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    YouTube drags down Google performance as challenges pile up

    • Google parent Alphabet saw revenue rise 23% year-on-year to $68.01 billion in the first quarter, according to an earnings statement. The results fell short of Wall Street’s expectations.
    • A glaring weak point was YouTube. The video-sharing platform grew revenue 14% YoY to $6.87 billion. Analysts had forecast growth of around 25%.
    • Multiple factors, including the war in Ukraine, rising inflation and bumpiness adjusting to changes in Apple’s tracking features, have affected marketer spend. YouTube’s dropoff is severe enough to indicate some brands may also be shifting their digital video budgets to other platforms.

    YouTube has been a prized segment for Alphabet during the pandemic as people spend more time watching videos online. The video platform grew revenue 25% to $8.6 billion in the fourth quarter of 2021, a strong upward trajectory analysts expected would continue into the early stretch of this year. That scenario clearly hasn’t played out, as the service surprisingly dragged down what was an otherwise healthy period for the technology giant.

    Google’s core search and other revenue breakout was up 24% YoY to $39.61 billion in Q1. Retail has continued to buoy search as marketers try to wed their digital advertising and commerce initiatives closer together. Many businesses have also started migrating away from Meta Platforms’ Facebook and Instagram as privacy changes Apple implemented last year impact campaign performance and measurement. Meta reports its earnings later today (April 27).

    Google previously seemed to weather Apple’s adjustments, which are part of the iPhone maker’s App Tracking Transparency (ATT) framework and have made keeping tabs on users for the purposes of advertising more difficult, relatively well. However, those challenges coupled with an overall more volatile ad environment are standing up larger obstacles for digital media sites like YouTube.

    On a call discussing the Q1 results with analysts, Alphabet Chief Financial Officer Ruth Porat stated that ATT has led to ongoing headwinds that have primarily hit direct response advertising, though she noted that “the dollar impact from ATT has been consistent since it was implemented in April of last year.” The executive also said the ongoing war in Ukraine carried an “outsized” impact on YouTube in relation to the company’s overall ad business. About 1% of Google revenues were derived from Russia in 2021, per Porat. The firm has suspended the majority of its operations in the country in response to the invasion.

    Regardless of numerous macroeconomic disruptions — inflation was also called out — YouTube is contending with stiffer competition in mobile video than it has before. TikTok is the fastest-growing app on the market and has successfully won the minds and attention of key young consumer groups like Gen Z. Insider Intelligence forecasts TikTok’s ad revenue will triple to $11.64 billion in 2022, more than that of Twitter and Snapchat combined.

    YouTube is standing up its own TikTok-like offering called YouTube Shorts. The short-form video portal now generates 30 billion daily video views, four times higher than the audience it drew a year ago, Alphabet CEO Sundar Pichai said.

    Monetization for Shorts is a work in progress. YouTube last year rolled out a $100 million Shorts fund to encourage more creators to use the feature. Over 40% of creators who have received payments through the program in 2021 weren’t part of YouTube’s larger Partner Program for creators, a data point Chief Business Officer Philipp Schindler called “interesting.”

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