For months, investors have been concerned about two factors wreaking havoc on Facebook’s business: targeted advertising limits on iPhones and the growing popularity of TikTok.

Concerns should have been directed towards Google’s YouTube as well. These challenges, combined with the economic turbulence caused by the Ukraine crisis, contributed to an abrupt sales slowdown for the world’s largest video service and a rare profits shortfall for Google’s parent company, Alphabet Inc. Following the release of the company’s first-quarter data, the shares slid roughly 3% in extended trade Tuesday.

Apple Inc has upended social networking businesses in the last year by imposing tough limitations on third-party adverts on iPhones. This harmed Meta Platforms Inc, which controls Facebook and Instagram, as well as other mobile-centric social networks such as Snap Inc, while leaving Google relatively unscathed since it relies less on targeted advertisements.

YouTube, on the other hand. Previously, Google claimed Apple’s privacy measures had a minor impact on its video site, but its executives acknowledged Tuesday that growth of direct-response advertisements, marketing formats that utilise targeting to reach customers, had slowed. YouTube advertising was Alphabet’s weakest link in the first-quarter statistics, reporting only a 14 percent gain to US$6.87 billion, falling more than US$500 million short of analysts’ expectations. In the same quarter a year before, the video segment posted a 48 percent increase.

“YouTube is starting to feel the pain,” said Dan Morgan, senior portfolio manager at Synovus Financial Management. This is especially concerning for the stock because YouTube, along with Google’s cloud division, were “anticipated to represent the next leg of development,” he noted.

Google execs blamed Russia’s invasion of Ukraine for some of YouTube’s problems. According to Chief Financial Officer Ruth Porat, the political upheaval caused a “pullback” in expenditure across Europe. Overall sales in Europe and the Middle East increased 19% during the quarter, compared to 33% the previous year.

Google halted its sales efforts in Russia in February, blaming the conflict. The firm retained its search service and YouTube in the nation, but the freeze had a “outsized” impact on YouTube’s operations, Porat said on a conference call following the presentation of the findings. She said that Russia accounted for around 1% of Google’s total revenue, but she declined to speculate on how long the impact would last. “I believe it is too early to remark,” she said. “Tragically, it is still ongoing.”

While Google executives acknowledged the fight and Apple’s limits, they left out another danger to YouTube: TikTok, the successful video app from China-based ByteDance Ltd that has driven Meta to invest in Facebook and Instagram and threatened YouTube’s dominance in the online creative business.

Google executives were eager to discuss YouTube’s answer to TikTok — Shorts — on Tuesday. In 2020, YouTube introduced the function as a venue for short-form videos on its app and website. Shorts remained commercial-free, with artists paid from a fund depending on their performance criteria.

That ad-free experiment is coming to an end. According to Google sales head Philipp Schindler, YouTube is now testing adverts inside Shorts. He stated that the corporation was “encouraged” by “early advertising response and outcomes.”

Executives also emphasised YouTube’s potential for development in online commerce and on TV screens, both of which are important areas of investment. However, most of the attention — and questioning from experts — was focused on the battle with TikTok.

“There was also a lot of excitement about Shorts during the TikTok era, but clearly it’s very early days for them,” said Joanna O’Connell, an advertising analyst at Forrester.

According to Google, Shorts receives 30 billion daily views, a fourfold rise from the previous year. However, the increasing viewing has diverted some visitors away from YouTube’s major lengthier videos, where it generates all of its money, according to Porat.

Porat stated that YouTube’s business teams were focused on “reducing the gap” between its flagship commercial service and its experimental TikTok-like service. “As a result, we’re delighted about the new potential with Shorts,” she said.

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