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YouTube reveals revenue for first time, disappointing investors

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Google parent company Alphabet has for the first time revealed that YouTube generates about $15bn a year in revenue, a disappointment for some investors that had estimates as high as $25bn.

Shares in the firm fell by 5 per cent following an announcement by chief executive Sundar Pichai which also included data about Google’s advertising business and other sales figures.

Just last month Alphabet achieved a market capitalisation of $1tr, making it the fourth US company to reach that significant financial milestone.

The firm as a whole appears to be in rude financial health, with a net profit of $10.7bn for the fourth quarter ending December 31, an increase on the $8.9bn figure announced in the same year-ago quarter.

But YouTube appeared to be the black sheep for many investors, explaining the drop in share price.

“The stock was priced for perfection, and a top-line miss was enough to send it lower,” said Michael Pachter, analyst at Wedbush Securities.

Other financial analysts said YouTube’s ad revenue was underwhelming too.

“YouTube is smaller than generally assumed, but on the flipside, search seems to have accelerated and is growing faster than feared,” said James Cordwell, analyst at Atlantic Equities.

Other figures included 53 per cent quarterly revenue growth for Google’s cloud services compared with a year ago, a strong figure that still shows it is struggling to catch up with Microsoft’s Azure platform. The rival platform reported a 62 per cent quarterly rise in sales last week, or 39 per cent when considering some cloud services Microsoft sells through other units.

While financial analysts applauded the new transparency from Alphabet, some questioned executives for the second time in the last four quarters to explain why overall revenue has been missing or just barely meeting their expectations.

Sales growth dipped below 20 per cent in three quarters during 2019, compared to just once in the previous three years.

Alphabet has blamed currency exchange rates and its constant tweaking of features, saying that it is not focused on quarterly marks.

“We continue to be very focused on the benefit from better measurement, better ad delivery, better user experience,” said Alphabet’s chief financial officer Ruth Porat. “But there will be variability over time because we’re very focused on what’s in the right long-term interest.”

Shares of the company fell about 4.5 per cent in extended trading to $1,416.

In December, Google CEO Pichai gained the additional role of Alphabet CEO from Larry Page as he and fellow co-founder Sergey Brin stepped back even further from day-to-day management.

The new YouTube disclosures under Pichai showed ad revenue grew 31 per cent compared with last year.

Pichai also said YouTube, which has 2 billion monthly users, generated about $750m in subscription and other non-advertising revenue, but did not reveal a figure for the year-earlier period.

He added that YouTube had 20 million paid subscribers between YouTube’s Music and Premium ad-free viewing packages, and separately had 2 million paid subscribers for YouTube TV.

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