Q4 2021 Alphabet Inc Earnings Call
Welcome everyone and thank you for standing by for the alphabet fourth quarter 2021 earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session. I ask a question during the question even need to press star one on your telephone.
Acquire any further assistance please press star zero.
Now the conference over to your Speaker today, Jim Friedland Director of Investor Relations. Please go ahead.
Good afternoon, everyone and welcome to alphabet fourth quarter 2021 earnings conference call with US today are Sundar Pichai, Philipp Schindler and Ruth Perrette now I'll quickly cover the safe Harbor.
Some of the statements that we make today regarding our business operations and financial performance, including the effect of the COVID-19 pandemic on those areas may be considered forward looking and such statements involve a number of risks and uncertainties that could cause actual results to differ materially.
For more information please refer to the risk factors discussed in our forms 10-K, and 10-Q filed with the SEC, including our upcoming Form 10-K filing for the year ended December 31 2021.
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 press release, which is distributed and available to the public through our Investor Relations website located at <unk>.
The a b C Dot X Y Z slash investor and now I'll turn the call over to Sundar.
Thank you, Jim and happy new year, everyone.
The last few months have been challenging for communities everywhere, because although micron.
I am grateful for the frontline health care workers, who are helping us through it and glad to see signs that this wave is receding in many parts of the world.
Whether it is helping people find the Covid testing center.
And your skill our launch of new business, our mission to organize the world's information and make it universally accessible and useful is as relevant today as it's ever been.
In 2022 will stay focused on evolving our knowledge and information products, including search maps and Youtube to be even more helpful.
Investments in AI will be key and we will continue to make improvements to conversational interfaces like the assistant.
I'll begin by touching on a few highlights from Q4.
Our new AI models are helping to create information experiences that are truly conversational multimodal and personal.
For example, multitask unified model or <unk> for short has improved searches for vaccine information.
And soon we will introduce new ways to search with images and goods simultaneously.
In October we introduced a new AI architecture called pathways.
AI models typically trained to do only one thing with pathways a single model can be trained to do thousands even millions of things.
From mum to pathways to Burton more these deep AI investments are helping us lead in search quality.
There are also powering innovations beyond search.
For example, deep mines protein folding system Alpha fold was recently recognized by nature and Science magazine as a defining breakthrough.
To illustrate the scale of the team's achievement. It took scientists more than 50 years to figure out the structure of 150000 proteins.
The deep mine team has now expanded that number to $1 million and they think they will get to more than 100 million. This year.
Philip will talk in great detail about our advertising business, which also benefits from our investments in AI.
It's been a very strong quarter for ads.
Our teams have helped millions of businesses of all sizes and launched dozens of important features to help them get the most out of their online marketing spend.
These businesses are the backbone of our global economy, and the heart of our community so helping them try this more important than ever.
We are also seeing exciting momentum at the Youtube Youtube shots continues to drive significant engagement.
We just hit five trillion all time views.
<unk> <unk> or 15 billion views each day globally.
This is helping our creator community reach newer and bigger audiences.
In fact, more people are creating content on youtube than ever before.
Last year, the number of Youtube channels that made at least $10000 and revenue was up more than 40% year over year.
And we are continuing to improve support for artists and creators.
More creative than ever are earning money from our non ads products like Super chat and channel memberships.
The shots fund is now available in more than 100 countries.
Another big area for investment is combining the best of AI software and hardware to deliver helpful experiences across our family of devices.
In Q4, we set an all time quarterly sales record for pixel.
This came in spite of an extremely challenging supply chain environment. The response depicts a fix from our customers and carrier partners was incredibly positive.
And AI is making pixel even more helpful. As one example life translate detects whether a chat messages in a different language and automatically translates it and up to 48 languages.
We're also focused on ensuring devices across Android and chrome ecosystems worked well together for example at CES last month, we announced that we are working with Acer HP and Intel to bring great experiences to their devices.
Also announced at CES the neural open standard will broaden the capabilities of radar technology opening the door for new products and services.
Another priority is ensuring our products and services are private secure and safe.
And I'll note, our new privacy sandbox proposal called topics API.
We think it'll be a big improvement for productive user privacy, while also ensuring businesses are able to thrive online.
We will begin testing this year and look forward to feedback from the industry.
Next onto cloud.
It's been a big year. So let me go a bit deeper this quarter.
In Q4 cloud revenue grew 45% year over year to $5 5 billion.
Alphabets backlog increased more than 70% to $51 billion, most of which is attributed to Google cloud.
This growth comes from many leading businesses, including Albertsons, and Lv image digital natives, including box and Spotify and public sector agencies, including the Commonwealth of Massachusetts, The defense innovation unit and the USDA.
Our sales force, which we have more than tripled since 2019 delivered strong results across geographies products and industries and.
And we continue to invest.
For the full year 2021, compared with the full year 2020, we saw over 80% growth in total deal volume for Google Cloud platform.
And over 65% growth in the number of deals over $1 billion.
Our partner ecosystem is helping accelerate our growth further.
For the full year 2021, compared with the full year 2020.
The number of customers spending more than $1 million through the marketplace increased by six six.
Customer spend through channel partners on GCB more than doubled.
And the number of active certifications within our top global systems integrators more than doubled as well.
Our product leadership continues with more than 2000, new cloud product and feature releases in the last year.
These were in four categories.
First our data cloud and our AI ml platform is helping organizations like Cartier group, Russia, and Mitsubishi heavy industries understand and use their data intelligently across multiple clouds.
Our fast secure data sharing capability helps the national Cancer Institute advanced breast cancer research.
Our unified data Lake and data warehouse, which brings together unstructured and structured data helps tell us and Tyson foods improve their understanding of customers.
And our AI ml platform halcyon deliver better customer experiences.
Second our open multi cloud infrastructure enables customers like BBVA and Wells Fargo to run Michelle critical systems on a cloud.
We believe new auto scaling and our kubernetes engine, which allows customers to run 15000 node clusters.
Al scales to competition by up to 10 times.
Our edge cloud helps us grow in telecommunications driving partnerships in Q4.
With Intelsat or redo Hutchison Telenor and Verizon.
They joined existing customers and partners, including Ericsson Alliance deal and Nokia.
Third our cyber security products are helping protect organizations like ANZ bank, Meditech and wafer as a trusted cloud provider.
Wireless total helps protect organizations from software supply chain vulnerabilities.
<unk> and security Command center help organizations detect and protect themselves from cyber threats.
I'm a fraud prevention identity verification solutions are predicting over 5 million websites.
Finally, our secure communication and collaboration platform, Google Workspaces, helping public sector organizations like USAA.
And the U S Air Force Research laboratory, as well as global brands, including Colgate and Raj adopt secure hybrid work.
Our new work safer program launched in Q4 provides the highest security for email meetings and documents by bringing together, Google Workspace tightened security Keys Zero Trust and other security advances.
Customers come to Google cloud because of our expertise in bringing enterprises and consumer ecosystems closer together.
One example of Shopify.
From Black Friday through cyber Monday, Shopify reported $6 $3 billion in global sales by 47 million customers all safely transacted on Google cloud.
Importantly, we have made progress operating 24, seven on carbon free energy and continue to provide customers the cleanest cloud in the industry.
Onto our other bets.
October marked the one year anniversary of our <unk>, one fully autonomous commercial ride hailing service in Arizona.
In San Francisco hundreds of Fridays started using venmo, one as part of our trusted tester program, but many more on the waiting list.
<unk> continues delivering freight into the southwest U S and developing partnerships with key industry players.
Before I close I want to say, how proud I am of Google's work to help but economic recovery around the world.
Nearly a third of small business owners say that without digital tools. They would have had to close their business during the pandemic.
Digital skills have also been a lifeline to help people find jobs and grow their careers.
Since 2014, we have provided digital skills training to over 90 million people around the world.
In the months and years ahead technology will help unleash new opportunities globally, especially is hundreds of millions more people come online in places, including Southeast Asia and Africa.
With that let me thank googlers everywhere for their contributions this quarter and throughout 2021 over to you Philip.
Thanks, Sundar hi, everyone, it's great to be here today.
We're pleased with the growth in Google services revenues in the fourth quarter year on year performance was driven by broad based strength in advertising spend and strong consumer online activity.
In the fourth quarter retail was again by far the largest contributor to year on year growth of our ads business Finance media and entertainment and travel were also strong contributors.
Before we dive into some of the trends that drove this quarter's performance, let Sumatra second quarter.
Quarter after quarter for the last 24 months, we set that the world is in flux that the recovery is uneven that uncertainty is the new normal Q4 proved no different what we know for certain though that businesses are the lifeblood of a thriving economy and our role in helping them remains more important than ever.
AI continues to power our ability to help via insights new tools and automation.
The same cutting edge AI, that's advancing our understanding of everything from search to protein folding. It's also driving innovation across our ads products.
Let's start with automation.
It's become a key differentiator for businesses and navigating complexity and efficiently reaching customers wherever they are in a privacy first wave.
Our newest campaign performance Max when global in November and has been quickly embraced by advertisers. It brings the best of Google ads, AI and automation together to let brands promote their businesses across all Google surfaces from a single campaign, helping them drive more online sales leads and or foot traffic.
It's also an example of how we are radically simplifying our products and making them easier for customers to use.
French children's wear retailer Chiba tool chest that pemex over a three week period return on AD spend jumped 35% click through rates increased 40% and valuable insights gleaned into what messaging resonated most.
We've also developed our insights tools for new features launched in Q4, including demand forecast, which uses ml to help businesses predict forward looking trends and better understand what goods to stock and what services to offer win.
Whether it's insights automation or new features.
Our work to help businesses more easily connect with their customers has been nonstop.
On top of the 100, plus enhancements made to our ads products every quarter. We've launched 200 plus features and tools since March 2020.
A recent example, we made it easier for businesses to claim and verify the business profile on Google search and maps and respond to customer messages directly in search in Germany completed business profiles receive an average of over five times more calls versus those that arent for an SMB that can be really meaningful.
Let's transition to retail, where we had a terrific quarter since the beginning of the pandemic, we have seen ongoing shifts in consumer spending patterns pre COVID-19 . Each year, we saw increased spikes in demand between black Friday and cyber Monday, what's interesting is that in 2020 and again in 2021, we actually saw sharp start shopping earlier and spending more throughout the <unk>.
In Q4, we also saw apparel lead year over year retail core growth with hobbies and leisure close second.
I've said it before I'll say it again the future of retail is omni channel and we continue to invest in new features and nextgen experiences, so merchants and shoppers can benefit.
Global searches for gift shops, near me jumped 60% year over year in October with searches for gifts near me up 70% in Google maps people increasingly want to know what's available nearby before they get to the store.
Our new in stock filter helps with just that shoppers can find local stores that carry the products. They want right from search like in your tennis racquet or that last minute birthday gift showing in store availability helps businesses attract local customers and they've caught on one in four local offers across shopping and Google Dot com are taking advantage of.
If our curbside pickup batch.
You'll also want deals they're looking for a value for shoppers, we made it possible to browse and discover the hottest deals for major moments like Black Friday, and cyber Monday on search for merchants, we made it even easier to list promotions via automated imports from third party integrations like Shopify and will commerce, moving inventory, attracting new customers and building.
Loyalty during the holidays and beyond got a lot easier in Q4, the number of merchants using promo features jumped 280% year over year.
Retailers are also turning to us to help them transform and accelerate growth take won't be Parker, who drove a 32% year over year increase in its Q3 sales by not only opening stores and expanding its contact lens business, but also by tapping into Google across surfaces.
The churn in the bidding smart shopping campaigns and an expanded presence in maps to promote in store eye exams contributed towards success and it's since launched its first ever brand awareness campaign on Youtube.
Which brings me to Youtube, where a commerce opportunity remains a really exciting we're making it easier for viewers to buy what they see and simpler for advertisers to drive action with innovative solutions like product feeds and video action campaigns and emerging formats like life Commerce.
That country Dot com generated a 12 to one return on that spend with product fits in 2021 and plans to double its investment in 2022, while Samsung Wal Mart and Verizon partnered with creators to host tropical holiday livestream events in the U S.
As for our brand business momentum remains strong we continue to make inroads in unlocking TV brand budgets and we're still in the early innings of what's possible with connected television.
Let's take a minute to double click into the full funnel trend I talked about last quarter.
<unk> ability to drive both massive reach an action, that's becoming more clear to more advertisers in a recent study.
Our advertisers who added Youtube branding formats, not only drove increased reach but also averaged 9% more conversions at the same time, we see more brand advertisers, adding action like Nike Korea, which saw higher conversion rates and drove 50% plus incremental reach by adding video action.
Another huge focus for us is continuing to deliver for our partners and key ecosystems, all while delighting users.
Our expanded partnership with snap to deliver a first of its kind quick tap to snap feature is a great example on picks before it with five G or newer pixel phones users can access snapchat directly from their lockscreen, making pixel the fastest phone to make a snap.
And then across our pixel and they our teams working with the NBA to create exciting immersive experiences for fans using three D and our technology.
The the lighting doesn't stop there with Adobe we are collaborating on a multiyear journey to bring photoshop illustrator and its other flagship products to the web a testament to the web as a first class platform for creativity and productivity.
As we close out another extra ordinary and challenging year I want to express deep gratitude to our customers and partners for their trust and collaboration our success is only possible because of their success.
I also want to say a gigantic thank you to our product engineering partnership seals and many support teams for their outstanding work and unwavering commitment to helping our users customers and partners roof over to you.
Thank you Philip we are very pleased with our performance in the fourth quarter and for the full year, which reflected broad based strength in advertiser spend and strong consumer online activity as well as substantial ongoing revenue growth from Google cloud.
My comments will be on year over year comparisons for the fourth quarter unless I state otherwise, we will start with results at the alphabet level, followed by segment results and conclude with our outlook.
For the fourth quarter, our consolidated revenues or $75 3 billion up 32% or up 33% in constant currency rounding out a strong year. Our total cost of revenues was 33 billion up 26%, primarily driven by other cost of revenues, which was $19 6 billion up 20.
5%.
The biggest factors here were first content acquisition costs, primarily driven by costs for youtube's advertising supported content followed by costs for subscription content second hardware costs and third costs associated with data centers and other operations, including depreciation.
Which were offset in part by the impact of the change in useful lives made at the beginning of 2021 opt.
Operating expenses were $20 5 billion up 35% in terms of the three component parts of the Opex first the increase in R&D expenses was driven primarily by head count growth.
The growth in sales and marketing expenses was driven primarily by increased spending on ads and promo for the 2021 holiday season in contrast to the sizable pullback in the fourth quarter of 2020.
Finally, the increase in G&A reflects the impact of charges relating to legal matters as well as charitable contributions.
Operating income was $21 9 billion up 40% and our operating margin was 29% other income and expense was $2 5 billion, which primarily reflects unrealized gains in the value of investments in equity Securities. Net income was $20 6 billion, we continue to generate.
Strong free cash flow with $18 6 billion in the quarter and 67 billion in 2021.
We ended the year with $140 billion in cash and marketable securities. We also repurchased a total of 50 billion of our shares in 2021, well, let me now turn to our segment financial results, starting with our Google Services segment.
Total Google services revenues were $69 4 billion up 31%.
Google search and other advertising revenues of $43 3 billion in the quarter or up 36% with broad based strength across our business led again by strong growth in retail.
Youtube advertising revenues of $8 6 billion were up 25%, reflecting strength in both direct response and brand advertising.
The deceleration in the growth rate versus the third quarter of 2021 was driven primarily by lapping a strong recovery and brand in the fourth quarter of 2020.
Network advertising revenues of $9 3 billion were up 26% driven by Admob.
Other revenues were $8 2 billion up 22% driven primarily by growth in hardware, which benefited from the successful launch of the pixel <unk> and pixel <unk> pro as well as the addition of Fitbit revenues followed by Youtube non advertising revenues.
In terms of Google services costs, Tac was $13 4 billion up 28% Google services operating income was 26 billion up 36% and the operating margin was 37%.
Turning to the Google Cloud segment revenues were $5 5 billion for the fourth quarter up 45%.
<unk> revenue growth was again greater than clouds and that reflects significant growth in both infrastructure and platform services.
Strong revenue growth in Google Workspace was driven by solid growth in both seats and average revenue per seat.
Cloud had an operating loss of $898 million.
As to our other bets for the full year 2021 revenues were $753 million. The operating loss was $5 3 billion for the full year 2021 versus an operating loss of $4 5 billion in 2020.
Let me close with some comments on our outlook. We are nearly two years into a global pandemic that has brought unprecedented change and uncertainty in the macro environment.
Throughout these difficult times Googlers have remained focused on delivering helpful services for users and partners as well as on driving innovation for long term growth in terms of outlook by segment for Google Services. We are very pleased with our year on year revenue growth in Q4 and for the full year 2021, which.
<unk> to be driven by broad based advertisers strength and strong consumer online activity.
Year on year growth rate also reflected a benefit from lapping COVID-19 related weakness in 2020, which obviously will not be a factor in 2022.
Within other revenues, we are pleased with the momentum from pixel sex and pixel six proud reflected in our hardware revenues in the fourth quarter. As a reminder, hardware revenues in 'twenty 'twenty. One also reflected the acquisition of Fitbit, which we lapped a couple of weeks ago.
With respect to play the underlying consumer spend and engagement trends remained healthy in the fourth quarter that being said in 2020 to Google play's contribution to revenue growth will reflect the fee changes we started to implement in the third quarter of 2021.
In terms of investment levels within Google services, we're focused investing meaningfully in the many opportunities we see for growth turning to Google Cloud 2021 represented another year of substantial growth our investments in our go to market organization product innovation and partner ecosystem have been paying off.
As we help customers with their digital transformation.
You can see the Google cloud revenues increased by 47% for the full year 2021, compared to 2020 with G. C. P revenues continuing to grow at a faster rate than cloud overall.
While cloud operating loss and operating margin improved in 2021, we plan to continue to invest aggressively in cloud given the sizable market opportunity. We see we do remain focused on the longer term path to profitability and overtime operating loss and operating margin should benefit from increased scale.
At the alphabet level in the first quarter based on current spot rates, we expect the foreign exchange impact on reported revenues to be a headwind with respect to alphabet head count we added nearly 6500 people in the fourth quarter and the majority of hires or for technical roles. We.
Continue to attract great talent and expect a strong pace of hiring in 2022 across alphabet.
Turning to Capex the results in the fourth quarter, primarily reflect ongoing investment in our technical infrastructure, most notably in servers to support ongoing growth in both Google services and Google Cloud. We also increased the pace of investment and fit outs and ground up construction of office facilities.
In 2022 we expect a meaningful increase in Capex and technical infrastructure servers will again be the largest driver of spend.
With respect to office facilities after fairly muted capex over the past two years, we have re accelerating investment in fit outs and ground up construction.
Recently, you've also seen us pursue real estate acquisitions, where they make sense. For example last month, we announced plans to purchase for $1 billion. A previously leased headquarters building in London and in the first quarter. We have completed the $2 1 billion dollar purchase of a New York Office building that we announced in the third.
Quarter of 2021, Thank you and now Sundar, Philip and I will take your questions.
Thank you as a reminder question you will need to press star one on your telephone to withdraw your question. Please.
Okay.
Background noise.
Mute your line once your question.
And our first question comes from the line of from.
From Jpmorgan. Your line is now open.
Thanks for taking the questions one for Sundar and one for Ruth Sundar Firstly.
Curious to get your view on web three <unk>, how youre thinking about alphabets approach and where your primary efforts here may lie going forward and then Ruth you mentioned the 6500 increase in head count I think it was the biggest that you've seen in any quarter ever I know youre catching up on hirings in the last several quarters, but can you just help us.
Stand a little bit more on where these investments are going in tech and how to think about the cost structure in 'twenty two.
Yeah.
Thanks look I'm I'm.
Anytime there is innovation I find it exciting and I think it is something we want to support the best we can the web has always evolved and it's going to continue to evolve and and you know and.
As Google we have benefited tremendously from open source technologies and so we do plan to contribute there.
There's several areas of interest.
Ah is a big one at the computing layer.
And missing there for a long time, and we will continue to play a role and it's something both not just at the computing later the services layer B maps Youtube, Google meet et cetera, I think will contribute a lot.
On web III, we are definitely looking at blockchain in such an interesting and powerful technology with broad applications.
So much broader than any one application so as a company. We are looking at how we might contribute to the ecosystem and add value.
Just one example, our cloud team.
Is looking at how they can support our customers' needs in building transacting storing value in deploying new products home.
Blockchain based platform. So we'll definitely be watching this space closely and supporting it where we can all we're all I think.
Technology will continue to evolve and innovate and you know, we Wanna be pro innovation and approach it that way.
And in terms of head count we do continue to be a magnet for great talent. The number of applications is up year on year and it's as I said as he noted we added almost 6500 people in the fourth quarter. We do expect a strong pace to continue and it really goes to the comments from Sundar from Philip and for me. We're excited about the opportunities ahead of us.
And you know in particular.
Google services, Google Cloud, we're adding we intend to ensure we have the scale that we need to execute well and so we're continuing to hire as I said the the majority were again and technical roles and are really pleased with the opportunities we see ahead.
Okay.
Thank you.
Thank you and the next question comes from Eric Sheridan from Goldman Sachs. Your line is now open.
Thanks, So much maybe two questions. If I can first following up on Doug's question. Susan has been writing a fair bit on Youtube and the way it's exposed to the creator economy, and what you're trying to build for the medium to long term can you talk about elements of the creator economy, and how it sort of fits into your products both on the advertising side and the commerce side over the medium to.
Long term and then Ruth maybe just one follow up on the expense side was there anything of a one time nature in Q4, because just looking at some of the corporate expense or some of the elements of the core margin just trying to make sure. If there were any one timers that needed to be called out because I think you've talked about legal and charitable donations as well just so we can.
Model that right. Thank you.
Yeah.
On on Youtube look one of the Youtube from day one.
Very focused on making sure we can support creators as well.
It's been a big part.
And and even recently.
I mentioned in my remarks earlier about the growth we are seeing not just in ads, but beyond ads, but super chat channel memberships and so on Susan mentioned in her create a letter.
That.
While early there'll be taking a look at and ft, and so on but with the view towards making sure the user experience works.
And but there is value we are constantly thinking about how we can support and do more for creators. So that's going to be an integral part I think all the commerce experiences we are thinking about in Youtube as a whole of additional layer of opportunity and again, it's another area, where it all feels very early to me.
We are seeing tremendous traction in Youtube across newer areas, a b podcast gaming learning sports and so across all these areas will kind of take a vertical specific look and see how we can support creators better.
And then in terms of expense.
I gave a number of the items R&D was was mostly an increase in head count in sales and marketing.
We'd note that sales and marketing was elevated in the fourth quarter by ads and promo and part to support the holiday season, and more so than than last year, the additional items to.
To note that I called out is in the fourth quarter. We did have a onetime wellbeing bonus. We also had a year on year increase in charitable contributions, including a higher googlers gift to match and in fact, I would say that it's more helpful. In particular on the.
Corporate costs allocated to think of that line on a trailing 12 month basis, because it can be lumpy to your question.
Thanks, so much.
Thank you and our next question comes from Brian Nowak from Morgan Stanley . Your line is now open.
Great. Thanks for taking my questions I have two.
Maybe the first one for Philip.
Made so much progress over the last 12 months to 24 months about improving the retail and E Commerce search product for advertisers as you look across the other verticals of search.
Where are you most excited or see the most opportunity for innovation to really drive more value for advertisers and non retail verticals as we go into 2022 and the second question.
Philip <unk> you both talked about the commerce shopping opportunity on Youtube. He just sort of talk to us a little bit about what aspects already built out versus what areas of innovation or hurdles you still have to clear to really realize that commerce opportunity on Youtube.
Yes. Thank you so much for your question look consumers now have a lot of different ways to access information and more than they've ever had before and searches just one of them, but we're constantly trying to innovate and improve the experience for both users and advertisers.
Over the long term and as I've discussed previously I can share some of the questions. We actually ask ourselves to give you a sense of how we think about the opportunities. So the first one obviously.
Are we the best plays use us turn when they need information or want to discover and be inspired.
So things like core eastern discover and we're focused on providing better and more comprehensive answers to more types of questions and we need to obviously to deliver high quality relevant info for all types of queries, including ones, where they may be looking for a specific brand or product or just look for an inspiration.
And how people search is changing and it needs to become more multimodal more conversational. So what does that mean for ads for example.
So getting user experience right across commercial queries is essential way beyond obviously the area that you mentioned and there's a lot of innovation that goes into this.
The second part is really are we providing the most relevant ads when and where consumers are and we only want to show ads when they're helpful to people on 80% of the shares searches actually we are showing no top adds in most of the ads that you see are on searches with commercial intent and where.
For those with commercial interests. The question is really how do we provide the best answer in a way that's meaningful to use us.
Wherever it has it actually have something relevant to offer and then the last the third point is really the question is around and disclose again for the vertical you mentioned, but for many many beyond are we delivering the most conversions for advertisers at the best ROI and there's a lot of intelligence in our auction to deliver great ROI for advertisers, but there's always more we can do.
We're delivering or are we delivering the most relevant users by leveraging our users signals are we building the best creative by combining advertisers assets in ways that make it compelling for user.
Have we predicted the value of the user for that advertisers. So we can help appropriately bid for each search.
With a unique use your inquiry combinations we need.
We fully measure what users do after they click on ads from buying something to making phone calls so downloading apps and all across devices.
So those are those are a lot of different things, how we think about the runway ahead.
Maybe quickly on Youtube and Commerce look one thing I would say is across both across both our search Youtube and other areas. There's a lot of common infrastructure. That's getting done right. So does this focused on merchant onboarding merchants and all the all of the back end. So that we can have the <unk>.
Artist and the most comprehensive inventory available in that our partnership with the.
Other e-commerce platforms as a as a basic foundational layer we are putting in.
And specifically on Youtube, while pretty early there's a lot of pilots underway.
Just we have introduced a creative tagging pilot program. So there'd be was gonna choice to browse and shop products featured in the favorite videos.
Piloted shopping live streams with brands like Walmart and target and more broadly including product feeds more globally in video action campaigns. So theres a lot more to do Super early also on testing how shopping can be integrated with shots and so again early but I find the opportunity space here.
Pretty broad and it's exciting.
Okay. Thank you both.
Thank you.
Just don't come from Justin Post from Bank of America. Your line is open.
Great. Thanks, maybe one for Sunday and one for Ruth.
First on search very strong growth just maybe you could help us understand where you are in kind of the AI cycle of of improvements there, but there's still a lot of room to go. There you have highlighted several earnings reports and second is there any fundamental reason why search can be higher growth today than it was pre pandemic.
And then and then over to Ruth cloud had impressive growth I'm, assuming the infrastructure layers is highest in the sector and it grew 500 million plus quarter over quarter.
But margins did come down and so I'm just kind of understanding.
What drove that and then what it's going to take to really show good leverage there. Thank you.
Yeah on the first part.
We obviously.
In our investing deeply in AI R&D across both Google AI and deep mine in and so and then we take that and apply it across the company, but particularly in the context of search.
Search and so that's.
That's what underlies bird maam pathways.
And Lambda to power conversational experiences and so I when I look at the tip of three about Estevan.
As to where the research on the AI side is progressing.
You know, it's it's progressing at an incredibly rapid pace, we are committed to leading there and then we have real good interfaces between the AI teams in our core product areas are product area teams, including search to kind of product types. This.
So primarily I think you're going to continue to see us lead in search quality I just fine.
The low end of information is only continuing to grow and.
It's getting increasingly multi modal in nature, just like we took the leap from text to images thinking through video audio incorporating it and then providing it back to users regardless of whether they are typing speaking, we're looking at something wanting an answer that's.
That's the journey between AI and search and we'll continue doing that.
And in terms of the cloud.
We sat back of the comments that both soon.
And I made overall, we're very pleased with the ongoing progress in the business and that's reflected in the revenue growth as you noted at our backlog the breath of customer wins in our industry verticals. Our view is that we're in an extraordinary time to help customers digitally transform their businesses and the key thing is we believe it remains very early innings.
As a result, our focus remains on revenue growth and investing.
As needed as we're looking over the long term, we're continuing to invest aggressively in it it's in our go to market capabilities. It's our product sets our infrastructure, we do remain focused on the longer term path to profitability.
But we are continuing to invest here as we're seeing you know early innings and I'm pleased with the ongoing progress.
Okay. Thank you.
And then next question comes from Mark Mahaney from Evercore ISI. Your line is now open.
Okay.
I'll try two questions I just want to follow up on Justin's question about search growing faster than pre pandemic I think Philip you talked about a couple of areas within search and you know retailers at the front of the list I think you mentioned and a few other categories travel was always a big category do you feel like travel has come back full or as it travels still sort of underperforming for macro reasons versus where it was pre <unk>.
And then Ruth fee just on the share repurchases I think that was a record level in the quarter. How should we think about the share repurchases going forward is to what extent is it opportunistic versus I don't know systematic or systemic way you think about returning cash to shareholders. As every year your free cash flow rises. Thank you.
Yes. Thank you look I said earlier that travel was a contributor to our year on year growth in Q4, and we were encouraged by the performance we saw throughout much of the quarter, but we found that user behavior tends to reflect what's going on in the world and demand really continues to vary based on location and type of activity and this has been more pronounced in light of all my Crum.
We've seen changes in travel search behavior as preferences have evolved searches for.
Outdoor destinations like beaches parks in camping have increased while searches for museums for example have declined.
Overall, I think it's fair to say that travel has generally been sensitive to outbreaks and that theres still unevenness that makes it too soon to say what trends are here to stay and which pre pandemic habits are coming back.
That said as people think about where they want to go next they are coming to us to help them navigate a patchwork of information in fact from the end of August to the end of October searches for travel rules were up over six times globally year over year, and we've launched a ton of new features to make it easier for people to understand changing travel restrictions and requirements.
And similarly for travel partners, we've pivoted our product strategy in big ways.
To help whether it's with slight demand explorer and travel insights to help partners predict demand over making it free for hotel and travel companies and no touring activity operators to list their booking links.
And I'm sure you all saw a big sustainability news in October a new info on Seo to in Google flights Eco friendly hotels, new eco friendly routes and map. So lots of important work is being done here actually to help our users and businesses drive a more sustainable choices and just overall help our travel partners in the industry at large.
In terms of the share repurchase.
You talked about on prior calls we do view the share repurchase program as valuable and are pleased that we were able to increase the authorization to $50 billion.
Last year, you've seen that we've increased the pace quite a bit over the last several years from 18 billion back in 2019 to 50 billion as I said for the full year 2021.
And are just continuing to execute against that we do have additional capacity under the existing authorization and just continuing to execute against that do you view it as incremental incrementally valuable.
Okay. Thank you.
Thank you and our next question comes from like a local company.
Your line is now open.
Thanks, I have a couple sundar and they fill up Sundar I'm just interested.
And the decision you announced this week to move away from Federated learning go to topics. So you've talked a bit about the reason and the rationale why doesn't that change.
When it's walk was first announced it was pattern would be very effective.
Relative to cookies as a signal for advertisers.
These can be impacted as you go away from cookies, two topics on ROE as Ana and budgets and then Phil I think during the pandemic one of the big growth Spurts has definitely been connected TV you talked a bit about what you see the scene with connected television and how important drivers of that and then as hopefully we get back to normal what are you doing on a product side to me.
Youtube on CTV, even more.
Engaging as time goes on.
So I can take the one for Sundar. So the chrome team has been really focused and working independently on privacy sandbox.
You all know is our initiative to build privacy preserving on device technologies that will power the future of digital advertising and obviously as a result of free and open web and just last week, we announced our newest privacy sandbox proposal called topics and Topix was informed barrel learnings plus widespread let me call a community feedback from our early a flock trials.
We'll now actually replace Ofer the floor proposal I urge you all to read last week's block for the details, but basically the topics API will allow advertisers to show a relevant ads to people based on their interests and for it from the websites. They visit all in a more private way for users and from an advertiser's perspective, which is a big part of your question. It's obviously way too early to say.
More of it because we're just opening this up to the world, we expect to make it available for testing by the end of Q1, but we're really focused on designing for both parties from an advertiser and privacy point of view and are committed to making sure. Our goals are met on both sides.
On the second one the connected Tvs opportunity streaming in the living room has exploded we've seen it firsthand connected TV is our fastest growing screen and we think there's a ton of runway ahead.
Brands are getting the best of all worlds the precision of digital with the scale of linear and a lot more relevance.
They can personalize ads at scale and he was a video AD sequencing to tell powerful stories and we've recently added action to the mix.
Video action campaigns were upgraded in October to automatically includes CTV inventory, which means you just get a more helpful viewing experience and our brands get to drive more online sales and or leads.
And just think about it like the traditional TV screen.
Quote unquote desk screen that viewers have essentially stared at for decades is now starting to come alive with the ability to drive conversions and it's pretty cool measurement is also obviously a key component to success here and we want to make sure that advertisers can fully measure their Youtube CTV video investments across Youtube and Youtube TV for an accurate view of true incremental reach and frequency and.
So on and in the U S advertisers actually can do this now if you're a comscore and Nielsen.
So all in all we are excited by the opportunities ahead with connected TV I think we're just getting started.
Thank you.
Thank you and our next question comes from Brent Thill from Jefferies. Your line is now open.
It sounds like there was a good Q4 AD flush the.
The concept of spending it.
Got it and I'm just curious about the seasonality of this year and if you expect the year to be more backend loaded or do you feel like.
It's a little more a more balanced as we go through this year.
So overall, we did see strength as you're going through the year as I indicated there was broad based.
Our broad based advertisers strength, there was strong consumer online activity and those are really the primary drivers.
I think the.
The one place that that that comment Mike.
It might be more relevant Israeli and understanding the year on year within Youtube relative to last year, where there was strength this year relative to that.
Real strength this year, but what we saw last year was more in line with your I think your question, which was after a week beginning of the year, a very strong fourth quarter last year, we were lapping that very strong quarter last year and so that explains some of the year on year growth comparisons that overall are the key driver was the backdrop, that's broad based advertising support and spending.
Thanks.
Thank you and our next question comes from Foreign Kamran Khan BMO capital Michael Your line is now open.
Great Good afternoon, everyone.
Two questions for Sundar.
First of all you mentioned that investment in artificial intelligence.
Yeah.
Exactly.
What are the three ways that you think AI has helped your advertisers.
Your AD revenue growth the most.
And then second.
Seen a variety of new bills introduced in the U S. Congress recently that seem to take aimed squarely at large technology companies like alphabet.
What do you think that these bills have right and what do you think that they have grown thank you.
So two things.
On the on AI and advertising.
After I answer the second part pass it to Filipe to give more details, but definitely again. The overarching thing is the same AI advancements we want to make it simpler for advertisers to run campaigns and Theres a lot that goes behind it to drive that simplicity and Philip can give a bit more detail.
Sure.
On your question about about about Congress antitrust bells.
You know as a company we have always been a constructive in how we have approached and we are open to sensible updated regulations. It's important that technology is beneficial to society and.
And so for example, there are many areas where there's widespread agreement.
Call for privacy regulations, particularly at the federal level updating predictions for children and so on are on some of the current proposals are.
They quite don't address those issues.
There are areas, where we are genuinely concerned that they could break a wide range of popular services to be offered to our users are all of the work we do to make them make make our product safe private secure et cetera, and in some cases can hurt American competiveness by it.
Advantages solely U S companies, So you know broadly.
When we when we think about building many features.
Do we have to think on each feature.
<unk> 3000 features in.
Search alone every year.
How do we make sure that complies with all the regulation, where do we proactively need approvals and so on so those are those all can have on.
Unintended consequences.
Worried about the impact on small business and local retailers have told us that our customers as well having said that we are committed to approaching it constructively, we always wanting to engage in.
Do things in a way that's beneficial for society and.
Will we urge Congress to take time to consider the unintended consequences and.
I think we will remain focused on building great products for our users.
So back to the first question you ask on AI and the impact on our ads products we cover.
<unk>, we talked about it we talked about insights page in search I would say, we see an emergence of a real let's call. It a better together story fueled by machine learning and automation.
Advertisers are leaning more into automation using responsive search ads to create and select the best performing creatives matching with more relevant search queries using broad match keywords setting optimize bids with auction time signals smart bidding.
There are a few examples where using morelia to help advertisers measure their results and bid intelligently with data driven attribution for example, where she was very advanced ml to more accurately understand how each marketing touch point actually contribute to a conversion all obviously, while respecting user privacy broad match keywords are a big part of this rehab.
Responsive ads on display and discovery they use text image and video assets from advertisers and predict the best combination of assets to show in any size of format on Google properties or the display network.
Yes, so I think AI and ml will only get better and so will our tools and we're helping advertisers leaning into automation and identify new opportunities as a.
Central part really of the recovery and growth strategies.
That is more than two to three so thank you for that and thank you Sundar for your comments as well.
Thank you and our final question comes from the line of Stephen Ju from Credit Suisse.
Line is now open.
Okay. Thank you so much I'll stick to one so.
So zooming out a little bit on the big picture.
So I think it was almost four years ago.
When Google released a blog post about the next billion users.
And how it's developing products for India and other emerging markets will hopefully.
And for what you should be doing everywhere else. So I think you had previously talked about <unk>.
Being a pretty notable example, there so.
Can you talk about whether we should continue to be looking overseas to think about what direction you might take across your various products and services.
Thanks, Stephen Great question, and I think that trend is.
Going to continue you mentioned, obviously payments and.
Definitely it has informed our payment strategy globally.
In general we are trying to think deeply about these newer markets.
But you know it really lines up with our mission of building a more equitable internet for everyone.
Couple of the things we've done recently, if you you know a year ago, we announced a $10 billion, Google for India, Digitization fun and a reflection of our confidence in the future of India is digital economy.
Our desire to build products, there, which we think will help us globally and in last year and up towards 2021 .
We announced our plan to invest $1 billion in Africa again again with.
With the goal of supporting entrepreneurs, helping businesses with their digital transformation and beginning to build products and <unk>.
Africa for African users, which I think will help us take learnings outside I already see it you know when I look at Youtube in India. Some of the Commerce ideas. We talked about earlier you may see us first straight in India first.
Because we can get a quicker feedback are very dynamic.
Youthful population and so we will do it there and then roll it out globally. So we are constantly looking for opportunities like that.
Thank you.
Thank you and that concludes our question and answer your question I'd like to turn the conference back over to Jim Ryan for any closing remarks.
Thanks, everyone for joining us today, we look forward to speaking with you again on our first quarter 2022 call. Thank you and have a good evening.
This concludes today's conference call. Thank you for participating.
You may now.
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