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YouTube Is Becoming a Major Growth Driver for Google

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All metrics on YouTube increasing at a fast rate

It’s a well-known fact that Google (GOOGL) derives the majority of its revenues from its search advertising business. However, YouTube is fast becoming the major growth driver for Google. During the July 16 conference call to announce its 2Q15 earnings, Google’s management mentioned that watch time on YouTube has grown by 60% on a year-over-year basis, as the chart below shows.

Google also revealed that the number of advertisers on YouTube has increased by 40% over the last year and average spending per advertiser for YouTube’s top 100 advertisers has increased by 60%. Another interesting metric that the company shared was that the number of channels earnings more than $100,000 per year has increased by 50% year-over-year. This is impressive growth, considering Facebook (FB) has also started to make big investments in the online video market.

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Google’s Preferred program and TrueView ad format driving YouTube’s growth

All this shows the increasing importance of YouTube for Google, advertisers, and content providers alike. Google credited this growth to its Google Preferred program and greater adoption of the TrueView ad format. First, let’s discuss the Google Preferred program. Google Preferred Video is the top 5% of the content on YouTube in areas like food, music, and entertainment. Google launched the program at the BrandCast event last year.

Google has mentioned in the past that advertising agencies like Digitas and Omnicom Group (OMC) are supporting Google Preferred Video program, and brands like General Motors (GM), Coca Cola (KO), and Universal Pictures have had success using this product.

Another important ad format that’s driving YouTube’s growth is the TrueView ad format. We discussed this in Google’s TrueView Ad Format Is Popular with Advertisers. For diversified exposure to Google, you could invest in the Sector SPDR Trust SBI Interest (XLK). XLK invests 3.7% of its holdings in Google.

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