Alphabet Inc - Class C (GOOG) — Q4 2023 Earnings Call Transcript

Welcome, everyone. Thank you for joining the Alphabet Fourth Quarter 2023 Earnings Conference Call. I would now like to turn the call over to our speaker today, Jim Friedland, Director of Investor Relations. Please proceed.

Thank you. Good afternoon, everyone, and welcome to Alphabet's Fourth Quarter 2023 Earnings Conference Call. With us today are Sundar Pichai, Philipp Schindler, and Ruth Porat. 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 Forms 10-K and 10-Q, including the risk factors discussed in our upcoming Form 10-K filing for the year ended December 31, 2023. 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/investor. Our comments will be on year-over-year comparisons unless we state otherwise. And now I'll turn the call over to Sundar.

Hello, everyone. Our results reflect strong momentum and product innovation continuing into 2024. Today, I'm going to talk about four main topics. One, our investments in AI, including how it's helping Search; two, subscriptions, which reached $15 billion in annual revenue, up 5x since 2019. Subscriptions are growing strongly powered by YouTube Premium and Music, YouTube TV, and Google One. Three, Cloud, which crossed $9 billion in revenues this quarter and saw accelerated growth driven by our GenAI and product leadership; and four, our investments and focus to meet the growth opportunities ahead. First, AI and Search. As you know, we have long led the way in using AI to improve many of our products from Search to Ads to most of our consumer and enterprise products, helping billions of people already. Last year brought new excitement around GenAI, and I'm proud of how we responded responsibly with deep advances in foundation models and a number of great launches. We closed the year by launching the Gemini era, a new industry-leading series of models that will fuel the next generation of advances. Gemini is the first realization of the vision we had when we formed Google DeepMind, bringing together our two world-class research teams. It's engineered to understand and combine text, images, audio, video, and code in a natively multimodal way, and it can run on everything from mobile devices to data centers. Gemini gives us a great foundation. It's already demonstrating state-of-the-art capabilities, and it's only going to get better. Gemini Ultra is coming soon. The team is already working on the next versions and bringing it to our products. That starts with Search. We are already experimenting with Gemini in Search, where it's making our Search Generative Experience, or SGE, faster for users. We have seen a 40% reduction in latency in English in the U.S. I'm happy with what we are seeing in the earliest days of SGE. It's available through Search Labs in seven languages. By applying generative AI to Search, we are able to serve a wider range of information needs and answer new types of questions, including those that benefit from multiple perspectives. People are finding it particularly useful for more complex questions like comparisons or longer queries. It's also helpful in areas where people are looking for deeper understanding, such as education or even gift ideas. We are improving satisfaction, including answers for more conversational and intricate queries. As I mentioned earlier, we are surfacing more links with SGE and linking to a wider range of sources on the results page, and we'll continue to prioritize approaches that add value for our users and send valuable traffic to publishers. Beyond SGE, we are continuing to use AI to make searching more accessible and intuitive. Circle to Search lets you search what you see on Android phones with a simple gesture without switching apps. It's available starting this week on Pixel 8 and Pixel 8 Pro and the new Samsung Galaxy S24 series. And Lens now offers generative AI overviews. You can add text to a visual search to ask questions about anything you see and get AI-powered insights in the moment. In addition to Search, we are also seeing a lot of interest in our AI-powered solutions for advertisers. That includes our new conversational experience that uses Gemini to accelerate the creation of Search campaigns. Then there is Bard, our conversational AI tool that complements Search. It's now powered by Gemini Pro and is much more capable of things like understanding, summarizing, reasoning, coding, and planning. It's now in over 40 languages and over 230 countries around the world. Looking ahead, we'll be rolling out an even more advanced version for subscribers powered by Gemini Ultra. That's a good segue to subscriptions. As I said earlier, it's now a $15 billion business annually. YouTube is the key driver of our subscription revenues. Available in over 100 countries and regions, YouTube Music and Premium have real momentum. They're engaging passionate users and driving great returns for the music industry and creators. YouTube TV is also doing well. We've had great consumer feedback on the viewing experience. People love the navigation, multiview, and unlimited DVR. NFL Sunday Ticket has found its perfect home on YouTube, and Philipp will talk about that more. Let me also talk about our subscription service, Google One. It's doing incredibly well with strong user growth. It provides expanded storage, unlocks exclusive features in Google products, and allows us to build a strong relationship with our most engaged users. Google One is growing very well, and we are just about to cross 100 million subscribers. From here, we are going to bring in more AI features and look forward to more strong growth to come. Next, Google Cloud. Throughout 2023, we introduced thousands of product advances, including broad GenAI capabilities across our AI infrastructure, our Vertex AI platform, and our new Duet AI agents. In Q4, our product and GenAI leadership enabled us to win and expand relationships with many leading brands, including Hugging Face, McDonald's, Motorola Mobility, and Verizon. Google Cloud offers our AI Hypercomputer, a groundbreaking supercomputing architecture that combines our powerful TPUs and GPUs, AI software, and multi-slice and multi-host technology to provide performance and cost advantages for training and serving models. Customers like Anthropic, Character.AI, Essential AI, and Mistral AI are building and serving models on it. For developers building GenAI applications, we offer Vertex AI, a comprehensive enterprise AI platform. It helps customers like Deutsche Telekom and Moody's discover, customize, augment, and deploy over 130 GenAI models, including PaLM, MedPaLM, Sec-PaLM, and Gemini, as well as popular open-source and partner models. Vertex AI has seen strong adoption with the API requests increasing nearly six times from the first half to the second half of last year. Using Vertex AI, Samsung recently announced its Galaxy S24 series smartphone with Gemini and Imagen 2, our advanced text-to-image model. Shutterstock has added Imagen 2 to their AI image generator, enabling users to turn simple text prompts into unique visuals. And Victoria's Secret & Co. will look to personalize and improve the customer experience with Gemini, Vertex AI, Search, and Conversations. Customers are increasingly choosing Duet AI, our packaged AI agents for Google Workspace and Google Cloud Platform, to boost productivity and improve their operations. Since its launch, thousands of companies and more than 1 million trusted testers have used Duet AI. It will incorporate Gemini soon. In Workspace, Duet AI is helping employees benefit from improved productivity and creativity at thousands of paying customers around the world, including Singapore Post, Uber, and Woolworths. In Google Cloud Platform, Duet AI assists software developers and cybersecurity analysts. Duet AI for Developers is the only GenAI offering to support the complete development and operations life cycle, fine-tuned with the customer's own core purpose and policies. It's helping Wayfair, GE Appliances, and Commerzbank write better software, faster with AI code completion, code generation, and chat support. With Duet AI and Security Operations, we are helping cybersecurity teams at Fiserv, Spotify, and Pfizer. Our robust growth has been driven by strong direct and indirect channels. With ISVs, we have nearly tripled the number of co-sell deals from 2022 to 2023. In our ecosystem, there are nearly 90,000 Google Cloud GenAI-enabled consultants. And Accenture has teamed up with Google Cloud to create a joint generative AI center of excellence. Next, let me turn to our focus and discipline as we pursue the opportunities ahead. Search, YouTube, and Cloud are supported by our state-of-the-art compute infrastructure. This infrastructure is also key to realizing our big AI ambitions. It's a major differentiator for us. We continue to invest responsibly in our data centers and compute to support this new wave of growth in AI-powered services for us and for our customers. Through this, we are being disciplined in how we run the company. You've heard me talk about our efforts to durably reengineer our cost base and to improve our velocity and efficiency. That work continues. Teams are working to focus on key priorities and execute quickly, removing layers and simplifying their organizational structures. As just one example, our devices team has brought together different teams from across Nest, Fitbit, and other teams into a new functional structure. This will help us pull resources and drive progress across our Pixel portfolio. Across different teams, we have wound down some nonpriority projects, which will help us invest and operate well in our growth areas. We are also improving our machine utilization, building on our years of experience in driving cost efficiencies in our computing infrastructure and operations. And through our supplier efficiency efforts and automation of certain processes, we have made major improvements in areas like procurement, achieving significant savings. That's a snapshot of the quarter. Before I close, a couple of other highlights. Pixel 8, our AI-first phone, was awarded Phone of the Year by numerous outlets. It now uses Gemini Nano with features like Magic Compose for Google Messages and more to come. In our Other Bets portfolio of companies, Waymo, which is deeply focused on safety, reached over 1 million fully autonomous ride-hailing trips. And Isomorphic Labs entered into strategic partnerships with Eli Lilly and Novartis to apply AI to treat diseases, which has great potential. 2023 was a year of profound innovation and product momentum. Thank you to our many partners. We succeed when our partners do, and we are grateful for the work we do together. From our partners across the Android ecosystem who are on display at CES to our deep relationships with retailers, small businesses, and advertising partners, to the next generation of AI start-ups and developers and many more. I also want to thank all of our employees for their hard work throughout 2023 and the start of the new year. I'm excited for what's ahead in 2024.

Thanks, Sundar, and hello to everyone. Google Services revenues reached $76 billion, representing a 12% increase year-on-year. In Google advertising, Search and other revenues grew by 13% year-on-year, primarily driven by strong growth in the retail sector. We saw significant retail strength in the APAC region, a trend that began in the second quarter of 2023 and continued through the end of the year. YouTube ads revenue increased by 16% year-on-year, fueled by growth in both direct response and brand advertising. However, network revenues decreased by 2% year-on-year. In the subscriptions, platforms, and devices segment, previously referred to as Google Other, year-on-year revenues rose by 23% due to robust growth in subscriptions. I want to provide some insights into the quarter and where we foresee ongoing opportunities for long-term advertising growth. Over the past few calls, I have emphasized our commitment to using Google AI to enhance profitability for our customers and assist them in achieving their goals in a cost-conscious environment. In Q4, Performance Max continued to be a standout performer. We are also optimistic about the momentum in demand generation. This initiative aims to assist social advertisers in reaching and converting consumers through engaging and pertinent visual content across YouTube, including YouTube Shorts, Gmail, and Discover. A single campaign can reach over 3 billion users as they engage with content and make purchasing decisions. Many advertisers are testing this out and, on average, are seeing a 6% increase in conversions per dollar spent compared to image-only ads and discovery campaigns. Looking forward, we are starting to equip more businesses with generative AI to help them create better campaigns and more effective ads. Automatically generated assets enable advertisers to deliver more relevant search ads by tailoring headlines and descriptions according to the context of each ad. There was increased adoption with strong feedback in Q4. In addition to supporting eight languages, we are rolling out more advanced GenAI-powered functionalities in the ACA. Recently, we announced that Gemini will fuel new conversational experiences in Google Ads, which is currently in beta for U.S. and U.K. advertisers. Early tests indicate advertisers are able to craft higher-quality search campaigns with less effort, and small to medium-sized businesses (SMBs) are 42% more likely to launch campaigns with strong or excellent ad performance. We look forward to seeing how these developments will enhance performance and create a more equitable advertising landscape. As highlighted last quarter, ads will remain central to the new search experience, and we will keep exploring new formats that are native to SGE. SGE is providing us with fresh opportunities to enhance commercial interactions by displaying relevant ads alongside search results. We've observed that users find ads, whether positioned above or below the AI-powered overview, useful as they offer actionable options to connect with businesses. In Q4, our robust performance in Search was evident, particularly in retail. We noted a strong start to the season leading up to Cyber Five. In Q3, we mentioned observing price-conscious trends among consumers, which continued in Q4. With unprecedented promotional demand, deal seekers on Google accessed double the number of deals in the U.S. compared to the previous season, resulting in an improved shopping experience. We launched several new features, including a comprehensive deals destination, new filters like Get it Fast, and AI-generated gift recommendations in SGE, which drove additional query growth during vital shopping periods such as Cyber Five. Our effective AI-driven ad solutions also benefited retailers looking to enhance omnichannel growth and capture holiday demand. For instance, a major U.S. big-box retailer achieved a ROAS increase of over 60% and a store traffic increase of over 22% using Performance Max during Cyber Five. Additionally, a global fashion brand realized a 15% increase in its omnichannel conversion rate compared to typical shopping traffic by promoting its store pickup option across key markets through shopping ads. Turning to YouTube, we are pleased with the growth in advertising revenue in Q4 and the significant increase in subscription revenue. I want to reiterate that YouTube's success is rooted in the success of our creators. We provide millions of creators with diverse tools to craft content and engage with their audiences, as well as various monetization opportunities to build their businesses, more than any other platform. A larger pool of creators results in more content, leading to increased viewership. Through ads and subscriptions, these viewers help support our creators while driving the engagement advertisers seek. To maintain this growth, we focus on delivering value across four key areas: creation, viewers, monetization, and responsibility. Firstly, we prioritize creation, which increasingly occurs on mobile devices. We have invested in a comprehensive suite of tools, including the new YouTube Create app for Shorts, enabling users to produce 15-second shorts to 15-minute videos and even 15-hour live streams right from their mobile devices. Our generative AI enhances these capabilities, allowing anyone with a smartphone to transform their videos with new backgrounds and language translations without needing a large studio budget. We are excited about our initial products in this domain, including Dream Screen for AI-generated backgrounds and Aloud for AI-powered dubbing, with more innovations to follow. Secondly, we continue to grow watch time across YouTube, with significant growth in Shorts and connected TV. Shorts remains a top focus, boasting over 2 billion logged-in users each month and averaging 70 billion daily views. Viewership is growing fastest in connected TVs, or what we call the living room. We are dedicated to improving this experience with interactive features designed for TVs, alongside beloved content from our creators, NFL Sunday Ticket, and a diverse range of live sports and studio programming via YouTube TV and Primetime Channels. Collectively, this positions YouTube as an essential app for every connected TV. Monetization constitutes our third pillar, achieved through a blend of ad-supported and subscription services. Advertising is our primary revenue stream, and we continue to make substantial investments here. We have introduced CTV-first formats such as 30-second non-skippable ads and pause experiences, along with an industry-first send-to-phone option that allows users to engage with ads via a second screen. For Shorts, we are developing new formats that are less intrusive for viewers, which is early in the rollout but shows exciting potential for unlocking new advertising opportunities. Monetization for Shorts is progressing well, with our AI-powered video formats spanning video reach, view campaigns, demand generation, and video action enhancing advertiser outcomes across the board. We are also introducing new advertisers, as well as existing ones, to YouTube through sports content. Over 90 advertisers, including Unilever, are collaborating with us on the NFL Sunday Ticket in-game advertising opportunities in our inaugural year. Our subscription services are experiencing healthy growth, with YouTube Music and Premium performing strongly. Premium users generate more value for our partners and YouTube than ad-supported users; in fact, every new Premium sign-up contributes to higher earnings for creators, as well as music and media partners. We have made Premium even more appealing with new features, bundles, and enhancements. Additionally, our first season of NFL Sunday Ticket provided creators with new avenues for content creation and greater user engagement across traditional and professional sports. Feedback on the user experience, including multiview functionality, has been very positive, and we are eager to continue innovating in this area. Responsibility is our fourth pillar, and it permeates all our activities at YouTube. We maintain a relentless focus on this aspect, deepening partnerships with key stakeholders to offer them the best of Google. In Q4, we further strengthened our collaboration with the NFL, as Sundar mentioned with Samsung and others earlier. Another noteworthy development was our expanded partnership with Porsche to enhance digital experiences for customers through deeper integration of Google services such as Maps and Play in vehicles. Whether through sustained collaboration with our partners and key ecosystems, we are leveraging Google AI for more customers. I am excited about the potential for continued impact in 2024. I would like to conclude by expressing deep gratitude to our customers and partners. Our achievements are only possible because of their success, and I also want to acknowledge our Googlers for their exceptional work and dedication this year.

Thank you, Philipp. We are very pleased with our full year results with 2023 Alphabet revenues of $307 billion, up 9% versus 2022, which added $25 billion to revenues for the year. We ended with a strong fourth quarter with consolidated revenues of $86.3 billion, up 13% versus last year in both reported and constant currency. Search remained the largest contributor to revenue growth. My comments will be on year-over-year comparisons for the fourth quarter unless I state otherwise. Total cost of revenues was $37.6 billion, up 6%. Other cost of revenues was $23.6 billion, up 5%, with the increase driven primarily by content acquisition costs associated with YouTube subscription offerings. The growth rate also reflects the offsetting benefit of lapping $1.2 billion in inventory-related charges that we called out in the fourth quarter last year as well as a reduction in depreciation expense due to changes in estimated useful lives we made starting in the first quarter of 2023. In terms of total expenses, the year-on-year comparisons reflect an additional $1.2 billion in exit charges that we took in the fourth quarter of 2023 in connection with actions to optimize our global office space. As you can see in our earnings release, these charges were allocated across the expense lines in other cost of revenues and operating expenses based on associated headcount. Operating expenses were $25 billion, up 11%, primarily reflecting an increase in R&D expenses, which were driven by the real estate charges, followed by compensation. Operating income was $23.7 billion, up 30%, and our operating margin was 27%. Net income was $20.7 billion, and EPS was $1.64. We delivered free cash flow of $7.9 billion, which was affected by the timing of the $10.5 billion tax payment we made on October 16 that we called out previously related to the deferral of certain tax payments to the fourth quarter. For the full year 2023, free cash flow was $69 billion. We repurchased a total of $62 billion of our Class A and Class C shares in 2023 and ended the year with $111 billion in cash and marketable securities. Turning to segment results. Within Google Services, revenues were $76.3 billion, up 12%. Google Search and other advertising revenues of $48 billion in the quarter were up 13%, led again by growth in retail. YouTube advertising revenues of $9.2 billion were up 16% driven by both direct response and brand advertising. Network advertising revenues of $8.3 billion were down 2%. Subscriptions, platforms and devices revenues, which we previously referred to as other revenues, were $10.8 billion, up 23%, primarily reflecting growth in YouTube subscription revenues. TAC was $14 billion, up 8%. Google Services' operating income was $26.7 billion, up 32%, and the operating margin was 35%. Turning to the Google Cloud segment. Revenues were $9.2 billion for the quarter, up 26%. We're very pleased with the momentum of GCP with an increasing contribution from AI. Google Workspace also delivered strong revenue growth primarily driven by increases in average revenue per seat. Google Cloud delivered operating income of $864 million and an operating margin of 9%. As to our Other Bets, for the full year 2023, revenues were $1.5 billion, and the operating loss was $4.1 billion. Results in the fourth quarter benefited from a milestone payment in one of the Other Bets. Turning to our outlook for the business. With respect to Google Services, first, within advertising. We were pleased with the sequential revenue growth of Search and YouTube advertising throughout 2023, which reflects the extraordinary work across our teams to drive improved experiences for users and attractive ROI for advertisers. As we enter 2024 with advertising revenues of more than $100 billion higher than 2019, we remain focused on sustaining healthy growth on this larger base. Second, within subscriptions, platforms and devices, our total revenues from subscription products reached $15 billion for the full year 2023 driven primarily by substantial growth in subscribers for our YouTube subscription offerings. The substantial increase in our subscription revenues over the past few years demonstrates the ability of our teams to deliver high value-add offerings and provides a strong base on which to build, including through YouTube and newer services like Google One. Play had solid growth again in the fourth quarter driven primarily by an increase in the number of buyers. In devices, we continue to make sizable investments with increased emphasis on our Pixel family, particularly with AI-powered innovation while driving further efficiencies across the portfolio. Turning to Google Cloud, we are pleased with operating performance in the year. Full year revenues of $33 billion were up 26% versus prior year, ending with strong Q4 performance. The Cloud team is intensely focused on bringing the benefits of Gemini, our industry-leading AI technology, to enterprises and governments globally, and we are gratified with the level of engagement. The strong demand we see for our vertically integrated AI portfolio is creating new opportunities for Google Cloud across every product area. In terms of profitability, the improvement in 2023 reflects sustained focus across the team with the intent to maintain healthy profitability while we continue to invest to support long-term growth. Turning to margins and expenses. As we have repeatedly stressed, we remain committed to our framework to durably reengineer our cost base as we invest to support our growth priorities. Key contributors to moderating our expense growth include: first, product and process prioritization to ensure we have the right resources behind our most important opportunities and to reallocate resources where we can; second, organizational efficiency and structure. We're focused on removing layers to simplify execution and drive velocity. Both product prioritization and the organizational design efforts result in a slower pace of hiring, as you can see with our headcount down year-on-year, reflecting the reductions we announced in the first quarter of 2023 and a much slower pace of hiring. We will continue to invest in top technical and engineering talent. Finally, we continue to execute the other work streams to slow expense growth, including improving efficiency in our technical infrastructure, streamlining operations across Alphabet through the use of AI, increasing efficiency of our spend with suppliers and vendors through our central procurement organization, and optimizing our real estate portfolio. With respect to CapEx, our reported CapEx in the fourth quarter was $11 billion, driven overwhelmingly by investment in our technical infrastructure with the largest component for servers followed by data centers. The step-up in CapEx in Q4 reflects our outlook for the extraordinary applications of AI to deliver for users, advertisers, developers, cloud enterprise customers, and governments globally and the long-term growth opportunities that offers. In 2024, we expect investment in CapEx will be notably larger than in 2023. With regard to Other Bets, we've been working to sharpen our investment focus while capturing the upside given compelling technology breakthroughs across the portfolio. For example, last week, Alphabet's X announced that it would be moving to spin out more projects as independent companies through external capital, giving X the opportunity to bring more focus to the breakthrough technologies it is working on to address some of the world's most pressing challenges. Thank you. Sundar, Philipp, and I will now take your questions.

I have two for Philipp. Philipp, the first one is about a lot of the new generative AI advertising tools. You obviously have a lot of irons in the fire here. You've been talking about some of the early momentum with tens of thousands of advertisers. The question is, can you sort of walk us through some of the hurdles and gating factors that we should be thinking through that dictate the pace at which these tools can really be rolled out broadly just so we and advertisers can kind of get an understanding of when they could have a bigger impact on the whole business? And then secondly, how do you think about the long-term sales force intensity of the advertising business as you roll more AI-based tools like PMax impacting the overall ad allocation?

Thank you very much. I've touched on this in previous quarters. AI has been fundamental to our advertising products for a long time, and recent advancements are helping us provide greater value to advertisers in various areas such as bidding, targeting, and creative, as well as enhancing the experiences of both advertisers and publishers. For instance, in core search ads, we've seen significant developments in value-based bidding on the bidding side, broad match in targeting, and responsive search ads for creative, which automatically generate ad assets. We're pleased with the progress in those areas. I previously mentioned that the AI essentials play a neutral role here, preparing everyone to fully utilize these tools. We also discussed our positive progress with PMax in Q4. Overall, we're on track with our expectations. In terms of sales force intensity, we've made some reallocations or portfolio adjustments. We have two major teams: one is the large customer solutions team that focuses on transformational growth for our biggest and most comprehensive clients, while the other, the global customer solutions team, caters to all customers, from large clients to millions of smaller businesses. The GCS channel is rapidly scaling growth by effectively providing the right solutions for each customer and has shown particularly strong growth in Q4. We have reallocated resources to the GCS side, but I want to emphasize that our restructuring is not due to AI removing roles; rather, we see significant opportunities with our AI-enabled solutions to deliver exceptional ROI at scale, which is why we're making those adjustments. I see sales force intensity shifting to focus more on the channels I've mentioned.

One for Ruth and one for Philipp. Ruth, you're now into year two of durably reengineering your cost structure. Can you just help us assess your progress so far? And are there any guideposts that we should be thinking about going forward? And then Philipp, can you talk more about NFL Sunday Ticket and just what your key learnings were in year 1? How are you thinking about the returns on the investment on both from an advertising perspective and then also subscribers to both Sunday Ticket and YouTube TV?

Thank you for the question. We are very pleased with the progress we're making and remain committed to our framework for sustainably reengineering our cost structure as we invest in our growth priorities. I highlighted several of these in my opening comments, but the key lies in product and process prioritization to ensure we allocate the right resources to the most significant opportunities, which in turn enables us to reallocate resources where possible. We have emphasized organizational efficiency and structure this quarter, focusing on reducing layers to simplify execution and enhance speed. This combination of product prioritization and organizational redesign has led to a slower hiring pace, reflected in our year-on-year headcount numbers and the results from the fourth quarter. Additionally, we expect severance-related expenses to be around $700 million in the first quarter as we continue these efforts. However, as I mentioned earlier, we will keep investing in top engineering talent. Overall, our emphasis on product prioritization and organizational design is crucial, which is why I noted the severance-related expenses, as they facilitate our ongoing work. We have several other initiatives in progress, including improving efficiency in our technical infrastructure, streamlining operations through AI, collaborating with our suppliers and vendors, and optimizing our real estate portfolio. Our approach to durably reengineering involves building on the foundational work that has started and continues to evolve.

So on the NFL Sunday Ticket side, look, as I said earlier, NFL Sunday Ticket supports our long-term strategy and really helps solidify YouTube's position as a must-have app on everyone's TV set. You asked about some of the learnings. Maybe I'll start with the viewing experience. We've received great feedback so far. People like the navigation, multiview, the chat, the lack of latency, really, really positive feedback on this one. You asked about the ads and the subs. Maybe I'll start with the subscribers. We're pleased with the NFL Sunday Ticket sign-ups in our first season both as part of the YouTube TV bundle and as a stand-alone offering on YouTube Primetime Channels. Remember, you can access them via both. Nothing more to share on the sub side today on this one. On the ad side, as you know, advertisers can buy from an NFL lineup as part of our YouTube Select portfolio. And this actually allows advertisers to reach football fans across YouTube's pretty unique breadth of NFL content, independently of whether you're viewing live NFL games or on YouTube TV or Primetime Channels or watching NFL highlights, post-game commentary on YouTube channels. And we saw solid demand across the ad market around our YouTube Sunday Ticket offering here. We're excited about the partnerships ahead or the partnerships ahead. This is our first season. And I mentioned over 90 upfront and scatter advertisers partnered with YouTube in our first year across NFL Sunday Ticket in-game opportunities, which we really appreciate.

Two, if I could. Sundar, a bigger-picture question, coming back to your comments earlier in the call on Search Generative Experience. When you think about the evolution of product over the next couple of years, how do you envision more traditional search and things like the Google Assistant continuing to evolve in a world of Search Generative Experience and Bard? And what that might mean for elements of commercial and noncommercial search and how use cases might change in the years ahead? And then Ruth, I just want to make sure we understood some of the messaging from the release and the public comments around one-timers in the quarter itself. It seems as if they were not allocated to the segments but are more elements of Other Bets and Alphabet-level activities. I just want to confirm whether elements of those one-timers were captured in the P&L statement and whether there were also any elements of legal one-timers that would be called out this quarter as well.

Thanks, Eric. That's a great question. It's an exciting time for us. As I mentioned, we are integrating SGE into the product, and the early feedback has been encouraging. We've been making adjustments, and it’s clearly effective for specific types of queries. We're broadening the range of queries where it performs well. It is definitely providing better answers for certain categories of queries for the first time. This guides us as we move forward. One thing people often overlook about Search is its vastness and the endless variety of queries we encounter daily that we haven't seen previously. The challenge lies in delivering a high-quality experience across all these queries in Search. Over time, we believe that Assistant will complement this effectively. We will also leverage generative AI, especially with our advanced models in Bard, allowing us to function more as an agent in the future, potentially going beyond just providing answers to better assist users. This encapsulates the opportunity before us. There's a lot of work to do, but we have a clear sense of direction. All the efforts we've undertaken so far have received very positive feedback.

And then in terms of your other question, so on the real estate charge of $1.2 billion in exit charges related to real estate, that is in Alphabet-level activities. But the other comment I was making in opening comments is when you go through the various line items, R&D, et cetera, you see it spread there. And we have a table and IR can walk anybody through the technicals on that just to understand how it then gets arrayed across the various lines in the P&L.

I have two for Philipp, I think. Given the importance of connected TV engagement in YouTube, can you talk about the opportunity outside the U.S. for connected TV? And what the company is doing at large to drive more adoption of YouTube or connected TVs given the Google operating system? And can you talk about outside the U.S.? And then you've been consistent about the strength of Shorts over the past year. Can you talk a bit about the modernization challenges? Do you still see the headwinds that you saw at the beginning? Anything you could share about the density of the auction or advertising interest on Shorts? So help us with whether or not that's still a headwind to growth.

Yes. Thank you so much for your question. On the connected TV side, I mentioned it actually continues to perform really well. I said before, YouTube is the leader in U.S. streaming watch time, and it's not just one audience group diving deep; it's really all audiences. On the international side, it's something we are closely looking at. There's nothing specific I have to add at this moment in time on this one. On the Shorts monetization side, look, we built Shorts to respond to the huge demand from both creators and viewers for short-form video. And we're very pleased with the growth we've seen. I mentioned over 2 billion logged-in users every month, and we are averaging 70 billion daily views. Specifically to the monetization question, Shorts monetization continues to progress nicely. In fact, actually, since we introduced revenue sharing for Shorts, the total creator earnings generated from Shorts have increased every month, and we expect this to continue. And similar, obviously, to our long-form videos, we're really committed here to a long-term partnership. And you heard me say this before, right, when creators succeed, we succeed.

So Philipp, this is not a new question, but it's also been about two years since PMax was launched. But it seems like there's been this long lineage of product development and rollout of things like smart bidding in your history, which I believe at the time was designed to help smaller advertisers more easily run search advertising. And today, you're helping me to generate creative as well as manage my spend and maximize ROI across multiple Google Services. So how are you feeling about enabling SMBs who otherwise could not advertise with you before? And what kind of TAM expansion tailwind does that create for your revenue growth over the longer term?

Look, as you know, SMBs are a huge focus for us. We mentioned this several times before. They're part of our GCS channel, not only there's more in this. But they've been under a ton of change over the last few years. And our focus has always been here on investing in solutions that really help level the playing field, and you mentioned several of those. So actually, SMBs can compete with bigger brands and more sophisticated advertisers. And so the feedback we're always getting is they need easy solutions that could drive value quickly, and several of the AI-powered solutions that you're mentioning are actually making the workflow and the whole on-ramp and the bidded targeting creative and so on, you mentioned that is so much easier for SMBs. So we're very satisfied with what we're seeing here. We will continue to invest. And I feel AI is really a helpful, very interesting future path to make life not only easier but also much more productive and better ROIs over time, more level playing field for SMBs.

Maybe one for Sundar and one for Ruth. Just on Search growth, I think there are some concerns on the use of competitive AI tools as an alternative to Search. Just wondering if you're seeing any changes in query volumes, positive or negative, since you've seen the year evolve and more Search Generative Experiences. And what can really make Google stand out versus other AI tools? And then Ruth, CapEx was $11 billion, a step-up, obviously. Any one-time items in there? Or is that how we should think about the new run rate into '24?

Thanks, Justin. First of all, we consider the effects on Search in a broader context. People have many choices for information, and user expectations are continually changing. We've been in this space for a long time, and what truly matters is a consistent track record of innovation. Generative AI is a new tool for us, but Search involves much more: it requires breadth, depth, diversity across different sectors, stability in execution, and access to rich, varied content online, all presented in an engaging manner. Throughout the year, especially with the Search Generative Experience, we have been testing against everything available, and we see the progress we're making and how users are responding positively to the experience. I'm feeling very optimistic about our progress. Our roadmap for 2024 is robust, focusing on both Search and the foundational AI advancements, including the model. I'm really looking forward to what lies ahead in 2024.

And with respect to CapEx, the CapEx of $11 billion in the fourth quarter, as I indicated, was overwhelmingly investment in our technical infrastructure. To your question, there was no one-time item in there. It really reflects our outlook for everything Sundar, Philipp, and I have been talking about, the extraordinary applications of AI within Google DeepMind, Google Services, Google Cloud—it's across the board for users, for advertisers, developers, cloud enterprise customers, governments. And it's really the long-term opportunity that offers. So last quarter, we did note that CapEx would continue to grow in 2024. We do expect 2024 full year CapEx to be notably larger than 2023. As a note, I think you all know this, but timing of cash payments can affect the quarterly CapEx number. But the main point is we're continuing to invest.

So I guess a question for, I don't know if it's Sundar or Philipp. But if we go back to the DOJ trial that happened in the fall, there was a document that was disclosed from Google that said something along the lines of why being on ad quality team to deliver 20% RPM growth in Search is a fragile strategy. So dating back to 2019, your business has, I think, more than doubled since then. So I guess, as we sit here today in early 2024, how do you feel about Google's ability to drive Search RPM going forward? And I guess in the context of what Ruth said tonight about the large revenue base, just how do you feel about the monetization?

I have great confidence in the quality of our work, including search quality and ads quality, as well as our improvements in both areas. Our strong emphasis on ads quality allows us to deliver real returns on investment for advertisers and enhance the user experience, all supported by our commitment to technical excellence and effective market strategies. The fundamental aspects of our approach remain unchanged. I believe AI presents opportunities for us in both organic search and monetization, and we are just at the beginning of this journey. With a long-term perspective, I think we will be able to meet information needs more thoroughly, and I am very excited about the future.

One question on YouTube AI and one on cloud. On cloud first, there's just this volatility, this material deceleration last quarter and the nice reacceleration this quarter. Is that explained by where we are in the optimization cycle, and it may be generative AI workloads starting to trickle in now and cause that growth curve to bend back up? Any commentary just on the sort of the volatility, the deceleration and the reacceleration that we've seen? And then Philipp, I wanted to ask on the creative side, and particularly on YouTube and ads and the creative, using AI to improve the creative and really to offer SMBs who have been with Google forever but offer them now performance-based video ad campaigns created by AI. Is that kind of a new growth area? How far along are you in terms of offering this out into the market? And do you think that this opens up a new area of spend that wasn't there before?

Thanks, Mark. On cloud, let me take that. First of all, a combination of factors. I think definitely excitement around the AI solutions on top of our foundational pillar, be it data and analytics, infrastructure, security, et cetera. But AI is definitely something that is driving interest and early adoption. And as you saw that greater than 70% of GenAI unicorns are using Google Cloud. And so I think it's an area where our strengths will continue to play out as we go through '24, especially when I look at innovation ahead from us on the AI front. And second, I think there are regional variations, but the cost optimizations in many parts are something we have mostly worked through. And I think that was a contributing factor as well.

In response to your question about YouTube, let me provide a general perspective. YouTube’s mission has empowered millions of creators globally to express themselves and engage with audiences, leading to successful businesses. AI plays a crucial role in this development. You’re likely aware of our recent announcement regarding new creative features on YouTube, including Dream Screen and other innovative tools. We plan to leverage these advancements in the advertising sector as well. AI currently enhances many of our video ad solutions and measurement tools, forming a key part of video-rich campaigns. Multi-format ads include generative creator music, simplifying the process for creators to find the ideal soundtrack. AI will open up new avenues for creativity, and as we observe the evolution of models and their generative capabilities, it’s clear that this will positively influence and streamline the experience for creators, akin to the advancements we've seen in some of our core products like ACA on the Search side.

Thanks, everyone, for joining us today. We look forward to speaking with you again on our first quarter 2024 call. Thank you and have a good evening.