Google Q3: YouTube ad spend up, AI provides the backdrop

Alphabet, the parent company of Google and YouTube, marked its Q3 with 11% revenue growth – its video business was a bright spot as brand spending grew in importance, while a softer cloud business indicated how the AI competition is shifting. 

Why Google matters

As one of the big five advertising destinations that takes over half of total global advertising revenue, Google (Alphabet) is one of the most important advertising companies in the world. With capabilities across search and an increasingly living-room-focused YouTube, it is bringing in more and more brand spending that might once upon a time have flowed to TV. 

YouTube at the centre of growth

The streaming site brought in $7.95 billion of revenue in Q3 2023, a YOY increase of 12.5% and ahead of analysts’ estimates.

• Overall advertising revenues across the company were in line with the rest of the business at 11%. 
• Google Network revenues were down slightly 3% year-on-year.
• Subscriptions are becoming increasingly important to YouTube and Google; “other” revenue increases of 21% were attributed to subscription growth. 
• Cloud revenue, despite growing 22% YOY and swinging to profit compared with significant losses last year, was considered a weak spot by the markets – analysts had anticipated $8.61bn or 26% growth. 

A return to normality

“After a period of historic volatility, we were pleased with the year-on-year revenue growth of Search and YouTube advertising in the third quarter,” explained CFO Ruth Porat in a call with investors. “There was a stabilization in spending by advertisers. We're really pleased about that. We're particularly pleased about the ongoing performance in the Living Room and on Shorts,” both in terms of watch time and monetisation.” 

AI as a B2B game

AI is the big technology of the moment, but the competition among some of the biggest companies in the cloud computing space suggests that the tussle is a B2B rather than consumer-facing game. 

Analysts speaking to the Financial Times noted how Microsoft’s cloud computing business has found unexpected growth while Google’s saw slight declines. It follows signals in August that Microsoft’s consumer-facing AI efforts with a ChatGPT-enhanced Bing was failing to take market share from Google search. 

AI remains a fast-developing area, but Google chief business officer Philipp Schindler noted that the technology was already vital to Google’s search business. “Nearly 80% of our advertisers already use at least one AI-powered search ads product.” 

Sourced from Alphabet, WARC, Seeking Alpha, Financial Times