cloud business, and the communities we call home. From the beginning, Googles mission has been to organize the worlds information and make it universally accessible and useful. Over the years, weve evolved from a company that helps people find answers to a company that helps you get things done. Today, Ill share how were approaching this work. Building a more helpful Google starts with advancing our core information mission. In Q2, weve made a number of improvements to our founding product: Search. We redesigned our mobile Search page and brought our popular Full Coverage feature to Search to better organize news results. Were also integrating augmented reality into Search. So if, say, youre searching for new shoes online, you can view the shoes in 3D or even superimpose them onto your wardrobe to see if they match. Thanks to advancements in AI, were making significant improvements to the Google Assistant. The next generation Assistant can process requests up to 10 times faster, making it easier to 1 multitask, compose emails, and even work offline. With features like Duplex on the Web, the Assistant will soon be able to help users book rental cars and buy movie tickets. If youre searching for the fastest way home, Google Maps will now tell you when your bus is delayed or how packed your next train will be. Weve rolled this out to people in 200 cities worldwide. Google Maps can also help people stay safe in times of crisis. Last month, we added more visual information and a new navigation warning system to help you understand where a natural disaster is and better anticipate where it may be headed. Building a more helpful Google for everyone means that everyone should be able to access and enjoy our products. Thats why we are applying the latest advances in AI to dramatically improve experiences for people with disabilities. One example of this is captions, which make content more accessible to the almost 500 million people in the world who are deaf or hard of hearing. In Android Q, we can now add automatic Live Captions to any media playing on your phone, such as videos, podcasts and voicemails. Were also developing technology for the next billion users coming online in places like India, Brazil and Indonesia. Yesterday, we introduced the Gallery Go app. Its a way for people living in low-connectivity areas to manage their photos and videos while offline. Google Photos continues to be one of our most popular and beloved products, now with over one billion monthly users. And were excited by the potential of Gallery Go to bring these benefits to the next billion users. Building for everyone also means ensuring that privacy is equally available to everyone. In Q2, we announced privacy improvements to give users clear choices and more control around their data. Were making privacy controls more easily accessible, expanding our popular Incognito Mode to Maps, and adding new auto-delete controls. And we continue to challenge the notion that products need more data to be more helpful. For example, we invented a new technique called Federated Learning that allows us to train AI models and make products smarter without raw data leaving your device. To make products work even harder for you, weve continued to invest in our Hardware business, bringing together the best of Googles hardware, software and AI. At I/O, we introduced some new additions to our Hardware lineup, including Pixel 3a and Pixel 3a XL. By taking advantage of our leading software capabilities, we can offer users a premium phone experience at a much lower price point. With the launch of Pixel 3a in May, overall Pixel unit sales in Q2 grew more than 2x year over year. In addition to Verizon and the Google store, we successfully expanded our distribution to T-Mobile, Sprint, US Cellular, Spectrum Mobile, and additional partners, which has greatly diversified our sales footprint in the U.S. Finally, were also pleased that the Pixel 3a launch was met with our highest Net Promoter Score ratings to date. Were also doubling down on creating a “helpful home” - bringing all of our Home products together under the Nest brand. In Q2, we launched the Nest Hub in 12 additional countries. 2 Demand across our helpful home products continues to increase as we expand to new markets. Our new Google Nest Hub Max, a voice-activated smart display powered by the Google Assistant, will be available later this summer. Stay tuned for even more on Hardware this fall. Beyond Hardware, we continue to develop the open platforms and ecosystems that push computing forward, such as Android, Google Play, and Chrome. At I/O, we showed some exciting improvements to Android Q: its the first operating system to support 5G; includes support for foldable phones; and has nearly 50 updates focused on security and privacy, including more transparency and control over location data you share with apps. And, we continue to feel the excitement from users, developers, and publishers following the announcement of our new gaming platform, Stadia. We recently announced pricing, availability, and over 30 games coming to Stadia in time for the consumer launch in November. Another area where we are investing deeply is YouTube. Every day, users come to YouTube to learn new things. As a result, YouTube has become one of the worlds most accessible educational platforms. We see strong growth in a number of areas. Creators continue to build engaged fan bases on YouTube. Channels with more than one million subscribers grew by 75% year over year. Thousands of channels have doubled their total monthly revenue by using new monetization products like SuperChat, Channel Memberships and Merch. And were building momentum with our subscription servicesYouTube Music and YouTube Premiumnow available in over 60 countries, up from 5 markets at the start of 2018. At Brandcast, we introduced two important changes that help advertisers reach new audiences with premium content. First, new YouTube Originals series, movies and live events will soon be made available for freesupported by ads. Second, YouTube TV, with its 70+ channels, will be accessible as a standalone lineup in Google Preferred. As we continue to invest in the platform, responsibility remains our top priority. One significant change we made in Q2 was to update our hate speech policy. And we continue to be vigilant about removing harmful content quickly and at scale. In the first quarter alone, we removed more than 8 million videos that violated our Community Guidelines. The vast majority of those videos were flagged by machines, and removed before getting a single view. Were also working to raise up high-quality content and support our creators, who are our next-generation media businesses. These are a few of the many investments weve made to protect the community. The work is ongoing and we are committed to it. Moving from YouTube to broader advertising platforms. At Google Marketing Live, we introduced new ad formats such as Discovery Ads, which offer a new visually rich, mobile-first ad experience across Google properties. We also announced a unified shopping experience and universal shopping cart - all of which help to make Google more shoppable. 3 We also announced Google Travel, a new centralized travel destination where people can plan and organize all aspects of their next trip all in one place - from booking flights and accommodations to planning activities. Now on to our Cloud business. Q2 was another strong quarter for Google Cloud, which reached an annual revenue run rate of over $8 billion and continues to grow at a significant pace. Customers are choosing Google Cloud for a variety of reasons. Reliability and uptime are critical: retailers like Lowes are leveraging the Cloud as one of the important tools to transform their customer experience and supply chain. Customers need flexibility to move to Cloud in their own way: Anthos, announced earlier this year, provides advanced security and open architecture to support multi-and hybrid Cloud environments. Thats important to many companies, including financial services customers like HSBC and new clients, such as Keybank. Scalable data management and analytics solutions are another strength of Google Cloud: Vodafone is using Cloud to drive real-time customer and network analytics; and BrightInsight, a leading healthcare platform for connected devices and drugs, uses our solutions to improve security and compliance. Finally, Google Clouds AI and ML solutions are also helping healthcare organizations like Sanofi accelerate drug discovery and Ascension improve the healthcare experience and outcomes. We continue to build our world class Cloud team to help support our customers and expand the business, and are looking to triple our salesforce over the next few years. Finally, to support our rapidly growing cloud customer base and all of Googles services globally, we broke ground on three data centers, and launched our new Osaka Cloud region - the seventh in Asia Pacific. We also announced plans fo
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