Q1 2022 Alphabet Inc Earnings Call
Welcome everyone and thank you for standing by for the alphabet first quarter 2022 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 to ask a question. During the session you will need to press star one on your telephone if you require any further assistance. Please press star zero I'd now like to hand, the conference over to your Speaker today, Jim Friedland Director of Investor Relations. Please go ahead.
Yeah.
Thank you good afternoon, everyone and welcome to alphabet first quarter 2022 earnings conference call with US today are Sundar, Pichai, Philipp Schindler and Ruth correct.
Now I'll quickly cover the safe Harbor some of the statements that we make today regarding our business operations and financial performance may be considered forward looking and such statements involve a number of risks and uncertainties that could cause actual results to differ materially.
For more information please refer to the risk factors discussed in our most recent Form 10-K filed with the SEC.
During this call we will present, both GAAP and non-GAAP financial measures a reconciliation of non-GAAP to GAAP measures is included in today's earnings press release, which is distributed and available to the public through our Investor Relations website located at a B C Dot Xyz slash investor and now I'll turn the call.
Over to Sundar.
Thank you Jim and good afternoon, everyone.
Over the last few months guided by our mission. We continue to develop helpful technologies with a view towards empowering both people and businesses.
Even as more people return to in person activities.
We are seeing hybrid approaches to learning and working are here to stay and our products are helping partners sees these new opportunities.
To help support our own flexible work plans. This theory plan to invest approximately $9 $5 billion in our U S offices and data centers, creating at least 12000, new Google jobs in the U S. In places like New York and Atlanta.
To enable our long term growth we are investing in the areas like cloud AI Youtube search and beyond.
In 2020 in 2021 combined we invest at $40 billion in research and development here in the U S.
Beyond the U S. We have announced new office investments in London in Warsaw, and a new product development center in Nairobi.
We are excited for the product development they will support.
We'll share more about these investments at Google Io, Our annual developer conference on May 11, and I encourage you to tune in.
Turning now to product highlights AI continues to be at the heart of our core search and information products.
We launched multi search in Google search this quarter, it's a new way people can find what they need using both images and words. For example, you can snap a photo of a shirt pattern and then type the word green defined a green shirt with that pattern.
We also shared new features and search to help people find health care providers, who take their insurance and book appointments online.
With ads automation search ads powered by AI are helping our customers quickly respond to the market conditions, most relevant to their business Phil.
Philip will discuss this in more detail.
Let's move to Youtube.
We continue to support our community of creators advertisers and viewers.
With over 2 billion monthly signed in users we are well positioned to do this.
Youtube over the past two years has seen significant growth and has become a central destination for entertainment learning and educational content.
And even as people return to in person activities.
<unk> spent on Youtube has continued to grow.
Justice Youtube all from desktop to mobile and that created huge opportunities. We are excited about the new opportunities we see now sure.
Short form video as one.
Youtube shots is now averaging over 30 billion daily views, that's four times as much as a year ago.
In the first quarter, we added new capabilities to video editing and we are continuing to invest in making shots a fantastic experience for creators and viewers alike.
As we've always done with products, we focus on building a great user experience first and we will work to build monetization over time.
The living room, it's another area of opportunity.
On average viewers are watching over 700 million hours of Youtube content on TV every day and.
In the year ahead, we will give youtube's connected TV viewers, new smartphone control navigation and interactivity features.
Allowing people to comment and share content. They are watching on TV directly from their devices.
Turning.
Next door computing platforms, a few weeks ago, we marked a big milestone or 100 release of chrome and promos.
Over the years, we have worked with developer and OEM partners to improve speed simplicity and security and motivate forward.
Great example of what we mean when we say we are building for the long term.
And on Android will showcase a diode many helpful features and services that Android and its platforms provide.
Over the coming years, we will continue to invest in new form factors seamless multi device experiences and raising the bar for user privacy, while giving developers the tools they need to succeed on mobile.
As you know we have made changes to our Google play pricing model to help all developers on our platform succeed.
Today, 99% of developers qualify for a service fee of 15% or less.
While this impacted our short term results.
We think it's the right long term approach to support the ecosystem and to be the most developer friendly app store and gaming platform available.
We're also exploring alternative billing options and as we do this we will continue to uphold high safety standards that protect the personal data and sensitive financial information.
Earlier today, we launched the data safety section in play where people can access more information about how apps color.
Sure and secure their data.
In hardware pixel six is a huge step forward for the pixel portfolio and it's been great to see the response from pixel users.
It's the fastest selling pixel ever and we are building broad consumer awareness of the brand and making good progress.
I'm excited about the products, we have coming and look forward to sharing more at Google Io.
Next onto cloud, where Q1 revenue grew 44% year over year with continued strong performance across Google cloud platform and workspace.
We continue to deliver differentiated products across four distinct areas.
First cyber security, where we introduced new offerings, including assured workloads to address digital sovereignty and the European Union.
Virtual machine threat detection, a first to market agent less malware detection capability.
And advanced intrusion detection system for network threat detection.
<unk> organizations like T mobile and door dash of protecting their critical systems and data with Google clouds trusted cyber security products.
These include Security Command Center, which helps many companies, including U K G Ultimate Kronos group, and Ocado group monitor and manage their security posture and risk.
Our leading threat detection and response platform Chronicle is now paired with simplified more quickly automate incident detection and resolution.
We also announced our intent to acquire <unk> a leader in dynamics cyber defense in response to help protect customers from the most advanced threats.
Second we continued to evolve our leading data cloud with server less spark to run batch spark workloads.
Lake New storage engine that unifies data warehouses and lakes.
And data Plex, which provides unified management and governance of data across data warehouses and lakes.
Our unified data cloud and AI platform is helping organizations like Keybanc, LG electronics, and macys work intelligently with data across multiple clouds.
Bakery, a leading solution for analytics is helping customers like Kraft pains, Mercado libre and where to help create more personal consumer experiences.
BT group.
Another leading brands continue to tap our deep expertise in artificial intelligence and machine learning to power their organizations.
This includes our contact center AI platform, which helped the home depot improve their call containment by 185 person, creating a more positive customer support experience.
We are proud to share that more than 700 technology partners part of their applications with our data cloud.
Third our open secure infrastructure remains a differentiator as it enables customers to run their workloads and apps, where they need them.
This is winning global brands like denim Bradstreet Boeing and Kyocera.
Product leadership continued with the release of <unk>, which powers price performance, that's more than 40% better than any other leading cloud.
And Google distributed cloud edge, a new edge solution designed to run telecommunication networks at scale, which is helping bell Canada evolve its <unk> network.
And we further expanded our regional footprint globally.
Leading companies like Mahindra choosing us for large scale transformations in migrating their data centers to Google cloud.
While Sony's crunchy role uses our infrastructure and networking capabilities to part of the largest anime streaming service in the world.
Our scalability enables Lin javan, the leading logistics provider in southeast Asia to handle more than 10 extra normal traffic during peak times.
Finally, we continued to advance Google workspace.
To support hybrid work, we recently introduced new collaboration features including bringing Google meet directly into Google Docs sheets and slides.
You can now see and hear your team as you collaborate in real time without the need to schedule meetings.
Google meet can now live stream to up to 100000 people, who can also participate in Q&A and ports.
We also launched the next wave of innovation in Google Docs with smart canvas.
Including auto generated summaries in page list format, and docs smart chips and automating workflow using gmail.
Smart canvas is in very rapid uptake with more than 6 million checklists, and 6 million smart chips being added to documents each week.
These innovations are helping employees adapt to hybrid work with large enterprises like Equifax and Ocean Network Express.
Digital natives, including flip cart and organizations like the University of Alberta.
Finally, our other bets this month <unk> became the first company to run fully autonomous ride hailing operations in multiple locations simultaneously.
Today employees can take writer only trips in San Francisco, joining the growing number of public way more one writers in Phoenix.
<unk> launched its on demand drone deliveries in the Dallas Fort worth area and.
In the first quarter of 2022, when completed over 50000 commercial deliveries.
More than three X year over year.
As you know sustainability continues to be a big focus for us in.
In addition to our own ambitious goals to operate on a 24 seven carbon free energy by 2030, we recently joined frontier, New coalition with stripe and many others jointly covering more than $900 million to ask rate carbon removal solutions.
Before I close we remain deeply concerned about the war in Ukraine, and the humanitarian crisis unfolding in the region.
While I was in Warsaw, Poland last month, I met with many leaders across central and eastern Europe to reaffirm our commitment to the region.
We are finding ways for our products and platforms to be helpful. Including enhanced features on search to help refugees find resources.
Across all of these efforts I feel inspired by the way is that our teams at Google work to help people in moments big and small.
With that let me thank googlers everywhere for their contributions this quarter.
Over to you Philip.
Thanks, Sundar and hi, everyone as always it's great to be with you all.
I wanted to start by echoing Sundar, the one Ukraine at the deepening humanitarian crisis across the region is heartbreaking.
As with our response during the global pandemic, we remain focused on how we can help.
Whether it's air right alerts on Android phones to help Ukrainians get to safety refugee centers life on maps, where new attributes that had hotels share if theyre offering free are significantly discounted accommodations for those in need.
Or whether it's helping via insights, which enabled ukraine's largest person to person marketplace oil ex Ukraine to pivot its product strategy nearly overnight to help people find essential products and services.
Let's take a quick look at our performance this quarter before we dive into the trends that drove it.
And Google services revenues were pleased with the growth in the first quarter up 20% year over year.
Retail was again the largest contributor to year on year growth of our ads business in Q1, followed by travel.
Speaking of travel people are seemingly back on the move whether they are searching for plains passports or the next vacation destination Q1 travel searches were above Q1, 19 pre pandemic levels.
Core growth in categories like beaches, and islands were up 27% versus 2019, while vacation rentals rose 37%.
Compared to last year global searches for passport online jumped 80%, while searches for travel insurance search to X.
We continue to launch new tools to help travel partners reconnect with customers and to help users find the trusted info they need to plan their next trip.
In March free hotel booking links expanded to search and maps travel partners can extend their reach users get a more comprehensive set of options.
And earlier this month, we made it possible for a hotel use to easily share their rates and availability directly on Google via business profile.
Let's talk performance Max our newest AI powered campaign that allows businesses to harness the best of automation to drive the most optimal performance across all Google ads inventory.
Since launching globally in November Pemex has seen strong customer adoption, particularly among smaller businesses Pemex.
Pemex is simplicity shows how we're moving from a model in which businesses needed to understand the complex language of campaigns keyword CPC and so on to a model, where we understand the companys goals and actively help them achieve their business objectives.
<unk>, a leading let them travel assistance company, who first test that pemex to accelerate its recovery in Argentina.
Initial test to drive sales yielded a 40% lower cost per acquisition at a 15 X higher conversion rate versus other campaigns with the same goals.
Early success led assist car to rapidly expand pemex to nine other countries, including Brazil, Spain, and the U S and significantly increased spend on the new format in 2022.
Moving on to retail, where we had another strong quarter.
Consumers are finding a new balance between online and in person Google maps searches for shopping your meat were up 100% globally year over year.
People want to buy from brands that provide a seamless experience wherever and whenever they prefer to shop.
Local businesses and big box retailers alike. This remains a big opportunity.
The channel is still a winning strategy.
We're also continuing our investments to make shopping on Google is effortless delightful and as engaging as possible with rich more immersive content, including more visual and browsable results for apparel and fashion searches and new advancements like multi search in Google search, which launched in beta for shop inquiries earlier. This month, we are helping people go beyond the search box to search anywhere.
And anyway.
Take <unk> beauty, which is still in its early days, but a great example of the innovative and cool experiences we're building to benefit both users and brands.
Shoppers can know virtually discover and try on thousands of products from 90, plus brands, including Maybelline, New York, Mack and Charlotte Tilbury as well as from retailers like Ulta beauty right in Google search.
Let's move on to Youtube.
Brand business had a strong quarter. However, we did see more modest growth in direct response.
For brand we are enthusiastic about what's ahead for connected TV brands are turning to us to tap into the shift to streaming and reach new audiences and smarter and more efficient ways.
Over 135 million people in the U S, where our reach via Youtube on connected Tvs in December .
We've recently rolled out new tools to help advertisers consistently planet measure the CTV spend across platforms.
And later this year in partnership with Nielsen will help brands directly compare the Youtube reached to linear television.
Including the ability to measure co viewing.
This apples to apples comparison will be a game changer in helping advertisers make smarter investment decisions.
According to Nielsen in the U S. Youtube accounts for over 50% of AD supported streaming watch time on connected Tvs among people ages 18 it up.
Over 35% of viewers in this group can be reached by any other AD supported streaming service.
The words were seeing that when users choose to watch AD supported CTV, they choose to watch Youtube and Youtube deliver CTV audiences that advertisers can reach anywhere else.
<unk> are taking notice.
Warner Brothers, who leads to Youtube to help drive awareness among key audiences for the Batman, but.
By using a combination of best performing video creative connected TV media and video AD sequencing Warner brothers expanded its target audience and the two weeks leading up to its release.
Helping contribute to a successful $134 million opening weekend.
For direct response, we continue to believe there's great opportunity to address commercial intent on Youtube between video action campaigns App campaigns product feeds and new life Commerce features.
And Sundar mentioned shorts is another area. We're really excited about engagement is strong and we're focused on delivering great experiences for users creators and advertisers.
In fact, we're testing ads on shorts with products like App install and video action campaigns and while it's still early days, we're encouraged by initial advertiser feedback and results.
Which brings me to our partners and how we're closely collaborating with them to grow and evolve healthier sustainable ecosystems and bring them. The best of Google We continue to focus on accelerating growth in India digital ecosystem and are excited about our expanding partnerships with a number of partners in the region.
And then Sundar mentioned Sony's crunchy role.
<unk> cloud, we're working across Android, Google play, Google TV, and more to help Sony and crunchy role acquire and retain more users and fans and strengthen its leadership in the direct to consumer enemy streaming market.
As always I want to extend deep appreciation to our customers and partners for their collaboration and trust and to our product engineering partnership seals and many support teams. Thank you.
Your relentless focus on helping our users customers and partners makes our success possible now over to Ruth Thank.
Thank you fill up we had a strong first quarter with revenue growth led again by search and cloud my comments will be on year over year comparisons for the first quarter unless I state otherwise I will start with results at the alphabet level, followed by segment results and conclude with our outlook for.
For the first quarter, our consolidated revenues were 68 billion up 23% or up 26% in constant currency.
Our total cost of revenues was $29 6 billion up 23%, primarily driven by other cost of revenues, which was $17 6 billion up 22%.
The biggest factors here were costs associated with data centers and other operations followed by content acquisition costs, primarily driven by cost for subscription content and then costs for youtube's advertising supported content.
Operating expenses were $18 3 billion up 24%.
Head count growth was the primary driver of expense across all three categories research and development sales and marketing and G&A growth.
Growth in sales and marketing also reflects an increase in advertising and promo expense as we ramped back from the lower levels of spend last year.
Operating income was $20 1 billion up 22% and our operating margin was 30%.
Other income and expense was a loss of $1 2 billion, which was driven by unrealized losses in the value of investments and equity securities given market volatility.
Net income was $16 4 billion we.
We again delivered substantial free cash flow with $15 3 billion in the quarter and 69 billion for the trailing 12 months. We ended the quarter with 134 billion in cash and marketable securities. We repurchased a total of 52 billion of our class a and class C shares in the last 12 months.
<unk>.
Let me now turn to our segment financial results.
Starting with our Google Services segment total Google services revenues were $61 5 billion up 20%.
<unk> search and other advertising revenues of $39 6 billion in the quarter were up 24% led again by retail followed by continued recovery in travel.
Youtube advertising revenues of $6 9 billion were up 14%, reflecting ongoing strong growth in brand and more modest growth in direct response.
The deceleration in the year on year growth rate, primarily reflects lapping of the exceptional performance of direct response that we called out in the first quarter of 2021.
Network advertising revenues of $8 2 billion or up 20% driven by Adsense and Admob.
Other revenues were $6 8 billion up 5% the growth rate reflects substantial growth in Youtube non advertising revenues driven by subscriber growth in Youtube music and premium and Youtube TV, which were largely offset by a year on year decline in play revenues primarily as a.
Salt of the pricing changes that we've discussed with you previously.
In terms of cost lithium Google services tack with 12 billion up 23% Google services operating income was $22 9 billion up 17% and the operating margin was 37%.
Turning to the Google Cloud segment revenues were $5 8 billion for the first quarter up 44%.
<unk> revenue growth was again greater than clouds, reflecting significant growth in both infrastructure and platform services.
<unk> revenue growth in Google Workspace was driven by solid growth in both seats and average revenue per seat Google cloud had an operating loss of $931 million.
As to our other bets for the first quarter revenues were $440 million and the operating loss was $1 2 billion.
Well, let me close with some comments on our outlook. We're pleased with our strong results in the first quarter, which reflect the benefit of investments. We've made over many years, we remain committed to investing to continue to build helpful technologies in support of long term growth notwithstanding the uncertainty in the global.
The outlook then.
The most visible reflection of our focus on long term performance is our continued investment in talent and compute capacity across the company.
In terms of outlook by segment for Google services, the revenue growth rates, we delivered in 2021 in our advertising businesses benefited from lapping the COVID-19 related weakness in 2020.
Obviously, we will not have that tailwind for the rest of this year.
As discussed in prior calls.
Largest impact from Covid on our results was in the second quarter of 2020, which means that in the second quarter of 2022, we will face a particularly tough comp as we lap the recovery we had in the second quarter of 2021. Additionally.
Additionally, the second quarter results will continue to reflect that we suspended the vast majority of our commercial activities in Russia.
Within other revenues in the first quarter the substantial growth in Youtube subscription revenues was offset by a decline in play revenues versus the first quarter last year due to the fee changes. We previously announced these fee changes will continue to affect our results throughout 2022.
Until we lap the introduction of the changes.
Turning to Google Cloud cloud performance in the first quarter reflects growing deal volume and strength across multiple industries and regions.
Customers are increasingly choosing Google cloud to help them digitally transform their businesses using our global infrastructure offerings, our data analytics and AI capabilities.
And the collaboration benefits of workspace, we continue to invest aggressively in cloud given the sizable market opportunity we see.
At the alphabet level reported revenues in the first quarter reflect that the U S dollar strengthened versus last year with a three point headwind in Q1 compared with a two point tailwind in the first quarter of 2021.
In the second quarter the impact from foreign exchange rates will have an even greater impact on year over year comparisons given both the larger tailwind last year and the increase we expect in the headwind in Q2 versus Q1 based on current spot rates.
With respect to alphabet head count we added 7400 people in the first quarter and the majority of hires or for technical roles.
The biggest increases in head count this quarter across product areas were again in cloud for both technical and sales roles.
Turning to Capex the investment in the first quarter reflects the timing of closing for several large acquisitions of office facilities, which converged in the first quarter.
More specifically of the total nearly 4 billion covers the purchases in New York, London, and Poland that we had mentioned previously.
We continue to expect a meaningful increase in Capex in 2022 versus last year for the balance of 2022, the increase will be particularly reflected in investments in technical infrastructure globally with servers as the largest component.
As stated in our press release today, our board has authorized the repurchase of up to an additional $70 billion of our class a and class C shares in a manner that is in the best interest of the company and its stockholders.
And now Sundar, Philip and I will take your questions.
Thank you as a reminder to ask a question you will need to press Star then one on your telephone to withdraw your question. Please 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 from Morgan Stanley . Your line is now open.
Thanks for taking my question I have two the first one Ruth wondering could you talk to us at all about sort of the shape of the AD business growth throughout the first quarter understanding there is some uncertainty around Ukraine et cetera, and then what have you seen sort of quarter to date in the overall search business from a growth perspective, and then the second one.
Philip I appreciate all the color on performance Max can you just talk to us a little bit about strategically about how long we should think about it takes to drive broader adoption of this type of tools with your sales force is it months quarters years, where are you in SMB adoption and how long do you think it takes to get broader in me full adoption of a product like that.
Thanks.
Thanks, Brian So in terms of the AD business I would say is I didnt ethylene comments, we were very pleased with the year on year search revenue growth in the first quarter up 24% and it really it really reflected the strength that we've seen in reach.
This is Philip and I commented on I would say is is you're asking how are we looking forward I would say the.
Revenue growth rates that we delivered in 2021 and search and across our advertising businesses more generally as I said in opening comments did benefit from lapping the COVID-19 related weakness in 2020. So I think one key point is that we're not going to have that tailwind for the rest of this year and as I as I noted in one of the key area.
It's to focus as Q2.
Of 2020 that was where we had the largest impact from COVID-19 . So that means in the second quarter of 2022, we're going to face a tough comp as I said I'd say in addition, the second quarter results are going to continue to reflect that we suspended the vast majority of our commercial activities in Russia, and then I noted the impact of foreign exchange.
Change that was we're looking at it generally and we'll feel good about what we're doing in the business a couple of key points that I called out there.
And to.
To your question on performance, Max, which we covered last quarter as well, maybe just a quick recap it really brings together the best of Google's automation to help advertisers maximize their reach and efficiency across our channels used.
Using the same input we can now serve campaigns on multiple inventory formats are expanding and advertisers reach with the same effort and by the way just today, we announced new features for performance Max including New customer acquisition goals, New campaign level insights more details about the one click upgrade tool for smart shopping at local campaigns.
So we're very very committed to helping performance of Max deliver for advertisers.
In a very open to advertiser feedback how we can do this and specifically on your time access I don't think there's a material difference to the time access that we've looked at in previous Rollouts as always focused on generating the maximum value and performance for our advertising partners.
Yes.
Sure.
Great. Thank you both.
Thank you and our next question comes from Eric Sheridan from Goldman Sachs. Your line is now open.
Thanks, so much for taking the question maybe one follow up to Brian's question. Other industry players have called out pockets of weakness in brand advertising globally in the quarter that you just reported did you see any of that from a volatility standpoint, especially around maybe the war in Ukraine for a period of time in March and then.
Sticking with all the commentary you gave on Youtube, how should we be thinking about the strategic goals of driving longer engagement and user growth and monetization for you to begin some of the initiatives you called out versus how to think about the performance of the business as we go through 'twenty, two short form video versus long form video or maybe mix.
Direct response versus brand advertising. Thanks, so much.
So I'll start on the first question and.
Revenue impact I think you are asking from from the war and anything else that was relevant there I would say that the most important is about sundar until upset is what it is tragic humanitarian.
Crisis. This is an across Google we're doing a lot to provide support in terms of revenues. The most direct impact is the fact that we suspended the vast majority of our commercial activities in Russia as we announced in early March.
And to your question about 1% of Google revenues were from Russia in 2021, and that was primarily from advertising. In addition from the outset of the board there was a pullback in advertiser spend particularly on Youtube in Europe . So a couple of impacts from the war.
Over two two.
With respect to Youtube.
And trends there.
So maybe to dig a little deeper into the part of your questions around shorts shorts went global.
Rolled out to over 100 countries and as Sundar mentioned now has 30 billion daily views, which is four times higher than a year ago and if.
If we take the creator view, we're taking a fresh look at what it means to monetize Schwartz and reward creators for their short term videos.
First step I think is our $100 million Youtube shorts fund, which is now available in over 100 countries globally.
And over 40% of Creatives, who received payment from the shorts funds in 2021, we're in and the Youtube partner program, just as an interesting number and then on the Advertiser. If you side as I mentioned earlier, we're testing ads on shorts with products like App install and video action. Our campaigns are encouraged by the early results and so all in all I think we are deeply committed to.
Supporting the next generation of mobile creators here on Youtube and are very actively working on what monetization could look like in the future.
Thank you and our next question comes from Doug Anmuth from Jpmorgan. Your line is now open.
Thanks for taking the questions I have two.
First just on advertising just thinking about industry conversations it seems pretty clear that you were able to capture some dollars that shifted the search from social.
Related to Apple's Iowa's privacy changes.
Just curious if that dynamic continued in <unk> and then if you can comment at all just how you think about sustainability of those.
Dollars going forward and then Ruth in terms of spending and on the margin side.
Operating margins continued to be strong at 30%, even with the greater head count over the past couple of quarters.
Hoping you could elaborate a little bit on what you mean by considered investments and in what areas are you able to offset and gain more efficiencies in the business.
Thanks for the question so with respect to search.
Search and a T T theres really nothing to highlight we havent seen and noticed noticeable.
Shifts in spend and then in terms of.
Overall and margins and how we're thinking about investing.
Tried to make clear is we do continue to plan to invest aggressively this year.
I made that point in opening comments with respect to both ongoing hiring at a rapid clip as well as ongoing investment and technical infrastructure and I'd say you know in terms of margins. We do remain focused on investing for long term value creation and as we noted last year in.
In 2021, our margins did benefit from substantial revenue growth while at the same time expense growth ramped more gradually during the here and in certain respects as we talked about last year margins benefited from what I describe as a bit of a timing difference between revenue growth and expense growth and there were two.
Two other benefits worth.
Calling out that we talked about last year that affected operating margin are the first it was the impact from the change in useful lives that we called out last year and that benefited the year on year growth in expenses last year and the second was the impact of foreign exchange, which was a tailwind last year, but as I noted has really flipped to a head.
And given the strength of the U S dollar and as a reminder, the impact of foreign exchange is greater on operating income than it is on revenue given our expense base is weighted towards the U S. With most of our R&D efforts located here in the U S. So you know the main thing is is the key point we are.
We are very focused on long term value creation and in our view given the opportunities. We see there are some key investments that we're continuing to make.
Thank you very helpful.
Thank you and our next question comes from Justin Post from Bank of America Merrill Lynch. Your line is now open.
Great. Thank you a couple of things.
First on Youtube.
Quite quite a ramp in shorts activity has that been a little bit of a headwind for growth as you ramp that up and we can kind of guess that monetization later and then and then secondly.
When you think about regulation in Europe , there's a lot of headlines about the digital market Act and other things.
How do you think about the regulatory environment in the NDA.
Evolution over the next couple of years. Thank you.
Thanks for the question. So in terms of Youtube I think there are a couple of questions in your question.
In terms of the deceleration in the year on year revenue growth rate relative to the first quarter. The largest factor was lapping an exceptionally strong quarter in direct response as as we noted last year in addition to that.
Direct response lapping there were a couple of other items worth noting first as I've already mentioned the war that did have an outsized impact on Youtube ads relative to the rest of Google and that was both from suspending the vast majority of our commercial activities in Russia as well as its like you know as I noted.
Earlier, the related reduction in spend primarily by brand advertisers in Europe .
And then in addition, as we mentioned on the third quarter earnings call and we continue to experience a headwind from Atg, primarily indirect response and the dollar impact from ETT has been consistent since it was implemented in April of last year and then there's the FX headwind I've already commented on I would say the other part of your question, we're experiencing a slight.
Headwind to revenue growth as shorts viewership grows as a percentage of total Youtube time, we are testing monetization on shorts and early advertiser feedback and results are encouraging.
And the team is focused on closing the gap with traditional Youtube ads over time. So we're excited about the new opportunities with shorts, but a slight headwind.
Okay.
On the second part of your question about.
D M in regulation.
We support a number of DMA schools.
<unk>.
Including expanded consumer choice interoperability.
Obviously, the implementation deals will be important and we are.
Still it's too early to tell but.
We will be working as we have done over the past many years will be engaging constructively.
Including regulatory dialogue to understand and make progress.
Great. Thank you.
Thank you and our next question comes from Mark Mahaney from Evercore ISI. Your line is now open.
Okay, I'll stick pleased with Youtube questions that kind of brand softness in Western Europe . Ruth does that look like that has already abated as it does that looks like that's continuing and if you step back and just look at overall Youtube usage and I know you mentioned some numbers in the prepared comments.
Given the much broader array now I think of content options, including in short form video and long form video are you seeing the overall growth any impact on the overall growth in Youtube users or an engagement per Youtube user. Thank you.
So in terms of the first question impact from the war I think it's.
Too early to comment tragically it it's still ongoing so too early to comment there.
And then overall in terms of of Youtube and engagement.
I noted on both.
Both our boats.
Youtube's advertising business as well as the subscription businesses.
The the performance there I'd say.
Over the past few years, we've seen significant investment in online video there's been a ton of innovation. We think innovation is positive broadly we continue to benefit from the fact that there are 2 billion logins viewers, who visit Youtube every single month and people are creating comment content.
And he too bad at a very active rate and we're really pleased with what we see there and our team does remain focused on innovating in helping creators.
Growler as Sundar said shorts now, it's 30 billion daily views that four times higher than a year ago, and I think that really goes to your question about the level of activity that we're seeing.
Okay. Thank you.
Thank you and our next question comes from Michael Nathanson from Moffatt Nathanson. Your line is now open.
Thanks, I have one on Youtube of course, and then one for Ruth on Youtube.
I think what we're hearing is that there is an emerging concern that take talk as a competitor to Youtube mobile position.
And I know you called out the strength of shortcut can talk big picture, if you're seeing a meaningful shift in consumer demand for mobile Youtube product.
And any type of advertising maybe shift on mobile because it can complement to route.
It's an odd quarter, because if you look at APAC.
Pat region, underperformed, EMEA, which had Russia and Ukraine and there is there anything you want to call out about Asia Pacific This quarter why it could have been softer.
Product that may have led to a bit of a slower quarter for APAC.
Look maybe I'll start on the first part of your question is very similar to what we have said before I mean, we've seen significant investment in online video and there's been a ton of innovation.
But there are 2 billion plus locked in viewers, who visit Youtube every single month and more people are creating content on Youtube than we've ever seen before enter team remains very focused on trying to help creators grow trying to innovate.
And just to give you a number that 2021, the number of Youtube channels that had made at least $10000 and revenue was up more than 40% year over year, and we're heavily investing in shorts into connected TV and shopping.
You heard the stats from Sundar on the 30 billion daily views.
So we continue to invest in your monetization options for creators beyond ads are a big part.
What we're doing and as I said before we're testing ads on shorts and are encouraged by initial results.
Yeah.
Geographic color just to even broaden out your question a bit more and go go through the various regions. So in the U S. We were pleased with the 27% year on year growth and I think.
Nothing nothing to call out there in Europe as you noted in your question, that's slightly bigger impact from the war in Ukraine than in other regions.
And then the sizable delta between fixed and floating really reflects a meaningful strengthening of the dollar versus the euro.
The I guess to the heart of your question with respect to APAC. The main thing there is to take you back to a year ago, we were lapping a substantial 39% growth rate in constant currency and so this really reflects lapping that that sizable growth relative to more muted ads perform.
<unk> in APAC this first quarter and.
It really takes you just back to last quarter and other Americas it.
It was much more about the FX headwind more than anything else.
Thanks Ruth.
Thank you and our next question comes from Brent Thill from Jefferies. Your line is now open.
And good afternoon for Sundar, just on Google Cloud, if you could just walk through the next leg of growth where.
What are you most excited for the rest of 2002. Thank you.
Yes.
Well.
Thanks.
Overall across the board I'm excited because you saw in my earlier remarks.
There is a lot of product innovation across the key areas speed data and analytics cyber security.
Our open multi cloud as well as a Google workspace.
So when I look at the innovation in the product pipeline and overall demand, we are seeing and how earlier journeys.
There's definitely a lot to look forward to.
Cyber security has been a particular focus.
You know, we obviously are excited about our acquisition of <unk>, which I think will help us of.
Customers deeper as well, but overall.
The execution has been great we are scaling up particularly.
In our go to market as well and you know and I think that will.
Play out well and overtime as we focus on converting bookings to consumption as well I think I think it'll play out well, taking a longer long run view and methodically scaling up and executing better. So that's what I'm excited about.
Thank you.
Thank you and our next question comes from Stephen Ju from Credit Suisse. Your line is now open.
Okay. Thank you. So sundar I think your search team recently released a blog post team are talking about the desire to help her users with their management of money.
I think we talked about some of this last time, but a lot of test in India, and the evolution to Google pay but.
Can you talk about your ambitions to add more utility to the service so that it becomes more hopefully indispensable service, where your user base and particularly as you hope that this.
Theoretically it becomes your next bill end user product. Thanks.
Thanks Steven.
Obviously.
You know we've been focused on.
Making sure payments works well one way you can step back and think about it is that our payment strategy is very similar to the strategy. We have for commerce overall, we want to make all of this works easier.
Both on the merchant and the financial institution side, and making sure they can connect with customers as well.
And you mentioned the work in India that was certainly what are.
Really got everything started.
We are now 150 million people across 40 countries are using Google pay.
And to your question about making first of all we are making sure. It works across the board works well easy to use on for all of the sites and then over time, we will innovate and build new digital experiences.
Simple examples you saw was we rolled out the ability for users to pay for parking on Google pay with their voice just using Google assistant so really.
A link for scale building for simplicity and then over time, we will layer on additional helpful features but we are definitely focused on the first part now making sure it works well for as many users across the world.
Thank you.
Thank you and our last question comes from the line of Dan Salmon from BMO. Your line is now open.
Great Good afternoon, everyone.
I have two questions.
First I'd like to ask about Google analytics, where there has been a transition ongoing for years. So now to the new version of the product and where Youll begin sunsetting. The older version next year.
That's always a really important tool for advertisers and publishers to measure the impact of your advertising. So could you tell us a little bit more about those changes how they may or may not be related to the deprecation of cookies in chrome and how you plan to ensure smooth transition.
And then second one last one on Youtube you mentioned the strong performance in subscription through any products that you would highlight that are driving that strength in particular.
So I can take the one on the Google analytics side. This is something we've been working on for a very long time. There is no specific relation to what you've mentioned this is one of the normal.
Upgrades to our products they were doing on a quite regular basis. We're very excited about it advertisers excited about it our partners are happy about it.
So this is yeah. This is a this is a nice one would like it.
Sure.
Subscription businesses is as I said and they continued to deliver a substantial revenue growth and that was driven by subscriber growth for both Youtube TV as well as Youtube music and premium so pleased with what we're seeing there.
Okay. Thank you.
Thank you and that concludes our question and answer session I'd like to turn the conference back over to Jim Friedland for any closing remarks.
Thanks, everyone for joining us today, we look forward to speaking with you again on our second quarter 2022 call. Thank you and have a good evening.
Thank you. This concludes today's conference call. Thank you for participating you may now disconnect.
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