YouTube’s Earnings Drop in Q1 as it Faces TikTok, Apple Restrictions on Ads

First Facebook was hit by the targeted advertising bans on iPhones and the rising popularity of TikTok, now the world’s largest video service Google’s YouTube is also facing heat. YouTube, which is already facing stiff competition from TikTok, reported an abrupt sales slowdown due to the Ukraine-Russia conflict. The shares of Google’s parent company Alphabet Inc. fell about 3 percent in extended trading on Tuesday. 

For quite some time, Apple Inc has upended social media companies by placing tight restrictions on third-party ads on iPhones. These changes affected Facebook and Instagram and other mobile-centric social networks like Snap Inc., etc. Google remained unaffected as it’s less reliant on that form of targeted ads. However, Apple’s changes had a small impact on YouTube. 

The Alphabet executives on Tuesday revealed YouTube has registered a decline in growth of direct-response ads. When Alphabet reported its first-quarter results on Tuesday, YouTube advertising had seen only a 14 percent increase to $6.87 billion while a year ago, the video service had recorded a 48 percent jump in the same quarter. 

Two months ago, Google suspended its sales operations in Russia as its troops launched an invasion in Ukraine. The company didn’t block its search service and YouTube in Russia, but the overall freeze had an “outsized” impact on YouTube’s business. 

Google executives attribute the decrease in earnings to Russia’s intervention in Ukraine as the political upheaval has affected the spending across Europe, Chief Financial Officer Ruth Porat said. Russia accounts for 1 percent of Google’s overall sales. During the quarter, the company’s overall sales in Europe and the Middle East grew 19 percent compared with 33 percent the prior year.

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Amid the talk on Russia-Ukraine war and Apple’s restrictions, the Google executives skipped the looming threat to YouTube: TikTok, which is a popular video app from China-based ByteDance Ltd. The Google representatives, however, discussed YouTube’s answer to TikTik - Shorts. The company kept Shorts free of commercials and paying the creators from its fund, but it’s eating into the viewership of YouTube’s longer video, which generates more money for Google. Currently, Shorts gets 30 billion daily views and Google is working on “closing the gap” between its primary commercial service and Shorts service.