While many media companies – especially those in linear TV – report declining ad sales, Alphabet’s YouTube is headed in the other direction, posting a spike in ad revenue in the most recent quarter.
In its earnings report released Tuesday (July 25), Alphabet reported $7.665 billion in revenue from YouTube ads, a 4.4% YoY increase. That handily beat analysts’ expectations for Q2, and ended a three-quarter streak in which YouTube ads posted revenue declines.
The revenue jump was “driven by brand advertising, followed by direct response [marketing], reflecting further stabilization in spending by advertisers,” Alphabet Chief Financial Officer Ruth Porat said on the company’s earnings call.
“We are prioritizing product focus on increasing quality consumption of video content with both Shorts and in the living room, which is translating into improved monetization.”
Alphabet as a whole reported revenues of $74.6 billion for the quarter, a 7.1% YoY increase that handily beat analysts’ expectations of $72.8 billion, according to Refinitiv.
The company’s net income came in at $18.37 billion, or $1.44 per share, a 14.8% YoY increase.
Alphabet doesn’t break down revenue for its YouTube TV, YouTube Music and YouTube Premium subscription services, but the company’s “Google Other” category, which includes those products, posted $8.14 billion in revenue, a 24.2% YoY jump.
Alphabet Senior Vice President and Chief Business Officer Philipp Schindler told analysts on the earnings call that the jump was led by “strong growth in YouTube subscription revenues.”
YouTube last week hiked the price of YouTube Premium and YouTube Music services in the US, a move that Porat said “underscores the value of the products.”
The video streaming raised the price of YouTube Premium to USD $13.99 per month, up by two dollars from the previous $11.99 per month. An annual subscription now costs $139.99, up by $20.
YouTube Music, which is part of Premium but can be purchased as a standalone subscription, has risen by one dollar to $10.99 per month.
(That move was followed very quickly by Spotify’s announcement of its first-ever price hike for its individual Premium subscription. The Sweden-headquartered music streaming service earlier this week reported revenue of €3.17 billion ($3.45bn) in Q2 2023, or roughly half the revenue that Alphabet reported from YouTube ads alone this quarter.)
Alphabet didn’t provide updated numbers on YouTube subscribers. CEO Sundar Pichai noted on the earnings call that the company reported 80 million YouTube Premium and Music subscribers last year.
Schindler suggested YouTube may actually be benefitting from the retrenchment of advertisers amid an uncertain economic climate.
“A lot of companies are focused on profitability, driving efficiencies, and they’re carefully evaluating the effectiveness of their budgets. And our goal is really to help them maximize efficiency and drive stronger ROI. And I think we have the proven AI power tools and solutions to actually do it,” Schindler said on the earnings call.
“Thirty-second ads are a TV industry staple, and now, YouTube is bringing our advanced audience capabilities and unparalleled reach to the format.”
Philipp Schindler, Alphabet
Schindler highlighted Alphabet’s previously announced plans to introduce unskippable 30-second ads for advertisers who are part of the YouTube Select program. About 70% of ads served through that program land on TV screens, rather than mobile devices.
“Thirty-second ads are a TV industry staple, and now, YouTube is bringing our advanced audience capabilities and unparalleled reach to the format,” Schindler said.
He also said YouTube is “exploring new pause experiences so brands can drive awareness or action when you hit pause.”
CEO Sundar Pichai said YouTube is reaching 150 million viewers on connected TV screens in the US, “and seeing growth and momentum internationally.”
YouTube has been focused intensely on “Shorts,” videos under one minute long that it has been nudging creators to produce. It’s a move that many observers say is YouTube’s response to the rising popularity of short-video platform TikTok.
Pichai said YouTube’s TikTok rival Shorts are now being watched by 2 billion logged-in users every month, up from 1.5 billion a year earlier.
As of Q2 of this year, brand advertisers have been able to test ads and awareness campaigns on Shorts videos, and “we’re excited by the results,” Schindler said.
Premium skincare brand Laneige was able to drive a 21% increase in unique users reach with a series of 10-day tests of ads on Shorts and in the YouTube feed, Schindler said, resulting in more efficient costs per impression.
“We are prioritizing product focus on increasing quality consumption of video content with both Shorts and in the living room, which is translating into improved monetization.”
Ruth Porat, Alphabet
Alphabet also announced that Porat will be taking on the newly-created role of President and Chief Investment Officer of Alphabet and Google, starting on September 1 of this year.
In her new role, Porat “will be responsible for Alphabet’s investments in its Other Bets portfolio, working closely with Sundar, and the company’s investments in countries and communities around the world,” Alphabet said in a statement.
“She will also focus on engagement with policymakers and regulators regarding employment, economic opportunity, competitiveness, and infrastructure expansion.”
“As our longest serving CFO, [Porat] has helped guide the company through an amazing period of growth, a global pandemic, and the ongoing economic uncertainty that has followed,” Pichai said on the earnings call.
“I’m excited to continue to work with Ruth, who will lead our 2024 planning and remain as CFO while we do a full search for her successor.”
