The first quarter of 2022 saw a fall in YouTube ad revenue, which rose 46 percent for the full year 2021.
YouTube advertising sales increased 14% in the first three months of 2022, to $6.87 billion, below Wall Street projections by more than $600 million and signaling a significant slowdown from the frenzied pace seen during the COVID outbreak.
In comparison, YouTube Ads revenue climbed 49 percent in the previous quarter and 46 percent for the entire year of 2021. Alphabet, the parent company of Google and YouTube, reported $68.01 billion in total revenue for the first quarter, up 23%, and $16.44 billion in net income (or $24.62 per share), down 8%. On both the top and bottom lines, this fell short of Wall Street’s forecasts.
Financial analysts on average expected Alphabet to post Q1 revenue of $68.1 billion and EPS of $25.96, per Refinitiv. YouTube ad revenue was projected to hit $7.48 billion in the quarter, according to FactSet. Alphabet’s Q1 net income included a loss of about $1 billion in the value of the company’s investments in equity securities.
Shares of Alphabet’s class A stock were down 5% in after-hours trading on the miss (after closing down 3.6% in regular trading).
According to Yahoo Finance, the year-over-year decline in YouTube ad income is mostly due to “the lapping of the excellent success of direct response” advertising in the first quarter of 2021, according to Alphabet/Google CFO Ruth Porat. “Brand marketers’ spending on YouTube in Europe has slowed as a result of Russia’s conflict on Ukraine,” Porat remarked. “The impact of the corporation halting the vast bulk of commercial activities in Russia in early March will be seen in Alphabet’s Q2 revenue.”
Meanwhile, YouTube’s subscription services “continued to provide strong revenue growth,” according to Porat, thanks to growth in YouTube TV, YouTube Music, and YouTube Premium.
YouTube will bring additional smartphone controls and interactive tools for linked TVs in the coming year, according to Pichai, allowing users to comment and share video. On connected televisions, viewers watch around 700 million hours of YouTube material each day, he claims. YouTube reached over 135 million users in the United States on linked TVs in December 2021, according to Nielsen.
Pichai emphasized excellent increase in Google Search and Google Cloud revenue when reporting the company’s first-quarter results, saying that “both are benefitting individuals and businesses as the digital transformation unfolds.” We’ll continue to invest in exceptional products and services, as well as possibilities for partners and local communities all over the world.”
The revenue from Google Search increased by 24% to $39.6 billion. Cloud revenue increased by 44% to $5.8 billion, while the company’s operating deficit shrank to $931 million (from -$974 million in the first quarter of 2021).
In a report, Investing.com senior analyst Jesse Cohen stated, “Google’s dismal results confirm the idea that the search giant is grappling with slower revenue growth as advertisers cut back on spending due to a decrease in consumer demand under the current inflationary environment.”
After hiring 7,400 people in the first three months of 2022, Alphabet concluded the first quarter with 163,906 employees, up 17% year over year. Pichai stated on the call that Alphabet aims to hire 12,000 new employees by 2022 and invest $9.5 billion in data centers and offices in the United States this year.