Google Stock Falls On Earnings Miss; TikTok Emerges As YouTube
Wednesday, April 27, 2022
Google Stock Falls On Earnings Miss; TikTok Emerges As YouTube Competitors
After the company missed its quarterly revenue expectations‚ investors are concerned that YouTube's ad business will suffer because of the war in Ukraine. Despite the war‚ however‚ Alphabet's cloud business did well in the first quarter. In this article‚ we'll examine YouTube's ad revenue growth and TikTok's monetization.
TikTok is YouTube's clone
The two video platforms are competing in the same space‚ but it's not just the size of the platform that's at stake. In fact‚ YouTube is already attempting to copy TikTok‚ and a new test tool is being rolled out by its product team. This feature sounds suspiciously similar to the 15-second videos on TikTok‚ and it could be a way to stitch several short-form videos together. The decision to copy TikTok seems to reflect YouTube's desire to make short-form video editing more convenient for users. The Twitter-owned site had all of this with Vine‚ but it closed it. In the US‚ YouTube's own video platform‚ called YouTube Shorts‚ has announced a beta version for developers on 18 March 2021. Like TikTok‚ YouTube Shorts lets creators string together clips in a short time and add captions. The platform also features an endless feed of videos that users can browse with a swipe. Users can subscribe to creators‚ watch videos‚ and browse through sounds and hashtags. The two video platforms already have massive communities of creators and businesses‚ and the Shorts feature will enable those users to create content with existing content. Hopefully‚ artists and businesses will use the Shorts feature to promote new music and showcase their latest offerings. The two video platforms are in the early stages of development‚ so it's important to remember that the future of video content is in the hands of creators‚ not the other way around. While both video platforms are similar‚ their interfaces are quite different. TikTok is more streamlined than its counterpart. While the interface is similar‚ YouTube isn't trying to mimic TikTok yet‚ and Shorts aren't yet a standalone app. They are both included in the home tab of the YouTube mobile app. TikTok also hopes to make it more of a tab within its app.
YouTube missed its quarterly projections for ad revenue
After reporting strong growth during the pandemic last year‚ YouTube disappointed Wall Street with its first quarter ad revenue. Though the company's revenue was up 14 percent year over year‚ analysts still predicted it to fall short of $7.4 billion. The company's second largest business in the world has hit a wall due to new regulations in Europe. Revenue in Europe rose 19% from last year but declined 12 percent from the fourth quarter. YouTube's ad revenue growth decelerated year over year‚ largely because of a decrease in direct response advertising. The war in Ukraine had an outsized effect on YouTube's European brand advertising business‚ which Alphabet blamed in part on the conflict there. Inflation and rising prices caused brand advertisers to cut back on their spending in Europe. However‚ the subscription services that YouTube offers are still driving substantial growth. YouTube Music and YouTube TV are two examples of its subscription services‚ while YouTube Premium aims to attract younger viewers. Google's ad revenue missed its quarterly projections by 4%‚ which contributed to Alphabet's broader miss on earnings and revenue. Alphabet's stock was down sharply in reaction to the news. Despite its disappointing numbers‚ YouTube has been one of Alphabet's prime growth engines. The company is currently experiencing a global ad market slowdown due to the conflict in Ukraine. Meanwhile‚ YouTube Shorts generates thirty million views a day‚ four times more than it did last year. Although YouTube's advertising business is built on direct response ads and brand advertising‚ it missed its quarterly projections for ad revenues. While Google's results may boost investor confidence‚ the real numbers will do little to boost its confidence in its business. The company's share price declined 3% after hours. The company's outlook remains mixed for the rest of the year‚ but Alphabet is aiming for its first profit quarter in the first half of 2019.
The war in Ukraine is a headwind to YouTube's growth
During the first quarter of 2022‚ YouTube revenue fell short of expectations‚ thanks to a pullback in Europe and the war in Ukraine. Google also reported lower ad sales because of inflation and supply-chain concerns‚ and brand advertisers trimmed their spending. Still‚ the company reported a modest increase in direct response advertising. Total revenues grew by 20% to $61.5 billion. Despite the headwinds‚ YouTube is still growing. While video platforms like YouTube are crucial for breaking news‚ the conflict in Ukraine has negatively affected their growth. In particular‚ YouTube has suffered from a massive influx of content related to the conflict. Many videos posted by Russian state-sponsored news outlets have been demonetized by YouTube. Meanwhile‚ Russian state-backed media outlets have also been censored. YouTube has yet to respond to the threats from Roskomnadzor. The war in Ukraine is having a negative impact on Russia and Ukraine's economies. Energy prices are likely to remain high for some time because of sanctions‚ which have hurt both nations' economies. Furthermore‚ the disruption of supply chains in both countries increases global inflation expectations. However‚ YouTube is well-positioned to weather these challenges. In the meantime‚ its market capitalization is rising as a result.
Alphabet's cloud business was a standout in the quarter
Although Google missed on the top and bottom lines‚ Alphabet's cloud business proved to be a strong performer in the first quarter. Revenue from cloud-based services grew at a faster pace than revenues from its core search advertising business. Despite a lagging YouTube business‚ Alphabet's cloud business grew at a faster rate than its other businesses. The cloud business at Alphabet was a highlight‚ as Google's subscriptions jumped 75%. Cloud revenues were up 75% year over year‚ and Alphabet plans to continue investing heavily in it. The company also announced a plan to split its shares at 20 for one in July 2022. Analysts have compared Alphabet to a championship boxer. Google's cloud division continues to generate significant revenue‚ with revenue from Google Cloud rising from $4 billion in the year-earlier period to $5.8 billion. Its cloud division is now a key catalyst for growth at Alphabet‚ with Google Cloud Platform and Google Workspace contributing to substantial revenue growth. The company is ramping up spending on YouTube‚ funding a TikTok-like app‚ adding live shopping‚ and repurchasing up to $70 billion in stock. While the cloud business may not be a cornerstone of the business‚ the company's continued expansion should be good news for investors. The company's overall business model is sound‚ with plenty of room for growth. The digital advertising and cloud computing industries are strong‚ and Alphabet is in an excellent position to take advantage of these new developments. If you own Alphabet stock‚ consider buying dips at the 200-day moving average.
Alphabet's stock repurchased $13 billion in the quarter
While Apple has a long history of aggressively returning cash to shareholders‚ Alphabet has been a notable exception. For the past decade‚ Apple had held the title of the largest stock holder with $163 billion in cash. But under pressure from activist investor Carl Icahn‚ Apple cut its cash reserves‚ reducing them to $102 billion. Alphabet's financial reserves have increased by $20 billion since 2017. However‚ despite the stock buyback‚ Google's revenues were down and the company missed earnings expectations. The stock fell nearly six percent in extended trading. In addition‚ Alphabet's revenue and earnings growth were below expectations. Even so‚ investors are cautious. The company is rethinking its strategy as it faces slower growth in its core search advertising business. The company is also ramping up its repurchase programs as it aims to increase its market value by up to $1 trillion in the next three years. The company's earnings surpassed analysts' expectations‚ helping boost its stock price in after-hours trading. Alphabet's stock repurchase program has increased Alphabet's cash hoard by $17 billion since it began in 2014. Analyst Brent Thill has estimated that Alphabet has $56 billion to spend on stock buybacks in 2019. The heightened pace of buybacks might not be enough to keep up with the company's free cash flow. With free cash flow forecast to reach $30 billion this year and $40 billion in 2020‚ Alphabet's new buyback intentions don't seem like a big change. Many investors are counting on a continued increase in the number of shares repurchased.