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YouTube Ad Revenue Inches Up 4.8% in Q2, Slowest Growth in More Than Two Years

YouTube - Alphabet earnings
Thiago Prudencio/SOPA Images/LightRocket via Getty Images

YouTube still banks a huge bucket of ad bucks — hitting $7.34 billion in the second quarter — but the video giant’s growth has decelerated to its lowest pace in more than two years.

YouTube’s ad revenue grew just 4.8% in Q2, according to Alphabet, the parent of Google and YouTube. That was under Wall Street expectations: Analysts had forecast YouTube ad revenue increasing 7% year over year to $7.49 billion. The results come after YouTube’s Q1 ad sales had missed estimates by a wider margin.

YouTube saw a 84% revenue boom in the same period last year, to $7 billion, coming off the relatively anemic 5.8% bump in Q2 2020 amid the onset of the coronavirus pandemic. Alphabet first broke out YouTube ad revenue for the 2019 calendar year.

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Overall, Alphabet slightly missed earnings forecasts. The internet giant reported $69.69 billion in revenue, up 13%, and net income of $16.0 billion (down 14%), or $1.21/share. Wall Street consensus estimates had pegged revenue at $69.99 billion and earnings of $1.30/share, per Refinitiv data.

In addition to macroeconomic headwinds like rising inflation, analysts have speculated that YouTube ad dollars are softening because YouTube Shorts, the platform’s surging TikTok-like short-video feature, is siphoning viewing off the core, longer-form side of the house. Google last month boasted that YouTube Shorts has more than 1.5 billion monthly logged-in users, while it began testing ads for short-form videos only in the last few months.

On the earnings call, Alphabet CFO Ruth Porat attributed YouTube’s ad-revenue slowdown mainly to a tough year-over-year comparison with the “extraordinary” growth rate in Q2 2021. “Time will get us through the lapping. So, that’s obvious math,” she told analysts.

Porat also called out a “pullback in spend by some advertisers” on YouTube, reflecting “uncertainty about a number of factors” like supply-chain and inventory challenges.

Note that the YouTube ad sales figures reported by Alphabet do not include subscription revenue from YouTube Premium and YouTube TV. Earlier this month, Google said YouTube TV has 5 million subscribers and users on free trials, putting it ahead of Disney’s Hulu as the biggest internet pay-TV service in the U.S.

Sundar Pichai, CEO of Alphabet and Google, said the company’s Q1 results were driven by its Search and Cloud segments. “With an uncertain global economic outlook, our strategy to invest in deep technology and computer science to build helpful products for the long term is the right one,” he said on the call.

In Q2, Google Cloud turned in an impressive 36% increase in revenue, to $6.28 billion, although its operating loss widened to $858 million vs. an operating loss of $591 million in the year-ago period.

Google intends to slow the pace of hiring, Porat said on the call. “Although we expect the pace of headcount growth to moderate next year, we will continue hiring for critical roles, particularly focused on top engineering and technical talent,” she said. Alphabet had 174,014 employees at the end of Q2, after adding 10,108 in the period.

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