Google conference call: AI Overviews user base exceeds 1.5 billion, assessing tariff impact "too early," minimal exemptions clearly putting pressure on advertising business

Against the backdrop of tariff storms and increasing macroeconomic uncertainty, Google delivered a robust financial report, with shares rising nearly 5% in after-hours trading.

On Thursday after the U.S. stock market closed, Alphabet announced its first-quarter financial data. Benefiting from the continued strong performance of its search advertising business, the company's revenue and profit both exceeded analysts' expectations, with net profit soaring by 46%, partially offsetting the slowdown in growth in its cloud computing division. Additionally, while capital expenditures surged in the first quarter, the company stated it would continue to significantly increase capital expenditures.

In terms of AI progress, specifically, AI Overviews performed well, with over 1.5 billion users monthly, and the monetization rate remained roughly unchanged; at the same time, AI tools helped clients enhance advertising effectiveness.

As for the much-anticipated impact of the macroeconomy on advertising business, Google stated that it is "too early to comment," but it is clear that the minimal exemption changes for retailers in the Asia-Pacific region may pose some resistance to the advertising business. Even if the macroeconomic environment changes, the company maintains its capital expenditure target of $75 billion for this year, while also focusing on efficiency and productivity to meet challenges and maintain resilience.

Summary of key points from Alphabet's earnings call:

1. Google is satisfied with its strong performance this quarter but acknowledges the impact of the macroeconomic environment. It expects that the minimal exemption will clearly pose some resistance to the advertising business in 2025, primarily from retailers in the Asia-Pacific region.

2. Google's capital expenditure in the first quarter was $17.2 billion, mainly for technology infrastructure, especially servers and data centers. The capital expenditure for the full year of 2025 is maintained at $75 billion, supporting Google Services, Google Cloud, and Google DeepMind.

3. The growth in capital expenditures will further increase depreciation, with an expected acceleration in the depreciation growth rate in 2025. Depreciation in the first quarter increased by 31% year-on-year, and this figure is expected to be higher as the year progresses.

4. AI Overviews has over 1.5 billion users monthly, and the monetization rate remains roughly unchanged. The length of AI queries is twice that of traditional search queries, with users asking more complex and nuanced questions, focusing on concise design, response time, and more openly conducting more complex tasks such as product comparisons, exploring how to operate, and planning trips.

5. Google is deploying AI-driven advertising campaigns that bring value to advertisers by matching more relevant search queries, thereby improving advertising efficiency.

6. Waymo safely provided over 250,000 paid passenger trips weekly, a fivefold year-on-year increase. Last quarter, Waymo launched its paid service in Silicon Valley. Through its partnership with Uber, Waymo expanded in Austin and is preparing for a public launch in Atlanta later this summer. Washington, D.C. will become a future ride-hailing city, set to launch in 2026. Google is also building a partner network, with potential collaborations in personal vehicle ownership in the future The following is the full transcript of the conference call (translated by AI):

Host: Welcome everyone to the Alphabet Q1 2025 earnings call. Currently, all participants are in mute mode. There will be a Q&A session after the presentation. (Host instructions) Now, I will hand the meeting over to today's speaker, Jim Friedland. Jim Friedland, Senior Director of Investor Relations. Jim, please go ahead.

Jim Friedland, Senior Director of Investor Relations: Thank you everyone. Good afternoon, and welcome to the Alphabet Q1 2025 earnings call. Joining us today are Sundar Pichai, Philipp Schindler, and Anat Ashkenazi. Now, I will briefly introduce the forward-looking statements. Some of the statements we make today regarding our business, operations, and financial performance may be considered forward-looking statements. These statements are based on current expectations and assumptions and are subject to various risks and uncertainties. Actual results may differ significantly. Please refer to our submitted 10-K and 10-Q forms, including the risk factors contained therein. We are not obligated to update any forward-looking statements. In this call, we will present financial metrics in accordance with Generally Accepted Accounting Principles (GAAP) and non-GAAP. The reconciliation of non-GAAP to GAAP metrics has been included in today’s earnings press release, which has been publicly released through our investor relations website at abc.xyz/investor. Unless otherwise noted, our comments will be based on year-over-year comparisons. Now, I will hand the meeting over to Sundar.

Sundar Pichai, CEO: Thank you, Jim. Good afternoon, everyone. We are pleased with our strong performance this quarter. We have seen healthy growth and momentum across the business, including new features driven by artificial intelligence. In search, we achieved sustained double-digit revenue growth. The AI overview is performing well, with over 1.5 billion users monthly, and we are excited about the early positive response to our AI models. There is much more to look forward to in the future. In subscriptions, we surpassed 270 million subscriptions, with YouTube and Google One being the main drivers. Our cloud business also experienced rapid growth, with strong demand for our solutions, and you saw our AI leadership in areas like infrastructure and agents at Cloud Next. Our differentiated full-stack AI approach remains at the core of our growth. This quarter has been very exciting as we launched Gemini 2.5, our smartest AI model, which has made breakthroughs in performance and is widely regarded as the best model in the industry. This is an excellent foundation for future innovation, and we are committed to bringing it to users and customers around the world. Looking ahead to IO, Brandcast, and Google Marketing Live, I can't wait for our teams to showcase the innovations they are developing Next, let's take a look at our progress in AI this quarter, which continues to drive significant growth opportunities. The elements of the AI stack I mentioned earlier include AI infrastructure, world-class research (including models and tools), and our products and platforms. First, starting with AI infrastructure, our long-term investment in a global network puts us in a favorable position. Google's network is robust and resilient, supported by over 2 million miles of fiber optic cables and 33 submarine cables. Additionally, we offer the industry's most extensive TPUs and GPUs and continue to invest in next-generation capabilities. Our seventh-generation TPU, Ironwood, which is the most powerful TPU to date, is the first designed specifically for large-scale inference. Compared to recent high-performance TPUs, it improves computing power by more than 10 times while nearly doubling energy efficiency. Our strong collaboration with NVIDIA remains a competitive advantage for us and our customers. We are the first cloud service provider to offer NVIDIA's groundbreaking B200 and GB200 Blackwell GPUs and will launch their next-generation VeraRubin GPUs.

Secondly, this infrastructure supports our world-class research, including our industry-leading models. Last month, we released Gemini 2.5 Pro, which received extremely positive feedback from developers and consumers.

2.5 Pro is industry-leading in a wide range of benchmark tests and ranks first in the chatbot field with a significant advantage. 2.5 Pro has made tremendous leaps in reasoning, coding, science, and mathematics capabilities, opening up new possibilities for developers and customers. Since the beginning of the year, active users of AI Studio and Gemini API have grown by over 200%. Last week, we launched 2.5 Flash, enabling developers to optimize quality and cost. Our latest image and video generation models, Imagine 3 and VO2, are being widely rolled out and have sparked amazing creativity. In terms of open-source models, we launched Gemma 3 last month, achieving industry-leading performance for its size. The download count for the Gemma model has exceeded 140 million. Finally, we are developing new areas of AI models where there are huge opportunities. For example, our new Gemini robot model. In the health sector, we launched AI Co-Scientist, a multi-agent AI research system, while AlphaFold has been used by over 2.5 million researchers. Third, turning to products and platforms. Our 15 products with 500 million users now all utilize Gemini models. Android and Pixel are two examples that showcase how we put the best AI in people's hands, enabling them to easily use AI for various tasks with just their camera, voice, or screenshots. We are upgrading the Google Assistant on mobile devices to Gemini and will upgrade tablets, cars, and devices connected to phones, such as headphones and watches, later this year. The Pixel 9a has received very positive reviews, offering Google's best AI features, such as Gemini Live and AI-driven camera capabilities Gemini Live camera and screen sharing are now being rolled out to all Android devices, including Pixel and Samsung S25.

Now, let's take a look at key highlights from Search, Cloud, YouTube, and Waymo. First, Search. AI is one of the most revolutionary technologies for achieving and expanding our information mission. For Search, we see that it can increase the number and types of questions we can answer. We have already seen this, with AI Overview now having over 1.5 billion users per month. After nearly a year of launching AI Overview in the U.S., we continue to see usage growth as people find search more useful for their additional queries. Therefore, we are heavily investing in this area, continuing to roll out the feature to new countries, more users, and more queries. Based on the positive feedback received for AI Overview, we launched AI Mode in March, which is an experiment in the lab. It expands the capabilities of AI Overview with more advanced reasoning, thinking, and multimodal capabilities to assist with questions that require further exploration and comparison. On average, queries in AI Mode are twice as long as traditional search queries. We have received very positive feedback from early users regarding its design, fast response times, and ability to understand complex nuances. We are also continuing to see significant growth in multimodal queries. Circle to Search is now available on over 250 million devices, with usage growing nearly 40% this quarter. Since October, the monthly usage of visual searches using Lens has increased by 5 billion times.

Next is Cloud. At Cloud Next, we announced significant innovations, with over 500 companies sharing the business results they achieved in collaboration with us. We provide leading costs, performance, and reliability for AI training and inference. This allows us to offer the best value for AI leaders (of any scale and context) as well as global brands like Verizon. For highly sensitive data and regulatory requirements, Google Distributed Cloud and our Sovereign AI enable Gemini to be used locally or domestically. Our Vertex AI platform offers over 200 foundational models to help customers like Lowe's integrate AI. We provide industry-leading models, including Gemini 2.5 Pro, 2.5 Flash, Imagine 3, VO2, Chirp, and Lyria, as well as open-source and third-party models like Llama 4 and Anthropic. We are the leading cloud solution for companies seeking next-generation AI agents, which is a huge opportunity. Our Agent Development Kit is a new open-source framework designed to simplify the process of building complex AI agents and multi-agent systems. Agent Designer is a low-code tool for building AI agents and automating tasks across over 100 enterprise applications and systems. We provide AI agents to employees at major global companies like KPMG. Through Google Agentspace, employees can find and synthesize information within the organization, converse with AI agents, and take action using enterprise applications It combines enterprise search, conversational AI or chat, and access to Gemini and third-party agents. We also offer pre-packaged agents across various areas such as customer engagement, coding, and creativity, which help provide conversational customer experiences, accelerate software development, and improve decision-making. Of course, there’s Google Workspace. It offers over 2 billion AI assets monthly, including summarizing Gmail and optimizing Docs. Finally, our cybersecurity products are helping organizations detect, investigate, and respond to cybersecurity threats. Our expertise, combined with integrated Gemini AI advancements, enables the detection of malware, prioritization of threats, and acceleration of investigation workflows. This quarter, we are excited to announce our intention to acquire Viz, a leading cloud security platform that protects all major cloud and code environments. Through collaboration, we can make it easier and faster for organizations of all types and sizes to achieve end-to-end protection across all major clouds. We believe this will promote more multi-cloud computing, which is what customers expect.

Next is YouTube. Yesterday marked a historic milestone, the 20th anniversary of the first video uploaded to YouTube. From that 19-second upload, the platform has evolved into a global phenomenon that has transformed the way billions create, share, and experience content. With all this growth, subscriptions are now an important part of the business. We continue to diversify subscription options, recently expanding the Premium Lite pilot to the U.S., providing users with a new way to watch most videos on YouTube ad-free. In the U.S., television is the primary device for watching YouTube. According to Nielsen, YouTube has been the number one platform for streaming watch time in the U.S. for the past two years. YouTube now has over 1 billion active podcast users each month. YouTube Music and Premium have surpassed 125 million subscribers globally, including trial users.

Finally, Waymo is now safely providing over 250,000 paid passenger trips per week, a fivefold increase from a year ago. Last quarter, Waymo launched its paid service in Silicon Valley. Through our partnership with Uber, we expanded in Austin and are preparing for a public launch in Atlanta later this summer. We recently announced that Washington, D.C. will become a future rideshare city, launching in 2026 alongside Miami. Waymo continues to make progress in two capabilities important to passengers: airport access and highway driving. Thanks to all our employees for their work this quarter. This is a good start, and the second quarter will be even more exciting. Now, I’ll hand it over to Philipp.

Philipp Schindler, Senior Vice President and Chief Business Officer: Thank you, Sundar, hello everyone. I will briefly cover this quarter's performance and then expand on our progress in search, advertising, YouTube, and partnerships. Google Services revenue was $77 billion, a 10% year-over-year increase, driven primarily by strong growth in search and YouTube, partially offset by a year-over-year decline in network revenue To further illustrate performance, the 10% growth in search and other revenues was primarily driven by financial services, largely due to strong performance in the insurance sector, followed by retail. YouTube's performance across various sectors was similar. Its advertising revenue grew by 10%, mainly driven by direct response ads, followed by brand ads. So, let's start with search, where we saw strong growth in revenue. Over 2 billion people globally use search daily to find information, compare products, or shop. Google processes over 50 trillion searches each year. We continue to work hard to help more people ask new questions and provide businesses with more opportunities to connect with consumers. As we mentioned earlier, there has been an increase in business queries with the launch of AI Overview. The first quarter marked the largest expansion of AI Overview to date, both in terms of launching to new users and providing answers to more questions. This feature is currently available in over 15 languages across 140 countries. Regarding the overall performance of AI Overview, we continue to see its monetization rate remain relatively stable, providing us with a strong foundation for further innovation.

Turning to visual search, in the last earnings call, I mentioned our success with Lens, where shoppers can quickly find information using their cameras or images in ways they couldn't before. In the first quarter, the number of people shopping with Lens grew by over 10%, and most Lens queries were new. Sundar mentioned that we also saw significant growth in Circle to Search, with multimodal continuing to drive query volume in search. Turning to advertising, more and more businesses of all sizes are adopting AI-driven campaigns, and the AI we have deployed in our advertising business is delivering results for our clients and our business. Throughout 2024, we launched a series of features leveraging LLMs to enhance advertiser value, and we are seeing the results of this work. These launched combinations now allow us to match ads with more relevant search queries, helping advertisers reach customers in searches where we previously wouldn't have shown their ads. Focusing on our clients, we continue to address advertisers' pain points and look for opportunities to help them create, distribute, and measure more impactful ads, integrating AI at every step of the marketing process.

In audience insights, we released new asset audience recommendations that inform businesses about which topics resonate most with their top audiences. Creatively, advertisers can now generate a wider range of lifestyle images, customized to better engage their customers, and use them in PMax, demand generation, display, and app campaigns. Additionally, in PMax, advertisers can automatically pull images from their landing pages and crop them, increasing the diversity of their assets. In media buying, advertisers continue to see how AI-driven campaigns help them find new customers. In demand generation, advertisers can manage their ad placements more precisely across YouTube, Gmail, Discover, and the Google Display Network globally, and understand which assets are most effective at the channel level Thanks to dozens of AI-driven improvements launched in 2024, businesses using demand generation are now seeing an average year-over-year conversion rate increase of 26% for every dollar spent, targeting purchases and potential customers. When demand generation is used in conjunction with product information streams, on average, they see a year-over-year conversion rate increase of more than double for every dollar spent. For example, Royal Canon combined demand generation with PMax campaigns to find more customers for its pet food products. This integration achieved a 2.7 times higher conversion rate, reduced the cost per purchase by 70%, and increased the value per user by 8%.

Turning to YouTube, we have achieved strong growth in both advertising and subscription revenue. This week, we are celebrating the 20th anniversary of YouTube. We take pride in YouTube's leadership as a streaming destination, where people watch everything they love, from live sports and creator-produced content to short videos and podcasts. Creators are key to driving viewership, with an average of 20 million videos uploaded to YouTube daily.

Our largest creators generate fan effects and audience engagement around major cultural events on YouTube, which brands cannot find elsewhere. During March Madness, brands were not only associated with clips and highlights of the games but also with creators driving basketball culture, such as Jesser and J Kyle Mann from The Ringer. In the first quarter, our booked advertising business grew more than double year-over-year. Brands and creators continue to leverage the opportunities brought by collaborations and partnerships. Toyota collaborated with Zach King, the king of short magical videos with over 42 million followers, to take over his channel. The creator takeover and corresponding creator ads increased Toyota's brand awareness by 25% compared to the control group and improved it by 9% compared to Toyota's brand ads. Looking at short videos, engagement views grew by over 20% in the first quarter. We are pleased with the monetization process of short videos globally relative to in-video views and are particularly encouraged by the trends in the U.S.

As always, I will conclude with our strong momentum in partnerships, as clients increasingly recognize the powerful capabilities and broad product offerings that Google possesses. For example, Roblox partnered with Google Ads Manager to bring immersive ads to gamers. Gen Z gamers are the primary users of Roblox, and thanks to our collaboration, advertisers will be able to reach this audience through ads seamlessly integrated into the gaming experience. We also launched a YouTube short video effect to help people post iconic Roblox heads and inspire fans to create content on a large scale. Finally, I want to thank Google employees worldwide for their contributions to our success and the continued trust of our clients and partners. Now, I will hand it over to Anat.

Anat Ashkenazi, Senior Vice President and Chief Financial Officer: Thank you, Philipp. My comments will focus on the financial performance of the first quarter, unless otherwise noted. I will start with the results at the Alphabet level and then cover our departmental results I will conclude with an outlook for the second quarter of 2025.

We achieved strong performance in the first quarter, with consolidated revenue of $90.2 billion, a year-over-year increase of 12%, or a 14% increase when adjusted for constant currency. Search and YouTube advertising, subscription platforms and devices, as well as Google Cloud all achieved double-digit revenue growth this quarter, reflecting strong momentum across the business. Total costs were $36.4 billion, an 8% year-over-year increase. Technology costs were $13.7 billion, a 6% year-over-year increase. We continue to see a shift in revenue structure, with strong growth in Google Search, while network revenue (which has a higher technology cost rate) declined. Other costs were $22.6 billion, a 9% year-over-year increase, primarily driven by content acquisition costs for YouTube, followed by depreciation and other technology infrastructure operating costs. Total operating expenses grew by 9% to $23.3 billion. R&D investment increased by 14%, mainly driven by increases in compensation and depreciation expenses. Sales and marketing expenses decreased by 4%, primarily reflecting a reduction in compensation costs. General and administrative expenses increased by 17%, reflecting the impact of legal and other costs.

Operating income grew by 20% this quarter to $31 billion. Operating margin increased to 33.9%, representing a 2.3 percentage point improvement. The operating margin benefited from healthy revenue growth, a slowdown in compensation growth, and a favorable structural shift towards lower technology advertising revenue, partially offset by depreciation expenses that increased by over $1 billion year-over-year. Other income and expenses were $11.2 billion, primarily due to unrealized gains on our equity investment in a private company, which we disclosed as a subsequent event in our 10-K. Net income grew by 46% to $34.5 billion. Earnings per share increased by 49% to $2.81. We generated $19 billion in free cash flow in the first quarter, totaling $74.9 billion over the past 12 months. At the end of this quarter, we had $95 billion in cash and cash equivalents.

Turning to segment results, Google Services revenue grew by 10% to $77.3 billion, reflecting strong performance in Google Search, YouTube advertising, and subscriptions.

Google Search and other advertising revenue grew by 10% to $50.7 billion. The strong performance in search was again broadly distributed across various sectors, driven by financial services, primarily due to strong performance in the insurance sector, followed by retail. YouTube advertising revenue grew by 10% to $8.9 billion, primarily driven by direct response advertising, followed by brand advertising. Network advertising revenue was $7.3 billion, a year-over-year decline of 2%. Subscription platforms and devices revenue grew by 19% to $10.4 billion, primarily reflecting growth in subscription revenue. This growth was mainly driven by YouTube subscription services, followed by Google One, with the increase in subscription users being the main driver of revenue growth. Google Services operating income grew by 17% to $32.7 billion, with operating margin increasing from 39.6% to 42.3%.

Turning to the Google Cloud segment, it continued to achieve very strong results this quarter, with revenue growing by 28%, reaching $12.3 billion in the first quarter, reflecting that GCP's growth in core and AI products far outpaced the overall revenue growth rate of the cloud The growth of Google Workspace is primarily driven by an increase in average revenue per seat. Google Cloud's operating revenue grew to $2.2 billion, with an operating margin increasing from 9.4% to 17.8%. As we scale, we continue to focus on improving productivity, efficiency, and utilization to offset rising costs such as depreciation. Regarding other investments, first-quarter revenue was $450 million, with an operating loss of $1.2 billion. The year-over-year decline in revenue and the increase in operating loss primarily reflect a milestone payment received in the first quarter of 2024 for one of our other investments.

On capital expenditures, our reported capital expenditure for the first quarter was $17.2 billion, primarily reflecting investments in our technology infrastructure, with the largest portion going towards servers, followed by data centers, to support the growth of Google Services, Google Cloud, and Google DeepMind businesses. In the first quarter, we returned value to shareholders through stock buybacks and dividend payments, with stock buybacks amounting to $15.1 billion and dividend payments of $2.4 billion. As we announced today, our board has declared a 5% increase in the quarterly dividend and approved a new $70 billion stock buyback authorization.

Turning to our outlook, I would like to comment on several factors that will impact our business performance in the second quarter and the remainder of 2025. First, on revenue, I will highlight some factors we mentioned last quarter that will affect revenue in the second quarter and 2025. First, in Google Services, advertising revenue for 2025 will be influenced by our strong performance in the financial services sector throughout 2024. Secondly, in the cloud space, we are in a tight supply-demand environment, and given the timing of revenue related to new capacity deployments, we may see variations in cloud revenue growth rates based on capacity deployments each quarter. We expect relatively high capacity deployments by the end of 2025. Turning to investments, first regarding our expectations for capital expenditures for the full year of 2025, we still anticipate investing approximately $75 billion in capital expenditures this year. The expected level of capital expenditures may fluctuate quarter by quarter due to changes in delivery and construction timelines.

On expenses, first, as I mentioned in the last earnings call, the significant increase in capital expenditures over the past few years will continue to pressure the income statement, primarily reflected in increased depreciation. In the first quarter, we saw a 31% year-over-year increase in depreciation due to the increased utilization of technology infrastructure assets. Given the increased capital expenditure investments over the past few years, we expect the growth rate of depreciation to accelerate in 2025.

Secondly, as we mentioned earlier, we expect some growth in headcount in key investment areas in 2025. As previously disclosed, due to adjustments in the timing of annual employee stock-based compensation awards starting in 2023, our stock compensation expense in the first quarter was relatively low compared to other quarters of the year. In summary, as you heard from Sundar and Philipp, we are pleased with the progress we have made across the organization, the results of this quarter, and the opportunities ahead. The success of our company is built on our experience in driving advancements in deep computer science, enabling us to create innovative new products and services for users, businesses, and partners around the world We have a strong track record of incubating these products and developing them into new profitable businesses for Alphabet. As we announced last quarter, the combined annual run rate for YouTube and Cloud at the end of 2024 is $110 billion. As you heard from Sundar, Waymo continues to make progress based on its impressive technological achievements to achieve rapid growth and develop sustainable business models. Thank you. Sundar, Philipp, and I will answer your questions.

Q&A Session

Host: Thank you, everyone. As a reminder, to ask a question, please (host instructions), our first question comes from Brian Nowak at Morgan Stanley. Your line is now open.

Q1 Brian Nowak: Okay. Thank you for taking my question. I have two questions. The first question is about the macro advertising backdrop. Maybe I'm not clear, as today is April 24th, you mentioned some factors you are considering for the second quarter. Are there any other factors in the advertising space, regions, or categories that show signs of weakness? How should we think about the shift from typical seasonality to Q25 compared to previous quarters? The second question, Philipp, I think I heard you mention an increase in commercial query volume. Perhaps you could tell us which products are driving the increase in commercial queries? And when you think about the roadmap for search products, are there other products that particularly excite you to continue driving commercial query growth in 2025 and 2026? Thank you.

Philipp Schindler: Let me first address the first question. We saw broad strength in the advertising space in the first quarter, and I will give you some details by area. In search, the financial sector led again, primarily due to the continued strong performance in insurance, with retail, healthcare, and travel also being significant contributors to growth.

Regarding the second quarter, we have just passed a few weeks, so it is too early to comment now. Of course, we are not immune to the macroeconomic environment, but we do not want to speculate on potential impacts, other than to point out that changes to the minimum exemption will clearly pose some headwinds for our advertising business in 2025, primarily from retailers in the Asia-Pacific region.

Perhaps from a broader perspective, I would say we have extensive experience in managing uncertain times, and we focus on helping our clients by providing deep insights into changes in consumer behavior that are relevant to their businesses. For example, auction dynamics, query trend insights on topics like replacement purchases, etc. We have rich experience in this area.

In terms of commercial queries, the AI overview continues to improve satisfaction and search usage. As I mentioned earlier, the first quarter was the largest scale expansion of our AI overview to date, both in terms of launching to new users and providing answers to more questions, which is actually the core answer to your question. The AI overview is at the center of your question, and when it comes to other products, I don't want to speculate, but we are pleased with what we are seeing in the AI overview, and I believe we can expand it to more products over time Host: Thank you. The next question comes from Doug Anmuth of Morgan Stanley. Your line is now open.

Q2 Doug Anmuth: Okay. Thank you for taking my question. Phil, maybe back to the AI overview for a moment, can you tell us how we should think about the 1.5 billion AI overview users in terms of rollout scope? I know you mentioned that the monetization rate has remained roughly stable, but what does that mean in terms of click-through rates and conversion rates?

Then, Anat, I’m just curious if there have been any changes at Google regarding the sustainable redesign of the cost base since you joined? If the macroeconomic environment weakens and we see more slowdowns, do you expect to find more opportunities to further cut costs? Thank you.

Philipp Schindler: Yes, regarding advertising in the AI overview, we actually launched ads in the AI overview on mobile devices in the U.S. at the end of last year, building on the ads we previously launched above and below, so that’s a change we’ve made. But as I mentioned earlier, for the AI overview, overall, we see that its monetization rate has remained roughly stable, which provides us with a strong foundation to innovate further, so I’m pleased with that. I don’t think now is the time to delve into details like click-through rates and conversion rates, but overall, we are satisfied with what we are seeing.

Anat Ashkenazi: Regarding your question about our approach to productivity and efficiency, it hasn’t really changed. I mentioned my approach and our company’s approach at the end of 2024; we are still focused on improving efficiency and productivity across the organization, whether it’s our operating expenses or our capital expenditures. I mentioned some of these in my prepared remarks, but of course, this helps us drive long-term sustainable growth for the company when considering the investments we need to make for innovation. We are able to reinvest some of those efficiencies into those investments.

Similarly, when you consider the increase in capital expenditures we’ve seen over the past few years and the investments we are making this year, this will put additional pressure on the income statement in the form of depreciation, so we are working to offset some of those headwinds. Likewise, in terms of capital expenditure investments themselves, with $75 billion, we are considering how to ensure that every penny is used efficiently. You’ve seen some announcements and changes, but we are focused on continuing to moderately control the pace of compensation growth, reviewing our real estate footprint, and re-evaluating how our technology infrastructure is built and developed in the business to ensure we are utilizing it appropriately and that we are very efficient in everything we do.

Analyst: Okay, thank you both.

Host: Thank you. The next question comes from Eric Sheridan of Goldman Sachs. Your line is now open.

Q3 Eric Sheridan: Thank you for taking my question. First, I want to ask Sundar, when you look at today’s consumer AI landscape, how do you view the differentiation of Gemini as a platform through usage, practicality, or prioritizing product innovation? The second question, perhaps for Anat, if the macroeconomic environment changes and becomes more unstable, how should investors view the investments that must be made this year, which are almost fixed in nature, compared to if the macroeconomic environment deteriorates, where companies might have more flexibility in their investment priorities? Thank you very much.

Sundar Pichai: Thank you, Eric. Clearly, the AI space is an exciting moment. I think the foundation of everything is the cutting-edge model advancements we are seeing, especially with 2.5 Pro and Flash, and I believe we are in a favorable position. We are seeing tremendous responses from developers, businesses, and consumers. Clearly, we are providing consumer AI experiences through our product portfolio, including the very early stages of people experiencing AI overviews and AI models primarily through search, but this will become a consumer AI-oriented experience. We have seen very positive feedback. The length of queries—what people are inputting—is about twice that of traditional search.

So there is a lot to be excited about here. In the Gemini application, as you asked, we have seen growth momentum in recent weeks, and as we roll out not just updated models, we see users responding very well to all these innovations. Gemini Live, based on Project Astra, has been well received. The deep research based on 2.5 Pro is SOTA (State of the Art) and has also been well received. Canvas has also made significant progress. Therefore, we are definitely increasing investment. We have recently organized ourselves better to leverage this momentum, and I am excited about our roadmap.

Anat Ashkenazi: Regarding this year's investments and overall, if the macroeconomic environment changes. As I mentioned, we still plan to invest about $75 billion in capital expenditures this year. We see tremendous opportunities in front of the entire organization, whether it is supporting Google services, Google Cloud, or Google DeepMind. Recall that I mentioned in the fourth-quarter earnings call that we ended the year in the cloud with customer demand exceeding our capacity. This quarter is no different. So, we want to ensure that we can scale to meet customer demand. That said, we are making long-term investments, and we are investing in innovation. This is the essence of our business. We want to do this in a responsible manner.

So, what you have seen over the past few years, we are continuing to do, and you can see this from our results, we are driving efficiency and productivity across the business. We have announced measures such as team integrations that not only help reduce costs but also help improve speed and velocity. We are able to bring products to market faster. So, this is one of our focus areas. You have heard from Sundar about the rapid pace of innovation we are bringing to market in the past few earnings calls. So, we are driving productivity and efficiency in this way across the business, which should help us have a more resilient organization regardless of the macroeconomic environment. Of course, we are not ignoring this. We are always attentive to what is happening inside and outside the organization and investing appropriately to drive both short-term and long-term growth Doug Anmuth: Thank you.

Host: Thank you. The next question comes from Ross Sandler at Barclays. Your line is now open.

Q4 Ross Sandler: Okay, thank you. I have one question for Sundar and one for Philipp. Sundar, this week during the ongoing review, it was disclosed that Gemini has 35 million daily active users (DAUs), which is clearly far behind ChatGPT. Can you talk about the strategies you are deploying to significantly increase this DAU number? Then, Philipp, I'm interested in YouTube's brand advertising in the first quarter and early into the second quarter. Are brand advertisers relatively stable, like direct response ads, or are they starting to react to these macroeconomic fluctuations? What are your thoughts on this? Thank you very much.

Sundar Pichai: Thank you, Ross. I think I mentioned this when answering Eric's question, but we have certainly made significant progress in product features, and we have definitely seen an increase in acceptance and usage based on these features. So I think we are in a good, positive cycle. The recent advancements on many metrics at the forefront of the model, I believe we currently have the best model on the market, and I think this will drive higher adoption rates. To reiterate, people are using AI overviews and engaging in deep, highly interactive interactions with AI; we have 1.5 billion users. Clearly, we are innovating with AI models. And we are very excited about the future roadmap for the Gemini application. So overall, I am very optimistic about the future.

Philipp Schindler: Regarding your brand question, both brand advertising and direct response advertising saw very strong growth in the first quarter. Brand advertisers really enjoyed cultural moments like Coachella or March Madness. We saw strong contributions from the financial and retail sectors in the first quarter. In this regard, YouTube's operational metrics were also strong in the first quarter. Watch time growth remains robust, especially in key monetization opportunities like short videos and living rooms. By the way, it is also encouraging to see our creators' strong position, which clearly benefits brand advertisers, giving us confidence as we take a closer look. As for the second quarter, I think I mentioned earlier that it is still too early to comment.

Host: Thank you. The next question comes from Mark Shmulik at Bernstein. Your line is now open.

Q5 Mark Shmulik: Okay, thank you for taking my question. Sundar, thank you for the introduction regarding Gemini's deployment across 15 products with 500 million or more users. I would love to hear where you see the most usage and deployment of Gen AI (generative artificial intelligence) within Google, and whether these capabilities are already in place, either to supplement or enhance the workforce? Then, based on previous questions about AI models, I understand that queries in AI models are twice as long as traditional searches, but can you share some details about how AI model behavior differs from how consumers use the Gemini application? Thank you.

Sundar Pichai: Internally, I think this is a very exciting area because I believe we are in the early stages but have already made transformative progress. I mentioned a few months ago that we have made significant strides in using AI for coding. The proportion of people accepting AI-suggested solutions has increased from 25% to over 30%. But more importantly, we are deploying deeper processes. Especially with the launch of new models, we are exploring early agent workflows and how to make these coding experiences more immersive. We are deploying these technologies across various departments in the company. Our customer service team is at the forefront of this.

We have not only greatly enhanced the user experience but also improved efficiency. We are actually bringing all our learning and expertise to our other clients through the cloud. But beyond that, from the finance team's preparation for this earnings call to everything else, it has been deeply embedded in everything we do, but I still think we are in the early stages and have a long way to go. Regarding AI models, I believe we are just continuing to build on the early positive feedback, and as we scale the AI overview, it is one of our most successful launches, but it is clear that people want more. Therefore, through AI models, we are directly bringing the state-of-the-art Gemini model into search, and I mentioned that people are entering longer queries. People are asking more complex and nuanced questions and following up more deeply. They appreciate its sleek design, fast response times, and the ability to engage in more complex tasks more openly, such as product comparisons, exploring how to operate, planning trips, etc. These are the early feedback we are seeing, and we are clearly very focused on improving the entire AI model, AI overview, and Gemini application products, and we are seeing positive user acceptance.

Host: Thank you. The next question comes from Mark Mahaney at Evercore. Your line is now open.

Q6 Analyst: Okay, thank you. One for Anat and one for Sundar. Anat, going back to the question Doug asked earlier, you just set a record high profit margin for Google Services and Google Cloud or the highest profit margin in years. You mentioned that depreciation expenses will accelerate rapidly this year due to the investments you have warned about. Going back to the September quarter, you seemed quite confident that you have enough leverage to offset the rising infrastructure costs. Six months later, is this still your view? Do you still have enough leverage to offset even with rising infrastructure costs? Then, regarding Waymo, Sundar, it continues to grow actively, and the numbers keep rising. What is Waymo's long-term business model? Is a decision needed soon, or have you already decided whether this is a long-term licensing model, or do you really want to operate it as an independent autonomous ride-sharing business? Thank you very much.

Anat Ashkenazi: Thank you. Regarding your first question about profitability and whether we have leverage, and whether this is still our view six months later, I think every organization can always push further I don't believe that productivity goals or efficiency are a phased, project-based effort, but rather a continuous effort. When you reach a certain point, you push further. That said, we are making significant investments within the organization, and we have been doing so for the past few quarters. We are able to do this because we can find efficiencies throughout the organization to fund these investments. These investments will drive the company's long-term growth.

So, while we are trying to offset much of the headwinds associated with rising infrastructure costs, this will become more difficult. As I mentioned, depreciation will accelerate. Our depreciation this quarter increased by 31% year-over-year, and as we move into this year, that number will be higher. So, you can see this as a challenge we need to address. But we are still working hard to drive efficiency across the organization, leveraging the AI technologies that Sundar mentioned, applying them in multiple business areas to help us handle more work more efficiently. For example, we used AI technology in preparing for this earnings call, and we will roll it out to more departments in the future. Therefore, despite the challenges, we will continue to strive to find a balance between efficiency and investment to ensure the company's long-term growth and resilience.

Sundar Pichai: Thank you, Mark. In fact, this is the first time I've been asked about Waymo in an earnings call, which itself reflects Waymo's progress. We have always focused on building the world's best autonomous driving technology, and doing this will open up possibilities for various business models, whether in different regions or otherwise. Of course, this also requires us to work hand in hand with successful ecosystem partners; we cannot do all the work alone. We are excited about the progress the team has made through various partnerships, the most notable being our collaboration with Uber. We are pleased with the passenger satisfaction we have seen in Austin and look forward to offering the first paid rides through Uber in Atlanta later this year. But at the same time, we are building a network of partners, such as the recent partnership announced with Moove in Phoenix and Miami, and of course, collaborations with automakers. There are also possibilities in the future regarding personal vehicle ownership. Therefore, we are broadly exploring various possibilities while maintaining focus and continuing to make progress in safety, driving experience, as well as business model and operational expansion.

Analyst: Okay, thank you very much.

Host: Thank you. The next question comes from Ken Gawrelski of Wells Fargo. Your line is now open.

Q6: Ken Gawrelski: Thank you. I have two questions. First, regarding AI-driven search, you have multiple AI-driven search interfaces, among which the most prominent three are AI Overview, AI Mode, and Gemini. Should we view these as long-term independent experiences in the future, or are they currently more experimental, with Google ultimately focusing on one approach? The second question is about the financial aspect. Your gross margin continues to grow healthily, and we see the TAC (Traffic Acquisition Cost), but you also mentioned the offset of depreciation expenses In addition to these two aspects, what real savings have you seen on the COGS (Cost of Goods Sold) line that have driven gross margin growth? Perhaps we can also discuss how we should view this in the future? Thank you.

Sundar Pichai: Okay. Regarding AI-driven search and how we view consumer experience, I think search and Gemini are clearly two different directions of effort. Of course, they overlap in some ways, but they also expose very different use cases. For example, in Gemini, we see people iterating on coding workflows and digging deeper.

So, I think both will continue to exist. In the search space, I believe the AI overview will continue to expand, serving all of our user groups, but the AI model is our most cutting-edge experience. What we discover in the AI model, if it fits the context of the AI overview, may be promoted to our user base. So, you can think of it this way: the most cutting-edge 1 million users use search in one way, the most cutting-edge 10 million users use search in another way, and 1.5 billion people use search in yet another way. We want to keep innovating, and I think this gives us such an opportunity. But at the core of all this is user feedback, user satisfaction, and user experience. This will determine the future direction of these products.

Anat Ashkenazi: Regarding gross margin, I want to highlight a few trends. As I mentioned in my prepared remarks, the improvement in technology costs is mainly due to changes in revenue structure, with the search business continuing to grow while network revenue declines. The technology cost rate for network revenue is higher, so this change in revenue structure is favorable for us from a gross margin perspective.

Of course, we also have depreciation expenses for technology infrastructure, which mainly affects two areas—cost of revenue and other sales costs. Most of the depreciation expense is reflected in R&D expenses, which also impacts sales costs. We have achieved some efficiency improvements in these areas, and I mentioned the overall slowdown in labor costs and salary growth, which somewhat offsets the increase in depreciation expenses in the first quarter. But as I said, this number will be higher in the coming quarters. Looking back, our capital expenditures this year are about $75 billion, up from last year's $55 billion or slightly over $50 billion. Therefore, depreciation expenses are expected to increase significantly.

Host: Thank you. The last question comes from Ron Josie of Citigroup. Your line is now open.

Q7 Ronald Josey: Okay, thank you for taking my question. Philipp, I want to further explore your earlier comments about YouTube direct response advertising. I believe this area has improved over the past few quarters and has become a driver of growth. I would love to hear more about the factors driving this growth. Is it demand generation and integration with PMax, or are users engaging more with direct response ads as short video usage increases? I would love to hear your thoughts. Thank you Philipp Schindler: I think there are many different factors. We primarily help clients improve advertising effectiveness through AI tools, and as you mentioned, this is indeed a significant factor. As I mentioned earlier, we are pleased with the progress of short videos and narrowing the monetization gap with the overall business, especially in the United States, which is really good. So, we are satisfied with this progress.

Sundar Pichai: I would like to add that YouTube just celebrated its 20th birthday. There are now over 20 billion videos on YouTube, with 20 million videos uploaded every day. So, I think this is a very powerful platform. Thank you to the creators and users who have supported us over the years.

Ronald Josey: Okay, thank you.

Host: Thank you. This concludes our Q&A session for today. I would like to hand the meeting back to Jim Friedland to see if he has any further remarks.

Jim Friedland: Thank you all for joining our meeting today. We look forward to speaking with you again during the Q2 2025 earnings call. Thank you, and have a pleasant evening.

Host: Thank you, everyone. The conference call is now over. We appreciate your participation. You may disconnect now. The meeting is adjourned