Thank you. Good afternoon, everyone, and welcome to Alphabet's Third Quarter 2022 Earnings Conference Call. With us today are Sundar Pichai, Philipp Schindler and Ruth Porat. Now I'll quickly cover the safe harbor. Some of the statements that we make today regarding our business, operations and financial performance may be considered forward-looking, and such statements involve a number of risks and uncertainties that could cause actual results to differ materially. For more information, please refer to the risk factors discussed in our most recent Form 10-K filed with the SEC as updated in our Form 10-Q for the quarter ended September 30, 2022, expected to be filed with the SEC later today. During this call, we'll present both GAAP and non-GAAP financial measures. A reconciliation of non-GAAP to GAAP measures is included in today's earnings press release, which is distributed and available to the public through our Investor Relations website located at abc.xyz/investor. And now I'll turn the call over to Sundar.

Thank you, Jim, and good afternoon, everyone. Our financial results for the third quarter reflect healthy fundamental growth in Search and momentum in Cloud. Our reported results reflect the effect of foreign exchange. The growth in our advertising revenues was also impacted by lapping last year's elevated growth levels and the challenging macro climate. We are sharpening our focus on a clear set of product and business priorities. The product announcements we have made in just the past month alone have shown that very clearly, including significant improvements to Search powered by AI, new ways to monetize YouTube Shorts, which will support the creator ecosystem, the strong series of hardware launches and a new partnership and product announcements at Cloud Next. These will all drive value for users, partners and our business. We have also started our work to drive efficiency by realigning resources to invest in our biggest growth opportunities. Over the past quarter, we have made several shifts away from lower priority efforts to fuel higher growth priorities. Our Q4 headcount additions will be significantly lower than Q3. And as we plan for 2023, we'll continue to make important trade-offs where needed and are focused on moderating operating expense growth. Throughout Google's history, periods of dedicated focus have enabled us to emerge strongly and unleash new areas of computing innovation. For example, over a decade ago, focusing the company's efforts on mobile helped us to build and grow our business for the shift to mobile computing. We are at a similar point now with AI, another transformational technology. Our investments in AI and deep computer science mean that we can deliver a wide range of breakthroughs across our products and services to help people, businesses and communities. Turning to the quarter. First, our core information products. At our Search On event, we shared how we are using AI advances to deliver a more natural and intuitive search experience. These advancements will soon help to surface things you might find helpful before you even finish typing. We are also making visual search more natural than ever before. People now use Google Lens to answer more than 8 billion questions every month using just a photo or an image. Now we are supercharging our visual search capabilities to help people find what they are looking for at businesses nearby. Philipp will also talk in more detail about our work to make it easier to shop on Google, a key focus. Google Lens also has an amazing translation feature. It can now blend translated text seamlessly into the background of images, like menus or street signs in just 100 milliseconds, shorter than a blink of an eye. Through advanced language models, AI is unlocking new experiences that support more natural and conversational ways to interact with computing. LaMDA is one of our most promising models for this. It's now available to demo in our AI test kitchen, which offers a way for people to experience and give feedback on emerging AI technology. DeepMind also debuted its most helpful and safest language model yet. Sparrow can talk to users, answer questions and provide evidence-based answers using Google Search. Moving to YouTube, another big priority. We remain focused on long-term growth for our community of viewers, creators and advertisers. To that end, we announced some exciting changes at our Made on YouTube event last month. First, improving the monetization of Shorts. This is a big deal for creators and for our business. We'll introduce revenue sharing on Shorts early next year. This update makes YouTube the only platform where creators can monetize their content across short, long and live formats at scale. Shorts continues to show great user momentum, and we continue to invest in our mobile video tools for creators. We are seeing mobile-first creators investing more in the platform, creating content that helps the broader community grow. TV is a big area for us as well. Nielsen reported that YouTube was the leader in streaming TV viewership in the U.S. in September for the first time. Turning next to hardware. Hardware is an important area of investment for us. We are investing deeply from the silicon to the OS to powerful software experiences because it's a big opportunity to move computing forward and build deeper relationships with people who love using Google products. It also really helps to guide the Android ecosystem beyond just building the underlying platform. Earlier this month, we introduced the Pixel 7, the Pixel 7 Pro and the very first Pixel Watch. We've also previewed more detail about the Pixel Tablet, which is coming in 2023. Pixel combines our foundational technologies, AI, Android and our Google Tensor G2 processor to bring state-of-the-art AI directly to the device. The Pixel 7 and Pixel 7 Pro offer industry-leading photography features that can unblur or sharpen photos and shoot cinema-quality videos. We recently had our highest selling week ever for Pixel, and I'm really proud of the positive reviews so far. Along with great devices, we introduced our latest release of Android. Android 13 offers new personalization features, improved privacy controls and a more seamless experience with connected devices. Next, Google Cloud. We see continued momentum with Q3 revenue of $6.9 billion with Google Cloud Platform's revenue growth rate above the aggregate. I've long shared that cloud is a key priority for the company. The long-term trends that are driving cloud adoption continue to play an even stronger role during uncertain macroeconomic times. Google Cloud helps customers solve today's business challenges, improve productivity, reduce costs and unlock new growth engines. At Cloud Next, we unveiled more than 100 new products and announced new and expanding relationships with Toyota, Prudential plc, Coinbase and AppLovin. The shift to hybrid work continues with organizations evolving to support an increasingly distributed workforce. I'm proud to share that Google Workspace is now used by more than 8 million businesses and organizations worldwide. That includes Korean Air as well as the U.S. Army, which is transitioning 250,000 personnel to our secure communication and collaboration platform. In the past year, we have announced nearly 300 new capabilities to support hybrid work. Empowering a distributed workforce brings an increased need for cybersecurity to keep workers' data and critical business systems safe and secure. It's top of mind for nearly every CEO I speak with, and customers, including the City of Los Angeles, Roche and Banorte put their trust in Google Cloud's industry-leading products, our new Chronicle Security Operation Suite, Unify Security Analytics, Automation Response and Threat Intelligence. This has helped Vertiv analyze 22x more security data while cutting investigation time in half. In September, we closed our acquisition of Mandiant and are proud to welcome more than 2,600 colleagues to Google. With Mandiant, we add industry-leading threat intelligence and incident response capabilities to help customers stay protected at every stage of the security life cycle. Customers partner with Google Cloud because we offer a single platform that can analyze data across any cloud. Our leadership here is winning customers across industries, including the state of Hawaii and the Australia Securities Exchange. Our capabilities help solve difficult business challenges like supply chain and logistics while also creating new growth opportunities. And as companies globally are looking to drive efficiencies, Google Cloud's open infrastructure creates a valuable pathway to reduce IT costs and modernize. In addition, with our new Media CDN product for large media streaming workloads, we are helping Major League Baseball and Paramount+ deliver flawless experiences to their customers. And with Google Cloud Edge, Rite Aid is more efficiently helping patients in their pharmacies. Across all of these areas, I'm proud of the trust and enthusiasm our customers are placing in Google Cloud. Briefly on our Other Bets, Waymo announced that Los Angeles will be its third ride-hailing city, joining Phoenix and San Francisco. Waymo will begin by mapping several neighborhoods in LA as it prepares to serve people there. Wing just surpassed 300,000 commercial deliveries. It's servicing new areas in Australia and announced its first drone delivery trials in Ireland. To close, times like this are clarifying. As we head into 2023, we are going to focus on our most important priorities as a company. To support our growth, we'll continue to invest responsibly for the long term in a way that is responsive to the current economic environment. I want to thank our employees around the world for their contributions over the last quarter. We help people, our partners and society when we focus on what we do best and execute on that really well. Over to you, Philipp.

Thanks, Sundar, and hello, everyone. It's great to be joining you all today. Google Services revenues of $61 billion were up 2% year-on-year, negatively affected by a sizable foreign exchange headwind. Search and other revenues grew 4% year-over-year to $40 billion, led by travel and retail, while both YouTube Ads and Network had modest year-over-year revenue declines. Other revenues were up 2% year-over-year with growth in YouTube non-advertising and hardware revenues offset by a decrease in Play revenues. Play revenues were lower due to a number of factors, including a decline in user engagement and gaming from the elevated levels seen earlier in the pandemic. Among other factors, this shift in user behavior also created downward pressure on our advertising revenues, with lower revenues from ad promo spend on YouTube, Network and Play Ads in Search and Other. I'll highlight a couple of other trends that affected our ads business in Q3, and Ruth will provide more detail. On the second quarter earnings call, we noted a pullback in spend by some advertisers on YouTube and Network, and these pullbacks in spend increased in the third quarter. In Search and Other, the largest factor in the deceleration in Q3 was lapping the outsized performance in 2021. In the third quarter, we did see a pullback in spend by some advertisers in certain areas and search ads. For example, in financial services, we saw a pullback in the insurance, loan, mortgage and crypto subcategories. There's no question we're operating in an uncertain environment, and that businesses big and small continue to get tested in new and different ways, depending on where they are in the world. When it comes to how we're helping, our focus remains unchanged. The same AI driving breakthroughs in everything from protein folding, flood forecasting and language understanding is also fueling innovation across our Ads product. Via insights, automation and easier-to-use advertising tools and formats, we're helping businesses stay agile, build resilience, anticipate the future and show up for customers in more connected, visual and consistent ways. We're helping them understand demand, deal with inventory challenges, increase loyalty and much more. In challenging times like these, advertisers are carefully evaluating the effectiveness of their budgets. Search tends to do relatively well in such an environment, given its strong measurability and focus on delivering ROI. It's also well suited to quickly adjust to changes in consumer behavior. And when Search is coupled with our automation products across bidding, creatives, targeting or Performance Max, it can drive performance even further. Let's talk retail, an important vertical for us. No matter where shoppers are buying, whether it's in store, online or both, we have the solutions to help them deliver results wherever their customers are. Take online fashion retailer REVOLVE, who used its global influencer network along with our category insights and automated tools to acquire new customers at lower costs. As festivals and events returned to summer, REVOLVE used lower funnel solutions across search and shopping to engage with consumers in high-demand apparel categories, helping it cross $1 billion in trailing 12-month net sales for the first time. And then there's Magazine Luiza, a large Brazilian retailer, who embraced omnichannel by measuring and bidding directly to store sales. Coupled with in-store pickup and notations via PMAX, Magazine Luiza drove a 38% ROAS over 30 days and has since expanded the strategy to all eligible products, including 8 million-plus new offers. And whether shoppers know exactly what they're looking for or are just seeking inspiration, we're innovating to make it easier and more engaging for people to shop online across our services. From finding the best deals across all types of merchants, including 200 million-plus available daily deals in Q3 to new ways to search. Now when you type shop followed by whatever item you're looking for, you'll unlock a visual content stream of ideas that feel just like window shopping but online. And then there's YouTube. Not only can users now buy more products and videos, but shopping as entertainment experiences are bringing the magic of our creators to the shopping experience. Like in September, when Kylie and Kris Jenner hosted an exclusive shopping stream event to celebrate the debut of a new Kris collection for Kylie Cosmetics. And at Adweek last week, not only did we announce that product feeds are coming to Discovery, but that creators will soon be able to take products from brands across their videos, Shorts and live streams. This means viewers can shop products seamlessly while they watch their favorite content, while merchants can drive incremental reach and engagement for free listing offers when tagged by creators that viewers love and trust. I already touched on YouTube's performance in the quarter. Let's deep dive into what we're focused on. First, we're helping advertisers understand how they can drive effectiveness with every campaign they run on YouTube. Full funnel is a key way to do this. Buying YouTube across consideration, awareness and action allows marketers to meet customers at different stages in their purchasing journey, which we know are increasingly complex while delivering towards a key business goal. Creative and Media work together across the funnel to create new demand and convert current demand. Castlery, a single full furniture retailer activated a full funnel approach as part of its U.S. expansion. It used brand and action formats, identified its most relevant audiences and built a robust measurement framework to boost sales and awareness, including a 65% increase in U.S. brand searches. Castlery is using the same strategy for the upcoming holiday season. Two other areas where we're continuing to invest, Connected TV and Shorts. First on CTV. Eyeballs keep moving away from traditional TV. On average, global viewers are watching 700 million-plus hours of YouTube content on TV daily. And according to Nielsen, during the 2021-2022 U.S. broadcast seasons, YouTube reached more viewers during primetime on CTV than any linear TV network. Brands continue to take notice. Like Instacart, who tapped into CTV to maximize its TV screen strategy for its The World is Your Cart brand campaign featuring Lizzo. It drove breakout searches for its product and above-average brand lift across awareness, consideration and purchase intent. And it also engaged a significant increase in audience on top of TV with 66% lower CPMs. And then there's Shorts. 1.5 billion users every month, 30 billion daily views. Engagement is strong. We've always said that we focus on building great user and creator experiences first and then follow that with monetization over time. As of September, ads on Shorts have officially launched via video action, app and Performance Max campaigns. As Sundar mentioned, we also extended the YouTube Partner Program and announced our revenue sharing model for Shorts creators, the first of its kind for short-form content. It's early but we're encouraged by the progress we've made this year in Shorts monetization and support for sustaining the creator ecosystem. I'll close with something I've said before and I think it's worth reiterating. Our success is only possible when our customers and partners succeed. Whether it's helping individual YouTube creators or Play developers make a living and build thriving businesses or bringing the best across Google to our partners, our focus on driving growth for our partners and key ecosystems remains steadfast. I'm proud that over the past 3 years, we've paid creators, artists and media companies over $50 billion. In terms of how we're helping our partners innovate, I'll share two highlights. First, a transformative partnership with Transion, the #1 OEM in Africa and Pakistan, will help to close the digital divide by doubling annual activations by 2025 and build helpful products for the next billion users. And then in commerce with FEMSA Digital in Mexico, we're bringing together solutions across Ads, Cloud, Maps, Waze and beyond to bolster its data and analytics capabilities so it can better reach and retain its beverage and retail customers. On behalf of many, a massive thank you to our customers and partners for their collaboration, trust and feedback and another massive thank you to our sales, partnerships, product, engineering and support teams. The hard work, dedication and ingenuity of Googlers, especially during more challenging times, is truly second to none. On that note, over to you, Ruth.

Thank you, Philipp. Our financial results for the third quarter reflect healthy fundamental growth in Search and momentum in Cloud. Our reported results clearly reflect the effect of foreign exchange. My comments will be on year-over-year comparisons for the third quarter, unless I state otherwise. I will start with results at the Alphabet level, followed by segment results and conclude with our outlook. For the third quarter, our consolidated revenues were $69.1 billion, up 6% or up 11% in constant currency. Our total cost of revenues was $31.2 billion, up 13%, primarily driven by other cost of revenues, which was $19.3 billion, up 20%. The biggest factor here was costs associated with data centers and other operations, followed by hardware costs. Operating expenses were $20.8 billion, up 26%, reflecting the following: first, the increases in R&D and G&A expenses, which were driven primarily by headcount growth; and second, the growth in sales and marketing expenses, which was driven primarily by increased spending on ads and promotions, followed by headcount growth. Operating income was $17.1 billion, down 19% versus last year and our operating margin was 25%. Other income and expense was a loss of $902 million. Net income was $13.9 billion. We delivered free cash flow of $16.1 billion in the quarter and $63 billion for the trailing 12 months. We ended the quarter with $116 billion in cash and marketable securities. Let me now turn to our segment financial results. As a reminder, we provide fixed foreign exchange revenues only at the consolidated level and by geographic region. All segment revenues are reported on a GAAP basis. Starting with our Google Services segment. Total Google Services revenues were $61.4 billion, up 2%. Across our advertising revenues, the year-over-year deceleration in growth rates versus the third quarter of last year was largely driven by lapping very strong performance, most notably in Search and other revenues. Additionally, the year-on-year deceleration on YouTube and Network reflects a pullback in spend by some advertisers as we first noted last quarter. In terms of the revenue lines, Google Search and other advertising revenues of $39.5 billion in the quarter were up 4%. YouTube advertising revenues of $7.1 billion were down 2%. Network advertising revenues of $7.9 billion were down 2%. Other revenues were $6.9 billion, up 2%, reflecting several factors: first, subscriber growth in YouTube Music Premium and YouTube TV continued to drive ongoing strong growth in YouTube non-advertising revenues; second, we delivered solid growth in hardware revenues, primarily from sales of the Pixel 6A. Finally, the growth in these two areas was offset by a year-on-year decline in Play revenues, reflecting a slowdown in buyer spend due to a number of factors, including lower engagement levels in gaming compared with earlier stages of the pandemic. In terms of costs within Google Services, TAC was $11.8 billion, up 3%. Google Services operating income was $19.8 billion, down 17% and the operating margin was 32%. Turning to the Google Cloud segment. Revenues were $6.9 billion for the second quarter, up 38%. GCP's revenue growth was again greater than Cloud's, reflecting significant growth in both infrastructure and platform services. Strong revenue growth in Google Workspace was driven by growth in both seats and average revenue per seat. Google Cloud had an operating loss of $699 million. As to our Other Bets for the third quarter, revenues were $209 million and the operating loss was $1.6 billion. Let me close with some comments on our outlook. Our results in the third quarter reflect an increased headwind from foreign exchange, given the ongoing strengthening of the U.S. dollar versus last year. Excluding the revenue benefit from hedging, there was a 6-point headwind year-on-year or 5 points with the hedge benefit compared with a slight tailwind in the third quarter of 2021. Looking to the fourth quarter, based on strengthening of the U.S. dollar quarter-to-date, we expect an even larger headwind from foreign exchange. In addition, as we have previously said, the impact of foreign exchange is greater on operating income than it is on revenues, given that our expense base is weighted more toward the U.S. with most of our R&D efforts located here. Turning to our segment results. Within the Google Services segment, Search and other revenues had healthy fundamental growth in the third quarter, which was affected by the impact of currency movements. As I already noted, the largest driver of the deceleration in year-on-year growth of Search compared with 3Q '21 was lapping the outsized growth in 2021. The sequential deceleration in the year-on-year growth of Search in the third quarter versus the second quarter was also driven by lapping with an additional headwind from pullback in advertiser spend in some areas. In YouTube and Network, the sequential deceleration of year-on-year growth in the third quarter versus the second quarter primarily reflects further pullbacks in advertiser spend. In the fourth quarter, the very strong revenue performance last year will continue to create tough comps that will weigh on the year-on-year growth rates of advertising revenues. Within other revenues, we expect an ongoing headwind from the slowdown in buyer spend on Google Play due to a number of factors, including lower levels of user engagement in gaming that impacted results in the second and third quarters. As Philipp mentioned, among other factors, this shift in user behavior was also a headwind to advertising revenues, with lower revenues from app promo spend on YouTube, Network and Play ads in Search and other. Turning to Google Cloud. Our results reflect momentum across GCP and Workspace. Customers globally are adopting our products and services to digitally transform their businesses. We are excited about the opportunity, given that businesses and governments are still in the early days of public cloud adoption and we continue to invest accordingly. We remain focused on the longer-term path to profitability. In terms of profitability, we have an effort underway to ensure we redeploy investments against our most compelling opportunities. As we noted on our second quarter call, our actions to slow the pace of hiring will become more apparent in 2023. With respect to Alphabet headcount, we added 12,765 people in the third quarter, including more than 2,600 of those joining Google Cloud as part of our acquisition of Mandiant. As in prior quarters, the majority of hires were for technical roles. In the fourth quarter, we expect headcount additions will slow to less than half the number added in Q3. Within this slower headcount growth, next year, we will continue hiring for critical roles, particularly focused on top engineering and technical talent. Turning to CapEx, we continue to make significant investments in technical infrastructure with servers as the largest component. Thank you. Sundar, Philipp and I will now take your questions.

Maybe two questions, if I can. Sundar, first, I think what investors are very curious about is how much this change in terms of aligning investment against your priorities is a reflection of what you expect to happen over the next 6 to 12 months in the broader macro environment versus a longer-term perspective of maybe maximizing for productivity and efficiency. Would love to get your philosophy on that. And then Philipp, a lot of comments in there about YouTube and the potential for growth going forward. Can you go a little bit deeper on what you're seeing in terms of both the opportunity set to drive revenue and turn a possible headwind to a tailwind with respect to Shorts and Connected TV over the medium to long term.

Look, I would say it's a combination. Obviously, as a company, over time, we've had periods of extraordinary growth, and then there are periods where I viewed it as a moment where you take the time to optimize the company to make sure we are set up for the next decade of growth ahead. I view this as one of those moments. It gives us a chance to make sure we are, with clarity, identifying what are the most important areas and making sure we are directing our incremental investments towards those and as well as where we can realign. So I view this as an opportunity to do that and also being responsive to the current macro environment we are seeing.

In the third quarter, there was a notable reduction in spending by some advertisers on both brand and direct response. However, I believe YouTube is well-positioned to capitalize on the streaming boom. In direct response, we see significant potential to enhance YouTube's shoppability and actionability through various features like video action campaigns, product feeds, app campaigns, and live commerce. Advertisers are increasingly using YouTube to translate intent into action and maximize performance effectively. Product feeds will soon be available for Discovery ads and have recently expanded to Shorts, where we are already observing positive results. On average, video action campaigns with product feeds have experienced over a 70% increase in conversions on Shorts compared to those without. On the brand side, viewership is shifting away from linear TV, and we are assisting brands in moving past traditional methods to efficiently meet their reach and awareness objectives. Connected TV also plays a crucial role in this strategy. YouTube is truly the optimal platform for advertisers to connect with new consumers across a variety of formats and screens, from Shorts to long-form content, podcasts, music, and CTV.

I have two. The first one for Sundar or Ruth. Sundar, just to go back to the comment about earlier in the quarter, becoming 20% more efficient. I thought tonight, your comment on investing responsibly over the long term, about being responsive to the environment is helpful. But if I look at sort of the Excel sheet, I think you'll have added about 51,000 new people to the company since the start of last year. Can you give us some examples of internal KPIs or quantifiable analysis you're running just to ensure you're generating ROI for investors from all your hiring? Just sort of run through these analyses? That's the first one. Then the second one, Philipp, just on Shorts, are you seeing Shorts lead to incremental time spent from those users? Or is it more so you're seeing the time shift from other forms of YouTube over to Shorts?

Brian, we have made it clear that we will be slowing down our hiring pace as we move into Q4 and into 2023. We see numerous opportunities in various areas, and talent is our most valuable resource. We are continually working to ensure that everyone we hire is focused on the most critical tasks for the company. This has been a significant part of our effort to sharpen our focus. We are closely reviewing projects of all sizes to ensure we have the right plans and resources in place, making adjustments as necessary. This process will be ongoing as we head into 2023.

Yes. And to the second part of the question, as we discussed before, we've always focused on building a great user and creator experience first, followed by increasing monetization over time. We continued to experience a slight headwind to revenues as Shorts viewership grew as a percentage of total YouTube watch time. And as I alluded to earlier, the initial progress on Shorts monetization has been encouraging. And we're focused on closing the monetization gap between Shorts and long-form content on YouTube over time. And more specifically, consumers are increasingly consuming short-form video, and we're seeing this across multiple platforms, including YouTube. And as I said earlier, Shorts are being watched by 1.5 billion-plus logged-in users every month.

Ruth, you highlighted momentum in Cloud and growth accelerated in 3Q. Are you seeing any changes in Cloud demand as existing or potential customers perhaps rethink their priorities? And then how should we think about the pace of investments at Cloud going forward? Do you still believe that you're in more catch-up mode? Or should we expect a more stable rate of investment and greater profit improvement?

Thanks for the question. Yes, we are pleased with the ongoing momentum. It's across a wide range of industries and geographies. And it really comes back to the team's focus on helping them solve unique business issues and innovate in new areas as they digitally transform. I think more to your question, and we talked about this about last quarter, in some cases, certain customers are taking longer to decide, and some have committed to deals with shorter terms or smaller deal sizes, which we attribute to a more challenging macro environment. Some are impacted due to reasons that are specific to their business. But overall, as you can see from the results here again, we're pleased with the momentum in Cloud and do continue to be excited about the long-term opportunities. So that's why I made the comment that we do continue to invest meaningfully in this business. We're still focused very much so on the path to profitability and free cash flow strength here, but we are continuing to invest in the business. And this fits within Sundar's overall comments as we're looking at how we prioritize. And they're certainly making sure they're focused on every element within their business. But fundamentally, to the heart of your question, we're continuing to invest here.

Sundar, I have one for you and then one for you, Ruth. I want to ask you about TikTok but not as it relates to YouTube, more about Search. It looks like younger consumers are spending more time on TikTok searching for product reviews, recommendations, advice. I'm interested in learning if you've seen any changes in your search behavior by demographics in Google. And then do you think search has become more visual and less text-based going forward in order to maintain more relevance for its younger users? So that's one. And then Ruth, can you kind of just dig in a bit on the OpEx growth in Google Services. You called out other cost of revenues being up 20%. It looks like as a percentage of revenues, it's nearly an all-time high. Can you talk a bit about how much of that cost base is fixed versus variable? And anything on outlook on what's driving kind of the spike this quarter and maybe what you expect going forward there on the cost of revenues?

Look, I think it's always important that we try and understand our user segments and their needs so that we can make sure the products are helpful and working for them. And we also conduct thousands of studies a year to understand how user needs are evolving. And as part of it, there are some studies which obviously show people, particularly younger users in certain categories, maybe fashion inspiration as an example, look for more visual ways to engage. And so these are all learnings we are constantly taking in and we use it to improve Search. And if you saw Search On, we had many explorations and product directions, which move in that direction. So I think it's a healthy way of iterating and innovating to build the best products and services for our users.

Regarding your question about margins, there are two key aspects to consider. The main factor driving the year-on-year increase in other cost of revenues remains data centers and related operations. In Q3, the second largest contributor was hardware, while CAC shifted from its usual second position to third. The change in ranking between hardware and CAC can be attributed to two main factors. First, the year-on-year decline in YouTube Ads revenues has dampened CAC growth. Second, the increase in Pixel Phone sales, particularly due to the Pixel 6A launch, influenced this shift. Overall, in relation to profitability in Google Services, we are examining the pace of investments and how changes in the mix and ongoing revenue growth opportunities affect operating income growth. As Sundar mentioned initially, some of the margin improvement last year was linked to timing issues that saw a strong revenue growth alongside a lag in investments. Our focus now is on managing for sustainable long-term results moving forward.

Hate to beat the dead horse on the Google Services margin, but Ruth, you just mentioned mix shift. I think that's a lot of what's going on here. And given the trajectory that you're seeing in Search and in Play, which we estimate are where most of the profit's coming from in that segment versus some of those lower-margin items, YouTube subscription, hardware, et cetera, maybe you could help frame the next like couple of years. Is this going to land below pre-pandemic, which I think was around where we are here at 32%? Could we see the 2Q '20 low of 27% for Google Services margin? Any help just framing where that might land would be helpful.

Well, I'll, as I'm sure you would expect, leave the modeling to you, but there are two elements of it. And I think Sundar and Philipp really talked about the first part, which is the ongoing opportunity we see with Search, with YouTube, with some of the actions that we're taking, the opportunity with AI applied to both, the opportunity as we continue to build-out monetization on YouTube Shorts in particular. So we're continuing to focus on both, the driver here, revenue, as well as the investments that we're making. And I want to make sure, to Sundar's comments about sharpening our focus, that we are economizing, utilizing resources as effectively as possible. So it is both the efforts we're taking around expense management and building for durable performance as well as the efforts we're taking, which are in the investment line but drive top line performance. I would say we also contextualize it and I tried to do that in response to Michael's questions. And we said this last year, we've noted that some of the margin upside last year was due to timing issues. And we had a very strong growth in revenues, surge in revenues and a lag in investments that we said was a timing difference, and you are seeing some of that here. But to the main point, we're looking at both what we can do to continue to support long-term revenue growth, but while doing so, being mindful of the pace of investment. I'll leave the modeling to you.

Ruth, on the pullback by some advertisers, is there a common thread that you can draw on common underlying characteristics that are pulling back versus those that are continuing to lean forward? Can you talk about that dynamic and what you're seeing?

I'll begin, and then I'll let Philipp provide additional insights. I want to clarify one of the points made earlier, which is that the year-on-year performance in Ads is comparing to a very strong third quarter. To address your question, we are observing a sequential decline in our year-on-year growth. It's important to highlight that Search experienced solid growth in Q3 when excluding the effects of foreign exchange. The slowdown in Search from the second to the third quarter was mainly due to the comparison with previous performance, and I want to ensure that’s understood. Additionally, there has been some reduction in advertiser spending in specific areas, which I mentioned earlier. In the case of YouTube and Network, the year-on-year growth deceleration from the second to the third quarter was again linked to further reductions in advertiser spending.

Yes, that's exactly right. And as I said earlier, in Search and other ads revenues, while lapping the outsized performance was the largest factor in Q3, we did see some advertiser pull back in certain areas in search ads. And I think the example I called out was in financial services, in the areas of insurance, loan, mortgage, crypto subcategories. And we also noted a pullback in spend by some advertisers on YouTube and Network. And these pullbacks in spend increased in the third quarter. And we also noted lower revenues from AppPromo spend on YouTube and Network.

Apologies, we'll need to go to the next question that comes from Maria Ripps of Canaccord.

We're waiting to see if there are any technical difficulties. Thank you, everyone. If the operator could keep us updated, that would be great.

Thanks, everyone, for joining us today. We look forward to speaking with you again on our fourth quarter 2022 call. Thank you, and have a good evening.

This concludes today's conference call. Thank you for participating. You may now disconnect.