Alphabet Inc.

Welcome, everyone. Thank you for standing by for the Alphabet Third Quarter 2023 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speaker presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 1 on your telephone. I would now like to hand the conference over to your speaker today, Jim Friedland, Director of Investor Relations. Please go ahead.

Thank you. Good afternoon, everyone, and welcome to Alphabet's third quarter 2023 earnings conference call. With us today are Sundar Pichai, Philip Schindler, and Ruth Peratt. Now I'll quickly cover the safe harbor. Some of the statements that we make today regarding our business, operations, and financial performance may be considered forward-looking. Such statements are based on current expectations and assumptions that are subject to a number of risks and uncertainties. actual results could differ materially. Please refer to our Form 10-K, including our risk factor section and our Form 10-Qs. We undertake no obligation to update any forward-looking statement. During this call, we will present both GAAP and non-GAAP financial measures. A reconciliation of non-GAAP to GAAP measures is included in today's earnings press release. which is distributed and available to the public through our investor relations website located at abc.xyz forward slash investor. Our comments will be on year-over-year comparisons unless we state otherwise. And now, I'll turn the call over to Sundar.

Thank you, Jim, and hello, everyone. I'm pleased with our business results this quarter, which demonstrates strong growth in search in YouTube and momentum in cloud. Google turned 25 in September, which offered an opportunity to reflect on our progress over the last quarter century and to look ahead to the opportunities enabled by AI we are so excited and confident about. Our product momentum continued this quarter, as you saw with Cloud Next, made on YouTube, and made by Google. It's all part of our focus on making AI more helpful for everyone. And we are making good progress across the four areas that we shared last quarter. First, improving knowledge and learning. This includes our work with the search and rate of experience, which is our experiment to bring generative AI capabilities into search. We have learned a lot from people trying it and we have added new capabilities like incorporating videos and images into responses and generating imagery. We've also made it easier to understand and debug generated code. Direct user feedback has been positive with strong growth and adoption. In August, we opened up availability to India and Japan with more countries and languages to come. As we add features and expand into new markets, we are engaging with the broader ecosystem and will continue to prioritize approaches that add value for our users, send valuable traffic to publishers, and support a healthy open internet. With generative AI applied to search, we can serve a wider range of information needs and answer new types of questions, including those that benefit from multiple perspectives. We are surfacing more links with SGE and linking to a wider range of sources on the results page, creating new opportunities for content to be discovered. Of course, ads will continue to play an important role in this new search experience. People are finding ads helpful here as they provide useful options to take action and connect with businesses. We'll experiment with new formats native to SGE that use generative AI to create relevant, high-quality ads customized to every step of the search journey. The second area we are focused on is boosting creativity and productivity. BART is particularly helpful here. It's a direct interface to a conversational LLM, and we think of it as an early experiment and complementary experience to Google Search. BART can now integrate with Google Apps and Services, showing relevant information from Workspace, Maps, YouTube, and Google Flights and Hotels. We've also improved the Google It feature. It provides other sources to help people evaluate BARD's responses and explore information across the web. Earlier this month, we announced Assistant with BARD, a personal assistant powered by generative AI. It combines BARD's generative and reasoning capabilities with Assistant's personalized help. You can interact with it through text, voice, or images, and in the coming months, you'll be able to opt in on Android and iOS mobile devices. Our collaborative tools in Workspace and YouTube are also part of how we boost creativity and productivity, and they are seeing great initial traction. Third, we are enabling developers, businesses, and other organizations to build their own transformative products and services. For example, thousands of customers and partners are already using Google Cloud to capture the potential of AI, and we'll share more there in a minute. And fourth, we are building and deploying AI responsibly so that everyone can benefit. One area we are focused on is making sure people can more easily identify when they are encountering AI-generated content online. Using new technology powered by Google DeepMind SynthID, images generated by Vertex AI can be watermarked in a way that is invisible to the human eye without reducing the image quality. Underlying all this work is the foundational research done by our teams at Google DeepMind and Google Research. We are excited to roll out more of what they've been working on soon. As we expand access to our new AI services, we continue to make meaningful investments in support of our AI efforts. We remain committed to durably re-engineering our cost base in order to help create capacity for these investments in support of long-term, sustainable financial value. Across Alphabet, teams are looking at ways to operate as effectively as possible, focused on their biggest priorities. Turning next to YouTube, which saw solid momentum in both its ads and subscription businesses in Q3. NFL Sunday Ticket is now live and receiving excellent reviews. Fans love our multi-view feature, which can live stream up to four games on a single screen. We have heard positive feedback from our partners at the NFL about the new features and live stream reliability. This is a clear example of our ability to execute big partnerships with excellence and at scale. I'm really pleased with the growth and engagement on YouTube Shots. We continue to work on closing the monetization gap here. Shorts now average over 70 billion daily views and are watched by over 2 billion signed in users every month. At Made on YouTube in September, we announced new tools that make it easier to create engaging content. DreamScreen is an experimental feature that allows creators to add AI generated video or image backgrounds to Shorts. And YouTube Create is a new mobile app with a suite of production tools for editing shorts, longer videos, or both. Next, Google Cloud. We see continued growth with Q3 revenue of $8.4 billion, up 22%. Today, more than 60% of the world's 1,000 largest companies are Google Cloud customers. At Cloud Next, we showcased amazing innovations across our entire portfolio of infrastructure, data and AI, workspace collaboration, and cybersecurity solutions. We offer advanced AI-optimized infrastructure to train and serve models at scale. And today, more than half of all funded generative AI startups are Google Cloud customers. This includes AI21 Labs, Contextual, Elemental Cognition, Rider, and more. we continue to provide the widest choice of accelerator options. Our A3 VMs, powered by NVIDIA's H100 GPU, are generally available, and we are winning customers with Cloud TPU v5e, our most cost-efficient and versatile accelerator to date. On top of our infrastructure, our Vertex AI platform helps customers build, deploy, and scale AI-powered applications. We offer more than 100 models, including popular third-party and open source models, as well as tools to quickly build search and conversation use cases. From Q2 to Q3, the number of active generative AI projects on Vertex AI grew by 7x, including Highmark Health, which is creating more personalized member materials. Duot AI was created using Google's leading large foundation models and is specially trained to help users to be more productive on Google Cloud. We continue expanding its capabilities and integrating it across a wide range of cloud products and services. With Duot AI, we are helping leading brands like PayPal and Deutsche Bank boost developer productivity. and we are enabling retailers like Aritzia and Gymshark to gain new insights for better and faster business results. In fact, companies are increasingly using AI for the purpose of analyzing data, and customers are choosing Google Cloud because we are the only large cloud provider with a unified platform to analyze structured and unstructured data. In Workspace, thousands of companies and more than a million trusted testers have used Duet AI. They are writing and refining content in Gmail and Docs, creating original images from text within slides, organizing data in sheets, and more. These innovations enable us to provide new services and grow our base of 10 million paying customers, including enterprises like Groupo, Bucciario, Unilever, and Warner Music. We also integrated Dewalt AI across our cybersecurity portfolio to differentiate in the marketplace, providing generative AI-powered assistance in manned threat intelligence, chronical security operations, and security command center. This reduces the time security teams spend writing, running, and refining searches by seven times. We are the only leading security provider that combines frontline intelligence and expertise, a modern security operations platform, and a trusted cloud foundation, all infused with generative AI, helping protect customers and partners like BT, Jack Henry, and Associates, and CoverMyMets. Turning to hardware, we unveiled our new products this month. We introduced our new Pixel 8, Pixel 8 Pro, and Pixel Watch 2 to very positive consumer feedback and reviews. Pixel is the fastest-growing smartphone brand in our top markets and the only one that grew in units sold year over year. Our portfolio of Pixel products are brought to life thanks to our combination of foundational technologies, AI, Android, and Google Tensor. Google Tensor G3 is the third generation of our tailor-built chip. It's designed to power transformative experiences by bringing the latest in Google AI research directly to our newest phones. And new AI-powered editing features in Google Photos on Pixel 8 and Pixel 8 Pro remove distractions, generate the best shot from multiple images, and reduce distracting sounds in videos. Pixel and our third-party ecosystem are powered by Android. We just released Android 14 with more accessibility features. I also want to mention Chromebooks Plus, a new category which provides the best of Chrome on great hardware with built-in Google Apps and powerful AI capabilities. We also shared that Chromebooks will now get regular automatic updates for 10 years, more than any other operating system. In other bets, Waymo is onboarding more riders to its commercial ride-hailing service as it gradually adds over 100,000 people from its San Francisco waitlist. Austin will follow as its next ride-hail city. Wing and Walmart announced a new partnership to provide drone delivery service in the Dallas-Fort Worth area. Before handing over to Philip, I want to thank our employees around the world who are working to create innovative products and provide great services to people and businesses who use our products. Philip.