The operator welcomes everyone to the Alphabet Third Quarter 2023 Earnings Conference Call and introduces the speakers. Jim Friedland, Director of Investor Relations, covers the safe harbor and discusses the risks and uncertainties associated with forward-looking statements. Sundar Pichai, CEO of Google, is pleased with the company's strong growth in Search, YouTube, and Cloud. He reflects on Google's 25th anniversary and highlights the company's product momentum, including recent events such as Cloud Next, Made on YouTube, and Made by Google.

Google is making progress in improving AI in four areas, including knowledge and learning. They have added new capabilities to their Search Generative Experience, allowing for the incorporation of videos and images into responses and easier code debugging. User feedback has been positive, and availability has been expanded to India and Japan. With Generative AI, Google can serve a wider range of information needs and surface more links and sources on the results page. Ads will continue to play a role in this new experience, and Google will experiment with new ad formats using Generative AI. The second area of focus is boosting creativity and productivity, with Bard serving as a complementary experience to Google Search.

Google's AI technology, Bard, can now integrate with Google apps and services, providing relevant information and improved search capabilities. They have also announced Assistant with Bard, a personal assistant powered by Generative AI. Google is also allowing developers and businesses to build their own AI products and services, while ensuring responsible deployment of AI. This is supported by foundational research from Google DeepMind and Google Research. Google is making significant investments in their AI efforts and working towards long-term sustainable financial value.

In the fourth paragraph, the focus shifts to YouTube and Google Cloud, with both businesses seeing strong growth. YouTube's NFL Sunday Ticket feature is receiving positive reviews and their Shorts feature is gaining popularity. Google Cloud's revenue is up 22% and they have showcased innovative solutions at their Cloud Next event. They also have a strong presence in the AI market, with over half of all funded Generative AI startups being their customers. Additionally, they offer a wide range of accelerator options, including their newest and most cost-efficient option, the Cloud TPU v5e.

Google's Vertex AI platform offers over 100 models and tools for building and deploying AI applications. The number of active projects using Generative AI on Vertex AI has grown significantly, with companies like Highmark Health and Duet AI using it to increase productivity. Google Cloud is the only large cloud provider with a unified platform for analyzing structured and unstructured data, making it a popular choice for customers. Duet AI has also been integrated into Workspace and across Google's cybersecurity portfolio, providing assistance and reducing the time spent on security tasks. This has helped Google grow its base of paying customers, including enterprises like Grupo Boticario and Unilever.

Google is the only security provider that combines intelligence, a security platform, and AI to protect customers like BT, Jack Henry & Associates, and CoverMyMeds. They also introduced new products, including the Pixel 8, Pixel 8 Pro, and Pixel Watch 2, which have received positive feedback. These products are powered by Google Tensor G3, a tailor-built chip designed to enhance AI experiences. Google also released Android 14 with more accessibility features and announced a partnership with Walmart for drone delivery service. Other Bets, such as Waymo and Wing, are also making progress in their respective industries.

Philipp Schindler, the CEO of Google Services, thanks the employees for their hard work and then discusses the company's performance for the quarter. He highlights three key areas for growth in advertising: Google AI, Retail, and YouTube. He mentions the recent advances in AI and how it is improving the user experience and profitability for advertisers. He also discusses the success in the Retail vertical and how AI-powered solutions are helping retailers drive ROI.

In Q3, Google has been preparing retailers for a long holiday season by providing them with insights and planning tools, such as OptiScore and Performance Planner, to help them stay competitive and manage their inventory and pricing. They have also observed a shift in consumer expectations, with a focus on price and convenience, and are offering differentiated merchant offerings and improvements to showcase deals in search. The company emphasizes the importance of omni-channel strategies and highlights their suite of omni product solutions. Google has also introduced new AI-powered tools, such as virtual try-on and Product Studio, to enhance the shopping and merchant experiences. They then shift the focus to YouTube.

The focus on creator success and a multi-format strategy are key to YouTube's long-term growth. Shorts, connected TV, and subscription offerings are all important drivers of this growth. YouTube is the top streaming destination and is constantly providing viewers with a variety of content. Google AI is being used to enhance creation tools and ad solutions, making it easier for creators and advertisers to connect with viewers across different formats and screens. The use of AI is also helping brands reach their ideal audience at a lower cost.

In the third quarter, Google's AI is helping advertisers earn more views at a lower cost through video view campaigns. They also launched a new Demand Gen campaign for social marketers. Google News Showcase, their curated news experience, has over 2,500 publications signed on globally. The company is committed to open access to news and information. Alphabet's consolidated revenues were $76.7 billion, up 11% in both reported and constant currency.

In the third quarter, search was the main contributor to revenue growth for the company. Total cost of revenues increased by 7%, mainly due to content acquisition costs for YouTube. Operating expenses were up 6%, with R&D and G&A expenses increasing, while sales and marketing expenses remained relatively flat. Operating income was $21.3 billion, up 25%. The company had a net income of $19.7 billion, with a 7% effective tax rate due to an IRS change. They also delivered free cash flow of $22.6 billion for the quarter and ended with $120 billion in cash and marketable securities. The company's cash balance and free cash flow were boosted by the deferral of certain tax payments, but they made an estimated tax payment of $10.5 billion in October. Within Google Services, revenues were $68 billion, up 11%.

In the third quarter, Google's advertising revenues increased by 11%, with YouTube advertising revenues up by 12%. Other revenues also saw a growth of 21%, driven by subscriber growth in YouTube TV and YouTube Music Premium. The Google Cloud segment had revenues of $8.4 billion, with strong growth in GCP and Google Workspace. Other Bets had revenues of $297 million and an operating loss of $1.2 billion. The outlook for Google Services is positive, with growth in advertising and other revenues expected. In the fourth quarter, there will be a full quarter of NFL Sunday Ticket revenues and associated costs, and Google Play saw growth in the number of buyers in the third quarter.

In the fourth quarter, there is a headwind to revenues due to efforts to optimize the hardware portfolio and the impact of launch timing for the Pixel 6a and 7a. Google Cloud is seeing positive engagement with customers and potential benefits from AI solutions. The company is focused on durably reengineering its cost base to support growth priorities, including AI. This includes slower headcount growth, optimizing real estate, improving productivity, and streamlining operations through the use of AI. There are also efforts to improve efficiency in spending with suppliers and vendors.

The company has been working to identify opportunities for efficiency and focus across its portfolio of other bet companies. The fourth quarter will see higher hardware costs and increased CAC for YouTube. Sales and marketing expenses will be heavier towards the end of the year to support product launches. The reported CapEx in Q3 was $8 billion, with a focus on investing in technical infrastructure for AI. The company expects elevated levels of investment in AI in the future. The executives are excited about the opportunities ahead and committed to delivering sustainable financial value. The first question from an investor is about the incremental return on capital to Search when it comes to AI.

The speaker asks about examples of higher utility, conversion rates, and engagement from SGE and Bard investments, and asks if expenses will continue to grow slower than revenue in 2024. The response states that the goal is to have expenses grow slower than revenue, and that AI is a foundational platform shift that will drive opportunities across the business. The speaker is pleased with user feedback on SGE and plans to continue investing in great experiences to generate value.

Sundar Pichai discusses the progress of Google's AI efforts, including the development of the Gemini model by the combined Google DeepMind team. He highlights the pace of innovation and the multimodal capabilities of Gemini, as well as its availability in various sizes and capabilities. Gemini will be used internally across all Google products and will also be available to developers and cloud customers through Vertex. Additionally, Pichai mentions the ongoing optimization work in the cloud division and the potential for new workload deployments.

Sundar Pichai views each generation as a journey, with each one being better than the last. The company has invested in AI and early results are promising. There has been a shift towards optimizing spend and a lot of interest in AI, with the number of projects for Vertex growing over 7 times. Sundar is optimistic about the future. Eric Sheridan asks about how AI will impact the advertising industry and how Alphabet and Google are aligning their goals with AI. Philipp Schindler discusses the success of Performance Max and its use of AI in delivering excellent ROI. There has been a recovery in brand advertising on YouTube, but there are still some headwinds in the broader ad space.

Google has been expanding and improving its advertising features, including account level negative keywords and revamped asset creation flow. They have received positive feedback from advertisers and are continuing to build new features based on customer feedback. Advertisers are focused on ROI and efficiency, and Google's AI tools are well received. YouTube's revenue growth was driven by both brand advertising and direct response, and there has been stabilization in advertiser spending, particularly in the Living Room and on Shorts.

The CEO of Google, Sundar Pichai, discusses the company's growth and success in both watch time and monetization. He also mentions the positive impact of the retail strength in APAC on both Search and YouTube. In terms of product rollout, SGE is still in its early stages but has shown promising results. The company is focused on improving the user experience and is confident in the trajectory of the product. Pichai also mentions the company's efforts in optimizing Generative AI and finding ways to do so more efficiently as usage scales.

The speaker discusses the success of YouTube TV and their recent acquisition of the NFL Sunday Ticket. They mention being pleased with how it has performed so far and how it fits into their overall subscription strategy for YouTube. They also mention being open to acquiring more sports in the future.

The speaker discusses the positive feedback received on the YouTube experience, particularly the navigation, multi-view feature, and lack of latency. The team is focused on providing a great experience for fans and working hard to get the first season right. In response to a question about potential impact from the Middle East conflict and Sunday Ticket, the speaker mentions their focus on supporting their people in the region and the contribution of Sunday Ticket to subscription and other revenues, which may lead to higher CAC in the fourth quarter.

The speaker discusses the future of AI-driven search and how people will continue to seek information in various ways. They mention the example of product searches and how there are multiple options for obtaining information. They believe that this will not change and their focus is on providing a high-quality search experience for users.

Ruth Porat mentioned that there will be increased investments in the fourth quarter and in 2024. It is not clear if she was referring to just capital expenditures or total expenses.

In the paragraph, Ruth Porat and Sundar Pichai discuss the stabilization of Cloud revenue and the company's commitment to investing in CapEx. They also mention the growth of Google Workspace and DCP in the third quarter and express confidence in the company's future growth. The call concludes with Jim Friedland thanking the participants and looking forward to the next call.

The operator thanks everyone for participating in the conference call and announces that it has ended. They also give permission for participants to disconnect.

This summary was generated with AI and may contain some inaccuracies.