YouTube’s big glitch shows the digital media ad market is being hit hard

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

Given Ruvic | Reuters

During the pandemic, YouTube was one of Alphabet’s main growth drivers 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 ad spending soared.

For at least a quarter, the music has stopped.

Before its first-quarter earnings report on Tuesday, Alphabet was expected to report YouTube growth of 25%. That number fell 14% short, contributing to a broader loss of revenue and profit and a sharp drop in Alphabet shares.

The YouTube figures are the latest sign that the digital media ad market is taking a hit in an inflationary environment and amid growing concerns about deteriorating macroeconomic conditions. Last week, Snap CEO Evan Spiegel said the first quarter was “challenging” for the YouTube competitor, with the company providing a weak sales forecast for the second quarter.

For both YouTube and Snap, there is a growing behemoth that is gaining market share: TikTok. Meanwhile, other media companies, large and small, are rolling out video and streaming services that are vying for consumers’ attention.

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

“While the company’s search and cloud businesses performed well in the first quarter, its YouTube video business fell well short of analyst forecasts, fueled by increased competition from social video platforms such as YouTube. TikTok and a host of premium entertainment services led by Disney+,” wrote Paul Verna. , an Insider Intelligence analyst, in an email after the report.

Almost a year ago, in the second quarter of 2021, YouTube’s revenue exceeded $7 billion, up 83% from the previous year, approaching Netflix’s quarterly revenue. The disappointing results of YouTube in the last period reduced the profitability of Alphabet, which contributed to a drop in net income.

YouTube has staked some of its future growth on a short-form video product called Shorts, its response to early mobile rivals like TikTok, Snap and Instagram Reels. In May 2021, YouTube said it would pay $100 million to people who make popular videos. In the call Tuesday, the executives said that Shorts has 30 billion daily visits, but that the service is in the early stages of monetization.

A variety of factors are hurting the overall digital ad market. They include changes to iPhone privacy, supply chain disruptions, labor shortages, inflation, and rising interest rates. Alphabet Chief Financial Officer Ruth Porat said on Tuesday’s earnings call that the Russian invasion of Ukraine and Google’s pullback in the region also hurt YouTube’s revenue.

“The most direct impact is the fact that we are suspending the vast majority of our business activities in Russia as we announced in early March,” Porat said. “Since the beginning of the war, there has been a pushback in advertiser spending, particularly on YouTube in Europe.”

The ad-supported video market is not the only part of the industry that is suffering. Netflix said last week that it lost subscribers for the first time in more than 10 years, sending shares down 35%. And Warner Bros. Discovery pulled the plug on CNN+ just weeks after it launched.

WATCH: Alphabet’s weaknesses were expected, but the long-term story hasn’t changed

Add Comment