Google ad revenue growth steadies in Q3: Propelled by mobile search, YouTube

Google parent company Alphabet reported advertising revenues of $33.9 billion for the third quarter, a 17% increase from $29 billion a year ago. Overall, the company reported revenues of $40.5 billion for the quarter on Monday, an increase of 20% year-over-year, but below the $40.3 billion analysts expected.

Google CEO Sundar Pichai said revenue growth was driven by mobile search, YouTube and Cloud. (We’ll have to take his word for it because Alphabet doesn’t provide revenue breakdowns for any of those segments.)

Ad revenue trends. Ad revenue from Google properties (Search, Maps, Gmail, YouTube, Play Store, Shopping) was $28.6 billion, up 19% from $24.1 billion a year ago.

Google Network ad revenue was flat from the previous quarter at $5.3 billion, an increase of 9% from $4.9 billion the previous year. The primary growth drivers were Google Ad Manager and AdMob, said CFO Ruth Porat.

Clicks and CPCs. Click volume on Google properties increased by 18% year-over-year and up just 1% from the second quarter of 2019. Click growth has been steadily slowing over the past three quarters as aggregated CPC declines have slowed.

Porat said YouTube’s rate of click growth decelerated in each of the quarters this year. “That does continue to reflect the changes that we made in early 2018 to really improve the user and advertiser experience,” she said of the stricter rules on the videos that can carry ads put forth in January 2018.

CPCs (cost-per-click) on Google properties was off by 2% from the previous year, but up 3% from the prior quarter. That’s the first positive quarter-over-quarter increase in CPCs since the first quarter of 2018, which saw a 2% increase from the fourth quarter of 2017.

Network impressions increased by 12% from the prior year, but were flat compared to the prior quarter, as were network CPCs. Compared to the prior year, network CPCs were down by 3%.

Smart bidding and RSA usage. Noting the use of machine learning in ad campaigns, Pichai said, “More than half of advertisers’ search spend is now optimized via full auto bidding.” In the past, Google has said 70% of advertisers use smart bidding.

More than 1 million advertisers are using responsive search ads, said Pichai.

BERT. Pichai also noted last week’s rollout of the BERT algorithm to Search to improve understanding of natural language queries and the results delivered on those types of queries. “It’s the biggest leap forward for search in the past five years. It’s all possible because of a new type of neural network-based technique for natural language processing called BERT, which recognizes subtle patterns in language and provides more relevant results,” said Pichai.

He mostly dodged a question about BERT’s impact on advertising, saying, “Of course, a lot of times, we take the same techniques, and sometimes it maeke sense on the ads side, and down the line machine learning techniques, And we’ll deploy it there as well.” When we asked Google last week, we were told it was not being used for ads, yet.

Why we should care. Executives reiterated at least twice that the company takes a long, rather than quarterly view, on the business. Mobile search and YouTube continue to be the strongest revenue drivers. Advertisers should expect to see Google continue to push machine learning into more areas of campaign management and take a “holistic approach” and automatically serving ads across multiple platforms and surfaces.

There are regulatory clouds hanging over Google (and other internet giants) from both sides of the Atlantic, including antitrust and data privacy investigations. (Pichai cited the addition of Incognito Mode to Maps, which is already available in Chrome and YouTube.) For advertisers, the

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