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Is YouTube Google's Secret Weapon?

Lately, the media hubbub with Google  (NASDAQ: GOOGL  ) has centered around the dynamic company's shiny Google Glass innovation, which has become nothing less than a popular-culture touchstone.

The commotion has shoved YouTube, which Google acquired in 2006, into the background, but it shouldn't be that way at all.

The YouTube 2013 story is filled with drama. Yes, Netflix has changed the stakes in this consumer content sector by coming up with House of Cards, the Kevin Spacey drama that has captured the fancy of much of the nation while giving parent Netflix a new kind of aura. YouTube has remained somewhat static, in terms of offering the same service yesterday as today, while Netflix is growing and evolving.

The question of whether YouTube can keep up with Netflix, which has notched a decided public-relations win with its original content, could help determine whether Google itself will return to prominence as a hot stock.

As The Guardian newspaper noted, Wall Street estimates that YouTube brings in anywhere from $4 billion to $5.6 billion in revenue, accounting for as much as 10% of Google's total revenue.

YouTube has had a rocky road. Last March, AllThingsD noted that YouTube's ad revenue wasn't "keeping pace" with the increasing view-counts, and expenses, of a number of YouTube's partners. published a piece on July 19 proclaiming: "Google's bet on YouTube is finally paying off." The site noted: "That's good news for Google bulls looking for another source of revenue to sustain the company's annual growth rate, which has slowed since the purchase of Motorola Mobility last year."

Google's shares tumbled in after-hours trading on July 18 when the company announced disappointing quarterly earnings.

As's's Steve Heller noted:

In the second quarter, Big G reported year over year revenue growth of 19% to $14.11 billion, which translated into a non-GAAP income of $3.23 billion, or $9.56 a share. Analysts were expecting Google to earn $10.78 a share on revenue of $14.42 billion. The culprit appears to be that Google's cost-per-click -- or CPC -- declined by 2% sequentially and 6% year over year, despite paid click volume rising by 23% year over year and 4% sequentially. This could indicate there's potentially a structural headwind that's driving down the CPC metric.

Google has appeared to be a tech juggernaut, even labeled unstoppable, at times. Hmmm. Remember what happened to previous dynamos such as Microsoft and Apple, both of which crushed shareholders' dreams.

If nothing else, the Google executive team has proven itself to be resourceful. Acquiring YouTube in 2006 was an example. But that was then. Can YouTube now help Google avoid the pitfalls of other once-hot stocks that cooled off?

San Bruno, Calif.-based YouTube has burst into prominence as a video-sharing Internet site, originated by a trio of PayPal staffers in 2005. Viewers can upload, share and watch videos. It allows people to exhibit an array of user-created videos, encompassing everything from movie reels and TV footage to homemade videos and video blogs.

YouTube has become synonymous with the do-it-yourself creative spirit of the Internet in recent years. Trying to capitalize on the video-viewing experience, Google gobbled up for $1.65 billion nearly seven years ago. You Tube is also responsible for pushing the term "viral video" into our societal lexicon.

But what does all that mean to shareholders of Google? Well, considering it may pull in as much as 10% of Google's revenue, YouTube might be Google's secret weapon.

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  • Report this Comment On July 27, 2013, at 3:42 AM, doawithlife wrote:

    Google is motivated more by growth then bottom line.

    A modern age monopoly. Make it unprofitable to compete with you by making your product as cheap as possible. Who would even try to compete with youtube? No one could ever do it cheaper for the consumer.

    Seems like google is trying the same technique in other places. Less profit to begin with, but also less competition down the road.

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