‭ his transcript is provided for the convenience of investors only, for a full recording please see‬T‭the‬‭Q2 2024 Earnings Call webcast‬‭.‬‭ perator:‬ ‭Welcome, everyone. Thank you for standing by for the Alphabet Second Quarter‬O‭2024 Earnings conference call.‬‭ t this time, all participants are in a listen-only mode. After the speaker presentation, there will‬A‭be a question-and-answer session. To ask a question during the session you will need to press‬‭*1 on your telephone.‬I‭ would now like to hand the conference over to your speaker today, Jim Friedland, Director of‬‭Investor Relations. Please go ahead.‬‭ im Friedland, Director Investor Relations:‬ ‭Thank you. Good afternoon, everyone. And‬J
‭welcome to Alphabet's Second Quarter 2024 earnings conference call. With us today are‬‭Sundar Pichai, Philipp Schindler and Ruth Porat.‬‭Now I'll quickly cover the Safe Harbor.‬‭ ome of the statements that we make today regarding our business, operations, and financial‬S‭performance may be considered forward-looking. Such statements are based on current‬‭expectations and assumptions that are subject to a number of risks and uncertainties.‬‭ ctual results could differ materially. Please refer to our Forms 10-K and 10-Q, including the‬A‭risk factors. We undertake no obligation to update any forward-looking statement.‬‭ uring this call, we will present both GAAP and non-GAAP financial measures. A reconciliation‬D‭of non-GAAP to GAAP measures is included in today's earnings press release, which is‬‭distributed and available to the public through our Investor Relations website located at‬‭abc.xyz/investor.‬‭Our comments will be on year-over-year comparisons unless we state otherwise.‬‭And now I'll turn the call over to Sundar.‬‭Sundar Pichai, CEO Alphabet and Google:‬ ‭Thank you, Jim. And hello, everyone.‬I‭'m really pleased with our results this quarter. They show tremendous ongoing momentum in‬‭Search and great progress in Cloud, with our AI initiatives driving new growth.‬‭ earch had another excellent quarter. And in terms of product innovation, we are seeing great‬S‭progress with AI Overviews.‬‭In Q2, Cloud reached some major milestones. Quarterly revenues crossed the $10 billion mark‬‭1‬

f‭or the first time, and at the same time passed the $1 billion mark in quarterly operating profit.‬‭Year to date, our AI Infrastructure and Generative AI Solutions for Cloud customers have‬‭already generated billions in revenues, and are being used by more than 2 million developers.‬‭ s I spoke about last quarter, we are uniquely well-positioned for the AI opportunity ahead. Our‬A
‭research and infrastructure leadership means we can pursue an in-house strategy that enables‬‭our product teams to move quickly. Combined with our model-building expertise, we are in a‬‭strong position to control our destiny as the technology continues to evolve.‬I‭mportantly, we are innovating at every layer of the AI stack, from chips to agents and beyond, a‬‭huge strength. We are committed to this leadership long-term. This was underscored by the‬‭announcements we made at I/O, Cloud Next and Google Marketing Live, and we'll touch on‬‭many of them here.‬‭ oday I'll start with Search, then move to our AI momentum more generally; followed by Cloud,‬
T‭YouTube and some closing thoughts. Let's dive in.‬‭ ver the past 25 years, we've continued to reimagine and expand Google Search across many‬O‭technological shifts.‬‭ ith AI, we are delivering better responses on more types of Search queries, and introducing‬W‭new ways to Search.‬‭ e're pleased to see the positive trends from our testing continue as we roll out AI Overviews,‬
W‭including increases in Search usage and increased user satisfaction with the results.‬‭ eople who are looking for help with complex topics are engaging more and keep coming back‬P‭for AI Overviews. And we see even higher engagement from younger users, aged 18-24, when‬‭they use Search with AI Overviews.‬‭ s we've said, we're continuing to prioritize approaches that send traffic to sites across the web.‬A‭And we're seeing that Ads appearing either above or below AI Overviews continue to provide‬‭valuable options for people to take action and connect with businesses.‬‭ eyond AI Overviews, AI expands the types of queries we are able to address, and opens up‬
B‭powerful new ways to search.‬‭ isual search via Lens is one. Soon, you'll be able to ask questions by taking a video with Lens.‬
V‭And already, we've seen that AI Overviews in Lens leads to an increase in overall visual search‬‭usage.‬‭ nother example is Circle to Search, which is available today on more than 100 million Android‬A‭devices.‬‭2‬‭ e are seeing tremendous momentum from our AI investments. More than 1.5 million‬W‭developers are now using Gemini across our developer tools. And we recently unveiled new‬‭models that are more capable and efficient than ever.‬‭ emini now comes in four sizes, with each model designed for its own set of use cases. It's a‬G‭versatile model family that runs efficiently on everything from data centers to devices. At 2‬‭million tokens, we offer the longest context window of any large-scale foundation model to date,‬‭which powers developer use cases that no other model can handle.‬‭ emini is making Google's own products better. All six of our products with more than 2 billion‬G‭monthly users now use Gemini. This means that Google is the company that is truly bringing AI‬‭to everyone. Gemini is powering incredibly helpful features in Search, Workspace, Google‬‭Messages and more.‬‭ t I/O, we showed new features coming soon to Gmail and to Google Photos. Soon you'll be‬A‭able to ask Photos questions like, "What did I eat at that restaurant in Paris last year?"‬‭ or a glimpse of the future, I hope you saw Project Astra at I/O. It shows multimodal‬F‭understanding and natural conversational capabilities. We've always wanted to build a universal‬‭agent, and it's an early look at how they can be helpful in daily life.‬‭ ur AI product advances come from our longstanding foundation of research leadership, as‬O‭well as our global network of infrastructure.‬I‭n Q2, we announced our first data center and Cloud region in Malaysia, and expansion‬‭projects in Iowa, Virginia and Ohio.‬‭ ur TPUs are a key bet here, too. Trillium is the sixth generation of our custom AI accelerator,‬O‭and it is our best-performing and most energy-efficient TPU to date.‬I‭t achieves a near 5X increase in peak compute performance per chip and is 67% more‬‭energy-efficient compared to TPU v5e.‬‭And the latest NVIDIA Blackwell platform will be coming to Google Cloud in early 2025.‬‭ e continue to invest in designing and building robust and efficient infrastructure to support our‬W‭efforts in AI, given the many opportunities we see ahead.‬‭ f course, as we do this, we will continue to create capacity by allocating resources towards‬
O‭our highest priorities. We are relentlessly driving efficiencies in our AI models.‬‭ or example, over the past quarter, we have made quality improvements that include doubling‬F‭the core model size for AI Overviews, while at the same time improving latency and keeping‬‭cost per AI Overview served flat.‬‭3‬

‭ nd we are focused on matching the right model size to the complexity of the query, in order to‬A‭minimize impact on costs and latency.‬‭ eparately, on our real estate investments, we're taking a measured approach to match the‬S‭current and future needs of our hybrid workforce, as well as our local communities.‬‭Next, Google Cloud.‬‭ e continue to see strong customer interest, winning leading brands like Hitachi, Motorola‬W‭Mobility and KPMG. Our deep partnership with Oracle significantly expanded our joint offerings‬‭to their large customer base.‬‭ ur momentum begins with our AI Infrastructure, which provides AI start-ups like Essential AI‬
O‭with leading cost performance for models and high-performance computing applications.‬‭ e continue to drive fundamental differentiation with new advances since Cloud Next. This‬W‭includes Trillium, which I mentioned earlier, and A3 Mega, powered by NVIDIA H100 GPUs,‬‭which doubles the networking bandwidth of A3.‬
‭ ur enterprise AI platform, Vertex, helps customers such as Deutsche Bank, Kingfisher and the‬O
‭U.S. Air Force build powerful AI agents.‬‭ ast month, we announced a number of new advances: Uber and WPP are using Gemini Pro‬
L
‭1.5 and Gemini Flash 1.5 in areas like customer experience and marketing.‬‭ e broadened support for third-party models, including Anthropic's Claude 3.5 Sonnet, and‬W
‭open source models like Gemma 2, Llama and Mistral.‬‭ e are the only cloud provider to offer Grounding with Google Search, and we are expanding‬W‭grounding capabilities with Moody's, MSCI, ZoomInfo and more. Our AI-powered applications‬‭portfolio is helping us win new customers and drive upsell. For example, our conversational AI‬‭platform is helping customers like Best Buy and Gordon Food Service. Gemini for Workspace‬‭helps Click Therapeutics analyze patient feedback as they build targeted digital treatments.‬‭ ur AI-powered agents are also helping customers develop better quality software, find insights‬
O‭from their data, and protect their organization against cybersecurity threats using Gemini.‬‭ oftware engineers at Wipro are using Gemini Code Assist to develop, test, and document‬
S‭software faster. And data analysts at Mercado Libre are using BigQuery and Looker to optimize‬‭capacity planning and fulfill shipments faster.‬‭ ybersecurity risks continue to accelerate and the number of breaches continue to grow,‬C‭something we all see in the news every day and that our Mandiant teams help manage.‬‭4‬

‭ ur strong track record of uptime, quality control and reliability make Google Cloud the trusted‬O‭security choice for organizations like Fiserv and Marriott International. In Q2, we infused AI‬‭throughout our security portfolio, helping TELUS strengthen its proactive security posture.‬‭ urning next to YouTube. YouTube is focused on a clear strategy: connecting creators with a‬T‭massive audience, and enabling them to build successful businesses through ads and‬‭subscriptions, while helping advertisers reach their desired audience.‬‭ e had a great Brandcast this quarter, and Philipp will say more. I'm pleased at the progress‬W‭here. YouTube has remained number one in U.S. streaming watchtime, according to Nielsen.‬‭Views of YouTube Shorts on connected TVs more than doubled last year, and we're making it‬‭easier for creators to add captions, and turn regular videos into Shorts.‬‭ ext on Android and Pixel. We joined Samsung for their Galaxy Unpacked event a few weeks‬N‭ago, and we shared that Samsung's new devices will include the latest AI-powered Google‬‭updates on Android. It was a great event.‬
I‭'m looking forward to our Made by Google event happening in August. We'll have lots to share‬‭around Android and the Pixel portfolio of devices.‬‭ ur Pixel line is doing well. We recently introduced the new Pixel 8a, powered by our latest‬O‭Google Tensor G3 chip. It provides beautiful AI experiences, like Circle to Search, Best Take‬‭and a Gemini-powered AI assistant.‬
I‭n Other Bets, I'm really pleased with the progress Waymo is making, a real leader in the space‬‭and getting rave reviews from users. Waymo has served more than 2 million trips to date, and‬‭driven more than 20 million fully autonomous miles on public roads. Waymo is now delivering‬‭well over 50,000 weekly paid, public rides, primarily in San Francisco and Phoenix.‬‭ nd in June, we removed the waitlist in San Francisco so anyone can take a ride. Fully‬A‭autonomous testing is underway in other Bay Area locations without a human in the driver's‬‭seat.‬‭ efore I close, I want to acknowledge that today is Ruth's final earnings call. Let me take a‬B‭moment to thank her for all she has done for Google and Alphabet as our longest-serving CFO.‬‭I'm excited to continue to work with her in her new role.‬‭ nd I look forward to welcoming our newly appointed CFO, Anat Ashkenazi. She starts next‬A‭week, and you'll hear from her on our call next quarter.‬‭Thanks as always to our employees and partners everywhere for a great Q2.‬
‭With that, over to you, Philipp.‬‭5‬‭Philipp Schindler, SVP and CBO, Google:‬ ‭Thanks, Sundar. And hello, everyone.‬‭ tarting with performance, Google Services delivered revenues of $73.9 billion for the quarter,‬S‭up 12% year-on-year.‬‭ earch & Other revenues grew 14% year-on-year, led by growth in the Retail vertical, followed‬
S‭by Financial Services.‬‭ ouTube Ads revenues were up 13% year-on-year, driven by growth in brand, as well as direct‬
Y‭response.‬‭Network revenues declined 5% year-on-year.‬I‭n Subscriptions, Platforms and Devices, year-on-year revenues increased 14%, driven again‬‭by strong growth in YouTube subscriptions.‬‭ or the rest of my remarks, I want to double-click on two topics. First, how we are applying AI‬
F‭across the marketing process to deliver an even stronger Ads experience. Second, YouTube's‬‭position as the leading multi-format platform. So let me start by sharing some of the ways we‬‭are applying AI to bring more performance benefits to even more businesses.‬‭ 2 brought several major opportunities to meet and learn from users, developers, creators and‬Q
‭customers. From I/O to Brandcast, Google Marketing Live, and Cannes, a growing number of‬‭our customers and partners are looking to understand how to successfully incorporate AI into‬‭their businesses.‬‭ his quarter we announced over 30 new Ads features and products to help advertisers leverage‬
T‭AI and keep pace with the evolving expectations of customers and users. Across Search,‬‭PMax, Demand Gen and Retail, we are applying AI to streamline workflows, enhance creative‬‭asset production and provide more engaging experiences for consumers.‬‭ istening to our customers, retailers in particular have welcomed AI-powered features to help‬L‭scale the depth and breadth of their assets.‬‭ or example, as part of a new and easier-to-use Merchant Center, we've expanded Product‬
F‭Studio with tools that bring the power of Google AI to every business owner. You can upload a‬‭product image, prompt the AI with something like "feature this product with the Paris skyline in‬‭the background," and Product Studio will generate campaign-ready assets.‬I‭ also hear great feedback from our customers on many of our other new AI-powered features.‬‭We are beta testing virtual try-on in shopping ads, and plan to roll it out widely later this year.‬‭Feedback shows this feature gets 60% more high-quality views than other images and a higher‬‭click-out to retailer sites. Retailers love it because it drives purchasing decisions and fewer‬‭returns.‬‭6‬

‭ ur AI-driven profit optimization tools have been expanded to Performance Max and Standard‬O‭Shopping campaigns. Advertisers who use profit optimization in Smart Bidding see a 15% uplift‬‭in profit, on average, compared to revenue-only bidding.‬‭ astly, Demand Gen is rolling out to Display & Video 360 and Search Ads 360 in the coming‬L‭months, with new generative image tools that create stunning, high-quality image assets for‬‭social marketers. As we said at GML, when paired with Search or PMax, Demand Gen delivers‬‭an average of 14% more conversions.‬‭ he use cases we are seeing across the industry show the incredible potential of these‬
T‭AI-enabled products to improve performance. Let me briefly share two examples with you.‬‭ uxury jewelry retailer Tiffany leveraged Demand Gen during the holiday season and saw a‬L‭2.5% brand lift in consideration and actions, such as adding items to carts and booking‬‭appointments. The campaign drove a 5.6 times more efficient cost-per-click compared to social‬‭media benchmarks.‬‭ ur own Google Marketing team used Demand Gen to create nearly 4,500 ad variations for a‬O‭Pixel 8 Campaign shown across YouTube, Discover and Gmail, delivering twice the‬‭click-through rate at nearly a quarter of the cost.‬I‭n addition to strengthening our Ads products for customers, we continue to evolve our existing‬‭systems and products with improved models, delivering further performance gains.‬I‭n just six months, AI-driven improvements to quality, relevance and language understanding‬‭have improved Broad Match performance by 10% for advertisers using Smart Bidding.‬‭ lso, advertisers who adopt PMax to Broad Match and Smart Bidding in their Search‬A‭campaigns, see an average increase of over 25% more conversions or value at a similar cost.‬‭ e'll continue to listen to our customers and use their feedback to drive innovation across our‬W
‭products. As you can hear, I continue to be excited about the AI era for Ads.‬‭ ow let's turn to YouTube. I've talked before about our approach to making YouTube the best‬N‭place to create, watch and monetize.‬‭ irst, the best place to create. What sets YouTube apart from every other platform are the‬F‭creators and the connection they have with their fans. Audiences tuning in to watch their‬‭favorite creators continue to grow. For example, two weeks ago, MrBeast's channel hit more‬‭than 300 million subscribers.‬‭ ext, the best place to watch. Our long-term investment in CTV continues to deliver. Views on‬
N‭CTV have increased more than 130% in the last three years.‬‭7‬‭ ccording to Nielsen, YouTube is the number one most-watched streaming platform on TV‬
A‭screens in the U.S. for the 17th consecutive month.‬‭ ooming out, when you look not just at streaming but at all media companies and their‬Z‭combined TV viewership, YouTube is the second most-watched after Disney.‬‭ nd this growth is happening in multiple verticals, including Sports, which has seen CTV‬A
‭watchtime on YouTube grow 30% year over year.‬‭ astly, the best place to monetize. CTV on YouTube is continuing to benefit from a combination‬L‭of strong watchtime growth, viewer and advertiser innovation, and a shift in brand advertising‬‭budgets from linear TV to YouTube.‬‭ ur largest advertisers across verticals, including retail, entertainment, telco, and home and‬O
‭personal care are partnering with creators on ads and organic integrations.‬‭ erizon, for example, worked with a YouTube creator and Verizon customer to show the many‬V‭ways their plans and offerings can be customized to fit people's lives. Using AI-powered‬‭formats, they created sketches in multiple lengths and orientations to serve the right creative to‬‭the right viewer and drive people to their site. Verizon's creator ads had a 15% lower CPA and‬‭38% higher conversion rate versus other ads.‬‭ urning to Shorts. Last quarter, I shared that in the U.S., the monetization rate of YouTube‬
T‭Shorts relative to instream viewing is showing a healthy rate of growth.‬‭ gain, this quarter, we continued to see an improvement in Shorts monetization, particularly in‬A‭the U.S. We're also seeing a very encouraging contribution from brand advertising on Shorts,‬‭which we launched on the product in Q4 last year.‬‭ astly, a few words on Shopping. Last year, viewers watched 30 billion hours of‬L‭shopping-related videos, and we saw a 25% increase in watchtime for videos that help people‬‭shop. While it's still early days, Shopping remains a key area of investment.‬‭ t GML, we rolled out several product updates to YouTube Shopping, helping creators sell‬A‭products to their viewers. These updates included; product tagging, where creators can tag‬‭products in their videos for viewers to discover and purchase, product collections, and a new‬
‭Affiliate Hub, a one-stop shop for creators to find deals and promotional offers from brands and‬‭track their affiliate earnings.‬‭ ith that, I'll finish by saying a huge thank you to Googlers everywhere for their extraordinary‬W‭commitment, and to our customers and partners for their continued collaboration and trust.‬‭And Ruth, thanks for your amazing leadership and partnership over all these years. Now, for‬‭8‬‭one last time, it's over to you.‬‭ uth Porat, President and Chief Investment Officer; CFO, Alphabet and Google:‬ ‭Thank‬R‭you, Philipp. And thanks, Sundar, for those kind words. We had another strong quarter, driven‬‭in particular by performance in Search and Cloud, as well as the ongoing efforts to durably‬‭re-engineer our cost base. My comments will be on year-over-year comparisons for the second‬‭quarter, unless I state otherwise.‬I‭ will start with results at the Alphabet level, followed by segment results, and conclude with our‬‭outlook.‬‭ or the second quarter, our consolidated revenues were $84.7 billion, up 14%, or up 15% in‬F‭constant currency. Search remained the largest contributor to revenue growth.‬I‭n terms of expenses, total Cost of Revenues was $35.5 billion, up 11%. Other Cost of‬‭Revenues was $22.1 billion, up 14%, with the increase driven primarily by content acquisition‬‭costs, followed by depreciation as well as the impact of the Canadian digital services tax which‬‭was applied retroactively.‬‭ perating expenses were $21.8 billion, up 5%, primarily reflecting an increase in R&D, partially‬O‭offset by a decline in G&A, with sales and marketing essentially flat to the second quarter last‬‭year.‬‭ he increase in R&D was driven primarily by compensation, which was affected by lapping a‬T‭reduction in valuation-based compensation liabilities in certain Other Bets in the second quarter‬‭last year, followed by depreciation.‬‭ he largest single factor in the year-on-year decline in G&A expenses was lower charges‬
T‭related to legal matters.‬‭Operating income was $27.4 billion, up 26%, and our operating margin was 32%.‬‭Net income was $23.6 billion, and EPS was $1.89.‬‭ e delivered free cash flow of $13.5 billion in the second quarter and $60.8 billion for the‬W
‭trailing 12 months.‬‭ s a reminder, last year, we had a timing benefit in the second and third quarters from a‬A‭$10.5 billion deferred cash tax payment made in the fourth quarter which depressed reported‬‭free cash flow growth this quarter, and will do so again next quarter.‬‭We ended the quarter with $101 billion in cash and marketable securities.‬‭Turning to segment results. Within Google Services, revenues were $73.9 billion, up 12%.‬‭9‬‭ oogle Search & Other advertising revenues of $48.5 billion in the quarter were up 14%, led‬G‭again by growth in Retail, followed by the Financial Services vertical.‬‭ ouTube advertising revenues of $8.7 billion were up 13%, driven by brand, followed by direct‬
Y‭response advertising.‬‭Network advertising revenues of $7.4 billion were down 5%.‬‭ ubscriptions, Platforms and Devices revenues were $9.3 billion, up 14%, primarily reflecting‬S‭growth in YouTube subscription revenues.‬‭TAC was $13.4 billion, up 7%.‬‭ oogle Services Operating Income was $29.7 billion, up 27%, and the operating margin was‬G
‭40%.‬‭ urning to the Google Cloud segment, revenues were $10.3 billion for the quarter, up 29%,‬
T‭reflecting: first, significant growth in GCP, which was above growth for Cloud overall and‬‭includes an increasing contribution from AI; and second, strong Google Workspace growth,‬‭primarily driven by increases in average revenue per seat.‬‭Google Cloud delivered operating income of $1.2 billion and an operating margin of 11%.‬‭ s to our Other Bets for the second quarter, revenues were $365 million and the operating loss‬A‭was $1.1 billion.‬‭ urning to our outlook for the business, with respect to Google Services. First, within‬
T‭Advertising, the strong performance of Search was broad-based across verticals. In YouTube,‬‭we are pleased with the growth in the quarter. We had healthy watchtime growth, continued to‬‭close the monetization gap in Shorts, and had continued momentum in Connected TV with‬‭brand benefiting in part from an ongoing shift in budgets from linear television to digital.‬‭ s we look forward to the third quarter, we will be lapping the increasing strength in advertising‬A‭revenues in the second half of 2023, in part from APAC-based retailers.‬‭ urning to Subscriptions, Platforms and Devices. First, we continue to have significant growth in‬T‭our subscriptions business, which drives the majority of revenue growth in this line. However,‬‭there was a sequential decline in the year-on-year growth rate as we anniversaried the impact‬‭of the price increase for YouTube TV in the second quarter last year. The impact will persist‬‭through the balance of the year.‬‭ econd, with regard to Platforms, we are pleased with the performance in Play, driven by an‬S‭increase in buyers.‬‭10‬‭ inally, with respect to Devices, the most important point as we look forward is that our Made by‬F‭Google launches have been pulled forward into the third quarter from the fourth quarter last‬‭year, benefiting revenues in Q3 this year.‬‭ urning to Cloud, which continued to deliver very strong results. For the first time, Cloud‬T‭crossed $10 billion in quarterly revenues and $1 billion in quarterly operating profits. As Sundar‬‭noted, year to date, our AI Infrastructure and Generative AI Solutions for Cloud customers have‬‭already generated billions in revenues and are being used by more than 2 million developers.‬‭ e're particularly encouraged that the majority of our top 100 customers are already using our‬W
‭Generative AI Solutions. We continue to invest aggressively in the business.‬‭ urning to margins, the margin expansion in Q2 versus last year reflects our ongoing efforts to‬T‭durably reengineer our cost base as well as revenue strength. Our leadership team remains‬‭focused on our efforts to moderate the pace of expense growth in order to create capacity for‬‭the increases in depreciation and expenses associated with the higher levels of investment in‬‭our technical infrastructure.‬‭ nce again, headcount declined quarter-on-quarter, which reflects both actions we have taken‬O‭in the first half of the year and a much slower pace of hiring.‬‭ ooking ahead, we expect a slight increase in headcount in the third quarter as we bring on‬
L‭new graduates. As we have discussed previously, we are continuing to invest in top engineering‬‭and technical talent, particularly in Cloud and Technical Infrastructure.‬‭ ooking forward, we continue to expect to deliver full year 2024 Alphabet operating margin‬L‭expansion relative to 2023.‬‭ owever, in the third quarter, operating margins will reflect the impact of both the increases in‬H‭depreciation and expenses associated with the higher levels of investment in our technical‬‭infrastructure, as well as the increase in Cost of Revenues due to the pull forward of hardware‬‭launches into Q3.‬
‭ ith respect to CapEx, our reported CapEx in the second quarter was $13 billion, once again‬W‭driven overwhelmingly by investment in our technical infrastructure, with the largest component‬‭for servers, followed by data centers.‬‭ ooking ahead, we continue to expect quarterly CapEx throughout the year to be roughly at or‬L‭above the Q1 CapEx of $12 billion, keeping in mind that the timing of cash payments can cause‬‭variability in quarterly reported CapEx.‬‭ ith regard to Other Bets, we continue to focus on improving overall efficiencies as we invest‬
W‭for long term returns. Waymo is an important example of this, with its technical leadership,‬‭11‬

‭coupled with progress on operational performance.‬‭ s you will see in the 10-Q, we have chosen to commit to a new multiyear investment of‬A‭$5 billion. This new round of funding, which is consistent with recent annual investment levels,‬‭will enable Waymo to continue to build the world's leading autonomous driving technology‬‭company.‬‭ o close, this is my 56th and last earnings call, 37 of them at Alphabet, so I have a few closing‬T‭thoughts of gratitude.‬I‭ have been so proud to be at Google and Alphabet as CFO and to work with some of the‬‭smartest people in the world every day. I think we have accomplished a lot in the last nine-plus‬‭years, and I am confident that progress will continue.‬‭ f course, I'm not going far, and I'm honored to have my new role, which I've been slowly‬O‭working my way into during the past 11 months, and I look forward to continuing to work with‬‭Sundar and our great team.‬‭ eing CFO of one of the most important companies in the world has been the opportunity and‬B
‭responsibility of a lifetime. Google's mission of advancing technology and bringing information‬‭to people throughout the world is as relevant today as it was when I worked on its IPO.‬‭ echnology has been a catalyst for economic growth throughout human history. The people on‬T‭this call know that if technological advancement is not the focus of every business and‬‭government, they will be left behind. Underpinning this is the need for sound and responsible‬‭investment. That has never been more important than today, and certainly, that is Google and‬‭Alphabet's focus.‬I‭ want to end by thanking Googlers around the world for the innovation and commitment that‬‭has enabled us to deliver such extraordinary products and services globally. I also want to‬‭thank our investors and analysts for your long term support and your feedback.‬‭Thank you. Sundar, Philipp and I will now take your questions.‬‭ perator:‬ ‭Thank you. As a reminder, to ask a question, you will need to press *1 on your‬O‭telephone. To prevent any background noise, we ask that you please mute your line once your‬‭question has been stated.‬‭Your first question comes from Brian Nowak with Morgan Stanley. Your line is now open.‬‭ rian Nowak (Morgan Stanley):‬ ‭Thanks for taking my questions. First, thank you Ruth for all‬B‭of the help and significant impact over the past decade.‬‭The first one, it's a little bit of a jump ball, I guess, for Sundar, Philipp or Ruth. I guess we're sort‬‭12‬‭ f 18 months into this fever pitch around a GenAI focus in the world. Maybe from any of your‬o‭perspectives, can you sort of talk to us about areas where you've seen faster-than-expected‬‭traction, testing, or adoption of some of the Generative AI capabilities versus‬‭slower-than-expected traction and testing, from a Google perspective?‬‭ nd then Ruth, appreciate all the comments about structurally re-engineering the OpEx base.‬
A‭Are there any more tangible examples of areas you can talk to us about where you still see‬‭further ways to drive more efficiency across the company? Thanks.‬‭ undar Pichai, CEO Alphabet and Google:‬ ‭Brian, thanks. I'll take the first part. I think it's a‬S‭good question.‬‭ bviously, I think there is a time curve in terms of taking the underlying technology and‬O
‭translating it into meaningful solutions across the board, both on the consumer and the‬‭enterprise side.‬‭ efinitely on the consumer side, I'm pleased, as I said in my comments earlier, in terms of how,‬D‭for a product like Search, which is used at scale over many decades, how we've been able to‬‭introduce it in a way that it’s additive and enhances the overall experience and is positively‬‭contributing there.‬I‭ think across our consumer products, we are seeing progress on the organic side. Obviously,‬‭monetization is something we will have to earn on top of it.‬‭ n the enterprise side, I think we are at a stage where there are definitely a lot of models. I‬
O‭think roughly the models are all kind of converging towards a sort of base capabilities but I think‬‭where the next wave is working is to build solutions on top of it.‬
‭ nd I think there are pockets, be it coding, be it in customer service, et cetera, where we are‬A
‭seeing some of those use cases seeing traction. But I still think there's hard work there to‬‭completely unlock those.‬‭ uth Porat, President and Chief Investment Officer; CFO, Alphabet and Google:‬ ‭And on‬R‭your second question, first, thank you for your comments.‬‭ ook, the reason we consistently use the term, the phrase, that we're focused on durably‬L‭re-engineering our cost base is because these are deep workstreams. They're not tactical fixes,‬‭and we continue to build on them. And so the main areas that we've talked about are around‬‭product and process prioritization, around organizational efficiency and structure.‬‭ oth of those are reflected in the headcount and the fact that headcount is down year-on-year.‬B‭Across all of those, as I said, across our entire leadership team, we remain focused on‬‭continuing to execute against them.‬‭13‬‭ o in terms of the most recent examples, as we talked about last quarter, with the combination‬
S‭of the Devices and Services product area, with the Platforms and Ecosystems product area, we‬‭announced that back in April.‬‭ nd what we discussed last quarter and what we're seeing is that unifying teams across these‬A‭organizations helps with product execution, and what we're really focused on is really adding to‬‭velocity and efficiency. So kind of the gift that keeps giving.‬‭ nd then more broadly, all of the workstreams that we've talked to you about before, we‬A‭continue to remain focused on. A big one, very important one, is all of the efficiency efforts, the‬‭workstreams around technical infrastructure and improving efficiency there.‬‭ e're also working on the use of AI across Alphabet. We're continuing to build on what we've‬W‭done with our centralized procurement organization. We're continuing to optimize our‬‭real estate portfolio. And so, again, this is across our leadership team. These are efforts that all‬‭build to this phrase "durably re-engineering our cost base."‬‭Brian Nowak (Morgan Stanley):‬ ‭Great. Thank you both.‬‭ perator:‬ ‭And our next question comes from Doug Anmuth with JPMorgan. Your line is now‬O
‭open.‬‭Doug Anmuth (JPMorgan):‬ ‭Thanks for taking questions. One for Ruth and one for Sundar.‬‭ uth, you've now had Google Services operating margins roughly 40% for the past two‬R‭quarters. Just as you create more capacity to help offset the future investments, is it reasonable‬‭to think that you could sustain at those kind of levels going forward?‬‭ nd then, Sundar, just as it relates to AI Overviews, you talked about the positive trends there.‬A‭Can you just help us understand where you are, how far along in rolling out AI Overviews?‬‭Then any more color around sort of click-through rates and monetization levels relative to your‬‭traditional searches? Thanks.‬‭ uth Porat, President and Chief Investment Officer; CFO, Alphabet and Google:‬ ‭So in‬R‭terms of the Google Services operating margin, it did reflect all the work that we're doing on‬‭durably re-engineering the cost base. It also reflected the benefit of strong revenue‬‭performance in Search.‬‭ nd so what I tried to lay out in the comments, as we look forward to the third quarter, is‬A‭operating margins will reflect the increases in depreciation and expenses associated with higher‬‭levels of our investment in technical infrastructure.‬I‭t will also reflect higher expenses associated with the Pixel launch due to the pull forward. So‬‭those are important factors.‬‭14‬

I‭ would say overall, company-wide, it's important to note that we do expect to continue to‬‭deliver full-year 2024 Alphabet operating margin expansion relative to 2023, but did want to‬‭highlight those important points as we look forward to Q3.‬
‭ undar Pichai, CEO Alphabet and Google:‬‭On the AI Overviews, we've rolled it out in the‬S
‭U.S. and we will be, through the course of the year, definitely scaling it up both to more‬‭countries and also we've taken a conservative start, focused on quality, making sure the metrics‬‭are healthy and so on.‬‭ ut you will see us expand the use cases around it, and we'll touch definitely more queries. All‬B
‭the feedback we have seen is positive.‬‭ n the monetization side, I think Philipp has touched upon it. Maybe, Philipp, anything more‬O‭you want to add there?‬‭ hilipp Schindler, SVP and CBO, Google:‬‭Yeah, look, innovation and improvements to the‬P‭user experience on Search have historically opened up new opportunities for advertisers. We‬‭talked about this before. We saw this when we navigated from desktop to mobile, for example.‬‭And we can see GenAI, obviously, expand the types of questions we can help people with, as‬‭Sundar mentioned. And as we said before, people are finding ads either above or below AI‬‭Overviews helpful. We have a solid baseline here from which we can innovate.‬‭ nd as you have probably noticed at GML, we announced that soon we'll actually start testing‬A‭Search and Shopping ads in AI Overviews for users in the U.S. And they will have the‬‭opportunity to actually appear within the AI Overview in a section clearly labeled as "sponsored"‬‭when they're relevant to both the query and the information in the AI Overview, really giving us‬‭the ability to innovate here and take this to the next level.‬‭Doug Anmuth (JPMorgan):‬ ‭Thank you. Best of luck, Ruth, in your new role.‬‭ uth Porat, President and Chief Investment Officer; CFO, Alphabet and Google:‬ ‭Thank‬R‭you.‬‭ perator:‬ ‭Our next question comes from Michael Nathanson with MoffettNathanson. Please‬O‭go ahead.‬‭ ichael Nathanson (MoffettNathanson):‬ ‭Thanks. I have two, one for Sundar and one for‬
M
‭Philipp.‬‭ undar, on the decision this week to not deprecate cookies, I know it's been a long journey, can‬S‭you talk a bit about what we should expect in terms of your experience in Chrome? And why the‬‭company made the decision not to go down the path of deprecating cookies?‬‭15‬‭ hilipp, I know it was only one quarter, but it's interesting that Search is growing faster than‬P‭YouTube, which surprised some of us. Can you talk about what factors you think are behind the‬‭difference between growth rates between these markets? Is there anything on the AI front you‬‭can see maybe reaccelerating YouTube growth, as you have seen happen in Search? Thanks‬‭so much.‬‭ undar Pichai, CEO Alphabet and Google:‬ ‭Michael, on cookies, obviously, we are super‬S‭committed to improving privacy for users in Chrome, and that was the whole focus around‬‭Privacy Sandbox, and we remain committed on the journey.‬‭ ut on third-party cookies, given the implications across the ecosystems and considerations‬B‭and feedback across so many stakeholders, we now believe user choice is the best path‬‭forward there. And we'll both improve privacy, by giving users choice, and we will continue our‬‭investments in privacy-enhancing technologies. But it's obviously an area we will be taking‬‭feedback from the players in the ecosystem. And we are committed to being privacy-first as‬‭well.‬‭Philipp?‬‭ hilipp Schindler, SVP and CBO, Google:‬ ‭On the second part of your question, maybe,‬
P‭Ruth, you want to jump in first and then I take the rest if needed?‬‭ uth Porat, President and Chief Investment Officer; CFO, Alphabet and Google:‬
R‭Absolutely.‬‭ ook, as we both noted, Search revenues really reflected broad-based growth across verticals.‬L‭That was led by Retail, followed by Financial Services.‬I‭ think your question really goes to the heart of the year-on-year growth comparison. And as‬‭both Philipp and I noted, we are really pleased with YouTube, the YouTube team, all that was‬‭done, it was driven by brand, followed by direct response. And they have very strong ongoing‬‭operating metrics, which Philipp will comment on.‬I‭ think the important point to note, and I tried to tease out in opening comments, was that the‬‭deceleration in this year-on-year revenue growth for the second quarter versus the first quarter‬‭primarily reflected the tougher comparison versus the first quarter. Because at that point, as you‬‭probably recall, YouTube was lapping negative year-on-year growth in Q1 last year. And then‬‭also Q1 benefited from the extra day from leap year. And so what you're also seeing here is,‬‭with YouTube, we were anniversarying the ramp in APAC-based retailers that began in the‬‭second quarter last year and foreign exchange headwinds as well that we noted.‬‭ nd so there's some timing issues going on, and what we're trying to highlight is the underlying‬A‭operating strength.‬‭16‬‭Back to you, Philipp.‬‭ hilipp Schindler, SVP and CBO, Google:‬ ‭Yeah, that was very comprehensive. Nothing‬P‭really to add from my side here.‬‭ undar Pichai, CEO Alphabet and Google:‬ ‭The only thing I would say to Brian's first‬
S‭question on areas where things are maybe taking longer, I think look, we are all building‬‭multimodal models. At least Gemini has been natively multimodal from the ground up. But most‬‭of the use cases today that have been unlocked have been around the text side.‬‭ o in terms of getting real generative audio, video experiences working well, I think it's going to‬
S‭take some time. But over time, obviously, it will be deeply relevant to YouTube.and so it's an‬‭area I'm excited about in the future.‬‭Michael Nathanson (MoffettNathanson):‬ ‭Thanks, all. Best to you, Ruth.‬‭ perator:‬ ‭Your next question comes from Eric Sheridan with Goldman Sachs. Your line is now‬O
‭open.‬‭ ric Sheridan (Goldman Sachs):‬ ‭Thanks so much. And I'll echo the thanks for Ruth for all the‬E‭insights and partnership over the years on these earnings calls.‬‭ undar, maybe first for you. In terms of Cloud and bringing AI to the enterprise, wanted to know‬S‭if you would go a little bit deeper in terms of how you're seeing AI actually get adopted and‬
‭implemented? What it potentially could mean for the strategic positioning of the Cloud business‬‭and the potential for AI workloads to be a stimulant to revenue growth for Cloud first?‬‭ nd then following up, the last set of the questions on YouTube were really about the macro or‬A‭the ad environment. What do you guys as a team continue to learn about the subscription side‬‭of YouTube and the appetite for consumers to engage with a broader array of media products at‬‭the subscription layer? Thanks.‬‭Sundar Pichai, CEO Alphabet and Google:‬ ‭Thanks, Eric.‬‭ ook, on the Cloud and AI stuff, obviously, it's something which I think will end up being a big‬L
‭driver over time. I mentioned in my opening remarks already, if you take a look at our AI‬‭Infrastructure and Generative AI Solutions for Cloud, across everything we do, be it compute on‬‭the AI side, the products we have through Vertex AI, Gemini for Workspace, and Gemini for‬
‭Google Cloud, et cetera, we definitely are seeing traction.‬‭ eople are deeply engaging with the Gemini models across Vertex and AI Studio. We now have‬P‭over 2 million developers playing around with these things.‬‭You are definitely seeing early use cases. But I think we are in this phase where we have to‬‭17‬‭ eeply work and make sure on these use cases, on these workflows, we are driving deeper‬d‭progress and unlocking value, which I'm very bullish will happen. But these things take time.‬‭ ut if I were to take a longer-term outlook, I definitely see a big opportunity here. And I think‬B‭particularly for us, given the extent to which we are investing in AI, our research and‬‭infrastructure leadership, all of that translates directly. And so I'm pretty excited about the‬‭opportunity space ahead.‬‭ uth Porat, President and Chief Investment Officer; CFO, Alphabet and Google:‬ ‭And then‬R‭on your second question, with respect to the subscriptions, implicit in your question, how strong‬‭is it, as I noted in opening comments, that overall line, Subscriptions, Platforms and Devices‬‭delivered healthy growth, and that was led by Subscriptions.‬‭ nd as we've said on many calls here in a row, the Subscription revenue growth continued to‬A‭be quite strong. It was driven by subscriber growth in both YouTube TV and YouTube Music‬‭Premium.‬‭ nd then the other component within that line is Google One, that also delivered strong‬A‭subscriber and revenue growth. I think the heart of your question is really around YouTube, and‬‭that is the heart of the revenues in that line. So it continues to be very strong. We see a lot of‬‭takeup in it, strong subscriber growth. Really pleased with it.‬‭ e did note that growth on that line decelerated due to anniversarying this YouTube TV price‬W‭increase. But at the heart of it are people interested in the subscription offerings, and it's a‬‭takeup that's significant. We are really pleased with it.‬
‭Eric Sheridan (Goldman Sachs):‬ ‭Thank you.‬‭Operator:‬ ‭Our next question comes from Ross Sandler with Barclays. Your line is now open.‬‭Ross Sandler (Barclays):‬ ‭Hi, everybody. Just two questions on the AI CapEx.‬‭ o it looks like, from the outside at least, that the hyperscaler industry going from kind of an‬S‭underbuilt situation this time last year to better meeting the demand with capacity right now to‬‭potentially being overbuilt next year if these CapEx growth rates keep up. So do you think that's‬‭a fair characterization? And how are we thinking about the return on invested capital with this AI‬‭CapEx cycle?‬‭ nd then related to that, do you think that the AI industry is close to or far away from hitting‬A‭some kind of wall on foundation-model improvement in AI training based on lack of availability‬‭of new data to train on? Just your thoughts on that would be great. Thank you.‬‭Sundar Pichai, CEO Alphabet and Google:‬ ‭Thanks, Ross. Great questions.‬‭18‬

‭ ook, obviously, we are at an early stage of what I view as a very transformative area. And in‬L‭technology, when you are going through these transitions, aggressively investing upfront in a‬‭defining category, particularly in an area, which in a leveraged way, cuts across all our core‬‭areas, our products, including Search, YouTube and Other Services as well as fuels growth in‬‭Cloud and supports the innovative long-term bets and Other Bets. It is definitely something that‬‭for us makes sense to lean in.‬‭ he one way I think about it is when you go through a curve like this, the risk of underinvesting‬T‭is dramatically greater than the risk of overinvesting for us here. Even in scenarios where if it‬‭turns out we are overinvesting, these are infrastructure which are widely useful for us, they‬‭have long useful lives, and we can apply it across and we can work through that.‬‭ ut I think not investing to be at the front here, I think, definitely has much more significant‬B‭downsides.‬‭ aving said that, we obsess around every dollar we put in. Our teams work super hard, I'm‬
H
‭proud of the efficiency work, be it optimization of hardware, software, model deployment across‬‭our fleet. All of that is something we spend a lot of time on, and that's how we think about it.‬‭ o your second question on how did the scaling laws hold, are we hitting on some kind of wall‬T‭or something? Look, I think we are all pushing very hard and there's going to be a few efforts‬‭which will scale up on the compute side and push the boundaries of these models.‬‭ hat I would tell is, regardless of how that plays out, I still think there is enough optimizations‬W‭we're all doing which is driving constant progress in terms of the capabilities of the models.‬‭ nd more importantly, taking them and translating them into real use cases across the‬A‭consumer and enterprise side. I think on that frontier, I think there's still a lot of progress to be‬‭had. And so we are pretty focused on that as well.‬‭Ross Sandler (Barclays):‬ ‭Thank you.‬‭Operator:‬ ‭Our next question comes from Stephen Ju with UBS. Your line is now open.‬‭Stephen Ju (UBS):‬ ‭Okay. Thank you so much.‬‭ undar, I guess to ask the AI question a different way, as we talk to some of the model builders‬S‭out there, it looks like the initial use cases are more on the cost savings or efficiency side. But‬
‭when do you think we'll start thinking about products that can help revenue generation for the‬‭Fortune 500, Fortune 1000 companies, which is probably something that can, hopefully, create‬‭greater value over time, versus just cutting costs?‬‭ nd, Philipp, listening to what will be, I guess, Ruth's final comments on YouTube on these‬A‭public calls -- and thank you, by the way, Ruth, for all the help.‬‭19‬

I‭ couldn't help but notice that the bigger factors were brand followed by direct response. And if‬‭we continue to think that the one you bring up first is the larger factor, and tying this into your‬‭prior commentary about Shopping being an important consideration, when do you think we'll‬‭start talking about direct response being a much bigger contributor to YouTube's growth versus‬‭brand? Thank you.‬‭ undar Pichai, CEO Alphabet and Google:‬ ‭To the first part of the question, look, I think the‬S‭technology is horizontal enough, it can apply on both sides. If you take a use case like‬‭improving the customer service experience, there's a part of it which is driving efficiencies, and‬‭you can look at it from a cost standpoint. But you could also be overall improving the‬‭experience, improving conversion, driving the funnel better. And so increasing basket size, if‬‭you are a retail eCommerce player, et cetera. So we are seeing people experiment across both‬‭sides. And so I think you will see it layered across both sides.‬‭Philipp, on the second one?‬‭ hilipp Schindler, SVP and CBO, Google:‬ ‭Yes, on the second one, look on the direct‬
P‭response side, as you know, it's about driving and converting commercial intent. Customers are‬‭obviously benefiting from including video in their AI-powered campaigns. Could be PMax. Could‬‭be Demand Gen. And obviously using our automated tools to enhance and create video‬‭creatives and we are very, very optimistic about this path.‬‭ n average, advertisers who run both image and video ads with Demand Gen campaign see‬O
‭6% more conversions per dollar than those running image-only ads on Discovery. And this is‬‭just one little example of how this can, obviously, boost your performance business, so that's a‬‭big part.‬‭ he brand side, as you know, Google AI continues to make it easier for brands to show up next‬T‭to the content where viewers are obviously the most engaged. And they're finding it, as you can‬‭see from the numbers, a very effective way to drive awareness and consideration.‬‭ e're also quite excited about some of the recent launches on the YouTube Shopping side, if‬W‭you want to put that into the direct response bucket.‬‭Stephen Ju (UBS):‬ ‭Thank you.‬‭ perator:‬ ‭And our last question comes from Justin Post with Bank of America. Your line is‬O‭now open.‬‭ ustin Post (Bank of America):‬ ‭Great. I’d like to ask about a couple of areas. First on the‬J
‭Cloud acceleration, would you characterize that as new AI demand helping drive that‬‭year-to-date or is that more of a rebound in just general compute and other demand? Or is AI‬‭really moving this forward and helping drive acceleration?‬‭20‬

‭ nd then I wanted to ask about your internal cost savings, which has been really strong. How‬
A
‭are you using AI internally to help cut costs? Are you seeing better efficiencies with your‬‭engineers? And just would love to hear about how you are applying AI to cut your own costs.‬‭Thank you.‬‭ uth Porat, President and Chief Investment Officer; CFO, Alphabet and Google:‬ ‭Great.‬R‭Thank you for that.‬‭ o overall, as both Sundar and I said, we are very pleased with the results in Cloud. And there‬S‭is clearly a benefit as the Cloud team is engaging broadly with customers around the globe with‬‭AI-related solutions, AI Infrastructure solutions and the Generative AI Solutions.‬I‭ think we noted that we're particularly encouraged that the majority of our top 100 customers‬‭are already using our Generative AI Solutions. So it is clearly adding to the strength of the‬‭business on top of all that they're doing. And just to be really clear, the results for GCP, the‬‭growth rate for GCP, is above the growth for Cloud overall.‬‭And then I will turn to Sundar on the cost-saving point.‬‭ ut just one point, we are really pleased as well that Cloud's margin improved as it did, and in‬B‭part that reflects the revenue strength that they delivered and all of the efficiency efforts that I've‬‭already spoken about.‬‭ ut looking ahead in Q3, we do expect the same seasonal pattern that you saw last year with‬B‭respect to margin, and we are continuing to invest in the business.‬‭ undar Pichai, CEO Alphabet and Google:‬ ‭Look, I think specifically, if the question is about‬
S‭engineers and coding, et cetera, we definitely want to be on the cutting edge there. I think we‬‭are making these tools available to some of the most productive engineers and demanding‬‭engineers out there and they are definitely kicking the tires hard.‬‭ ut I would say it's still all in very early stages, particularly when it comes to writing high-quality‬B‭secure code.‬‭ ut I think all the learnings, what we are gaining here, will translate into our models and‬B
‭products. And that's the virtuous cycle which I'm excited by. So there's a lot more to come.‬‭Justin Post (Bank of America):‬ ‭Great. Thank you.‬‭ perator:‬ ‭Thank you. That concludes our question-and-answer session for today. I'd like to‬O‭turn the conference back over to Jim Friedland for any further remarks.‬‭Jim Friedland, Director Investor Relations:‬ ‭Thanks, everyone, for joining us today. We look‬‭21‬

f‭orward to speaking with you again on our third quarter 2024 call. Thank you and have a good‬‭evening.‬‭ perator:‬ ‭Thank you, everyone. This concludes today's conference call. Thank you for‬O
‭participating. You may now disconnect.‬‭22‬