Three big trends stood out in Alphabet (Google)’s Q2 earnings report call on Tuesday: the economic climate is tough, performance is precious, and automation is king.
Alphabet’s overall growth was 13% year over year, which paled in comparison with the 62% YoY growth achieved in Q2 2021 as pandemic-era spend flowed more freely. It wasn’t a huge miss, but if we peek into the modest 12% YoY advertising growth, we can see some bigger trends at play in the marketing industry.
Most notably, while search-related ad products grew revenue by 14% YoY, YouTube revenue grew just 5% YoY compared with an 84% YoY jump in Q2 2021. This mirrors the general advertising trends we’ve seen in past economic slowdowns, when many marketers pull back on upper-funnel spending to focus on performance. Compounding matters for YouTube is the emergence of TikTok, which has been gobbling an increasingly significant share of video-related advertising budgets.
On the YouTube front, Google is trying to combat TikTok by emphasizing other video formats like Shorts, and it’s leaning into the fast-growing CTV market; both initiatives bring unique opportunities to bolster ad revenue.
A broader trend is Google’s focus on automation and machine learning. Alphabet CEO Sundar Pichai referenced automation several times in talking about investments that will pay off in the long term, and it’s coming into play for advertisers more immediately, specifically in Performance Max campaigns. Google is deprecating Smart Shopping as we speak and forcing eCommerce advertisers to pivot to Performance Max, and they’re getting more aggressive with functions like auto-apply suggestions. It’s a risk to go so heavy-handed in a tough economy since advertisers will have less patience with poor performance and will be all too eager to throttle back low-ROI spend. In the next two quarters, especially after the all-important Q4, we’ll have an idea of whether the gamble was worth it.