Developing the advertising business on YouTube continues to be a huge focus for Google. On its fourth-quarter earnings call Monday, company executives said YouTube is a key driver of revenue growth (behind mobile search). In 2018, the company turned greater attention to building out offerings for performance advertisers with the introduction of TrueView for Action ads.
Google CEO Sundar Pichai said performance advertising offerings on YouTube are still nascent. He and Ruth Porat, CFO of parent company Alphabet, said advertisers should expect growth in this area. Pichai also discussed the positive impact he believes YouTube TV will have on the company’s advertising business.
Why you should care
Porat said brand advertising remains the largest part of YouTube’s business, but called attention to the growth of the performance ad format TrueView for Action and app promotion formats.
Pichai told an analyst during the earnings call it is still “early days of making sure YouTube is a better platform for direct response,” adding that he thinks of YouTube as a place people come for both entertainment and information. “They’re coming to discover, to research, and so [we want to be] able to match that intent over time in a way that we can bring the right value for our users and advertisers,” said Pichai.
TrueView for Action (re)launched in March 2018. Pichai said more than 30 percent of TrueView for Action advertisers were new to buying video ads on YouTube. Google also extended the use of custom intent audiences to YouTube. enabling marketers to target people based on their recent search history.
Pichai also noted that the number of YouTube channels with more than one million subscribers nearly doubled last year. YouTube claims an audience of nearly 2 billion monthly logged-in users.
Additionally, YouTube’s OTT product YouTube TV is essentially available nationwide in the U.S. as of last month. YouTube TV ad inventory is available to advertisers via the Google Preferred network.
Pichai said YouTube TV is “differentiated and has long-run value for us because it brings our advertising products together, including being able to serve it across TV.”
Not mentioned on the call, but worth noting, TrueView and bumper ads now show on TV screens by default when users watch YouTube on their televisions.
Q4 earnings by the numbers
Google reported fourth quarter revenues of $39.1 billion, an increase of 22 percent year-over-year. (Revenues across all of Alphabet were $39.3, which means all those “other bets” are still a far cry from making an impact on the bottom line.) CFO Ruth Porat cited the benefits of “ongoing strength in mobile search with important contributions from YouTube, Cloud and Desktop Search” on the earnings call.
Revenues from Google Sites (owned and operated properties) were $27 billion, also up 22 percent from the prior year. Mobile search, followed by YouTube and then desktop search, were the primary drivers of revenue growth, the company said. Paid clicks on Google Sites jumped 66 percent year-over-year while cost-per-click (CPCs) continued to slide, dropping 29 percent compared to a year ago. On past calls, Google executives have said YouTube ad growth is a leading contributor to the ongoing drop in CPCs. It was not addressed on the call Monday.
Network revenues were $5.6 billion, an increase of 31 percent from last year. Porat noted the “ongoing momentum” of Google’s mobile ad network AdMob and Google Ad Manager, which comprises what were formerly known as DoubleClick for Publishers and DoubleClick Ad Exchange.
The cost of revenues, which include traffic acquisition costs (TAC) and content acquisition costs (CAC) was $17.9 billion, up 26 percent from a year ago. That’s in large part due to YouTube spending more to acquire content, Porat said. She noted the fourth quarter tends to be a seasonally strong one for YouTube and growth in its subscription services YouTube Premium and YouTube TV, “which have higher CAC as a percentage of revenues.”
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