YouTube Brand Ad Revenue Still Sliding Despite “Signs Of Consumers Returning To More Commercial Behavior,” Per Alphabet CFO

Traditional brand marketing on YouTube is “continuing to decline” in April due to COVID-19, according to Ruth Porat, CFO at Alphabet, parent of the digital video behemoth.

During a conference call with Wall Street analysts Tuesday to discuss Alphabet’s mixed first-quarter results, Porat said direct-response ads are faring better on YouTube in the current climate than brand messages. Direct-response pitches feature calls to action, with viewers tapping or clicking to gain access to coupons or other incentives, while brand ads resemble the lean-back variety familiar to TV viewers.

“We’re seeing signs of consumers returning to more commercial behavior, but it’s not clear how durable or monetizable that will be,” Porat said about the April business climate. “It’s really too early” into the pandemic for the pullback in brand ad spending to be reversed, she added. Still, “given that it is such an unprecedented environment, I wouldn’t extrapolate from these comments for a full quarter.”

In the closing weeks of the first quarter, which ended in March, what Porat described as “sizable headwinds” hit YouTube ad revenue, which now account for about 10% of total Alphabet revenue. As much of the world experienced shutdowns due to COVID-19 and brands slashed spending to ride out the crisis, YouTube ad revenue still managed a 33% gain for the quarter, pacing the company’s overall financial performance.

Direct-response ads also factored into Snapchat parent Snap Inc.’s earnings call last week, with analysts taking note that the category has doubled its share of company revenue over the past two years. Snap shares soared more than 30% after that earnings report. Alphabet, despite missing Wall Street estimates, saw its stock pop 8% in after-market trading.

YouTube viewing has surged during the COVID-19 crisis and still accounts for the majority of mobile views. Marketers, even as they contend with the pandemic challenges, are still drawn to the ubiquity of the platform and its potential for targeting. In many cases, it can offer more surgical-strike opportunities than can linear TV, though TV ad sales pros disdain YouTube’s inability to control out-of-bounds content and to provide true brand safety.

The virus quarantine, though, has reinforced the first-to-market advantages of YouTube, CEO Sundar Pichai said. “People are turning to YouTube,” he said. “Our watch time is up across the board.” Building direct-to-response capability to take advantage of rising viewing has been a “journey” for YouTube, Pichai said. The tech giant has worked with brands like Groupon and Lyft to seamlessly integrate offers into spots. Marketers have found direct-response to be “cost-effective and so over time more people are looking at it.”

CEO Sundar Pichai emphasized during the call that Alphabet’s overall business was positioned to benefit from broad societal shifts toward work-from-home, digital workflows, cloud computing and artificial intelligence. “Recovery in ad spending will depend on a return to economic activity,” he said, and neither he nor Porat was willing to venture any guesses on the bigger picture.

Alphabet kicked off a week of earnings by major tech companies, with Amazon, Facebook and Apple all set to reveal the early indications of how COVID-19 has altered their businesses.

For YouTube, late-April would normally find the company reaching a peak of self-promotion. The company’s annual Brandcast event in New York is a cornerstone of the NewFronts. That glitzy advertiser showcase involving numerous digital companies has shifted to an online event in late June as the ad biz continues to try to figure out its path through the pandemic.

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