Alphabet - Earnings Call - Q4 2012
January 22, 2013
Transcript
Operator (participant)
Good day and welcome, everyone, to the Google Inc. Fourth Quarter 2012. I would like to turn the call over to Willa Chalmers, Senior Manager of Investor Relations. Please go ahead.
Willa Chalmers (Senior Manager of Investor Relations)
Great. Thank you, Jennifer. Good afternoon, everyone, and welcome to today's Fourth Quarter and Fiscal Year 2012 Earnings Conference Call. With us are Larry Page, Chief Executive Officer. Patrick Pichette, Senior Vice President and Chief Financial Officer. Nikesh Arora, Senior Vice President and Chief Business Officer.
Also, as you know, we distribute our earnings release through our Investor Relations website located at investor.google.com. So please refer to our IR website for our earnings releases, as well as the supplementary slides that accompany the call. You can also visit our Google+ Investor Relations page for the latest company news and updates. Please check it out. This call is also being webcast from investor.google.com. A replay of the call will be available on our website later today. So let me quickly cover the safe harbor.
Some of the statements that we make today may be considered forward-looking, including statements regarding Google's future investments, our long-term growth and innovation, the expected performance of our businesses, and our expected level of capital expenditures. These statements involve a number of risks and uncertainties that could cause actual results to differ materially. Please note that these forward-looking statements reflect our opinion only as of the date of this presentation, and we undertake no obligation to advise or publicly release the results of any revisions to these forward-looking statements in light of new information or future events. Please refer to our SEC filings for a more detailed description of the risk factors that may affect our results.
Please note that certain financial measures that we use on this call, such as operating income and operating margin, are expressed on a non-GAAP basis and have been adjusted to exclude charges related to stock-based compensation. We have also adjusted our net cash provided by operating activities to remove capital expenditures, which we refer to as free cash flow. Our GAAP results and reconciliations of non-GAAP to GAAP measures can be found in our earnings press release. With that, I will now turn the call over to Larry.
Larry Page (CEO)
Happy New Year, everyone, and welcome to our earnings call. Thank you for joining us this afternoon. We ended 2012 with a strong quarter. Revenue was up 36% year on year and 8% quarter on quarter, and we had $50 billion in revenue for the first time last year. Not a bad achievement in just a decade and a half. We've talked a lot about excellence and velocity over the last year. While many claim it's my nature never to be satisfied, we've actually made real progress creating a perfect search engine that would understand exactly what you mean and give you exactly what you want. Our Knowledge Graph brings that much closer. Search for Nikola Tesla, and you'll get information about this great inventor that is beautifully displayed right from the results page. His basic bio, books he wrote, his photo, no extra work needed.
We'll even recommend information about other inventors such as Edison and Marconi that you can easily browse through, again, right from the results page. Last quarter, we launched the Knowledge Graph in seven new languages. We'll also understand millions of different entities, as well as their meaning and context. I'm also excited about the progress we've made with voice search. You're in your car. Sadly, it's still a car you have to drive, and it's not electric, and you're running out of gas. Google Maps have really paid off. The team has worked tremendously hard to create the most accurate and comprehensive maps in the world. Driving country by country may have seemed crazy a few years back. Today, it's totally obvious because location is core to your search experience. With Google Maps for iOS, we have reinvigorated our product.
It's more intuitive and beautiful, and users love it. Google Maps for iOS and Apple's App Store, best free apps of 2012, including YouTube, Chrome, Google Search, and Gmail. I've always believed that computers should do the hard work so you can get on with the things that matter in life: living, learning, and loving, so it's exciting to see our progress with Google Now. Launched earlier in the year, it gives you information before you even have to ask. We'll now proactively provide your flight times or your boarding pass or directions to your next appointment. We'll even suggest interesting places to visit nearby. As we discussed on the last earnings call, we now live in a multi-screen world. People carry a supercomputer in their pocket all the time. In fact, we feel naked without our smartphone.
And many users have more than one device: a laptop, a phone, and a tablet. We are living in uncharted territory. It's a new kind of computing environment. Everyone is really excited about our technology and spending a lot of money on devices, driving faster adoption than we have ever seen before. It's been a long time in computing since we had this rate of change. It probably hasn't happened since the birth of personal computing. It's why we put so much focus on devices. They've been one of our biggest bets in the last few years, along with the software to go with these devices: Chrome and Android. Our goal here is to push the user experience forward so you get the best of Google in one easy-to-use package. The Samsung Chromebook, which we launched in October for the amazing price of $249, was a holiday highlight.
I love mine. It's super easy to use, and it almost maintains itself. Open a Chrome tab on your phone, and everything syncs on your laptop with no extra effort required. We also launched two new Nexus devices to rave reviews: Nexus 4 and Nexus 10, to define the 7-inch tablet category, making many best of 2012 and holiday gift lists. Clearly, there's work to be done managing our supply better, as well as building a great customer experience, and that is a priority for the teams. But considering all the excitement over the holidays for our devices, it is clear there is a tremendous opportunity delivering great value with amazing and simple user experience. Google Play, another big bet, is on fire. The growth is tremendous. This quarter, we signed deals with Time Inc., as well as Warner Music Group. So we're now producing music labels and magazine publishers.
We have not even reached Google Play's first anniversary. Many of you have questions about Motorola, and Patrick will go into details of how we're accounting for the business so that you can get your models right. I am excited about the business. In today's multi-screen world, the opportunities are endless. Think about your device. Battery life is a huge issue. You shouldn't have to worry about constantly recharging your phone. When you drop your phone, it shouldn't go splat. Everything should be done faster and easier. There's real potential to invent new and better experiences. Our CEO of Motorola, Dennis, has built a world-class team, and they're working on these opportunities. It's still early days, but I am excited about the innovative way they're approaching product development and the speed of their execution, and they recently signed an agreement to sell Motorola's Home division for $2.35 billion.
2012 was an amazing year for Google, and we're all set for a great 2013. I'm incredibly optimistic about the opportunities we have as a technology company focused on user benefit. Every day, I come to work excited about more and bigger opportunities, and every day, we work to have more and better organized Googlers, those are employees, improving the execution and overall capability to build world-changing products. I know it sounds funny, but with the ambitious plans we have, we are only just getting started. Our biggest challenge in this area is focus. We face so many opportunities. It's always important to thoughtfully invest in the right areas where we can have the greatest impact. We don't want to spread ourselves too thin, but I'm quite optimistic that as we get better and better at managing our product areas, we will be able to continue to grow our ambitions.
That's why I'm here, and that's one reason why Googlers love working at Google. Googlers remain our greatest asset, and we're working hard to recruit and retain the best employees. We've had a great start to the year by being named Fortune Magazine's best company to work for in the U.S. for the fourth time. We've worked hard to create a company where everyone is part of the family and where the work is challenging and rewarding. So we're really happy to get that recognition. I want to finish by thanking all the Googlers who made this possible, and now I'll turn it over to Patrick. Thank you.
Patrick Pichette (CFO)
Thank you, Larry. Good afternoon, everyone, and thanks for joining us. So let's dive in by reviewing the detail of our overall business financial performance. As we noted in a blog post last week, the Motorola Home business has been presented separately as discontinued operations in our financial tables. This makes typical quarter-on-quarter or year-on-year comparisons a little more challenging this quarter, but I will provide some color throughout my comments. So without further ado, here we go. Our gross total consolidated revenue grew 36% year over year to $14.4 billion and 8% quarter over quarter. As I mentioned, this figure excludes the Motorola Home revenue. Had we included Motorola Home, gross total consolidated revenue would have been $15.2 billion, a growth rate of 44% year over year and 8% quarter over quarter. Google standalone gross revenue grew 22% year over year to $12.9 billion and 12% quarter over quarter.
Our Google Websites revenue was up 18% year over year to $8.6 billion and up 12% quarter over quarter, with strengths across most geographies and industries. Our Google Network revenue grew 19% year over year to $3.4 billion and 10% quarter over quarter. Finally, other revenue grew 102% year over year to $829 million and 24% quarter over quarter, driven by Play hardware and content sales, and were it not for fluctuations in currencies, Google standalone revenue would have, in fact, grown 24% year over year. Turning to Motorola Mobility, its gross revenue was $1.5 billion for the quarter, and once again, had we included the home business, the total gross revenue for the combined Motorola entities would have been $2.3 billion. As Larry mentioned, we're really pleased with the velocity of change at Motorola, but it's still at the very beginning of the Motorola Google story.
No one should be surprised if results from this segment are variable for quite a while as we restructure the business, and remember, we inherited a 12-18-month product pipeline that we're still working through. At Google now, our global aggregate paid click growth was strong, up 24% year over year and up 9% quarter over quarter. As we've said many times, there are several factors that impact the CPC click dynamics, including FX, geo mix, product changes, etc, but this quarter specifically, it's worth mentioning that we implemented some policy changes that lowered our paid click growth, improved our CPC growth, and lowered network revenue for the quarter.
Nikesh will speak more about this in a few minutes, but the bottom line is that these policies are part of many constant changes that are focused on what's good for the user and advertisers, so we believe they're good for Google's business in the long term too. Our aggregate cost per click was down 6% year over year and up 2% quarter over quarter. Once again, remember that currency headwinds also had a moderate year-on-year negative impact on CPC in Q4. In fixed FX terms, in fact, aggregate CPC would have been down only 4% year over year and up 1% quarter over quarter. Turning to geographic performance of Google standalone business, we continue to see strong performance in the U.S. and the U.K., while the economic situation of Southern Europe continues to impact our Rest of World growth somewhat.
In our earnings slides, which you can find on our investor relations website, you'll see that we've broken down our revenue by U.S., U.K., and Rest of World to show the impact of FX and the benefits from our hedging program. So please refer to those slides for the exact calculations. Revenue from the U.S. was up 20% year over year to $6 billion. The U.K. was up 23% year over year to $1.3 billion, which includes the immaterial real benefit from our hedging program. In fact, in fixed FX terms, the U.K. grew 22%. Non-U.S. revenue, excluding the U.K., accounted for 44% of our total revenue, or $5.6 billion, up 24% year over year and includes a $36 million benefit from our hedging program, and in fixed FX terms, Rest of World grew 28%.
So now, if I come back to an aggregate level for the total consolidated business, our other cost of revenue was $3 billion in Q4, excluding SBC and Motorola restructuring. Our non-GAAP operating expenses totaled $4.1 billion, which also excludes SBC and Motorola restructuring. And our non-GAAP operating profit was $4.3 billion in Q4, resulting in a non-GAAP operating margin of 30%. For standalone Google, traffic acquisition costs were $3.1 billion, or 25% of total advertising revenue. Our other cost of revenue was $1.8 billion, excluding $101 million of stock-based compensation. The increase year over year was driven by equipment costs, including the cost associated with hardware sales on Play, but also content acquisition costs and our data center costs. Non-GAAP operating expenses were $3.6 billion, excluding stock-based compensation of $576 million. And finally, non-GAAP operating profit was $4.4 billion in Q4, resulting in a non-GAAP operating margin of 34%.
One last note: depreciation and amortization expense on property, plant, and equipment for standalone Google was $493 million for this quarter. At Motorola Mobility, total non-GAAP operating expenses, including cost of revenue, were $1.7 billion. And keep in mind that intangible amortization expense attributed to the standalone Google and Motorola Mobility, they are included in these non-GAAP measures. And of the $289 million in intangible amortization expense this quarter, $153 was a result of the acquisition of Motorola, and of which $116 is allocated to Google and $37 allocated to Motorola Mobility. And as a result, the non-GAAP operating loss for Motorola Mobility was $152 million in Q4, resulting in a non-GAAP operating margin of negative 10% for that segment. Let me turn to headcount. Headcount for the consolidated business increased by roughly 300 people in Q4.
Keep in mind that consolidated headcount includes Motorola Home until it is divested, and Home comprises roughly one-third of the total Motorola headcount. Standalone Google added about 1,400 people, and in total, the consolidated company ended the quarter at around 53,900 full-time employees. Our effective tax rate this quarter was 18%. The change from last quarter reflects the mix and shifts of earnings between domestic and international subsidiary and hedges. Now, let me turn quickly to cash management. Other income and expense was $152 million for the quarter, which reflects realized gains on investments and interest income offset by the continued impact of our FAS 133 expense from our hedging program, and for more details on OI&E, please again refer to the slides that accompany this call on our IR website. Our operating cash flow was very strong, $4.7 billion.
CapEx for the quarter was $1 billion versus last quarter of $872 million. The majority of CapEx spent was related to production equipment, data center construction, and facilities-related purchases. We're very pleased with our free cash flow, which was at $3.7 billion. Please note that cash flow and CapEx both include the home business for now. Finally, the success of our products and our continued strong performance, as portrayed by Larry's comments, continues to give us the confidence to fund our strategic growth in areas such as Search, YouTube, Android, Chrome, as well as in our overall infrastructure we'll use in the long term. I'll hand it off now to Nikesh, who will cover more details of our business performance in the quarter. After these remarks, we'll open it up for the phone lines and questions. Nikesh.
Nikesh Arora (Senior VP and Chief Business Officer)
Thank you, Patrick. As Larry and Patrick have mentioned, our business had a strong quarter with a $12.9 billion revenue in Google websites alone. We're very pleased with our year-on-year growth of 22%. I think our advertising business is firing on all cylinders. Companies of all sizes continue to embrace online advertising, and the major players are increasing their investments. In fact, here's an interesting tidbit. Across Search, Display, YouTube, and more, our top 25 advertisers are now spending an average of over $150 million per year. Delighted with that number. Our core business continues to be strong. Our investments in mobile and shopping have passed the holiday season test with flying colors. As Larry mentioned, our vision is for Search to understand exactly what you mean and give you exactly what you want on all devices that you live with throughout your day.
Talking about all devices, our queries from a wide range of new devices are continuing to power our overall growth in search volumes. Distinctions between devices, form factors are becoming less meaningful, particularly between desktops, laptops, and tablets. Search performed very well last quarter during Black Friday and Cyber Monday. We saw a greater proportion of queries with commercial intent and higher RPMs in areas like retail, computers, and electronics. We launched a set of features to make shopping more stress-free and more fun. I don't know if you've had a chance to look at it, but there are some interesting things like 360-degree toy imagery and integrating retailers' promotions and discounts into our shopping product. Our investments in Search, particularly in mobile and shopping, are really helping clients. Let me give you an example. Front End Audio, this is a company that offers recording and live sound equipment sales.
Sometime in mid-September, they deployed Product Listing Ads. Within weeks, these ads were accounting for about 15% of their total sales. They also tripled their click-through rates and also reduced their cost per conversion by 75%-80%. This is great for us because it's a product we believe is in the interest of the end user. It is a great product for Front End Audio, improves their economics and improves our economics. Major retailers like RadioShack and Home Depot, they use our mobile apps to reach shoppers across devices, including click-to-call, click-to-map. For Home Depot, mobile commerce sales have quadrupled in a year. Patrick mentioned some changes in policy and enforcement. These enforcements had the effect of reducing ad clicks on the sites of certain AdSense for Search partners.
These policy updates are part of our ongoing work to improve user experiences on Google and on sites and services using Google Search. Since these policies improve the experience for both users and advertisers, we firmly believe they're good for our business in the long term. Switching gears to YouTube and Display, we continue to make strong progress here. Video is a key language that brands speak, so it continues to be a key area of focus for us. Video is now baked into the core of all of our products, whether it's Search, Display, Mobile, and of course, YouTube itself. YouTube is well-positioned for the changing viewing habits of today's multi-screen world. The site's new redesign is focused on channels, and that has led to a major increase in engagement.
In 2012, viewers watched over four billion hours of video on YouTube a month, and it's now available across over 400 million mobile devices, gaming consoles, and connected TVs in addition to your desktop. YouTube creators continue to wow and attract audiences. Outside estimates say that video, which I'm sure all of you have seen of Psy, his hit song, "Gangnam Style," now the most-watched YouTube video of all time, it generated over $8 million in online advertising deals. YouTube partner revenue has doubled for the fourth consecutive year, and thousands of channels are now making six figures annually. YouTube is not only a home for creators, but it's also a home for major brand advertisers. On YouTube, our top 100 global advertisers spent over 50% more in 2012 than they did in 2011. Clearly, this is a strong signal of the power of YouTube to reach audiences.
What's interesting is a significant factor in the growth of YouTube has been our TrueView-capable ad format. Agencies and marketeers are seeing real benefits. You only pay for the ad if your viewers watch them. In fact, 70% of our in-stream ads are now TrueView formats, and this quarter, TrueView came to Xbox, the iPad, and the Wii. Putting all our advertising solutions together is really helping us deliver great returns and develop close relationships with major clients worldwide, like McDonald's, who this quarter launched an always-on Search and YouTube campaign to increase customer awareness and favorability towards their brand across all channels. In Q4, we signed a new global deal with L'Oréal, under which we worked to promote their brands using Google's digital offerings across the world in Display, Search, YouTube, and more.
Our complete solution for marketers not only applies to businesses, but we saw this in this quarter's 2012 election. From the presidency to local races, Google's mobile search, video, and measurement products were at the center of a huge number of Democratic, Republican, and issue-based campaigns. Our election advertising revenues increased by five times over the 2008 elections. Here's an interesting statistic for you. In nine of the top 11 Senate races for the U.S., the candidate who spent more with Google was elected. 2012 was notable. Bringing the DoubleClick Google Ad Technology stack together is really helping our clients increase their direct, indirect, and programmatic CPMs. Continues to grow at an impressive pace. It's been gaining traction across some of the largest companies in the world. New customers this quarter include Nintendo, the Canadian Broadcasting Company, Shaw Industries.
To date using Google Apps. I think in summary, we've had a good quarter. Our revenues continue to grow. Clients continue to see value with us and value in online advertising. We have been able. Digital media. Plus, there's continued strong execution and great client relationships. I want to echo Larry's congratulations to our teams around the world for all their hard work in delivering a great quarter in a stellar year in a tough environment. Thank you.
Patrick Pichette (CFO)
Thank you, Nikesh. With that, I'm going to turn it over to Jennifer, who will open the lines for the Q&A. Jennifer, all yours.
Operator (participant)
Thank you. If you would like to ask a question, please press star one. Turn off to allow your signal to reach our equipment. Again, please press star one. To ask a question, I'll pause for just a moment to allow everyone to signal.
Carlos Kirjner (Analyst)
A material sequential decline of Google website revenues growth rate of more than 400 basis points, even after accounting for FX. This quarter, we see another deceleration, I think, of about 250 basis points on an FX neutral basis in the Google website revenue line. All of these in a context where YouTube is growing really fast based on your comments. So what have been the major drivers of these continued decelerations of Google websites? And how should we expect similar growth rate declines going forward? And secondly, on TAC, it seems that TAC for distribution as a percentage of Google website revenues grew less than what we had seen earlier in the last several quarters in 2012. What has driven the stabilization of this TAC or distribution TAC, and how should we think about distribution TAC in the future? Thank you.
Larry Page (CEO)
Thank you, Carlos, for the detailed question. I'm going to turn that over to.
Patrick Pichette (CFO)
Thank you. So Carlos, on the first one, you are right that there's quite a bit of noise because of FX on the sites year over year between Q3 and Q4. But overall, I think that we're very pleased with the growth in around 20%. You're right that in the last quarter, there was a bit more headwinds than this quarter. But overall, the core search business is doing well and driven really by the strength in mobile. And we're obviously additionally pleased with the YouTube business, particularly the watch page. So despite the fact that there's quite a bit of FX noise in there and that carries over, that FX noise does carry over. Overall, I think that we're very pleased with the overall growth.
In terms of TAC, I think that that's the case where obviously our mobile revenue is growing and it is having impact on our mix shift. And that's really the fundamental trend that you see in TAC rather than a change in the TAC rate of any particular partner. So that's really what's going on there. But I think, as we said in the previous calls, we think of TAC in a way, there's a really positive story in TAC, which is it is distribution and it's worth paying for. This is the positive side of our business having much more distribution of our apps across. And that's true also for mobile. So we're really thrilled that all of the mobile is thriving to the extent it is. And remember that finally, TAC is not a new phenomenon for us.
I mean, we've always dealt with distribution partners and we'll continue to experience and manage it to make sure that it drives revenue and profit for both parties in a balanced way. So nothing new here, but really excited by the trends. Thank you. We'll go to our next question, please.
Operator (participant)
We'll take our next question from Ben Schachter with Macquarie.
Ben Schachter (Analyst)
Two questions for Larry around the notion of sort of answers, not links. The first, on Knowledge Graph, can you just give us a high-level view on where we are in terms of its implementation and how widely it's rolled out? And specifically, how, if at all, it impacts the economics of Google's businesses? And then second, on Google Shopping, the PLAs and the interface changes, I think, significantly improve the user experience, but a consumer still needs to leave the site to transact. Do you anticipate a mechanism where users can actually transact on Google Shopping without having to leave? As you said, sort of no extra work needed. Thanks.
Larry Page (CEO)
Ben, thank you for the questions. I think that we rolled out Knowledge Graph very recently, and I think we're still in the early stages of that. I think that I mentioned some of the internationalization work that we did, which is hard work. And I think we'll continue to do that. I mean, I guess we're still at 1% or something of where we should be. So I'm really excited about what we can do in the future. I think the economics point, I think that the way we look at it is we provide much better answers for people, really grow the business. We increase the number of times that you might want information because you know you're going to get great answers or increase the different modalities. You can get answers like voice or mobile or so on. So I'm super excited about that.
And then generally, we monetize those things. So I don't have a comment on any specifics of that, but I think we're quite excited about that. The Knowledge Graph does run on the right-hand side where the ads also run. So there could be some short-term impacts on that, but I think the primary thing is getting people better answers is really good for our business. Google Shopping, I guess you're asking about product listing ads. I think that we're also in the very early stages of that. We just rolled out Google Shopping. We've seen tremendous uptake from merchants and from users. And I expect that the quality of the site, the ease of buying things will improve over time. And I'm really excited about that. I'm not going to comment on details about that, but we're always focused on making our user experience better.
So can we have our next question, please?
Operator (participant)
We'll take our next question from Scott Devitt with Morgan Stanley.
Scott Devitt (Analyst)
Thanks. I guess following up on Ben's comment regarding answers versus links, Larry, you recently quoted, I think, saying about the possibility of having a system that could basically vacation plan for you. And now that you own ITA and Frommer's and Zagat and you've built out Travel Explorer or Flight Explorer and Hotel Finder, can you talk a bit more about the strategy with travel in terms of the problem you're trying to solve there relative to the historic experience of Google sending you off-site for depth of experience? And then secondly, Patrick, I think last quarter you gave the FX neutral CPC down 8%. I'm wondering if you could give that same number for this quarter. Thanks for the fourth quarter.
Larry Page (CEO)
Yeah, Scott, that's a great question. I think the first part, and I think that we've always done a very good job of sending people to the right places. And I don't think that being able to answer very complex information needs means necessarily that we wouldn't send people off to other sites, so I think the main thing for us is to be able to understand a complex problem. I think I gave some example like finding a hotel that's near, figuring out all the logistics for the flight, for a vacation you might take, and the hotel and the activities you wanted to do, kind of solving that all at once in the way a human assistant might be able to do, and you still might use other parties to do that transaction.
So I don't necessarily believe the assumption of your question, but we are looking at those things. That was more of an example. I think Google's aspiration is to be able to do that for any area, not just travel. And we've been working with as many companies as we can and trying to organize the world's information. And where we've needed to acquire companies, we've done some of that or work with other companies or make deals or whatever we need to do. So we're trying to be practical about it. And I think we do have some amazing assets in travel and mapping and so on. And I think those things will pay off for us in the future, providing great experience. So Patrick.
Patrick Pichette (CFO)
Yeah, Scott, the answer to your specific question is, the CPCs have on a year-over-year basis, they've gone down 4%. And on a quarter-over-quarter basis, they're up 1%. That is on a fixed FX adjusted. And that compares to the minus 6% and plus 2% that I mentioned a couple of minutes ago. Thanks for your question, Scott. Jennifer, let's go to our next question, please.
Operator (participant)
Our next question comes from Mark Mahaney with RBC.
Mark Mahaney (Analyst)
Great. Thanks. Two questions. Could you talk broadly, Larry or Nikesh, about Google Maps and where you think the monetization of that is today versus where you think it potentially could be? And then Larry, I think you were quoted recently with some comments on competitive products out in the market. Any comments in particular on graphical search as it's been announced? And to what extent you think that's complementary or competitive with Google's core search? Thank you very much.
Larry Page (CEO)
I can say a little bit about Maps. This is Larry. I think that people are always focused on monetization of Maps, but it's important to think about for me to tell you the history of Maps. We started working on Maps a long, long time ago because we thought it was critical to your search experience, to actually finding what you're looking for. And if we look at our components of queries that are geographically related, it's a huge number and always has been. And so again, to understand those queries, we have to understand where things are in the real world. And so that's been always a core part of our main web search. And we already make quite a bit of money on web search. And I already told you that was a significant amount of queries.
We actually already make quite a bit of money on Maps in that way as a part of our core business and a significant part, which really led us to make those investments. We're in the early stages of monetization on the Maps themselves. I think we're doing some interesting things there. I think we'll continue to do that. I think it's likely to be a great source of revenue, but still in the early stages on the Maps, but on the search side, we have significant revenue already. I think you're asking about Knowledge Graph, which was recently announced. I think that when we think about search, our mission has been to organize the world's information and make it universally accessible and useful. We've been at that for quite a while.
And we made investments in all sorts of areas like Maps, I just mentioned, which turned out to be really important. And that's the way we think about it. There's knowledge search. There's all sorts of investments we've made, gathering different kinds of data, making sure we have everyone's data. And we'll continue to do that. And that business has changed a lot. Like 10 years ago, what you thought Google should do is almost unrecognizable compared to what it does now and the number of things that it understands. So we see just tremendous opportunity to make better products for users that really understand their needs and really grow opportunity. And you look at Voice, for example, which we've also made huge investments in, the importance of that to mobile for finding things.
I mentioned you can ask who the nearest gas station is with your phone while you're driving on your fumes, and it'll just work perfectly. And so I think we see that as there's just all sorts of aspects to this problem. And we've been very focused on that. Now is another great example. There's tremendous innovation. Question. And that's pretty incredible. I'm super excited about that. So I feel very confident of our core business of organizing things, finding things, getting people information. I couldn't be more excited about that. Our next question.
Hi. First, for Patrick on Motorola, in terms of the losses which widened in the quarter, I'm wondering if you could contextualize for us the financial direction of Motorola, both in terms of the revenue declining and the growing expenses. I mean, I know this isn't something that Google typically does, but just I think it would be helpful for investors if there's any way to kind of put a band or a threshold around what the potential operating losses could be at Motorola. And then second question for Larry, Larry, around the commercialization of driverless cars. I'm just wondering if you could give us an update on that and your tests that you're doing in Nevada. And then wondering if you could sort of talk about Android as part of that.
It sounds like the automotive electronic suppliers are recognizing the importance of Android for the infotainment systems in those cars. And so maybe you can talk a little bit about that opportunity for Android as well. Thanks for the question.
So I think maybe I'll take the second half of your question first. I think that, well, I would say also on Motorola, and then I'll let Patrick fill in. I mean, I think we're, like I said, excited about the business. I think that we're really in the early days of Motorola with respect to Google's acquisition of it. And I'll let him give you some details. I think that on driverless cars, I think obviously it's still early days there, although I'm really excited about what the team has got done and what that can mean for ordinary people in really substantially improving mobility and potentially really reducing the land area that we have to devote for cars, which is incredible amounts in cities. It can really reduce parking.
We're looking at that even for Google just as a major cost to reduce our parking costs and our facilities by having the automated cars park more densely and serve more people. And I think those things will be amazing deals. Android, I think that we're still. That's a little bit different than the automated cars. I think that Android will be used in cars probably before we get automated cars into the mainstream. And I think people are really excited about that due to the incredible success of Android. And we're obviously working with those manufacturers to help make that happen well. So, Patrick.
Patrick Pichette (CFO)
Yeah, just a bit of color on Motorola. First, just to remind everybody, we do care about profitability, and that is our goal with every one of the areas where we invest. And we've said that before, and we're not in the business of losing money with Motorola or even cross-subsiding it. But we are really 180 days into this journey, and we've made a ton of progress, including the sale of the home business. And as I mentioned earlier, also kind of outsourcing our manufacturing and so much more that has been done and the restructurings that you've heard earlier in the late summer and early fall. And I just want to remind everybody that we inherited kind of 12-18 months of product pipeline that we have to work through. And that's the reality of the business.
That's a kind of overhaul and then kind of rebuild the new product pipeline where Dennis's team has kind of been really focused on in addition to the restructuring. It does take time before it shows up. Having said that, finally, on the financials themselves, Anthony, it's really worth noting that Motorola is also hindered by a portion of the amortization of intangibles due to the acquisition. So the losses that you see are somewhat inflated by this amortization of intangibles, which we've decided to kind of put through the P&L on a non-GAAP basis. So all in all, when we look at the losses like this quarter, a negative $150 million, you take out the amortization, these are not consequential losses relative to either Google or the kind of turnaround we're seeing and kind of the positive momentum.
So that's why Larry started by saying we're really optimistic, but it does take time. And that's why I'm also saying be ready for a lot of fluctuations in our P&L over the coming quarters. It's just the nature of the beast when you reinvent the business. Thank you for your question, Anthony. Let's go, Jennifer, to our next question.
Operator (participant)
Our next question comes from Justin Post with Merrill Lynch. And Justin, your line is open.
Justin Post (Analyst)
Thank you. Larry, I think on your last call, you mentioned that you're impatient with mobile CPCs, not that they were in a bad place, but you wanted to get them higher. Can you talk about progress made in the quarter? And do you feel like you're really making a positive inflection there, or is that still a few quarters away? And then as you look at your mobile business as far as the growth of queries or the growth of revenues, and you look at it relative to maybe e-commerce growth, do you think you're gaining share on the market? Do you feel like your position in mobile is really secure and that you maybe even be gaining share in mobile and maybe the street doesn't recognize it? Thank you.
Larry Page (CEO)
Yeah, thank you for your question. Let's see. The mobile business, I would just say I think we're doing very well. I think we have tremendous growth with Android. And I think we're serving our users really well. We're building amazing products that are getting better at a rapid rate. The rate of improvements is also very high. So I feel pretty comfortable with that. And I focus mostly on our products and assume the usage will follow the great products. I think that in some sense, that's what we consider mobile an extension of our desktop usage too. I mean, we have built a lot of great products that people use on their desktop, like Maps, right, which have transferred very well. And I think that one thing I've been amazed by, Chrome on my Android phone. Chrome is just an amazing experience.
I don't feel like using my Nexus 4 or other modern smartphones from the latest generation. I think that those phones are almost like using a desktop last year or something like that. And so I think the experiences are improving a lot and very, very quickly. So I think we're going to some uncharted territory because of the rapid rate of change in these things. But I'm very, very optimistic about it. And I think the CPCs will improve as these devices are improving as well. Obviously, I mentioned that we are working to simplify our ad system for advertisers in the light of all these changes. And I'm excited about our plans. They don't have anything to announce today, but I am very excited about our efforts there. And I think that we will make rapid progress in that area.
So, I think I answered both your questions. So, maybe we can have our next question.
Operator (participant)
We'll take our next question from Stephen Ju with Credit Suisse.
Stephen Ju (Analyst)
Yeah, thanks, guys. So I guess the pace of your headcount increases seems to be moderating as we take a look back at 2012. And the same goes for CapEx as well. So do you feel like you are now at an appropriate level to tackle your three major areas of investment for opportunities you have identified that would entail acceleration in terms of your hiring or CapEx? Thank you.
Larry Page (CEO)
I think we run a number of different businesses. I think that they all have their different needs. It's sort of we're looking at the sum of all those things. I think it's a little bit hard to predict those things. I think you should ask us to grow whatever is necessary to make the best business outcome. That being said, I think, I've said in the past, we have a lot of people. We're growing at the edge of what's reasonable just in terms of scaling. I think that's still the case. I would say it has moderated. I'd also say that we've also slowed our international growth in product development a bit, which is probably having some impact on that. I'll give it to Patrick for some more detail, perhaps.
Patrick Pichette (CFO)
Just to comment on the CapEx side, we've always said that. And I think if you go back the last couple of years on CapEx, it has been really lumpy. We've gone from real highs where we were above $1 billion, and then it's gone all the way down to a few hundred million dollars. Now it's kind of back up. So it's a real testimony that it is lumpy because as you add, just to use the example of a data center, you'll see CapEx because we fill with equipment at data center. But once a data center is full and then we have to put an extension to the data center, then you're into concrete again and power. And so it's just the nature of our business. Certainly, on the core businesses, we're quite lumpy.
So we, without giving any guidance forward, we have been, as you've seen in this quarter, $1 billion of CapEx, really very much aligned with the excitement we have around our products, whether they be social, whether they be pictures, whether they be all of the areas that you've heard Larry talk about. And so that's why we're fueled, as I said in my comments, we're fueled by the positive momentum we have in many areas of the company. And we believe now is the time to invest. And that's why we're doing it with confidence, discipline, but confidence.
Larry Page (CEO)
I'd also just add briefly that when we run our business, we find that it works better if our hiring is reasonably smooth. So we have worked harder to manage that smoothness so that we're not. We have recruiters in place and hiring staff in place for the long term and make sure we're providing a good consistent business growth there just makes us operationally run better. And we've probably been managing that a bit more tightly.
Patrick Pichette (CFO)
So thanks for your question, Stephen. Thanks, Stephen. Let's go to our next question, please, Jennifer.
Operator (participant)
We'll take our next question from Ross Sandler with Deutsche Bank Securities.
Ross Sandler (Analyst)
Thanks, guys. I got two questions. First, for Nikesh on mobile, and then one follow-up for Patrick on the Google sites TAC. So Nikesh, what percent of your several million advertising clients are bidding on mobile keywords today? And what percentage do you think have mobile-specific websites enabled already? And then Patrick, the follow-up on TAC, the year-over-year growth rate for Google websites TAC decelerated from 45% to 43%. Subtle, but there's probably some organic items in there that are helping it. Is that a function of smartphone installation growth rolling over or any partnership agreements or something else? Can you just give us a little color on that deceleration? Thanks.
Nikesh Arora (Senior VP and Chief Business Officer)
Hey, thanks for your question, Ross. On the mobile front, I think it's important to understand that a vast majority of our advertisers have opted into mobile from an advertising point of view. I think Larry said this a few quarters ago that we slowly have been working over time to try and make it feel like a common experience across multiple screens for advertisers because advertisers are more interested in the business benefit of advertising with us as opposed to specifically which form factor, which device they invest with us on.
So our teams have been working really hard in the last few quarters to try and get us to a point where we can make it simple for the advertiser where they come to us with a business problem and we're able to solve it for them irrespective of device, irrespective of form factor or property that they're going to have to advertise on. So from that perspective, I think things are going in the right direction. As far as specifically how many advertisers have mobile landing pages that they can send their users to, that number is not as much as we'd like it. Obviously, we've had programs we've talked about in the past, running calls like Go Mobile, where we'd help businesses go mobile. So those efforts are bearing fruit.
But broadly speaking, I think we're happy with the progress we've made both in getting advertisers to be more mobile sites and also what we're doing from a campaign management perspective to get more and more campaigns that can run across all devices and form factors.
Larry Page (CEO)
Yeah, and I'll just add on the mobile question. We don't necessarily want them to have mobile sites. Sometimes those are too simple. I find I get kind of frustrated on my phone sometimes when I hit these mobile-specific sites because I'm using a modern Nexus 4 that can actually deal with the full site. And I just find it confusing. So I think as an industry, we need to improve these experiences. Now it'll take a bit of time, but I'd almost say that we should be designing for mobile the kind of mobile phones that we have now at the state of the art or a little bit beyond, and that those experiences should work on all devices pretty well. So I'd actually like to see us go more in that direction, perhaps. So Patrick?
Patrick Pichette (CFO)
Hey, just on my side, I need, Ross, I need you to actually call us after this because when I look at our TAC for Google as a percentage of website revenue, it's pretty stable for us. And every way we look at it, it's pretty stable. So I'm not sure if there's anything you're looking into it that we're missing, but don't hesitate to follow up with the IR team afterwards. But we don't see any deceleration in any meaningful way on the website side.
Ross Sandler (Analyst)
Thank you.
Patrick Pichette (CFO)
Thanks, Ross.
Larry Page (CEO)
Okay, can we have our next question?
Operator (participant)
Yes, we'll take our next question from Richard Kramer with Arete Research.
Richard Kramer (Analyst)
Thanks very much, Larry. A couple of quick questions. First of all, just to polish up this mobile and CPC question, how many years do you think it's going to take before CPCs on mobile and desktop are roughly equal, trading off sort of location and display size? And I guess another question, looking broadly at the business, there are a number of geographical markets like China where you're simply not able to operate. Do you see any prospect for being able to enter some of those markets in the medium term, or do you think that the business is still going to be geographically constrained? And then a quick one for Patrick. Will there be an impairment test coming up on Motorola, especially with respect to the IPR given the FTC settlement around standard essential patents? Thanks.
Larry Page (CEO)
Yeah, thank you, Richard, for all the questions. I think that's a three for. Well, on CPC, I'm not going to make predictions about when they'll be equal. I don't think they'll be equal. I think probably one will always be bigger than the other, though I'm not clear which way. I think that, but I don't think this is a long-term problem. I mean, I don't think this is a long time in coming. And I think, as I've said before, there's a lot of advantages to mobile. You really know location accurately. You can call somebody easily. You have a camera you can do a hangout with the business. You can be notified instantly. There's just a lot of things about mobile that are amazing opportunities for advertisers and for businesses. So I expect that to revolutionize how people do marketing.
And we're working hard on that. And I expect that that will work a lot better for users and for advertisers and businesses. And therefore, more money, we'll be able to generate a lot more money than we do now. Okay, so maybe Nikesh can address China.
Nikesh Arora (Senior VP and Chief Business Officer)
I thought I was getting the mobile CPC question. Larry, you're going to answer it.
Larry Page (CEO)
You can do the second one first then.
Nikesh Arora (Senior VP and Chief Business Officer)
Okay. I think it is fair to say we do operate in China right now. We have an ad sales business. We have a display business in the market. We know that many users use Android devices in the market. I think what's important to understand is the reason we decided to not operate in China was because we believed that we wanted to make sure that users are able to have unfettered access to our products. And the products where we believe they have the ability to access in an unfettered fashion, we do operate in the market. It's only the ones where they aren't able to access it the way we'd like to, in which case they are able to access it through our operations in Hong Kong.
So we think we operate in China, not in the way you might perceive it, but users have access to our services. And there is even a small revenue business that we have in China.
Larry Page (CEO)
Okay, so Patrick, will there be an impairment test for Motorola?
Patrick Pichette (CFO)
We obviously, every time there's any formal kind of transactions or events that occur, we have to look at our balance sheet and if there's any impairment tests. In the case of Motorola, we don't think there is actually right now, and we have no information, even with the standard essential patents, that there's no information right now that leads us to believe that we have to do an impairment test on any of it. Remember that the standard essential patents for Motorola is a very small portion of the entire portfolio pool of patents that we got out of Motorola, so just to put that into context as well, so thanks for your question, Richard. Why don't we go to the next question, Jennifer?
Operator (participant)
We'll take our next question from Neil Doshi with Citigroup.
Neil Doshi (Analyst)
Thanks. Can you provide more details around the policy changes that were implemented in the quarter and whether they'll continue to have an impact on CPCs and paid clicks in Q1? And then also, we were recently at the NRF convention in New York, and we saw a demo of the Zavers by Google product where users can clip coupons and then use those coupons in the offline retail world. How big of an opportunity is really bridging the online ads with offline transactions for Google? And is this something that's a key initiative as we go into 2013? Thanks.
Larry Page (CEO)
Thanks, Neil, for your questions. I think that Nikesh can give us some color on the policy.
Nikesh Arora (Senior VP and Chief Business Officer)
Yeah, I think it's fair to say what we did was we've always had a policy. And the policy has been that we want to make sure that whatever ads are presented in whatever way our traffic is routed to ads, it is done in the best interest of the user. And we began to notice that there were sites and pages where we had too many ads on a page. So we became more restrictive and updated our policies for better enforcement. And that has resulted in higher quality results for end users. It has reduced, in some cases, the monetization that some of our partners are seeing as a result of this enforcement. And hence, you're seeing the impact of the numbers. We just announced this policy sometime early this quarter, in the past quarter that we just went through.
You are going to see the impact over the next few quarters. We've also implemented more stringent policies around downloadable apps. That's why I think both those effects are going to stay with us for the year. We think in the long term, it's the right answer for us. It's the right answer for users, and it's the right answer for advertisers. We think it's a good thing to do.
Larry Page (CEO)
Sorry, I'm live now. We've been doing things like that for a while, just making sure we're focused on user experience in our advertising products. And we found that that's been a very good long-term focus for our business that has really benefited us. So I think that's kind of the ordinary course of it there. I think that you mentioned bridging online ads with offline transactions. I just said mobile will increase the value of these kinds of businesses. That's an example of it. You can actually measure if somebody gets an offer that they redeemed it in a real store or they went to the store or whatever it is. And so we're very excited about that. But we're still in the early stages of really making the solutions work for consumers, advertisers, and so on. But I think it's a great area that you highlighted that.
So can we go to our next question?
Operator (participant)
We'll take our next question from Heather Bellini with Goldman Sachs.
Heather Bellini (Analyst)
Hi, great. I had a question for Larry. I was just wondering if you could share with us your initial thoughts on the Google Fiber rollout and also if you could outline for us your vision for the product if you look out over the next few years and how this might fit into your opening comments about multiple screens and unprecedented change in the consumer compute arena.
Larry Page (CEO)
I think it's been great to see the success there with the initial fiber rollout. We're still in the very early stages of it. It's obviously only going to a small number of people and so on, but we are excited about the possibilities there of getting people kind of gigabit speeds and a really great internet experience. Patrick, did you want to add anything there?
Patrick Pichette (CFO)
Yeah, we're really focused on Kansas City right now. And you've probably seen in the press it's called now the Silicon Prairie. It's got a lot of press because we've started to roll out. We've started the implementation and the installs. We're growing up in terms of installs week after week. And people just love the product. So you're absolutely right, Heather, that we are really excited about this product. And it's been a great success overall. So while we're going to continue, and as we've said all along, here's another great example of when it's not a hobby. We really think that we should be making business, good business with this opportunity. And we're going to continue to look at the possibility of expanding. But right now, we just got to nail it because we're in the early days. We just got to nail Kansas City.
It's a perfect place for us to kind of debug all of the elements of the product and the experience for the users. But all in all, what a great opportunity to deliver kind of 100 times the average speed. And that's what people are just dying to get everywhere. We have time for probably one last question.
Larry Page (CEO)
Oh, we missed the second part of the question too. But it's a pretty big question, and I want to outline the vision for the product looking out over the next few years. I mean, I guess the best way to predict the future is to make it. So that's what we're trying to do. I don't have anything specific to announce this time, but I couldn't be more excited about some of the things I mentioned. I know I'm really understanding what your question is before you ask it. I mean, wouldn't that be great at the earnings call if we just answered all of your questions without you asking them? It would be a lot less work for you all. So I think some of those things could really be reality. And I think if you look at Knowledge Panels, I recently asked a really obscure question.
I was looking at the height of a bridge. I was like, "What's the height of the bridge?" and I typed it into Google, and it just spit out the answer, and I was dumbfounded that I didn't have to go and research that, so I think some of those things that seem kind of like science fiction we're really getting to, Google Glass, Sergey has really taken on, and you used to think that was science fiction, and he's running around with it, wearing it as am I sometimes as well, so I think we're just really excited about the future, and I think the rate of innovation in the world is increasing and also within Google, and that's just a really exciting place to be.
Patrick Pichette (CFO)
Yeah, we actually saw Sergey in New York last weekend in the subway with his plastic bags and all. So we have time for one last question.
Operator (participant)
We'll take our last question from Douglas Anmuth with J.P. Morgan.
Douglas Anmuth (Analyst)
Great. Thanks for taking the question. I just wanted to ask you about display to start. I think in the last couple of years, you've given a run rate in 4Q. I was hoping you could do that again for this past quarter. And then also just talk about the early feedback and contribution from the YouTube app on iOS. And then just lastly, any update on the C shares timing and the process there? Thank you.
Patrick Pichette (CFO)
All right, so let me just jump on display. As we said many times in the past, we'll give occasionally kind of numbers here and there just to kind of give sense of momentum. But we don't give them quarter over quarter or year over year, so that's exactly the case for display, and in the case of early feedback on the contribution for YouTube app on iOS, I'll leave it to Nikesh.
Nikesh Arora (Senior VP and Chief Business Officer)
I've been very excited about the iOS app that we put out there, not just for YouTube, but also for Google Maps. We think they've both had tremendous amounts of success. And I think it's an illustration of how if you focus on the user and produce a great experience, it doesn't matter what platform it is. People will adopt it and adapt it and take to it. And I think our partners and we both are excited about the fact that these apps are successful. I don't think it's just a unilateral view. Back to Patrick.
Patrick Pichette (CFO)
Yeah, sorry. I just saw your, Doug, your question on the C shares. Look, as we said previously, this recapitalization is subject to pending litigation right now. And once the litigation has been resolved, we expect our board of directors to determine the exact timing of issuing the dividend. So we can't really predict it yet because it's litigation. But we don't expect it to occur before the second quarter of this year. That's where we stand on that. And with that, I just want to thank everybody for joining us today on the call. Wish everybody a really prosperous and happy New Year. As Nikesh and Larry said, two thumbs up to all our Googlers for a phenomenal 2012 and making it a place of choice. And look forward to an exciting 2013. With that, Jennifer, I'm going to.