YouTube was a standout of Google’s second-quarter earnings on Thursday. With the help of the online video service, the tech giant’s revenue increased 11 percent to $17.73 billion, pushing shares up 3.1 percent to $601.78 at Thursday’s close of trading.
Just a few months ago, YouTube was said to be unprofitable in spite of generating $4 billion in revenue last year. But Google’s earnings call made the case that YouTube is a key driver for the company’s growth. CFO Ruth Poratcited “significant growth in YouTube revenues” and the benefits of TrueView, a type of video advertisement in which advertisers pay when viewers choose to watch an advertisement, not when an advertisement is viewed.
YouTube’s growth could help pull it into profitability. Credit Suisse analyst Stephen Ju wrote YouTube “is contributing meaningful revenue” and will continue to experience margin expansion.
Morgan Stanley analysts said YouTube is “exceeding our expectations” and estimated YouTube grew its revenue by 60% [year over year]” and now runs at $6 billion to $7 billion a year. These gains, coinciding with an expected decline of TV upfront dollars in the mid to high single-digit decline and unsold inventory at many ad-supported networks, “is probably not a coincidence,” they wrote in a research note.
Jefferies & Co analysts wrote in a note YouTube is best positioned to benefit from an online video advertising market it estimates will grow to $17 billion by 2017. eMarketer forecasts the digital video advertisement market in the U.S. alone will grow to $11.3 billion in 2017 from $7.8 billion this year.
