Google is known for driverless cars, but when it comes to the tech giant’s immediate future, all signs point to mobile ads and its massive video site. Its latest earnings top estimates.
Google, reporting its first earnings as the new holding company Alphabet, said it owed its profit and sales success last quarter to having six products with more than a billion users apiece.
They are search, the mobile operating system Android, the Web browser Chrome, maps, the marketplace Play and YouTube.
But Google executives on Thursday specifically called out YouTube.
The Google-owned video giant has become synonymous with online video. Every month, more than a billion people, or one of every seven on the planet, visit the site to watch movie trailers, get makeup tips or see cute animals do something adorable.
That appetite for cat videos does more than satisfy our collective dopamine receptors; it’s also good for Google.
So much so that the Mountain View, California, company has been expanding YouTube’s offerings to get you to spend even more time on the site. On Wednesday, Google announced YouTube Red, a subscription version of the service that for $10 a month nixes the ads and gives you access to original shows and movies from top YouTube talent. In August, Google launched YouTube Gaming, a hub dedicated to video game-related content.
“The shift to video is a profound medium shift, especially in the context of mobile,” Google CEO Sundar Pichai said on a conference call. He said the video site has had “amazing momentum,” especially on smartphones and tablets.
The result is an ever-sprawling video powerhouse that in many ways points to the future of Google. In July, Google CFO Ruth Porat said videos kept people watching 60 percent longer than they did a year ago. On smartphones and tablets — the preferred places for advertisers, aka Google’s lifeblood — the average watch time is 40 minutes. That’s double what it was a year ago, Porat said.
On Thursday, announcing results for the quarter ended September 30, Google said it beat Wall Street expectations for sales and profit, thanks to “substantial growth” in mobile search sales. One of the biggest contributors: YouTube.
Third-quarter sales were $18.67 billion, Google/Alphabet said in a statement. Profit, after adjustments for stock-based compensation and other items, was $7.35 a share. Analysts had estimated $18.53 billion in revenue and earnings of $7.21 per share.
Investors are happy. At 3:30 p.m. PT, Alphabet’s stock jumped more than 11 percent in after-hours trading to more than $725. The company also said it will repurchase $5 billion in shares starting in the fourth quarter.
Earlier this month, Google restructured itself under a new holding company named Alphabet, part of an effort to make it easier for each unit to develop new projects, faster. On Thursday, Alphabet said it will keep reporting financial results for Google’s business — which includes YouTube, search and maps — as a single group. Other businesses, including its X research lab and device maker Nest, will be reported as a combined group known as “Other Bets.”
Still, even with the company’s outsize ambitions, it all comes back to the tiny video startup Google acquired in 2006 for $1.65 billion.
It doesn’t look like Google will slow its expansion of YouTube anytime soon. The site will be a key part of Google’s virtual-reality efforts. Last year, the company unveiled Google Cardboard, a no-frills kit made of, well, cardboard that turns your smartphone into a VR headset. In May, the company said people would be able to directly watch VR videos on Cardboard through YouTube. All you will need to do is choose the VR function from the YouTube smartphone app.
Google can use YouTube as a place to experiment with video, like trying to make it more interactive or immersive, said Brian Blau, an analyst at Gartner.
“How can Google reinvent video over time?” he said. “That is going to be really powerful for YouTube going forward.”
In the meantime, what are people watching? YouTube lists the top videos of the moment here. Unsurprisingly, No. 1 is the new “Star Wars: The Force Awakens” trailer, which premiered Monday night.