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Cloud was supposed to be the big story of Google’s earnings. Here’s why analysts are more excited by YouTube right now. (GOOGL)

Business

Alphabet & Google CEO Sundar Pichai

Summary List Placement

When Google announced its Q4 earnings on Tuesday, all eyes were on its burgeoning cloud business. This was the first time Google was breaking out Cloud into its own reporting segment, revealing the operating income and loss for the business.

And all told, Google Cloud is showing encouraging growth, even while making some considerable losses long the way.

But while analysts are excited by Google’s plans to chase Microsoft and Amazon in cloud, YouTube was the buzzier Q4 story ,thanks to a bounceback from advertisers and some positive changes that analysts have been waiting on for a long time.

YouTube ad revenue jumped 46% year-over-year to nearly $7 billion in Q4, driven by brands and direct response ads.

Bernstein analyst Mark Schmulik highlighted YouTube as one of the most exciting parts of Google’s earnings this week.

“We went in all excited about cloud, and we left saying let’s not forget about the core ad business,” he told Insider. 

The most encouraging sign, said Bernstein, was that TV advertisers appear to be shifting over to the Google’s video platform. Increased brand spend on YouTube was mentioned several times during Google’s investors’ call. “That to me is TV dollars,” Bernstein said.

“We’ve been talking for years now that YouTube is going to inflect when the TV ad dollars move over, and it never really materialized,” he added. “For the first time, we can point to it and say, these are the TV dollars.”

YouTube has certainly been ramping up in this area. Last year, the company overhauled its approach to selling ads to better reach viewers who watch the platform on TV screens.

“If they can keep building off these growth rates then, to me, someone has finally worked out how to unlock that $70 billion of TV advertising,” Bernstein added.

JMP analyst Ronald Josey also pointed to ad spending on both YouTube and Search as the big stories of the earnings announcement, with the video platform taking share from linear TV and benefitting from direct-response advertising.

“YouTube now reaches more 18-49 year olds than all TV networks combined,” he wrote in a note published Wednesday.

Brand advertising on YouTube accelerated significantly in Q4, wrote Josey, who said JMP believes the platform is becoming a “must buy” for brands.

“We note 100M users watched YouTube or YouTube TV on a TV screen in the last month and given the ~$230B TV ad market’s accelerating shift to digital, we believe YouTube is well positioned to benefit from this multi-year shift,” he wrote.

Overall, YouTube ads accounted for around 15% of Google’s $46 billion ad revenue for the quarter. Google also revealed that videos in its new TikTok rival Shorts are seeing 3.5 billion daily video views.

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