Q2 2022 Alphabet Inc Earnings Call
Welcome everyone and thank you for standing by for the Alphabet, Inc. Second quarter 2022 earnings 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 that session you will need to press star one one on your telephone I would now like to hand, the conference over to your Speaker today, Jim Friedland Director of Investor Relations. Please go ahead.
Thank you good afternoon, everyone and welcome to alphabet second 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 ABC Dot X Y Z Slash investor and now I'll turn the call over to.
Sundar.
Thank you Jim and good afternoon, everyone.
I'm proud of how our teams continue to build healthful products and experiences for people and partners.
Reflecting this our performance in search in the second quarter was strong.
We're also seeing momentum in cloud.
With an uncertain global economic outlook, our strategy to invest in deep technology, and computer science to build healthful products for the long term is the right one or.
Our ability to take the long view stems from our timeless mission.
To organize the world's information and make it universally accessible and useful.
At Google Io and me I talked about two key basically moved that mission forward.
Advancing both knowledge and computing.
Those goals are at the heart of what we do.
We know that our services are particularly helpful to people and businesses during uncertain moments.
Whether it's using search or Youtube defined anything from anywhere or highly efficient tools like search ads that help businesses of all sizes for each customers.
Google Cloud, which helps companies adapt to hybrid work and find efficiencies.
We'll continue to invest in areas like AI search in cloud.
And we'll do it responsibly and in a way that is responsive to the current environment.
Earlier this month I announced that we will be slowing our hiring and sharpening our focus as a company.
We are focused on hiring engineering technical and other critical roles.
And we are working to improve productivity and ensure that the great talent. We do hire is aligned with our long term priorities.
Turning now to product highlights.
Years ago, we made a big bet on AI, we believed that it would be transformational for our business and for the world.
We are still in the early days, yet the AI already underpins many of our most healthful products and services.
For example, AI is helping us create entirely new ways to search.
People are using Google ends to do visual searches more than 8 billion times per month.
A new feature called multi search helps people find what they need using words and images at the same time.
Later this year multi search will be able to help people find local yourselves near them.
He is also helping improve translation.
But the new monolingual approach to translation, we've added 24, new languages to Google translate spoken by 300 million people.
And a new immersive viewing maps uses computer vision AI and billions of he made us to create high fidelity to presentations of places around the world.
Beyond <unk>, we're also seeing a new frontier with augmented reality.
We've been testing exciting prototypes in our labs like the device, we shared a diode that puts real time translation and transcription in your line of sight.
It's one example of how AI can solve real needs in the real world.
And last week, we announced that we will soon begin early testing of prototypes in real world scenarios.
Our goal is to learn how they can help people in their everyday lives.
Our investments in Commerce are another way, we deliver helpful experiences.
People are shopping across Google more than 1 billion times each day.
See hundreds of millions of shopping searches on Google images each month.
Merchants will soon be able to submit <unk> majors of their products to up their directly on Google search.
So customers can try before they buy.
We're also focused on bringing together hardware software and AI in a range of healthful devices.
Our I O, we announced great new products, including pixel success, a pixel buds pro and pixel watch.
We are currently taking preorders for pixels Xa and pixel buds pro it's been great to see the positive feedback so far.
And on platforms I'm proud that Android remains the world's most popular operating system with more than 3 billion monthly active devices worldwide.
Last year alone consumers activated 1 billion Android phones.
We are making it easier for Android users to share photos and communicate with friends and family with a modern messaging standard called rich communication services or Rcs.
Across our platforms and beyond we keep more people safe online than anyone else in the world.
Safe browsing on chrome browsers help protect billions of people every day by warning them when they try to access dangerous sites of five.
Earlier this year, we rolled out a new machine learning model that identifies more than twice as many potentially malicious sites and phishing attacks as the previous model helping.
Helping to contribute to a safer and more secure web.
We have also a unified our password managers across chrome and Android now.
Now stored passwords can be grouped in productive across devices apps and the web.
Taking a closer look at Youtube.
Youtube shots are watched by over 1.5 billion signed in users every month with more than 30 billion daily views.
In Q2, Youtube TV surpassed 5 million subscribers, including trailers.
There's also a lot of potential for shopping on Youtube just last week, we announced a partnership with Shopify.
It'll help creators easily connect their stores to Youtube.
<unk> enabled shopping across their life streams and videos theres more to come here.
Moving onto cloud, which surpassed the 6 billion quarterly revenue Mark for the first time.
Q2 revenue grew to $6 $3 billion with momentum across Google cloud platform and workspace.
We saw continued demand in all geographies with global brands like target in North America at <unk> Group in Europe , Banca BV in Latin America, and Biopharma in Asia.
We launched Google public sector in June expanding our commitment to help U S government agencies and public institutions.
Accelerate their digital transformations from New York State in Arizona State University to the U S Forest service and the state of Rhode Island.
Customers are choosing Google cloud.
As their technology partner because of our leadership in four areas.
First we continue to lead in the data cloud market because the unified data lakes data warehouses data governance and advanced machine learning into a single platform that can analyze data across any cloud.
Companies like S. C. Johnson not withheld in the Golden State Warriors chose Google cloud for our strength in data and analytics.
Our capabilities helped swissair optimize its flight operations.
They are also helping NGA explore ways to optimize wind energy management and fold to create smarter factory floors.
Second companies like Beta Bank, and Mayo clinic choose our open cloud infrastructure to modernize their it systems.
On a cloud or the edge or in their data centers.
Our infrastructure scales to help customers like Deutsche Telekom.
Modernize its network with.
Wipro to modernize its core systems.
And Garvan Institute of medical research to process 14000 genomes in under two weeks.
Our multi cloud strategy remains a differentiator for customers like Allianz health, formerly known as anthem and AMD.
Third cyber security Google has always provided a secure cloud infrastructure.
And we continue to introduce new cyber security products that help customers detect protect and respond to a broad range of cyber security threats.
Customers like get lab, Highmark health and Iron Mountain protector critical systems and data with our products.
Caribou coffee and Etsy are among the 5 million websites predicted by our cyber security technology.
Finally, Google Workspaces easy to use and secure communication and collaboration tools continue to be chosen by many organizations as they return to hybrid work.
Google Workspace held St. Luke's Medical Center, a leading health care system in the Philippines address at 38% increase in telehealth visits during the pandemic.
Results like this are driving growth in many customer segments around the world, including digital natives like camera large enterprises like Travis Perkins plc, and public sector institutions, including the Central Dutch government.
Finally, our other bets.
They've all expanded right only testing with employees to include downtown Phoenix and started testing at Phoenix's Sky Harbor Airport.
It also began charging trusted tester writers in San Francisco.
Step closer to launching a commercial service with.
But fully autonomous strips.
<unk> also opened a new facility to support via email via their autonomous class eight trucking solution as they continue to increase their operations and investment across the southwest region.
Calicoes testing, an investigational drug treatment in patients with ALS.
Developed in collaboration with Abbvie.
As an early step of many in the development process.
We recently surpassed 250000 commercial deliveries.
And unveiled a series of delivery drone prototypes able to carry different size packages.
There is good progress here and we'll continue to be intentional across the portfolio.
To close while economic outlook is uncertain and it's been great to see people gathering in person again.
We are pleased to see people coming back into the office more often resulting in more opportunities for collaboration.
It's a privilege to build technology. That's helpful. In both good times and in certain ones and I want to thank everyone at alphabet and Google for their work in support of people businesses and all of our partners everywhere over to you Philip.
Thanks, Sundar and hi, everyone. It's always great to be with you all.
As Sundar indicated we're as focused as ever on helping businesses navigate complexity and operate from a position of confidence.
AI powered tools insights and automation are arming customers and partners with the ability to stay agile and responsive. So they can capture short term opportunities. While also building for the long term.
You've seen our own commitment to the long term and our latest innovation announcements at Io, Google marketing live and brand cost silver covered a number of these.
Although if deeper into a few more including how we're improving our advertiser experiences and building simpler more useful products for our partners.
Within Google services search delivered strong revenue growth in the second quarter driven by performance in both travel and retail.
In travel users appetite continued to remain strong heading into the summer season searches for places to visit in summer, we are up to X globally year over year, while searches for last minute hotel deals were up 50%. However.
However, as we've all seen in the news recently the travel sector has been experiencing some challenges as always we're committed to helping our travel partners navigate this with insights and new tools.
Then theres retail, where we had another solid quarter at GMO, we highlighted how we're continuing to innovate to help merchants to make the most of how quickly consumer shopping is evolving like best buy was embracing a full omnichannel approach for measurement to bidding to using omni ad formats across Google.
By adopting omni across its local inventory ads portfolio and showcasing curbside at in store pick up best by increased in store revenue for Google ads by 34% last year.
Today's customers expect to shop wherever whenever they care as much about local as they do about finding inspiration for their next purchase online and.
In Q2 searches for open no near meat were up eight X globally year over year, while searches for a designer outlet jumped 90%. We also saw strong interest in apparel categories like women's clothing, and the beauty categories like partial and fragrances.
With AI powered tools like performance, Max, which local and smart shopping campaigns will upgrade to in time for the holidays, we're helping businesses move at speed and scale to reach new and existing customers wherever they are in their shopping journey with relevant useful content. We've seen strong momentum with paybacks Advertiser adoption is up five times year to date.
Sustainable apparel brand raw fees drove a 59% increase in conversions and a 60% increase in revenue after turning to Pemex by leveraging its creative assets and showing them at scale royalties reached more customers in a way it hadn't been able to do before.
Innovating across search and Youtube also remain top priorities.
Sundar mentioned, new <unk> features targeting the wayfarer testing these to help customers see in shop products in real life, we launched new AD formats for more visual browsing search experiences and then Theres cool live commerce capabilities like life direct which led creator started shopping livestream on their channel and then redirect that goes through our branch channel.
Full bore.
Let's dive deeper into Youtube in the second quarter, the biggest factor in the year over year comparison. It was the lapping of a very strong second quarter in 2021, when we experienced a strong recovery from the impact of Covid in early 2020.
Bruce will provide more details on this later on.
As we continue to help advertisers manage through uncertainty I would point out three key highlights for Youtube first brand cast joined the Upfronts in New York in May for the first time ever.
Selection of our digital and linear TV worlds are converging for both viewers and advertisers.
As the number one streaming video platform to reach viewers across all devices billions of hours of video watched everyday Youtube remains well positioned to deliver the reach results and relevance that advertisers need.
In fact, even in Tv's biggest moments Youtube is still delivering huge incremental reach according to Comscore 49, 9% of adults that saw a Super Bowl AD on Youtube on the day of the Super Bowl did not see the AD on TV.
And as more advertisers tap into connected TV. They are also driving results. According to Google Commission Nielsen meta analysis of MMS that measured Youtube TV MTV across U S consumer packaged goods on average Youtube CTV effectiveness was three one times greater than TV.
Take GSK consumer healthcare, no Hilliard, who piloted CTV campaigns across its top 10 global markets to drive effectiveness at scale and tap into the shift to streaming the results 73% of campaigns drove substantial lift in branded unbranded searches and views were up to 14 times more likely to search for Haley unrelated terms.
Adding CTV to its existing plants also led to greater efficiencies and savings and Jan has since upped. Its 2022 2023 investment and is now expanding CTV across Latam and EMEA markets.
Second as Sundar said, our momentum in shorts continuous last quarter, we shared that we in the early stages of testing monetization with ads and we continue to be encouraged by the results so far.
Third there is full funnel, which we've covered before and more advertisers are embracing.
On average Youtube advertisers using a full funnel strategy experienced 80% unique reach across brand in action campaigns, where this incremental reach across the upper and lower funnel formats advertisers different audiences based on where they are in the purchase journey.
Este Lauder Taiwan's recent campaign for its advanced night repair serum is a great example.
Branded content collaboration with top creators raised awareness, while Youtube shopping shelf feature boosted consideration.
And to generate new leads and sales a series of well orchestrated action formats did the trick. This full funnel strategy drove 29% more unique visits to the website and then 95% increase in sales.
Without performance products advertisers can convert demand with our massive reach products. They create net new demand at scale.
Lastly, an update on how we're bringing the best across Google 12 partners in key ecosystems.
And gaming to help Monday, Noncore Entertainment drive immersive gaming experiences and build a more robust IP strategy, we're partnering across cloud Gilles ads Youtube and more and then there's news pavilions showcase now has 500 plus partnerships with publications across 17 countries, including recent agreements with <unk>.
<unk> in the U K, Romania and Slovakia.
I'll close as I always do with gratitude for our customers and partners and for Googlers across sales partnerships product engineering and there are many many support teams.
<unk> for your tireless commitment to making a positive impact around the world.
Over to you.
Thank you fill up our financial results for the second quarter reflects strength in search and momentum in cloud.
My comments will be on year over year comparisons for the second quarter, unless I state otherwise I will start with results at the alphabet level, followed by segment results and conclude with our outlook.
For the second quarter, our consolidated revenues were $69 7 billion up 13% or up 16% in constant currency.
Our total cost of revenues was $30 1 billion up 15%, primarily driven by other cost of revenues, which was $17 9 billion up 17%. The biggest factor here with costs associated with data centers and other operations.
Operating expenses were $20 1 billion up 24%, reflecting the following first the increase in R&D expenses, which was driven primarily by head count growth.
The growth in sales and marketing expenses, which was driven primarily by increased spending on ads and promo followed by head count growth and finally, the growth in G&A, which reflects increases in both professional service fees and in head count.
Largely offset by a decline in charges related to legal matters.
Operating income was $19 5 billion flat versus last year and our operating margin was 28% other income and expense was a loss of $439 million. Net income was 16 billion. We delivered free cash flow of $12 6 billion in the quarter and 65 billion for the trailing 12.
Months, we ended the quarter with 125 billion in cash and marketable securities.
Let me now turn to our segment financial results, starting with our Google Services segment.
Total Google services revenues were $62 8 billion up 10%.
Search and other advertising revenues at $40 7 billion in the quarter were up 14% driven by both travel and retail.
Youtube advertising revenues of $7 3 billion or up 5% the modest year on year growth rate, primarily reflects lack of lapping the uniquely strong performance in the second quarter of 2021.
Network advertising revenues of $8 3 billion were up 9% driven by Adsense.
The quarter on quarter deceleration in both Youtube and network advertising revenues, primarily reflects pullbacks in spend by some advertisers.
Other revenues were $6 6 billion down 1%, reflecting a year on year decline in play primarily driven by the fee changes we have discussed previously.
We also saw a slowdown in buyer spend due to a number of factors, including lower engagement levels compared with earlier stages of the pandemic.
In terms of costs within Google services, Tac was $12 2 billion up 12%.
Google Services operating income was $22 8 billion up 2% and the operating margin was 36%.
Turning to the Google Cloud segment revenues were $6 $3 billion for the second quarter up 36% Tcp's revenue growth was again greater than clouds, reflecting significant growth in both infrastructure and platform services.
Strong revenue growth integral workspace was driven by solid growth in both seats and average revenue per seat Google.
Hugo Cloud had an operating loss of $858 million.
As to our other bets for the second quarter revenues were $193 million and the operating loss was $1 7 billion.
Let me close with some comments on our outlook in terms of the Google Services segment. We are pleased with our performance in search in the second quarter, which continued to deliver strong results.
As a reminder, the 2022 revenue growth rates are presented against particularly tough comps as we lapped the recovery in the second quarter of 2021 from the impact of the pandemic in early 2020.
Going forward the very strong revenue performance last year continues to create tough comps that will weigh on year on year growth rates of advertising revenues for the remainder of the year.
And the Youtube and network the pullbacks in spend by some advertisers in the second quarter reflects uncertainty about a number of factors that are challenging to disaggregate.
Within other revenues in the third quarter, we expect an ongoing headwind from the fee changes and the slowdown in buyers spend that impacted results in the second quarter.
Turning to Google cloud customers are transforming their businesses utilizing <unk> secure infrastructure with data analytics and AI capabilities, uncovering real time insights and leveraging the collaborative tools of workspace. They are in the early days of this transformation and we continue to invest in our.
<unk> go to market capabilities and cloud regions.
In terms of foreign exchange, our second quarter results reflect the U S dollar strengthened versus last year from a significant tailwind last year to a $3 seven percentage point headwind into Q.
Looking to the third quarter based on strengthening of the U S dollar quarter to date, we expect an even larger headwind from foreign exchange.
As a reminder, all segment revenues are reported on a GAAP basis, we provide fixed FX revenues only at the consolidated level and by geographic region.
In addition, as we've said previously the impact of foreign exchange is greater on operating income than it is on revenues given that our expense base is weighted more toward the U S. With most of our R&D efforts located here.
With respect to alphabet head count we added 10108 people in the second quarter with the majority of hires for technical roles.
The uncertain global economic outlook and the hiring progress achieved to date and Sundar previously announced we intend to slow the pace of hiring we expect our actions on hiring to become more apparent in 2023.
Our head count additions in the third quarter will reflect we already have a strong number of commitments, including new graduate hires.
As a reminder, we also expect the acquisition of mandate to close by the end of the year, which will further increase head count on top of hiring.
Although we expect the pace of head count growth to moderate next year, we will continue hiring for critical roles, particularly focused on top engineering and technical talent.
Turning to Capex, the largest investments in the second quarter or in servers, followed by data centers and office facilities.
After several large transactions closed in the first quarter investment in office facilities was once again focused on fit outs and ground up construction on existing projects. We continue to expect an increase in capex in 2022 versus last year for the balance of 2022, the increase will be particularly.
<unk> reflected in investments in technical infrastructure globally with servers as the largest component. Thank you Sundar Philip and I will now take your questions.
Thank you as a reminder to ask a question you will need to press star one on your telephone 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 the line of Douglas Anmuth from Jpmorgan.
One moment.
I apologize one moment, while we open the line.
Please standby.
Yeah.
And Doug Your line is now open.
Great. Thank you hopefully you can hear me.
Wanted to ask two questions first Sundar just in your letter.
You talked about how the economic challenges will serve as an opportunity for alphabet to deepen its focus and invest for the long term I just wanted to get a sense of how that might change the investment profile and the areas of priority for the company and then Ruth I was hoping you could provide some color perhaps on how growth trended more through the <unk>.
Second quarter, and if you have any comments on what youre seeing so far in <unk> in July thanks.
Thanks, Doug as I said to the company I think it's a good time to sharpen our focus.
Firstly, a fine moments like these clarifying it's a chance to digest and.
Make sure we are working on the right things as a company with the taking a long term view.
Making sure we are continuing to invest in deep technology, and computer science and doing differentiated work.
And gives a chance to assess everything we are doing with the critical lands' end.
And reallocate resources to our most critical priorities.
So it's a constrained optimization problem.
I think gives us a chance given given the strong.
Given a few years of strong growth too.
To to double down and focus and we're going to be very disciplined.
In terms of how we will approach it but our focus on the long term areas be it.
<unk> be cloud.
And on other critical areas will continue.
In terms of your second question.
I'm going to leave the modeling to you I just a bit of context.
And I think felt as well is the term uncertainty because we do think that's the best way to characterize.
What we're saying the data are complicated our results have reflected a lapping it will continue to reflect the lapping of the significant growth rates last year on top of that there is uncertainty in the global economic environment and then there are issues that differ across industry. You know you've seen it in the news for summit supply chain for summit.
Inventory issues. So we will leave the forecasting to you and tried to give you sort of the components as we went through Q2 here.
Thank you Bob.
Yeah.
Thank you and our next question comes from the line of Brian Nowak from Morgan Stanley .
Hi, Thanks for taking my question can you hear me okay.
Can you hear me okay.
Hello.
Yes. Your line is open.
Great. Thanks for taking my question.
I just wanted to follow up on on the last question a little bit I think.
Tone around investment for the year changed somewhat over the course of the last few weeks they've kind of gone through July and heard about slowing of hiring in our reported a hiring pause you mentioned just presume you're finding moments like these that sort of optimized Ben can you just talk to what are you seeing in your business specifically on the advertising.
Inside of the cloud side that sort of thing now is when we really do need to make sure. We're optimizing our you're seeing pullbacks or is it more sort of just youre seeing the macroeconomic headlines I wanted to get ahead of it.
Yeah.
Thanks, Brian I think Rob gave color on.
What we are talking about is uncertainty.
I think I think we see that as well.
All of us are reacting to.
Quite awaiting set of dynamics and it's tough to.
Summarize it because the factors the underlying factors that are different than they really buy.
Maybe geography and verticals, but there is some commonality do it in terms of the macro environment.
So there's definitely something.
We are looking at and want to be more disciplined as we go forward. So that's the higher level team I think in terms of underlying areas.
Pretty much I am focusing my time on.
What are the right set of things to do with a longer term view and I do think as a company.
But when you are in.
It's tough to always.
Take the time to do all the re adjustments you need to do and in moments like this gives us a chance so I view it as an opportunity and so some of the sharpening our focus is taking advantage of the moment.
Great. Thank you.
Thank you and our next question comes from Eric Sheridan from Goldman Sachs.
So much for taking the question maybe I can ask a two parter on Youtube you've called out the tougher comps over the last couple of quarters can you give us a better sense of how you move away from some of those tougher comps in the in the periods ahead of us over the next 12 to 18 months and how maybe we should think about the digestion of the direct response grow.
And consumption growth that Youtube saw a year ago, and how that might lead to better growth ahead for Youtube in the periods going forward and then when you look at the broader competitive landscape for video how do you think about positioning Youtube short form video versus long form video or enabling creators and businesses to have tools to build their bids.
This is within Youtube, how do you think about product development and aligning the product against the broader competitive landscape. Thanks, so much.
Thanks, Eric There was a lot in your question Tonight, I'll start and then I'll pass it to fill up.
And obvious point, whereas we're pointing out the lapping of what truly were extraordinary growth rates.
Is it a time will time will get us through the lapping so that's obvious math, but you asked the question. So starting with that and then you know I did note that we have seen pullbacks in spend by some advertisers that in fact was the biggest factor in that the quarter on quarter change. This.
The decline in the growth rate and work that we do view that is rather idiosyncratic as I said some of it's supply chain some of its inventory and so just working through that and then I would say there were a couple of other factors.
Factors that were relevant to war was a modest headwind.
Two year on year and sequential growth for AT&T impact in fact remained relatively constant.
We've said that for the next last couple of quarters, so that that does it remain.
I headwinds so we're working through those but again it goes really to continuing to invest in Youtube and the experiences and the opportunity to deliver for our entire ecosystem users creators and why don't I pass it to fill up to maybe take a step deeper into those.
Yes. Thank you so despite the pullback from some advertisers, we really believe Youtube remains well positioned to benefit from the shift to digital video.
Maybe first one brand it's worth calling out that this was our first you're participating in the Upfronts, which is really exciting and really a testament to Youtube evolution and we were very pleased with our strong growth in upfront commitments.
Customers tell us they see value in your chips reach had the ability to drive results I talked about CTV earlier.
And as well on our last call and we're very excited about the roadmap here.
We're also continuing to give advertisers unique and creative storytelling opportunities and the ability to lean into very precise kpis that we recently rolled out some very critical measurement tools.
On the direct response side, we still think there's a lot of runway to address commercial intent on Youtube.
You actually campaigns at Opco paints, a product feature new lights Commerce features.
We're testing a number of different things across life commerce. So we're excited about the opportunities here.
Especially to connect brands with creators.
We're also seeing advertisers buy Youtube at both ends of the funnel, which I talked about earlier, giving advertisers the ability to drive reach and relevance.
That's really.
Where Youtube <unk>. So the big picture long term remained very encouraged by the opportunity for innovation brand and Dr.
Ross.
Youtube and I can also briefly touch on the shortz piece.
Consumers are increasingly consuming short form videos, obviously, we're seeing this across multiple platforms, including Youtube Sundar.
As Sundar noted earlier, the shorts are being watched by a 1.5 billion plus logged in users every month.
So overall, we're continuing to see good user engagement of Youtube and last quarter, we shared that over the past two years <unk> seen significant growth in watch time, and even those people who have returned to in person activities.
Time spent on Youtube Google has continued to grow.
And as I said before early results in shorts monetization are also encouraging and we're excited about the opportunities here.
Okay.
Thank you and our next question comes from Michael Nathanson from Moffatt Nathanson.
Can I ask why.
And then I wanted to know.
So we can kind of giving you just how strong is the company is on the balance sheet and profitability.
I Wonder what what's your North Star when you think about sharpening your focus whats driving your decision, making or is there an optimal margin you're looking to seek to our cash generation I'm just trying to get right. When you say these things.
I know what other companies have to do because they are pressured and balance sheets or profitability. So what what is the mathematical formula that youre looking for.
That you're driving towards and then.
I think people are wondering and this is a big question, but the composition of the.
Add base and I think people are worried that some other companies may really benefited from a lot of growth in younger newer companies that were not profitable. So can you talk a bit about what you're seeing here is a mix of your composition.
There any shift maybe towards fortune 500 companies that are spending more from a healthier maybe starting base or anything you telephone composition.
I know that huge question, but that'd be helpful. Thanks.
Maybe one thing I would say in may.
You know through moments like this.
I think for a few years, we've been talking about particularly in our.
Newer areas.
The focus on building sustainable value.
And so for me, it's a long term framework, where obviously.
We are a S better we've been doing this for a long time like search and and so on but there are newer areas and we definitely want to make sure while.
While we are investing for the long term we are thinking through.
The business model the value creation and profitability over time, and so all of that or the frameworks we use.
And I think it is important regardless of.
The health of your balance sheet on an area by area.
Everything you're building.
Sustainable on its own and you're very disciplined.
And so I think times like this gives us a chance to.
Bring more focus and spend more time on that.
Could that lens.
I would just add we talked about this last year some of the operating margin upside last year was due to timing issues with the search of revenues and we indicated at the time there was a lag in part on some of the investments whether that's data centers or otherwise until in part youre seeing some of that but very much to centers.
The way we look at is we are continuing to invest in long term growth that has paid wonderful dividends for users and investors over the years and we want to make sure we're doing it responsibly and judiciously. Some of these things play out over the medium and longer term and so as he said a couple of times now this notion of wanting to look at what our.
Meaningful investments to deliver continued.
Continued.
Extraordinary experiences for surface and users that then supports long term growth.
It requires investments and we just want to make sure that we're getting that balance right and that were using resources effectively when we can to redeploy it and put it back into long term investments and so it's that sort of balancing act.
Look when it comes.
Yeah.
When it comes to the second part of your question, we have a very very broad base of customers large small different verticals different sectors in different geographies across the world.
Very proud to serve such a large base.
Such a diversity of different players.
Broad question Youre, asking if you're leaning a little bit more towards the total addressable market here, let me reiterate what I said before we're not just addressing above the line marketing budgets like traditional.
Advertising television advertising, so there's a lot of upside here that we see in below the line budgets, whether it's promotional pricing product placement sponsorships and so on are copies. It cuts across the universe of different players sectors verticals that I just described but.
But at the end of our main goal is delivering great experiences for our users and driving incremental ROI for advertisers and then making them successful across all this big universe of sectors I just talked about and.
On a.
Positive that budgets should continue to move our ways as long as we stay focused on this one.
Thank you and our next question comes from Justin Post from Bank of America Merrill Lynch.
Great. Thank you I hope you can hear me okay.
Wanted to ask about cloud you mentioned several times cloud momentum and I know it was a very tough year over year comp, but growth did slow wondering if youre seeing any pullback in new lift and shift projects or other.
New client ads or if youre seeing a little slowdown in volumes at all and then on the margins.
Is there any urgency to move margins towards breakeven or is it still kind of investment mode here with a lot of different products and services to bill. Thank you.
Yeah.
No.
Cloud.
We continue to see.
Strong momentum a substantial market opportunity here and.
So feels like early stages of this transformation you know constantly in conversations with customers big and small.
Who are you know.
Just undertaking that journey, so it kind of shows you the.
<unk> opportunity ahead.
Say.
Nothing nothing.
Noticeable other than.
Given we are in different geographies.
And different sectors, you do see abating mix of some customers impacted in terms of their ability to spend.
Some customers just slightly taking longer longer times.
And maybe in some cases thinking about the term for which.
They're booking and so on so but.
I don't necessarily viewed as a longer term trend as much as you know working through.
You know the macro uncertainty everyone is dealing with.
And then in terms of your margin question.
Our view continues to be that this is an extraordinary opportunity. It's a long term opportunity and enterprise customers are still early in their move to the cloud and so we do very much have that debate that same question that you posed.
Is the right, one, which it's a trade off between revenue growth and in media profitability and what we're focused on is ensuring that we're investing to support the long term growth and given the upside that we see and so.
We continue to focus on it a band not looking at the path to profitability, a cat path to free cash flow positive.
To drive attractive returns that's obviously in the overall model of it that very much believe in the long term growth and believe this is the right level of investment across the business go to market the product teams continuing to build it out globally.
Thanks Sundar.
Yes.
Thank you and our next question comes from the line of Brent Thill from Jefferies.
Hey, good afternoon, Rick good to see you lean into the buyback I think it was your highest buyback ever while other tech companies have kind of run away from it I'm. Just curious if you could talk about your capital allocation strategy.
Ultimately, how youre thinking about the buyback.
Thank you I mean at the heart of the capital allocation strategy is really what we've been talking about on this call investing in long term growth and driving cash flow. So you have the opportunity to continue to invest and return capital to shareholders. I. Yeah. We're very pleased that we were able to increase the authorization up to 70 billion and do continue to believe it.
Say, yet another valuable tool in the overall set of investments that we make so pleased to have it.
Thank you.
And our next question comes from Mark Mahaney from Evercore ISI.
Great. Thanks, Philip you talk about.
The beginning of.
Monetizing Youtube shorts do you have any lessons that you've drawn so far or in the long term is there any view you have on whether that inventory can be better or less monetize than other Youtube.
Inventory that you have had traditionally historically and then secondly, just on these comments on the pullback by some advertisers. So you talk about strength in retail, especially in travel. So what's left does that mean are you seeing weakness out of western Europe , and financial verticals and maybe automotive any color on which advertisers are pulling back would be helpful. Thank you.
So on the short side on the monetization side.
Sticking with the statement I made before.
We are encouraged by the results that we're seeing we're excited about the opportunity there is not more not a lot more detail that we can share at this point in time.
On the pullback in spend by some advertisers as Ruth mentioned the pullback in spend on Youtube network by some advertisers in the second quarter reflects uncertainty about a number of factors.
And for each advertisers actually challenging to disaggregate.
The uncertainty.
Food companies and sectors and as you can see from the us.
Some companies were impacted by multiple factors as well.
Okay. Thank you.
Thank you and our next question comes from Colin Sebastian from Baird.
Thanks, Good afternoon, maybe.
Maybe one follow up Sundar on the on the sharpening of focus you talked about of course, AI and cloud as being key areas of long term focus are there any areas worth calling out that maybe a lower priority now given that focus and then secondly, you've given us some good data over the last year or so around conversational.
<unk> and visual search queries and strong growth there cures.
Curious how that also translates into maybe different types of monetization relative to tech space search does this give you greater monetization capability and search or how would that impact monetization. Thank you.
Yeah. Thanks.
Good question.
Look one way, we can think about it is.
Through moments like this so for example, we had obviously investing there.
Deeply in AI, we do everything from pure research to applied research to research, which is now.
AI work, which is actually happening.
Very close or within.
The areas like search and Youtube et cetera, and so you can imagine a scenario in which we are prioritizing and on the margin moving resources to making sure we are driving product improvements, which flow through a moment like that that would be an example of sharpening focus for me.
And.
When I think about think about the opportunities out of AI.
Just coming out of I O. This year.
Looking at the progress we have made you know how much how much we have made progress with multi serge.
Multimodal things are getting and the fact that people are now actually doing voice searches a lot visual searches a lot all of that is a good example of how we are driving value in our core products. Similarly, if you take it adds at Google marketing live.
The team talked a lot about.
AI driven products and features that really.
Give value to advertisers and are in the most privacy forward way.
And cloud is a I would say a lot of the AI opportunity today plays out as more and more from a data and analytics standpoint, Hey, it's within that segment, we see the most strength, but over time, I think there'll be broader opportunities as well.
On top of it all we are continuing to see a lot of breakthrough work coming from our research teams be Lambda two pas Minerva or some of our recent advances.
So we will stay cutting edge drive progress and keep focusing on turning that research into the old products and applications and and we will take a long term view.
Thank you.
Yeah.
Thank you.
Our last question comes sooner right.
Line of Ross Sandler from Barclays.
So maybe just following up on the retail segment. So some of the biggest retailer in the world like Walmart are really struggling and are looking to cut costs and sounded to me from what we've just said about supply chain inventory inflation that they might be cutting on Youtube. So I'm just curious.
Can you flush out what you guys are doing in surge from a product perspective to keep that retail category as strong as it is you mentioned <unk> for some of the smaller advertisers and omnichannel for the larger but maybe just elaborate.
And how are.
How about what strategies you guys are using to keep that spend flowing or is that just a timing thing and it might drop off at some point in the future. Thanks a lot.
Yes. Thank you. This is an excellent question as I noted in my opening remarks, our retail continued to be an important driver of search in the second quarter.
We saw strong search interest in several categories I called out the apparel categories like women's clothing earlier.
I think it's also worth clarifying when we talk about retail growth, we're talking about our overall approach to retail.
It runs through all of our ads products and services in our shopping strategy is just one important piece of that.
From a trend perspective, you're absolutely right Omnichannel remains the way to win retailers continue to build their digital presence to drive both online and offline sales and we're obviously helping them do it.
Over the last few quarters, I think I've talked a quite a bit about the ways. How we're doing this.
In Q2.
Like in Q1, we saw a year over year increase in adoption of for example, local inventory ads. These are mobile first and location based in helping businesses of all sizes showcase their products in stock.
In store online or available for store curbside pickup all different variations.
Additionally were.
Midway through the migration from smart shopping campaigns into performance Max which you also mentioned and advertisers have been pleased with the increased reach and increase performance.
And our focus really has always been on building tools and features that help both offline and online business disconnect.
What these customers across all platforms.
We're excited about what's next for retail commerce across our services, especially search at Youtube.
And we will remain focused on building helpful. Great product experience for both users at these businesses.
Yeah.
Yeah.
Thank you.
That concludes our question and answer session I'd like to turn the conference back over to Jim Freeland for any closing remarks.
Thanks, everyone for joining us today, we look forward to speaking with you again on our third quarter 2022 call. Thank you and have a good evening.
Thank you. This concludes today's conference call. Thank you for participating and you may now disconnect.
Okay.
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