Q2 2021 Alphabet Inc Earnings Call
[music].
Welcome everyone. Thank you for standing by for the <unk>.
Alphabet second quarter 2021 earnings conference call.
At this time all participants are in a listen only mode. After the Speakers' presentation there.
Question and answer session to ask a question. During this session you will need to press star 1 on your telephone if you require any further assess assistance. Please press star zero I would now like to hand, the conference over to your Speaker today, Jim Friedland Director of Investor Relations. Please go ahead.
Thank you good afternoon, everyone.
There'll be a welcome to alphabet second quart.
Earnings Conference call with US today are Sundar, Pichai, Philipp Schindler and Ruth correct.
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.
1 of them will 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.
Make 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 a B C Dot Xyz slash investor and now I'll turn the call over to Sundar.
Thank you Jim and good afternoon, everyone.
It's good to be.
The Asian.
Today, I'll give an overview of the quarter going through some of our product momentum then touching on cloud and Youtube.
First I want to acknowledge that the new COVID-19 billions have been challenging for so many communities across the world.
As the pandemic evolves do you want to help people get their information.
But you need to keep themselves and their families safe.
I really encourage everyone to get the vaccine when it's available to you.
Turning to the quarter, we saw a rising tide of online consumer and business activity.
We are proud that our services help so many businesses and partners.
And in fact, we set a number of records this quarter.
This quarter publisher partners earn more than they ever have from our network.
We also paid multi Youtube creators and partners than in any quarter in our history.
And on top of that over the past year, we send more traffic to third party websites than.
Your prayer.
In addition to generating billions of better connections.
Phone calls.
<unk> ordering food and making reservations that drove customers and revenue the businesses around the world that are working to get back on their feet.
A few years ago, we placed.
And eat on AI, believing that it will be a fundamental technology that would underpin and dramatically improve all our products.
That vision was on full display at our Io event in May where we announced new advancements that'll be helpful to people and businesses everywhere.
That's.
Example, we introduced multitask unified models are mom.
Almost a big advancement and search a thousand times more powerful than our current systems.
That's the ability to learn and transfer knowledge across 75 languages, which means that it can learn from sources and 1 language on.
1 they bring that information to you you know 1 of them.
We also announced a new AI system called Lambda that achieves a new level of natural conversation capabilities.
We think Lambda will help make information and computing more axis boat and we're excited about those early stage research.
And last week.
Unhealthy Chad its new alpha for protein structure database, which doubled the number of high accuracy human protein structures available to researchers.
In the coming months. It will include almost every sequence protein known to science.
Turning to Android, we previewed Android 12 at Google Io.
My latest version will include new ways to personalize devices.
Significantly improved speed and power efficiency.
Your privacy protections directly into those such as the new privacy dashboard to help people keep information safe and private.
Android will of course be central.
The Google phone devices.
I'm very excited by our fall lineup, which will showcase Android 12, and some of the deep technology investments that are helping us push boundaries.
Excel remains at the heart of that long term strategy and I'm proud of how the team continues to deliver the best of Google through.
Our family of helpful.
New devices, including nest and Fitbit.
You can see all of these devices at our first retail store in New York City.
I'm looking forward to seeing some new ones there soon.
We are also seeing developers getting tremendous benefit from Google play through.
Through the end of Q2.120.
Billion dollars has been earned cumulatively by developers.
Round the world from Google play.
Let me talk a bit more about club Q2 revenue grew 54% year over year.
Our innovative products focused go to market strategy and growing ecosystem are driving our momentum.
Organizations across industries are choosing Google cloud as their platform for digital transformation include.
Including Sap's customers like Paypal, Johnson controls and Whirlpool, who have deployed sapa in 9 months on Google cloud.
This quarter, we saw 3 distinct trends.
First the increase in cyber and ransomware attacks as a wakeup call for the industry.
Over 2 decades, Google has built some of the most secure computing systems in the world.
And we are proud that our Google cloud customers can benefit from our experience here.
Customers like major league baseball or partnering with Google.
<unk> cloud to further enhance their security program.
We pioneered the zero trust approach an architecture that builds in multiple layers of defense against unauthorized access.
This approach and the other security solutions help customers minimize the impact of cyber attacks and prevent them completely.
But our cloud security summit last week, we announced new solutions across our portfolio of products.
B T is bringing our new security operation solutions based on Chronicle, the managed security services market.
And they'll be in the state of Wisconsin are helping protect users with our.
Protection product.
Second our expertise and real time data and analytics continues to differentiate us in the data cloud 1 of the fastest growing segments of the market.
Victory is not only a data warehouse, it's a platform for customer innovation.
And it is helping drive our strong year over.
Frog road with customers like Hertz health care, who will be using big query to analyze data to improve clinical care.
Additionally, our deep expertise in the AI and machine learning.
A key differentiator winning customers like Groupe casino and leading to partnerships with industrial automation leaders like Siemens.
Our focus on delivering industry specific solutions, coupled with our secure open cloud infrastructure enabled us to support leading telecommunications companies such as reliance deal.
Telecom Italia Tim.
And Ericsson to work together on applications and new solutions for 5 G networks and mobile edge computing.
Siemens vs join existing customers, Vodafone tell us and many others.
Third Google Workspace continues to show strong growth, particularly in the enterprise space because we have designed the product to meet the challenges of hybrid work.
This includes the announcements we made at IU about smart canvas.
As well as expanding our advanced security and compliance capabilities.
Solutions for frontline workers.
These innovations are landing wins with companies like Carvana.
Online auto retailer and software company Red hat.
Turning next to Youtube.
Shots.
Continues to gain momentum we've been rolling it out everywhere Youtube is available in more than 100 countries worldwide.
I'm proud to announce that Youtube shots.
Surpass 15 billion daily views.
So pleased with the progress we are making with Youtube subscription product.
Cross music premium.
Kim television each delivering a fantastic experience and content for viewers.
And finally Rainbow continues to build and commercialize the venmo driver and grow the team.
People loved the fully autonomous ride hailing service in Phoenix.
Since first launching its services to the public in October 2020.
And your name of safely so tens of thousands of rights without a human driver in the vehicle and we look forward to many more.
Before I close let me call out our continued work on sustainability, which has been a core value for us since our founding.
As you'll recall, we were the first to announce an ambitious.
School.
That'll be consummated for the industry.
We aim to operate on 24, 7 carbon free energy by 2030 and.
In Q2, we announced that 5 of our data centers are already operating.
Our near 90% carbon free energy to.
To help us reach our target everywhere.
<unk> implemented a system to ship flexible computing tasks to different times and places with greater availability of carbon free energy.
And we are working to enable geothermal power and more places starting in Nevada next year.
I want to thank all our employees around the world for their contributions to a grade.
Ambitious.
I know, it's been a challenging 18 months through at all taking care of everyone. In our workforce has remained a top priority.
Now we are imagining the future of work with flexibility is a guiding principle.
I was excited to see so many people in person as we started a voluntary return to.
Great.
Is this recently.
As we make our way back, we're giving employees more flexibility in how and where they work and will continue to invest in our sites in the U S and elsewhere.
Over to Phillip.
Thanks, Sundar and Hello, everyone, it's great to be with you today.
We were pleased with the growth in Google services revenues in the second quarter Yeah.
Year on year performance reflects elevated consumer online activity broad based strength in advertising spend and the lapping of the first ever revenue decline in our ads business last year due to COVID-19.
In the second quarter retail again was by far the largest contributor to.
The year on year growth of our ads business.
Travel financial services and media and entertainment were also strong contributors.
Let's now take a few minutes to talk about the trends we've seen across our business.
Over the last 18 months, we've been deeply focused on helping businesses big and small navigate profound change.
First as a lifeline.
During the pandemic and now as a partner to Reaccelerate growth as the world begins to reopen.
The road to global recovery is likely to be uneven and unpredictable.
That's where the real time insights we've put in the hands of businesses going into the pandemic will be just as important coming out of it.
New tools like travel insides, which launched in the U S.
This month after rolling out to select countries in the APAC and EMEA in December are helping our partners get a clearer picture of where demand is coming from.
Wyndham hotels and resorts for example is leaning into insights and automation across search display and Youtube to be travelers wherever and whenever they need a hotel.
They drove nearly 2 times more direct bookings.
For media deployed on Google in the first half of 2021 versus the year prior.
Or take Amtrak Covid hit ridership plummeted budgets were cut and.
Certainty and suite and how to efficiently reach essential travelers. So we stepped in with insights and automation bookings for the last quarter, which was Q2 increased 3 times year over.
Year with cost per acquisition down 52%.
These examples also underscored the value of AI and automation in a world that's changing fast we know today that more than 80% of our advertisers use automated bidding using ml, our ads products are more efficiently connecting businesses with their customers taking the guesswork.
It's getting the right message at the right time to the right customer all in a privacy first wave.
And performance Max on used AI Apart campaign is now in beta.
Lets brands by ads from a single campaign across all Google properties, helping drive more online sales more leads and or more store visits.
The results for participating advertisers are great.
Moving onto retail momentum remains strong.
We're continuing to build an open ecosystem that benefits both users and merchants last year, we removed financial barriers with 3 product listings and zero Commission fees.
This year, we are removing integration various with shopify.
Burton Commerce, Godaddy and square.
Merchants can now onboard and show that products across Google for free.
And our shopping graphics using AI to connect these products to the people who want them.
24 billion listings for millions of merchants across the web.
Let's talk Omnichannel last quarter I said it was here.
But it is.
Retailers continue to build their digital presence to drive both online and offline sales.
And we're helping them do it.
Pick bed Bath, and beyond who quickly pivoted to curbside pick up pick up in store and same day delivery when people were stuck at home they've continued these offerings across Google with impressive success.
Yeah, digital shoppers and I'll make up 50% of customers and in Q1, a third of total digital sales were fulfilled by stores.
Plus they have tapped Youtube to build awareness for the new customer inspired owned brands.
We will continue to invest in new ways to help retailers through what is likely to be a long and uncertain recovery around the world.
Oh, that's moved to Youtube, which had a great quarter with strong growth in both brand and direct response, we've seen 3 key trends.
First Brent.
Youtube is helping advertisers reach audiences if they can't find anywhere else. According to Nielsen's total AD ratings for each reporting from Q4.18 to Q4 'twenty.
Average, 70% of youtube's reach what's the liver to an audience not reached by the advertisers TV media.
In other words youtube's reach its becoming increasingly incrementals for TV and this audience dynamic because a huge win for our brands.
In fact Nielsen found that U S advertisers, who shifted just 20% of spend from TV.
T V to Youtube generated a 25% increase to the total campaign reach within their target audience, while lowering their cost per each point by almost 20% of.
These combined effects of improved reach and efficiency are helping advertisers get the most out of their brand investments.
Second direct response advertising.
Onto the platform to generate demand and drive transactions like Malaysia at Tech platform mind Valley, which focuses on personal growth and learning increased their investment in true view for action and elevate your action as people turn to Youtube in record numbers to learn in Q2. This generated 600000 plus needs with 20% coming from the U S.
Third Youtube is uniquely positioned to drive both massive reach and action, we're seeing more advertisers to adopt a full funnel approach to scale their businesses with increased efficiency.
Comparable.
<unk> services market leader in Chile, combined to reach and direct response campaign to capitalize on leads over 10 weeks they.
It reached 5 million users with incremental conversions up 70%.
This trend is widely embraced by our largest advertisers what business are breaking down silos between online and offline.
Okay.
Since our founding we've always believed that the future of Google and the future of our partners are intrinsically linked.
From individual Youtube creators and major music labels to global and local online publishers to play developers big and small.
Business is built on a revenue share models that succeed only when our partners succeed.
1 excellent example of how we're helping our partners to innovate is our work with the telecom industry.
Sundar talked about efforts in cloud to help them build more efficient networks and transition to <unk>.
We're also working across Google to help carry us, including AT&T Telstra T mobile and Verizon launched new devices and services add new subscribers rethink customer engagement via business messaging partnerships and support enterprise growth.
Growth I want to close with 2 huge thank yous first to our customers and partners for their collaboration.
Second to our product partnership sales and many support teams for their extraordinary work this quarter and dedication to our customers and partners success now over to Ruth.
Thank you Philipp.
Our strong revenue performance in the second quarter reflects lapping the impact of Covid on our business elevated consumer online activity broad based strength and advertiser spend as well as the benefit of excellent ongoing execution by our teams my comments will be on year over year comparisons for the second.
Quarter, unless I state otherwise well start with results at the alphabet level, followed by segment results and conclude with our outlook.
For the second quarter, our consolidated revenues were $61.9 billion up 62% or up 57% in constant currency, our total cost of revenues.
With $26.2 billion up 41%, primarily driven by growth in park, which was 10.9 billion up 63% followed by growth in other cost of revenues, which was $15.3 billion up 29% the largest driver of which with content.
Tim acquisition cost.
Operating expenses were $16.3 billion up 22% in terms of the 3 component parts of Opex first the increase in R&D expenses was driven primarily by head count growth.
The growth in sales and marketing expenses.
<unk> was due primarily to the ramp up of spending on ads and promo in contrast to the pullback in the second quarter last year.
Finally, the increase in G&A reflects the impact of charges relating to legal matters.
Count was up 4061 from the first quarter.
Operating income.
With $19.4 billion up 203% and our operating margin in the quarter was 31% other.
Their income and expense was $2.6 billion, which primarily reflects unrealized gains in the value of investments and equity securities.
Net income was 18 point.
Thomas.
Now turn to our segment financial results, starting with our Google Services segment total Google services revenues were $57.1 billion up 63% Google.
Search and other advertising revenues of $35.8 billion in the quarter or.
We're up 68% with broad based strength across our business led again by strong growth in retail.
Youtube advertising revenues of 7 billion or up 84% driven by brand followed by direct response.
Network advertising revenues of $7.6 billion.
In or up 60% driven by admonish manager and Admob.
Other revenues were $6.6 billion up 29%, primarily driven by growth in Youtube non advertising revenues, followed by hardware, which benefited from the addition of Fitbit revenues.
And finally.
Finally, Google play, which lapped the increased level of user engagement that started in Q1 last year due to the pandemic.
Google Services operating income was $22.3 billion up 134% and the operating margin was 39%.
Turning to.
Google Cloud segment.
Revenues were $4.6 billion for the second quarter up 54%.
D C. PS revenue growth was again above the cloud overall, reflecting significant growth in both infrastructure and platform services.
Once again strong growth.
Google Workspace revenues was driven by robust growth in both seats and average revenue per seat Google.
Google Cloud had an operating loss of $591 million.
As to our other bets in the first quarter revenues were $192 million. The operating loss was $1.4 billion.
Let me close.
With some comments on our outlook in the second quarter revenues benefited from an FX tailwind of more than 4% at the consolidated level.
Based on FX spot rates against the dollar relative to the third quarter of last year, we expect a more muted tailwind to revenues in the third.
In terms of the outlook by segment for Google services, the benefit to revenue growth in Q2 from lapping the effect of Covid last year will diminish through the balance of the year as we begin to lap stronger performance in the second half of 2020.
In the second quarter, we continued to benefit from elevated.
I mean, we're online activity and broad based strength in advertisers spent we believe it is still too early to forecast the longer term trends as markets reopen, especially given the recent increase in Covid cases globally.
Within other revenues play revenue growth for the balance of the year.
It could face headwinds due to the impact of lapping elevated engagement in the pandemic as well as the change in fee structure, which was implemented as of July 1 we.
We continue to invest across Google services to support the extraordinary opportunities, we see a couple of reminders consistent with prior years.
We expect that head count additions will be seasonally higher in Q3, as we bring on new grants to it. In addition, we expect sales and marketing expenses to be more heavily weighted to the back half of the year in part to support product launches and the holiday season.
As for Google Cloud, we remain focused on revenue.
Growth and are pleased with the trends we are seeing across cloud, we will continue to invest aggressively given the opportunity we see.
Turning to Capex the results in the second quarter, primarily reflect ongoing investment in our technical infrastructure, most notably in servers to support on.
Ongoing growth across Google. We also began to increase the pace of investment in ground up construction and fit outs of office facilities, which were slowed due to COVID-19 and are focused now on advanced.
Turning to cash and capital allocation, we continue to generate strong free cash flow.
Of $16.4 billion in the quarter and $58.5 billion for the trailing 12 months. We ended the second quarter with 136 billion in cash and marketable securities as.
As we indicated in our press release today, our board has approved an amendment to the existing 50 billion dollar stock.
Program permitting us to repurchase both class a and class C shares in a manner. That's in the best interest of the company and its stockholders. Thank you and now Sundar, Philip and I will take your questions.
Thank you.
As a reminder to ask a question you need.
Need to press star 1 on your telephone.
To withdraw your question press the pound key to prevent any background noise. We ask that you. Please mute your line. Once your question has been stated.
And our first question comes from Brian Nowak with Morgan Stanley. Your line is open.
Thanks for taking my questions.
2.1 for Sundar.
The first 1.
You've got so much innovation over the years.
Improved search and improve the overall business.
Can you just give us some examples of where you still see moving crude or areas for further improvement in the company's overall chronic Susan.
I et cetera over the next couple of years.
And then you're on your comments on Omnichannel, we're pretty loans, there give us some examples of where you're most smokers to continue to enable more retailers to move into an omnichannel and sort of drive that Nick.
Yes.
Brian Thanks.
Coupled.
We see so much headroom given our bet on AI.
Turning to our most important product of our search.
When you see the launch of Bud, which was a significant improvement and we are following that up with mum, which is.
Another extraordinary advance so the rate information.
<unk> is growing.
Pretty rapidly and so constantly.
Developing better models to improve our search quality ranking etc.
It's 1 of the most important base fee invest.
Beyond that I would say all the work we're doing into making sure our computers can understand.
In a multimodal way be it the majors audio text video and then bringing it up across our products I think I think is an important way we will approach it.
Philipp.
Yes, and to my part of the question look we want to make sure that when people come to Google They were able to basically find the best.
Product and prices available from frankly, the widest possible range of merchants and we're making strong progress on the builds leadership and as I said earlier 2020 was about removing financial barriers. We made listings free year of commission fees and it's worth pointing out the upside of combining free listings with shopping ads actually merchants that use.
Q1 saw a 50% lift in clicks once they started I think that's pretty impressive.
2021 and as I said has been about removing integration barriers are we have the partnerships with shopify square be commerce, Godaddy will commerce, and so on and they're making it even easier for businesses to get started with us whether it's across search and shopping.
Both urgent Youtube and then once merchants are on boarded I mean, there's so much more value. We can offer them a we launched a new measurement tool itself retailers better understand performance on pricing.
Specific to your question about focus areas and then we're making the product and user experience better not only with our UI UX research feedback with our tech in AI capability.
M. A c's and maybe you. Cool example is how we are using a or to bring in store experiences online like with auto dealerships and then letting you just really try before they buy and we do this and it cosmetics and in apparel categories, and we have the shopping graph, which I mentioned earlier and we think it'll open up completely new product experiences across Google shopping.
But bullock lenses..1 example, you can shop your screenshots or use your phone camera to find the dress or pair of sneakers that caught your eye or whatever.
And we're working hard to build and open retail ecosystem and that really levels. The playing field for all merchants and we think Theres a lot of opportunity ahead, and I think those are the biggest areas of focus.
Great. Thank you both.
Thank you. Our next question comes from Doug Anmuth with J P. Morgan Your line is open.
Great. Thanks for taking the question I have 2.
First just I think a key initiative over the last couple of years has been to bring the full breadth of Google services to customers. So I was hoping you could talk more just about.
Shopping, but when you think about the search overall ads recovery and also growth in Google cloud.
Efforts are going as you work across businesses with with corporate customers and what their reception has been and then Ruth just on a cost kind of in the back half and going forward as you think about bringing.
Some of these costs back just curious if you can comment more around some of the puts and takes as you think about the overall cost structure pre COVID-19 versus post COVID-19.
Yeah.
Yeah. Thanks, Jeff.
I would say overall as.
Yeah.
It's abroad.
They just don't have the customers are looking for digital transformation.
And depending on the sector they are in.
Look look to alphabet asset digital partner and we try to bring the broader solution set that's possible across our capabilities and.
And that's been working well.
You mentioned cloud you know most of our cloud customers are.
Or either in conversations with us it could be because they are concerned about security on their supply chain.
They are trying to understand the shift to digital and invest more in data and analytics or the shift to a.
It's it workforce.
What's probably.
Getting them to think about workspace and so on and if they are retailers. We can bring in our expertise across ads. The work we are doing on commerce to be with them.
Partnerships, we have and so we can bring those additional expertise to bear.
And so that's a trend we are seeing across Philipp gave examples.
Our telco partnerships and and so across our priority verticals.
They are engaged in a broad way and maybe the recent Google light partnership with Univision.
Better out of an example of a multiyear.
A hybrid multi product partnership with the company.
And with respect to the second question, how we think about investments in the back half it really the driving focus is how do we support our near term long term quality growth and I think it's important to note.
Note that some of our costs are less variable in the short term such as depreciation and the operations costs of our data centers.
So when you look at Q2 performance in part the meaningful year on year improvement in the operating margin in the second quarter.
It reflects the strong revenue growth, but also the fact that some of these costs are less variable in the short.
Short term however to support long term growth and very much to your question is true across both Google services and Google Cloud, we will continue to increase the pace of investment.
That's true in head count, it's true with continued sales and marketing really across the board and you also heard of that and so my comments about.
Capex, we're continuing to pick up the pace of investment in office facilities.
I set out some ground up construction had been slowed as a result of Covid and we're pleased that the pace has picked up and that really relates to our comments about continuing to build out across the U S around around the globe I'm in line with continuing to invest in.
Head count growth I'd make 1 other point, which is I think you're aware of this but in this quarter the.
Results also reflect the benefit from the change in useful lives that we talked about earlier in the year that reduced depreciation expense was a benefit of about $721 million in the quarter and the benefit from this change will be lower in the second.
As you're as you're looking ahead.
Great. Thank you Sundar and Ruth.
Yeah.
Thank you. Our next question comes from Justin Post with Bank of America. Your line is open.
Great. Thanks for taking my questions a couple when you look at search in the quarter it really.
And beyond the comp and if you look at it quarter over quarter. It was really good. So wondering if theres any products or verticals that really surprised you or or things to call out and how do you think about the sustainability here specifically in search and the product pipeline from here and then secondly on cloud really saw a nice margin improvement there.
How do you feel about where you are on the infrastructure side, an ability to really.
Continuing to show kind of that improvement in margins over time. Thank you.
Yeah.
2 questions, maybe I'll take the second first on the on the on the cloud side.
You know festival.
You know, what we do and the investments in our infrastructure first of all we are doing it across the set of.
Cloud services, we are building a full Google and it's the same that we bring the cloud and and so theres a tremendous.
Tremendous synergies we have there.
And you know maybe a.
But to give you. An example of that I already mentioned data and analytics and processing and it's the same infrastructure.
Infrastructure be it big query et cetera, which we have invested and built over time.
And people are looking to use data and analytics alongside with machine learning and AI.
They wanted to do this.
Across structured and unstructured data do it across any platform and so that's the kind of capability, we are able to bring and you know what I'll I'll, let you.
Comment on maybe the margin side of this a bit more.
Yeah, I would just to build on that Sundar comment Theres really no change.
Change in our approach to building the cloud business, we do intend to continue to invest meaningfully we are very pleased with the business as we look at that.
As an example, we're continuing to build out that global footprint continuing to invest in our compute capacity globally.
An example, we most recently announced our second cloud region in India. This is our 26 cloud datacenter.
The central region globally, and so continuing to invest across the board given the opportunity that we see and as I said last quarter I would not extrapolate from quarter to quarter. Given we still are in the early stages of building the business and we do intend to continue to invest aggressively including expanding our go to market organization our channel.
And our product offerings and our compute capacity are you know.
Cited about what we're seeing the team executing upon here.
1 on search.
Okay.
Yeah can you hear me.
Yeah.
Yeah and to the first part of the question similar.
What I said in my remarks at the beginning a rigid retail once again by far the largest contributor to the year on year growth of our ads business travel financial services Media Entertainment.
So very very strong contributors.
Thank you.
Yeah.
Yes.
Thank you. Our next question comes from Colin Sebastian with Baird. Your line is open.
Great. Thanks for taking my questions first Sundar as a follow up on cloud.
You talked about the tailwind from advanced AI and data analytics in terms of growth.
Is it fair to say as well.
Based on your initial comments that security.
<unk> represents a competitive differentiation, that's that's contributing incrementally to business development.
And then and then for Felipe on the momentum in Youtube and capturing the shift in viewership and advertising away from linear TV, how how did the different Google.
Services fit together in that not just core Youtube, but Android TV, Google TV Youtube TV.
Is this something that's been increasingly connected or linked to in the backend and and as well on the front end for consumers. Thanks.
Yeah.
You know on security and cloud.
No we definitely.
See it is as strong.
Strong differentiation, obviously, Google for a long time, we are cloud native be pioneered approaches like zero Trust build architecture out from a security first perspective.
And so particularly over the course of the last couple of years.
As companies are really.
With the recent that packs they really started thinking deeply about the vulnerabilities you know supply chain security has been a major source of consensus, particularly over the past few quarters.
Cyber threats increasingly is in the mind of not just cio's, let's see it was up across our partners and so it's definitely.
Definitely an area, where we're seeing a lot of conversations a lot of interest, it's our strongest product portfolio and we are.
To enhance our solutions be it integrating chronicle beyond carpet all the product competence, we have there so.
That source of strength and Youll continue.
To see us invest here.
And on the second part of your question look momentum is really strong across both our branded direct.
Sponsor business on Youtube, maybe let me start on the brand side of.
The global shift to online video and streaming continues.
With over.
2 billion monthly active users.
The billion plus hours of video watched every day I think we're at the forefront of this shift and advertisers have increasingly needed to look beyond linear TV alternatives to achieve their reach and awareness goals and as I said earlier Nielsen total AD ratings for each reporting.
Frank found whenever 70 per cent of Youtube's region was delivered to an audience not.
Reached by the advertisers TV media.
So not only are we driving improved reach but relatively helping brands do it more efficiently.
And as a result of this you see many advertisers reevaluating the media mix and increasing the investments in our platform.
In our platforms and as far as the direct response, a part goes we're helping advertisers convert.
Intent into action.
Tried to drive performance at an incredible scale take an example, like with video action campaigns, which is our next generation to review fraction format advertisers were getting access to even more inventory across Youtube and our partners. All in a single automated campaign and as I said before were working really hard to make Youtube.
<unk> not only more actionable, but also more shopper bowl.
So Youtube is proving to be meaningful for not just brand building and reaching a massive audience, but also for converting viewers into buyers and and what's nice is that we're seeing more advertisers leveraging brand to create demand in direct response to convert it. So they are basically using the funnel is very very smartly.
And.
Then to the second part of your second question the Youtube TV ads for example, this part.
We're really trying to bring.
Well the well.
Connected TV is let me let me phrase it from connects T. V. Part I think that's that's easier it is really the fastest growing consumer surface.
We have and that growth started before the pandemic and has frankly solidified sense and in the U S. We have over 100000 people watch Youtube on Tvs every month and that's up from like 100 million last year.
We're number 1 in reach and watch time among AD supported streaming services. So.
So we're very very happy with the development that we're seeing here.
Thank you. Our next question comes from Brent Thill with Jefferies. Your line is open.
Thanks, just a follow up on Youtube can you maybe talk to the e-commerce opportunity that you're seeing evolve where you're at now and eventually where would you like to be thank you.
You know on Youtube Oh.
If you look at the engagement across the platform.
We definitely see a lot of headroom for our e-commerce.
Over the past year, you've seen us really focus on accelerating a shift too.
Cause of Onboarding merchants across across Google. So we've definitely invested both in terms of bringing merchants onboard removing barriers there.
Providing better integrations by partnering with players.
No platform providers across across the industry and now we are investing in our consumer experience.
B into speed on Google search are on on Youtube and so you will see US rollout features overtime Philipp do you want to add more here.
Yeah look there's a ton of commercial intent across Youtube and it was a shopping destination before COVID-19 I mean think unboxing videos product reviews makeup tutorials.
And so on and and throughout the pandemic, we've really seen more shoppers turned to the platform for ideas and inspiration in and really help them decide what to buy.
And the number of shopping capabilities already underway and we're working really hard to make it easier for users to discover and buy directly on Youtube and I mentioned home merchants can globally at the product feeds right into video.
Video action campaigns, and and brands and shoppers alike are loving it and we're also begun beta testing. This for example, with discovery ads and you got last quarter I mentioned hope yours can make purchases from their favorite credo via early experience experiments with brand connect and shuffled the product shelves and early adopters are seeing a lot of success here so stay tuned for.
It's later this year.
Great. Thank you.
Yeah.
Thank you. Our next question comes from Mark Mahaney with Evercore ISI. Your line is open.
Thanks.
Had record new business formation in the U S. I think globally in the wake of a co.
And my guess is that that's also been a major driver of growth for you could you just talk about that a little bit the extent to which you think some of these especially the advertising trends come from these new businesses that are form whether theyre digital hybrid or whatever and then secondly, how do you go from tens of thousands of way mill rides to millions of rides like what are.
Covid obstacles to that just any any clue at all as to how long that takes is are the issues more regulatory more technical thank you.
Well new businesses small businesses are the backbone of our economy here, but obviously local communities are in varying stages.
The biggest recovery some are reopening while others are unfortunately are returning to lock down.
And we're focused on continuing to I would say a level the playing field for smbs here and from getting them online and frankly set up for success Youre, giving them all the digital tools, they need to get discovered and be ready for what's ahead.
The ability to like.
Stages after the transition between online and offline and reach customers nearby far beyond their local neighborhoods as well so over the past few months I mean literally just the past few months, we've made it easier for Smbs to show that product across Google for free and we added new ways for them to highlight in store inventories for local inventory ads and we've also made it easier.
Seemingly them to leverage the power of Youtube them. They know can create video AD campaigns literally within minutes via their smartphone and these are just a few examples of the ways. We're helping plus also interesting trend people are more eager than ever to support their local small businesses and searches for support local business are up like 20 ex last year in the U S alone.
Easier for them and this is creating a lot of opportunity for for Smbs overall and I don't know if take an example, like all our beauty for example, it's a San Francisco Beauty brand and they made 100% pivot to online during the pandemic and with insight into popular wellness and beauty searches and Google ads has been really able to grow their business significantly over the last year.
On Vimeo.
As he mentioned in our in Phoenix, we've had.
You know very good experienced by scaling up right.
You know these are.
Driverless strides and I noticed in the Colorado and the passengers and people are out of any.
They may experience.
Overall, we had obviously with the strong focus on safety, we are looking to scale it up.
Through it all we are building new capabilities as well investing in next generation of hardware and software. So it's and they paid a process and that each step it's very clear to us that we are ahead.
And we are making progress and you'll see us continue to invest here.
With with the with a focus on safety first and I expect us to scale up more through the course of 'twenty 'twenty 2.
Thank you Sundar, Thank you Tim.
Okay.
Thank you our next question comes from.
Michael No.
Nathan said with Moffett Nathanson your line is open.
Great. Thanks, I wanted to hear Sundar and 1 for Tom.
I'm, just thinking mineral Philipp spoke to acceleration in streaming and smart Tvs worldwide and the importance that Youtube has on the TV.
I wanted to hear from you about your interest in supporting the smart TV ecosystem and what do you see as the opportunity for Google in terms of the you know your product offerings, maybe improve our consumer adoption of it.
Connected Tvs many few Philipp.
People are asking me about search, but you look at starts on a 2 year stack.
Asset growth as high as it's been in years and I Wonder if you can disaggregate for us the growth between maybe new short customers coming on the platform versus increased spending on them.
Existing per cluster basis, or anything to help us on kind of what drove it on a client by client basis home search.
Yeah.
Question on on the Smart PB ecosystem look at you know.
No.
That is a shift to these becoming computing devices over time are there going to be connected computing experiences.
You know people, who are both consume content passively actively.
Okay.
The first gaming or the top video and so on so we view this as part of our platform shift you know Android TV has made tremendous strides our its a very customizable platform. We are working not only with TV providers globally are we are doing it but cable box manufacturers as well as the supplement.
Putting the Google Chromecast as well so it's a significant investment from our side, making sure we can drive that shift and obviously, there's a lot of you know synergies.
For us in terms of being able to bring our services to our users as well as give more opportunities for our play develops.
Or to reach more users as well, but definitely a strong integration points with Youtube and Youtube TV as well.
Okay.
Yeah.
Look maybe rather than go into the deep disaggregation that you're talking about let me maybe talk a little about how we think about the overall market for searching the.
The addressable market in the last call last quarter I gave you a little bit of a breakdown here.
But what is really important is we're not just addressing above the line marketing budgets are which is different metrics around it but let's say around half a trillion dollars, which is traditional advertising TV advertising and so on there's also significant upside and below the line budgets.
Overall like promotional pricing product placement and sponsorships and so on.
And sure we've seen COVID-19 accelerate the shift to e-commerce at an astounding rate, but keep in mind 80 per cent of commerce still remains offline. So there's a lot of room for digital to play a bigger role and we think we can tap into other budgets that were traditionally used for let's.
Let's say local.
Advertising to drive sales and as we think about it a long runway for growth. We also think obviously about improving user and advertiser experience for years to come here and we're constantly asking ourselves.
How do we drive better answers to coreys, including those with commercial intent and how do we use our ml to deliver even more relevant and higher quality experiences for users.
And our primary focus is really on delivering great experiences for users and driving incremental value for our partners and making them successful and I think as long as we do this we should continue to see budgets move out way.
Okay. Thank you.
Thank you our last.
I think it comes from Jason Bazinet with Citi. Your line is open.
But I just had 1 question maybe it dovetails off of what you just said.
But if I if I took your AD dollars this quarter $50 billion in annualize, it's like $200 billion, a year or are you or the board focused at all on trying to diversify away.
Last quarter at market or do you just feel like there's so much runway that there is no real reason.
To stay focused on non AD base grows.
Look at a high level are we.
Multiple parts to your question, obviously, we are very focused on.
<unk> from B of a mission, we have an approach of being helpful.
Across that an important attributes and we do deep investments in computer science and AI are to build those services.
And out of that naturally there's diversification over time, you know when you look at our you know you.
That's contributing to that you look at cloud and within cloud be aboard G. C. P N workspace.
Contributing to that and longer term, we have airports like venmo as well beyond that as I bought Philipp hundreds that are spoke ive spoken about it but the digital shift we see a lot of headroom.
And in terms of fair.
Market for either advertising or.
E Commerce, and and so we see a lot of headroom there as well so we take a long term view I always start from first principles towards focusing on.
Both investing in deep technology, and solving use of problems and.
And out of that I think you have a set of diversified models that they emerge but different types of businesses and also within our business. For example in Youtube, both ads and subscription over time, and so I think I think it will continue approaching it that way with an eye for the long term.
Thank you.
Thank you and that concludes our question and answer session for today I'd like to turn the conference back over to Jim Friedland for any further remarks.
Thanks, everyone for joining us today, we look forward to speaking with you again on our third quarter 2021 call. Thank you and have a good evening.
Yeah.
Thank you everyone. This concludes today's conference call. Thank.
Thank you for participating you may now disconnect.
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