YouTube Ad Revenue Drops 2.6% in Q1, Alphabet Takes $2 Billion Charge for Layoffs

Neal Mohan - YouTube CEO
Anna Moneymaker/Getty Images

YouTube’s advertising revenue dropped for the third quarter in a row, dragging down Google’s financial results as the video platform continues to navigate a soft ad market.

Ad sales at YouTube declined 2.6% year over year in the first quarter of 2023, to $6.69 billion. That slightly beat out analyst expectations of $6.6 billion, per FactSet. Parent company Alphabet doesn’t break out YouTube’s subscription revenue (from YouTube TV or YouTube’s other premium services). YouTube revenue was down 7.8% in the fourth quarter of 2022 following a 1.9% dip the quarter before that.

In February, Susan Wojcicki stepped down as YouTube’s CEO after nine years in the role, staying on at Alphabet in an advisory capacity. The new head of YouTube is Neal Mohan (pictured above), previously the video platform’s chief product officer.

YouTube has been pushing Shorts, its short-form video feature similar to what TikTok’s app offers, in a bid to hold on to viewers and extend watch time. Google has said YouTube Shorts now generates more than 50 billion daily views on average. Starting in February, the platform opened up Shorts to let creators receive a cut of revenue generated by their videos.

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The company saw “signs of stabilization” in YouTube’s ad business on a sequential basis, CFO Ruth Porat said on the earnings call Tuesday.

Alphabet and Google CEO Sundar Pichai said on the call that YouTube TV and YouTube Primetime Channels subscription services have “great momentum,” but he didn’t provide specifics. He called out YouTube’s announcement of pricing for the NFL Sunday Ticket out-of-market games package, which will start with the 2023 season, as poised to draw in new subscribers. On YouTube, Sunday Ticket won’t require a pay-TV subscription (as DirecTV did) but the package will cost $100 lower per season for YouTube TV subscribers.

Overall, Alphabet’s Q1 earnings beat Wall Street forecasts. It posted $69.8 billion in sales (up 3%) and net income of $15.05 billion (or $1.17 per share). Analysts on average expected the internet giant to report revenue of $68.9 billion and earnings of $1.07 per share, per financial data provider Refinitiv.

In January, Alphabet announced plans to cut 12,000 jobs across divisions — 6% of its workforce, marking its biggest layoffs to date — after the company, like others in the tech sector, had ramped up hiring during the pandemic. On Tuesday, the company announced that it recorded employee severance and related charges of $2.0 billion, representing the majority of expected costs associated with the layoffs. In addition, Alphabet recorded charges related to office space reductions of $564 million in the first quarter of 2023, and said it may incur additional charges in the future “as we further evaluate our real estate needs.”

"Over the past two years we’ve seen periods of dramatic growth," Pichai wrote in a companywide memo in January announcing the layoffs. "To match and fuel that growth, we hired for a different economic reality than the one we face today."

In releasing Q1 earnings, Alphabet announced that its board authorized an expanded stock-buyback program of up to an additional $70 billion of its shares.

Last week, Alphabet announced that it was bringing together part of Google Research (the Brain Team) and DeepMind to "significantly accelerate our progress in AI." The change doesn't affect its Q1 financial reporting. The group, called Google DeepMind, will be reported within Alphabet's unallocated corporate costs beginning in the second quarter of 2023.

Pictured above: YouTube CEO Neal Mohan

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