Q1 2021 Alphabet Inc Earnings Call
[music].
Welcome everyone and thank you for standing by for the alphabet first quarter 2021 earnings Conference call.
At this time all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session.
Ask the question during the session you will need of press star one on your telephone if you require any further assistance. Please press star zero and now like the hand the conference over to your Speaker today, Jim Friedland Director of Investor Relations. Please go ahead.
Thank you good afternoon, everyone and welcome to alphabet first quarter 2021 earnings conference call.
With us today are Sundar Pichai Philipp Schindler and route for it now.
Now I'll quickly cover the safe Harbor.
Some of the statements that we make today regarding our business operations and financial performance, including the effect of the COVID-19 pandemic on those areas may be considered forward looking and such statements involve a number of risks and uncertainties that could cause actual results to differ materially.
For more information please refer to the risk factors discussed in our most recent form 10-K filed with the SEC.
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 Dot Xyz Slash investor.
And now I'll turn the call over to Sundar.
Thank you Jim and good afternoon, everyone.
After the hardier people in some parts of the world are beginning to rebuild of life businesses and communities.
The cracker is far from uniform across the globe is the tragic scenes in countries like India, and Brazil remind us.
We are continuing to help support public health officials and the vital and urgent work.
Our focus is on providing authoritative information.
Helping over hundred government agencies of nonprofits worldwide distribute critical information and billions of Psa's about COVID-19 and vaccines.
And Google Cloud technologies barring of virtual agents to help make vaccination of appointments over the phone supporting 28 languages and dialects for those with limited interest in taxes.
We are focused on doing our part of the health.
In some parts of the world the economy began to rebound, which created a rising tide in the first quarter that benefited the number of sectors include.
Including existing and emerging companies and partners.
For example data suggest that the investment in the startups and the all time high.
Our product releases of returning to a regular cadence, particularly excited that our debt was up pretty even Google Io is back this year all of our children free for everyone on May 18 true 20th.
We will have significant product updates and announcements and I invite you all the children.
Today I'll briefly mention a few highlights from the past quarter and go a bit deeper on the cloud.
Philip will discuss advertising and partnership developments.
Finally total cover the quarterly results.
Quickly turning to product highlights of the quarter.
Our knowledge and information services like search and maps remain at the heart of our mission to provide helpful and accurate information during important moments.
People have turned to google's search more than ever since the pandemic began.
We see hundreds of millions of searches every day for COVID-19 and related health information.
People are also searching for jobs to <unk>.
All of them Jobseekers can now use search to quickly and easily find roles that do not require a college degree and we're working together with the top it'd be of working together with the top of employment websites to make the service even better.
Maps will be adding over hundred AI powered improvements this year, such as indoor light view, which helps you navigate airports transit stations and malls using augmented reality.
Last quarter, I mentioned Google's, new showcase of.
Our $1 billion of investment in the Nielsen industry.
I'm pleased to see continued momentum this quarter of new launches in the U K, Italy urgent Tina and Australia in Q1, the added more than 170 publications across 12 countries with more coming soon.
With respect to Youtube people continue to find all the types of information of content from the educational videos to podcast.
In fact, according to a recent study conducted by <unk> 77 per cent of respondents say they use to Youtube during 'twenty 'twenty to learn the new skill.
Youtube shots continues to gain popularity with the worst 6.5 billion daily views as of March up from $3 5 billion of day end of 'twenty 'twenty.
The you've added a new metric to our transparency to the votes called the violative of your rate, which will help us estimate what percentage of your views on Youtube.
From the content that violates our policies.
In Q4 of last year Youtube's violated the rate was between 16 and 18 views out of every 10000.
This is down over 70% compared to the same quarter in 2017 in large part thanks to our investments in machine learning.
Let me also mentioned Cromolyn, which this quarter celebrated 10 years, it's been a valuable tool for millions of students and teachers during the pandemic.
The third parties chromebooks for the most popular device in K through 12 education globally for the last year.
Next I'll note the cloud, where we continue to see strong performance across both Google cloud platform and workspace.
Q1 revenue grew 46% of year over year with G. C piece of revenue growth rate once again meaningfully about cloud overall the.
Continue to unlock the value of the Google ecosystem by signing multiyear multi product partnerships with companies like global payments and group of global.
And just yesterday, we announced a new Google wide partnership with Univision, which is migrating to a cloud.
Continuing to distribute content on Youtube and reaching customers via playing ads.
In cloud there are three distinct market trends shaping our growth and driving our product and go to market strategy.
First we see very strong customer momentum in the data cloud.
Our expertise in real time data and analytics has been in companies like Twitter and the Ingersoll Rand, who are moving the complex data workloads to Google cloud.
Our strength in the AI and ml is also helping financial services customers like HSBC Commerzbank, FCB group and BBVA improve the efficiency of payments radius of fraud, and risk and deliver faster payments solutions.
This past quarter, the released new functionality for our big quarry delivering significantly better performance for business intelligence queries.
Second we are seeing customers warning of robust infrastructure cloud in order to create operational efficiencies and reduce costs.
We are winning large transformation deals with the companies that are migrating their data centers to Google cloud.
Multi cloud remains a differentiator as it provides the easiest and most open development environment for customers like tell us, allowing them to access and move their data between various clouds.
Third the continued to deliver helpful. The innovations to enable hybrid work with Google workspace.
This includes digital tools for frontline workers like nurses and retail store store workers.
So this new security offerings.
These innovations have helped grow our revenue per seat and the number of seats in the last quarter.
Workspace is being adopted by customers, including penalty in health care Sun life in financial services, and the Airbus and manufacturing in aviation.
Now a brief update on other bets.
They must fully autonomous public ride hailing service in Phoenix, it's providing hundreds of rights per week.
In San Francisco, where he most began limited employee testing them.
I'm pleased by the progress here and look forward to continued momentum under the leadership of New co Ceos, Turkey, Iran Dimitry.
Kelly coordinates partner Abbvie announced that it has entered clinical stage programs for new drug therapies for cancer, and neuro degenerative diseases like ALS, Parkinson's disease and traumatic brain injury.
Before I close I want to mention that in 2020 one in the U S alone.
Plan to invest over $7 billion in offices and data centers and create at least 10000, new full time jobs.
And as we do this we continue to make progress on our sustainability goals the.
Matched our operations with the 100% renewable energy for the past for years.
And we are working towards operating on carbon free energy round. The clock by 2030 of far more ambitious goal that we hope will be transformational for the industry.
Five of our data centers in Europe for North America are already operating near or at 90% of carbon free energy around the clock.
We are also working towards our commitment to help 1 billion people make more sustainable the choices with our services by 2022.
One example of how we are doing this the new AI powered feature and maps that will show the route with the lowest carbon footprint.
When E T A's are the same.
You'll also be able to compare to the carbon impact between drugs.
Finally, as we look ahead for the rest of 2021 are for big themes continue to guide us for.
First building and providing the most helpful products and services.
Second kind.
Continuing to earn the trust of our users by investing in high quality information.
In keeping users' data safe and private.
Third strong execution as the company, particularly as we start to reopen our offices.
And for billing.
The sustainable value in our own business and for.
For our partners.
As always thank you to our googlers around the world for a great start to the year every.
Everyone I look forward to seeing you at all of your order flow.
Thanks, Linda and good afternoon, everyone. It's great to be joining you again today.
We're pleased with the strong growth in Google services revenues in the first quarter.
Year on year performance reflects elevated consumer online activity broad based strength in advertising spend and lapping of the initial impact of the pandemic on advertising revenues that began in March last year.
In the first quarter in search we saw sustained strength across most categories led by retail. We also saw strong performance of tech and CPG.
And Youtube, we had phenomenal growth driven by direct response, followed by continued strength of Brent we've seen great momentum of true for action ads with a number of advertisers using the format doubling over the past year.
And network exceptional growth was driven by Admob and at manager with particular strength in our campaigns.
Google other revenues were driven by growth in Google play and Youtube non advertising revenues followed by hardware.
I would now like to take a few minutes to dive deeper into the trends, we're seeing an hour of business.
Sundar touched on earlier, the pandemic is evolving in different ways across the world. Some countries are in advanced stages of reopening other.
Others are facing Reacceleration of cases, there's everything in between its.
It's never been more important to help businesses navigate the pandemic as circumstances change.
When travel we're starting to see renewed interest from users as they turn to Google to plan, an extra even before they are ready to book.
Every travel partners looking to understand where demand is growing and we're helping them find these opportunities through insights and automation.
For American Airlines for example that means using our insight tools to anticipate demand on the untapped routes. These newly prototypes of routes out of significantly higher booking rate in search this quarter compared to last quarter.
Also just last month, we made it free for hotels and travel companies to list their bookings mix similar to what we did with shopping last year.
For consumers it means more choice.
For hotels and travel companies it means free exposure on Google.
For advertisers it means paid campaigns can be augmented with free listings, we already see positive results across the board.
Let me switch gears now and talk about the retail where we had a very strong quarter. As you know we've taken important steps over the past year to accelerate in the open retail ecosystem, we made product listings free remove commission fees in the open air shopping platform to Shopify and Paypal, We're also helping retailers to the union some key opportunities such as innovating in the home.
The channel is the line between digital and physical retail continues to blur and tapping into commercial intent on Youtube and other surfaces.
Let me talk about both.
Over the last six months People's shopping preferences have shifted constantly in response to changing conditions. It's not just online it's not just offline, it's a mix and that's our sweet spot with search maps and Youtube.
Last quarter, we talked about of searches searches for available near me and for curbside pickup that trend has not changed searches for local and businesses are up 80% for us This last year.
The channel is here to stay.
Ticked Dick's sporting goods throughout the pandemic the accelerated curbside pick up pick up in store and ship from store fulfillment options and search. This approach contributed to a 100% year over year increase in E. Commerce sales of 2020, and just recently the activated Youtube to build awareness for new store concepts.
Michaels the arts and Crafts store also activated the omni channel fulfillment approach using search and maps and to meet surging demand for art supplies. The use triggers for action to tap into the vast number of arts and crafts searches happening on Youtube and 'twenty 'twenty. The E. Commerce sales were up 350 per cent.
We're also doing more to help merchants tap into the incredible in the commercial behavior across search and Youtube Google.
Google merchants can know pluck the product fits right into the video action campaigns and early adopters of seeing huge results luxury cosmetics company clearance educate the beautiful product imagery from the Google merchant feet as an extension and sort of 68% conversion rate uplift within three weeks.
Any merchant kind of liked us up with a single click and all of Google Merchant Center.
Speaking of of Youtube, we're helping advertisers addressed both brand and performance goals at scale driving higher return on AD spend at a time when they need it most.
We're only a few years in on direct response, and we think there's significant opportunity for innovation that will improve the user experience and provide better ROI for advertisers.
On the performance side advertisers of all sizes are actually seeing incredible results like Global group Fitness company less mills was hit hard when the 20th all of them partner Jim's close during lockdown.
The accelerated digital and crew app subscribers for almost seven X with true view fraction.
We're seeing strong growth in Youtube spread business fueled by a total of local consumer trend from linear TV towards streaming video.
With over 2 billion monthly logged in users and over 1 billion hours of video watched every day Youtube is offering advertisers the efficient reach to large audiences, which are incremental to those found on television.
Large brands are benefiting from this trend Taco Bell saw 27 per cent incremental reach for the limited time offer of campaigns and Kellogg's so incremental reach of over 30% for the recent special K campaign.
Before I close I want to take a minute to highlight of work with partners sort.
Super mentioned group of news showcase we now have deals with 600, plus publishers across more than 12 countries Lamont in France, Spiegel inched down in Germany, sovereign and Argentina evening standard in the U K just to name a few and we're continuing to expand the program.
We're also developing more valuable relationships with some of our strategic partners, but.
But teaming up we're able to build new experiences for our use of us while helping our partners innovate and growth.
We've gone well beyond the ads to bring the best of Google across cloud play Youtube and more to help them do just that.
Somebody mentioned Univision in the quarter, we also announced T mobile albertsons, all the guns and Munich re.
I wanted to thank our customers and partners for their collaboration we've always said, we succeed only when they succeed and I also want to thank all of product partnership sales and support teams for their amazing work and innovation.
I'll now hand off the call to Ruth.
Thank you fill up our very strong financial results from the first quarter reflect the lapping the impact of COVID-19 on our business beginning of March 'twenty 'twenty as well of the benefit of excellent underlying operating performance my focus will be on year over year comparisons for the first quarter unless I state otherwise.
I'll start with the results at the alphabet level, followed by segment results and conclude with our outlook.
For the first quarter, our consolidated revenues for $55 3 billion up 34 per cent or up 32 per cent in constant currency, reflecting elevated consumer activity online and broad based increases in the advertiser spending within Google services as well as the ongoing strength and Google cloud or <unk>.
Total cost of revenues was $24 1 billion up 27%, primarily driven by other cost of revenues, which was $14 4 billion up 25 per cent, followed by pack, which was $9 7 billion up 30%.
Within the other cost of revenue the biggest factors or first content acquisition costs, primarily driven by cost for youtube's advertising supported content.
Followed by costs for subscription content and second costs associated with data centers and other operations offset partially by a reduction in depreciation expense due to changes to estimated useful lives of therapists and certain network of equipment.
Operating expenses were $14 8 billion up 4%.
In terms of the three component parts of the Opex first the increase in R&D expenses was driven primarily by head count growth.
Sales and marketing expenses were essentially flat, reflecting head count growth, which was offset by lower spend on ads and promo as well as on travel and entertainment.
Finally, the decline in G&A reflects the benefit of lapping the unusually high allowances for credit losses recorded in the first quarter of 2020 due to the impact of COVID-19 offset by charges relating to certain legal matters.
Headcount was up 4690 for from the fourth quarter, including more than 800, Fitbit employees, who joined us in Q1.
Again, the majority of new hires were engineers and product managers.
Operating income was $16 4 billion up 106 per cent and our operating margin in the quarter with 30 per cent. Other income and expense was $4 8 billion, which primarily reflects unrealized gains in the value of investments and equity securities.
Net income was $17 9 billion operating cash flow with $19 3 billion with free cash flow of $13 3 billion in the quarter and $50 7 billion for the trailing 12 months.
We ended the first quarter with 135 billion in cash and marketable securities.
Let me now turn to our segment financial results, starting with our Google Services segment total Google services revenues were $51 2 billion up 34% consisting of Google search and other advertising revenues of $31 9 billion in the quarter up 30% with strength across the.
Most categories led by retail.
Youtube advertising revenues of 6 billion up 49% driven by exceptional performance in direct response and ongoing strength in brand advertising.
Network advertising revenues of $6 8 billion up 30% driven by Admob and AD manager other.
Other revenues were $6 5 billion up 46%, primarily driven by growth in play and the Youtube non advertising revenues, followed by hardware, which benefited from the addition of Fitbit revenues.
Services operating income was $19 5 billion up 69 per cent and the operating margin was 38 per cent.
Turning to the Google Cloud segment, including G. C P and Google Workspace revenues were 4 billion for the first quarter up 46 per cent G. C piece of revenue growth was again meaningfully above cloud overall strong growth think of the workspace revenue was driven by growth in both seats and average revenue per seat.
The cloud had an operating loss of 1 billion.
As to our other bets in the first quarter revenues were $198 million. The operating loss was $1 1 billion.
Let me end with our outlook for each segment and our investments more broadly for.
For Google services for the remainder of 2021 year over year comparisons will be affected meaningfully by the impact of COVID-19 last year with a greater benefit in Q2 from an easier comp relative to what you saw in Q1, and then beginning to lap stronger performance in the second half of the year.
In the first quarter, we continued to benefit from elevated consumer online activity and broad based strength in the advertiser spend it is too early to say how durable the consumer behavior will be as the economies recover and restrictions on mobility are lifted.
Within other revenues play benefited from an increased level of user engagement starting in Q1 last year due to the pandemic, which we are now beginning to lap.
In terms of investment levels within Google services, we still intend to invest aggressively to support the extraordinary opportunities we see.
That being said in some areas like travel and entertainment and marketing events the pace of investment through the balance of the year may be affected by the pace of COVID-19 recovery globally.
As for Google Cloud our approach to building the business have not changed we remain focused on revenue growth and we will continue to invest aggressively in products and our go to market organization given the opportunity we see.
The operating results in Q1 in part reflects some notable items in the quarter first the lapping of the unusually high allowances for credit losses recorded in the first quarter of 2020 as I already mentioned and second lower depreciation expense due to the change in estimated useful lives, although the dollar benefit.
Will diminish throughout the course of the year across segments.
As we've noted previously operating results should benefit from increased scale over time. However at this point, we do remain focused on continuing to invest to build the cloud organization for long term performance.
In terms of other bets, we continue to invest where the focus on the long term value creation opportunity.
Turning to cap ex at the consolidated level the results reflect ongoing investment in our technical infrastructure offset by a slower pace of investment and office facilities, given the ongoing impact of COVID-19.
Within technical infrastructure servers continue to be the largest driver of investment as we continue to invest to support cloud search ads and machine learning.
Finally, with respect of capital allocation, our primary use of capital continues to be to support organic growth in our businesses followed by retaining flexibility for acquisitions and investments. We complement these growth drivers with the return of capital as we indicated in our press release today, Our board has authorized the repurchase.
Chest of up to an additional $50 billion of our class C stock.
And now Sundar, Philip and I will take your questions.
As a reminder for question you will need the press star one and your telephone to withdraw your question. Please press the pound key.
Background noise yeah. Thank you. Please mute your line once your question has been stable.
And my first question comes from the line of Brian Nowak from Morgan Stanley. Your line is now open.
Thanks for taking my questions of two first one for Sundar I appreciate the color on the four key priorities I wanted to do a little more into the the bill to provide the most helpful products and services, maybe if you can sort of talk to us about search how do you think about the the key investment priorities of innovation areas to continue to make search more of.
More helpful for your users and your advertisers and the second one for Philip maybe similar question on Youtube done such a great job of innovation around Youtube, where do you see the the largest incremental opportunities for further innovation at Youtube to deliver more outsized value for your advertisers. Thanks.
Yeah.
Oh thanks.
On search.
The question I still think we're in a very early stages.
Recent examples of which I was proud of for us.
The ship was stuck in the Suez Canal and then it got out.
Asked the question to Google letting you know very soon after that we had the right answer it seems obvious to do except the need to provide right answers and without giving wrong answers sort of misinformation for many other things.
So to do that is where all of our underlying investments go and you know and that's how we think about it over the.
Long long term a book.
The last year I think was a great example of it it was one of our biggest quality improvements and that it was based on a the.
Transformer of breakthrough from our Google AI team, which laid the foundation for it.
So we are continuing to invest that way in the deep technology as you know the best.
Scaling up this more information than ever before so that's the big part of what we're doing.
Beyond that there's a lot of opportunity to improve the user experience.
You've seen other folks that aren't shopping that's one aspect of how we are working hard to improve the experience there so but we're looking at it pretty deeply.
Yeah.
Yeah. So on the Youtube side, let me start with our diverse of direct response business. Our growth was truly exceptional this quarter of Dr was practically nonexistent on Youtube a few years ago, and it's now of large and fast growing business.
We're just getting started in my view.
Already as you know go to Youtube to decide what they want to buy and we wanted to make it easier for them to buy and make the discovery process over all of them easier and for creators, we launched new shovel will capabilities. So if the U S can actually make purchases from the favorite creators directly on Youtube.
Just as an example, as part of our brand connect program a Calvin Klein tested these and drove over I think it was 200% lift in brand search and sold out multiple products actually.
For merchants so they can know bring the product fits directly into the video campaigns and I think we're still scratching the surface on what's possible really with commercial intent on Youtube and then there's of course the opportunity to be of major platform for brands.
On the historical approaches to reaching audiences through let's just say call. It linear television don't really work anymore.
Advertisers are using Youtube now to reach the audience they cant find anywhere else.
Remember more 18 to 49 year olds are actually watching Youtube then all linearity of your combined.
Brands are also seeing more incremental reach on Youtube compared to the T V.
So we're starting to see advertisements by a mix actually of awareness and more action oriented formats, and the driving reach and the results across the funnel from awareness to consideration to action.
So we still of lot of really interesting opportunities here.
Great. Thank you both.
One of the next question comes from the band.
At the Morgan your line of Malibu.
Thanks for taking the questions I had two first Ruth just want to ask you about cloud you're supposed to get significant benefits just from the change in the useful life.
In the past you talked about <unk>, perhaps being the biggest loss of the year was just curious if that's still the case in your view going forward and then secondly, just given the the management transition that we've seen of Weibo should we expect any change in terms of how things are operated there going forward. Thank you.
Thanks for the question so in terms of cloud and overall performance I think the main point I would say is I wouldn't extrapolate it generally from quarter to quarter given we're still in the early early stages of building the business. We do intend to continue the end that's meaningfully in cloud given the opportunity and so as the as he said there were.
A couple of things that benefited our margins in the quarter, both the depreciation expense side of but also lapping the unusually high allowance for credit losses that we recorded back in the first quarter.
For the main the main takeaway is where we're continuing to invest oil and that's aggressively in product and go to market, what we've talked about quite.
Distantly overtime.
And you know it's much as operating losses in the operating margin will benefit from increased scale every time at this point, we do remain focused on investing to build the organization for a long term performance.
Yeah.
And Doug on Raimo.
John is stepping down I see you and you know it's been a he's been planning for this transition and Dimitri indicator ive been working closely with them and.
And so oh.
We will continue our investments there are pretty excited that the fully autonomous experience the zama one.
Is available in Phoenix, and and we had all the tax rate in the development of our next generation BMO driver.
<unk> deployed in San Francisco and the.
This past quarter of a mode again.
Limited range of testing in San Francisco, and and so really focused on making sure of.
We make we make the hard technical the progress that we can you know operational licenses and so you'll continue with executing towards that.
Okay. Thank you both.
Thank you and our next question comes from Brent Thill from Jefferies. Your line is now open.
Thanks is it relates to some of the harder hit industries I'm curious if you could just characterize the the shape of the recovery, what you're seeing across travel and some of the other sectors and have there been any verticals that you have yet to see recover of that the main may pull out and in the second half of the year. Thank you.
So overall, what we indicated is the the strong results reflect in.
And in part lapping the impact that we saw.
The starting late in Q1 of of last year, and then a pick up in <unk>.
The areas I think the main thing we'd want to leave you with is that you know we are seeing and part of an acceleration of the shift to digital but it is it's too early to forecast the extent to which these changes in consumer behavior and advertising spend I'm willing to or there's some obvious examples of when you think about for example, the bump in consumption for things like outfitting your home.
To work from home, obviously that doesn't repeat and so are our main thing is we think it's premature at this point to really.
Yeah.
Assess the.
All of this consumer behavior trends are.
And travel specifically have you can you just give us any color in terms of what you're seeing on that front.
No nothing more to add Philip I had a couple of comments about some of the areas, where we're trying to innovate to be helpful to our partners that'd be all of that nothing to add.
Great. Thank you.
Yeah.
Thank you and the next question comes from Justin Post from Bank of America. Your line now open.
Maybe one for the follow up and one for Ruth first Phil.
You've mentioned a couple of times of the durability of the improvement is it's tough to gauge maybe you could help us understand what the key drivers of search or that Youre thinking about over the next couple of years is of queries a product improvement certain.
Changes in verticals like shopping how how are you thinking about driving search growth and then maybe for Ruth model showed great efficiency last year on the cost side and margins.
Anything you're learning or experiences during the pandemic debt, we can think about post pandemic.
On cost efficiencies or things like that thank you.
Yeah.
Yeah. Thank you. Thank you so much for the question I, usually look at the different components of search as basically for key drivers are the for.
First one obviously being the course, so are we really the best place for users to turn to when they need information.
The second one is I would call it as coverage so what percent of quarters, just really of commercial and then what percentage of what you're actually covering with ads.
And then we need to ask for ourselves to both of these have upside.
The third one is click through rates or individually at the click through rates are close to being optimized as the more we can do here by just delivering better creative spurt of ads better answers to what extent can we deploy next generation machine learning here.
And then the last one is obviously the the C. P C right how much if someone's willing to bid for a click on there at the and this is obviously to a large extent driven by the quality of traffic. We're sending and then conversion rate is the big driver of this working very closely with our partners our advertisers and so on across the world to help them optimize their conversion rates and the ROI and those are really the.
For big components and.
I'm excited about all four of them actually.
And in terms of your question on efficiency I. Appreciate the question I think the you know at the at the highest level. The approaches is unchanged our approach on.
Investing in capital allocation is first and foremost to support long term growth with financially sustainable businesses, it's about being sharper within product areas, and then making sure we're investing and what when I keep referring to its operational excellence things like our technical infrastructure systems temporary of productivity temporary the velocity of our product teams and then the very important efforts around.
Privacy and security and content moderation and I think to your question. The experiences of this past year underscored really the the value of having made those investments to protect and support operational excellence.
It served us well and its customers for our ability to deliver the throughout this period of time. So that framework is is an alternate I think that you know of.
Part of what you're seeing in the first quarter I've said it a couple of times now, but our son.
The notable items in the quarter the the lapping of the allowance for credit losses for the benefit from depreciation life and then there were certain things that were.
Due to COVID-19, just the the lower impact for things like.
And marketing and so the main point is that we will continue to invest for long term growth and said that in both areas critical services and cloud and we have continued to maintain that framework that you referenced about looking for efficiencies, where they are but ensuring that we can deliver for users and customers.
Great. Thank you.
<unk>.
Thank you for my next question comes from Colin Sebastian from Baird. Your line is now open.
Great. Thanks, Good afternoon Sundar first.
For years, the machine learning is clearly of strength and differentiation of the overall platform, including in cloud services, where we're also seeing competitors focus more of their capabilities here. So I'm wondering if you could talk about the pace of change around data science and how how Google can sustain its competitive advantage in those areas.
Then the Phillip I wanted to follow up on the momentum in search that you attribute to Google shopping is it fair to say that the shift of free product listings has led to the desired increase in retail advertising across the platform or are there other reasons beyond the pandemic that you attribute for that for that success.
Yeah.
Yeah, Colin on the thanks, and obviously as we're thinking more of the AI you know it all starts with a foundation of the R&D, We do I think being one of the largest of R&D and Mr. Sen. The AI in the world and and sort of thinking ahead and in doing that and they're doing it across.
You know all of the foundational areas and we are taking many diverse approaches so SP make breakthroughs I earlier spoke about transformers and how that.
Translated as book to improve our search quality.
And similarly, we are very committed to taking the AI improvements and bringing it to our GCB offerings.
Two of our enterprise customers as well so it's an approach we.
We are deeply committed to and and we're thinking of it.
Are they all layers of the stack for this is why you see us work hard on a P. P use and and you know we think about the tool chain for developers.
On top of all of that and so.
And I I think if when I look at the progress ahead, I think there's a lot more progress coming down the.
Pipe in and so I'm pretty excited and it's why I feel.
G C P will be differentiated over time as the competent of advantaged place okay.
Yes, and on the shopping side look it's been a year since we brought onboard the already and we pivoted our shopping strategy to better support retailers and consumers I'm trying to really build an open retail ecosystem and we're pleased with the progress we're making them as you said free listings and zero commissions, they've actually Lord various from <unk>.
The retail.
Shopping ads continue to be powerful way for retailers to promote their product and the combination of free and paid is a meaningful one are we had a set of new partnerships with shopify and put Paypal that are giving retailers a lot more choice and we will continue to simplify the let me call. The end to end user and merchant experience of course.
In particular of we're trying to streamline and working hard to streamline the back of an experience for merchants, especially for hybrid retailers. So retailers of the plane, both brick and mortar and to digital and overall, we want to make it much much easier for retailers to get started on Google and have their information of pure across surfaces and I mentioned, the overall strength of <unk>.
<unk> before so thank you.
Thanks, guys.
Thank you.
Question comes from Mark Mahaney from also.
Yeah.
Thanks, I wanted to ask about your attempts to retain advertisers and I ask it. This way I think we've had record numbers of new business formations in the country in the round the world of the unfortunate Imp.
The impact of COVID-19, but I think that's my guess is it's been the huge tailwind for your business at the same time, we've had this a real tip over I think of linear TV AD budgets in the back half of the year.
Online channels like Youtube So talk about are these.
These new advertisers that you've that you brought onto the Google platform, what you've been able to do how confident you are in your ability to retain them. Your advertiser retention strategy. Thanks a lot.
So so I can take those I mean, a lot of the new advertisers the you're referring to are obviously smbs.
And there's no doubt that this has been a challenging year for smbs of the pandemic has disrupted how many of them connect with their customers, but frankly. The pandemic has also been of catalyst for key consumer trends are obviously, creating a lot of new opportunities for small businesses and obviously consumers are spending more time online they're buying more online.
They were willing to try new brands and they are eager to support local businesses Smbs. So of searches for support of local businesses are up significantly since last year and we've been focused really on helping smbs with simpler tools. So they can actually embrace digital a lot faster.
And that's what we're here for really invested over the year of making everything simpler we had a very wide range of solutions to help them get online.
Discover it across all of our key product search maps Youtube.
And so on and Theres multiple multiple fascinating stories.
From them coming back to us and we see this positively reflected in our rates here as well.
Okay. Thank you Bill.
Thank you and your next question comes from Michael Nathanson from <unk>.
Your line Malibu.
Thank you I have two one for Ruth.
On the <unk>.
Questions on search I.
I'm wondering when you step back which categories, which geographies do you think you're still underrepresented.
The percentage of marketing spending where we could see potentially even more of a lift to come and then for Ruth you know, we always asked in the past about capex spending.
The change of the useful life, but I wonder.
The pandemic change maybe your approach to the office space that you bought in thinking about how the company is going to deploy capital in terms of of space going forward and how do we think about the future of <unk>.
Capex for next couple of years based on post pandemic.
Yeah.
Okay.
The film seems to be on me I'll go ahead and start on the Capex.
The question.
So in terms of Capex.
No I think the I'll I'll address two parts of you asked about the office facilities, but I do think it's important to note we are continuing to invest.
In our technical infrastructure and that's why you saw again here this quarter and well continue to do so to support growth that we're seeing in cloud in search and ads and machine learning.
Range, there so you'll be seeing that but the core of your question was really about office facilities and I think it's you know we've been very clear, we do value, bringing people together in the office and we're looking at a hybrid work from home work from office model as we look forward at developing.
Our real estate for them for offices, you know what we factor into it is first we are growing our head count we are looking at less density per employee so even with the hybrid work environment, We will continue to need space and so we're continuing to build out our campuses and office facilities.
But what you saw in the first quarter was a slightly slower pace of that and a slower pace on sit outs as well as we're evolving what does the space look like but we expect to continue to pick up the pace there as we.
Set out our spaces for this kind of new re imagined our environment. So yeah, we will continue to be.
Investing in campuses around the globe, we have them.
Yes, and on your first part of your question look we're looking at our business from a very global perspective and are excited about it keep in mind for not just addressing the above the line marketing budgets.
Budgets from an addressable market perspective, so not just traditional advertising TV advertising and so on the below the line budgets of really significant everything promotional pricing product placement sponsorships and so on and so on so there's this massive exploration of ecommerce due to the pandemic I'm still more than 80 per cent of commerce is still offline. So there's a huge.
For Attunity for you here.
Across the world for us to tap into into those other budgets. They were really traditionally used in a very different context. So there's plenty of room for growth here and I talked about how we look at it from of course perspective from a commercial instant and 10 perspective, we're trying to use machine learning are really smartly here, but the real focus in the end has to be held.
Do we actually make a partner of successful how do we drive incremental ROI for them and as long as we continue the small I think we should continue to see budgets move our way as well.
Thank you.
Yeah.
Thank you and our final question comes from the line of Brian Fitzgerald from Wells Fargo. Your line is moving.
Hey, guys you mentioned the strength in the supply side products and the network business wondering if you might be able to comment on how the demand side of products are doing and maybe in the similar vein. Some of the changes you've made in that technology over the last few years.
May have had the effect of drawing some of your advertiser customers more deeply into your tech stack wondering is if this is also creating a strong non ramping GCB.
Specifically around data analytic products like the query.
Sure.
Okay.
So in terms of overall on our network revenues you know as I I think I noted briefly in opening comments, what we're really saying is the ongoing strength and advertiser spend of felt.
I talked about that particularly what we saw with Admob and AD manager and particular strength in the App campaigns and all of this just underscores the let each of US commented on that the results do reflect what was broad based strength across our partners properties.
And in the first quarter.
Thanks, Rick.
Thank you.
Thank you and that concludes our question and answer session I'd like to turn conference back over to the MTV for any closing remarks.
Thanks, everyone for joining us today, we look forward to speaking with you again on our second quarter 2021 call. Thank you and have a good evening.
This concludes today's conference call. Thank you for participating you may now disconnect.
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