Search, ad network, and YouTube revenues all fell in the fourth quarter of 2022, Google reported yesterday. Overall, Google ad revenue fell 3% to $59 billion. 

Search advertising revenue was the most resilient, falling 1.6% in Q4 2022 compared to Q4 2021. Google Network and YouTube revenue declined 8.6% and 7.0%, respectively. 

A poor economic climate. Google CFO Ruth Porat told CNBC the YouTube slowdown was the result of both planned and direct response advertising in a challenging economic climate. She said Google is slowing the pace of hiring in an effort to deliver long-term profitable growth. Last month, Google said it would lay off around 6% of its workforce or roughly 12,000 jobs. The company has about 187,000 employees. 

ICYMI, Meta also blamed a poor economic climate on their own weak ad demand.

Trouble for YouTube. YouTube’s ad revenue fell below analyst predictions to reach $7.96 billion, a decrease of 8% from the previous year’s $8.63 billion. On Thursday, Google CEO Sundar Pichai said in addition to the overall pullback in ad spending, YouTube is also facing heightened competition from TikTok in short-form videos. Meta also said competition from TikTok was limiting growth. 

The financial outlook at YouTube could get even bleaker as it begins paying for rights to professional football games. In December, the National Football League announced that YouTube will pay approximately $2 billion annually for the rights to broadcast “Sunday Ticket” to homes, in a seven-year deal. That’s expected to be a loss-leader that enables YouTube to acquire more paying subscribers. 

Dig deeper. You can review the earnings here.

Why we care. A decline in ad revenue could affect the platform’s ability to reach its target audience and in turn, the success of its advertising campaigns. Lower ad revenue could also result in less investment in platform improvements and innovations, leading to a less favorable advertising environment.

Additionally, a continual decrease in ad revenue may cause a shift in pricing, competition for ad placements, and changes to the platform’s advertising policies. If Google shifts its attention toward AI, advertisers could lose more control over their campaigns. 

On the other hand, a decline in revenue could result in a decline in demand, which could lower ad costs for advertisers.