While advertising giant Google (NASDAQ:GOOG) (NASDAQ:GOOGL) is primarily known for its search engine, its YouTube is becoming a business in its own right. While it's been clear for years the service would be a catalyst for the company, its continuing rapid growth, paired with Google's recent restructuring, will have investors more interested than ever in online video streaming service.
YouTube growth remains impressive
"Key highlights this quarter include ongoing momentum in our core search business -- particularly mobile," said Ruth Porat, Google chief financial officer, during the company's most recent earnings call. The key driving catalyst for this growth? "[S]ignificant growth in YouTube revenues," Porat said.
These sorts of bullish nods toward YouTube occurred all throughout Google's earnings call. Consider some of these excerpts:
- On engagement: "YouTube again delivered substantial growth in user engagement globally, particularly on mobile, which translated into strong adoption of our TrueView ad format."
- On watch time: "Growth in watch time on YouTube has accelerated and is now up over 60% year-over-year, the fastest growth rate we've seen in two years. Mobile watch time has more than doubled from a year ago."
- On driving paid clicks: "In terms of the drivers within Google sites, paid clicks were up 30% year-over-year and up 10% sequentially, in particular reflecting growth in YouTube TrueView as well as in mobile."
- On reach: "On mobile alone, YouTube reaches more 18- to 49-year-olds in the U.S. than any U.S. cable network."
- On YouTube channel earnings: "The number of channels earning six figures per year on YouTube is up 50% year-over-year."
Analyzing YouTube as a business
While Google refuses to offer data on YouTube's revenue or profitability, it's clear the business is becoming a substantial portion of the company's business. This became especially clear when Google announced plans on Aug. 10 for a new operating structure, which puts its core businesses under its Google brand and separated its moonshots out under the larger and newly formed Alphabet holding company, as part of a conglomerate structure; YouTube was included among the core businesses.
Alphabet CEO Larry Page explained the difference between Google and Alphabet in a press release announcing the restructuring:
This newer Google is a bit slimmed down, with the companies that are pretty far afield of our main Internet products contained in Alphabet instead. What do we mean by far afield? Good examples are our health efforts: Life Sciences (that works on the glucose-sensing contact lens), and Calico (focused on longevity). Fundamentally, we believe this allows us more management scale, as we can run things independently that aren't very related.
YouTube's inclusion under the Google business shows how seriously the company takes the business.
Of course, it shouldn't be a surprise Google considers YouTube a core business. YouTube's global ad revenues are set to reach $9.5 billion this year, according to estimates by eMarketer. At these levels, YouTube would represent about 22% of Google's total advertising revenue.
With YouTube becoming such a substantial part of Google's business, and considering how fast the brand continues to grow, investors should keep a closer eye on how well the streaming video business is performing. Further, with Google clearly identifying YouTube among its core businesses, look for Google to provide more useful data on the business than it has in the past.
Daniel Sparks has no position in any stocks mentioned. The Motley Fool owns and recommends Google (A and C shares). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.