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Within Product Solutions, for example, we expect to start up multiple strategic projects between now and the end of 2025, which will drive significant earnings growth through mix improvements. Consider our Singapore Resid Upgrade Project where our industry first technology application will allow us to transform bottom-of-the-barrel molecules into higher value base stocks significantly lifting margins. Our focus on shareholder value extends beyond the work we're doing to drive profitable growth.
We're also working hard to ensure that the value we've created is not diminished through third-party actions. I'd like to take a moment to highlight a few that occurred in the quarter that attracted some media attention. In Guyana, as the operator of the world's premier deepwater development, we have created tremendous value. We believe the proposed Chevron-Hess transaction and ignoring preemption rights triggered by a change of control, diminishes an element of value due ExxonMobil.
We believe it's critical to defend these rights and fully preserve the value we've created. The arbitration we filed in the quarter seeks to confirm our rights and establish the value of the transaction places on the Guyana asset. This will allow us to fully evaluate options to maximize the value to ExxonMobil and our shareholders. Any responsible management team would do the same.
In the quarter, we also initiated litigation against 2 special interest activists masquerading as investors. These activists borrowed or group funded a nominal amount of shares to resubmit a proposal that in previous years had little shareholder support, which is a violation of the SEC's rules. These activists have publicly admitted they are working to stop production of oil and natural gas and have no interest in earning a financial return.
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They hijack an important process that gives small shareholders a voice and are undermining the integrity of the system with an agenda that is not in the best interest of our investors or society, which is why we are actively opposing their efforts. Finally, although it attracted less attention, we successfully defended the Pioneer merger against a frivolous lawsuit designed to extract value from ExxonMobil shareholders.
A plaintiff's lawyer who sued to block the deal has repeatedly abused a legitimate legal process to extort money from companies to have his lawsuit withdrawn. We refused to pay this "merger tax". The court ruled in our favor, finding that filing a lawsuit solely to gain leverage in the settlement negotiation is an improper purpose. Even more important, the court sanctioned the lawyer for operating in bad faith in order him to pay ExxonMobil's legal fees, which will hopefully discourage similar frivolous lawsuits in the future. While results of these efforts may not show up in any discrete quarterly result, they underpin long-term value and demonstrate our strong commitment to doing what's right.
Turning to another area of strong commitment that shows up every quarter, is our focus on functional excellence, a core competitive advantage and a key pillar of our strategy. In Guyana, it's delivering unprecedented success and value creation, reflected in the startup of the Prosperity FPSO last November, ahead of schedule and below cost. As with our 2 previous developments, this cost and schedule performance was industry-leading. The excellence in execution demonstrated in delivering a project continued into its operation.
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With Prosperity, we reached nameplate capacity of 220,000 barrels a day in January, just 2 months after startup and well ahead of the industry average of 15 months. Once our projects are up and running, we continually look for debottlenecking opportunities to increase production. All 3 FPSOs are now producing above their funding basis, helping to drive record gross production in the first quarter, all with an emissions intensity amongst the lowest in our upstream portfolio.
Looking ahead, we're pleased that our sixth project, Whiptail, has now reached FID with a planned start-up by year-end 2027. It's remarkable to think that within 8 years of first oil, Guyana will have a production capacity of more than 1.3 million barrels per day. Our work in Guyana is delivering tangible benefits for the Guyanese people. The development of Guyana's energy economy drove the highest real GDP growth in the world in 2022. The oil and gas industry is directly supporting thousands of local suppliers and Guyanese workers.
And our gas-to-energy project will feed a new government-owned power plant with the potential to significantly increase reliability and reduce both the cost of electricity and its greenhouse gas emissions. As I said at CERAWeek last month, I believe Guyana will go down as one of the most successful deep water developments in the history of the industry.
The final point I'd like to make about our upstream business this morning involves our Canada operations. With the Trans Mountain pipeline expansion scheduled to come online May 1, our production from Kearl will have better access to markets in Asia and the U.S. West Coast, which we expect will improve margins and drive higher earnings in future quarters.
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Product Solutions also demonstrated excellence in execution this quarter. Overall, we generated record first quarter refining throughput during a period of peak turnaround activity. Thanks to the outstanding work of our team, we maintained strong turnaround cost and schedule performance. The structural improvements made in turnarounds would not have been possible with our decision to create centralized organizations that are now critical elements of our success. We've been able to take our best thinking and experience from across the corporation and apply it to some of our biggest challenges like these very large maintenance events.
We've eliminated silos, consolidated expertise and narrowed our focus to the challenges and opportunities with the highest value. Our turnaround performance is translating to both structural cost savings and higher throughput, helping us capture more value from the market than peers, especially at a time of historically high refining margins.
Finally, our commitment to execution excellence is delivering significant improvements in our environmental performance. Our methane emissions intensity is down more than 60% since 2016. One of the many steps we took included replacing all 6,000-plus natural gas-driven pneumatic devices in our Permian unconventional operated assets. Disciplined execution is critical to success when markets are weak and margins are low. It pays even bigger dividends when the market environment is constructive as it was in the first quarter for crude and refining.
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Crude prices remained roughly flat near the middle of the 10-year range. More recently, the market for crude has tightened with ongoing concerns about the Middle East, putting a floor into prices, which are up more than 10% year-to-date. Natural gas prices move back inside the 10-year range on high inventory and lower demand. Refining margins rose back to the top of the 10-year range as demand grew while industry downtime and global disruptions weighed on supply. Chemical margins were relatively flat as demand growth is being met with new capacity.
While short-term market conditions are an important context for quarterly results, it's how we position ourselves to leverage the long-term fundamentals that drive sustained shareholder value. I'd like to turn to this for a moment now and plan to spend more time over the year reminding everyone of our attractive growth opportunities that extend well beyond this year and our planned period.
I know there's a view that we're in a declining industry. That view is wrong. People don't fully appreciate the scale of the global energy system. It took many tens of trillions of dollars to build and today takes more than $2 trillion a year to sustain. This doesn't mean we shouldn't address the emissions challenge. In fact, the world needs to do more in a far more serious way to meet society's emission reduction ambitions. But it also means that oil and natural gas will play a much greater role than the market thinks.
By 2050, the world is expected to add nearly 2 billion people and the size of the global economy is expected to double from roughly $90 trillion to $180 trillion. Scenarios like IEA Net Zero to see oil demand falling from more than 100 million barrels per day now to 25 million barrels per day in 2050, are not realistic. Even if demand for transportation fuels declined significantly with greater penetration of electric vehicles, the market for petrochemicals is expected to double.
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While the transition to a lower emissions future will be long, there's no denying, it's happening. The question is, who will capture the value. We believe the same competitive advantages that have underpinned ExxonMobil's success for more than 100 years, will serve as the foundation for building a range of world-class businesses in a lower emissions world.
As I've said many times, we're a technology company at our core. We transform molecules at scale to meet society's needs. The notion that the world can electrify everything is misguided. Molecules will play a dominant role in the energy, materials and products the world needs in 2050 and beyond. At our low carbon solutions spotlight last year, we'll walk you through the opportunity we saw in carbon capture and storage, hydrogen and biofuels. Since that time, we've also entered the market for lithium. The total addressable market in these areas going forward is potentially in the trillions of dollars.
Today, I'd like to mention some of the additional areas we're exploring that have tremendous potential. We discussed each of these opportunities in detail with our Board of Directors during a visit to our Baytown complex in March. The world has become increasingly focused on the challenge of mismanaged plastic waste. The solution requires a sound policy, responsible manufacturing, expanded waste management infrastructure and new technologies like those that underpin our advanced recycling projects.
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We have 12 projects in our plants to help us meet the growing demand for processing plastic waste. Our first project at Baytown is one of the largest in North America, with the ability to process 80 million pounds per year of plastic waste that would otherwise end up in a landfill. By breaking down plastic waste into its constituent molecules, our technology significantly widens the range of plastics that can be processed, including hard recycled materials such as potato chip bags and astro turf. We are planning to develop more than 1 billion pounds per year of plastic waste processing capacity by 2027.
Another growth area is Proxima, which was showcased at our Product Solutions spotlight last September. With Proxima, we transform lower-value gasoline molecules into a high-performance, high-value resin with numerous commercial applications. In short, Proxima is a new chemistry for an enduring challenge, making materials that are lighter, stronger and more durable with lower GHD emissions.
Proxima is up to 4x stronger than steel and 7x lighter, making an excellent replacement for rebar. As a protective coating, it takes one application in 5 minutes to cure versus 2 to 3 applications with 8 hours in between. It has multiple light weighting applications in the automotive sector, and it has half the life cycle emissions of traditional thermoset resin systems. For us, Proxima is an advantaged fuels to Performance Chemicals business that we plan to scale and build into a global brand.
We see an addressable market of up to 5 million tonnes per year, growing faster than GDP, with earnings potential of $1 billion a year by 2040 and returns above 15%.
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We are also exploring opportunities materials made from carbon which, as the world decarbonizes, will become an increasingly advantaged feedstock. We launched a technology venture about 2 years ago to assess attractive new markets for carbon products. We see opportunities to transform the molecular structure of low-value carbon-rich feeds from refining and petrochemical processes to create high-value products for growing markets. Some of these markets include carbon fiber, polymer additives, battery materials and electrodes for steel production. We are specifically focused on high-value segments with margins of several thousand dollars per ton and growth rates more than double GDP.
One potential opportunity is the carbon materials used in batteries and energy storage solutions. With demand for this segment growing above 10% per year, these carbon materials are expected to be in short supply. Additionally, as the needs for storage solutions evolve, there will be an increasing demand for higher-performance carbon materials. The carbon-rich feedstock available in ExxonMobil's existing businesses coupled with our core technology capabilities and complementary lithium offering positions us to meet the growing demand and deliver product performance improvements required for the battery and energy storage solutions of the future.
The last technology I'll touch on today is Direct Air Capture or DAC. For the world to reach Net Zero, negative emissions technologies are going to be needed, none holds greater long-term promise than DAC. The challenges, however, are as big as the opportunity. Atmospheric CO2 is extremely diluted at about 425 parts per million, a massive amount of air has to be processed to remove a single ton of carbon dioxide.
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Today, many technologies are competing to crack the code and make DAC scalable and affordable. Our scientists and engineers are hard at work on this problem. We've launched a pilot project at Baytown that has demonstrated feasibility with the use of a proprietary capture process. Our initial goal is to cut the cost in half, which will still be too expensive, but will help move us down the cost curve. The current market for DAC is tiny, at less than 10,000 tons per year of CO2 captured, but the long-term potential is huge.
We are excited that dozens of companies and universities are chasing direct air capture solutions. We wish them all success irrespective of where the breakthrough occurs or who achieves it. ExxonMobil will have an important role to play.
As we've demonstrated, there are a few, if any, companies better positioned than us to globally deploy a molecule technology at scale with attractive returns. People who limit our future to the products and markets we are in today, have lost sight of our past and don't understand our core capabilities or advantages or the future potential they hold.
Consider our Baytown low carbon hydrogen project, which is entering advanced stages of engineering and development. We are not only focused on building the supply side of this new market for low carbon hydrogen, but are also making strong progress in building large-scale demand as demonstrated in our MOUs for offtake of low-carbon ammonia with SK of South Korea and JERA of Japan.
The last piece required to bring this project in market to life is government policy that maintains a level playing field across all methods of hydrogen production. Without this, we cannot and will not move forward. On the other hand, if incentives are developed to establish a viable technology neutral market, our advantages will allow us to generate attractive returns and invest more, accelerating customers' emissions reduction.
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Over ExxonMobil's entire history and across the globe, we've built industries and value chains where none previously existed. We will continue to do this. In a fast transition, we'll grow earnings and cash flow with accelerated investments in CCS, hydrogen, biofuels and DAC. In a slow transition, we'll grow earnings and cash flow through advantaged investments in our traditional businesses. In irrespective of the transition pace, we'll extend our reach to new high-value markets with innovative new products. Under any scenario, we are convinced that our company is uniquely positioned to play a leading role, meeting the world's essential needs for energy and high-value materials and products.
With that, I'll hand it over to Kathy.
Kathryn Mikells: Thanks, Darren. We've established a consistent track record of improving the earnings power of our business. Across the company, our teams have been laser-focused on investing in competitively advantaged, low cost of supply, high-return opportunities delivering execution excellence in everything we do and driving additional structural cost improvements.
Our earnings growth over the past 4 years was more than twice the pace of our closest peer. As of year-end 2023, we more than doubled earnings, bringing an incremental $14 billion to our bottom line on a constant price and margin basis versus 2019. As Darren noted, over the next 4 years, we plan to increase earnings potential by an additional $12 billion or a CAGR of more than 10%.
Our ability to deliver industry-leading earnings growth reflects our unique competitive advantages, consistent strategy and the differentiated execution capabilities our people bring every single day. We've demonstrated our ability to improve the profitability of the business by reshaping our portfolio, divesting noncore assets, investing in accretive high profit opportunities and driving structural cost savings.
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This quarter, we've included a few additional slides to remind you of the plans we discussed during the corporate plan update last December and to demonstrate the progress we've been making. Going forward, we'll provide you with regular updates on these metrics.
The drivers of our expected earnings growth are clear. Additional structural cost savings reductions of over $5 billion versus year-end 2023, higher volumes and more profitable barrels from advantaged assets like Guyana and the Permian in the upstream and execution of strategic projects and product solutions that enhance our product mix driving exceptional growth in high-value products.
As I said during the corporate plan update in December last year, to win in our business, we must be a low-cost operator. That means continually finding ways to become even more efficient. With more than $10 billion in structural cost improvements as of the first quarter of 2024, split roughly 50-50 between upstream and product solutions, we're making steady progress towards the incremental $5 billion we're working to deliver by 2027.
And we are on track to further extend that industry-leading performance. These structural cost savings have not only mitigated the impact of inflation, but have helped to offset the cost of new projects. Our success is meaningfully improving our operating cost and driving higher earnings for both upstream and product solutions.
In fact, we ended last year with our cash operating expenses, excluding energy cost and production taxes down $4.5 billion versus 2019. We have a clear line of sight to achieve the roughly $1.5 billion in annual savings contained in our plan, and our team has a track record of beating our targets.
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We're leveraging our global organizations, including our Global Operations and Sustainability Group and the global business solutions and global supply chain organizations that we stood up last year. These organizations are tasked with realizing savings across all of our businesses. We're optimizing our turnarounds and other scheduled maintenance activities. We're streamlining and automating our order to cash, procure to pay, record to report and our planning processes.
And we're better leveraging the scale of our supply chain to improve the efficiency of our logistics movements, enhance our buying power and lower the level of materials and inventory that we need to run our operations. We have a proven track record and a high level of confidence in our plan, and more importantly, in our team's ability to deliver.
In the Upstream, on a stand-alone basis, we're on track to double earnings potential by 2027 compared to 2019 on a constant price basis, as we reshape our portfolio, divesting noncore assets and growing production from industry-leading assets that offer lower cost of supply, lower life cycle emissions and higher returns. Between 2019 and 2023, we've pruned Upstream's portfolio of nonstrategic assets, including U.S. flowing gas and focused on developing advantaged assets such as Guyana, the Permian, LNG and Brazil.
For example, since 2019, we've more than doubled production volume in the Permian. In Guyana, we started 2019 with 0 production volumes. This quarter, we delivered more than 600 kbd of gross production. These efforts have resulted in a significant Upstream mix improvement. Our share of total production from advantaged assets has risen from 28% to 44%. We expect to grow Upstream earnings by an additional 50% between 2023 and 2027. That growth is driven by further production mix improvement, incremental cost savings and production growth.
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We expect our stand-alone production in 2024 to be about 3.8 million oil-equivalent barrels per day, rising to about 4.2 million oil-equivalent barrels per day by 2027, as growth from advantaged assets more than offset base depletion. Since 2019, we've nearly doubled Upstream unit profitability at constant price from $5 per oil-equivalent barrel to $9 as of the first quarter of 2024. We expect unit profitability to increase to $13 per oil-equivalent barrel by 2027. Unit earnings from our advantaged assets are expected to be $9 per barrel higher than our base portfolio by 2027 at constant prices.
Moving to Product Solutions. We're focused on nearly tripling earnings from 2019 to 2027. We're well on our way to achieving that, having more than doubled earnings potential at the halfway mark at the end of last year. As an Upstream, a key driver of our earnings growth is improving our mix. The strategic projects we're executing do just that. Projects like the China Chemical Complex and the renewable diesel project in Strathcona will increase our high-value product volumes, which command a 10% to 25% margin premium. Projects such as our Singapore Resid Upgrade will also improve our mix without increasing overall volumes by converting low-margin products like fuel oil to higher-margin products like base stocks, diesel and chemical feed. This, in addition to structural cost savings, is the key to further growing our earnings.
We have a clear line of sight on the nearly $5 billion in earnings from strategic projects in 2027. Through 2023, we delivered nearly 1/3 of our goal. In 2024, we'll see a full year of earnings benefit from the Beaumont refinery expansion and Permian Crude Venture. On the chart, you can see the annualized first quarter contributions from these and other projects that we brought online since 2019.
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As we highlighted on our earnings call last quarter, 2025 is a big year for strategic project start-ups, which will provide a further large boost in earnings growth. Given the track record of our global projects and centralized technology organizations, we're confident in our ability to execute this plan, which delivers the capacity needed to double high-value product sales. By 2027, we expect high-value products to deliver about 40% of Product Solutions total earnings.
Turning to the quarter, I'll start with a high-level review of sequential earnings. Details by business segments are available in the backup to this presentation. I'm then going to spend a bit of time discussing our earnings year-on-year, which I think better highlights the progress that we're making in the key areas that drive our underlying earnings growth over the medium term. You'll see that we're providing more detail on what impacts our volumes and costs period-to-period to more clearly link our current performance to the earnings growth drivers that I discussed earlier. We provided definitions of these factors and the backup to this presentation.
First quarter GAAP earnings were $8.2 billion, excluding identified items, earnings were down $1.8 billion sequentially. Timing effects were $1 billion unfavorable impact this quarter, mostly related to unsettled derivatives mark-to-market impacts consistent with this quarter's increase in oil prices. Other items, largely noncash, were $600 million or $0.15 per share hurt this quarter, driven mainly by noncash impacts from tax and inventory balance sheet adjustments.
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Base volumes were lower in the quarter as entitlement impacts fewer days in the quarter and the impact of higher scheduled maintenance were partially offset by growth from advantaged assets and strategic projects. Looking at the first quarter performance versus the same quarter last year, you can clearly see the contributions from growing advantaged assets and executing our strategic projects as well as our underlying structural cost improvements.
GAAP earnings of $8.2 billion were down more than $3 billion versus our record first quarter earnings reported last year. The decline was driven by lower industry gas prices and refining and chemical margins, as well as higher maintenance and negative timing impacts from higher oil prices and the noncash expenses that I mentioned earlier.
We made good progress continuing to improve the underlying earnings power of the business. We saw a strong growth from our advantaged assets like Guyana and projects like the Beaumont refinery expansion, which roughly offset lower base volumes that reflect divestments, entitlements and curtailments in the Upstream and divestments and higher maintenance in energy products. We added $400 million of structural cost savings this quarter, which resulted in an after-tax earnings benefit of $300 million.
Now let's turn to the segments to dive further into our performance. In the Upstream, lower gas realizations were partly offset by slightly higher liquid realizations. As Darren mentioned, oil and natural gas prices in the quarter were about at the middle of the 10-year range. Our excellence in execution is delivering results. Higher volumes from advantaged assets more than offset divestment, curtailment and entitlement impacts, contributing $430 million in earnings versus the first quarter last year.
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In Guyana, we delivered 3 development projects, bringing online over 600 kbd of gross oil production since initial discovery at an industry-leading pace and cost. This quarter, gross production for Payara ramped up to 220 Kbd design capacity well ahead of schedule. We've also announced a new exploration discovery, Bluefin. Earnings also benefited from about $90 million in additional structural cost savings, driven by operational efficiency gains and reduced expenses from divested assets.
Our Kearl operation in Canada is a great example of how we're reducing production costs. Last year, we converted our entire fleet of about 80 heavy haul trucks to a fully autonomous operation. The automation program enables us to capture improvements in truck productivity, further enhance safety of our operations and structurally reduce our operating costs. With this program, Kearl now operates the largest autonomous fleet in our industry and one of the largest autonomous mining fleets in the world. And we continue to look at other opportunities to expand automation across our production footprint.
Kearl's gross production in the first quarter was 277 Kbd, which was a record for a first quarter. 2023 average gross production of 270 Kbd was also a record annual production. Higher expenses of $160 million were driven by an increase in depreciation rates in U.S. unconventional, while other, which is largely noncash, reflects the absence of favorable tax and divestment adjustments last year and inventory adjustments this quarter.
Timing effects in the Upstream had a negative $120 million impact on the quarter, compared to a negative $490 million impact last year, driven by our mark-to-market position on our derivatives portfolio.
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In Product Solutions, we're high-grading our portfolio by divesting nonstrategic sites and investing where we have competitive advantages. Energy Products delivered roughly $1.4 billion in earnings in the quarter. Our advantaged configuration and commercial logistics capabilities enabled a dynamic response to the changing macro environment, which saw industry margins decline versus last year, primarily due to additional supply and normalizing trade flows.
The strategic projects we executed last year, expanding our Beaumont refinery and completing the Permian Crude pipeline, helped us achieve record first quarter refining throughput and contributed to the $140 million earnings improvement. High-grading our portfolio also means making some tough but necessary choices to improve long-term competitiveness. Divestments in the middle of last year impacted volumes, but also contributed to structural cost savings in the period.
We recently announced additional rationalizations in France and Germany to further strengthen our portfolio. As Darren mentioned, we saw a high level of turnaround activity in the quarter, which is reflected in expenses. We're really proud of our team who delivered best ever execution of our recent slate of turnarounds. As expected in a rising price environment, we saw negative timing effects which are primarily related to the mark-to-market on unsettled derivatives. Last year, the timing impact was favorable as prices were falling at that time. These impacts unwind over time.
Chemical products earned nearly $800 million this quarter, more than double the result from the prior year period. While global polyethylene and polypropylene margins decreased, we drove a sizable margin increase largely due to our advantaged footprint but also due to increased contributions from Performance Products. Higher earnings from high-value product volumes reflect the many investments we've made over the years.
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Gulf Coast growth ventures in Corpus Christi, North American polypropylene and Baton Rouge and our Baytown Chemical expansion, all contribute to this growth. Base volumes increased on the absence of prior period turnarounds, but also on strong reliability in the U.S. Gulf Coast that enabled additional sales when others in the region were negatively impacted by winter storms in January.
Specialty Products continued to deliver consistently strong earnings coming in at $760 million this quarter. Our efforts to grow margins through feed optimization and revenue management were evident this quarter and largely made possible by the differentiated performance of our high-value products. We had a strong contribution from the finished lubricants business, which is celebrating the 50-year anniversary of Mobil 1, our flagship brand.
Our rigorous focus on structural cost reductions partially offset higher base expenses. The improved earnings power in our businesses translates to strong cash flow and our consistent capital allocation philosophy enables exceptional long-term shareholder returns. We generated $14.7 billion in cash flow from operations and $10.1 billion of free cash flow during the first quarter, and we continue to deploy that capital, consistent with our allocation priorities.
First and foremost, our CapEx deployment supports investments in competitively advantaged opportunities that drive long-term earnings and cash flow growth. To sustain growth, we need to be investing now in low cost of supply, high-return, resilient projects. We're doing just that with multiple project startups planned for 2025 and that will contribute nearly $4 billion in earnings potential in 2027 at constant prices and margins. Our cash CapEx for the quarter came in at $5.3 billion.
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Secondly, to stay on the offensive through the commodity cycles, we need to maintain a bulletproof balance sheet. During the first quarter, we repaid $1.1 billion of bond maturities, bringing our debt-to-capital down to 16% and our net debt-to-capital ratio down to 3%. This outstanding balance sheet strength gives us ample optionality to capitalize on attractive opportunities regardless of where the market moves.
And finally, strong operational results coupled with a healthy balance sheet, not only provide flexibility to invest through the cycles, but also to consistently return excess cash to our shareholders. We distributed $6.8 billion in the first quarter, including $3.8 billion in dividends. And while we briefly paused share repurchases following the Pioneer S-4 filing in January, we resumed in February and are on track to complete our $17.5 billion stand-alone share repurchase program this year. As a reminder, we intend to increase the pace of the program to $20 billion per year after the Pioneer transaction closes, assuming reasonable market conditions. These distributions matter. They help to drive our industry-leading total shareholder return and over a longer period of time, significantly reduce our share count.
Since we began the program in 2022, we reduced our share count by about 7% and or 8% excluding the shares issued for the Denbury acquisition. Looking ahead, our team's execution excellence, our stellar balance sheet and our extended reach to new high-value, high-growth markets uniquely positions us to grow long-term value.
Turning to the second quarter outlook items. We expect seasonal scheduled maintenance to lower upstream volumes by about 40 KOEBD. This does not impact our 2024 full year production guidance, which is 3.8 million oil-equivalent barrels a day. This guidance excludes Pioneer, which we still anticipate will close in the second quarter.
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In Product Solutions, we expect lower scheduled maintenance as we exit the peak of the 2024 turnaround season. We expect corporate and financing expenses to total $300 million to $500 million, in line with the first quarter. We also anticipate an unfavorable working capital impact of about $3 billion from seasonal cash tax payments, similar to what we saw in the second quarter of last year.
With that, let me go ahead and turn it back to Darren.
Darren Woods: Thanks, Kathy. I'll leave you with a few key takeaways. Our work to improve the fundamental earnings power of ExxonMobil is continuing a pace. By executing with excellence on our strategy, we expect to grow our earnings potential by an additional $12 billion from 2023 to 2027 at constant prices and margins, a growth rate of more than 10% per year. A significant driver of this earnings growth will be our delivery of additional structural cost savings totaling $15 billion by 2027.
In the quarter, we continue to deliver unprecedented success in Guyana, with growing production creating additional value for our shareholders and the Guyanese people. Our strategic projects, which are another important driver of our planned earnings improvement, helped deliver record first quarter refining throughput and strong Performance Chemicals volume growth. And there are more projects planned for start-up in 2025. All of this is without the contribution of Pioneer.
With Pioneer, we'll be positioned to drive earnings, cash flow and shareholder distributions even higher. We continue to work constructively with the FTC as they conduct a very thorough review and remain confident that no competition issues should hinder the transaction. We've been working diligently on our integration plans, and we're ready to begin executing day 1 on the significant synergies this combination will create.
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Looking beyond our plan period and into the future, we see attractive large-scale opportunities to leverage our core capabilities in our existing businesses and in brand-new markets with brand-new products, something our competitors can't do.
The success of this company and our unique set of competitive advantages is built on our greatest strength and most important advantage, great people. They are the best team in the business. Able to successfully overcome any challenge. Through their work at ExxonMobil, they are making a positive difference in the world, meeting people's essential needs for energy and products today and far into the future. I'm extremely proud to represent them and cannot thank them enough.
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Jim Chapman: Good morning, everyone. Welcome to ExxonMobil's First Quarter 2025 Earnings Call. Today's call is being recorded. We appreciate your joining us today. I'm Jim Chapman, Vice President, Treasurer and Investor Relations and I'm joined by Darren Woods, Chairman and Chief Executive Officer, and Kathy Mikells, Senior Vice President and Chief Financial Officer. This quarter's presentation and prerecorded remarks are available on the Investors section of our website. They're meant to accompany the first quarter earnings news release, which is posted in the same location. We also published a new Company Overview presentation, which is posted alongside our earnings materials. This document provides some new financial and other perspectives on ExxonMobil. During today’s presentation, we’ll make forward-looking comments, including discussions of our long-term plans which are subject to risks and uncertainties. Please read our cautionary statement on slide 2. You can find more information on the risks and uncertainties that apply to any forward-looking statements in our SEC filings on our website. Note that we also provided supplemental information at the end of our earnings slides, which are also posted on the website. And now I'll turn it over to Darren for opening remarks.
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Darren Woods: Good morning, and thanks for joining us. I’ll begin with some comments on the current market and policy environment, especially in light of the ongoing uncertainty in tariffs. It is clear that this uncertainty is weighing on economic forecast causing significant volatility in raising the prospects of slower growth. Coupled with the threats of increased OPEC supply, we are seeing significant downward pressure on prices and margins. In this environment, it's more important than ever to focus on what we can control and this company's track record of delivery. The work we've done over the past eight years should make one thing clear. We're ready for this. Our strategy has led to an advantaged portfolio with low cost of supply, a strong balance sheet with a 7% net debt to capital ratio that leads large cap industrials and all IOCs in a lean cost base. We've taken $12.7 billion of structural cost out of the business since 2019. Think about that. Almost $2.5 billion a year for the past five years. No other IOC even comes close. Our organization has planned for this. We pressure test our plans and the financial outcomes with scenarios that are more severe than our COVID experience. For us, success isn't defined in the good times, but in the hard times. That's also when our competitive advantages in people scale, technology integration and execution excellence really stand out. Today we're prepared and better positioned than others to respond to market challenges and in fact take advantage of the opportunities present. Looking past this, the longer term fundamentals underpinning our businesses are robust. The world will continue to need reliable and affordable energy and our portfolio of products that support modern living. We'll continue to invest in advantage projects for both our existing and new businesses to profitably meet these needs. When we get to 2030, I'm confident we will have delivered on our plan $20 billion more in earnings and $30 billion more in cash, assuming constant prices and margins
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will have delivered on our plan $20 billion more in earnings and $30 billion more in cash, assuming constant prices and margins and significantly greater value for shareholders. Turning to our current performance, we delivered another strong quarter thanks to the hard work of our people executing our strategy. Our earnings were $7.7 billion up 4% sequentially excluding identified items. We generated $13 billion of cash flow from operations, which led all IOCs. As I noted, to improve efficiency, we continue to take expense out of the business with an industry-leading program of structural cost savings. To further high grade our portfolio, we sold $1.8 billion of assets in the quarter, driven by divestments in the upstream. We've also completed the $5 billion of incremental divestments we laid out at the Corporate Plan update in December, and we'll continue to actively manage our portfolio and evaluate opportunities to further high grade where it makes sense. Since 2019, we've sold $24 billion of non-core assets, strategically reshaping our portfolio and growing earnings power. Taken together, the strategic choices and investments we've made since 2019 have strengthened our quarterly earnings power by $4 billion at current prices and margins. Our ongoing transformation to become a more efficient company with a lower cost of supply is driving lower break evens with firm plans to improve them to $35 per barrel by 2027 and $30 per barrel by 2030. Importantly, we're lowering break evens the right way by growing earnings power and cash flow, not slashing capital investments which are the foundation for value growth in our business. Prudently investing in advantaged opportunities across price cycles was key to doubling earnings since 2019 and is critically important to growing cash flow $30 billion by 2030. Our ability to successfully deliver large-scale attractive investments at or below cost and often ahead of schedule positions us well in difficult market conditions. We are seeing that in China where we recently
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and often ahead of schedule positions us well in difficult market conditions. We are seeing that in China where we recently commenced operations at our world scale chemical plant. This is one of the largest, most complex projects we've ever done and we delivered it ahead of schedule and under budget. We will competitively supply high value chemical products for the China market, protected from tariffs with attractive long-term growth. We're starting up our second advanced recycling unit at Baytown, using proprietary technology to recycle plastic waste at a much lower cost than alternative processes. Like our first advanced recycling unit, the new one will have capacity to process £80 million a year for a growing market of certified circular polymers. We are bringing on two new FPSOs at our deep-water projects offshore Guyana and Brazil; we expect to start up both later this year. And in our new technology enabled businesses, market interest continues to grow. With our Proxxima business, we've showcased a new high strength EV battery case at the world's leading composite trade show in March. Our solution improves the efficiency of the vehicle manufacturing process, reduces the overall weight and can't be replicated by other composites. We also announced a collaboration with Nordics Group, a leading wind turbine manufacturer, to use Proxxima resin as a more durable solution for the company's blades. We'll hit multiple Proxxima milestones this year, including more than doubling our production capacity. Altogether the 10 advantage projects we're starting up this year are expected to generate more than $3 billion of earnings in 2026 and at constant prices and margins, our capital allocation priorities remain unchanged. Invest in profitable growth, maintain financial strength and share our success with shareholders to generate strong cash flows years into the future, we must invest today. It's hard to consistently grow free cash flow in a capital intensive business over the long-term, but we are doing it. Reducing
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It's hard to consistently grow free cash flow in a capital intensive business over the long-term, but we are doing it. Reducing attractive investments to increase near term free cash flow weakens the business over the long-term. Compromising the future is a high price to pay for pleasing a few short term investors. Our cash flow grows consistently throughout our planned horizon of 2030. And while our total cash CapEx grows to between $28 billion and $33 billion per year through 2030, our reinvestment rate declines from 50% to 40% of cash flow over the planned period. We're putting capital to its highest and best use to further strengthen the earnings power of the company. In the upstream, we're focused on growing volumes of our most profitable barrels. We're on track for more than 60% of our production to come from advantaged assets by 2030, with an increase in per barrel profit from $10 a barrel last year to $13 a barrel in 2030. In product solutions, advantage projects are accelerating our shift to a more profitable mix of products. We're on track for 80% growth of high value products by 2030, which will bring them to more than 40% of total product solutions earnings. In low carbon solutions, we expect to generate $1 billion of earnings by 2030 in businesses that are insulated from commodity price cycles. We know that shorter-term investors will want lower CapEx and higher cash distributions. I suspect with today's level of market uncertainty, the call for this will be even stronger. That's shortsighted. We play the long game. We are rewarding shareholders today with investments made in the past when we face similar circumstances and a lot of criticism for staying the course. The passage of time demonstrated the value in this approach. We know that the advantaged investments we're making today are critical in growing shareholder returns and distributions in the future. Having said this, we are focused on value. If changes in market conditions present opportunities to improve the NPV of our investments by
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this, we are focused on value. If changes in market conditions present opportunities to improve the NPV of our investments by pivoting or inventorying opportunities, we'll take them. The flexibility of our investment portfolio gives us this option. Today, more than a third of our upstream production comes from short cycle assets where activity and spend can be quickly adjusted in response to market conditions. As we discussed in detail at the corporate plan update and our newer businesses and for projects that have not yet reached FID. If the necessary policy support or market developments are not sustained or do not materialize, we'll defer investments. Our focus on the fundamentals, our strategy and the resulting investments and the strength of our advantages, our growing earnings and generating cash allowing us to create leading value for shareholders. In the quarter, we distributed $9.1 billion of cash, more than any other IOC. This included $4.8 billion of share buybacks. We've now repurchased roughly a third of the shares we issued to complete our transformational Pioneer acquisition, which closed a year ago tomorrow. As of the quarter end, we delivered a three-year total shareholder return of 60% for a compound annual growth rate of 17%, that's well above any other IOC. It's also well above the broader set of large cap industrial companies with average TSR compound annual growth rate of 14%. We also outpaced the large cap industrials as a cash engine. Over the past three years, our total free cash flow equaled over 25% of our current market cap. Theirs averaged less than 10%. The strong value we've created for shareholders has not gone unnoticed. We're receiving positive feedback in our engagements with investors, which we've ramped up significantly over the past five years. Later this month is our annual meeting. Since our last one a year ago, leaders from the company, including members of our board of directors, have met with roughly 75% of our institutional investors. This year, for the first time
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members of our board of directors, have met with roughly 75% of our institutional investors. This year, for the first time since 1958, we have zero shareholder proposals in our proxy. We believe this is a result of two things, our financial and operating results, which exceed all integrated oil companies on almost any measure, and our willingness to challenge actions that undermine the value of our company and abuse legitimate processes. Last year, we took legal action against activists seeking to shrink our business by repeatedly submitting shareholder proposals that, in their own words, were Trojan horses for their activist agenda. This is in direct contrast to our efforts to expand engagements with investors who want to hear more about how we're growing the value of our company. Our lawsuit against the European Union, when it implemented an unjustified profits tax in the California Attorney General, when he falsely accused us of misrepresenting the benefits of advanced plastic recycling, are two other examples of fighting to retain the value we're generating for our shareholders. That's our focus and our commitment to grow and protect shareholder value. With that, we'd be happy to take your questions.
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Jim Chapman: Thank you, Darren. Before we move to Q&A, I want to highlight that we published our 2025 Advancing Climate Solutions report this week detailing all of our progress on solving the and equation, meeting demand and reducing emissions, as well as our latest sustainability report. And just as a reminder, we mentioned in our prepared remarks that we published a new company overview presentation. All these documents are linked on this page and can be found on the investor relations portion of our website. We encourage you to take a look. With that, let's move to Q&A. Operator, we'll ask you to please open the line for our first question.
Operator: Thank you. [Operator Instructions] The first question comes from Betty Jiang of Barclays.
Betty Jiang: Good morning. Thank you for taking my question. I have to say we're hearing this loud and clear about the resilience of the portfolio. We're fully cognizant that or Exxon any response is a function of choice and you are playing the long game. But earlier you also talked about the flexibility in the portfolio and that you will reconsider plans if you can improve NPV of investment. So I just want to better understand under what market condition, what weren't exercising that flexibility and then how would you balance that decision versus the operational momentum you're seeing across the businesses.
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Darren Woods: Yes. Good morning, Betty, and thank you for the question. I think you've touched on really critical elements of where we stand and how we're thinking about the business. The first point is we don't have to do anything in this environment. It's all an option of choice and then making decisions with the flexibility we have to maximize NPV is a function of where does the market go today, how does that compare with where we think the market will be in the future and fundamentally what's the long-term marginal cost of supply and where do current prices sit with respect to that. We've also got to factor in your point, which is the momentum that we've got, making sure we continue to drive a lot of the technology advances. We don't want to compromise the good progress that we're making there and frankly a very strong portfolio of opportunities that we're prosecuting. We've also got to factor in where costs go, where the cost of supply is, what contractors are doing. So there's a number of variables that go into this. Our unconventional business in particular is paying attention to all those things. We've got a very rigorous process for evaluating the tradeoffs and coming up with what we think is an optimum investment rate and approach going forward, which fundamentally is going to be driven by where the, how low the market goes. And I think there are opportunities in a low price environment that we want to make sure we're prepared to take advantage of. So it's, it's not a black and white answer, unfortunately for you, but I would just tell you, you should have a lot of confidence that we understand the variables are paying very close attention to them and assessing what's the best way to maximize the value of the company.
Betty Jiang: That makes sense. Full confidence ahead. Thank you.
Darren Woods: Thank you, Betty.
Operator: The next question is from Devin McDermott, Morgan Stanley.
Devin McDermott: Hey, good morning. Thanks for taking my question.
Darren Woods: Morning.
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Devin McDermott: Hey, good morning. Thanks for taking my question.
Darren Woods: Morning.
Devin McDermott: So, Darren, I wanted to spend a little bit of time on chemicals. So the China Chemicals project, as you highlighted, gives you a large domestic supply source at a time when we're seeing rising trade barriers. We're watching one of the key strategic benefits of this project, I think, play out in real time. So I was wondering if you could talk a little bit more about how recent market developments like slowing global growth, U.S. China tariffs are impacting performance at that facility and also your chemicals business more broadly.
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Darren Woods: Sure. So I think maybe to start with the big picture and then zoom into the specifics of our China complex. I think, we've been, the industry has been in essentially a long position from a supply standpoint for quite some time and the margins that we're seeing, industry margins that we're seeing across the world are well below what our past experience in history has been and that's really a function of really good demand, strong demand, but even more supply and stronger growth in supply which is creating this market glut. And so that's been the challenge I think we've been facing in many in the industry. All, everyone in the industry has been facing for quite some time. We, with the work that we've been doing and the focus on one advantage projects cutting the cost out of our business and growing high value products are continuing to deliver very sound results in this very challenging market. And so our expectation that's going to be with us for quite some time, the world will continue to grow, will eventually with time grow out of the excess supply condition. I'm sure there'll be some plants that, that don't, some facilities that don't survive the market and drop out and those balances will shift as we go forward. We're very focused on what we can control, which is making products that have a high value in use and therefore justify a premium in the marketplace, running very reliably, running at a low cost and being competitive in what's the challenging market. As we've said and Betty just alluded to, we've been building our business for the and so we feel very comfortable with where we're at. On China, I think you touched on it. We had a very long-term view. It's an important market. We recognize we're going to go through geopolitical cycles and different external perturbations and being having a strong presence in an important market underpinned a lot of the thinking behind that investment. It is a very large investment, a complex one. I'm very pleased to say that we built, built that facility
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that investment. It is a very large investment, a complex one. I'm very pleased to say that we built, built that facility well below the incremental cost of supply coming on that you'd see anywhere else in the world. We even beat what I would say are the Chinese markers for low cost capital investment. We did it at a very fast, on a very fast schedule and that team has started that facility up very, very smoothly and got onto on spec production fast, faster than any other startup we've had. So it's just been, I think a testament to the capability of our people. Our entire organization have come together, brought the whole weight of ExxonMobil to making that project successful and getting up and running. It's an advantage project, so we expect to be well positioned within this difficult market. We're going to ramp that facility up through the year and so for the most of this year it'll be in startup and going through grade wheels and making sure that we're really breaking that facility in, then our expectation is 2026 we'll be up and running and blowing and going with the facility. So feel good about where we're at and the potential that we've got there.
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Devin McDermott: Great. Great to see the strong results. Thanks, Darren.
Darren Woods: Thank you, Devin.
Operator: The next question is from Doug Leggett of Wolfe Research.
Doug Leggett: Thank you. Good morning. Morning, Darren. It's interesting to watch everyone talk about share buybacks and you guys, in terms of what the flexibility might be and so on. You guys have reiterated your $20 billion pace one day before the anniversary of when you closed Pioneers. My question is this. There's a lot of benefits to ExxonMobil for buying in the stock beyond just the cash return aspect, specifically reducing the dividend burden on the equity you issued on Pioneers. My question is simply, given the volatility in the market, would you continue this pace regardless of the commodity within reason. And lean in your balance sheet to ensure that those Pioneer shares are essentially bought back in?
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Darren Woods: Yes. Good morning, Doug. I think, you've touched on certainly one of the objectives that we had when we acquired Pioneer. We recognized that the valuation, the differential valuation in our stocks presented an opportunity to do a stock transaction, but at the same time recognized that issuing more stock put an additional burden on us, an additional obligation. And we were very focused on making sure that we managed that obligation and brought that obligation back down again. And that's part of the thing that's underpinned the increase in the buybacks and the pace that we're keeping. And so that's very much in mind. We're very focused on continuing to do that and feel like this is a good time to continue doing it. Frankly, our stock price is heavily correlated with crude and crude price, I don't believe that truly reflects the value of the company. And so as it moves down with crude prices, in my mind, that's a great buying opportunity, opportunity for the stock. And so we're committed to continuing to do that. And I think the market conditions we're in today are reasonable. We'll obviously keep an eye on that going forward. Our priority continues to remain making sure that we can invest in the advantaged projects that, frankly, are going to lay the foundation for all the growth that we see coming through 2030 and beyond. Maintaining a strong balance sheet to give us the foundation we need to take advantage of any opportunities that might come in a challenged market is really important, but then obviously, addressing the obligation of dividend and sharing our success with our shareholders is pretty critical. Anything you want to add to that, Kathy?
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Kathy Mikells: Yes, I think the only thing I would add is we tried to make a point in our December corporate plan disclosure to show some sensitivities, including a sensitivity activity at $55 oil, where we showed over the next six year kind of period, 2025 through 2030, we'd still throw off surplus cash flow of $110 billion that included a little bit of excess cash, but we ran those numbers and the sensitivity to just demonstrate how resilient we are even in a lower commodity price environment. So we really focused on making sure we built up a strong balance sheet to hold us in good stead in times like this.
Doug Leggett: Thank you. I wonder if I could squeeze a quick follow up. Darren, just very quickly on the 10 projects you have this year. One specifically, what is the current status or expected timing of the startup of Golden Pass? And I'll leave it there, thank you.
Darren Woods: Yes, there are that project along with the others that I think I gave some pretty specific perspective on the last call continues to be progressing at the pace that we had anticipated. Look to have a first LNJ by the end of this year, potentially slipping into early next year but right now we think we're going to deliver at the back end of this year.
Doug Leggett: Great. Thank you so much.
Darren Woods: You bet. Thank you.
Operator: The next question is from Neil Mehta of Goldman Sachs.
Neil Mehta: Yes, good morning, Darren and team. Darren you mentioned in your comments you want to make sure that you take advantage of opportunities that a low cost environment can present. And certainly you talked about how you're doing that from a cost perspective. How does M&A potentially fit into that framework? And just give us your latest thoughts on whether there are any gaps in the portfolio or how you're thinking about continuing to consolidate given the strength of the balance sheet.
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Darren Woods: Sure. Thank you and good morning Neil. I would just say maybe stepping back fundamentally how we think about acquisitions is the equation that we've talked about in the past of one plus one has to equal three. And that three comes from taking all the advantages that we've been very focused on strengthening over the last eight years and I think are certainly demonstrating through the Pioneer acquisition the real value of those advantages along with the other projects that we're delivering, that we take those advantages and look for opportunities where we can apply those to other companies, other assets, so that we can grow the value of that beyond what either of us could do independent of one another. And so that fundamental approach to thinking about acquisitions and leveraging our advantages and core capabilities keeps us on the lookout constantly for where we can find those opportunities. When we get into a low price environment where potentially some companies don't have the same foundations that we do, the same strengths, the same capability to write out some of the low points of the cycle that could present opportunities, we want to be responsive to those opportunities. So I wouldn't tell you that the emphasis or the focus changes in a low price environment, but we're cognizant that there may be more opportunities that materialize. We don't, we're not counting on them, we certainly don't need them and the base portfolio that we've got and the growth profile that we've laid out, but we want to make sure that we're taking advantage of any of the opportunities that we see out there.
Neil Mehta: Very clear. Thanks, Darren.
Darren Woods: Thank you, Neil.
Operator: The next question is from Steven Richardson of Evercore ISI.
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Darren Woods: Thank you, Neil.
Operator: The next question is from Steven Richardson of Evercore ISI.
Steve Richardson: Hey, good morning, Darren. I was wondering, you've been really consistent on policy frameworks and incentives and what you all need to see to make some investments, certainly in some of the low carbon areas. I was wondering if you could give us an update on, on your current thoughts on Baytown and are you likely to move ahead based on what you see today and if not, what else needs to happen for you to get to FID.
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Darren Woods: Sure. Thank you, Steve, and good morning. So you're right. We've been, we entered into that business with the recognition that frankly, the world needs to find ways to reduce emissions. We think that's that objective is an important one and a long-term one that society needs to find a constructive, thoughtful, rational path in achieving. Our view was that we as a company have capabilities that we can bring to that challenge and meet that demand. But markets need to form, policy needs to be in place to support that in the early stages of the development of this new industry, frankly. We're pushing very hard though, to make sure that society finds a way, governments find a way to introduce market mechanisms to engage the forces of market, to engage competition, drive technology innovations. And so while we're looking to invest and take advantage of some of the government support and policy that's out there, we're also working very hard to try to drive more robust holistic policy, establish a true framework for carbon accounting so that we can begin to really understand where the sources of emissions are and can then start to calculate true carbon intensities and the cost of carbon reduction. And so longer term, we need a better system to manage emissions across the globe. The Baytown Blue hydrogen was an attempt to take advantage of the desire to drive into reductions fast in areas that we believe are fundamental to long-term emissions reductions, low carbon hydrogen is certainly one of those building blocks that we think at some point in time is going to play an important role. We needed to find an economic way to build a project so that we generated returns that were competitive in our portfolio. We had to work with the administration to make sure there was a solid policy in place that supported that investment, and we needed to develop a customer base that we're signing offtake agreements and committing to buy the products that we produce. I think we've got a good project in hand that we think is
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agreements and committing to buy the products that we produce. I think we've got a good project in hand that we think is very competitive and that will drive very competitive returns and certainly have a -- has a good place in our portfolio. I think the policy that's in place is -- this is certainly -- there's some debate today with the Trump administration. Our expectation is, while some of that policy may change, it will be done in a very thoughtful way and our expectation is the things that we need to drive low carbon hydrogen will probably stay in place, but we have to see that manifested. And the third piece that we're working on is the sales commitments and having the offtake agreements, I'd say right now, that's probably the long pole in the tent with respect to driving this. And so when that -- when those 2 things come together, and we're confident that we have what we need to generate the returns that it's going to be required to justify the investments we'll move forward. Hopefully, that's later this year. But as we've been saying all along, it's very much a function of locking those things down, so we're confident that we'll generate the returns on those investments.
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Operator: The next question is from John Royall of JPMorgan.
John Royall: Hi, good morning. Thanks for taking my question. So my question is on Pioneer. You're hitting the 1-year anniversary of closing the transaction. I was just hoping for an update on how you're tracking in the various buckets of synergies today. And particularly on the production side, the improved recoveries you've talked about, I know it was a little longer dated, but just any commentary on how those efforts are tracking.
Darren Woods: Yes, sure. Thank you John. Appreciate the question and good morning. I would tell you across all the areas where we saw opportunities to add value by combining what were 2 great organizations, independent organizations are frankly, finding more value opportunities than we anticipated. So at the corporate plan update, I know that we upped annual average synergies we expect to see over the first 10 years from $2 billion to $3 billion. Our view today is that numbers are even bigger, and so we're making really good progress. I think everybody who's working in that resource that business that we have, whether you're heritage ExxonMobil, whether you are Pioneer are really excited by the opportunity. It has been truly a best of both approach and the value that the people Pioneer brought to this effort and the enthusiasm, ExxonMobil folks brought to this is just really paying off in spades. So I don't think we have finished mining the value that we see in this combination. So I'm very optimistic. I think as we head to the back of the year, you'll continue to see the improvements in the value manifest themselves and the data that comes out, and my expectation is we'll continue to grow the synergy values going forward and would expect to update with you -- with you when we share our corporate plan update at the end of this year, but basically full steam ahead, everything is looking very, very good, and we're exceeding our own expectations.
John Royall: Thank you.
Darren Woods: Thank you.
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John Royall: Thank you.
Darren Woods: Thank you.
Operator: The next question is from Biraj Borkhataria with RBC.
Biraj Borkhataria: Hi, thanks for taking my question. I just wanted to go back to your CapEx plans. When you presented your plan in December, there was a sort of a wedge of CapEx that was policy dependent, things you would like to do provided the right environment was there. And would it be fair to assume in the near term, at least, given the amount of uncertainty we see that CapEx gets pushed to the right. And I'm thinking of things like the Dayton project, given the uncertainty on the policy and the tariffs? And then the second question is just a specific one on Mozambique. Is my understanding that you sold out of the floating development, [Indiscernible] North in exchange for higher interest in the onshore development in a swap. Just wanted to confirm that and understand your rationale of that deal and how you expect that project to progress going forward? Thank you.
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Darren Woods: Yes. On the CapEx, you're right that we did break it out to be clear on what was base spend that was needed to kind of continue to drive and manage the growth in our base business. We had a bucket that was early stage projects where we had in that forecast going forward, put in some capital spend based on successfully FID in those projects. Those had not been decisions made yet, but we made room for them in our base plan. And then obviously, things that were dependent upon policy and -- you remember, we had Proxxima and Carbon Material Ventures, which we continue to feel very good about with respect to the value and use and the applications, and those are growing. But as you build -- introduce new products into new markets, you can't be completely sure of those and so we wanted to make sure there was a clear line of sight to those buckets that had -- that were dependent upon achieving success. So -- and I would say at this stage, all those buckets are basically on track. The policy question, I think, early stages. We'll have that answer here as we go through the third quarter, I suspect. And so I don't anticipate at this stage tariffs or uncertainty delaying anything that we're doing with respect to that. As I mentioned earlier, probably the biggest challenge on our Baytown Blue Hydrogen Project is signing up to customers and getting the offtake, which we had a good line of sight to, we've got some very solid discussions that we're having in there. So I hope to see that come through. But -- so right now, I wouldn't suggest that we're going to see a lot of capital slipping out of the plan horizon. But year-to-year, you may see some movement, but frankly, right now, from what we can tell. We're on track with the longer-term plans that we've laid out.
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Kathy Mikells: I would just add to that. If you look at our low-carbon investments. Probably the biggest thing we're investing in this year is CCS and we'll be bringing on our first customer in that CCS business and so that's progressing really well. We have the permanent storage. We've drilled the wells. We've got the monitoring put in place, and so we're feeling very good about how that business is progressing. So we did carve out. It was $30 billion of our total CapEx from 2024 through 2030, it's about 10% of our total CapEx. But if you look at all the different projects we have in the low carbon space, they're progressing pretty well right now.
Darren Woods: Yes. And then with respect to Mozambique, I won't get into any of the specifics on what we've been doing there other than to say, as a philosophy, we're absolutely convinced that with respect to developing large projects, large complicated projects that we bring a huge advantage to those efforts the strength that we have in our global projects organization. I think, frankly, is hard for any other company to replicate. And we want to make sure that as we deploy that advantage that we've got the right-sized stake in our developments to adjust the effort. And I would say that's just the general philosophy that we're taking across our entire portfolio.
Biraj Borkhataria: Okay, thank you.
Operator: The next question is from Jean Ann Salisbury with Bank of America.
Jean Ann Salisbury: Good morning. A bit of a follow-up to an earlier question. But at your Investor Day in December, you cased the new Coke province that you believe could be a big contributor to raising AURs by 15%. Now with four more months of well data, is that province still performing to that expectation, even exceeding the expectation?
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Darren Woods: Yes. Yes, good morning. I would say I've been progressing the deployment of the low weight proppant, setting up the supply chain and logistics systems to support that. I would tell you that today, we're as enthusiastic, if not more, associated with the value opportunity that we're seeing there with the ongoing results of the wells that we've already deployed that technology to. So that's, I think, going forward, going to continue to be a critical part of the portfolio. And frankly, like a lot of the technical advances that we make in the company, we generally surprised ourselves with the improvements that we make over time as we gain experience through deployment and my expectation is we'd see something similar there, but the 15% that we talked about is still a very good number, a good solid base.
Jean Ann Salisbury: Great. Thank you.
Darren Woods: You bet.
Operator: The next question is from Alastair Syme of Citi.
Alastair Syme: Hi, thanks for the opportunity. Darren, just because you mentioned it in your prepared remarks that the litigation against the European Union on windfall tax, I think that originally filed back in 2022. Where does this process currently sits? And what do you think the time line is on resolution?
Darren Woods: Good morning, Alastair. Thanks for the question. I would just maybe put that in the category of a number of the lawsuits that we've been involved in over the years. The wheels of justice turned slow. So my expectation, and I don't have a good time line for that, but my expectation is that it will be a -- like a lot of these legal cases that will wind its way through the procedural legal process, and we'll see where we get to on that, but I don't have an update on that today.
Alastair Syme: Okay, thank you.
Darren Woods: You bet.
Operator: The next question is from Roger Read of Wells Fargo.
Roger Read: Yes, good morning.
Darren Woods: Good morning, Roger.
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Roger Read: Yes, good morning.
Darren Woods: Good morning, Roger.
Roger Read: I'd like to come back on your -- some of your -- the end of your opening comments about kind of, I believe it's $12 billion of cost savings achieved so far, $18 billion target by the end of the decade. When you previously kind of talked about the next stage of cost savings, it seems to have been logistics focused nothing really said this time. So I'm just curious some updates we think about the incremental 6. Is that logistics and procurement or has that grown as well or expanded in terms of the type of things you're looking to cut costs on?
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Darren Woods: Sure. I'll hand it over to Kathy here in a minute for some more specifics. But I would just say, first of all, it's close to $13 billion through the first quarter. Those dollars are hard to come by, so I don't want to shortchange the organization. I think $12.7 billion is where we're at, at the end of this quarter, which I just think putting that in context, if you go back through since 2019. The organization is delivering, on average, almost $2.5 billion of structural cost savings per year. And we've got a good clip in momentum going, where I would tell you the organization that we have in place today is as excited about finding opportunities to get more efficient as they are about finding ways to get more effective and deliver more value. And so I think we're in a really good place as an organization that recognizes the critical importance of being on the low side of the cost of supply curve of being a very efficient producer and that there's a lot of energy momentum to finding that. When you couple that with the opportunity set that we're finding by bringing together centralized organizations and really, for the first time in the company's history, being able to take organizations that are very focused on a specific piece of value creation and have them look across the entire portfolio, all of our businesses, all of our assets, all around the globe and find opportunities to leverage their expertise in a particular area of the value chain. You can imagine the opportunity set there for somebody who's as big that hasn't really had the opportunity to sit and look across everything and find the common denominators and extract value when you then couple that with the work that we're doing with the new enterprise system to get all the data that has historically been distributed across our organization, centralized, organized in a consistent way. Frankly, I think the opportunity set is enormous, and we're making good progress on that, and in a lot of different areas, and I'll let Kathy kind of touch on
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set is enormous, and we're making good progress on that, and in a lot of different areas, and I'll let Kathy kind of touch on some of the specifics.
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Kathy Mikells: Yes. And so if you think about the go-forward plan. A large amount of the cost savings that we expect to achieve is going to come from these newer centralized organizations. And so you mentioned logistics and then you kind of tied that with procurement. I would say procurement is alive and well at ExxonMobil. And they're constantly looking to make sure that they're really leaning into the full scale and integrated approach at ExxonMobil in terms of how we drive our cost down. But if you think about logistics, it's as much trying to get at reducing the number of movements we have in logistics and making sure that we have full containers, both outbound and return and not just kind of cost of a container or cost of a movement. A great example would be something like Iona, right, where the number of ships we have moving every day just to supply the drilling campaign as well as the FSPOs is huge. And so just taking and using better data and information to actually reduce the number of trips is where we get a big bang for our buck, not just in reducing trip cost itself. And one of the things that we're seeing all of our centralized organization be able to better and better do is use the full data set of the corporation, right, as we look to get more efficient with everything we do across the corporation. I'd also tell you, as we look forward, just trying to use technology to basically drive our efficiency, reduce our overhead costs by doing things in a more automated fashion is still an area where we have a significant opportunity. We recently did a larger implementation of a software platform called black line that we use in the accounting space, and it's literally enabled us to save tens of thousands of hours of what was very manually intensive work because we can now automate it. But a lot of this detail is in the data and being able to have cleaner data at a corporate-wide level so that we can get better insights from the data. We can improve our automation and we can get both more efficient and
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level so that we can get better insights from the data. We can improve our automation and we can get both more efficient and more effective. We've talked a lot about the savings we've been able to achieve and expect to continue to raise the bar on in the maintenance space, and that's driving both faster and lower cost, big turnarounds, but it's also driving faster and lower-cost day-to-day maintenance as again, we're using that data set from across corporation to really make sure we're instilling best practices across our entire circuit. So as we look forward, I'd say you're going to see more and more savings being driven from those centralized organizations, and importantly, this is sustainable cost savings, right? It isn't just, hey, we're trying to get people to sort of do the same amount of work with your people. This is really driving sustainable cost savings. And the program, if you think about what we've done today, $12.7 billion in savings versus 2019, that's bigger than all our other competitors savings programs kind of put together. So we're not scraping around the edges at this I think we have a tried and true track record here that we feel really good about, and it's something that all our organizations really take on the accountability for and just drive every single day.
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Roger Read: I appreciate that. And I had no intention Darren and or -- and Kathy at sort of you the $700 million as just a rounding number in my own mind. Thank you.
Darren Woods: Yes. No problem, Roger. We like to round up when it's $12.7 billion.
Roger Read: Fair enough.
Operator: The next question is from Bob Brackett of Bernstein Research.
Bob Brackett: Good morning. A question around tariffs and how they relate to your project organization. So how should we think about moving modules, equipment into maybe U.S. projects? And what did tariffs due to that? And what does the project organization do to make sure you hit your CapEx numbers and deliver on time?
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Darren Woods: Sure. Thank you, Bob, good morning. I'd say -- it's a project organization activity as well as procurement and our supply chain. So it is a whole core effort in terms of managing the specifics of the tariffs, how they manifest themselves. I would say, generally speaking, for the things that are in flight where we've got work going on contracted things we've FID-ed think the way we've structured those contracts and the position where we're at with each of those, we're pretty well shielded from the impacts of tariffs. What's really I think has more exposure to things -- the new things that are coming down the pipe, and how the tariffs play out will be -- will drive the impact it potentially has on those projects. But I would very quickly say that to date, what we've seen and the work that we've done and the effort of the organization to minimize the impact. We don't today see a material impact on what we're doing in our project organization that would change the decisions that we're making change the project portfolio that we're trying to advance or frankly, change the economics and the returns associated with those projects. So it's still early days, but I've got a lot of confidence that the organization has got a lot of levers to pull to manage that. I would also tell you that I think there is a sensitivity by the Trump administration and other governments around the world to not severely impact the energy sector and the products that we produce. I think there's a very broad recognition of the critical role of the products that we produce in each of their economies that recognize that what we do actually fuels the engines of their economy and so there's a lot of sensitivity around that. And what we found in discussions around the world is governments want to understand the potential implications and are taking those things into consideration. So I would tell you today, we're certainly not immune to it, but I do believe we're well positioned to manage it and today, we haven't seen any significant
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certainly not immune to it, but I do believe we're well positioned to manage it and today, we haven't seen any significant issues or impact or not forecasting any.
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Bob Brackett: Very clear. Thank you.
Darren Woods: You bet.
Operator: The next question is from Josh Silverstein of UBS.
Joshua Silverstein: Good morning guys. At back of the Upstream spotlight, you highlighted how Exxon was kind of down shifting away from dry gas production. It's probably more related to the Lower 48. But just given the improving demand outlook, do you see any potential shift in the strategy here? Or is there just a lot of growth coming from the associated bucket that you can capture enough of the rising demand environment? Thank you.
Darren Woods: Yes, thank you for the question. No, I don't see a shift in strategy based on what we're seeing today, I mean, obviously, we've got a lot of associated gas, which given the liquids that come along with that have a fairly high value proposition. We have dry gas assets that we think would be competitive in the broader portfolio, but it's not the priority today. I mean we're obviously paying attention to how the markets develop. But frankly, our investment decisions, the strategies that we've put in place are more anchored to what we think are long-term fundamentals. And we're going to respond and take advantage of short-term dynamics if we believe they're going to stick around long enough to deliver some additional value, but no shift in strategy, no shift in the kind of long term how we're thinking about the market development and where our emphasis should be.
Operator: The next question is from Ryan Todd of Piper Sandler.
Ryan Todd: Hey thanks. Refining performance, our energy products performance was very strong in the first quarter. I wonder if you could comment on any particular drivers of that? And how do you see the market evolving from here over the course of the year as you think about supply/demand margins, etcetera?
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Darren Woods: Sure. So I would say what we're delivering out of our energy products segment and the refining business more specifically is really a reflection of a lot of hard work that's been going on for many years now. First, we've been very focused on making sure we understand the competitive positioning of all of our assets and where we see a deficiency or an opportunity to improve their competitive positioning and it justifies an investment that's advantaged will make those sort of really reconfigured a number of our facilities to bring in higher value -- to produce higher-value products to improve the yield profile on those units. So we've got a couple of examples of Rotterdam advanced hydrocracker. We brought in Blade in the Gulf Coast. We're working on CRISP, earlier we put a coker and Antwerp. And so I think we've done a lot to improve the earnings power of the refineries that we feel are strategic and form a foundation within our organization. And then there's -- for the ones that we didn't feel had the competitive positioning that we wanted and didn't have this -- didn't fit with our strategy. We've been doing a lot of work to high grade our facilities and to sell those where -- those assets to companies that saw a better fit with their strategies and so we've done a really good job of high-grading of the portfolio and really concentrating on the important refineries. And then with our global operations organization, really stepping back and taking the best thinking across the corporation and the best thinking that we can tap into outside the corporation and outside our industry to think through to how we better improve the performance of those refineries, how we reduce maintenance that Kathy touched on, how we improve reliability, how we drive safety, how we improve environmental performance and so I would say across our entire circuit, a lot of focus on the rigor and the excellence and execution of running refineries and we've seen huge value and that reliability is up and costs are down. So it's a
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and execution of running refineries and we've seen huge value and that reliability is up and costs are down. So it's a great combination. So those things, I think, all come together to give us a very high-performing refining business that can weather the ups and downs. I think going forward, really tough to say exactly how the year is going to play out. There is certainly sufficient refining capacity out there. The demand, I think, difficult to see with all the uncertainty and all the projections being made about exactly where world economies go, and so that demand -- supply-demand balance, not clear to me. We're seeing better margins in the second quarter than we experienced in the first quarter. I expect some of that will hold just given the seasonality. But frankly, we're not basing our business on being forecast heroes. We're based on our business and the success of that business on basically driving really sound operations I think that strategy is paying off, certainly paid out in the fourth and the first quarter, expected to pay off going forward.
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Jim Chapman: All right. Thanks, Ryan. Thanks, everybody, for joining the call and for your questions. We're going to post the transcript of this call to the Investors section of our website by early next week. I hope everyone has a good weekend. And we look forward to connecting again later this month during our Annual Shareholders Meeting, which is on May 28. And that concludes today's call.
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Operator: Welcome, everyone. Thank you for standing by for the Alphabet Fourth Quarter and Fiscal Year 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to your speaker today, Jim Friedland, Senior Director of Investor Relations. Please go ahead.
Jim Friedland: Thank you. Good afternoon, everyone, and welcome to Alphabet's fourth quarter 2024 earnings conference call. With us today are Sundar Pichai; Philipp Schindler; and Anat Ashkenazi. Now I'll quickly cover the Safe Harbor. Some of the statements that we make today regarding our business, operations and financial performance may be considered forward-looking. Such statements are based on current expectations and assumptions that are subject to a number of risks and uncertainties. Actual results could differ materially. Please refer to our Forms 10-K and 10-Q, including the risk factors. We undertake no obligation to update any forward-looking statement. During this call, we will present both GAAP and non-GAAP financial measures. A reconciliation of non-GAAP to GAAP measures is included in today's earnings press release, which is distributed and available to the public through our Investor Relations website located at abc.xyz/investor. Our comments will be on year-over-year comparisons unless we state otherwise. And now I'll turn the call over to Sundar.
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Sundar Pichai: Thanks, Jim, and hello, everyone. We delivered another strong quarter in Q4, driven by our leadership in AI and our unique full stack. We're making dramatic progress across compute, model capabilities, and in driving efficiencies. We're rapidly shipping product improvements, and seeing terrific momentum with consumer and developer usage. And we're pushing the next frontiers, from AI agents, reasoning and deep research, to state-of-the-art video, quantum computing and more. The company is in a great rhythm and cadence, building, testing, and launching products faster than ever before. This is translating into product usage, revenue growth, and results. In Search, AI overviews are now available in more than 100 countries. They continue to drive higher satisfaction in Search usage. Meanwhile, circle to search is now available on over 200 million android devices. In Cloud and YouTube, we said at the beginning of 2024 that we expected to exit the year at a combined annual revenue run rate of over $100 billion. We met that goal and ended the year at a run rate of $110 billion. We are set up well for continued growth. So today I'll provide an update on our AI progress and how it's improving our core consumer products. Then I'll touch on Cloud, YouTube, Platforms and Devices, and Waymo. Let's start with AI. Last quarter, I outlined the three areas of our differentiated full stack approach to AI innovation. Our leading AI infrastructure, our world-class research, including models and tooling, and our products and platforms that bring these innovations to people at scale. First, AI Infrastructure. Our sophisticated global network of cloud regions and data centers provides a powerful foundation for us and our customers, directly driving revenue. We have a unique advantage, because we develop every component of our technology stack, including hardware, compilers, models, and products. This approach allows us to drive efficiencies at every level, from training and serving, to developer productivity. In 2024,
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This approach allows us to drive efficiencies at every level, from training and serving, to developer productivity. In 2024, we broke ground on 11 new cloud regions and data center campuses in places like South Carolina, Indiana, Missouri, and around the world. We also announced plans for seven new subsea cable projects, strengthening global connectivity. Our leading infrastructure is also among the world's most efficient. Google data centers deliver nearly 4x more computing power per unit of electricity compared to just 5 years ago. These efficiencies, coupled with the scalability, cost and performance we offer, are why organizations increasingly choose Google cloud's platform. In fact, today, cloud customers consume more than 8x the compute capacity for training and inferencing compared to 18 months ago. We'll continue to invest in our cloud business to ensure we can address the increase in customer demand. Second, world class research including models. In December, we unveiled Gemini 2.0, our most capable AI model yet, built for the agentic era. We launched an experimental version of Gemini 2.0 flash, our workhorse model with low latency and enhanced performance. Flash has already rolled out to the Gemini app, and tomorrow we are making 2.0 flash generally available for developers and customers, along with other model updates. So stay tuned. Late last year, we also debuted our experimental Gemini 2.0 Flash Thinking Model. The progress-to-scale thinking has been super fast, and the reviews so far have been extremely positive. We are working on even better thinking models and look forward to sharing those with the developer community soon. Gemini 2.0 advances in multi modality and made of tool use enable us to build new agents that bring us closer to our vision of a universal assistant. One early example is Deep Research. It uses agentic capabilities to explore complex topics on your behalf, and give key findings, along with sources. It launched in Gemini Advanced in December, and is rolling out to android
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behalf, and give key findings, along with sources. It launched in Gemini Advanced in December, and is rolling out to android users all over the world. We are seeing great product momentum with our consumer Gemini app, which debuted on IOS last November. And we have opened up trusted tester access to a handful of research prototypes, including Project Mariner, which can understand and reason across information on a browser screen to complete tasks and Project Astra. We expect to bring features from both to the Gemini app later this year. We're also excited by the progress of our video and image generation models. Veo 2, our state-of-the-art video generation model, and Imagen 3, our highest quality text-to-image model. These generative media models, as well as Gemini, consistently top industry leader boards and score top marks across industry benchmarks. That's why more than 4.4 million developers are using our Gemini models today, double the number from just 6 months ago. And we continue to drive research breakthroughs in quantum computing. At the end of last year, we announced Willow, our new state-of-the-art quantum computing chip that can reduce errors exponentially as we scale up using more qubits. Willow is an important step in our journey to build a useful quantum computer with practical applications. This technology holds so much promise, which is why there was real excitement around this breakthrough. Third, our Products and Platforms put AI into the hands of billions of people around the world. We have seven Products and Platforms with over 2 billion users and all are using Gemini. That includes Search, where Gemini is powering our AI overviews. People use Search more with AI overviews and usage growth increases over time as people learn that they can ask new types of questions. This behavior is even more pronounced with younger users who really appreciate the speed and efficiency of this new format. We also are pleased to see how Circle to Search is driving additional Search use and opening up even more
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of this new format. We also are pleased to see how Circle to Search is driving additional Search use and opening up even more types of questions. This feature is also popular among younger users. Those who have tried Circle to Search before now use it to start more than 10% of their searches. As AI continues to expand the universe of queries that people can ask, 2025 is going to be one of the biggest years for Search innovation yet. Now, let me turn to key highlights from the quarter across Cloud, YouTube, Platforms and Devices, and Waymo. First, Google Cloud. Our AI-powered cloud offerings enabled us to win customers such as Mercedes-Benz, Mercado Libre and Servier. In 2024, the number of first-time commitments more than doubled, compared to 2023. We also deepened customer relationships. Last year, we closed several strategic deals over $1 billion, and the number of deals over $250 million doubled from the prior year. Our partners are further accelerating our growth, with customers purchasing billions of dollars of solutions through our Cloud marketplace. We continue to see strong growth across our broad portfolio of AI-powered Cloud solutions. It begins with our AI Hypercomputer, which delivers leading performance and cost, across both GPUs and TPUs. These advantages help Citadel with modeling markets and training, and enabled Wayfair to modernize its platform, improving performance and scalability by nearly 25%. In Q4, we saw strong uptake of Trillium, our sixth-generation TPU, which delivers 4x better training performance and 3x greater inference throughput compared to the previous generation. We also continue our strong relationship with NVIDIA. We recently delivered their H200-based platforms to customers and just last week, we were the first to announce a customer running on the highly-anticipated Blackwell platform. Our AI developer platform, Vertex AI, saw a 5x increase in customers year-over-year, with brands like Mondelez International and WPP building new applications and benefitting from our 200+
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year-over-year, with brands like Mondelez International and WPP building new applications and benefitting from our 200+ foundation models. Vertex usage increased 20x during 2024, with particularly strong developer adoption of Gemini Flash, Gemini 2.0, Imagen 3, and most recently, Veo. We are also seeing strong growth in our AI-powered databases, data analytics, and cybersecurity platforms. Customers including Radisson Hotels are now using Gemini to Search and analyze multi-modal data from across multiple Clouds. Our AI-powered Threat Intelligence and Security Operations products help customers, including Vodafone and AstraZeneca, identify, protect and defend against threats. Our growing portfolio of AI applications is also seeing strong customer adoption. In Q4, we introduced Google Agentspace, which helps enterprises synthesize data with Google-quality Search, create Gemini-powered agents, and automate transactions for employees. In addition, we recently gave all Google Workspace Business and Enterprise customers access to all of our powerful Gemini AI capabilities to help boost their productivity. Moving to YouTube. Nielsen data shows YouTube continues to be number one in streaming watchtime in the U.S., with our share of streaming now at a record high. On election day alone, over 45 million viewers across the U.S. watched election-related content on YouTube. Our early investment in podcasts is paying off. We integrated podcasts into the core YouTube experience, particularly with video. We are now the most frequently used service for consuming podcasts in the U.S., according to a recent Edison report. This success reflects our long-term approach of investing in emerging trends, from mobile to the living room. We now have over 250,000 creators in the YouTube Shopping affiliate program in the U.S. and Korea alone. We expanded YouTube Shopping at the end of last year to three additional countries, allowing even more creators to share their favorite products with fans and grow their businesses. Philipp will talk
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countries, allowing even more creators to share their favorite products with fans and grow their businesses. Philipp will talk more about YouTube performance later in the call. Next, Platforms and Devices. Google One's performance has been outstanding, and is one of our fastest growing subscription products in terms of subscribers and revenue growth. Last month, we announced the first beta of Android 16, plus new Android updates, including a deeper Gemini integration coming to the new Samsung Galaxy S25 series. We also recently announced Android XR, the first Android platform built for the Gemini era. Created with Samsung and Qualcomm, Android XR is designed to power an ecosystem of next-generation extended reality devices, like headsets and glasses. Finally, a few words on Waymo which made tremendous progress last year, safely serving more than 4 million passenger trips. It is now averaging over 150,000 trips each week, and growing. Looking ahead, Waymo will be expanding its network and operations partnerships to open up new markets, including Austin and Atlanta this year and Miami next year. And in the coming weeks, Waymo One vehicles will arrive in Tokyo for their first international road trip. We're also developing the sixth-generation Waymo Driver, which will significantly lower hardware costs. I want to thank our employees around the world for another great quarter. 2025 is going to be exciting and we’re all ready for it. Philipp, I will hand it over to you.
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Philipp Schindler: Thanks, Sundar, and hello, everyone. I will quickly cover performance for the quarter, then frame the rest of my remarks around the progress we are delivering across Search, Ads, YouTube and Partnerships, highlighting the impact AI is having on our business and our customers. Google Services revenues were $84 billion for the quarter, up 10%, driven primarily by 11% year-on-year growth in advertising revenues. Strong growth in Search and YouTube advertising was partially offset by year-over-year decline in network revenues. In terms of vertical performance, the 13% increase in Search and other revenues was led by financial services followed by retail. The 14% growth in YouTube advertising revenues was driven by strong spend on U.S. election advertising, with combined spend from both parties almost doubling from what we saw in the 2020 elections. Now, in Q4, we saw continued strong growth in revenues from Search. We had lots of exciting updates in December, and we're rapidly integrating our AI innovation into our consumer experiences. We've already started testing Gemini 2.0 in AI overviews and plan to roll it out more broadly later in the year. In Search, we're seeing people increasingly ask entirely new questions using their voice, camera, or in ways that were not possible before, like with Circle to Search. We're making these benefits available to more consumers. Google is already present in over half of journeys where a new brand, product, or retailer are discovered. By offering new ways for people to Search, we're expanding commercial opportunities for our advertisers. Shoppers can now take a photo of a product and, using lens, quickly find information about the product, reviews, similar products, and where they can get it for a great price. Lens is used for over 20 billion visual search queries every month, and the majority of these searches are incremental. Retail was particularly strong this holiday season, especially on Black Friday and Cyber Monday, which each generated over $1 billion
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was particularly strong this holiday season, especially on Black Friday and Cyber Monday, which each generated over $1 billion in ad revenue. Interestingly, despite the U.S. holiday shopping season being the shortest since 2019, retail sales began much earlier, in October, causing the season to extend longer than anticipated. People shop more than a billion times a day across Google. Last quarter, we introduced a reinvented Google shopping experience, rebuilt from the ground up with AI. This December saw roughly 13% more daily active users on Google shopping in the U.S. compared to the same period in 2023. Closing out on Search with travel, and sharing another interesting trend where we saw spend expand to travel Tuesday. This contributed to 20% year-on-year revenue growth for travel advertisers across Cyber Monday and Travel Tuesday. Moving to Ads. We continue investing in AI capabilities across media buying, creative and measurement. As I said before, we believe that AI will revolutionize every part of the marketing value chain, and over the past quarter, we've seen how our customers are increasingly focusing on optimizing their use of AI. As an example, Petco used DemandGen campaigns across targeting, creative generation, and bidding to find new pet parent audiences across YouTube. They achieved a 275% higher return on ad spend and a 74% higher click through rate than their social benchmarks. On media buying, we made YouTube select creator takeovers generally available in the U.S. and will be expanding to more markets this year. Creators know their audience the best and creator takeovers help businesses connect with consumers through authentic and relevant content. Looking at Creative, we introduced new controls and made reporting easier in PMAX, helping customers better understand and reinvest into their best performing assets. Using asset generation in PMAX. Event Ticket Center achieved a 5x increase in production of creative assets, saving time and effort. They also increased convergence by 300% compared
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a 5x increase in production of creative assets, saving time and effort. They also increased convergence by 300% compared to the previous period when they used manual assets. And finally, Measurement. Last week, we made Meridian, our marketing mix model, generally available for customers, helping more business reinvest into creative and media buying strategies that they know work. Based on a Nielsen meta-analysis of marketing mix models, on average, Google AI-powered video campaigns on YouTube deliver 17% higher return on advertising spend than manual campaigns. Turning to YouTube. We saw robust revenue growth backed by continued growth and watch time across ad supported and premium experiences. Our focus here remains on building a streaming platform that enables creators to thrive and unlock the full potential of AI. Expanding on our state-of-the-art video generation model, we announced Veo 2, which creates incredibly high quality video in a wide range of subjects and styles. It's been inspiring to see how people are experimenting with it. We'll make it available to creators on YouTube in the coming months. We continue to invest in helping YouTube creators work with brands. All advertisers globally can now promote YouTube creator videos and ad campaigns across all AI-powered campaign types in Google Ads. And creators can tag partners in their brand videos. Sephora used DemandGen's Shorts-Only channel to boost traffic and brand searches for the Holiday Gift Guide campaign and leverage creator collaborations to find the best gift. This drove an 82% relative uplift in searches for Sephora Holiday. Shorts continues its ascent and is closing the gap with long form. In 2024, the monetization rate of Shorts relative to in-stream viewing increased by more than 30 percentage points in the U.S., and we expect to make additional progress in 2025. We're making it easier for advertisers to benefit from Shorts on all screens. We're particularly excited by its success on connected TV, which now makes up 15% of shorts viewing
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from Shorts on all screens. We're particularly excited by its success on connected TV, which now makes up 15% of shorts viewing in the U.S. Using a combination of ad formats, Louis Vuitton reached their overall objectives on both long-form and short-form content. Their shorts exceeded luxury goods benchmark for average view duration by 89% for equivalent video lengths, while their long-form content exceeded the benchmark by over 15%, with strong engagement from Gen Z and Millennials. Looking into the living room, we continue to be number one in streaming watch time in the U.S for nearly two years, according to Nielsen, and our share of streaming is at a record high. Viewers globally streamed over 1 billion hours of YouTube content daily on their TVs in 2024. YouTube makes multi-year investments to tap into shifting consumer behavior. The current surge in living room viewership directly reflects years of work to build the right products and partnerships. Creators are now prioritizing high-quality viewing experiences that truly shine on TV screens, inspiring even more viewers to tune in. In fact, the number of creators making majority of revenue from TV is up over 30% year-on-year. We have also invested in podcasts, where popular shows like Club Shay Shay and Lex Friedman are increasingly a visual format. YouTube creators and viewers are embracing this. In 2024, people watched over 400 million hours of podcasts each month on living room devices alone. YouTube is now the most popular service for podcast listening in the U.S., according to Edison. As always, let me wrap with the strong momentum we're seeing in partnerships, where the breadth of what Google has to offer is increasingly being recognized. Sundar mentioned our deepening partnership with Samsung. Another expanding partnership is with Citi, who is modernizing its technology infrastructure with Google Cloud to transform employee and customer experiences. Using Google Cloud, it will improve its digital products, streamline employee workflows, and use
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and customer experiences. Using Google Cloud, it will improve its digital products, streamline employee workflows, and use advanced high-performance computing to enable millions of daily computations. This partnership also fuels Citi's generative AI initiatives across customer service, document summarization, and search to reduce manual processing. With that, allow me a moment to thank Googlers everywhere for their extraordinary commitment and to our customers and partners for their continued trust. Anat, over to you.
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Anat Ashkenazi: Thank you, Philipp. We're pleased with the continued momentum we're seeing across the business as Alphabet revenue for 2024 reached $350 billion, up 14% on a reported basis and 15% in constant currency versus 2023. My comments will focus on year-over-year comparisons for the fourth quarter, unless I state otherwise. I will start with the results at the Alphabet level and we'll then cover our segment results. I'll end with some commentary and expectations over the first quarter and full year 2025. We had another strong quarter in Q4 with robust momentum across the business. Consolidated revenue of $96.5 billion, increased by 12% in both reported and constant currency. Search remained the largest contributor to revenue growth, followed by Cloud. Total cost of revenue was $40.6 billion, up 8%. Tech was $14.8 billion, up 6%. We continue to see a revenue mix shift with Google Search growing at double-digit levels, while network revenues, which have a much higher tech rate, declined. Other cost of revenue was $25.8 billion, up 9%, with the increase primarily driven by content acquisitions costs, primarily for YouTube, followed by depreciation, due to increasing investments in our technical infrastructure. Growth in content acquisition and depreciation were partially offset by our year-over-year decline in hardware costs due to the shift in timing of our made-by-Google launches to the third quarter 2024 compared to the fourth quarter of 2023. In terms of total expenses, the year-over-year comparisons reflect $1.2 billion in exit charges that we took in the fourth quarter of 2023 in connection with actions to optimize our global office space. As previously disclosed, those charges were allocated across the expense lines in other costs of revenue and OpEx based on associated headcount. Total operating expenses decreased 1% to $24.9 billion. R&D investments increased by 8%, primarily driven by increase in compensation and depreciation expenses, partially offset by the impact of charges for office [ph]
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driven by increase in compensation and depreciation expenses, partially offset by the impact of charges for office [ph] space optimization in the fourth quarter of 2023. Sales and marketing expenses decreased 5%, primarily reflecting the optimization charges last year, as well as declines in compensation and in ads and promotion expenses due to the timing shift of the Pixel launch from Q4 to Q3. G&A expenses declined by 15%, reflecting a shift of timing in our charitable contributions, as well as the optimization charges last year. Operating income increased 31%, the score [ph] to $31 billion, and operating margin increased to 32%, representing 4.6 points of margin expansion. Net income increased 28% to $26.5 billion, and earnings per share increased 31% to $2.15. We delivered free cash flow of $24.8 billion in the fourth quarter and $72.8 billion for the full year 2024. We ended the quarter with $96 billion in cash and marketable securities. Turning to segment results. Google Service revenues increased 10% to $84.1 billion, reflecting the strong momentum across Google Search and YouTube ads. Google Search and other advertising revenues increased by 13% to $54 billion. The robust performance of Search was once again broad-based across verticals, led by the financial service vertical due to strength in insurance, followed by retail. YouTube advertising revenue increased 14% to $10.5 billion, driven by brand, followed by direct response advertising. Network advertising revenue of $8 billion, were down 4%. In the fourth quarter, the year-over-year comparison in all of our advertising revenue lines was impacted by the increase in strength in advertising revenue in Q4 2023, in part from APAC-based retailers. Subscription platforms and device revenues increase 8% to $11.6 billion, primarily reflecting growth in subscription revenues, partially offset by the shift in timing of the launch of our made by Google devices to the third quarter, compared with the fourth quarter in 2023. We continue to have significant growth
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made by Google devices to the third quarter, compared with the fourth quarter in 2023. We continue to have significant growth in our subscription products, primarily due to increase in the number of paid subscribers across YouTube TV, YouTube Music Premium, and Google One. With regards to Platform, we saw a slight increase in the growth rate in Play, primarily due to a strong increase in the number of buyers. Google's service operating income increased 23% to $32.8 billion, and operating margin increased from 35% to 39%, representing a meaningful margin expansion. Turning to the Google Cloud segment, which continued to deliver very strong results this quarter. Revenue increased by 30% to $12 billion in the fourth quarter, reflecting growth in GCP across core GCP products, AI infrastructure, and generative AI solutions. Once again, GCP grew at a rate that was much higher than cloud overall. Healthy Google Workspace growth was primarily driven by increase in average revenue per seat. Google Cloud operating income increased to $2.1 billion, and operating margin increased from 9.4% to 17.5%. We're pleased with the work the cloud team is doing to deliver valuable solutions to the customer and generate revenue growth, as well as its continued focus on driving efficiencies across the cloud business. As for Other Bets, for the fourth quarter, revenue were $400 million, and the operating loss was $1.2 billion. The year-over-year decline in revenue and increase in operating loss primarily reflect the milestone payment in the fourth quarter of 2023 for one of the Other Bets. Turning to Alphabet level activities, the largest component of this line is our investments in AI research and development activities which support all of Alphabet. As a reminder, Alphabet level activities have included nearly all severance charges from reductions in workforce and office space charges. In the fourth quarter of 2024, the biggest factor in year-over-year comparison is the $1.2 billion in charges in the fourth quarter of 2023, almost
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of 2024, the biggest factor in year-over-year comparison is the $1.2 billion in charges in the fourth quarter of 2023, almost entirely in connection with office space optimization. With respect to CapEx, our reported CapEx in the fourth quarter was $14 billion, primarily reflecting investments in our technical infrastructure, with the largest component being investment in servers, followed by data centers, to support the growth of our business across Google Services, Google Cloud, and Google DeepMind. In Q4, we returned value to shareholders in the form of $15 billion in share purchases and $2.4 billion in dividend payments. Overall, we returned a total of nearly $70 billion to shareholders in 2024. Turning to 2025, I would like to provide some commentary on several factors that will impact our business performance in both the first quarter and the full year 2025. First in terms of revenue, I'll highlight two items that will have meaningful impact on Q1 revenue across the company. First in terms of revenues, I'll highlight two items that will have meaningful impact on Q1 revenues across the company. The first is the impact of foreign exchange rates. At the current spot rates, we expect a larger headwind to our revenues from the strengthening of the U.S dollar relative to key currencies in Q1 versus Q4 2024. Second is the impact of leap year. We expect a headwind from having one less day of revenue in Q1 2025 compared with leap year in the first quarter of 2024. As for our segments, Google Services, advertising revenue in 2025 will be impacted by lapping the strength we experience in the financial service vertical throughout 2024. And in Cloud, given the revenues are correlated with the timing of deployment of new capacity, we could see variability in cloud revenue growth rates depending on when new capacity comes online during 2025. Moving to investments, starting with our expectation for CapEx for the full year 2025. As we mentioned on the Q3 call, as we expand our AI efforts, we expect to increase our
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for CapEx for the full year 2025. As we mentioned on the Q3 call, as we expand our AI efforts, we expect to increase our investments in capital expenditure for technical infrastructure, primarily for servers, followed by data centers and networking. We expect to invest approximately $75 billion in CapEx in 2025 with approximately $16 billion to $18 billion of debt in the first quarter. The expected total investment level may fluctuate from quarter-to-quarter, primarily due to timing of deliveries and construction schedules. In terms of expenses, first, the increase in our investment in CapEx over the past few years will increase pressure on the P&L, primarily in the form of higher depreciation. In 2024, we saw 28% year-over-year growth in depreciation as we put more technical infrastructure assets into service. Given the increase in CapEx investments over the past few years, we expect the growth rate and depreciation to accelerate in 2025. Second, we expect some headcount growth in 2025 in key investment areas such as AI and cloud. As you just heard from Sundar, we're delivering products and solutions to customer at a rapid pace, building, testing, and launching products faster than ever before. And as I mentioned on the Q3 call, we're doing that while also focusing on driving further efficiencies in how we operate the business. Before we take questions, I'd like to recap the financial results for the year. For the full year 2024, revenue grew by 14% or by $43 billion, reaching $350 billion. Google Services and Google Cloud each continue to see double-digit revenue growth coupled with margin extension. YouTube and cloud revenues combined, ended the year at $110 billion annual run rate. And in 2024, we generate total income of $112 billion, an increase of 33% from 2023. We're pleased with the momentum we're seeing in AI innovation and monetization. We've been using AI to improve the performance of our ads business for well over a decade, and Cloud is generating billions in annual revenue from AI infrastructure
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of our ads business for well over a decade, and Cloud is generating billions in annual revenue from AI infrastructure and generative AI solutions. We're also excited about the potential to bring new experiences to users that will provide additional opportunities for monetization. And I look forward to sharing more in our progress throughout the year. Sundar, Philipp, and I will now take your questions.
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Operator: [Operator Instructions] And our first question comes from Brian Nowak with Morgan Stanley. Your line is now open.
Brian Nowak: Thanks for taking my questions. I have two, one for Sundar, one for Anat. Sundar, maybe kind of step back on Search, there's a -- it seems like there's a lot of advances to come with Gen AI and agentic possibilities with Search. Can you just sort of walk us through your big picture vision over the next few years of how you think about your Search product continue to evolve to stay at the top of the funnel and drive more engagement and monetization for your users and advertisers. And then the second one, Anat, I think about 90 days ago, you talked about sort of further efficiencies and areas of simplification on the OpEx space. Can you just sort of walk us through some examples of where you see the potential for further efficiencies to the OpEx space, excluding the DNA step-ups that we have to come in 2025. Thanks.
Sundar Pichai: Thanks, Brian. On Search, obviously, we view, I mean, this has been a long continual journey. AI overviews has been the next step. It's playing out positively, as we have indicated, the metrics look great, and we are obviously trading on that experience, bringing better and better models, expanding to the number of queries where it works and so on. But there's a lot more to come. I think we'll continue bringing AI in more powerful ways, in multi-modal ways. Things like what we've done with Lens Circle to Search, you can imagine the future with Project Astra. You can also imagine areas like we have done in Gemini Deep Research, possibilities where you are really dramatically expanding the types of use cases for which Search can work, things which don't always get answered instantaneously but can take some time to answer. Those are all areas of explorations and you will see us, putting newer experiences in front of users through the course of 2025. And so I do feel the opportunity space with AI, there's a lot of unlock ahead.
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Anat Ashkenazi: Thanks. And for the question with regards to where do we see or where do I see leverage moving forward and some of the comments I've made on the previous call. I certainly see opportunities for further productivity and efficiency, and this is one of our priority areas. And we're going to do that so that we can make sure we continue to invest in areas such as AI and cloud where we see potential for continued growth. I'll remain focused on areas that I've mentioned before, which include the technical infrastructure, so the $75 billion in CapEx I mentioned for this year, the majority of that is going to go towards our technical infrastructure, which includes servers and data centers. So ensuring we do that in the most efficient way is critical. Second is managing headcount growth, and we're going to be investing in areas of growth, such as AI and cloud, but looking across the organization and moderating that growth will be important. Optimizing the real estate footprint is one of the areas I've mentioned. We're continuing to focus on that. As well as looking at how we simplify the organization, we've previously mentioned bringing like areas together. Sundar talked about bringing some of the AI research teams together so that we can operate with increased speed, but also how we operate within the organization. Using our own AI tools to how we run the business, whether it's the code that Sundar mentioned on the previous call, writing code with AI, or even running some of our key processes using AI tools. So we're looking at all that. It's going to -- it's -- this is not a one-quarter type of effort. It's going to continue throughout the year, and we're going to continue to focus on that so that we can support the growth in other areas.
Operator: Our next question comes from Doug Anmuth with JPMorgan. Your line is now open.
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Operator: Our next question comes from Doug Anmuth with JPMorgan. Your line is now open.
Doug Anmuth: Thanks for taking the questions, one for Philipp and one for Anat. Philipp, can you just talk more about the expanded rollout of ads on AI overviews and perhaps what additional things you may have learned in 4Q? And I guess in particular, just curious if you rolled out to a higher percentage of commercial queries and is it still fair to say that you're monetizing nearly on par with existing search? And then Anat, just on the -- on cloud growth, a little bit of decel 3Q to 4Q, but it sounded like you also suggested that your capacity constrained in the fourth quarter. I just wanted to push on that a little bit more. How -- is that accurate and is it fair to say that revenue growth could have been higher with much more capacity? Thanks.
Philipp Schindler: So, on your first question, first of all, AI overviews, which is really nice to see, continue to drive higher satisfaction and search usage. So, that's really good. And as you know, we recently launched the ads within AI overviews on mobile in the U.S., which builds on our previous rollout of ads above and below. And as I talked about before, for the AI overviews overall, we actually see monetization at approximately the same rate, which I think really gives us a strong base on which we can innovate even more.
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Anat Ashkenazi: On the cloud questions, so first I'm excited that we ended the quarter at $12 billion and a 30% year-over-year growth, very impressive growth. And as I've mentioned, the prepared remark, GCP grew at a much higher rate than overall cloud. Two items to think about from a deceleration perspective. The first is we are lapping a very strong quarter of [indiscernible] deployment in Q4 of 2023. The second is the one you've alluded to. We do see and have been seeing very strong demand for AI products in the fourth quarter in 2024. We exited the year with more demand than we had available capacity. So we are in a tight supply demand situation, working very hard to bring more capacity online. As I mentioned, we've increased investment in CapEx in 2024, continue to increase in 2025, and will bring more capacity throughout the year.
Doug Anmuth: Thank you both.
Operator: Your next question comes from Eric Sheridan with Goldman Sachs. Your line is now open.
Eric Sheridan: Thank you for taking the question. I'll just ask one. Sundar, with the news that came out of China a little over 2 weeks ago, I think investors have been asking a lot of questions about the long-term cost curve for AI as AI moves from the infrastructure layer to the application layer or from training to inference and maybe even custom silicon becomes more dominant across the theme. I would love to get your perspective on your take on that news a couple of weeks ago and what it might mean for Alphabet longer term. Thank you.
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Sundar Pichai: Thanks, Eric. Look, I think there's been a lot of observations on DeepSeek. First of all, I think a tremendous team. I think they've done very, very good work. Look, I think for us it's always been obvious, over time, there's frontier model development, but you can drive a lot of efficiency to serve these models really, really well. And if you look at one of the areas in which the Gemini model shine is the Pareto frontier of cost, performance, and latency and if you look at all three attributes, I think we lead this Pareto frontier. And I would say both are 2.0 flash models or 2.0 flash thinking models. They are some of the most efficient models out there, including comparing to DeepSeek's V3 and R1. And I think a lot of it is our strength of the full stack development into an optimization, our obsession with cost per query, all of that, I think, sets us up well for the workloads ahead, both to serve billions of users across our products and on the cloud side. Couple of things I would say are, if you look at the trajectory over the past 3 years, the proportion of the spend towards inference compared to training has been increasing, which is good because obviously inference is to support businesses with good ROIC. And so I think that trend is good. I think the reasoning models, if anything, accelerates that trend because it's obviously scaling upon inference dimension as well. And so I think, look, I think part of the reason we are so excited about the AI opportunity is we know we can drive extraordinary use cases because the cost of actually using it is going to keep coming down, which will make more use cases feasible. And that's the opportunity space. It's as big as it comes. And that's why you're seeing us invest to meet that moment.
Eric Sheridan: Thank you.
Operator: Your next question comes from Michael Nathanson with MoffettNathanson. Your line is now open.
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Operator: Your next question comes from Michael Nathanson with MoffettNathanson. Your line is now open.
Michael Nathanson: Thank you. I have two, one for Philipp and one for Anat. Philipp, question for you is we're starting to see more AI tools on eCommerce sites and something like research with AI recommendations is on Google Shopping. Can you talk about how that product and other AI tools are impacting shopping behavior? I've had that impact in modernization. And then I guess the $75 billion question Anat is, how do you think about long-term capital intensity for this business? It sounds like there's a bit of constraint in terms of getting things built, but how do you think about the modeling of capital intensity going forward, and what are the things that you're looking forward to in terms of whether or not this is the right level of spend? Thank you.
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Philipp Schindler: Look, excellent question. We've been using our advances in AI to make search for products on Google even easier, obviously. And in Q4, we actually introduced quite a transformed Google Shopping experience, which we rebuilt from the ground up with AI. And people shop more than a billion times a day across Google. Last quarter, we introduced this fully reinvented Google Shopping experience. In December, we saw roughly, I mentioned, as 13% more daily active users in Google Shopping in the U.S compared to the same period last year. So that's a good development here. And the new Google Shopping experiences, specifically to your question, uses AI to really intelligently show the most relevant products, helping to speed up and simplify your research. You get an AI-generated brief with top things to consider for your search, plus maybe products that meet your needs. So shoppers very often want low prices. So the new page not only includes like deal finding tools like price comparison, price insights, price tracking throughout, but there's also a new and dedicated personalized deals page where you can browse deals for you, and all this is really built on the backbone of AI. So we think this is a very interesting opportunity.
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Anat Ashkenazi: And on the question of capital expenditure, and I think you may have two questions in there, one is just the capital intensity and then how would we think about return on that invested capital. So on the first one, certainly we are looking ahead, but we are managing very responsibly with a very rigorous even internal governance process looking at how do we allocate the capacity and what would we need to support the customer demand externally, but also across the Google, the Alphabet business. And as you've seen in the comment I've just made on cloud, we do have demand that exceeds our available capacity, so we'll be working hard to address that and make sure we bring more capacity online. We do have the benefit of having a very broad business, and we can repurpose capacity, whether it's through Google Services or Google Cloud to support, as I said, whether it's Search or GDM or Google Cloud Customers, we can do that in a more efficient manner. We also look at every investment that we make to ensure that we're doing it in the most cost-efficient way to optimize our data center. As you know, our strategy is mostly to rely on our own self-design and build data centers. So they're industry-leading in terms of both cost and power efficiency at scale. We have our own customized TPUs. They're customized for our own workload. So, they do deliver outstanding superior performance and CapEx efficiency. So, we're going to be looking at all that when we make decisions as to how we're going to progress capital investments throughout the coming years.
Michael Nathanson: Thank you.
Operator: Your next question comes from Mark Shmulik with Bernstein. Your line is now open.
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Michael Nathanson: Thank you.
Operator: Your next question comes from Mark Shmulik with Bernstein. Your line is now open.
Mark Shmulik: Yes, thanks for taking the question. Sundar, I just wanted to follow-up to Brian's question from earlier. With your own Project Mariner efforts and a competitor's recent launch, it seems there's suddenly really strong momentum on AI consumer agents and kind of catching up to that old Google duplex vision. I think when you look a few years ahead, where do you see consumer agents going and really, what does it mean to Google Search outside of Lens? Is there room for both to flourish or will they eventually be in conflict with each other? Thank you.
Sundar Pichai: Look, I think first of all, we are definitely seeing a lot of progress in the underlying capabilities of these models. Gemini 2.0 was definitely built with the view of enabling more agentic use cases. And so, I actually, and we are definitely seeing progress inside, and I think we'll be able to do more agentic experiences for our users. Look, I actually think all of this expands the opportunity space. I think historically we've had information use cases, but now you can have, you can act on your information needs in a much deeper way. It's always been our vision when we have talked about Google Assistant, et cetera. So I think the opportunity space expands. I think there's plenty of, it feels very far from a zero-sum game. There's plenty of room, I think, for many new types of use cases to flourish. And I think for us, we have a clear sense of additional use cases we can start to tackle for our users in Google Search. And all the early work with AI overview shows that users will react positively to that. So, I'm pretty excited about what's ahead.
Operator: Your next question comes from Ross Sandler with Barclays. Your line is now open.
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Operator: Your next question comes from Ross Sandler with Barclays. Your line is now open.
Ross Sandler: Great. One on infrastructure and then one on the guidance on revenue. So Sundar, if we look at the inference cost per 1 million tokens and not the API pricing we see for Gemini versus something like GPT-4, but the raw cost of generating inference tokens on your TPU stack. How much more efficient do you think you guys are in terms of generating 1 million tokens compared to inference costs running on your cloud peers? Do you see this as an advantage as everything shifts to inference? And then Anat, you call out lapping the financial services category strength in 2025 as a bit of a problem for Search. Could you just quantify a little bit of that? Is that kind of the same as when you guys talk about lapping the Asia outbound advertiser channel? Any numbers you could put around that headwind? Thank you very much.
Sundar Pichai: Ross, like, look, the whole TPU project started, V1 was effectively an inferencing chip, so we've always, part of the reason we have taken the end-to-end stack approach is that, so that we can definitely drive a strong differentiation in end-to-end optimizing, and not only on a cost, but on a latency basis and a performance basis. We have the Pareto frontier we mentioned, and I think our full-stack approach and our TPU efforts all play -- give a meaningful advantage, and we plan, you already see that. I know you asked about the cost, but it's effectively captured. When we price outside, we pass on the differentiation. It's partly why we've been able to bring forward flash models at very attractive value props, which is what is driving both developer growth. We've doubled our developers to 4.4 million in just about 6 months. Vertex usage is up 20x last year. And so all of that is a direct result of that approach and so we will continue doing that.
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Anat Ashkenazi: And on the question regarding my comment on lapping the strength in financial services, this is primarily related to the structural changes with regards to insurance, it is more specifically within financial services, it was the insurance segment and we saw that continue, but it was a one-time kind of a step up and then we saw it throughout the year. I am not going to give any specific numbers as to what we expect to see in 2025, but I am pleased with the fact that we are seeing and continue to see strength across really all verticals including retail and exiting the year in a position of strength. If anything, I would highlight as you think about the year, the comments I have made about the impact of FX, as well as the fact that we have one less day of revenue in Q1.
Operator: Your next question comes from Justin Post with Bank of America. Your line is now open.
Justin Post: Great. Thank you. A couple for Philipp. You mentioned higher search usage with overviews. Just wondering how you're feeling about overall Search usage. Is it accelerating as you integrate more AI? I know there's a lot of traffic growth at competitors with AI, but just wondering if you're seeing a real increase in total volumes of information gathering. And then second, on YouTube, thinking about kind of maybe a move from more professional content to user-generated content, what is that doing for your usage, and how do you think about the margin impact from that? Thank you.
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Philipp Schindler: Maybe on -- Justin on Search usage overall, our metrics are healthy. We are continuing to see growth in Search on a year-on-year basis in terms of overall usage. Of course, within that, AI overviews has seen stronger growth, particularly across all segments of users, including in younger users. So it's being well received. But overall, I think through this AI moment, I think Search is continuing to perform well. And as I said earlier, we have a lot more innovations to come this year. I think the product will evolve even more. And I think as you make Search, as you give, as you make it more easy for people to interact and ask follow-up questions, et cetera, I think we have an opportunity to drive further growth.
Sundar Pichai: And some color on your YouTube question. Look, YouTube ads overall had a very healthy growth in Q4 driven by brand followed by direct response. The U.S. election advertising led brand revenue growth, and we saw nearly double the spending from 2020. I mentioned that we also had a strong contribution from finance, retail, and the tech verticals. So overall, strong operating metrics. Watch time growth remains robust, particularly in key monetization opportunity areas, such as Shorts and Living Room, just to set the stage here one more time. On your question specifically on the UGC side, look, we have a very strong position with creators and we've always said creators are at the center of YouTube success here. They're the number one most important thing we care about and this strong position really gives us a lot of confidence here. Today we have more than 3 million channels that are actually in the YouTube Partner Program, which is really an incredible program. So we're very confident with the position we have and where this goes.
Justin Post: Thank you.
Operator: And our last question comes from Ken Gawrelski with Wells Fargo. Your line is now open.
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Justin Post: Thank you.
Operator: And our last question comes from Ken Gawrelski with Wells Fargo. Your line is now open.
Ken Gawrelski: Thank you very much. Two, please. I want to focus on Gemini and the consumer agent side. Sundar, there was some press reports that suggested you have an ambitious goal on growing the usage by the end of '25. Two questions on that, please. First, what’s -- how should we think about the approach that you're going to employ to achieve this goal? Is it more aggressive marketing for Gemini as a standalone product, or is it tighter integration into existing experiences, whether it be search mail, maps, et cetera. And then the second one is, how should we think about the future monetization opportunity of Gemini? Today, it's really a premium subscription offering or a free offering. Over time, do you see an ad component and anything you can share on that, please? Thank you.
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Sundar Pichai: First of all, we've had strong momentum for Gemini on the app side, particularly through the second half of 2024. And some of it is we've made it more easily accessible. We've brought it to, for example, with a dedicated app on iOS, which has been super positively received and definitely getting a lot of traction there. So definitely driving organic growth by putting the product out. We just last week rolled out with our 2.0 series of models. So 2.0 Flash, I mean, I think that's one of the most capable models you can access at the free tier. So that's definitely contributing as well. And so we are rapidly trading. We've had a couple of key innovations there. Gemini Live, I think, has been definitely a hit with users, as well as for advanced users, Gemini Deep Research. So I think a combination of innovation, continually trading on the product and making it better, is driving a lot of usage. And we'll have a lot more to come as we go this year. And we obviously have a partnership with Samsung, so there are other things which will contribute to it as well. On the monetization side, obviously for now we are focused on a free tier and subscriptions, but obviously as you've seen in Google over time, we always want to lead with user experience, We do have very good ideas for native ad concepts, but you will see us lead with the user experience. But I do think we're always committed to making the products work and reach billions of users at scale. And advertising has been a great aspect of that strategy. And so just like you've seen with YouTube, we'll give people options over time. But for this year, I think you will see us be focused on the subscription direction.
Ken Gawrelski: Thank you.
Operator: Thank you and that concludes our question-and-answer session for today. I would like to turn the conference back over to Jim Friedland for any further remarks.
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Jim Friedland: Thanks everyone for joining us today. We look forward to speaking with you again on our first quarter 2025 call. Thank you and have a good evening.
Operator: Thank you everyone. This concludes today's conference call. Thank you for participating. You may now disconnect.
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Operator: Welcome, everyone. Thank you for standing by for the Alphabet Third Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to your speaker today, Jim Friedland, Senior Director of Investor Relations. Please go ahead.
Jim Friedland: Thank you. Good afternoon, everyone, and welcome to Alphabet's third quarter 2024 earnings conference call. With us today are Sundar Pichai, Philipp Schindler and Anat Ashkenazi. Now I'll quickly cover the Safe Harbor. Some of the statements that we make today regarding our business, operations and financial performance may be considered forward-looking. Such statements are based on current expectations and assumptions that are subject to a number of risks and uncertainties. Actual results could differ materially. Please refer to our Forms 10-K and 10-Q, including the risk factors. We undertake no obligation to update any forward-looking statement. During this call, we will present both GAAP and non-GAAP financial measures. A reconciliation of non-GAAP to GAAP measures is included in today's earnings press release, which is distributed and available to the public through our Investor Relations website located at abc.xyz/investor. Our comments will be on year-over-year comparisons unless we state otherwise. And now I'll turn the call over to Sundar.
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Sundar Pichai: Thank you, Jim, and hello, everyone. Q3 was another great quarter. The momentum across the company is extraordinary, as you've seen in recent product launches, and as you will hear on the call today. Our commitment to innovation as well as a long-term focus and investment in AI are paying off and driving success for the company and for our customers. We are uniquely positioned to lead in the era of AI because of our differentiated full stack approach to AI innovation, and we are now seeing this operate at scale. It has three components. First, a robust AI infrastructure that includes data centers, chips and a global fiber network. Second, world-class research teams who are advancing our work with deep technical AI research and who are also building the models that power our efforts. And third, a broad global reach through products and platforms that touch billions of people and customers around the world, creating a virtuous cycle. Let me quickly touch on each of these. We continue to invest in state-of-the-art infrastructure to support our AI efforts from the U.S. to Thailand to Uruguay. We are also making bold clean energy investments, including the world's first corporate agreement to purchase nuclear energy from multiple small modular reactors, which will enable up to 500 megawatts of new 24/7 carbon-free power. We are also doing important work inside our data centers to drive efficiencies while making significant hardware and model improvements. For example, we shared that since we first began testing AI Overviews, we have lowered machine cost per query significantly. In 18 months, we reduced cost by more than 90% for these queries through hardware, engineering and technical breakthroughs while doubling the size of our custom Gemini model. And of course, we use and offer our customers a range of AI accelerator options, including multiple classes of NVIDIA GPUs and our own custom-built TPUs. We are now on the sixth generation of TPUs known as Trillium and continue to drive efficiencies and
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our own custom-built TPUs. We are now on the sixth generation of TPUs known as Trillium and continue to drive efficiencies and better performance with them. Turning to research. Our team at Google DeepMind continues to drive our leadership. Let me take a moment to congratulate Demis Hassabis and John Jumper on winning the Noble Prize in chemistry for their work on AlphaFold. This is an extraordinary achievement and underscores the incredible talent we have and how critical our world-leading research is to the modern AI revolution and to our future progress. Also, congratulations to Jeff Vinton, who spent over a decade here on winning the Noble Prize in physics. Our research teams also drive our industry-leading Gemini model capabilities, including long context understanding, multimodality and agentive capabilities. By any measure, token volume, API calls, consumer usage, business adoption, usage of the Gemini models is in a period of dramatic growth. And our teams are actively working on performance improvements and new capabilities for our range of models. Stay tuned. And they are building out experiences where AI can see and reason about the world around you. Project Astra is a glimpse of that future. We are working to ship experiences like this as early as 2025. We then work to bring those advances to consumers and businesses. Today, all seven of our products and platforms with more than 2 billion monthly users use Gemini models. That includes the latest product to surpass the 2 billion user milestone Google Maps. Beyond Google's own platforms, following strong demand, we are making Gemini even more broadly available to developers. Today, we shared that Gemini is now available on GitHub Copilot with more to come. To support our investments across these three pillars, we are organizing the company to operate with speed and agility. We recently moved the Gemini app team to Google DeepMind to speed up deployment of new models and streamline post-training work. This follows other structural changes that have
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to speed up deployment of new models and streamline post-training work. This follows other structural changes that have unified teams in research, machine learning infrastructure and our developer teams, as well as our security efforts and our platforms and devices team. This is all helping us move faster. For instance, it was a small dedicated team that built Notebook LM, an incredibly popular product that has so much promise. We're also using AI internally to improve our coding processes, which is boosting productivity and efficiency. Today, more than a quarter of all new code at Google is generated by AI, then reviewed and accepted by engineers. This helps our engineers do more and move faster. I'm energized by our progress and the opportunities ahead, and we continue to be laser-focused on building great products. Let me turn now to the quarterly highlights. In search, recent advancements, including AI Overviews, Circle to Search and new features in Lens are transforming the user experience, expanding what people can search for and how they search for it. This leads to users coming to search more often for more of their information needs, driving additional search queries. Just this week, AI Overview started rolling out to more than 100 new countries and territories. It will now reach more than 1 billion users on a monthly basis. We are seeing strong engagement, which is increasing overall search usage and user satisfaction. People are asking longer and more complex questions and exploring a wider range of websites. What's particularly exciting is that this growth actually increases over time as people learn that Google can answer more of their questions. The integration of ads within AI Overviews is also performing well, helping people connect with businesses as they search. Circle to Search is now available on over 150 million Android devices with people using it to shop, translate text and learn more about the world around them. A third of the people who have tried Circle to Search now use it weekly, a
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text and learn more about the world around them. A third of the people who have tried Circle to Search now use it weekly, a testament to its helpfulness and potential. Meanwhile, Lens is now used for over 20 billion visual searches per month. Lens is one of the fastest-growing query types we see on search because of its ability to answer complex multimodal questions and help in product discovery and shopping. For all these AI features, it's just the beginning, and you will see a rapid pace of innovation and progress here. Next, Google Cloud. I'm very pleased with our growth. This business has real momentum and the overall opportunity is increasing as customers embrace GenAI. We generated Q3 revenues of $11.4 billion, up 35% over last year with operating margins of 17%. Our technology leadership and AI portfolio are helping us attract new customers, win larger deals and drive 30% deeper product adoption with existing customers. Customers are using our products in five different ways. First, our AI infrastructure, which we differentiate with leading performance driven by storage, compute and software advances, as well as leading reliability and a leading number of accelerators. Using a combination of our TPUs and GPUs, LG AI research reduced inference processing time for its multimodal model by more than 50% and operating costs by 72%. Second, our enterprise AI platform, Vertex, is used to build and customize the best foundation models from Google and the industry. Gemini API calls have grown nearly 40x in a 6-month period. When Snap was looking to power more innovative experiences within their My AI chatbot, they chose Gemini's strong multimodal capabilities. Since then, Snap saw over 2.5 times as much engagement with My AI in the United States. Third, customers use our AI platform together with our data platform, BigQuery, because we analyze multimodal data no matter where it is stored with ultra-low latency access to Gemini. This enables accurate real-time decision-making for customers like Hiscox, one of the
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with ultra-low latency access to Gemini. This enables accurate real-time decision-making for customers like Hiscox, one of the flagship syndicates in Lloyd's of London, which reduced the time it took to code complex risks from days to minutes. These types of customer outcomes, which combine AI with data science have led to 80% growth in BigQuery ML operations over a 6-month period. Fourth, our AI-powered cybersecurity solutions, Google Threat Intelligence and Security operations are helping customers like BBVA and Deloitte prevent, detect and respond to cybersecurity threats much faster. We have seen customer adoption of our Mandiant-powered threat detection increased 4x over the last 6 quarters. Fifth, in Q3, we broadened our applications portfolio with the introduction of our new customer engagement suite. It's designed to improve the customer experience online and in mobile apps, as well as in call centers, retail stores and more. A great example is Volkswagen of America, who is using this technology to power its new myVW Virtual Assistant. In addition, the employee agents we delivered through Gemini for Google Workspace are getting superb reviews. 75% of daily users say it improves the quality of their work. Moving now to YouTube. For the first time ever, YouTube's combined ad and subscription revenue over the past four quarters has surpassed $50 billion. Together, YouTube TV, NFL Sunday Ticket and YouTube Music Premium are driving subscription growth for the platform. And we are leaning into the living room experience with multi-view and a new option for creators to organize content into episodes and seasons, similar to traditional TV. At Made on YouTube, we announced that Google DeepMind's most capable model for video generation VO is coming to YouTube Shorts to help creators later this year. Next, platforms and devices. Gemini's deep integration is improving Android. For example, Gemini Live lets you have free flowing conversations with Gemini. People love it. It's available on Android, including Samsung
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Gemini Live lets you have free flowing conversations with Gemini. People love it. It's available on Android, including Samsung Galaxy devices. We continue to work closely with them to deliver innovations across their newest devices with much more to come. At Made by Google, we unveiled our latest Pixel 9 series of devices featuring advanced AI models, including Gemini Nano. We have seen strong demand for these devices, and they've already received multiple awards. Turning to Other Bets. I want to highlight Waymo, the biggest part of our portfolio. Waymo is now a clear technical leader within the autonomous vehicle industry and creating a growing commercial opportunity. Over the years, Waymo has been infusing cutting-edge AI into its work. Now each week, Waymo is driving more than 1 million fully autonomous miles and serves over 150,000 paid rides. The first time any AV company has reached this kind of mainstream use. Through its expanded network and operations partnership with Uber in Austin and Atlanta, plus a new multiyear partnership with Hyundai, Waymo will bring fully autonomous driving to more people and places. By developing a universal driver, Waymo has multiple paths to market. And with its sixth generation system, Waymo significantly reduced unit costs without compromising safety. Before I close, I'm delighted to welcome our new CFO, Anat. We are thrilled to have her on board, and you will hear from her shortly. And as always, I want to express my gratitude to our employees worldwide. Your dedication and hard work have made this another exceptional quarter for Alphabet. Now over to you, Philipp.
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Philipp Schindler: Thanks, Sundar, and hello, everyone. I'll start with performance for the quarter and then describe the progress we're seeing across ads, YouTube and partnerships, highlighting the impact AI is already having on our business. Google Services delivered revenues of $76.5 billion for the quarter, up 13% year-on-year. Search and other revenues grew 12% year-on-year, led by growth in the financial services vertical due to strength in insurance, followed by retail. YouTube ads revenues grew 12% year-on-year, driven by brand, closely followed by direct response. Network revenues were down 2% year-on-year. In subscriptions, platforms and devices, year-on-year revenues were up 28%, driven by growth in subscriptions as well as the launch of our Made by Google devices in the third quarter. Before I double-click into ads, YouTube and partnerships, a few comments on search. Whether they're using their voice to find answers on the go or opening their camera to explore the world around them, people are expanding how they ask questions in search as well as the type of questions they ask. New behaviors create new opportunities to help us connect businesses and consumers via amazing commercial experiences. As GenAI expands what's possible, we continue to see a significant opportunity in search. Let me take a minute to explain why. AI really supercharges search. Our new AI-powered features make searches more helpful, and we continue to see great feedback, particularly from younger users. For example, with Circle to Search, where we see higher engagement from users aged 18 to 24. AI is expanding our ability to understand intent and connect it to our advertisers. This allows us to connect highly relevant users with the most helpful ad and deliver business impact to our customers. Let me share two new ad experiences we have rolled out alongside our popular AI-powered features in search. First, as you heard from Sundar, every month, Lens is used for almost 20 billion visual searches with 1 in 4 of these searches
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First, as you heard from Sundar, every month, Lens is used for almost 20 billion visual searches with 1 in 4 of these searches having commercial intent. In early October, we announced product search on Google Lens. And in testing this feature, we found that shoppers are more likely to engage with content in this new format. We're also seeing that people are turning to Lens more often to run complex multimodal queries, voicing a question or inputting text in addition to a visual. Given these new user behaviors, earlier this month, we announced the rollout of shopping ads above and alongside relevant Lens visual search results to help better connect consumers and businesses. Second, AI Overviews, where we have now started showing search and shopping ads within the overview for mobile users in the U.S. As you remember, we've already been running ads above and below AI Overviews. We're now seeing that people find ads directly within AI Overviews helpful because they can quickly connect with relevant businesses, products and services to take the next step at the exact moment they need. As I've said before, we believe AI will revolutionize every part of the marketing value chain. Let's start with creative. Advertisers now use our Gemini-powered tools to build and test a larger variety of relevant creatives at scale. Audi used our AI tools to generate multiple video image and text assets in different links and orientations out of existing long-form videos. It then fed the newly generated creatives into demand gen to drive reach, traffic and booking to their driving experience. The campaign increased website visits by 80% and increased clicks by 2.7 times, delivering a lift in their sales. Last week, we updated image generation at Google Ads with our most advanced text-to-image model, Imagine 3, which we tuned using ads performance data from multiple industries to help customers produce high-quality imagery for their campaigns. Advertisers can now create even higher-performing assets for PMax, Demand Gen app and Display
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imagery for their campaigns. Advertisers can now create even higher-performing assets for PMax, Demand Gen app and Display campaigns. Turning to media buying. AI-powered campaigns help advertisers get faster feedback on what creatives work, where and redirect their media buying. Using Demand Gen, DoorDash tested a mix of image and video assets to drive more impact across Google and YouTube's visually immersive surfaces. They saw a 15 times higher conversion rate at a 50% more efficient cost per action when compared to video action campaigns alone. Last and most importantly, measurement. This quarter, we extended availability of our open source marketing mix model, Meridian to more customers, helping to scale measurement of cross-channel budgets to drive better business outcomes. On YouTube, we remain focused on building a platform that enables creators to thrive and unlocking a whole new world of creativity with AI. Creators are at the heart of the YouTube ecosystem and the content they are making is driving robust growth in watch time across the platform. We're also using AI to greatly improve recommendations on YouTube. Driven by Gemini, our large language models have a deeper understanding of video content and viewers' preferences. As a result, they can recommend more relevant, fresher and personalized content to the viewer. Short-form creation continues to thrive on YouTube. Shorts monetization improved again this quarter, and we continue to significantly close the gap with in-stream video, particularly in the U.S. and other more highly monetizing markets. Of all the channels uploading to YouTube each month, 70% are uploading shorts. And we recently announced a top requested feature, the ability to upload shorts up to 3 minutes long. Also, advertisers can now book first position on Shorts blocks in close to 40 markets. We're unlocking more opportunities in the living room. Our momentum here continues as we maintain our status as the number one streamer in the U.S. according to Nielsen. This is driven by the
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