Through in-house innovation and an array of acquisitions, Google (NASDAQ:GOOG) has become a completely different company since going public in 2004. Although Google has diversified its offerings to compete in the mobile operating space (Android), internet advertising (Adsense), Apps (Google Maps) and email (Gmail), YouTube is perhaps its most interesting asset.
YouTube's user-uploaded video database has seen enormous success in recent years and is showing no signs of slowing. In February comScore reported a 60% yoy increase in monthly minutes viewed, despite unique users rising a modest 5%. This can most likely be attributed to the increasing relevance of YouTube's content.
YouTube started as a forum for users to post funny videos of themselves or their friends, not as a forum for professionals. Now YouTube has become a media outlet to release music videos, exclusive TV shows, independent short films or even advertisements.
This shift is the reason for the increasing amount of time users are spending on the site and soaring amounts of uploaded content. As of Monday May 21st, YouTube users were uploading 72 hours of content every minute, up from 48 hours a year ago, and 24 hours in 2010.
To expand YouTube's offerings and continue to cement its legitimacy in terms of competitive content, Google has signed an agreement with MGM to offer 600 movie titles for rent. This pairs up nicely with rumors citing that Google is interested in testing out a version of YouTube with a premium subscription option. If this pans out, it could be a huge additional revenue stream along with the ad revenue YouTube already generates.
Google has plenty of resources and enough cash to land a lot of relevant content. As YouTube continues to build a strong user base and get more unique and relevant content, ad revenue should, consequentially, grow as well.
Although getting specific data for YouTube revenue is difficult, best estimates peg 2011 revenue at $1.6 billion, an increase of 60% from 2010 revenue of about $1 billion. If we assume this growth will continue at a slightly lower rate of 50% (despite growth in content and user minutes growing at an accelerated rate) then 2012 YouTube revenue comes out between $2.4-$2.5 billion. Analyst projections have Google's total 2012 revenue at $35.5 billion, meaning YouTube will be around 5-10% of Google's 2012 sales.
As YouTube revenue continues to grow much faster than Google's total revenue (50% vs. 22%), we should see increased emphasis placed on its success. As YouTube continues to monetize its user base and create more relevant content, it will undoubtedly help drive Google's future growth.
YouTube's new potential uses as a premium subscription based service, advertising platform, and media outlet for new TV shows should continue to fuel very high growth rates. As YouTube becomes a bigger part of Google's offerings and begins to take market share from content providers like Hulu and Netflix (NASDAQ:NFLX) expect rapid revenue growth to continue.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.