Alphabet Inc. (GOOG) Q1 2012 Earnings Report, Transcript and Summary

Good day, everyone, and welcome to the Google Inc. First Quarter 2012 Earnings Conference Call. Today's call is being recorded. At this time, I'd like to turn the conference over to your host, Director of Investor Relations, Ms. Jane Penner. Please go ahead, ma'am.

Good afternoon, everyone, and welcome to today's first quarter 2012 earnings conference call. With us are Larry Page, Chief Executive Officer; David Drummond, Senior Vice President, Corporate Development, and Chief Legal Officer; Patrick Pichette, Senior Vice President and Chief Financial Officer; and Nikesh Arora, Senior Vice President and Chief Business Officer. Also, as you know, we distribute our earnings release through our Investor Relations website located at investor.google.com. So please refer to our IR website for our earnings releases, as well as the supplementary slides that accompany the call. This call is also being webcast from investor.google.com. A replay of the call will be available on our website in a few hours. Now let me quickly cover the Safe Harbor. Some of the statements that we make today may be considered forward looking, including statements regarding Google's future investments, our long-term growth and innovation, the expected performance of our business and our expected level of capital expenditures. These statements involve a number of risks and uncertainties that could cause actual results to differ materially. Please note that these forward-looking statements reflect our opinions only as of the date of this presentation, and we undertake no obligation to revise or publicly release the results of any revisions to these forward-looking statements in light of new information or future events. Please refer to our SEC filings for a more detailed description of the risk factors that may affect our results. Please note that certain financial measures that we use on this call, such as operating income and operating margin, are expressed on a non-GAAP basis and have been adjusted to exclude charges related to stock-based compensation. We have also adjusted our net cash provided by operating activities to remove capital expenditures, which we refer to as free cash flow. Our GAAP results and reconciliations of non-GAAP to GAAP measures can be found in our earnings press release. With that, I will now turn the call over to Larry.

Thank you. Hi, everyone, and thanks for joining the call today. It's great to be here with all of you. I'll talk about our new class of stock at the end of my remarks, but first, I want to focus on our performance. We had a very strong quarter with revenue up 24% year-on-year at $10.6 billion. Since becoming CEO again last April, I've pushed hard to increase our velocity, improve our execution and focus on the big bets that will make a difference in the world. Google is a large company now, but we'll achieve more and do it faster if we approach life with the passion and the soul of a startup. This has involved a lot of cleanups. We've given many of our products including Search a visual refresh. They now have a more consistent look and feel. When we've closed or combined over 30 products, we have so many opportunities that without hard choices we end up spreading ourselves too thin and don't have the impact that we strive for. Creating a simpler and more intuitive user experience across Google has been another important focus. I have always believed that technologies should do the hard work, but just takes scheduling and communications, so users can get on with what makes them happiest, life. Our products work seamlessly together so people don't have to navigate Google to get stuff done. Chrome for Android, which launched this quarter, is a great example of this kind of simplicity we're shooting for. It does mean switching between devices painless. All of your tabs are there across your desktop and Android, you can even click the back button on a different device and it just works. Just try it out, it's a great experience. It's the same with Google Play, which…

Thanks, Larry. So first of all, I wanted to say that we'll be filing a proxy statement soon, which will have more details about today's proposal. But for now, I want to give a few broad strokes. First off, as Larry said, what we announced today is basically a 2-for-1 stock split, and here's how it works. What we're doing is creating a new class of stock, Class C. That new stock will have equivalent rights to our existing Class A and Class B stock, except it will have no voting rights, and it will also be issued through a stock dividend on all Class A and Class B shares. So after the dividend, a stockholder who currently owns one share of Class A common stock with a single vote will continue to own that share plus one share of Class C capital stock that does not have a vote. Our existing Class A shares will continue to trade as they do now and the new class C shares will also be listed, so stockholders will be able to trade those shares, the class C, just as they can with the Class A shares today. Now one thing to emphasize, because all stockholders will be treated equally and will receive one share of Class C for every share they now hold, everyone, including Larry, Sergey and Eric, will retain the same voting interest they had immediately prior to the dividend. And it's also important to note that as part of this, Larry, Sergey and Eric have all agreed to subject their shares to a transfer restriction agreement. This agreement maintains the same link between their voting and economic interest that exist today. So if any of Larry, Sergey or Eric sell or transfer their nonvoting Class C shares, there's a…

Thank you, David. Good afternoon, everyone, and thank you for joining us. Well, closing this first year with Larry leading Google as CEO, all of us at Google feel a renewed sense of velocity, focus and optimism in our Q1 operating, but also financial results are a good reflection of this spirit. So let's jump right into the financials. Our gross revenue grew 24% year-over-year to $10.6 billion, 1% quarter-over-quarter, and our Google websites also grew. Revenue grew 24% to $7.3 billion, with strength across most major geographies and verticals. Google's Network revenue was up 20% year-over-year to $2.9 billion, 1% quarter-over-quarter. And Network revenue was still negatively impacted by the search quality changes we began to make a year ago in late February, otherwise known as Panda. Other revenue was up 56% year-over-year to $420 million and 2% quarter-over-quarter. Our aggregate paid-click growth was very strong, just shy of 40%, up 39% year-over-year, and up 7% quarter-over-quarter. Aggregate cost-per-click growth was down 12% and down 6% quarter-over-quarter. So given the recent trends in CPCs and clicks, allow me to spend a bit of time today addressing this. The most important thing for you to understand is that our business is healthy. We believe that shifts in CPC and paid clicks taken independently really do not reflect the fundamental health of our business. Now allow me some details on this. In general, we attribute these trends to a combination of really 5 core factors. Those include FX, and then there's 3 mix effects. For example, the mobile versus tablet versus desktop shifts, emerging markets versus developed markets shifts and even the basics of google.com versus our network. And then finally, ads quality changes which is also a huge factor. So as you can see, it's a complex set of dynamics…

Thank you, Patrick. I will now give you an update on our business activities. As Larry and Patrick have mentioned, we had another quarter of excellent performance, resulting in $10.6 billion of revenue this quarter. Our results are actually reflective of 3 major trends that are happening in the online advertising space, so let me just touch upon those. First, we're seeing a big move to solutions. Our clients and partners more and more want complete solutions that work across all screens: desktop; mobile, tablet; and in the future, television. And also work with all kinds of formats, whether they're search, display or video ads. It's like having individual solutions for different devices and formats. So we're driving our teams to sell solutions across the entire marketing funnel. From building brand awareness to conversions, we are converging our teams of over 8,000 people to setting these complete solutions in 60 countries, making us one of the largest online solutions player. Secondly, the big trend is we're seeing a breakthrough on brands. More than at any point in the last decade of online advertising, we're at a point where major brand advertisers, from movie studios to CPG companies, are finally looking to digital media as a central part of their marketing efforts. We are making huge progress. YouTube has gone from an interesting ad buy to key buy for brands. In May, we'll be hosting our first upfront for brands and agencies, showcasing the latest channel content and opportunities for marketers, something television has been doing forever. We will do that for YouTube in New York. And third, we're beginning to see a trend on cross-media measurement. Social advertising has always been highly measurable, and we have been leading the industry in extending the measurability, not only in Search, but in…

Thank you. So Jamie, our operator, is going to give us the instructions to get to the Q&A. So Jamie, why don't we just jump right in?

[Operator Instructions] And we'll take our first question from Spencer Wang with Credit Suisse.

Two quick questions. First for Patrick. You mentioned the headcount growth was only about 600 this quarter. That's obviously slower than what you saw in 2011. Should we -- is this roughly the pace we should expect for 2012 or were there perhaps some timing factors? And then secondly for Larry, you talked about Google+ unifying the Google product. So when you think about things like Google Wallet and Offers, the mobile strategy maps, do you think of these as individual products or are they part of perhaps a broader local strategy? And if so, how do they fit together?

Perhaps why don't I just jump on the technical question, then let Larry get to the second one. So look, I think that the headcount fluctuations, you'll remember last year when Larry said that we were at what was the kind of the edge of what was tolerable. And look, this short-term variability is actually the very best proof point that we don't manage kind of quarter-to-quarter and try to smooth things out. It just happens that in the first quarter, at this time of year, it's a bit different than when you come back in Q3 when you have all of the graduate students that actually start with us, so there's a bit of fluctuations there. So I wouldn't read that much into the numbers, but we're basically continuing to push on plan for hiring for this year.

And the question, I guess, about our products. I think we're working very hard, and I've talked a lot about this to make our Google experience be more unified and feel like one great experience for people. And many of the products you mentioned, Google Wallet, Offers, Maps, I mean, they apply kind of across many of the things we do. And so I think you'll see better integration of those products over -- through the rest of our products has already exist with Wallet, for example, across many different parts like Google Play and so on. And I think you'll see that increasingly happen over time just as we make these experiences better. They'll come up when you expect them to come up and when they make sense for users. I think that's definitely a big area of focus for us.

And we'll go next to Mark Mahaney with Citi.

Two quick questions. First, in terms of appealing to major brands, and Nikesh I think you talked about how you're seeing major brands engage more with YouTube and other assets. Could you talk about how you're trying to go after those dollars? Are there new things that you're doing now that you weren't doing 2 years ago to kind of accelerate that momentum? And then just real quickly on the mobile CPC issue. Can you just comment again on over time, over what period of time you would expect mobile and desktop CPCs to merge or do you think that's a realistic expectation? What would cause that to happen or not?

Let me take the first question quickly, then I'll give you a little color on the second one, then Patrick can jump in. In terms of what we're doing differently, as I mentioned, YouTube has gone from being an interesting place where brands to be to being a must-buy. So we're seeing tremendous demand for inventory, which is brand related. And for the most part, the online world in the past has been more performance related i.e., people wanted to get some transactions, they wanted to get more people to their website. Now they're seeing the benefit of using the Web for brand affiliation and for brand recognition. So we are beginning to have a different sales pitch with the large brands, which is oriented towards them coming and getting their brands seen a little bit, and YouTube is a phenomenal tool in that regard, which acts sort of like an anchor property. Then we're able to package our demographic base inventory around the Google Display Network, around YouTube and actually get the brands to engage in the large campaigns, which can run the millions of dollars. This was a capability we couldn't have a few years ago because the inventory didn't exist or the demographic tools didn't exist. So clearly, this is a new space and a new sort of pitch to our brand advertisers. As I said, we are trying to light this up across our sales force around the world in 60 countries.

No, we just have -- let's go through the mobile CPC question. So Mark, I think that this one is -- think of it as so much upside for us because essentially mobile is exploding in query growth and the formats themselves are just adapting already a lot and from a relatively crude base to so much more in the future. So that you're absolutely right that right now they don't monetize as well because we're kind of in what search used to be in 2002, 2003, 2004. So as these formats kind of continue to get better and better, we'd expect much better performance on them.

This is Larry. I'll add something, Mark. I think the mobile CPCs -- I mean, people always spend their most effort on the major -- whatever the major source of traffic or revenue is, and those are growing really quickly, albeit currently, obviously, there's more on desktop. I think over time as a reverse, and I think that the ability to kind of on your mobile to do local kinds of transactions, to really easily communicate with people and to do the kind of capabilities you have on your mobile device. And the fact that you spend most of your money locally, I think that over time that may actually reverse and the CPCs action may get better. But I think we're very bullish about that. We're making a lot of investments in that area, in things like Offers and so on and Wallet. And we're very, very excited about the potential there, and also Click-to-Call and other things that we do. So I think, for example, it's a lot easier to call someone from your mobile than it is from your computer right now. And so if that's how you're relying for transactions, actually mobile CPC should be higher for that. So I think you just haven't seen the focus on it and we're moving more and more focused on to that, both on our sales side and our customers are moving focus onto that, but I'm very, very bullish on that.

And we'll go next to Ben Schachter with Macquarie.

Larry, in your 2012 update letter, you speak of all these notions of changing the world and ambitious goals on risky projects and having a healthy disregard for the impossible. Without getting into too much detail, at a high level, what types of projects is Google working on that would really surprise us? And are you remaining committed to the 70/20/10 rule where these noncore areas might get only 10% of the investment? And then separately, just on the google.com TAC, please, that continues to increase as a percentage of Google revenue. Is most of that coming from payments to mobile partners? And given the growth of mobile, should we expect that to continue to increase meaningfully?

Do you mind, Larry, why don't I answer the last one first because it's really easy and then you can jump on the rest. Look, on TAC, if you look at our percentages -- as a percentage of revenue year-over-year, I mean it's basically stable. I mean, it moves a little bit here and there and you have partner mix and FX mix between mobile and others, but it's not actually changing in any dramatic way. So what you have to see in there is just the regular mix of both traffics and partners that come in and out all the time as well, so that I wouldn't read too much into that. I'll let Larry answer the real sexy question.

I think I didn't mention specifically the 70/20/10 in my letter. I should have, that's a good addition. So we definitely still see a -- most of our resources should be going to our core businesses, which really Search and Ads and a few of those things I mentioned that's really fallen to that core, I think. And then there's 20% kind of near things and maybe another 10% on the really speculative things. Through our whole history, we've really struggled this and have 10% kind of on the speculative things. Generally, it's much lower than that. I think the real thing that's needed on those projects is some management. Those take up bandwidth. You saw our announcements of Google Glass last week, which I was very excited to go out. You've seen the driver with his car kinds of things. And it does our take our executive time to deal with those things and so on, and so I think that's the real investment we make rather than being huge amounts of dollars on those kinds of things generally. We've got a limited number of things we can do. As I've been saying, we've been trying to focus. So trying to make sure that we have the right speculative bets as well as the right bets we're making on our core products and so on. And I'm pretty excited about our ability to do that. And I think it's hard coming from the outside because I mentioned in the letter I published today that Android took 3 years, plus 3 years kind of to really get to where it is today. That's 6 years, and you all haven't seen android, right, for those 6 years. We've seen it for those 6 years and we really invested in it. It's not so much money at the earlier stages, but attention. And that's an important, I think, discipline for the company to have.

And we'll take our next question from Brian Pitz with UBS.

Similar to detail on cost-per-click, would you discuss the key drivers of higher paid-click growth? Is it quality changes, Product Listing Ads or something else? And more broadly, maybe you can discuss how Product Listing Ads do impact results as we're tracking a substantially higher number of these ads on your site?

Without giving -- look, the short answer is yes, and that's what the core answer of my message to the market was today. I think that you have a combination of international factors. You have a combination of new formats. Ad formats drive a lot in terms of paid clicks. If you think of even the sitelinks' extensions that we've -- like we have a new generation of sitelinks for this quarter, right? This is a perfect example of a product where by adding additional lines that are more targeted, so instead of having just kind of, trucks or -- and then you go down into the second layer, right, you have less CPC for that additional sitelinks. But if it's a better ad, people click a ton more on them. So it is really all of those 5 factors that actually drive them. And that's why we're continuing to kind of be pretty happy with the health of the net effect, which is real growth. Certainly, internationally, I mean it also -- you can see our mix between international and non-international. And that's driving it as well. So you have all these factors at play. And we're pretty happy with what we're doing there.

And we'll take our next question from Doug Anmuth with JPMorgan.

Two things. First, just want to follow up on the question on mobile and TAC. If you could help us understand beyond CPCs how the economics of mobile are different and perhaps a little bit more detail on how you're paying OEMs and carriers. And then secondly, any updated thoughts on the cash balance and an update perhaps on the split of U.S. and international cash?

Let me start with the last one first. We don't give the breakdown of our U.S. cash. We do it kind of irregularly, so we haven't done so of late. We have -- we continue to have a very strong cash balance, both U.S. and international. You'll notice, if you go into the details of our cash balance and on our balance sheet, right, we have just slightly under $2 billion of sec lending programs. So when you really, really look at our net cash balance, you got to take that sec lending out because it's on both sides of the balance sheet. But for the rest of it, incredibly healthy cash balance, both domestic and international. And Nikesh, do you want to give a quick update on the mobile CPCs and their mix?

Yes. I mean, again, I'm not going to talk about specific of the TAC on mobile. But as you know, we get people using our devices both organically as well as through our distribution partnerships with carriers and OEMs. And typically, the OEMs and carriers participate in some of the economics that are on the Android marketplace or Google Play and some of them participate in the economics around Google Search just the way we would do syndication on the Web platform, which you do with many partners around the world. We have similar deals on the mobile front. I think in the mix, it comes out. This sort of washes out and it sort of adds up into our number which we show in -- our total number of green desktop and mobile. But mobile is no different from the way the desktop business operates out there.

And we benefit from the terrific growth.

And we'll go next to Carlos Kirjner with Bernstein.

Two questions, if I may. If you think of the future of Internet search 3 or 4 years out, how important will the social signal be and how important your personalization be? In other words, would the company with the best social signal be able to offer the best search? And if the answer to that question is no, why is Google investing so much in Google+? And second question, if I may, you probably end the year with about $50 billion in cash and marketable securities and that will give you quite a lot of strategic flexibility. Given that, what's the rationale to continue to increase that amount on market on cash to shareholders?

I'll take the first part, Carlos. I think the -- this is Larry, and I think it's a very good question. And I think one of the things actually had in my remarks when I took out was to talk a little bit about Search and just enough time to put it all in. And I actually covered the question you're asking. I think one of the most amazing things I think we can do today that we couldn't do even a few months ago is to really -- I have this friend Ben Smith, right, who's a person at Google. He has kind of a common name. Now when I do a search actually, it finds the right person and it puts him in the search box. So for the first time, the search box isn't really doing searching a string, just the sequence of letters. It's actually searching for that person that I know. Now it's not, obviously not all the searches you do, but being able to search for people well is important. And knowing -- having real feedback from users about what they like and don't like and things they're sharing and so on is very useful for search. And we have a lot of those signals already, but we can always use more signals. We can always use better relevance and we can always use more data to generate that. So I think it is very important. I think it's not -- think social data about identity and ability to easily share things with other people and comment on them and things like that is a basic utility for people in all of our products. And that's where I was talking about Google+ really working across all of Google for identity and sharing and notification and other things that it does really well. So that all applies to Search and I think it's important for Search. I think search is going to change a lot. We're going to make it a lot better over the next 5 or 10 years as it's changed a lot in the past. And it will include a bunch of those signals and a bunch of other things as well.

Carlos, why don't I take the next one, the issue of our cash balance. We have a healthy cash balance, I had mentioned a minute ago, and we still believe that it's an incredible strategic asset for us. You saw it last year when we decided to make the purchase of MMI, and we continue to monitor this cash balance. And for the time being, we really believe that, that strategic asset has a ton of value. So we'll continue to monitor it and we have a process by which we actually review it on a regular basis with the board, and those questions are always asked. So we have a good governance process around it. But for now and the time being, we have nothing to announce on it.

And we'll take our next question from Heather Bellini with Goldman Sachs.

I was wondering, Larry, if you could walk us through your view on Google's tablet strategy via Android and the relative importance of having success with these devices in terms of achieving your long-term goal?

Heather, that's a good question. I think that we're very excited about tablets. I think there's a number of Android tablets out there and obviously, we have strong competition there as well. I think you've seen us really invest substantially also in things like Google Play, which really give you great access to entertainment, media, books and videos and so on, and as well as the apps. And we think that's an important component of what we're doing. I think there's also -- obviously, there's been a lot of success on some lower-priced tablets that run Android, maybe not the full Google version of Android. But we definitely believe that there's going to be a lot of success at the lower end of the market as well with lower-priced products that will be very significant. And it's definitely an area we think is important and we're quite focused on.

And we'll go next to Justin Post with Bank of America Merrill Lynch.

I have one for Larry and one for Patrick. Larry, Android is obviously a key focus. You talk about it a lot in your letters. Can you help us understand the strategic value for Google since you're not licensing it? Do you see more revenue per device if it runs on Android or lower TAC or what else can you tell us about what the real advantage to Google's advertising businesses? And then Patrick, obviously, higher in CapEx in Q1 this year, a lot lower than Q1 last year. Can you tell us if you factor in your revenue growth when you make that spending decision, your outlook? Does that -- give us any clues on your outlook for revenue growth over the next couple of years?

Why don't I jump on the -- because mine again is not a very strategic one, it's more how we proceed. Look, it's lumpy because there's just timing decisions, right. We would -- there's probably a few areas where we would have like to actually make investments in Q1 and for a bunch of logistics reasons or otherwise, we couldn't. And so -- and you'll notice that's why there's kind of like $350 million difference between Q4 and Q1. And you should just expect it to be lumpy and that's just the nature of -- data centers are kind of big and clunky. And when you buy some piece of real estate, it's big and clunky. So there is quite a bit of variability into it. But we're -- again, I wouldn't take any one data point to start making a trend out of. So it's tough for, but I think that you can see we're committed to capital. If you look at the last couple of years, we've really made kind of significant investments and we'll continue to do them because it's a real strategic asset to us as well. So I'll let Larry answer the first question.

Justin, I think on your questions about Android, I think they're pretty short-term focus and I think it's good to think about the longer-term issues. We don't get very many new operating systems, kind of only a few in my lifetime, and I think they're pretty important. And I think Android's really about increasing the pace of innovation, usage of mobile devices and our ability to get a great user experiences out to our users, which I think we're doing a great job of. I mentioned over 850,000 devices per day are going out. And it's important to remember we're very early stages of that like we've only -- I'm amazed the computer that I'm carrying in my pocket is as good as the one I had a few years ago on my desktop. And I think we're only at the very, very early stages of what's possible with those devices. And I'm excited about a whole bunch of things we're doing in that area. We already mentioned kind of things like I said I'm very bullish about CPCs will improve on mobile over desktop due to all those capabilities. And so I think the benefits we get from Android are a lot. I mean, obviously, we have great integration with our products and Search and Google+ and photo uploading and there's a hundred things that we do really well on Android that benefit us across the board and across our users across the board and our products across the board. And I think that's going to continue to be the case. And I think it does lead to better economics for us too because we're providing amazing experiences for people that are well integrated and work well and they demand. So that's -- I'm very positive on all those things.

And we'll go next to Lloyd Walmsley with Deutsche Bank.

Larry, just wondering as you look out on a very long term kind of 5-year view, do you see tablets taking perhaps the majority of home Internet usage? And if so, how strategically imperative is it for Android to have a big success in the tablet space given partner TAC could impose a high cost to the extent Android doesn't have a hit?

Yes, I mean, I think I've sort of already answered this question previously about tablets. I think the -- I mean, like I said, I think it's an important area. I think your computing experience, obviously, if you have an Android phone or use Google a lot online or you care about all those things in terms of your experience. And so I think you're thinking about your user experience. You're thinking about across all the devices use. I think people are going to get a lot more devices. We see kind of a convergence between all the services on those devices. And right now, I feel like each device you got is kind of a hassle the deal with and you're thinking about each individual device and all the issues with it. And I think that's not really right. I think you're going to have a pretty unified experience and a great experience from a user point of view and you won't have to manage all these devices. So I think you want to think about all these screens around you working seamlessly and working well for you. And I think, obviously, tablets are important. We have Google TV obviously. Big screens are important, computers are important, phones are important. Everything, all those devices are important. And I expect that they'll work well together. So I think that's kind of how we would think about it, and I think it's -- I don't think any single device there is going to drive all the usage or all the kind of convergence that needs to happen.

And we'll go next to Ross Sandler with RBC Capital Markets.

I had a question for Nikesh. Can you give us an update on the growth rate you're seeing today in your core Search business by small, medium and large advertiser tranches? I think you mentioned in the prepared remarks that Japan had strong growth, primarily due to smaller advertiser tranche. So how does that growth look in the various advertisers' size buckets across your GOs? And then is the speed of small advertiser adoption increasing right now versus prior periods given all the new local products that you have?

Yes, I mean, I think the one way to think about it is that fundamentally we have one auction, and that auction every advertiser participates, whether it's the small advertiser or large advertiser. So they way we think about it is that we try and go ahead and get more and more advertisers to see the benefit of online advertising and the solutions that we offer. So as more and more advertisers come into the auction, it drives the price up of the auction for both large and small advertisers. And the way to think about it is that there's a price as we talked about CPCs and paid clicks, but it's really the third variable that goes into it, how many advertisers can we bring into the auction and how many various things can we get them interested in, whether it's mobile, whether it's YouTube, whether it's Display, whether it's Search. So there has been a lot of effort we have put in from our end, both to get more small business online. We've been adding GXBO campaigns around the world where we get small businesses online. We've also been cleaning up our signup flows for our adverts products, which is a self-served product where really small business can sign up. We have been working on getting people to have more mobile sites and getting people out in the mobile campaign. So effectively, it's a lot of effort towards getting more and more advertisers into the ecosystem. And as that happens around the world, you will see seasonal patterns or some sort of spikes when we work harder on small businesses in one quarter in certain parts of the world. But eventually, it all benefits the auction and we see the trend over time ends up working the same way for large and small advertisers.

That final question comes from Anthony DiClemente with Barclays.

Just one question for Nikesh or whomever wants to answer it. It seems like even though as you're shifting to mobile, you have this presumably double-digit pricing step down for CPCs. But in the Display world, certainly, that pricing difference could be even more dramatic. In some cases, by half or 2/3. Prices getting cut on that shift to mobile. And so you guys at Google have the unique ability to compare and contrast the difference in price between like Search and Display and how the 2 are monetizing relative to desktop. And so any color on that comparison would be appreciated because I think there are folks out there that have a view that actually Search, core Search, monetizes better on that shift to mobile than Display does, and I would love to just understand that better.

Yes, I mean, I guess -- let me try to just explain to it from the advertiser perspective. So what we're striving towards is advertisers are interested in ROI. Advertisers actually are not interested in whether they're on the mobile product, the Display product, the Search product on the Web or the Search product on mobile. So what we are fast converging towards is we're basically sitting down and understanding ROI targets of our advertisers. And then we have immense amounts of inventory at our behest, whether it's mobile inventory, on Display or Search or desktop inventory or even inventory to our network. And what we are trying to work towards is being able to dynamically allocate across these various products, what allows them to get the maximum ROI. In that case, they are sort of -- they don't really care about whether they got that transaction to happen off one platform, one format or the other. So that's what we want to aspire, and that works really well in performance advertising because there is a specific objective the advertiser has. On Display, on brand, it works slightly differently, obviously, because you're talking about CPMs. But generally, that's the way to think about it. In the long term, we think mobile will monetize better. And we usually don't see the difference happening on Display and Search as you alluded to. Larry, you want to add something?

I'm just going to close the call here, and I really thank everyone for spending so much time with us today. And thank you all for spending time with us today and for being so interested in Google. And now, I'll turn it over to the operator.

Thank you. That does conclude today's conference. We do appreciate your participation.