In its entire history as a listed company, since 2004, Google has had only three quarters of declines in commercial turnover compared to the previous year. And two of them correspond to the end of 2022 and the beginning of 2023, a linked milestone that helps explain the overall macroeconomic situation and its impact on the search giant. Part of that decline is attributable to YouTube, which has now posted three negative quarters.
Specifically, the video platform posted a turnover of 6.69 billion dollars for its advertising activity, slightly more than expected, but 2.6% less than the previous year. This prolongs a downward streak that began in the third quarter with a 1.9% decline and continued with a 7.8% decline in the following quarter, although Google does not segregate what the subscription business means for the service despite being optimistic about it. The management of this situation is now in the hands of former head of product Neal Mohan, who replaced Susan Wojcicki in February after her resignation at the end of a nine-year tenure as CEO.
One of the key issues facing the new chief executive is to optimise the monetisation of Shorts, the short videos with which YouTube competes with TikTok. According to the company, the format already generates 50 billion views per day on average, and since February, eligible creators can now intersperse ads to earn revenue as part of the Partner programme. The problem with this displacement of consumption is the eventual loss of revenue if the best monetised long videos are watched less in exchange for stimulating a format that at the moment has poorer commercial prospects due to its brevity and the experience it offers.
But that front is relatively minor in the face of the major revolution Google is facing with the implementation of artificial intelligence in search, its core business. The plan to enable a conversational bot in this process, as Microsoft has done with Bing, raises questions about the fit with the traditional activity of inserting search ads based on context. And it comes against an already difficult backdrop, with associated revenue growth of just 1.8% year-on-year, which pales in comparison to increases of 24.2% or 30.1% for the same period in 2022 and 2021.
YouTube is now in its third consecutive period of declining advertising revenue and growth in search-related business is also faltering.
However, Google’s first quarter results did leave a positive milestone for the company, as for the first time its cloud applications business is profitable. It has gone from losing 706 million dollars at the start of 2022 to earning 191 million dollars a year later, which has helped slightly to alleviate the decline in operating profit from advertising revenue. As a result, the company posted total revenue of $69.787 billion, up 3% from the previous year, although profit fell 8%. Part of that decline is attributable to the costs incurred in laying off some 12,000 people in January.