Alphabet Inc - Class C (GOOG) — Q2 2022 Earnings Call Transcript

Welcome, everyone, and thank you for joining us for the Alphabet Inc. Second Quarter 2022 Earnings Call. I will now turn the conference over to your speaker today, Jim Friedland, Director of Investor Relations. Please proceed. Thank you. Good afternoon, everyone, and welcome to Alphabet's Second Quarter 2022 Earnings Conference Call. With us today are Sundar Pichai, Philipp Schindler, and Ruth Porat. 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.xyz/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 helpful products and experiences for people and partners. Reflecting this, our performance in Search in the second quarter was strong. We are also seeing momentum in Cloud. With an uncertain global economic outlook, our strategy to invest in deep technology and computer science to build helpful products for the long term is the right one. 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 I/O in May, I talked about two key ways we move 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 to define anything from anywhere or highly efficient tools like Search Ads that help businesses of all sizes reach customers or Google Cloud, which helps companies adapt to hybrid work and find efficiencies. We'll continue to invest in areas like AI, Search, and 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'll 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 believe that it would be transformational for our business and for the world. We are still in the early days, yet AI already underpins many of our most helpful products and services. For example, AI is helping us create entirely new ways to search. People are using Google Lens to do visual searches more than 8 billion times per month. A new feature called multisearch helps people find what they need using words and images at the same time. Later this year, multisearch will be able to help people find local results near them. AI is also helping improve translation. With the new monolingual approach to translation, we've added 24 new languages to Google Translate, spoken by 300 million people. And a new immersive view in Maps uses computer vision, AI, and billions of images to create high-fidelity representations of places around the world. Beyond AI, we are also seeing a new frontier with augmented reality. We have been testing exciting prototypes in our labs like the device we shared at I/O that puts real-time translation and transcription in your line of sight. It's one example of how AR can solve real needs in the real world. And last week, we announced that we will soon begin early testing of AR 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. We see hundreds of millions of shopping searches on Google Images each month. Merchants will soon be able to submit 3D images of their products to appear 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 helpful devices. At I/O, we announced great new products, including Pixel 6A, Pixel Buds Pro, and Pixel Watch. We are currently taking preorders for Pixel 6A 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 helps protect billions of people every day by warning them when they try to access dangerous sites or files. 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 to contribute to a safer and more secure web. We've also unified our password managers across Chrome and Android. Now stored passwords can be grouped and protected across devices and apps on the web. Taking a closer look at YouTube, YouTube Shorts 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 will help creators easily connect their stores to YouTube and enable shopping across their live streams and videos. There's more to come here. Moving on to Cloud, which surpassed a $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, H&M Group in Europe, Banco 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 and Arizona State University to the U.S. Forest Service and the state of Rhode Island. Customers are choosing Google Cloud as their technology partner due to our leadership in four key areas. We maintain our position at the forefront of the data cloud market by integrating data lakes, data warehouses, data governance, and advanced machine learning into a singular platform that can analyze data across any cloud. Companies like S.C. Johnson, Northwell Health, and the Golden State Warriors opt for Google Cloud because of our robust data analytics capabilities. Our tools have assisted Swiss Air in optimizing their flight operations, and they are also aiding Engie in finding ways to enhance wind energy management and create smarter factory floors. Companies like BetaBank and Mayo Clinic choose our open cloud infrastructure to modernize their IT systems either on our cloud at the edge or in their data centers. Our infrastructure scales to assist customers such as Deutsche Telekom in modernizing its network, Wipro in upgrading its core systems, and Garvan Institute of Medical Research in processing 14,000 genomes in under two weeks. Our multi-cloud strategy continues to be a key differentiator for customers like Elevance Health and AMD. Regarding cybersecurity, Google has always provided a secure cloud infrastructure, and we are consistently introducing new cybersecurity products that assist customers in detecting, protecting, and responding to various cybersecurity threats. Customers like GitLab, Highmark Health, and Iron Mountain use our products to safeguard their critical systems and data. Carryable Coffee and Etsy are among the 5 million websites that benefit from our cybersecurity technology. Lastly, Google Workspace's easy-to-use and secure communication and collaboration tools remain popular among many organizations as they transition back to hybrid work. Google Workspace supported St. Luke's Medical Center in the Philippines in managing a 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 Canva, large enterprises like Travis Perkins plc, and public sector institutions, including the Central Dutch Government. Finally, our other bets. Waymo expanded rider-only testing with employees to include Downtown Phoenix and started testing at Phoenix's Sky Harbor Airport. It also began charging trusted tested riders in San Francisco, a step closer to launching a commercial service with fully autonomous trips. Waymo also opened a new facility to support Waymo Via, their autonomous Class 8 trucking solution as they continue to increase their operations and investment across the Southwest region. Calico is testing an investigational drug treatment in patients with ALS, developed in collaboration with AbbVie. It's an early step of many in the development process. Wing recently surpassed 250,000 commercial deliveries and unveiled a series of delivery drone prototypes able to carry different sized packages. There is good progress here and we will continue to be intentional across the portfolio. To close, while the economic outlook is uncertain, 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 uncertain ones. And I want to thank everyone at Alphabet and Google for their work and support of people, businesses, and all of our partners everywhere. Over to you, Philipp.

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 in our latest innovation announcements at I/O, Google Marketing Live, and Brandcast. Sundar covered a number of these. I'll dive 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 were up two times globally year-over-year, while searches for last-minute hotel deals were up 50%. 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 there's retail, where we had another solid quarter. At GML, we highlighted how we're continuing to innovate to help merchants make the most of how quickly consumer shopping is evolving, like Best Buy was embracing a full omnichannel approach from measurement to bidding to using omni ad formats across Google. By adopting omni across its local inventory ads portfolio and showcasing curbside and in-store pickup, Best Buy increased in-store revenue from Google Ads by 34% last year. Today's customers expect to shop wherever, whenever, and they care as much about local as they do about finding inspiration for the next purchase online. In Q2, searches for open now, near me were up eight times globally year-over-year, while searches for designer outlet jumped 90%. We also saw strong interest in apparel categories like women's clothing and in beauty categories like perfume 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 P-Max. Advertiser adoption is up five times year-to-date. Sustainable Apparel brand, Rothy's drove a 59% increase in conversions and a 60% increase in revenue after turning to P-Max. By leveraging its creative assets and showing them at scale, Rothy's reached more customers in a way they hadn't been able to do before. Innovating across Search and YouTube also remain top priorities. Sundar mentioned new 3D AR features. Target and Wayfair are testing these to help customers see and shop products in real life. We launched new ad formats for more visual browsing experiences. And then there's cool live commerce capabilities like live direct which let creators start a shopping live stream on their channel and then redirect viewers to a brand's channel for more. Let's dive deeper into YouTube. In the second quarter, the biggest factor in the year-over-year comparison 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. Ruth 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, Brandcast joined the upfronts in New York in May for the first time ever, a reflection of how 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 with billions of hours of video watched every day, 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're also driving results. According to a Google Commission Nielsen meta-analysis of MMMs that measured YouTube CTV and TV across U.S. consumer packaged goods, on average, YouTube CTV effectiveness was 3.1 times greater than TV. Take GSK Consumer Healthcare, now Haleon, 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 brand and unbranded searches, and viewers were up to 14 times more likely to search for Haleon-related terms. Adding CTV to its existing plans also led to greater efficiencies and savings. Haleon has since opted its 2022-2023 investment and is now expanding CTV across LATAM and EMEA markets. Second, as Sundar said, our momentum in Shorts continues. Last quarter, we shared that we're in the early stages of testing monetization with ads, and we continue to be encouraged by the results so far. Third, there's 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 and action campaigns. With this incremental reach across upper and lower funnel formats, advertisers meet different audiences based on where they are in the purchase journey. Estee 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 its website and a 95% increase in sales. With our performance products, advertisers can confront 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 to our partners and key ecosystems. First, in gaming to help Bandai Namco Entertainment drive immersive gaming experiences and build a more robust IP strategy. We're partnering across Cloud, Geo, Ads, YouTube, and more. And then there's news. Google News Showcase now has 1,500-plus partnerships with publications across 17 countries, including recent agreements with publications in the U.K., Romania, and Slovakia. I'll close, as I always do with gratitude for customers and partners and for Googlers across sales, partnerships, product engineering and our many, many support teams. Thank you for your tireless commitment to making a positive impact around the world. Ruth, over to you.

Thank you, Philipp. Our financial results for the second quarter reflect 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 was 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 headcount growth. Second, the growth in sales and marketing expenses, which was driven primarily by increased spending on ads and promotions followed by headcount growth. And finally, the growth in G&A, which reflects increases in both professional service fees and in headcount, partially 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%. Google Search and other advertising revenues of $40.7 billion in the quarter were up 14%, driven by both travel and retail. YouTube advertising revenues of $7.3 billion were up 5%. The modest year-on-year growth rate primarily reflects 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%. GCP's revenue growth was again greater than Cloud's, reflecting significant growth in both infrastructure and platform services. Strong revenue growth in Google Workspace was driven by solid growth in both seats and average revenue per seat. Google 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 comparisons 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 comparisons that will weigh on year-on-year growth rates of advertising revenues for the remainder of the year. In 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 buyer spend that impacted results in the second quarter. Turning to Google Cloud. Customers are transforming their businesses, utilizing GCP's 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 products, 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 3.7 percentage point headwind in 2Q. 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 headcount, we added 10,108 people in the second quarter with the majority of hires for technical roles. Given the uncertain global economic outlook and the hiring progress achieved to date, as Sundar previously announced, we intend to slow the pace of hiring. We expect our actions on hiring to become more apparent in 2023. Our headcount 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 Mandiant to close by the end of the year, which will further increase headcount on top of hiring. Although we expect the pace of headcount 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 were 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 reflected in investments in technical infrastructure globally with servers as the largest component. Thank you. Sundar, Philipp, and I will now take your questions.

Great. Hopefully, you can hear me. I want 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. Just wanted to get a sense of how that might change the investment profile in 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 second quarter? And if you have any comments on what you're seeing so far in 3Q in July?

Thanks, Doug. As I said to the company, I think it's a good time to sharpen our focus. Personally, I find moments like these clarifying. It's a chance to digest and make sure we are working on the right things as a company with a long-term view, making sure we are continuing to invest in deep technology and computer science and doing differentiated work. And it gives a chance to assess everything we are doing with a critical lens and reallocate resources to our most critical priorities. So it's a constrained optimization problem. I think it gives us a chance given a few years of strong growth 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 AI, be it Cloud and other critical areas, will continue.

In terms of your second question, I'm going to leave the modeling to you. Just a bit of context, Sundar and I, I think, Philipp, as well used the term uncertainty because we do think that's the best way to characterize what we're seeing. The data are complicated. Our results have reflected lapping, continue to reflect 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've seen it in the news for some it's supply chain, for some it's inventory issues. So we will leave the forecasting to you and try to give you sort of the components as we went through Q2 here.

Sundar, I wanted to follow up on the last question a bit. It seems that your approach to investment for the year has shifted somewhat in recent weeks. After July, we've heard about slowing hiring and now a reported hiring pause. You recently mentioned that you're using this time to optimize spending. Can you share what you're observing in your business, particularly regarding advertising or cloud services, that makes you feel the need to optimize? Are you noticing any pullbacks, or is it more about being proactive in response to macroeconomic concerns?

I think Ruth gave color on what we are talking about as uncertainty. I think we see that as well. All of us are reacting to quite a varying set of dynamics, and it's tough to summarize it because the underlying factors are different and they vary by geography and verticals. But there is some commonality to 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 theme. I think in terms of underlying areas, pretty much I'm 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, when you're in growth mode, it's tough to always take the time to do all the readjustments you need to do and moments like this give us a chance. So I view it as an opportunity. And so some of the sharpening our focus is taking advantage of the moment.

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 periods ahead of us, over the next 12 to 18 months and how maybe we should think about the digestion of the direct response growth 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 businesses within YouTube. How do you think about product development and aligning the product against the broader competitive landscape?

Thanks, Eric. Your question covered a lot of ground, so I'll begin addressing it and then hand over to Philipp. One clear point is that we are experiencing the effects of lapping exceptionally high growth rates, which will normalize over time. This is a simple mathematical observation, but it addresses your inquiry. I've also noticed that some advertisers have pulled back on spending, which has significantly impacted the quarter-on-quarter change and contributed to the sequential decline in growth rates. We view this pullback as somewhat unusual; it can be attributed to factors like supply chain issues and inventory challenges. We are working through these matters. Nonetheless, our focus remains on investing in YouTube and enhancing the experiences and opportunities we can provide for our entire ecosystem, including users and creators. Now, I'll pass it over to Philipp to delve deeper into these topics.

So despite the pullback from some advertisers, we really believe YouTube remains well positioned to benefit from the shift to digital video. Maybe first on brand. It's worth calling out that this was our first year participating in the upfronts, which is really exciting and really a testament to YouTube's evolution, and we were very pleased with our strong growth and upfront commitments. Customers tell us they see value in YouTube's reach and the ability to drive results. I talked about CTV earlier and as well on our last call, and we are 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 and 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 between video action campaigns and app campaigns and product feeds and new live commerce features, where we're testing a number of different things across live commerce. So we're excited about the opportunities here, especially to connect brands with creators. We're also seeing advertisers by YouTube at both ends of the funnel, which I talked about earlier, giving advertisers the ability to drive reach and relevance and action is really where YouTube excels. So the big picture in the long term remains very encouraged by the opportunity for innovation at branded DR and across YouTube.

Maybe one follow-up, Sundar, on the sharpening of the 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 may be 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 and visual search queries and strong growth there. Curious how that also translates into maybe different types of monetization relative to tech space search? Does this give you greater monetization capability in Search? Or how would that impact monetization?

Good question. One way to think about this is through moments like these. For example, we are heavily investing in AI. Our efforts include both pure and applied research, as well as AI work closely tied to areas like Search and YouTube. You can envision a scenario where we prioritize and adjust resources to ensure we drive product improvements, which is reflected in a moment like this. That exemplifies sharpening focus for me. When I consider the opportunities from AI, especially following I/O this year, I see the progress we've made, particularly with multisearch and the increasing multimodal capabilities. The rise in voice and visual searches is a good indicator of how we are adding value to our core products. Likewise, during Google Marketing Live, the team discussed AI-driven products and features that offer significant value to advertisers in a privacy-conscious manner. In terms of cloud, much of the current AI potential is realized through data analytics within that segment, where we see the most strength. However, I believe broader opportunities will emerge over time. Additionally, we continue to achieve breakthroughs from our research teams, including developments like LaMDA 2, PaLM, and Minerva, among others. We will remain at the forefront of innovation, drive progress, and maintain our focus on transforming research into tangible products and applications, all while adopting a long-term perspective.

Following up on the retail segment, some of the largest retailers like Walmart are facing challenges and are looking to reduce costs. Based on what Ruth mentioned about supply chain inventory inflation, it seems they might be reducing their spending on YouTube. I'm interested in how you are approaching Search from a product perspective to maintain strength in that retail category. You talked about P-Max for smaller advertisers and omnichannel for larger ones, but could you elaborate on the strategy being used to keep the spending consistent? Or is this simply a timing issue that could lead to a decrease in the future?

Yes, that's a great question. As I mentioned earlier, retail continued to significantly drive Search in the second quarter. We noticed strong interest in various categories, particularly in women's apparel. It's important to clarify that when we discuss retail growth, we are referring to our overall strategy, which encompasses all our ad products, with our shopping approach being a key component of that. From a trend standpoint, you are correct that omnichannel remains the key as retailers enhance their digital presence to bolster both online and offline sales, and we are actively supporting them in this effort. Over the last few quarters, I've highlighted how we are achieving this. In the second quarter, similar to the first, we experienced a year-over-year rise in the adoption of local inventory ads. These ads are mobile-centric and location-based, allowing businesses of all sizes to display their products and inventory whether in-store, online, or available for curbside pickup, among other options. Furthermore, we are in the midst of transitioning from smart shopping campaigns to Performance Max, which has been positively received by advertisers who appreciate the expanded reach and improved performance. Our focus has always been on creating tools and features that help both online and offline businesses engage directly with customers through our platforms. We are excited about the future of retail commerce within our services, particularly in Search and YouTube, and will continue to concentrate on developing helpful and effective products and experiences for users and businesses alike.

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.