YouTube encouraged by Shorts monetization despite ad sales drop

Google parent Alphabet saw YouTube ad revenue decline in the third quarter, the first ever quarterly drop, though the company hopes the monetization of YouTube Shorts will turn the tide.

Advertising revenues for YouTube totaled $7.07 billion, down 2% from $7.2 billion in Q3 2021. Google’s Network segment also saw ad revenue drop 2% year-over-year, from roughly $8 billion in Q3 2021 to $7.9 billion.

Philipp Schindler, SVP and chief business officer at Google, highlighted pullback in spend from advertisers in areas such as loans, insurance, mortgage and crypto categories.

“In challenging times like these, advertisers are carefully evaluating the effectiveness of their budgets,” he noted. Schindler added user engagement drops in Google Play also adversely affected ad promo spend on YouTube, Play Ads and Network.

To help YouTube advertisers drive effective campaigns, Schindler said Google is implementing a full funnel strategy.

“Buying YouTube across consideration, awareness and action allows marketers to meet customers at different stages in their purchasing journey, which we know are increasingly complex,” he said.

As mentioned in its second quarter earnings report, Google is continuing to invest in connected TV and YouTube Shorts. YouTube last month officially launched Shorts ads via three campaign options: video action, app and Performance Max. And starting next year, Shorts creators will be eligible for content monetization.

Schindler called the new revenue sharing model “the first of its kind for short-form content.”

“It’s still early but we’re encouraged by the progress we’ve made this year in Shorts monetization and support for sustaining the creator ecosystem,” he said.

For CTV, Schindler cited Nielsen statistics, which highlighted YouTube reached more primetime viewers on CTV than any linear TV network did during the 2021-2022 U.S. broadcast season. Google in August expanded its CTV ad buying options, leveraging Nielsen audience guarantees.

Despite pullback in ad spend, Schindler believes YouTube is poised to “continue to benefit from the streaming boom.”

“We think there’s a lot of room to run to make really YouTube more shoppable, more actionable from video action campaigns to product feeds, app campaigns, live commerce features,” he said.

YouTube last week unveiled it’s expanding its product feed options to Discovery ads, enabling advertisers to directly promote products in the app.

Google didn’t disclose subscriber counts for YouTube TV or YouTube Music Premium, but Alphabet CFO Ruth Porat noted their subscriber growth “continued to drive ongoing strong growth” in YouTube non-advertising revenues.

As for fourth quarter outlook, Porat expects last year’s “very strong revenue performance” will continue to weigh down year-on-year growth rates of advertising revenues.