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MW YouTube is as big as Netflix, and growing much faster

By Jon Swartz

Google video-streaming site brought in nearly as much ad revenue in the past quarter as the streaming pioneer, and likely makes enough from subscriptions to top Netflix overall amid massive growth

Google parent Alphabet Inc. wowed financial analysts with just about everything in the company's second-quarter results on Tuesday, but one line fact had tongues wagging the most: YouTube is as big as Netflix Inc.

Propelled by an 84% rise in ad sales, Google's $(GOOGL)$(GOOGL) video service racked up $7 billion in revenue -- roughly what Netflix $(NFLX)$ did in Q2, $7.3 billion. The difference is that YouTube is growing at four times the clip of the video-streaming's sales, putting up nearly as much ad revenue in three months as it did in all of 2020, when YouTube ads totaled $7.85 billion in revenue.

And that is not all the money that YouTube generates. Subscription fees, the type of revenue Netflix generates while eschewing ads, are counted in a separate category for Google. While executives did not break out specific performance of YouTube's subscription products -- which include YouTube TV, YouTube Premium and YouTube Music -- the company's filing with the Securities and Exchange Commission noted the entire category of revenue grew $1.5 billion to $6.6 billion, and credited YouTube subscriptions for the growth ahead of other factors. That suggests enough revenue to easily surpass the $300 million difference between the two services' reported quarterly revenue.

And Netflix thought it faced stiff competition from Walt Disney Co. $(DIS)$, AT&T Inc. $(T)$, Apple Inc. $(AAPL)$, Amazon.com Inc. $(AMZN)$, and Comcast Corp. $(CMCSA)$.

"Putting the super in super checkmark," Evercore ISI analyst Mark Mahaney hailed in a July 27 note that touted the performance of YouTube as a major reason for lifting Google's price target to $3,160 from $2,825. Advertisers are increasingly using brand and direct response to "drive superior" return on investment via YouTube. "YouTube is experiencing an ad product inflection point," he wrote.

Read more: Google parent Alphabet's worth to Wall Street soars after blowout results, with UBS lifting share-price target to $3,600 a share

In raising his price target on Google shares to $3,200, Raymond James analyst Aaron Kessler cited long-term advertising revenue growth driven by search and YouTube, as well as advertisers increasingly approaching YouTube as a "full-funnel solution."

The truth is boldly underlined by the numbers, according to JMP Securities analyst Ron Josey. YouTube has more than 2 billion monthly average users with over 1 billion hours of video watched daily. YouTube Shorts, which launched in the U.S. in March, recently surpassed 15 billion daily views. A Nielsen study suggests 70% of reach on YouTube was incremental to TV media ads, and that advertisers that shift 20% of TV spend to YouTube should see a 25% increase in total campaign reach with a lower cost per reach of 20%. More than 120 million people watch YouTube on a TV monthly, up from 100 million a year ago, Josey noted.

Netflix, by comparison, has more than 200 million paid subscribers.

Google executives highlighted YouTube's performance during a call with analysts as an explanation for revenue ($61.9 billion) and earnings ($18.5 billion) that smashed Wall Street forecasts.

"During the pandemic, we've seen more consumers use YouTube to discover and shop," Google Chief Business Officer Philipp Schindler told analysts during a conference call late Tuesday.

Read more: Google's wave of digital ad sales helps it crush revenue, earnings estimates

YouTube monetization is taking shape, AB Bernstein analyst Mark Shmulik said, with ad revenue catapulting $1 billion sequentially and subscriptions on YouTube a "key driver" of Google's Other business division. "Google continues to fight for linear TV ad dollars, with the users incremental to TV audiences," Shmulik wrote July 28 in a note that maintains an outperform rating on Google shares with a price target of $3,200. "This quarter's strength was driven primarily by the continued recovery in brand dollars."

Added Barclays analyst Ross Sandler: "Digital advertising is proving to be very resilient in this economic cycle, and the growth rates across the space, including at Google and YouTube, are staggering owing to share shift and easy comps -- some of the highest figures we may ever see." (He jacked up Google's price target to $3,200 from $3,000 in a July 27 note to clients.)

-Jon Swartz

$(END)$ Dow Jones Newswires

July 31, 2021 14:49 ET (18:49 GMT)

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