The writers strike in Hollywood is a big problem for entertainment companies and streaming services. It means that that there could soon be a lack of new content available. And that can make it difficult for companies such as Netflix and Disney, which have been raising prices, to both acquire and retain customers.
But one company that could do well as a result of these developments is Alphabet (GOOG 1.11%) (GOOGL 1.05%). Its video-sharing platform YouTube has a big advantage over Netflix, Disney, and many other content producers.
YouTube doesn't need Hollywood
What makes YouTube a popular site to visit is that there is no shortage of content. And there is a growing number of content creators. Plus, unlike an app such as TikTok, which focuses on short-form content, YouTube's longer videos can be more viable options for people who want to watch something longer than a few seconds or minutes.
By not having to rely on professional writers and producers, YouTube has an advantage that can give people plenty of alternatives to choose from, even amid the strike. It may not be polished Hollywood writing with big-name actors, but there's lots of available content on YouTube that can keep people entertained for hours on end.
People have been turning to YouTube more this year
In July, data from Nielsen showed that among streaming services, YouTube was in the top spot, and it grabbed a 9.2% share of TV views as it hit a new all-time high. Netflix came in at 8.5%, while Disney accounted for just 2%. A year ago, YouTube's share of TV was at 6.7%, while Netflix was higher at 8%.
As Netflix has raised its rates and inflation has tightened up consumer spending, more people appear to be opting for the more attractively priced (i.e., free) option in YouTube. Although Alphabet does have a pay version, YouTube TV, its numbers are not captured within the streaming category, nor does Nielsen break out its numbers individually (presumably because they are likely insignificant).
The longer the writers strike goes on and as it potentially impacts new content offerings on Netflix and other streaming services, YouTube's share of the TV market could continue to get bigger. And that would be great news for Alphabet, whose ad business is starting to pick up steam again.
YouTube's ad sales have been improving
Last quarter, for the period ending June 30, Alphabet reported revenue of $74.6 billion, which rose 7% year over year. A positive development for the company was that YouTube ads brought in about $7.7 billion in sales, rising by over 4% year over year. It's not a huge growth rate, but it's an improvement, as revenue from YouTube's ads had previously been down for three consecutive quarters.
| Period |
YouTube Ad Revenue (in millions) |
Year-Over-Year % Change |
|---|---|---|
| Q2 2023 | $7,665 |
4.4% |
| Q1 2023 | $6,693 | -2.6% |
| Q4 2022 | $7,963 | -7.8% |
| Q3 2022 | $7,071 | -1.9% |
Data source: Company filings. Table by author.
The ad market may still be a bit soft, as concerns about a recession still exist. But as economic conditions eventually improve, Alphabet can be in an excellent position to generate more growth if YouTube can sustain a higher share of the TV market.
Is Alphabet's stock a buy?
Year to date, Alphabet's stock is up around 50%. At 28 times earnings, it's still a cheaper buy than the average tech stock, which investors are paying a multiple of 32 for. Analysts believe the tech stock may have peaked, however, with Alphabet's consensus price target sitting at $132, which is around where it trades around today.
The longer the writers strike goes on, the more of an opportunity there is for Alphabet to benefit from an uptick in traffic. It may be a temporary boost but it could give people second thoughts about whether to go back to streaming services, which have become more expensive over the past couple of years. And according to data from eMarketer, YouTube is the social media platform that Generation Z uses the most, slightly more than TikTok. The writers strike could help it grow its popularity among young people even further.
Alphabet has even more catalysts it can count on. YouTube ads generate just 10% of the company's revenue, with its bread and butter being Google Search (it brought in more than $42 billion in sales last quarter) and even the cloud business has been bigger of late (it generated over $8 billion in revenue). Those areas of its business are still growing and the company is also going deeper into artificial intelligence with its chatbot Bard, which can help all of its services provide better value for customers and advertisers.
Through the writers strike, a stronger ad market, and AI-powered products and services, Alphabet's sales and profits could soon get much higher in the near future, which is why the stock could still be an excellent buy right now.
