Google Q3 Conference Call
October 16, 2014
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Justin Post - Bank of America Merrill Lynch:
Thank you. I'm wondering if you can help us at all segregate the search business from other items in Google website and just give us your view on the health of the search business. And then comment a little bit on the paid click deceleration, what's driving that? And do you even see that as an important metric? Thank you.
Patrick Pichette - Senior Vice President and CFO:
So I'll take that. The two points is, one, look, we don't give the breakdown of the Google sites, but actually it's pretty healthy on all dimensions. I think that from that perspective, search is going well. And all of the other dimensions of our sites have actually doing pretty well, and that's what you see in our kind of 20% year-over-year just for sites growth. So from that perspective, I think that we're pretty happy on that front.
On the CPC issue, it's pretty simple. I mean we really had -- again, you have to think of the CPC and the volume as one basket that actually delivers. So monetization overall is still very strong. We're very happy with the monetization, Jamie. And if we have in one quarter kind of movements between one and the other, that's just basically the continued experimentation and the impact of all the factors that I usually talk about.
So from that perspective, there was nothing noteworthy to kind of mention this quarter. We're very happy with the trends in both cases.
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Mark Mahaney - RBC Capital Markets:
Hey, Patrick, in describing the Google search strength, you said you saw particular strength in mobile search. Could you elaborate?
Patrick Pichette - Senior Vice President and CFO:
Yeah. I mean, look, it's very clear that mobile is still a big part of our growth. And we're very pleased about it. I mean, it's -- but when we talk about mobile, I think there's a couple things. One is you have to continue to look at both the growth in volume and the growth in pricing. So these are long-term trends that we're seeing. The CPCs and the clicks, they can fluctuate from quarter-to-quarter. It just happens that we've made some changes this quarter that improved the mobile pricing while impacting the lower quality clicks and that's what you see a bit reflected in our numbers.
And again, and I wouldn't -- just as an overall statement, remember to everybody that I wouldn't attribute the aggregate CPC movement [Audio Gap] mobile, because there's still a full factor mix that -- as I talked in my remarks about geography and about our product changes. And so all this actually makes a big factor as well. So that's what we've seen in the strength in mobile, but we're still very pleased with the momentum.
Thanks, Mark. Jamie, we'll go to our next question, please.
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Ben Schachter - Macquarie:
Omid, after many years of waiting for television budgets to shift online, it appears to be happening in a more accelerated fashion. So, one, do you agree with that? And two, could you just discuss YouTube's positioning versus competitors and in particular Facebook Video?
And then Patrick, a couple of quick ones for you. One, given the evolution of tax laws in Europe, how are you and how should we be thinking about Google's tax rate over the coming years?
Omid Kordestani - Interim Chief Business Officer, Special Advisor to the CEO:
Thank you, Ben. This is Omid. So the way we look at it is that users are really accessing Internet on large screens with high broadband speeds, and we're getting great monetization on these screens and advertisers are really paying attention. So we have seen a real shift where marketers and agencies who have historically built their brands on TV are really reorienting this toward investments on digital.
And as in regards to YouTube, our focus here is really this focus on investments and more content, more creativity. And I think you also mentioned that you had a Facebook comment. What they are doing I think in video has always helped us with bringing more attention and more innovation to the space, so we welcome that. And the way we're going to approach it is just continue to investing in our platform and on the creators and building better and better monetization solutions.
Just again, you may know some of these metrics, but I'll say it again that we have 400 hours of content that are uploaded every minute and partner revenue is up 60% from 2012 to 2013 on YouTube.
Patrick Pichette - Senior Vice President and CFO:
Great. Let me jump, Ben, to the tax issues. You've heard about the Ireland announcement earlier this week on the double Irish tax structure. I mean, for us, we've always said that it's for politicians to decide what laws they want to put and then for companies just to comply with those laws. And that's what we're basically doing. So we're deeply committed to Ireland. We've worked there for many years. We have a great -- that's our headquarters. We have over 2,500 employees there. And so from that perspective we're committed to the place. And we're going to work with the authorities just to kind of get clarifications over this. But it's really way too early to tell what's going to happen. So we're, just like you, getting the information, the news, and we're going to work with the authorities to understand it better and then comply with the laws.
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Carlos Kirjner - Sanford Bernstein:
Thank you. I have two questions. Patrick, is CapEx still driven by real estate and construction? And if yes, can you explain in a bit more detail what changed about 18 months ago in the way you acquired real estate and build to drive the inflection in capital intensity that we have seen? It looks like you operated for more than 10 years in one way and then there was a shift that has led to this ma**ive inflection. So what happened there?
Secondly, do you think that Google login is adopted or inspired to being adopted by a large enough number of important mobile apps for you to be competitive in the long term when it comes to offering mobile [Audio Gap] and can you give us an update on the developer adoption of deep linking? Thank you.
Patrick Pichette - Senior Vice President and CFO:
So I can certainly take the first and let Omid answer the second. I've made that comment before in a prior quarter, Carlos. The CapEx intensity and our CapEx program has been built by a combination of, as I mentioned in previous quarter, catching up when we were running too hot in terms of tightening of capacity. And so -- and once I'm very happy that when we really torque our utilization rates, on the other side it creates a lot of operational issues. And that led us to believe that in fact investing ahead of the curve was actually a strategic imperative for us to make sure that if we have the extra capacity, we will grow into it.
And I think the difference between -- certainly on the data center side, data center construction and machines, and you'll have noticed that this quarter again, there are priorities. If you look at the nomenclature I gave, construction of data center is the primary. So it is the core infrastructure, it's groundbreaking and it is setting up the core infrastructures. Machine was the second one for this quarter, but you'll notice that it flip flops real estate. In the case of the real estate, we have been investing for our campus and otherwise when we see -- when we hit kind of minimum scale, we need to kind of make investments in real estate. And again with an eye of looking for the long term, rather than just filling at least for the next 12 months or 24 months, because once you kind of -- if you decide you're going to grow in a place, then you need the capacity for multi-years. So all of these factors have actually kind of been the driver for the shift in capital intensity that you've seen over the last 18 months. So that's basically the explanation, Carlos.
I'll let Omid kind of jump on the second question about the mobile question.
Omid Kordestani - Interim Chief Business Officer, Special Advisor to the CEO:
Sure. Thanks, Carlos. So the AdMob network reaches 900 million unique devices per month and our own apps are hugely popular, Gmail, Maps, Google App and YouTube. And our focus is also -- is helping developers generate app downloads and re-engagement with users who have already downloaded their apps, as I mentioned in my remarks earlier. And we're really helping drive hundreds of millions of app downloads through app promotion products.
Again, the goal here is that you just search and not worry about where the answer is either on a webpage or on an app. And we've been in this game for a while. Four years ago, we acquired AdMob and have continued to invest in this space heavily. And this quarter, we launched the next generation of these promotion ads across Google search, Google Display Network, and YouTube. So we're really focused on this area to help the developers and our users.