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Alphabet Wants to Monetize YouTube as the Next Big Thing

Posted on Wednesday, Nov 1st 2017

The recent quarterly results by tech giants Amazon, Microsoft, and Alphabet (Nasdaq: GOOG) helped drive the Nasdaq to the best gains of the year. Post their result announcements, the Nasdaq climbed 2% in the day – its biggest climb this year – as the stocks themselves climbed to their record highs.

Alphabet’s Financials

Alphabet’s third quarter revenues grew 23% over the year to $27.7 billion, ahead of the Street’s forecast of $27.2 billion. EPS of $9.57 was also significantly ahead of the market’s forecast of $8.31 for the quarter.

By segment, revenues from the Google segment grew 23% to $22.3 billion. Revenues from Google properties grew 23% to $19.72 billion and revenues from Member’s websites grew 16% to $4.3 billion. Other revenues for Google, which includes revenues from non-ad businesses including the Play Store, cloud app, and infrastructure sales and hardware grew 40% over the year to $3.4 billion. Revenues from Other Bets grew 53% to $302 million.

Among operating metrics, aggregate paid clicks grew 47% over the year and 6% sequentially. Paid clicks on Google websites grew 55% over the year and paid clicks on member’s websites grew 10% over the year. Aggregate cost per click fell 18% over the year driven by a 18% decline on Google properties and a 5% decline on Network Members’ properties. On a sequential basis, aggregate cost per click improved 1% over the year driven by improvement in Google properties.

Alphabet Driving YouTube

Alphabet continued to add additional capabilities to YouTube during the quarter. To drive more users to the service, it is now simplifying how YouTube TV subscribers stream live television on their TVs. The service will be available through an app for over-the-top streaming TV devices. The new app is available for Android TV streaming devices and for Microsoft’s Xbox device. Alphabet plans to roll out the app for other streaming TV devices, including Roku, Apple TV, Samsung, LG, and Sony before the end of the year.

YouTube TV, which was launched in April this year, is now available in the top 50 markets in the US, reaching 68% of American households. Since more than 50% of the time spent on YouTube is spent casting live programming onto a television, the new app is particularly geared toward this user base. Besides streaming, the new app will also allow users to control it with the remote control or the game controller. Since most live streaming happens for sports events, the app will allow users to view team rosters and standings from major leagues. Other features include the ability to continue from where the user left the earlier streaming session irrespective of the device they were streaming from and allowing users to search through different streaming titles while the live programming continues to play in the background.

Alphabet still does not disclose detailed performance for YouTube. But YouTube has surely been one of the big revenue drivers for the company. For the recent quarter, YouTube recorded 1.5 billion monthly viewers watching 60 minutes of videos each day on their phones and tablets. To monetize this base, Alphabet is already offering more six second pre-roll ads, that has increased the ad viewability rate from 66% to 95%. Additionally, it plans to launch more than 40 original shows for its subscription service.

Alphabet’s stock is currently trading at $1,016.64 with a market capitalization of $709.6 billion.  It touched a record high of $1,048.39 earlier last month. It was at a 52-week low of $727.54 in November last year.

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