Google reported earnings on Monday, the first time it has done so since CEO Sundar Pichai assumed that role for Google's parent company Alphabet in December. For investors, the results were a mixed bag. The company reported $46.1 billion in revenue for the fourth quarter, though that fell short of analyst expectations of $46.9 billion. Net earnings were $9.3 billion, which also failed to reach expectations of $9.9 billion.
The positive news, however, was that the company revealed for the first time just how big its cloud business and YouTube unit are. Both are impressive, with Google Cloud posting annual revenue for 2019 of $10 billion, but it was the details about YouTube that had most investors surprised and excited.
Google has never before broken out financial results for YouTube, which it purchased in 2006 for $1.65 billion. For comparison, Google said YouTube earned $15 billion in 2019, with almost $5 billion of that coming in the last quarter alone. Not only does that give you a sense of how quickly YouTube is growing (Google says it has doubled since 2017), but also how important it is overall to Alphabet.
Like Google's search engine business, YouTube generates money mostly from advertising. While YouTube offers an ad-free premium subscription, as well as YouTube TV, that income isn't represented in the ad revenue broken out today.
Google's overall search advertising business growth has slowed, especially in comparison to competitors like Amazon. In addition to being the second-most used search engine, YouTube seems to be defying the overall trend.
One interesting point is that Google did not break out YouTube's profitability. It's hard to gauge exactly how much the video platform contributed to the bottom line, but I suspect the number is less impressive. That's because unlike Google's search engine, which simply crawls and indexes websites and pages, YouTube actually hosts and streams billions of videos. In fact, according to YouTube, more than 500 hours of video are uploaded every single minute.
All that video is expensive to host and optimize and playback on demand. On top of that, the company runs a search engine that is designed to keep people watching as long as possible, in order to show as many ads as possible. It's not surprising, then, that Alphabet might be less interested in pulling back the curtain all the way, especially if YouTube hasn't yet reached as impressive a bottom line.
Even so, it's clear YouTube is becoming even more important for Google. YouTube says users consume over 1 billion hours of video single day. That's a huge amount of content that Google can show ads with. And video represents far more unique opportunities to monetize content than normal search ads.
The reality is this: YouTube has grown up over the past 13 years, and its parent company is now treating it more like a mature part of the business. If nothing else, it shows that as YouTube has grown, so has its impact on Google's top and bottom line. Even if we already knew that was the case, we finally have a picture of exactly how much it matters. It turns out: a lot.