Google is feeling the digital media slowdown (sort of), with YouTube’s growth on an anxious decline

The onset of the digital media recession, if not the global economic recession, hit Google.

But Google is fine, thanks for asking.

The company’s revenue was $69.7 billion in the second quarter of 2022, compared to $61.9 billion in the same period last year. That’s a jump of 13% from a ridiculously huge baseline. But there are more worrying measures.

For example, Google’s growth rate is slowing down.

This impressive 13% year-on-year growth rate is not representative of normal incremental growth. In 2021 – in the second quarter in particular – the year-over-year figures exceeded 60% because companies were in crisis mode the year before due to the pandemic.

OK, to make it easy to explain. But Google’s steady quarterly slowdown is more concerning. In the first quarter, its revenue grew 23%, compared to 32% in the fourth quarter of 2021 – and it only added $1.6 billion in revenue quarter over quarter in the second quarter (which n is not good by Google standards).

Alphabet is also tapping into its profitability. Net income (i.e. profit) fell from $18.5 billion a year ago to $16 billion in the second quarter.

On the other hand, however, the company is willing to sacrifice some profits. In the second quarter, Google was allowed to increase its share buybacks by $50 billion to $70 billion. Having permission doesn’t mean the funds will be used to buy back stock, but it’s a way for Google to improve hiring and retention. (Buyouts preserve higher stock prices, which is important for large public companies. Alphabet employees took a big pay cut this year, so to speak, after a 20% drop in the stock price. action of the company.)

Google’s profit margin was flat but, to be fair, it added 30,000 employees over the past year and traffic acquisition costs – what it pays to acquire traffic (the historical example being the 11-figure annual fee Google pays Apple for iOS search traffic) increased by $1.3 billion.

Still, a drop in total quarterly profit is relative. Google’s profits are still so big that one investor asked why Google was even going through a major cost-cutting and investment reallocation exercise. Other companies go through this process because they face real risks for lasting profits.

The YouTube Slide

There are, however, darker clouds.

The worst metric for Google comes in the form of YouTube.

YouTube ads brought in $7.3 billion in the second quarter of 2022, up from $7 billion last year. In the fourth quarter of 2021, YouTube grew by nearly $1.8 billion year over year. In the first quarter, YouTube added $860 million.

In other words, YouTube’s total gross growth of $300 million reinforces a worrying trend: It’s not impossible that at the end of the year, YouTube is down year-over-year. .

YouTube’s slowdown is a major concern for Google because it’s not a long-term investment the company can just eat up, like sacrificing profitability for hiring, retention, or market share of the cloud. If YouTube’s growth plateaus — and it looks like the company may well reach a point in 2022 where it won’t grow from a year ago — that means there’s a major disruption in the strength of the brand and mobile performance marketing.

Alphabet CEO Sundar Pichai told investors there had been a ‘pull back’ by some brands on their advertising spend, and CFO Ruth Porat said that was likely to be behind the performance disappointing from quarter to quarter.

Company executives were asked if marketer pullbacks were significant in a particular category, market or channel (like YouTube in particular), but no additional details were shared.

Pichai said the advertising budget freeze “reflects the uncertainties” among companies, many of which are affected by multiple headwinds or external factors. (Supply chain issues, anyone?) It was the umpteenth time on the investor call that one of Google’s executives noted “uncertainty” as a major factor this quarter.

“We use the word ‘uncertainty’ because that’s what we see,” Porat said.

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