According to a Credit Suisse analyst, the most popular video Web site — owned by the richest Web site Google — will lose $470 million this year because it sells advertising only on a fraction of its pages.
For a site that generates as much online traffic as YouTube, it would seem a no-brainer that profit is streaming in.
But according to a Credit Suisse analyst, the most popular video Web site — owned by the richest Web site Google — will lose $470 million this year because it sells advertising only on a fraction of its pages.
YouTube sells ads on less than 3 percent of the Web pages that could carry commercial messages, analyst Spencer Wang wrote Friday in a note to clients. To boost that percentage, Google needs to standardize ad formats and better demonstrate that ads on YouTube help sell products, he wrote.
Weakness at YouTube led Wang to cut his 2009 profit estimate for Google to $4.68 a share from $4.83, according to the report.
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Google stock has fallen more than a third from its 52-week high last May, hurt by slowing growth in the online-ad market and by the decline in the broader stock market.
“Despite the growth of YouTube’s user base, there is little evidence to suggest Google has been able to materially monetize this usage,” Wang wrote. “In light of the current ad recession, experimental budgets are being trimmed.”
YouTube’s sales will rise about 20 percent to $240.9 million this year, Wang estimated.
The company may spend $360.4 million for bandwidth to distribute its video, and $252.9 million to pay content owners for the rights to show their material, he wrote.
Despite the report, Google shares rose $7.28 to close at $369.78 on Friday. They have jumped 20 percent this year.
Aaron Zamost, a Google spokesman, declined to comment. Wang couldn’t be reached for comment.
Separately, a Google spokesman also said the company does not “comment on rumor or speculation” about conflicting reports Friday about Google’s growing interest in acquiring or partnering with Twitter, another wildly popular Internet service with questionable ad potential that enables users to post brief, spontaneous messages.
The Silicon Valley Web site TechCrunch reported Friday morning that Google may be negotiating to acquire Twitter.
But Twitter co-founder Biz Stone responded on his own Web site, writing, “Our goal is to build a profitable, independent company and we’re just getting started. … It should come as no surprise that Twitter engages in discussions with other companies regularly and on a variety of subjects.”
Material from MarketWatch included in this report.