YouTube continues to be a star for Google, especially on mobile, where it recently released a new app for iOS, driving further views. On the fourth-quarter earnings call, Google said viewers are watching 4 billion hours of videos a month. That's translating to advertising revenue, with advertisers increasing their spend 50% from 2011 to 2012. The top 25 advertisers now spend over $150 million each per year on YouTube, helping Google's move to mobile.
Pitz noted that TrueView video ads (pre-roll ads before the video) are largely responsible for the growth of YouTube revenue, which he believes will grow 76% year-over-year to $4.5 billion. In comparison, Jefferies believes Netflix (NFLX - Get Report) will generate $4.3 billion in revenue this year.
Allowing the user to skip the ad after 5 seconds maintains the user experience and improves efficiency as it pertains to ad spending, Pitz wrote. "8 out of 10 viewers prefer TrueView to standard instream ads, and 9 out of 10 viewers think TrueView creates a better video viewing environment," Pitz wrote.
As consumers increasingly turn to mobile devices for their Internet needs, YouTube benefits, but Google's core business of advertising is hurt as it is much more difficult to advertise on mobile devices than it is on desktop. Facebook (FB) had this problem earlier, but its recent results have started to show an uptick in mobile revenue and it seems as if Google is seeing the same. Pitz believes the pain to advertising revenue is likely to subside, as Google showed during its fourth-quarter results.Wall Street is becoming increasingly bullish on Google as it relates to consumers and their computing needs. Piper Jaffray analyst Gene Munster wrote in a note he believes "Google is far and away the best positioned company" over the next 10 to 20 years in consumer technology. Google Glasses and driverless cars could provide huge opportunities for Google over the next decade, Munster noted. He rates Google "overweight" with a $938 price target. Cost-per-click, a key metric for ads, fell 6% year over year for Google in the fourth quarter, but actually rose 2% sequentially, alleviating some of Wall Street's biggest concerns. The company doesn't break out mobile revenue from desktop revenue, but it's generally believed that mobile ads have been weighing on CPC results, driving down earnings. On Feb. 6, Google announced it was upgrading AdWords with "enhanced campaigns." Pitz believes this will "make it easier for advertisers to target users on mobile devices, but they also lump tablets and desktop users into the same bucket, meaning advertisers pay the same rate to serve impressions to tablet and desktop users." Google is trying to own the entire mobile experience, not just in advertising revenue and software with Android, but hardware as well. Google closed its Motorola acquisition last year and has released some new products, such as the Chromebook Pixel, as it takes on Apple (AAPL - Get Report) and to a lesser extent Amazon. Google's Android operating system is part of a duopoly in mobile computing, along with Apple's iOS, and the company is working on making more of a "pure" experience for Android users, with its line of Nexus smartphones and tablets. There is also the rumored X Phone, which is thought to be Google's "iPhone killer." Google is firing on all cylinders currently; years of research and development are starting to pay off. It almost seems that a share price of $1,000 is inevitable, as long as the company continues to execute on its plan. -- Written by Chris Ciaccia in New York >Contact by Email. Follow @Commodity_Bull