Alphabet is so big that, even when it’s growing slowly, it’s still outpacing competitors.
On Tuesday, the company reported earnings for Q2 2024, which Wall Street considered a dud. Shares were slightly down by Wednesday morning, and YouTube in particular disappointed with a lower-than-expected growth rate.
But it can be deceiving to look at Google’s growth rates, which range from high single-digit percentages to low double digits – plus a continued decline in the third-party ad network business. Those mundane growth rates camouflage the degree to which the company is outgrowing the market.
Here for YouTube
There’s no better example of growth rate evaluation for Google muddying the picture than YouTube.
Investors were surprised and somewhat alarmed to see YouTube’s growth rate dip below search advertising’s growth. It’s a worrying sign for YouTube’s growth to be lower, when it makes $8 billion compared to search’s $43 billion.
During the Q&A portion of the earnings call, one investor asked whether YouTube was lagging with direct response or shopping ads, and was losing that performance edge, even while it earned more branding dollars from traditional TV.
But YouTube is still blowing every similar business out of the water. YouTube’s ad revenue grew by a mere billion dollars in Q2 2024 compared to the same period last year. It now totals $8.6 billion.
Disney+ isn’t yet a billion-dollar annual ad business – let alone adding more than $1 billion on top – and Disney’s core TV advertising revenue totaled $2.2 billion in Q1, which was actually down by a couple hundred million dollars from 2023.
Netflix is on the cusp of having a billion-dollar ad business in 2024. But it’s on a tough upward slog for growth and is, frankly, a one-trick pony compared to YouTube’s mix of formats and content.
Alphabet Chief Business Officer Philipp Schindler underscored for investors two main differentiators and growth engines for Google. First, of course, was how AI is being incorporated into ad products. But second, he highlighted “YouTube’s position as the leading multi-format platform.”
It’s a fair point: YouTube has long-form video and quick little Shorts clips, ad-free subscriptions, the YouTube TV package, the standalone YouTube TV app, even podcasting.
If there’s a way to play video – and sometimes even if not – YouTube has found its way in and is out-monetizing the competition.
Ummm … the news?
That being said, YouTube’s multi-format dominance isn’t exactly news, and it’s certainly not the big story at Google right now.
Perhaps you’ve heard: Google dropped a bombshell this week with the announcement that it will no longer force a phaseout of third-party cookies in Chrome.
That was world-shaking news in online advertising on Monday, but it hardly came up during Tuesday’s earnings report. Third-party cookies weren’t mentioned in the opening remarks, and only Michael Nathanson of the equity research and investment firm MoffettNathanson asked for more detail on Chrome’s change of approach.
“There was the whole focus around Privacy Sandbox, and we remain committed on the journey,” Sundar Pichai responded. “But on third-party cookies, given the implications across the ecosystems and feedback across so many stakeholders, we now believe user choice is the best path forward there.”
