YouTube returns to growth in Q2

YouTube is back in the green after three consecutive quarters of decline, helping parent company Alphabet beat revenue and profit forecasts for the second quarter — sending shares popping 6% in after-hours trading.

The video streaming business generated $7.7 billion in advertising revenue in the April to June quarter, up 4% from the same period last year, and a marked 15% increase from the first quarter, according to the company’s unaudited results.

The company said YouTube’s short-form video product Shorts is showing promise, with both watch time and monetization “moving in the right direction,” Google chief business officer Philipp Schindler told investors on Tuesday. Shorts was persistently cited as a revenue headwind throughout 2022.

Alphabet and Google CEO Sundar Pichai revealed YouTube Shorts are now watched by over 2 billion logged in users every month — up from 1.5 billion one year ago.

The executives also called out growth from YouTube’s subscription offerings, YouTube Music and YouTube Premium, which were cited as the primary drivers of Google’s 24% year-on-year lift in “other” revenue to $8.1 billion. The plans were increased in price by $1-$2 last week.

As well as driving revenue, the subscription products contributed to a hike in costs as the company spent more money acquiring content to lure in customers. Alphabet’s cost of revenues increased 6% year-on-year to $31.9 billion.

Ad revenue from Google’s flagship search engine grew by 5% annually to $42.6 billion — accelerating from a 2% lift in Q1 and a 2% decline in Q4. 

However, Google’s Network division — revenue Google generates from selling ads outside of its own properties — continued to retract with revenue falling 5% to $7.9 billion.

Google’s total advertising revenue of $58.1 billion in Q2 was up 3% from the prior year.

Google was rocked by a report from Adalytics at the end of June that alleged it violated its own quality standards for video ad placements it brokered on third-party websites about 80% of the time. The report claimed Google placed ads for prominent advertisers including American Express, Johnson & Johnson and U.S. government agencies in small, muted, automatically-played videos. Google has disputed the claims, but advertisers have nonetheless demanded refunds. The fallout may become clear in its Q3 results.

Elsewhere, Google’s cloud business, which turned a profit for the first time in Q1, continued to surge with revenue up 28% to $8 billion.

Overall, revenue at parent Alphabet rose 7% to $74.6 billion, while net income jumped 15% to $18.4 billion.

In conjunction with its Q2 earnings release, Alphabet announced that chief financial officer Ruth Porat (pictured, below) has been handed a new role of president and chief investment officer.

The new role includes speaking with lawmakers and overseeing Alphabet’s “other bets” division; moonshot projects that sit outside its core software and advertising expertise, including self-driving car company Waymo.  

Revenue from “other bets” nearly doubled to $285 million in Q2, while losses narrowed by 39% to $813 million.

Porat said of her new role: “We see technology can make such a difference in the lives of so many and the lives of economies, and to be able to focus on the impact on economic growth and the opportunity for people, for organizations, for countries I think is a privilege I'm really excited about — in particular with this amazing company.”

Porat has overseen the company’s finances for eight years, steering it through a corporate restructure, the pandemic and an ongoing retraction in ad spend.

She will remain CFO until Alphabet finds a replacement, and will continue to report to Pichai.