Below is transcript of the Google Inc (NASDAQ:GOOG)’s Fourth Quarter 2014 Earnings Conference Call, held on Thursday, January 29, 2015 at 4:30 p.m. EST. Castlerock Asset Management, Duquesne Capital and Joho Capital was among Google Inc (NASDAQ:GOOG) shareholders at the end of the third quarter.
Google Inc (NASDAQ:GOOG) is a global technology company. The Company’s business is primarily focused around key areas, such as search, advertising, operating systems and platforms, enterprise and hardware products. The Company generates revenue primarily by delivering online advertising. The Company provides its products and services in more than 100 languages and in more than 50 countries, regions, and territories.
Company Representatives:
Ellen West – Vice President & Investor Relations
Patrick Pichette – Senior Vice President & Chief Financial Officer
Omid Kordestani – Chief Business Officer & Special Advisor to the CEO.
Analysts:
Stephen Ju – Credit Suisse
Carlos Kirjner – Bernstein
Anthony DiClemente – Nomura
Eric Sheridan – UBS
Ross Sandler – Deutsche Bank
Benjamin Swinburne – Morgan Stanley
Douglas Anmuth – JP Morgan
Justin Post – Merrill Lynch
Mark Mahaney – RBC Capital Markets
Mark May – Citi.
Operator
Good day everyone and welcome to the Google, Inc. Fourth Quarter 2014 Earnings Conference Call. This call is being recorded. At this time I’d like to turn the call over to Ellen West, Vice President and Investor Relations. Please go ahead.
Ellen West – Vice President & Investor Relations
Thanks so much, Jamie. Good afternoon, everyone, and welcome to Google’s Fourth Quarter 2014 Earnings Conference Call. With us today are Patrick Pichette and Omid Kordestani. As you know, we distribute our earnings release through our Investor Relations website located at investor.googl.com. So please refer to our IR website for our earnings releases as well as the supplementary slides that accompany the call. This call is also being webcast from investor.google.com. A replay of the call will be available on our website later today.
Now, 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 opinions only as of the date of this presentation and we undertake no obligation to revise 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 and, as applicable, other special items. 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 Patrick.
Patrick Pichette – Senior Vice President & Chief Financial Officer
Thanks, Ellen. And welcome to 2015 everyone. Before we get into the numbers, I’m going to give a brief overview of our performance this quarter, as the data is actually quite noisy to the P&L. So to start, let’s say that we saw continued strength in our core advertising business. This was really driven by a strong holiday and mobile performance from our sites line. We saw a great momentum in our programmatic business highlighted by our mobile display and our ads platform product. But we also faced a few real challenges as well.
On the revenue side, clearly as you heard out the strengthening of the U.S. dollar resulted in a gross negative currency impact of $616 million just into Q4. But thanks to our hedging program the net impact was actually attenuated, with a net revenue of impact of $468 million. Also on the other revenue line not only did we see that negative currency impact really impact the play growth particularly in Japan, but also while the Nexus 7 was very well received as a new phone, we had real issues and unable to secure sufficient inventory to meet the demand that we have forecasted. So, for both these factors in fact, we see lower other revenue growth this quarter. On the expense side, we had number of unusual charges to our operating expenses hit this quarter. I’ll provide you more details in a few minutes as we go through the conversation. But together these items added up to slightly over $300 million in expenses to our P&L.
Lastly, if you go through the CAPEX line, you’ll note that we’ve made, uh, real estate purchases in Q4, and which helped us relieve both pressure on our work space for current employees but also to accommodate our future growth. And this also resulted in a large sequential increase in our real estate capital expenditures this quarter. So now that you have the basics, why don’t we dive into the details?
Our gross total consolidated revenue grew 15% year over year to $18.1 billion, and it was up 10% quarter over quarter. Without currency fluctuations our gross consolidated revenue growth would have in fact been 18% year over year. And despite all the FX pressure our Google sites revenue was up a healthy 18% year over year to $12.4 billion, was up 10% quarter over quarter, in part driven by the strength in our mobile search.
Network revenue was up 6% year over year at $3.7 billion and was up 8% quarter over quarter. As a reminder, our network business includes really two types of businesses with different growth profiles. Our legacy AdSense business, particularly AdSense for search, where we’ve continued to make policy changes for the benefit of our user experience, but which has negatively impacted the growth in clicks specifically.
Um, our clean up efforts have resulted in fewer clicks but also higher CPCs as I’ll discuss in a minute. The other business that in the network line are newer display and programmatic businesses including AdMob, AdExchange, DoubleClick Bid Manager, and these continue to grow at a strong rate. Finally, Google’s other revenue grew 19% year over year to $2 billion was up 6% quarter over quarter, driven by year over year growth in our play store, but offset by the FX impact and the challenges in our hardware business I mentioned earlier.
Our global aggregate paid clicks were up 14% year over year, and up 11% quarter over quarter. Aggregate CPCs were down 3% year over year and also down 3% quarter over quarter. And if we go on our monetization by property, the Google site paid clicks were up 25% year over year and up 18% quarter over quarter. With Google sites CPCs were down 8% year over year and down 8% quarter over quarter.
On the network side, network paid clicks were down 11% year over year and down 7% quarter over quarter. But our network CPCs were up year over year 6% and 10% quarter over quarter for the reasons I mentioned. Our monetization metrics continued to be impacted by a number of factors. They include geographic mix, device mix, property mix, FX, as well as ongoing product and policy changes. Turning to geographic performance, if you go to our earning slides, which you’ll find on our investor relation website, you’ll see that we’ve broken down our revenues by US, UK and rest of world to show the impact of FX and the benefits of our hedging program. So, please refer to those slides for the exact calculations. So, despite large currency headwinds we saw solid performance from our core advertising business around the world. The US revenue was up 14% year over year to $7.9 billion. The UK was up 10% year over year to $1.7 billion. And in fixed FX term it actually grew to 11% year over year. Non-US revenue excluding the UK was up 18% year over year to $8.6 billion, accounting for 47% of total revenue. And in fixed FX terms in fact the rest of the world grew at healthy 24% year over year.
So, let me turn now to expenses. Traffic acquisition costs were $3.6 billion or 22% of advertising revenue. Our non-GAAP other costs of revenue was $3.1 billion in Q4, which exclude SBC as well. Our non-GAAP operating expenses totaled $5.8 billion, again excluding stock based compensation. And as a result our non-GAAP operating profit was $5.6 billion and non-GAAP operating margins were 31% in Q4.
As I mentioned at the beginning, we had a number of unusual operating expenses that impacted us this quarter. We typically review our estimates accounting policies and balance sheet on an ongoing basis and make adjustments when we think and see it necessary. Normally, I wouldn’t call out these, but because they totaled slightly over $300 million this quarter, I wanted to give you some sense of these adjustments, although I won’t be providing a lot of detail break out. So, first we took approximately half that amount in compensation charges resulting from a one time payment and reclassification between SBC and bonus expense. The other half came from a review of our real estate portfolio, where we decided to take right down on a small number of assets and also one time payment to buy out a number of leases in a couple of markets where we faced acute space pressure.
Headcount was up, but just over 2,000 in Q4. In total we ended the quarter with approximately 53,600 full time employees. You’ll notice also that our effective tax rate was 16%, again another discrepancy for Q4, which was really primarily impacted by the extension of the R&D tax credits for 2014 with the entire credit being taken in Q4. As well as continued mix shift from earnings between our domestic and international subsidiaries.
Let me now turn to cash management. Other income and expenses was $128 million. Interest income and realized gains on investments offset the continued impact of expenses from our FX hedging programs. For more detail on OI&E, please refer to the slides that accompany this call on our IR website. We are pleased with our strong operating cash flow at $6.4 billion. Our CAPEX for the quarter was $3.6 billion. And this quarter most of the CAPEX was spent on related to facilities, production equipment, and data center construction in that order. So, as I mentioned a few minutes ago, we have been opportunistic about acquiring space in real estate where we need to relieve pressure and accommodate for future growth. To that end, our facilities expenditure included just over $900 million of real estate investments during the quarter, of which $585 million was related to the acquisition of our property in Redwood City that we disclosed in our 10-Q for the third quarter.
Our free cash flow was $2.8 billion. And I also want to note that we completed in Q4 the sale of Motorola Mobile to Lenovo in October 29th. We recognize a gain on disposition of $740 million net of tax, which is included in our net income from discontinued operations. So, there you have it, despite a noisy quarter from a P&L perspective. We can say that we had strong results in our core business as evidenced by our 18% fixed FX growth this quarter and are well-positioned for the year ahead in the long term. Now, as Larry says, although the vast majority of our resources in time continue to be invested in our core products, we also have enthusiasm to invest in new promising ideas like self-driving cars or loon. We use the same disciplined approach to these new areas that we used for investing in our earlier bets like Android or Chrome or Display.
Our projects start with small dedicated teams that are given clear milestones to hit before they can get further investments. And you know, in cases where we achieve success against our milestones, we expand our investments and you saw this as an example earlier this week with our fiber teams. We greenlighted 18 cities in four metropolitan areas in the U.S., out of the 34 cities and 9 metros that we had reviewed in 2014, and they’re off to the races.
In other cases, when the teams aren’t able to hit hurdles, but we think there are still a lot of promise. We might ask them to take a pause and take the time to reset their strategies, as we recently did in the case of glass. And in those situations our project don’t have the impact we had hoped for, we do take the tough calls. We make the decision to cancel them and you’ve seen us do this time and time again.
So, before I turn it over to Omid, I’d like also to note that in many ways 2014 was a year of significant investment growth, both in CAPEX and OPEX at Google. From an investment perspective, we’ll continue to seek a healthy balance between growth and discipline and the willingness to throw a little back when we reached the limits of what we believe we can manageably absorb. So, with that in mind, I’ll take it over to Omid now to provide more specifics on the successful performance of our core and new businesses. Omid is joining us by phone from another location today. So I hope it over to you, Omid.
Omid Kordestani – Chief Business Officer & Special Advisor to the CEO
Thanks, Patrick. Hi, everyone, happy New Year. And thanks for joining us today. This is Omid. It’s my pleasure to join you from London tonight. I’m glad to be here to reflect on the last quarter and look ahead to 2015. 2014 ended with healthy momentum enabling us to achieve $66 billion in revenue for the year. In Q4, we launched Lollipop, our newest version of Android, refreshed our line of Nexus devices and introduced Inbox by Gmail, a new inbox that enables users to focus on the messages that matter most to them.
Meanwhile, our sales teams worked diligently with our advertising partners to deliver a strong holiday season. Today, I’ll do a quick walkthrough of the business highlights from Q4. First, I’ll give an overview of the different sectors of our ads business, performance and brand advertising and our advertising platforms. Then I’ll cover progress in our emerging non-ads businesses.
Let’s begin with the performance advertising. We continue to [inaudible] the foundation of Google’s advertising business to reflect a multi-screen, constantly connected world. Mobile is now a behavior, not a device and it has a variety of unique characteristics. First, let’s talk about local advertising. On mobile consumers want to know about the stores and goods near them. We launched some exciting updates last quarter. In October, we announced local availability for product listing ads and local store front, products that give customers real time information about goods that are in stock close to where they are.
Major retailers like Macy’s and REI took advantage of these local inventory ads during the holidays. Overall, we saw strong engagement and results from big box retailers during the holiday season. A second priority has been the creation of new measurement tools. We recently added estimated store visits to our estimated total conversations measurement suite. Now, advertisers can see a reliable estimate of the number of times a search ad click drive the store visit. During the holidays, ULTA Beauty reported that 12% of clicks on search ads led to a store visit with significant gains in ROI from their AdWords search marketing spend. These mobile specific metrics help advertisers measure the full impact of their mobile marketing.
The third area of progress is apps. We have driven hundreds of millions of app downloads on Google Search, AdMob and YouTube. And this business continues to grow at a healthy clip. During the holiday season, Office Depot used Google Search Ads to promote their ElfYourself app that helps shoppers create videos of people re-imagined as dancing elves. By using Google Search Ads they saw a 65% conversion rate. We have recently enabled users to more seamlessly navigate between apps and the web and find what they are looking for in apps more quickly.
In organic search 15% of signed in users’ searches on Android now return deep links to apps. We also offer app deep linking in search ads. Booking.com uses Google Search Ads to drive installs and reengagement via deep linking for their mobile app.
Last quarter, we continued to see great traction with our established mobile advertising products as well particularly Google Shopping. Online growth remains strong with Google Shopping traffic on mobile devices up nearly 100% compared to Q4 2013. For much of the holiday season mobile shopping clicks exceeded those on desktop as users increasingly made purchase decisions on the go.
Now, I would like to turn to YouTube, where we continue to deliver great results for brand advertisers. YouTube now has more than 1 billion users. Everyday people watch hundreds of millions of hours of video on YouTube, generating billions of views. Watch time is up 50% year over year. We continue to invest in our YouTube partners and partner revenue has increased by more than 50% year over year. We’re seeing great momentum in mobile advertising on YouTube. Mobile revenue on YouTube is up more than 100% year over year. TrueView, where advertisers play, pay only if someone watches their ad also continues to do very well. Walmart U.S.’s holiday performance is one of many success stories. During the week of Black Friday, they used YouTube’s TrueView format to drive a 300% week over week increase in views of their channel and more than 28 million views on the week.
This was a 600% increase in YouTube channel views over the same week in 2013. And while we are all anticipating a certain football game in Arizona this weekend, the action has already begun for its advertisers on YouTube. Nearly 70 ads or teasers related to the big game have been posted to YouTube this year, up 55% from the same time last year. People have been, people have already watched them more than 44 million times, up 25% from last year and for more than 70 million minutes on YouTube nearly tripled the watch time compared to the same point last year. On average people watch each ad for more than a minute and a half. We continue to develop the tools that make digital work for brand marketers, their agencies and premium publishers.
There were two particular areas of focus from Q4 that I would like to highlight: programmatic and measurement. Let’s start with programmatic. Automated ad buying has benefitted performance driven advertisers for years. We’re now extremely well positioned as brand advertising shifts to programmatic as well. We’re seeing great traction overall from our advertising and agency partners. Today, all the top 10 global agencies use at least one product in our double click suite. Specific products within the double click suite have shown exceptional momentum. DoubleClick Bid Manager, our primary frontend for programmatic buying has doubled in volume over the past year. During the re, the recent U.S. mid-term election, programmatic represented nearly one third of advertisers’ Google ad budgets.
We’re seeing that video, the ultimate brand medium, is starting to move to programmatic as well. After launching in June of 2014, Google Partner Select, our premium programmatic video marketplace now has more than 50 publisher partners including Hearst Television, and Food Network and includes brands like BMW. Next, we continue to invest in measurement tools that enable advertisers, agencies and publishers to better understand the results of their digital marketing. It starts with addressing the question of viewability. Nothing else matters if a human did not see your ad. This is the top question for the industry and at Google we are doing our part to address it.
Since July, we have been rolling out view, viewability report across our ad platforms, so that brands will know whether their video ads on digital channels were actually seen or not. We recently extended this activity reporting to video ads. Large advertisers are finding technology like this to be very useful. For example, Kellogg’s used DoubleClick Digital Marketing to buy their inventory programmatically and increased their ad viewability by 70%.
Once a brand knows that their ads have been viewed they need to determine if the right people saw those ads and if they made an impact. That’s where our tools to measure brand lift come in. We’ve run more than 6 thousand brand lift surveys to help determine brand recall and purchase intent. For example, for example, Mondelez wanted to measure the effectiveness of a recent digital campaign for the launch of a gum brand. With brand lift they found a 36% lift in brand awareness versus a control group, and a 97% lift in ad recall versus a control group. Getting these types of feedback in real time is impossible with offline media. This sets digital apart.
Let’s move now to our emerging non-ad businesses. Google for Work had a great quarter, we started working with PwC to help them and the companies they advise used Google for Work to move their businesses to the cloud. Cloud Platform continues to make good progress, we hosted our second Google Cloud Platform live event in November where we announced several new products such as Google Container Engine.
Our digital content businesses are strong. I’m excited about Google Play’s development. Movies are now available in more than the 102 countries, music in 58, and books in 65. It’s growing internationally at unprecedented speed. In December, we partnered with Sony to digitally release The Interview. It has been publicly reported that the film generated over $15 million in its first weekend, and that Google Play and YouTube drove the majority of those sales.
We launched YouTube music key beta a monthly music subscription service that provides ads free music, background play, and offline viewing. This will also include a subscription to Google Play Music with more than 30 million songs, expert queue rated play lists, and more. Our hardware efforts demonstrate momentum just in time for the holidays we launched the Nexus 6, Nexus 9, and Nexus Player devices.
Chromecast continues to be a hit. Just last week, we saw our 1 billionth tap of the cast button. Chromecast usage per device has increased by 60% since launch due to a growing roster of new apps and features. According to NPD retail tracking service, in 2014 Chromecast was the number one selling streaming media device in the U.S. Chromebooks are now available in 33 different markets and enjoying strong success in K-12 education market in the U.S. I continue to be impressed by the work of our marketing teams that they’ve done around the world. The year in search has become an instant classic and YouTube rewind is fast becoming one.
From the Android Be Together Not the Same Campaign to Nest’s first TV ads and much more our marketing team contributed to our success in the all important Q4 to a wide variety of efforts.
That’s the wrap for 2014, and we are excited for what lies ahead in 2015. In closing, I want to thank our great partners, customers, and users, without them, we wouldn’t be successful. Thank you all so much. Now, let’s get back to Patrick for Q&A.
Patrick Pichette – Senior Vice President & Chief Financial Officer
Thank you, Omid. Before we turn to Jamie for Q&A, I was highlighted by the team here that, I actually had a slip, I said Nexus 7 instead of Nexus 6. And although the Nexus 7 is still a great device, what I really meant in my comments was to talk about the Nexus 6, which is this amazing device that we have launched with the Lollipop launch. So with that, I’ll turn it to Jamie, and we’ll go to Q&A. Jamie, if you can give the instructions please.
Operator
Thank you. And if you would like to ask a question please signal pressing * 1 on your telephone keypad. If you’re using a speaker phone today make sure your mute function has been turned off or pick up your handset to ensure that our equipment can hear your signal. Again, that is *1 for any questions at this time. And we’ll take our first question from Stephen Ju with Credit Suisse.
Stephen Ju –Credit Suisse
Ok, thanks. So Patrick or Omid, I think, it’s been a few years since we talk to the street about the run rate of your display business. I wanted to see if you are going to toss us a nugget here umm in terms of what your gross billings currently maybe. Recognizing that you may be seeing growth in that revenue contribution depending on different products. And also it looks like the UK revenue saw modest bit of acceleration on an FX neutral basis, granted comps were probably modestly easier, but anything you can call out that would help there? Thanks.
Patrick Pichette – Senior Vice President & Chief Financial Officer
Yes, sure. It’s Patrick here. So on both topics, on the UK umm we did see a good performance this quarter on UK versus last quarter and as you said, mentioned, a 11% year over year. Ahhm, so, the note of the UK is you know, the core business there is doing well. If you go back to last ahh the deceleration you know, we have, it’s a big portion, it’s like 10% of our revenue, and we, over 10%.
The ahh the, you’ll remember that in our mix of products that are in the UK, clearly, our core products are there, but also AFS like the network business is actually prominent in UK as well in the U.S. less so in the rest of the world. And so that has an issue on the mix. And then ahh also think of it as a promising item, which is there is areas of new products, such as Play that are actually stronger international than they would be in the UK or in the U.S. So, there lies some of the differences between the growth rates, but in many ways a lot of opportunities there, so that’s what’s going on in the UK, quite pleased with the progress there in Q4.
And then on the issue of Display, umm we haven’t updated the numbers to the street. And ahh, so we have to continue to, kind of give you the updates that we do, and ah if we actually have a chance in the future then we’ll let you know when it’s time to do so. So thanks for your questions, Stephen. And we’ll go to the next question, please. Jamie?
Operator
And we’ll take our next question from Carlos Kirjner with Bernstein.
Carlos Kirjner – Bernstein
Hi, thank you. Two questions, if I may, ahh Patrick. Umm you hired 2,000 people this quarter versus 1,700 in the same quarter last year, which is a 22% increase. But Google management talks a lot about the opportunity in front of the business. If that’s the case, wh-why aren’t you hiring more people and spending more in R&D. Can you tell us what are the specific constraints that you guys have or imposed on yourselves that prevent you from hiring 3,000 people this quarter instead of 2,000? That’s the first one.
The second is the following, a few quarters ago, I seem to recall you saying that you did not manage the business for margins, but you managed it for profit growth. Yet your operating income is down year on year and even if you are the $200 million is growing very slowly. You could see how investors would look at that and say well, how do you reconcile these things? Now, how how do you think investors should think about this trajectory of operating income growth? Thank you.
Patrick Pichette – Senior Vice President & Chief Financial Officer
Ok. So let’s take them uhmm each in step. On the issue of hiring, you’ll notice that ahm relative to last quarter also which is our third quarter is typically a big quarter because we get the influx of the hires we do at colleges and otherwise. We actually decelerated from the third quarter as well. Ahm what we are managing for is, you know we just have a very high bar aahhm for hiring, if you can pass the bar, then we hire you. We also have you know capacity constraints on leadership there’s, there’s a natural kind of number that you can kind of absorb within the culture of Google, it’s really important not to lose that culture and to have a velocity, to have traction. So, there is no sense bringing you know, 5,000 people that we couldn’t kind of bring into the teams and really make them perform in. So, what we manage on the hiring is you know, we have our plans, and ahhh so we have a rate of a of targets of of hires per each of the pals and the areas of the company. And then from there, the next hurdle is really about you know can we find these people?
And then finally, just making sure that we we keep this kind of balance of bringing at a reasonable rate, so that we can actually absorb them in the company without the losing the velocity and the culture of the place. So it’s actually a pretty complex puzzle, but uhmm we are managing it, it’s never perfect, but we are managing it you know to the best we can. So that’s the first question.
On the issue of margins, look we have different, if you think of the businesses in Google, we’re looking for growth, we’re looking for growth in revenue, we’re looking for growth in operating profits absolute dollars, and we’re looking for great returns on investment. That’s the puzzle we solve for.
So, you have you know an advertising business that may have higher margins you know lower capital intensity, than say, another business, which maybe Play, which has much lower margins, great prospect for growth with very large pools of revenue and margins available and we go after them for sure. You have Fiber right, and in the access, which is a completely different kind of capital intensity. But, again, the question is you know, does it promise, or does it have a a a case for large dollars operating profit delivery and high revenue and then a decent return on capital, that’s how we manage it.
And to kind of say, okay, well we have what we have today, but if Play could grow at you know just to take the case, ten times faster than it is doing right now, right it would impact margin, because on the weighted average basis, you know it would drag it down, but we love it. We love to be able to grow Play ten times faster than we are today. So, that’s how we think of the puzzle. We manage them each individually for their potential, their returns, we all look for these big margin pools and these big revenue pools, and then we just allocate our capital to make sure that it’s balanced across these initiatives for maximum velocity. That’s the way we think about it, Carlos.
Carlos Kirjner – Bernstein
Thank you.
Patrick Pichette – Senior Vice President & Chief Financial Officer
Thank you very much for your question. Jamie, let’s go to our next question, please.
Operator
And we’ll go next to Anthony DiClemente with Nomura.
Anthony DiClemente – Nomura
Umm thanks a lot umm for the question, I have two. Patrick, given the importance of Google stock price as a motivator for for existing employees, for recruitment of new employees. I think, many investors out there wonder if we are getting closer to a point where it might be a wise use of resources to return capital to shareholders. Other large tech companies do it, nearly all the media companies do, at at what point would you at what point would the board of Google consider capital returns?
And then the second question is, I’m just wondering on the switch of the default browser on Mozilla from Google to Yahoo! in the quarter, and going forward is there any way you can quantify the impact of that? And the investors are also wondering, is it possible that could happen for you Safari agreement with Apple? Thanks a lot.
Patrick Pichette – Senior Vice President & Chief Financial Officer
So, why don’t I take the last question first and then the first question. The last question is, you know, you’ve all heard the announcements about Mozilla. And aah, and so when we we don’t comment on the details of any of our partnerships that we have, having said that, we uhhm we continue to to do two things that really matter, you know, one is our users continue to actually go in, if they love Google, they will continue to find Google, whichever platform, whichever browser, and that’s really what we’ve focused on doing. And then the second piece is the way to win this in the long term, right? It’s very simple. You just make wonderful products. And when you make wonderful products that are magical people will find them.
And so that’s the strategy that we’re using and we we just don’t comment on any of our we’ve never commented on any of our deals, so we won’t comment on Mozilla either. Uhmm and then, for your first question, Anthony, I mean, again I can’t, I just can reiterate the same message that give on a regular basis, which is uuhmm share price does matter. It matters to our board. It matters to all of us. We’re all shareholders in the company. And we do review this issue on regular basis. We review it again responsibly with the Audit Committee, with the board. And ah I just have nothing to announce today.
Anthony DiClemente – Nomura
Thank you.
Patrick Pichette – Senior Vice President & Chief Financial Officer
Thank you so much for your question, Jamie. Let’s go to our next question, please.
Operator
And we’ll take our next question from Eric Sheridan with UBS.
Eric Sheridan – UBS
Thanks for taking the questions. One on on device mix, which Omid, you you called out. Is there any sense you can give us of whether some of the pricing per ad unit is starting to close from the device mix. So even though you’re giving more volumes from mobile whether be smartphone or tablet we’re starting to see any impact of pricing continues to move up ahh versus desktop pricing you’re seeing across your ad portfolio, would love any commentary around that. And then second you know, Patrick, you called out the FX impact in the Q4, any help you can give us on how we should be thinking about the FX impact going forward on either a gross or a net basis to the business as you see it versus spot today? Thanks.
Patrick Pichette – Senior Vice President & Chief Financial Officer
Sure, I’ll let Omid answer the first question then I’ll jump on the second.
Omid Kordestani – Chief Business Officer & Special Advisor to the CEO
Sure. Thanks, Eric for the question. You know, the way we look at this, as I said, we look at mobile and aahh as a behavior today really as ahh, versus a specific device. And people are using screen interchangeably, simultaneously throughout the day. And aah we really think about the user and the context rather than a particular form factor or device. And similarly in terms of the pricing model here, aahh what we’re focused on really building this ecosystem just the way desktop aah took a long time ahh to develop aah and have the right ad formats aahh that really took advantage that the platform had to offer. We’re looking at this the same way. Ahh, we are developing different kinds of formats, working with marketers on mobile, estimated store visits, app install, app re-engagement ads and cross device conversions. And we really feel good about the traction uhhm we’re having and aah our sales team and uhmm advertiser agencies partners that are working with us uhm making rapid progress here.
So unfortunate, I can’t disclose any specific breakdowns, but aah I can just say that aah we’re aah very focus on all aspects of this just aahm as we evolve to desktop we’re doing the same in this world. On to you, Patrick.
Patrick Pichette – Senior Vice President & Chief Financial Officer
Thank you. Uhm on the issue of FX, I think that the most important point to think about in Q4 is, I mean it was material as I said, it was like on a gross basis over $600 million. You’ve all seen the deterioration of the euro, the GDP, the yen, I mean it’s aahm versus the U.S. dollar. The one thing I would just note from our results in Q4, I I mentioned this in the past that you know our FX rates are set at Google you know a month in [inaudible]. So, in in last week of November we would’ve set our FX rate for December. So interestingly you know,the December rates we’ll set January. And you’ve seen already in December a continued kind of nose dive in certain areas, especially the euro, and the yen. So, uhm all I can say is for all the information we have right now is, that’s not going away.
And I think that everybody should be kind of considering it. On the flipside of that, I just want to kind of re reinforce the fact that you know our FX ahm hedging program ahm continues to do exactly what it’s supposed to do, which is in a low volatility environment we buy insurance. And in in moments where we have such shocks like we’re having right now, you know we did get a lot of benefit out of this hedging program and just as a remainder ahm we hedge profits, right? We don’t hedge revenue, it just happens that we book ahm the profits to revenue because of the accounting rules. And so we’ve seen in Q4 approximately $150 million of hedge benefits, which is actually quite a substantial amount on the on the total $600 million and you know we’ll continue to have hedge benefits through the course of the year to a certain extent. So, uhm so, I think that from that perspective, right, ahm you know real real hit in December additional, but ahm but in a good position from our hedge FX program.
Eric Sheridan – UBS
Great. Thank you so much.
Patrick Pichette – Senior Vice President & Chief Financial Officer
Thank you for those questions. Jamie, why don’t we go to our next question, please.
Operator
And we’ll go next to Ross Sandler with Deutsche Bank.
Ross Sandler – Deutsche Bank
Great. I have two questions. Patrick, towards the end of the prepared remarks you said that Google will show a balance of growth and discipline, and a willingness to throw a little back. Can you just elaborate on that comment? Wh what do you mean when you say that? Are you referring to the pace of expense growth or throwing something back in terms of capital allocation, just a little clarity on that one?
And then, Omid, the question on app indexing, I think you guys said in November that logged in searches have about 15% coverage in terms of app content. Where is that percentage today and when do you guys think it will be closer to 100%? Thanks.
Patrick Pichette – Senior Vice President & Chief Financial Officer
Ross, let me, it’s Patrick, let me jump in on the first question then I’ll let Omid answer the second.
On the first one, all I wanted to highlight to our investors, shareholders and community at large is you know, as I said 2014 was a year of significant investment growth. I mean, we see real potential in so many areas that are exciting to us and ahm where we see ahm great momentum. That, what I wanted to make sure is that you know our investors continue to understand that you know we will push for growth, but in a disciplined manner. And if things don’t you know materialize in the way that you know you don’t hit your hurdles, you don’t hit your timing, we are actually disciplined to make sure that we we don’t have expenses you know ahead of the curve and and we continue to monitor it quite closely.
So, in that sense ahm you know, if ahm we see conditions change it’s really important that you have the confidence that when we manage you know these investments we do it in the prudent manner right, optimistic, but you know with there’s always a dose of circumspection to make sure that you know you get the best bang for your buck in these rollouts.
And, that’s what I really want to kind of ahm communicate and signal to the street, which is it’s a balance. It’s always about a balance but you know given our situation, given all of the results that we’ve had you know I mean, 18% year over year growth in our sites if you just look at the sites, which is the core of the business growing 18% year over year you know, despite all the FX headwinds, right? It just tells you look you know this is a license to continue to invest smartly in the way we do, but I just want to kind of reaffirm to you that we do it in smart way and a discipline manner. We’re driving forward make sure we don’t waste our shareholders money. So with that, I’ll turn it over to ahm Omid to answer the first question, please.
Omid Kordestani – Chief Business Officer & Special Advisor to the CEO
Yes. Thanks, Ross. So, as as I said in my opening remarks that uhm 15% of signed-in users’ searches on Android now return deep links to apps. Uhm, the way we are focused on this is that we’ve opened up app indexing to all Android developers, so that their apps can appear in searches also linking directly to the right content in the apps. And it really becomes the job between the developers trying to understand intent and how obviously our research works and determining the best results to provide, including the deep links uuhmm we offer this deep linking and search ads as well aahm Booking.com aahm use Google Search Ads to drive installs and reengagement uhm via deep linking for their mobile app, and we’re seeing more and more adoption ahm like this by our advertisers. So, obviously it’s an area we are going to continue making progress on, we are very pleased to the traction we are having and ahm and how mobile monetization ahm is performing. Thank you.
Patrick Pichette – Senior Vice President & Chief Financial Officer
Thanks for your question, Ross. Let’s go to our next question, Jamie, please.
Operator
And we’ll go next to Ben Swinburne with Morgan Stanley.
Benjamin Swinburne – Morgan Stanley
Thank you uhm. Patrick, just going back to return of capital again, there was there’s some news today that there is a potential bill to allow repatriation of cash back to the U.S. at a 6% tax rate, I’m wondering, would that impact, how you and the board would think about return of capital, or is that sort of a completely relevant separate point?
And then second, for me, from either of you and any color you can share with us on your wireless ambitions, I think both on the MVNO side and 3.5 gigahertz uhm there’s been a lot of discussion in the press about what Google is up to, any update you can give us on that, would be great?
Patrick Pichette – Senior Vice President & Chief Financial Officer
So, on the second question, thank you for your questions, Ben. And uhm on the second question that you’ve asked, right, there is a lot of speculation out there. And if we had to answer off every speculation on Google’s part, what’s going on, I mean, we just would be, my PR team would be really busy. So we just won’t comment on any speculative news.
On the first question uhm, on return on capital, absolutely I mean, we you know we have right now a mix of kind of roughly 60-40 between our U.S. 40, uhm international 60 of our cash, ahm we have good use for our cash in both places. But if in fact we had a lot more flexibility about repatriating cash, that would make a big difference in the way that we think about it and ahm or at least we’d take it in consideration for sure in our dialogue with the board. And ahm so it’s clearly one element that’s part of the puzzle that we would take in consideration. So, if there is anything you can do to get that thing through Congress uhm you know Ben, we would really love it and just let us know when that happens.
Benjamin Swinburne – Morgan Stanley
I will call my Congress person. Thank you.
Patrick Pichette – Senior Vice President & Chief Financial Officer
Thank you so much. All right, Jamie, we are going to go to our next question, please.
Operator
And we’ll go next to Douglas Anmuth with JP Morgan.
Douglas Anmuth – JP Morgan
Thanks for taking the question Uhm, you’ve had greater emphasis on e-commerce over the last few years with Google Shopping and Express. Uhm I was hoping you could give us an update on on Google Wallet and how strategic that is to your business overall and kind of closing the loop payments in general.
And then secondly uhm can you comment Patrick on whether there is just anything in particular in driving uhm you know the gap that we saw on sites between paid click volume and CPCs beyond some of the normal mix shift issues and FX? Thanks.
Patrick Pichette – Senior Vice President & Chief Financial Officer
So why don’t I take the second question immediately, and then I’ll let uuhm Omid answer the ahhm issue of aahm commerce. So, on the first one look it’s, I want to come back on the sites issue because 25% and then ahm the minus 8% ahm in terms of click growth and CPSs. And I want to start with that, because that’s always the case when people kind of just focus on one, they, we kind of tend to forget the big picture which is it’s a mix of these two things that give you this revenue that’s been very strong in in sites this quarter, so never look at them in isolation.
Having said that, as I said in my ahm prepared remarks you know the monetization metrics for sites has all the factors that I kind of usually discus which is geographic, device, property, the FX and all the things I talked about. So, I think it would be misguided again this quarter to pin it down to just one trend. I think people have a tendency to say okay well it’s mobile, or it’s FX. And uhm but I would like to point out three things specifically this quarter.
As we know as I already mentioned right, FX has been a big impact this quarter, ahm I also noted the strength of mobile performance in our uhm sites earlier. And I remind you that our sites line also includes YouTube, where we continue to see impressive growth, both in developed countries and emerging markets. So, there is the rest of it there is all these pieces, but these are some of the pieces that we should take note during this quarter. Does that make sense? I will turn it over to Omid, to answer the first question on what’s going on with Google Shopping et cetera?
Omid Kordestani – Chief Business Officer & Special Advisor to the CEO
Yes on Shopping and commerce in general and then I’ll talk on on payments. Really our focus is building products that turn consumers’ ahm shopping intents into actions quickly, easily uhm and enabling uhm businesses to connect uhm and retain these customers uhm. On payments, the goal is really to remove all the friction uhm that one encounters now in the shopping experience. And uhm what we’re really working on here is move beyond just tap and pay and have a full functional payment system.
Today, you know users can send to money to friends through Gmail using their wallet app and and we uhm also just made this functionality available in the UK. Loyalty, gift cards can be stored on the Wallet app to buy with Google button makes it possible uhm for users to purchase with two clicks. So, uhm really are focused on building a uhm rich offering gear uhm to make it easier uhm to shop and pay and remove the friction. Thank you, Doug.
Patrick Pichette – Senior Vice President & Chief Financial Officer
Thank you so much for you question, Doug.
Douglas Anmuth – JP Morgan
Thank you.
Patrick Pichette – Senior Vice President & Chief Financial Officer
Jamie, let’s go to our next question, please.
Operator
And we’ll go next to Justin Post with Merrill Lynch.
Justin Post – Merrill Lynch
All right uhm, thank you. I don’t know if you can help us at all but uhm just kind of overview of of core search growth at all if you can and in some of your mature markets anyway to breakdown that at all? And then, as you think about the search improvements you’ve made, just a little high level overview obviously, you had some big changes with PLAs and enhanced campaigns over the last couple of years, didn’t seem like there was a lot for this holiday but, maybe outline some of the improvements you’ve made recently? And then uhm any, how’s your pipeline looking for this year? Thank you.
Patrick Pichette – Senior Vice President & Chief Financial Officer
Omid, do you want to take that question?
Omid Kordestani – Chief Business Officer & Special Advisor to the CEO
Yes, I’ll I’ll start and then we can add more context uhm if you have more color uhm you need, Justin. So, uhm in terms of uhm product listing at PLAs uhm it’s very successful products and we’re really pleased with its performance uhm advertisers are very pleased with it. And uhm we also have uhm local inventory apps that enable merchants to show customers this uhm information in the U.S., UK, France, Germany, Japan, and Australia, and obviously we are going to continue to expand that.
Uhm, as I said in my remarks you know, we added estimated store visits in December, and it’s been one year since we launched estimated total conversions. And uhm just to give you some anecdotes with customers, PetSmart saw 10% to 18% of clicks on search Ads uhm led to store visits uhm and they’re now investing more in Ads uhm to reach customers across uhm multiple screens, uhm Famous Footwear uhm nationwide chain uhm have 1,100 stores. They found that 15% to 17% of the clicks on Ads resulted in store visits uhm and they were able to mix up the products that they promote uhm and there is in store merchandising strategies by region. Uhm so it’s, for us it’s early to think about the impact of revenue, but we really expect this uhm this suite of products to continue to help the advertisers measure at a full value of their online spending and work with us to enhance those. In terms of specific uhm search numbers, we don’t really break that down, uhm and provide any more data on that. Thank you for your question.
Patrick Pichette – Senior Vice President & Chief Financial Officer
Thank you, Justin. We’ll have uhm do we have time, couple of more questions, ok. So, Jamie, let’s go to our next question, please.
Operator
And we’ll go next to Mark Mahaney with RBC Capital Markets.
Mark Mahaney – RBC Capital Markets
Hey, thanks. I’ll echo Stephen Ju’s comment earlier I think it would be great uhm if you broke out that non performance advertising at some point in the future that data point would be very helpful. The CPC trends on sites you know that they kind of inflected back down after showing a positive trend it’s kind of hard to think that that’s nothing but FX I know you have this mix of other factors, could you just clarify that, or could you quantify what CPC sites, CPSs would have been year over year ex-FX?
And then finally, Omid, could you just talk broadly about YouTube and you know you’ve come back you’re more engaged with the company I think there’s a bit of a change in management’s approach I think to YouTube and how you want to position it and I know it’s a broad question, but could you just talk about what you want to do differently with YouTube uhm you know going forward to the next few years? Thank you.
Patrick Pichette – Senior Vice President & Chief Financial Officer
So, on the first question why don’t I jump in and then I’ll let uhm Omid talk about Q2. Uhm, look as uhm as I mentioned just a minute ago uhm if you look at the sites CPCs you know we purposefully actually don’t point to one item, like I think it would be tempting to just say, ok so it’s all FX this quarter because you know geography has a big impact. As I mentioned right the different properties on our sites so that you know YouTube has an impact as well in the sense that’s it’s growing and it’s growing in emerging markets uhm as well as in its core uhm more developed markets.
It’s uhm, I purposefully made the case that’s important to to note that uhm you know, on the mobile side I think you know we see continued strength in mobile. And so from that perspective uhm you know it’s always trying to catch up to the desktop which itself as always improving but, uhm we see positive trend there. So, it is the mix of all these factors and we don’t give down all of the details on a quarter by quarter basis, because they just move all over the place. So, so that’s the answer for that one, Mark. Sorry, that’s not Mark. And then, I’ll let Omid answer the question on YouTube.
Omid Kordestani – Chief Business Officer & Special Advisor to the CEO
Sure. So, uhm first of all you know in general just to give you sense of this as you said, I’ve come back in, I just spent a lot of time CES, here in Europe spending time with customers as well. And uhm there is just tremendous excitement about YouTube uhm and over 1 billion people come to to the the service every month and uhm YouTube mobile revenue is up more than 100% year to year. And what we’re really after here is finding the click for bran uhm you know GRP brand list, other metrics, and uhm advertisers are already running brand list studies about 6,000 of them have done this with that uhm already with us.
And, uhm what’s really unique about this service is the velocity that the creators uhm enjoy to create and deliver content to a worldwide audience, and our investments uhm in the service and the creators uhm just continue to pay back for us. So uhm, I know based on my meetings I spent a lot of time with consumer goods companies at CES with major agencies there. Everybody just wants to do more. There are a lot of success stories the way they engage with us. And uhm for us the challenge frankly is uhm to structure our our sales organization to hire the right people, to go deeper with these customers, with our agencies. And uhm so, you’ll just see a lot of success and emphasis uhm from us as we uhm go after uhm the branding uhm dollars.
Mark Mahaney – RBC Capital Markets
Thank you, Omid. Thank you.
Patrick Pichette – Senior Vice President & Chief Financial Officer
Thank you so much, Mark. Jamie, we’re going to take one more question, so if you can turn it on, please.
Operator
And we’ll go next to Mark May with Citi.
Patrick Pichette – Senior Vice President & Chief Financial Officer
Mark, are you there?
Operator
And if you check your mute button, sir, we cannot hear you.
Mark May – Citi
Hello.
Patrick Pichette – Senior Vice President & Chief Financial Officer
There we are.
Mark May – Citi
Right, sorry about that uhm two questions, please. Could you tell us what your strategy is in the area of digital payments and is there way that you can leverage Android to develop uhm differentiated product in the market. And then secondly, sorry if I missed this uhm but, how should we be thinking about the strategy, strategic and the financial importance of search partnerships like for instance the Safari deal. And if there is anything that we should be reading into the recent changes at Mozilla and I think before that Spotlight and Siri search as far as either you know Google strategy and thinking in this area or its competitiveness competitiveness in these deals? Thanks. Sorry it’s a lot, but…
Patrick Pichette – Senior Vice President & Chief Financial Officer
That’s okay, Mark, no problem. So, I’ll take the second question, and then I’ll flip it over to uhm Omid to answer uhm the Wallet one. So, on the issue of partnerships you know, Google has a lot of partnerships right it’s got, it’s an anchor of our strategy, because that actually gives us distribution, distribution is good. And so we also we look for partnerships in many spaces. Partnerships have to be win-wins and in that sense right you, we’ll always look for those combinations. But also at the end of the day there’s a second piece of the strategy which is, as I said earlier, building amazing products because if you build the amazing products then people want to distribute you product.
And so, that’s why you know we have a meet in the whole search team that actually do this amazing job through the knowledge graph and all of the other elements of search and and no matter what the device, no matter the location, no matter the time of day, if we give you the answer as you’re looking for you know and 10 clicks less than it was before and then even faster and better all the time that’s what wins and that’s the core of what we’re focused on and then people will find the way to get the Google.
So, yes partnerships matter, but at the core of it you need partnership because you have a phenomenal product. And that’s what we’re going to continue to build this amazing company. So I’ll let with that uhm Omid talk about our developments for digital payments.
Omid Kordestani – Chief Business Officer & Special Advisor to the CEO
Hi, Mark, I I already addressed this a little earlier but, so I’ll summarize it again uhm, but we’re really after uhm removing the friction here uhm in all the products to uhm improve commerce and make the experience uhm for our users uhm seamless here. And there’s really two areas we’re focused on uhm one is really building a full functional payment system uhm that just is beyond tap and pay. So, uhm I mentioned that earlier using Gmail and the Wallet App to send money to friends, loyalty and gift cards and buying with Google uhm button with a uhm press of two clicks.
So uhm and we just uhm you know the NFC devices are available and we are really getting closer and closer to broader merchandise option. And uhm so you’ll see us emphasizing that through uhm the devices that uhm we are supporting out there, as well as the payment services and commerce services that we provide. So uhm I think you will see a lot of progress here as we, as I said try to remove the friction here.
Patrick Pichette – Senior Vice President & Chief Financial Officer
Thank you so much for your question, Mark. Omid, I need to thank you. I mean, you’re at the other end of the world and staying late for us I think uhm I just can’t thank you enough for all of your support over…
Omid Kordestani – Chief Business Officer & Special Advisor to the CEO
It’s my pleasure. We’re excited about the year ahead and looking forward to uhm future updates with this uhm group of people. Thank you.
Patrick Pichette – Senior Vice President & Chief Financial Officer
For all of you uhm thank you again for uhm your support in 2014. Welcome to 2015, and I couldn’t stop uhm without uhm thanking again all of our partners, our users, and lastly, our employees, all Googlers around the world that make this magic happen every day. Couldn’t do it without you so, thank you again. And Jamie, I’ll let you close the call on this.
Operator
Thank you. That does conclude today’s conference. We do appreciate everyone’s participation. Please have a great day.
