YouTube had a boom in video consumption throughout the pandemic, which gave Google a boost in revenue.
A look at how Google has grown to new heights, but due to poor advertising this is leading to comparisons to last year and when marketers pulled back their budgeting because of fears over the economy.
The company reported weaker-than-expected results for the second quarter on Tuesday, with YouTube the most notable disappointment. The company’s revenue increased just 4.8% from a year earlier to $7.34 billion, falling short of analysts’ expectations of $7.52 billion, according to StreetAccount.
It is the slowest rate of expansion for YouTube since Alphabet started to provide this figure on the quarterly basis in the fourth quarter of 2019. Last year, revenue jumped 84%, and the only quarter with single-digit growth was 2020’s second quarter, when sales rose just 5.8% as marketers halted spending in the early weeks of the flu outbreak.
To ease investor concerns over the longer-term trends, Alphabet executives on Tuesday used the word “lapping” or “lapped” seven times to describe what they were up against compared to a year ago.
The modest growth rate primarily reflects lapping the particularly strong performance in the second quarter of 2021, CFO Ruth Porat said. She added that “time will get us through lapping.”
But there are other difficulties for YouTube. Following Snap’s report last week on horrendous quarterly results, it is clear brand advertisers are being more cautious in how they allocate their advertising dollars.
Some of Google’s executives echoed that sentiment.
Some advertisers are pulling back on spending in the second quarter, Porat said. There are a number of factors that are challenging to dissect, he said. Some of the specific challenges are related to supply chains and inventory.
Even though Google leadership didn’t talk about competition during the call, they have been noticing how popular these other video formats are in recent months.
Prabhakar Raghavan, a senior vice president at Google, said earlier this month that Google’s studies revealed that almost 40% of young people have turned to TikTok or Facebook’s Instagram for searches.
Analysts had expected YouTube ad revenue to grow 25% in the first quarter, but revenue grew just 14% instead. Porat said at the time that a “slight headwind to revenue growth” was a change in consumer behavior, but that YouTube Shorts, a competitor to TikTok, was seeing a higher percentage of viewers.
It’s a problem for YouTube because it’s early in monetization efforts for Shorts, so viewers are shifting away from content that generates more advertising revenue to a format that is unproven. YouTube announced the testing of monetization for YouTube shorts last quarter.
So far, Google has been happy with the advertising it is doing, according to the company’s chief business officer, Philipp Schindler. In general, he described a “full funnel strategy” that “more advertisers are embracing,” allowing them to target audiences different ways.
Regardless of the larger economy or any other issues, Porat constantly reminds investors that the company will rebound from the economic downturn with upcoming years being comparatively easier.
Time heals everything, Porat explained. Mathematically, that makes sense.