YouTube became the latest casualty of Big Tech’s ad revenue retreat

Google reported weaker-than-expected earnings, and YouTube played the devil.

YouTube ads posted its first fall since the company started breaking out the division’s results in 2019, falling 1.9% year-over-year in the quarter ended Sept. 30, 2022. Analysts were expecting the segment would grow 3%.

Last quarter, too, YouTube was the weakest link in Alphabet’s earnings. Chief financial officer Ruth Porat had already warned in July of a pullback in spending by some advertisers. This time around, Philipp Schindler, chief business officer for Google, was able to pinpoint which industries reined back advertising budgets: insurance, loans, mortgage and cryptocurrencies.

Charted: YouTube ads slump

A brief history of Shorts, YouTube’s TikTok clapback

TikTok’s explosive growth is testament to short-form video being the format for viewers—and therefore, advertisers. YouTube’s answer to it is still in its nascent stages.

September 2020: YouTube launches Shorts, a short-form video platform free of commercials, to challenge rival TikTok.

May 2021: YouTube launches a $100 million creator fund. It does not share any monetization plans

July 2022:YouTube gives creators an option to cut long-form videos into Shorts. In the same month, YouTube says 1.5 billion viewers engage with Shorts every month

September 2022: Google introduces ads in Shorts, offering creators 45% of ad revenue

Alphabet’s growth is slowing overall

The ad spending slowdown visibly hit YouTube, but even Google’s core search ads are growing slower than before. Overall, Alphabet’s revenue grew just 6% from a year ago to $69 billion in the quarter ending Sept. 30, 2022.

The last time Alphabet’s year-over-year quarterly revenue increased by less than 10% year-over-year was April-June 2020, when advertisers pulled back because of pandemic-induced economic uncertainty.

See more: Netherlands is the most crypto obsessed country in the world, study finds

Digital ad budgets are getting slashed all around

Snap

“We are finding that our advertising partners across many industries are decreasing their marketing budgets, especially in the face of operating environment headwinds, inflation-driven cost pressures, and rising costs of capital.” —Snap in a letter to investors

Microsoft

“Reductions in customer advertising spend, which also weakened later in the quarter, impacted search and news advertising and LinkedIn Marketing Solutions.” —Microsoft CFO Amy Hood

Meta

Facebook parent Meta posted its first-ever decline in ad revenue last quarter. When it reports earnings today (Oct. 26), it is expected to report falling ad sales once again.

Googling bright spots for Alphabet

With ad revenue hit by uncertainty, Alphabet is searching for other ways to foolproof its business.

Diversify: Google Cloud beat analyst expectations to bring in $6.9 billion, a big jump from $5 billion a year ago. It’s still far smaller than Microsoft’s Azure but holds potential.

Decide: Google has shuttered various projects, including an internal incubator Area 120 and its streaming video game service Stadia. The next generation of Pixelbook laptops has been canceled.

Downsize: CEO Sundar Pichai said the company should become 20% more productive. The nearly 187,000-strong company plans to restrict hiring to under 7,000 for the rest of the year, and this headcount austerity will continue into next year.

Source: QZ