Dive Brief:

• Alphabet’s Q2 earnings report revealed the company's advertising revenue totaled $22.7 billion, up from $19.1 billion during the same period a year ago. Overall, revenue for the quarter ended June 30 was up 21%, with company execs attributing the gains to mobile search and YouTube ads. YouTube now has 1.5 billion monthly viewers with an average viewing time of 60 minutes per day.
• The results were something of a mixed bag as profit was steeply down due to a $2.74 billion fine for Google from European antitrust regulators as reported by CNBC. Shares fell in after hours trading and two performance metrics were an area of concern — traffic acquisition costs were higher than expected and the tech giant saw a 23% drop in cost per click, larger than the expected 15% drop. While paid clicks were up 52% year-over-year, Alphabet is making less per click.
• The traffic acquisition cost increase was expected Porat said in the call, pointing to higher costs in a shift to mobile search traffic and automated ad buys via programmatic advertising.

Dive Insight:

Given that Alphabet execs are crediting YouTube, in part, for its strong revenue showing, this suggests any negative impact was minimal from the brand safety issue that led to major brands boycotting the video platform this year as well as other Google properties. With some brands still not returning to spending digital ad dollars with Google, the video platform still isn't out of the woods. Alphabet also makes it difficult to determine just how big of an impact YouTube is having on its results as the company does not break out results for the video platform separately and lumps them in with its other advertising offerings. 

Still, it is clear from the emphasis put on YouTube by company executives during a conference call with analysts to discuss the results that some big bets are being placed on Alphabet's role in the quickly evolving video space.

 YouTube does hold some advantages for video advertising. It’s easily the most established digital video platform Facebook’s all-out push into video notwithstanding, and as it becomes more widely available, YouTube TV could become a very attractive option for cord cutters. Beyond that brands have already shown a willingness to first debut creative spots on YouTube rather than traditional TV, and given its digital nature and cost effectiveness YouTube can be used as a proving ground to test creative content before spending on more expensive media like TV spots.

Another trend that could help YouTube is while video has become the go to ad format, especially for marketers looking to engage a mobile audience, marketers are also viewing video ads as an entire category instead of breaking it out into digital video and linear TV. The implication is budget decisions around video advertising aren’t as likely to be constrained into the two separate buckets, and instead will go wherever the ads are most effective cost-wise, in reach and in impact.

YouTube is also scaling globally “like search,” said Google CEO Sundar Pichai in the earnings call.