YouTube ad revenue drives Google upward in Q3

Google HQ building
Google headquarters in Mountain View, California. Image: Google.

While mobile search was the number-one revenue driver for Alphabet, née Google, online video, primarily YouTube, is the biggest driver of growth in advertising revenue and is the technology giant’s “premier vehicle,” according to Jefferies analysts.

“YT is seeing significant growth driven by TrueView ads with a growing contribution from DoubleClick Bid Manager. Growth is also coming from 6-second bumper ads, which are especially popular on mobile,” analysts for the research firm said in a note to investors following Alphabet’s third-quarter earnings report.

Jefferies analysts said that Google websites’ paid click growth of 42 percent confirmed that the OTT video site is seeing “very high volumes of ads.” And users in the 18- to 49-year-old age demographic watch YouTube on mobile devices at very high rates, with the app reaching more users in the age group than any U.S. television network.

The analyst firm rated Alphabet as a “buy” with a price target of $1,000.

RELATED: YouTube signs on CBS, in advanced talks with Fox and Viacom for ‘Unplugged’ pay-TV service

Wall Street was already responding in the wake of Alphabet’s earnings report, sending shares upward Thursday after the company reported a 20.2 percent year-over-year jump in quarterly revenue to $22.5 billion. Earnings per diluted share were $7.25 on a GAAP basis on income of $5.1 billion.

Its ad revenue alone rose 18.1 percent to $19.8 billion during the third quarter and accounts for almost 90 percent of Google’s total revenue.

Google’s CFO Ruth Porat told analysts on the earnings conference call that the jump in ad revenue growth for Sites overall was broad-based, and had two drivers: the enhancements it made to ad tools for both users and advertisers starting in Q3 2015, and the “secular shift to mobile” that has taken place in the market.  

“…what's been gratifying is in the aggregate the results reflect the benefit of ongoing innovation,” said Porat, according to a Seeking Alpha transcript.

The pause in Google Fiber rollouts led Jefferies to cut down its estimate on capital expenditures for the fourth quarter. While it said there was some uncertainty around what it called an “ambitious hardware launch” – chiefly, the Nexus smartphone – Jefferies analysts took a positive view around the segment long-term, which it says will drive “meaningful top-line and bottom-line revenue growth.”

Shares of Alphabet traded higher throughout the day on Friday, closing at $819.56, up $2.21 or 0.27 percent.