YouTube has been one of Google’s main sources of revenue during the pandemic, and people who are stuck at home are watching a lot more videos. The rising revenue from the service turned out to be a double-edged sword: the company has to work harder and harder to keep the bar high.
The most egregious disappointment in Google’s latest earnings report was YouTube: The service’s ad revenue grew just 4.8% annually to hit $7.3 billion versus the $7.52 billion that analysts had predicted. This is YouTube’s lowest growth rate since its owner Alphabet. started increasing sales in the fourth quarter of 2019. It grew 84% last year and dropped to just 5.8% in 2020 as marketers cut advertising costs as the pandemic began.
During the financial review, Alphabet management did its best to highlight the anomaly of last year’s earnings and tried to reassure investors and convince them that the growth slowdown won’t be long-term. And this is where the company should have been more cautious with promises: Last week, Snap disappointed investors with its quarterly results, showing that advertisers are more cautious about budgeting amid the current economic uncertainty. Google top executives partially agreed with this position, but did not mention another issue – competition.
In recent months, the company has increasingly noticed the growing popularity of the short video format in general and TikTok in particular. Google Senior Vice President Prabhakar Raghavan recently stated that up to 40% of the younger generation do not start their web searches with Google but with TikTok and Instagram.*. It’s not the first time that Alphabet’s underperforming YouTube revenue has become a problem: In the first quarter, advertising revenue on the platform also fell short of analysts’ expectations – at the time, the company was pinning its hopes on the YouTube Shorts division, which is a direct competitor of Tiktok is. The project’s problem is that it doesn’t have an established monetization program: users are increasingly choosing a new format, and the platform is just testing ways to monetize it.
* It is included in the list of public associations and religious organizations for which the court made a final decision, activities on the grounds of Federal Law No. 114-FZ of July 25, 2002 “On Combating Extremist Activity”.