YouTube will likely be a weak spot again when Google-parent Alphabet reports fourth-quarter earnings on Thursday, analysts say. YouTube's slowing ad revenue growth is one issue for Google stock, while the subscription side of its business remains opaque to investors.
When Alphabet reported Google earnings for the September quarter, YouTube ad revenues shrank for the first time. YouTube ad revenue slipped 2% to $7.07 billion, missing estimates of $7.5 billion.
Google began reporting some YouTube financial metrics separately in the fourth quarter of 2019. For this December quarter, analysts estimate YouTube revenue of $8.2 billion, down nearly 5%.
YouTube revenue boomed during the coronavirus emergency, so the company faces tough year-over-year comparisons, according to some Google stock analysts. But other factors also are at work.
YouTube "is being squeezed on one side by restrictions on consumer data in the wake of Apple's privacy changes and on the other side by increased competition from streaming and short video platforms," said Evelyn Mitchell, analyst at Insider Intelligence, in a preview of Google earnings.
Google Stock: Slowing Down TikTok
Google aims to slow down the growth of TikTok with its own short video platform. How much money Google generates from YouTube Shorts is a key issue for 2023, analysts say.
Raymond James analyst Aaron Kessler projects a 5% drop in YouTube's ad revenue.
"We expect continued headwinds in Q4 across both brand and direct response advertisers with direct response impacted in part by ad privacy headwinds," he said in a note to clients. "For 2023, we are modeling 4% revenue growth with expected recovery to mid-high single digits in the second half."
Google stock analysts estimate YouTube's 2023 ad revenue growth at 6%.
Google does not break out revenue for the subscription side of YouTube's business. In addition, Google sells subscriptions to YouTube TV, a cable TV like streaming service. Also, Google also sells subscriptions to music services.
YouTube TV, a $64.99-a-month online package of cable channels introduced in 2017, had more than five million subscriptions and trial accounts in June, Google said last year.
Google does not report the operating income of YouTube overall. Its profitability remains a mystery.
Google And NFL Streaming Rights
Google has won the rights to stream NFL Sunday Ticket games on its YouTube TV service, beating out Apple. YouTube will pay more than $2 billion annually for the rights.
According to a Bank of America report on Google stock, "concerns on cash flow have grown following YouTube's recently announced $2 billion, seven-year deal for NFL Sunday Ticket, which will start in 2023."
A CFRA report said: "Although GOOGL is likely to lose money on the NFL rights in 2023 and for the foreseeable future, we view it as an important long-term investment that will help spur adoption for the platform."
As for Google earnings, analysts estimate fourth-quarter earnings of $1.18 a share, down 22% from a year earlier. Revenue is expected to rise 1.6% to $76.5 billion.
Alphabet recently said it will cut 6% of its global workforce to protect profit margins. Google stock has climbed 12% in 2023. Shares dropped 2.5% to close at 96.94 on Monday.
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on 5G wireless, artificial intelligence, cybersecurity and cloud computing.
