With YouTube having passed a billion monthly active users for the first time, we have to acknowledge that Google (NASDAQ:GOOG) is no longer just a one-trick pony.
The knock on Google has always been that no matter how much energy and resources it plows into scores of products and services, almost all of its revenue, cash flow and profits come from selling ads against search results.
To give credit where credit is due, search is indeed one hell of a trick. Google absolutely dominates the category, with 67% of the U.S. market and — by some estimates — more than 85% of search share globally.
And selling ads against those search results spews out a truly epic stream of revenue. Google generated almost $40 billion in consolidated revenue last year, after subtracting traffic acquisition costs – a figure that’s forecast to grow to $47 billion in 2013.
Google breaks out its revenue only in broad, somewhat opaque categories, so we have to go with analysts’ guesstimates to figure out where the sales come from. According to Trefis, search — both desktop and mobile — was responsible for 75% of Google’s annual revenue last year. It’s projected to make up 75% of this year’s total revenue, too.
Which brings us to the problem that for all the other stuff the company does (and it does a lot), Google has never had much success in monetizing it.
Witness the hullabaloo over Google pulling the plug on Reader. As popular as the product was with a core group of folks, Google never figured out or really tried to make it generate enough revenue to warrant keeping it alive.
And so now Reader is going to the Google graveyard — a place that also includes Google Wave, iGoogle, Google Friend Connect, Google Buzz, Picnik and, of course, Google Video, among many, many others.
But where Twitter killed Reader, Google Video was made redundant by YouTube. And, in a bright spot for the search giant, YouTube’s growth trajectory appears to have made the $1.65 billion price tag worth it.
Trefis figures that YouTube generated a bit more than $2 billion in revenue for Google last year. True, although that’s more than Gmail, Orkut, Blogger and Google Apps combined, it still only represented a bit more than 5% of the total annual take.
But the growth trajectory — as YouTube hitting a billion users reminds us — is what counts. By 2019, Trefis sees Google pulling in $88 billion in revenue, of which YouTube will contribute more than 17%. That’s more than $15 billion dollars, equivalent to the total annual revenue generated by Dollar General (NYSE:DG) or Carnival Corp. (NYSE:CCL) today.
All that YouTube revenue is going to become more than material to the bottom line and (ka-ching!) cash position. YouTube’s contribution to operating earnings is seen growing to $3.74 billion before the end of the decade, up from $488 million in 2013. And the video service should be kicking off $2 billion in free cash flow by 2019, up from around $317 million this year.
Indeed, YouTube is on a path to become one of the three pillars of Google’s business, after mobile search and desktop search, which are forecast to contribute 39% and 30% to the top line, respectively, before decade’s end.
Google’s future may be disproportionately tied to search — especially in mobile — but YouTube can’t be overlooked. The folks in Mountain View do indeed have more than one rabbit in the hat.
As of this writing, Dan Burrows did not hold positions in any of the aforementioned securities.