Alphabet reported Q3 2024 earnings on Tuesday:
- Overall advertising revenue of $65.9BN represented year-over-year growth of 10.4%;
- Search revenue grew by 12.2% Y/Y to $49.4BN;
- YouTube advertising revenue grew by 12.2% Y/Y to $8.9BN. YouTube advertising growth saw its second consecutive quarter of revenue growth deceleration, from 20.87% in Q1 to 13.02% in Q2 (when Search growth eclipsed YouTube’s) to 12.2% in Q3;
- Google’s Network segment revenue declined for the ninth consecutive quarter by 1.68% to $7.5BN, although the decline was smaller than the 5.2% in Q2. Network now makes up 11.46% of Google’s overall advertising revenue.
Despite the fairly tepid results on the advertising front, Google produced a substantial beat to analyst expectations in Q3, primarily attributed to its cloud unit, which saw revenue increase by 35% year-over-year. Alphabet’s stock was up by 4% following its earnings release.
One of the more interesting revelations from Alphabet’s Q3 earnings call was the fact that YouTube’s aggregate revenue over the past year reached $50BN (emphasis mine):
For the first time ever, YouTube’s combined ad and subscription revenue over the past four quarters has surpassed $50 billion … Together, YouTube TV, NFL Sunday Ticket, and YouTube Music Premium are driving subscription growth for the platform. And we’re leaning into the living room experience with multiview, and a new option for creators to organize content into episodes and seasons, similar to traditional TV.
YouTube’s advertising revenue for the trailing 12 months was $34.9BN, leaving $15.1BN in subscription revenue. Alphabet last broke out subscription and advertising revenue for YouTube in May 2023, when YouTube’s CEO, Neal Mohan, revealed that the platform had generated $40BN in revenue in the 12 months through March 31st, 2023. As Ben Thompson points out, based on these granular revenue metrics, the imputed growth rate for ads is lower than that for subscriptions. It seems worth noting that YouTube subscriptions grew from roughly one-third the size of ads in the year ended March 2023 to nearly half the size in the year ended September 2024, just 18 months later.
And the gap between Network and YouTube advertising revenue continued to grow in the quarter, reaching $1.37BN from $1.22BN in Q2. As I point out in Why is Google killing cookies? and Google’s Gambit, the decline in Google’s Network business — of which its open web display advertising product is a subset — coincides with regulatory scrutiny over that same business, as well as Search. The trial for the Department of Justice’s antitrust lawsuit against Google over its open web display (“ad tech”) business ended last month, and while any potential consequences of that trial are likely years away, it’s possible that Google could be required to divest parts of this business.
Another interesting data point from Alphabet’s remarks is that its AI Overviews search product — which I profiled here and here — is now reaching “more than 1BN users on a monthly basis” after having been rolled out to “more than a hundred new countries and territories” this week. This is obviously a staggering number: similar to Meta and its 1MM clients using Generative AI creative production tools, Alphabet has the globe-spanning reach from its existing products to bring AI functionality to enormous groups of people nearly instantaneously. This dynamic is worthy of a full post, and I’ll write one soon.
Alphabet also provided insight into the development of ads within AI Overviews and its broader AI-enabled tool suite. From the prepared remarks (emphasis mine):
As you remember, we’ve already been running ads above and below AI Overviews. We’re now seeing that people find ads directly within AI Overviews helpful because they can quickly connect with relevant businesses, products and services to take the next step at the exact moment they need … Last week, we updated image generation in Google Ads with our most advanced text-to-image model, Imagen 3, which we’ve tuned using ads performance data from multiple industries, to help customers produce high-quality imagery for their campaigns. Advertisers can now create even higher-performing assets for PMax, DemandGen, App, and Display campaigns … Last and most importantly, Measurement. This quarter we extended availability of our open source marketing mix model “Meridian” to more customers, helping to scale measurement of cross-channel budgets to drive better business outcomes.
The deliberate combination of these ideas — AI-generated ads Search summaries, Generative AI for creative production, and Google’s open-sourced media mix model — is curious given that they ostensibly are unrelated. Certainly, Media Mix Modeling (MMM) doesn’t rely on AI. But my point in Google’s Gambit is precisely that Search becomes a content sink with AI-enabled content overviews, and ultimately, there’s no reason to differentiate between the use of AI for generating content or for generating ads. Integrating all of these tools — including an open-source MMM that advertisers must run in their own data environments — simply makes the use of Google as an ad platform much more convenient and seamless.
Some excerpts from Alphabet’s earnings call transcript that I found of particular interest are shared below. All emphasis mine.
On PMax and its integration with DemandGen:
And on the PMax side, look, we continue to see success with PMax. We see those success stories really from large advertisers, from agencies, from SMBs, across marketing objectives, across different verticals. It’s very cost effective, and it really finds customers wherever they are across all the different Google channels … And with the introduction of Gemini, we added a lot of new features to PMax. For example, deliver more powerful performance, help advertisers scale, build high-quality creative assets and so on … But going directly to your question on the funnel, also keep in mind we have a great product with DemandGen that is all about inspiring consumers beyond the initial awareness and to take action.
On the adoption of AI Overviews:
And with each of these changes, we’re definitely expanding what’s possible in Search. And it’s been really heartening to see users adapt. They understand they can ask more queries, they come back more often. And we’ve seen growth there … While we have rolled out AI Overviews to over a billion users, there’s a lot more innovation there we are actively working on. So I expect Search to continue to evolve significantly in 2025, both in the Search product and in Gemini … So we’ll continue rolling it out more, and we will keep evolving it. I think Search, if I were to take a twelve-month outlook, I think is going to continue to evolve and we’ll be at the forefront of that innovation.
On engagement with AI Overviews:
But amongst the users where we are already rolled out, we clearly see strong engagement. It’s one of the most positive user satisfaction launches we have done in Search … And it is increasing overall search usage. People are asking more complex questions, different types of questions, they are exploring a wider range of websites. And what’s particularly exciting is that this growth actually increases over time as people learn to adapt to that new behavior.
On ads monetization in AI Overviews:
Look, the transition here is working well, including for ads. As you know, we recently launched ads within AI Overviews on mobile in the U.S. and this really builds on our previous rollout of ads above and below the AI Overviews … So overall, for AI Overviews, we see monetization at approximately the same rate, which gives us a really strong base on which we can innovate even more. And specifically to your question of monetizing queries, that we’re weak in monetization potentially at the moment, yes, I can see that there’s an opportunity for that.
On the contribution of political advertising in the quarter:
Yes. On the vertical trends, look, I called out Search and Other revenues being led by growth in the Financial Services due to improved economics in the Insurance industry, followed by retail … But I think it’s fair to say in general we saw broad-based strength across all verticals. Maybe specifically, to election-related ad spend, we had a slight tailwind from election-related ad spend in the third quarter, which was a little more pronounced in YouTube ads.
