YouTube’s huge misfire shows the digital media advertising market is badly hit

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Silhouettes of laptop and mobile device users are seen next to a screen projection of the YouTube logo.

Dado Ruvic | Reuters

During the pandemic, YouTube was one of Alphabet’s main growth engines as more people were glued to their screens while stuck at home. The video site continued its rapid expansion last year as the economy reopened and advertising spending soared.

At least for a quarter, the music stopped.

Ahead of the release of its first-quarter earnings report on Tuesday, Alphabet was expected to post 25% growth on YouTube. That figure was well below 14%, contributing to a broader loss of revenue and earnings and a sharp decline in Alphabet shares.

YouTube’s numbers are the latest sign that the digital media advertising market is taking a hit amid an inflationary environment and amid growing concerns about deteriorating macroeconomic conditions. Last week, Snap CEO Evan Spiegel said the first quarter was “difficult” for the YouTube competitor, and the company provided weak sales guidance for the second quarter.

For YouTube and Snap, there’s a growing juggernaut taking market share: TikTok. Meanwhile, other media companies large and small are rolling out video and streaming services that are vying for consumer eyes.

Add it up and YouTube ad revenue of $6.87 billion lags behind the $7.51 billion expected by Wall Street, according to StreetAccount.

“While the company’s search and cloud businesses performed well in the first quarter, its YouTube video business fell well below analysts’ expectations, due to increased competition from social video platforms like TikTok and of a plethora of premium entertainment services led by Disney+,” Paul Verna wrote. , an analyst at Insider Intelligence, in an email after the report.

Almost a year ago — in the second quarter of 2021 — YouTube’s revenue was over $7 billion, up 83% from a year earlier, bringing it closer to quarterly revenue. from Netflix. YouTube’s disappointing results over the past period have dented Alphabet’s profitability, contributing to lower net income.

YouTube has bet part of its future growth on a short video product called Shorts, its answer to mobile rivals like TikTok, Snap and Instagram’s Reels. In May 2021, YouTube announced that it would pay out $100 million to people who make popular videos. On Tuesday’s call, executives said Shorts has 30 billion daily views, but the service is in the early stages of monetization.

Various factors are hurting the overall digital advertising market. They include iPhone privacy changes, supply chain disruptions, labor shortages, inflation, and rising interest rates. Alphabet chief financial officer Ruth Porat said on Tuesday’s earnings call that Russia’s invasion of Ukraine and Google’s pushback in the region also hurt YouTube’s revenue.

“The most direct impact is the fact that we have suspended the vast majority of our business activities in Russia as we announced in early March,” Porat said. “From the start of the war, there was a decline in advertiser spending, especially on YouTube in Europe.”

The ad-supported video market isn’t the only part of the industry that’s hurting. Netflix said last week that it had lost subscribers for the first time in more than 10 years, sending the stock down 35%. And Warner Bros. Discovery unplugged CNN+ just weeks after its launch.

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