A pullback in ad spending cramped YouTube’s revenue for the third quarter of 2022, with Google’s video platform notching $7.07 billion in ad sales — a decline of 1.9%, falling well short of Wall Street forecasts and representing its first year-over-year drop in at least two years.
Overall, Alphabet, Google’s parent company, also came in below analyst estimates. The company posted revenue of $69.1 billion and earnings per share of $1.06 for Q3. Wall Street was anticipating $70.61 billion on the top line and EPS of $1.25, according to Refinitiv data.
In the year-ago quarter, YouTube ad sales had jumped 43%. Analysts on average had expected YouTube ad revenue to hit $7.42 billion for the quarter, according to estimates compiled by FactSet’s StreetAccount. Alphabet first disclosed YouTube ad revenue for the 2019 calendar year.
“We’re sharpening our focus on a clear set of product and business priorities,” Sundar Pichai, CEO of Alphabet and Google, said in announcing the earnings, noting the company has introduced “new ways to monetize YouTube Shorts. “We are focused on both investing responsibly for the long term and being responsive to the economic environment.”
On the earnings call, CFO Ruth Porat said the ad revenue slowdown for YouTube and Google Search “reflects a pullback in spend by some advertisers, as we first noted last quarter.” In Q4, last year’s strong revenue growth “will continue to create tough comps that will weigh on the year-on-year growth rates of advertising revenues,” she said.
Over the past two years, YouTube has been heavily pushing Shorts, its short-form video feature designed to compete with the hugely popular TikTok app. In June, Google said YouTube Shorts had topped 1.5 billion monthly logged-in users. After tests earlier in the year, YouTube in September began running ads in Shorts, and starting in early 2023, YouTube Shorts is launching revenue-sharing program for creators who meet certain criteria. YouTube will pay out 45% of revenue to Shorts creators allocated based on views, which is lower than the 55% it shares the core YouTube Partner Program.
With revenue growth decelerating, Google has made several cost-cutting moves. Among those, the company last month announced the shutdown of its Stadia cloud gaming service. Pichai this summer said Google would slow its pace of hiring through the end of 2022. At the Code Conference last month, he said he wanted to improve the company’s “efficiency” by 20%, implying that layoffs may be a way to do that.
Alphabet ended Q3 with 186,779 employees, a quarterly net increase of 12,765, including 2,600 employees who joined Google Cloud as part of its acquisition of cybersecurity company Mandiant. According to Porat, the company will slow hiring in Q4 and into 2023; she said Alphabet expects add less than half the number of employees in Q4 compared with Q3.
The YouTube ad sales figures reported by Alphabet do not include subscription revenue from YouTube Premium and YouTube TV. In July, Google said YouTube TV had more than 5 million subscribers and users on free trials, making it the biggest internet pay-TV service in the U.S. On the call, Porat said subscriber growth in YouTube Music Premium and YouTube TV “continued to drive ongoing strong growth in YouTube non-advertising revenues.”
Meanwhile, revenue for Google’s Play Store declined year over year, reflecting a slowdown stemming from factors including “lower engagement levels in gaming compared with earlier stages of the pandemic,” Porat said.
From Variety US