Alphabet Finds Its Second Growth Pillar

YouTube could play a crucial role in advertising growth

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Aug 04, 2017
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When Alphabet Inc. (GOOG, Financial) (GOOGL, Financial), Google’s parent company, released its second-quarter earnings, all media attention was focused on the sharp declilne in profit due to the $2.7 billion antitrust fine from the European Union and how the steadily increasing traffic acquisition costs (TACs) could dent its profit margins in the future. But little attention was paid to the company’s comments about YouTube's steady growth, and how it can play a huge role in its advertising future.

In the second-quarter earning call with analysts, Chief Financial Officer Ruth Porat said the biggest contributors to growth during the quarter were mobile search and YouTube. In a way, it kind of summed up Google’s strength in the advertising world, its search engine, which is now closely followed by YouTube.

The earnings call also revealed some vital statistics about YouTube. The world’s leading public video platform now has 1.5 billion monthly viewers, who spend an average of 60 minutes a day watching content. The only other public platform that has more monthly active users is Facebook, which illustrates just how big YouTube has become. What makes the number even more interesting is YouTube is ahead of Facebook when it comes to the amount of time people spend on the platform.

According to Business Insider, people spent more than 50 minutes per day across Facebook’s suite of apps, excluding WhatsApp, in early 2016. While it is very hard to pin the amount of time users spend on Facebook’s main platform without the company officially announcing it, several estimates put that number at a bit more than 20 minutes.

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It is not unreasonable to expect YouTube users to spend more time on the platform because it is purely video content.

Either way, the higher the number of users and the more time they spend, the better it is for any platform. YouTube has now scaled up tremendously for Google, and it would not be wrong to say Google possibly has a Facebook-sized user base from YouTube alone.

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Expanding internet penetration around the world and the ever-increasing speed of internet itself will increase YouTube’s user base organically. After search, Google may have found the second pillar to support its advertising revenue growth for many more years to come. The best part is there is no real competition for YouTube on the free public video front.

Disclosure: I have no positions in the stock mentioned above, and no intention to initiate a position in the next 72 hours.