Q2 2021 Alphabet Inc Earnings Call
[music].
Welcome everyone. Thank you for standing by for the alphabet second quarter 2021 earnings Conference call.
At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask.
And 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'd like to hand, the conference over to your Speaker day, Jim Friedland Director of Investor Relations. Please go ahead.
Thank you good afternoon, everyone and welcome to alphabet second quart.
Ask a quick earnings conference call with US today are Sundar, Pichai, Philipp Schindler and Ruth correct.
Now I'll quickly cover the safe Harbor. Some other 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.
So 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.
Involves 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 with you.
Today, I'll give an overview of.
[noise], earning water going through some of our product momentum and touching on cloud and Youtube.
First I want to acknowledge the new COVID-19 billions have been challenging for so many communities across the world.
As the pandemic evolves and you want to help people get the information they need to keep themselves and their families.
And 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.
We are proud that our service has helped so many businesses and partners.
In fact, we set a number of records this.
And he's here.
This quarter publisher partners and more than they ever have from our network.
We also paid multi Youtube creators and partners and in any quarter in our history and.
And on top of that over the past year, we have send more traffic to third party websites than any year prior and now.
Sure.
This quarter trading billions of data connections.
Like phone calls directions, 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 a bet on AI, believing that it would.
And to Gen fundamental technology debt.
Underpinned and dramatically improve all our products.
That vision was on full display at our Io event, and me very announced new advancements that'll be helpful for people and businesses everywhere.
And that's 1 example, we introduced multi.
B a ask unified models are mom and pop.
And it's a big advancement and search.
And times more powerful and our current systems.
And that's the ability to learn and transfer knowledge across 75 languages, which means that it can learn from sources and 1 language and help bring that information to you and none of.
We also announced a new AI system called Lambda that achieves a new level of natural conversation capabilities.
And we think Lambda will help make information and computing more axis boat and we're excited about those early stage research.
And last week deep mine share its new alpha for protein and structured database, which.
Multi tell 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, I'd go without you.
The latest version will include new ways to personalize devices.
Mrs and significantly improved speed and power efficiency.
And your privacy protections directly into the office setting.
The new privacy dashboards to help people keep information safe and private.
Android 12 will of course be central to Google's own devices.
I'm very excited by our fall lineup.
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 debt long term strategy and I'm proud of how the team continues to deliver the best of Google through our family of health flu devices, including nest and Fitbit.
You can.
And see all of these devices at our first retail store and New York City, and I'm looking forward to seeing some new ones there soon.
We are also seeing developers getting tremendous benefit from Google play.
Through the end of Q2 for $120 billion has been and cumulatively by developers around the.
The world and Google play.
Let me talk a bit more about club Q2 revenue grew 54 per cent year over year.
Our innovative products focused go to market strategy and growing ecosystem are driving our momentum.
Organizationally across industries are choosing Google cloud.
Platform for digital transformation.
Including Sap's customers like Paypal.
And some controls and whirlpool, who have deployed sapa and 1 months on Google cloud.
This quarter, we saw 3 distinct trends.
First the increase and cyber and ransomware.
Attacks, it's a wakeup call for the industry.
Over 2 decades, Google has built some of the most secure computing systems and 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 cloud to further enhance their security program.
And so he pioneered the zero trust approach and architecture that builds and 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.
For our cloud security summit last week.
We announced new solutions across our portfolio of products.
B T is bringing our new security operations solutions based on clinical for the managed security services market.
And Adobe and the state of Wisconsin are helping protect users with our fraud detection 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.
Big worry is not only a data warehouse, it's a platform for customer innovation.
And it is helping drive our strong year over year growth with customers like HCA healthcare.
We'll be using big query to analyze data to improve clinical care.
Additionally, our deep expertise and AI and machine learning remains a key differentiator when customers like Groupe casino and leading to partnerships with industrial automation leaders like Siemens.
Our focus on delivering industry.
Per rig solutions, coupled with our secure open cloud infrastructure enabled us to support leading telecommunications companies such as reliance steel.
Telecom Italia Tim.
And Ericsson and to work together on applications and new solutions for 5 G networks and mobile edge computing.
These joined.
So I think 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.
And I suppose that's expanding.
Finding our advanced security and compliance capabilities and.
And solutions for frontline workers.
These innovations are landing wins with companies like Carvana.
The online auto retailer and software company Red hat.
Turning next to Youtube.
Good day shots continues to gain.
And momentum.
And rolling it out everywhere Youtube is available and more than 100 countries worldwide.
And I'm proud to announce that Youtube shots has just surpassed 15 billion daily views.
And so pleased with the progress we are making with Youtube subscription product across music premium and Youtube TV.
And each delivering a fantastic experience and content for viewers.
And finally.
<unk> continues to build and commercialize the venmo driver and grow the team.
People loved the fully autonomous ride hailing service and Phoenix.
Since first launching and services to the public and October 2020.
Ramos safely.
Safely for tens of thousands of rights.
Without a human driver and the vehicle and we look forward and 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 and ambitious goal.
That'll be transmitted for the industry for.
Aim to operate on 24, 7 carbon free energy by 2030.
And Q2, we announced that 5 of our data centers are already operating.
At or near 90 per cent carbon free energy.
To help us reach our target everywhere the and.
Employment at a system.
Hmm to ship flexible computing tasks to different times and places with greater availability of carbon free energy.
And we are working to enable the geothermal power and more places starting and Nevada next year.
I want and thank all our employees around the world for their contributions to a great quarter.
I know, it's been a challenging 18 months through at all taking care of every 1 and our workforce has remained a top priority.
Now we are imagining the future for its flexibility as a guiding principle.
I was excited to see so many people and person.
And we started a wall and treat attuned to our California offices.
Okay.
As we make our way back we are giving employees more flexibility and how and where they work and we will continue to invest and our sites in the U S and elsewhere.
Over to Philip.
Thanks, Sundar and Hello, everyone, it's great to be with you today.
We're pleased with it.
And Google services revenues and the second quarter.
Year on year performance reflects elevated consumer online activity broad based strength and advertiser spend and the lapping of the first ever revenue decline and our ads business last year due to COVID-19.
And the second quarter retail again was by far the largest contributor to the year on year growth of our ads.
<unk> business.
<unk> financial services and media and entertainment were also strong contributors.
And so I'll 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 and navigate profound change for.
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.
And that's why the real time insights we've put in the hands of businesses going into depend I make will be just as important coming out of it.
New tools like travel insights, which launched in the U S. This month after rolling out to <unk>.
Select countries and APAC and EMEA and 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 there.
And they drove nearly 2 times more direct bookings for media deployed on Google and the.
The first half of 2020, 1 versus the year prior.
Amtrak Covid hit ridership plummeted budgets workout uncertainty and suite and how to efficiently reach essential travelers. So we stepped in with insights and automation and bookings for the last quarter, which was Q2 increased 3 times year over year with cost per acquisition.
Don and 52 per cent.
These examples also underscore the value of AI and automation and a world that's changing fast we know today that and more than 80 per cent for advertisers to use automated bidding using ml. Our ads products are more efficiently connecting businesses with their customers, taking the guesswork out of getting the right message.
At the right time to the right customer all and a privacy first wave.
And performance Max our newest AI powered campaign is now in beta and.
And that's brands by ads from a single campaign across all Google properties, helping drive more online sales more leads and or more store visits early results for participating.
And those are great.
Moving onto retail and momentum remains strong.
And we're continuing to build an open ecosystem that benefits both users and merchants last year, we removed financial barriers with free product listings and zero Commission fees.
This year, we were removing integration barriers with Shopify Woot Commerce godaddy.
The average square merchants can now onboard and show their products across Google for free.
And our shopping graphics using AI to connect these products to the people who want them for what.
<unk> 24 billion listings for millions of merchants across the web.
Let's talk omni channel last quarter I said it was here to stay and it is.
<unk> and 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 and store and same day delivery when people were stuck at home and they've continued these offerings across Google with impressive success.
And digital shopper.
Make up 50 per cent 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 and new ways to help retailers through what is likely to be a long and uncertain recovery around the world.
Let's move to Youtube.
Personnel, and which had a great quarter with strong growth and both brand and direct response, we've seen 3 key trends.
First Brent.
Youtube is helping advertisers reach audiences they cant find anywhere else and according to Nielsen's total AD ratings for each reporting from Q4.2018 to Q4 'twenty on average 70.
And at the end of Youtube for reach what's delivered to and audience not reached by the advertisers TV and media and <unk>.
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 to Youtube generate.
<unk> per se, a 25 per cent increase to the total campaign reach within their target audience, while lowering their cost per each point by almost 20 per cent.
These combined effects of improved reach and efficiency are helping advertisers get the most out of their brand investments.
Second direct response advertisers are turning to the platform to generate.
<unk> generated manned and drive transactions like Malaysia at Tech platform, Mindfully, which focuses on personal growth and learning increased their investment and true view for action and elevate your action as people turn to Youtube and record numbers to learn and Q2. This generated 600000 plus needs with 20% coming from the U S.
Third.
Youtube is uniquely positioned to drive both massive for each and action, we're seeing more advertisers to adopt a full funnel approach to scale their businesses with increased efficiency.
Comparable and financial services market leader and Chile, combined our reach and direct response campaign to capitalize on leads over 10 weeks they reached 5 million.
And use us with incremental conversions up 70 per cent.
This trend is widely embraced by our largest advertisers what business are breaking down silos between online and offline.
Since our founding we've always believed that the future of Google and the future of our partners are intrinsically linked from individually.
Individual Youtube creators and major music labels to global and local online publishers to play developers and big and small.
It's 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.
And I've.
Talked about efforts and cloud to help them build more efficient networks and transitioned to <unk>.
We're also working across Google and to help carry us, including AT&T Telstra T mobile and Verizon launched new devices and services and new subscribers rethink customer engagement via business and this messaging partnerships and support enterprise 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 Philip.
Our strong revenue performance and 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, we'll 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 per cent or at <unk> 57 per cent and constant currency, our total cost of revenue.
Second was $26.2 billion up 41%, primarily driven by growth in Tac, which was $10.9 billion up 63 per cent followed by growth and other cost of revenue, which was $15.3 billion up 29% the largest driver of which with content.
Acquisition costs.
Operating expenses were $16.3 billion up 22 per cent and.
In terms of the 3 component parts of Opex for.
First the increase in R&D expenses was driven primarily by head count growth.
Second the growth and sales and marketing expenses.
And was due primarily to the ramp up and spending on ads and promo and contrast to the pullback and the second quarter last year.
And finally, the increase and G&A reflects the impact of charges relating to legal matters head.
Headcount was up 4061 from the first quarter.
Operating income.
And with $19.4 billion up 203 per cent and our operating margin and the quarter was 31 per cent other.
Other income and expense was $2.6 billion, which primarily reflects unrealized gains and the value of investments and equity securities net.
Net income was 18.
Income at <unk> billion.
Now turn to our segment financial results, starting with our Google Services segment total Google services revenues were $57.1 billion up 63 per cent.
Search and other advertising revenues of $35.8 billion and the quarter for.
68 per cent with broad based strength across our business led again by strong growth and retail.
Youtube advertising revenues of $7 billion were up 84% driven by brand followed by direct response.
Network advertising revenues of $7.6 billion.
And we're up 60% driven by add Manav manager and Admob.
Other revenues were $6.6 billion up 29%, primarily driven by growth and Youtube non advertising revenues, followed by hardware, which benefited from the addition of Fitbit revenues.
And finally.
We're upbeat 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 per cent and the operating margin was 39 per cent.
Turning to.
For the Google Cloud segment.
Revenues were $4.6 billion for the second quarter up 54 per cent.
D C. PS revenue growth was again above our cloud overall, reflecting significant growth and both infrastructure and platform services.
Once again strong growth and.
Google Workspace revenue was driven by robust growth and both seats and average revenue per seat Google.
Google Cloud had an operating loss of $591 million.
As to our other bets and the first quarter revenues were $192 million. The operating loss was $1.4 billion.
Let me close.
And with some comments on our outlook and 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 and the third quarter.
In terms of the outlook by segment for Google services, the benefit to revenue growth and Q2 from lapping the effect of Covid last year will diminish through the balance of the year as we begin to lap stronger performance and the second half of 2020.
And the second quarter, we continued to benefit from elevated.
And it coomer online activity and broad based strength and advertisers spent we believe it is still too early to forecast for the longer term trends as markets reopen, especially given the recent increase and Covid cases globally.
Within other revenues play revenue growth for the balance of the year.
We will face headwinds due to the impact of lapping elevated engagement and the pandemic as well as the change and 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 growth 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're seeing across cloud, we will continue to invest aggressively given the opportunity we see.
Turning to Capex and the results and the second quarter, primarily reflect ongoing investment and our technical infrastructure, most notably and servers to support on.
Ongoing growth across Google and we also began to increase the pace of investment and 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 and the quarter and $58.5 billion for the trailing 12 months. We ended the second quarter with 136 billion and cash and marketable securities as.
As we indicated and 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 and a manner and that's in the best interest other 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.
The 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 question.
Q1 for Sundar.
And so.
And so much innovation over the years.
And improved search and improve the overall business.
Can you just give us some examples of where you still see low hanging fruit or areas for further improvement.
These overall products moving.
And around the next couple of years.
And then Youre not your comments and omni channel and we're pretty loud and clear give us some examples of where you're most smokers to continue to enable more retailers to move and the omnichannel and through and drive that's not moving.
Thanks.
Yeah.
Yeah.
Brian Thanks.
Coupled.
We see so much headroom given our bet on AI.
And to our most important product for search.
And you'll see the launch of Bud, which was a significant improvement and we.
Following that up with mum, which as you know on.
And other extraordinary advance so the red and the information.
And is growing a you know a pretty rapidly and so constantly.
Developing better models to improve our search quality ranking it surprise.
And that's 1 of the most important base fee invest.
And beyond that I would say all the work, we're doing into making sure of computers and understand.
And a multimodal way B a day majors audio text video and then bringing it up across our products I think I think is an important way we'll approach it.
Phillip.
Yes, and to my part of the question look we want to make sure that when people come to Google and they were able to basically find the best.
Product and price is available from frankly, the widest possible range of merchants and we're making strong progress under Bill's leadership and as I said earlier 2020 and was about removing financial various we made listings for year of commission fees and it's worth pointing out the upside of combining a free listings with shopping ads actually merchants that use.
And Q1 saw a 50 per cent lift and clicks once they started and I think that's pretty impressive.
2021and.
And as I said has been about removing integration barriers and 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 and.
Both urgent Youtube and then once merchants are on boarded and there's so much more value. We can offer them, a we launched and your measurement tool itself for retailers better understand performance and pricing.
And specifically a question about focus areas and then we're making the product and the user experience better and not only with our UI UX research feedback with our tech and AI capabilities.
M a c's and and maybe Cool example is how we're using a or to bring in store experiences online like with auto dealerships and and letting you just really try before they buy and we do this and it cosmetics and and 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.
The bullet lenses..1 example, you can shop your screenshots or use your phone camera to find the dressel a pair of sneakers that caught your eye or whatever and.
And we're working hard to build and open retail ecosystem and that really levels. The playing field for all merchants and we think there is 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 and school services to customers. So I was hoping you could talk for just about.
Shopping with you when you think about the search and overall as recovery and and also growth and Google cloud. How those 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 and as you think about bringing.
And 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.
Okay.
Yes, thanks stuck.
And I would say overall.
Yeah.
And it's abroad.
They just don't have the customers are looking for digital transformation.
And depending on the sector, they are and and they look and look to alphabet as the digital partner and we try to bring the broader solution set.
And that's possible across our capabilities and.
And that's been working well you know you mentioned cloud and most of them for our cloud customers.
Are either and conversations with us it could be because they're concerned about security on their supply chain or they're trying to understand the shift to digital and invest more in data and analytics or the shift to.
And at work force.
And what's probably.
And getting them to think about workspace and so on and if they are retailers, we can bring and our expertise across ads and the work we're doing on commerce to be.
But the partnerships, we have and so we can bring those additional expertise to bear.
And so that's a trend we are seeing across Phillip gave examples.
How far telco partnerships and and so across our priority verticals.
And if they engage and a broad way and and maybe the recent Google light partnership with Univision and found a better out of an example of a multiyear.
Hi, My.
The product partnership with the company.
And with respect for the second question and I always think about investments and the back half it really the driving focus is how do we support our near term long term quality growth and I and I.
I think it's important to note.
Note that some of our costs are less variable and the short term such as depreciation and the operations costs for our data centers.
So when you look at Q2 performance and part the meaningful year on year improvement and the operating margin and the second quarter clearly reflects the strong revenue growth, but also the fact that some of these costs are less variable and the short.
Short term, however, and 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 and.
That is true and head count, it's true with continued sales and marketing really across.
Across the board and you also heard of that and so my comment about.
Net capex, we're continuing to pick up the pace of investment and office facilities.
Fit outs and 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 and.
And head count growth I'd make 1 other point, which is I think are aware of this but in this quarter the.
Results also reflect the benefit from the change and useful lives that we talked about earlier and the ear that reduced depreciation expense for the benefit of about 721 million and the quarter and the benefit from this change will be lower and 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 and when you look at search and a quarter it really.
Beyond the comp and 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 things to call out and and how do you think about the sustainability here, specifically and search and the product pipeline from here and then secondly, and cloud really saw a nice margin improvement there.
And how do you feel about where you are and and infrastructure side and ability to really.
Continue to show kind of that improvement in margins over time. Thank you.
2 questions, maybe I'll take the second first on and on the on the cloud side.
You know festival.
We do and they invest.
Investments and our infrastructure for.
First of all we are doing it across the set of <unk>.
Cloud services, we are building for Google and and it's the same that we bring to cloud and and so theres a tremendous synergies we have there.
And you know maybe.
You know Mike to give you. An example of that I already mentioned data and analytics and processing and it's the same.
Infrastructure would be big liquidity et cetera.
And missed it and built over time.
And people are looking to use data and analytics alongside with machine learning and AI are they.
And I wanted to do this.
Cross structured and unstructured data and do it across any platform and so that's the kind of capability, we are able to bring and you know overall and I'll, let Rick.
Comment on maybe the margin side of this a bit more.
Hum.
Yeah, I would just to build on that Sundar comment there's really no change.
And our approach to building and the cloud business, we do intend to continue to invest meaningfully we are very pleased for the business as we both debt.
As an example, we're continuing to build out that global footprint, continuing to invest and our compute capacity globally. As an example, we most recently announced our second cloud region and India. This is our 26 cloud datacenter.
Center regions 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 and the early stages of building the business and we do intend to continue to invest aggressively and including expanding our go to market organization our channel.
And share and our product offerings and our compute capacity.
You know and excited about what we're seeing the team executing upon here.
And searched.
Other people.
Yeah can you hear me.
Yeah.
Yeah and to the first part of the question similar.
And so what I said in my remarks at the beginning our retail was again by far the largest contributor to the year on year growth of our ads business travel financial services media and entertainment as well so very very strong contributors.
Thank you.
Okay.
Yes.
And expanding to 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.
And based on your initial comments that security.
<unk> represents and competitive differentiation and that's that's contributing incrementally to business development.
And then and then for Felipe on the momentum and Youtube and capturing the shift and viewership and advertising away from linear TV.
How did the different Google.
Services fit together and that not not just core Youtube, but Android TV, Google TV Youtube TV.
Is this something that's been increasingly connected or linked to in the back and and and as well and the front and for consumers.
You know and security and cloud.
No we are definitely and.
Cid is strong.
Strong differentiation.
Obviously, Google for a long time, we are cloud native.
Pioneered approaches like Zero Trust build architecture out from a security force perspective.
And so particularly over the course of the last couple of years as companies have really.
With the recent net tax they really started thinking deeply about the vulnerabilities and our supply chain security has been a major source of consensus, particularly over the past few quarters.
Cyber threats and increasingly ease and 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.
And to enhance their solutions be it integrating chronicle beyond carpet and all the product competence, we have there so.
Net source of strength and you'll continue.
And to see us interest here.
And on the second part of your question look momentum is really strong across both our brand and direct risk.
Sponsor business on Youtube, maybe let me start on the brand side and.
And the global shift to online video and streaming continues.
And with over.
2 billion monthly active users.
And all of a 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 needs and total AD ratings for each reporting.
And found the whenever 70 per cent of Youtube's region was delivered to and audience not.
By the advertisers T V media and so not only are we driving improved reach but relative to helping brands do it more efficiently.
And as a result of this you see many advertisers reevaluating the media mix and increasing their investments and our platform and our.
Platforms and as far as the direct response, a part goes we're helping advertisers and convert.
Our intent interaction and we tried to drive performance and incredible scale.
Take an example, like with video action campaigns, which is our next generation to review fraction format advertisers for 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.
Not only more actionable, but also more shopper will 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 and direct response to convert it so they're basically using the flow funnel is very very smartly.
And then to the second part of your second question the Youtube TV ads for example, this part.
And 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 and it is really the fastest growing consumer surface.
We have and that growth started before the pandemic and has frankly solidified since and and the U S. We have over 100 and when people watch Youtube on Tvs every month, and that's up from like a $100 million last year and.
And we're number 1 and reach and watch time among AD supported streaming services and.
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.
And on Youtube Oh.
And if you look at the engagement across the platform.
We definitely see a lot of headroom for e-commerce.
Over the past year, you've seen us really focus on accelerating a shift too.
And for Onboarding merchants across across Google. So we've definitely invested both in terms of bringing merchants onboard removing barriers there are providing better integrations by partnering with players are you know platform providers across across the industry and now we are investing and our consumer experience.
And so speed on Google search are on Youtube and so you will see US rollout features over time, Philip do you want to add more here.
Yeah look there's a ton of commercial intent across Youtube and it was a shopping destination and before the Covid I mean think unboxing videos product reviews and makeup tutorials.
And so on and and throughout the pandemic, we've really seen more shoppers turned to the platform for ideas and inspiration and and really help them decide what to buy and number of shopping capabilities already underway and we're working real hard to make it easier for users to discover and buy directly on Youtube and I mentioned and help merchants can globally at that product feeds and all right into video.
Video action campaigns, and and brands and shoppers and alike are loving it and we're also begun beta testing. This for example, with discovery ads and and you got last quarter I mentioned hope yours can make purchases from their favorite credo and 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.
And then we've had record new business formation, and the U S and I think globally and the wake of a co.
For more up 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 to 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 more 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 and more technical and thank you.
What new businesses are small businesses are the backbone of our economy here, but obviously local communities are in varying stages.
Stages of recovery and some are reopening while others are unfortunately for returning to lock down.
And we're focused on continuing to I would say leveled the playing field for Smbs here and from getting them online and frankly set up for success through giving them all the digital tools, they need to get discovered and and be ready for what's ahead.
The ability to like.
The biggest leap transition between online and offline and and reach customers and nearby and 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 us and be used to show that product across Google for free and we added new ways for them to highlight and store inventories for local inventory ads and we've also made it easier.
Seamless for them to leverage the power of Youtube. 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 try and people are more eager than ever to support their local small businesses and searches for support local business are up like 20 X last year and the U S alone.
Easier for them and this is creating a lot of opportunity for for Smbs overall and I don't know take an example, like all other beauty for example, it's a San Francisco Beauty brand and they made 100 per cent 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.
And on BMO.
As he mentioned you know our and Phoenix we've had.
Very good.
Good experienced by scaling up rights.
You know and these are.
And driverless strides and and no other and the Colorado and the passengers and people who are at a very.
And experience.
Overall, we had obviously with the strong focus on safety and look.
And to scale it up.
Through it all we are building newer capabilities as well and investing in next generation of hardware and software. So it's and they trade of process and at each step it's very clear to us that we are ahead.
Positive and we are making progress and you'll see us continue to invest here.
With with the with a focus on safety first and you know I expect us to scale up more through the course of 'twenty 'twenty 2.
Thank you Sundar, thank you for it.
Thank you our next question comes from.
And Michael Mann Nathan.
Nathan said with Moffett Nathanson your line is open.
Great. Thanks, I wanted to use and their own and 1 for Tom.
And just thinking mineral culp spoke to acceleration and streaming and smart Tvs worldwide and the importance of Youtube has and T V.
And I'm wondering if for you about your interest and supporting the smart TV ecosystem, and where do you see as the opportunity for Google and tours of the your product offerings, maybe improve it.
Consumer adoption of it.
Connected Tvs and then for you and people are asking about search for you look at search 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 customer basis, and anything to help us and kind of what drove it on a client by client base and so on search.
Yeah.
On.
Question on on the Smart TV ecosystem.
I mean.
Debt is a shift to these becoming computing devices over time, and they're gonna be connected computing experiences.
You know people, who both consume content passively actively.
Okay.
And the FERC gaming over 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 customized for the platform. We are working not only with TV providers globally, we are doing it but cable box manufacturers and sort of see supplement.
And Google Chromecast as well so it's a significant investment from our side, making sure we can drive that shift and obviously it has 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 development.
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 search and the.
The addressable market and the last call or last quarter, and I gave you a little bit of a breakdown here.
But what is really important is we're not just addressing our above the line and marketing budgets are which is different metrics around it but let's say your own half a trillion dollars, which is traditional advertising TV advertising and so on and there is also significant upside and below the line budgets.
Overall, like promotional pricing and product with it and sponsorships and so on and.
And sure we seen COVID-19 accelerate the shift to ecommerce and an astounding rate, but keep also in mind 80 per cent of commerce still remains offline. So theres 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 and.
Let's say local.
Advertising to drive sales and as we think about a long runway for growth. We also think obviously about improving user and advertiser experiences for years to come here and we're constantly asking ourselves.
How do we drive for better ounces, 2 quarries and including those with commercial and tender 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 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 all the way.
Okay. Thank you for.
Thank you.
And it comes from Jason That's net with Citi. Your line is open.
And I just had 1 question maybe it dovetails off of what you just said.
But if I if I take your AD dollars this quarter.
And her 50 billion and annualized it's like 200 billion and a year or are you or the board focused at all on trying to diversify away.
And last question at market or do you just feel like there's so much runway that there is no real reason.
And to stay focused on non AD base growth.
Look at a high level are we.
No.
Multiple parts to your question, obviously, we are very focused on.
<unk> for me of a mission and we have an approach of being helpful.
Across that and important attributes and we do deep investments in computer science, and AI are to build better services and.
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 and workspace are contributing to that and longer term, we have that for that's like a venmo as well beyond that as a board Phillip and with debt or are you know spoke ive spoken about but the digital shift we see a lot of headroom.
Room and in terms of fair.
Market for either advertising or a e-commerce and and so we see a lot of headroom debt as well. So we take a long term view I always start from first principles Stuart's focusing on a you know both investing and deep technology and solving use of problems and.
And out of that and I think you have a set of diversified models that they emerge but different types of businesses and also within our business for example, and 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.
Okay.
Thank you everyone. This concludes today's conference call. Thank.
Thank you for participating you may now disconnect.
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