YouTube’s non-advertising subscription revenue will boom and emerge as a bigger driver of Google stock valuation, says one analyst.
Bank of America analyst Justin Post says subscription revenue will become a bigger part of the unit of Google-parent Alphabet (GOOGL).
“Based on an increasing, but still small, share of paid TV and music subscribers plus price increases, we estimate YouTube non-advertising subscription revenue can grow at a 28% five-year compound annual rate from $5.2 billion in 2020 to $17.6 billion by 2025,” Post said in a report to clients.
He added that for YouTube, “A key question is profitability.”
Alphabet disclosed more YouTube subscriber metrics when it reported earnings in April. Google reports second-quarter earnings on July 30.
In the March quarter, YouTube’s overall revenue rose 23% to $4.4 billion. Most of that came from advertising.
Google Stock: YouTube TV Fee Increased
Google stock gained 3.1% to close at 1,563.84 on the stock market today.
YouTube had more than 20 million music and premium paid subscribers and 2 million TV paid subscribers at the end of 2019, Google said in April.
“The recent YouTube TV fee increase to $65 per month has raised optimism that Google is looking to drive positive margins,” Post added. He noted that “Spotify (SPOT) had 130 million subscribers, 26% gross margins, and was roughly break-even in the first quarter of 2020.”
Google stock is not in a buy zone. It trades 10% above a cup-with-handle entry point of 1,415.63.
By REINHARDT KRAUSE
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on 5G wireless, artificial intelligence, cybersecurity and cloud computing.
