The YouTube Age

By?Matthew Gutierrez,?Weronika Pycek,?and?Shawn O'Malley?· April 13, 2023

*LinkedIn newsletter is posted at a one-day delay.

???Stocks made their biggest single-day move in about two months on Thursday, with Big Tech once again leading the charge. The market has so far interpreted this week's CPI report as another piece of evidence that U.S. inflation is cooling.

March's producer price index (PPI), a measure of prices paid by companies and usually a leading indicator of consumer inflation, confirmed the easing trend. PPI declined by 0.5% month-over-month vs. expectations for prices to be flat.?

That, in short, is why markets have been accelerating higher. Whether the Federal Reserve's work is done remains to be seen, but this year the S&P 500 is up nearly 9% YTD, and the Nasdaq has risen almost 20%.?

Meanwhile, the price of Gold is sitting near record highs?

Here's the market rundown:

MARKETS

*All prices as of market close at 4pm EST

Today, we'll discuss two items in the news:

• Manufacturing's real estate problem
• Louis Vuitton's parent company is bigger than you think
• Plus, our main story on the business of YouTube

All this, and more, in just?5?minutes to read.

?

Trivia question — Which month is the most volatile for stocks?

Read to the end of the newsletter to find the answer!

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IN THE NEWS

????U.S. Manufacturing Has a Real Estate Problem (Reuters)

Explained

Thanks to generous government incentives and national security concerns about relying on distant suppliers, particularly in China, there's a factory-building boom across America. Twenty industrial projects with $1 billion+ investments, creating at least 1,000 jobs each, were announced last year in the U.S., per fDi Markets.

• In the 15 years before, the average annual rate for such projects was around five.

Volkswagen's off-road brand Scout Motors researched 74 parcels of land last summer throughout the U.S., hunting for a spot to construct a $2 billion assembly plant.?

• But it soon abandoned almost all of them, citing issues like lack of access to clean power and skilled labor. In one case, they were told it would take six years to build a needed rail link.

Why it matters

According to 25 economic development groups, state and local officials, utilities, and companies interviewed by Reuters, the factory renaissance could hit roadblocks soon due to a lack of ready-to-go megasites.

Companies undergoing industrial developments are often fixated on speed yet require detailed accommodations.?

• For example, Rivian Automotive wanted to build a $5 billion plant near Fort Worth, Texas, but the city couldn't meet its timeline for putting transportation infrastructure in place, pushing the project to Georgia.

And a report from Lawrence Berkeley National Laboratory found that an average project built in 2022 would take five years from initial request to interconnect with the electric grid, up from three years in 2015.?

• Other factors, like environmental regulations and local community opposition, make new megasite construction challenging.

The U.S. has infamously outsourced its industrial base in recent decades, but the question now is whether its municipalities can capitalize on a new era of American manufacturing.

?Louis Vuitton's Parent Company is now Bigger than Visa & Exxon (WSJ)

?Explained

French luxury companies' stocks are setting record highs following strong sales data released yesterday by LVMH,?illustrating how good China's post-pandemic reopening has been for business.

• The company reported a 17% revenue increase from the first quarter last year, credited to a "significant rebound" in sales in Asia.

LVMH, which owns Louis Vuitton, Dior, and Tiffany & Co, jumped in Paris trading, further securing its position as the planet's largest luxury goods company and Europe's biggest stock. Its market cap, just shy of $480 billion, ranks it above Visa and Exxon Mobil.

The stock gains have also boosted its CEO Bernard Arnault's prospects, allowing him to compete with Elon Musk for the world's richest person title.

Why it matters

China's reopening has enabled its population to indulge in luxury shopping again.?

• Persistent Covid-19 restrictions in China have been a headache for the luxury industry in recent years, which relies heavily on Chinese shoppers at home and abroad.
• It's estimated that Chinese consumers accounted for between 17-19% of global luxury spending last year during Covid lockdowns, reducing its share of the luxury goods market from one-third in 2018.

But the company cited strong demand in Europe and Japan, with sales rising in the U.S., too, depicting a surprising level of resilience amid recent banking turmoil and economic fears.

MORE HEADLINES

??Twitter partners with eToro to allow users to?trade?stocks and crypto

??Delta airlines reports?record bookings?for summer travel

??U.S. producer prices?fell?in March by the most since the pandemic started

CHART OF THE DAY

YOUTUBE'S GROWTH RUN

Introduction

In 2018, “Mr. Beast” mastered the format that made him a star: stunt philanthropy.?

The YouTuber started filming himself giving away thousands of dollars in cash to random people, including his Uber driver or people experiencing homelessness. He captures their shock and joy in the process.?

Then the money came pouring in.?

Now, 24, “Mr. Beast” is earning more than $50 million per year thanks to a large YouTube audience (145 million followers) and YouTube’s revenue model, based almost entirely on advertisements.?

It underscores a new generation of creators and influencers, some of whom run YouTube accounts as side hustlers. For others, it’s a full-time business.?

YouTube’s parent, Alphabet (formerly Google), is raking in the dough too.?

The roots

YouTube was founded by former PayPal employees Chad Hurley, Steve Chen, and Jawed Karim. The idea was born at a dinner party in San Francisco. It opened up shop in Hurley’s garage.?

The business took off as the internet continued to gain traction throughout the 2000s. Sequoia Capital became the first major investor, and Nike was also one of the first major companies to embrace YouTube's promotional potential.?

Then came Google, which acquired the rapidly growing video-sharing site for $1.65 billion. At the time, Google called it "the next step in the evolution of the Internet." YouTube only had about 65 employees.?

For Google, the question centered on how to make this business a revenue generator. In the years since the internet became widely available, nearly all information, articles, and videos were entirely free.?

But YouTube experimented with advertisements, first as semi-transparent banners that popped up on the lower quarter of videos. The overlaid ads would appear about 10 to 15 seconds into the video.?

Then YouTube made it possible for everyday people to turn their hobbies into a business. By 2008, the most successful YouTubers were earning six-figure incomes from YouTube. The algorithm was forming, and its easy-to-use interface allowed people of all ages and backgrounds to upload content.?

Since the company started in Hurley’s garage in February 2005, YouTube has blossomed into a cultural touchstone.

Getting big

Google’s search traffic was soaring back then, but its online video offering was struggling. (As you might recall, Blockbuster was still a big player, and Netflix hadn’t yet offered streaming.)

Google invested in YouTube primarily because it was a premier way to deliver video content quickly. Soon, uploaders could receive a cut of the ad revenue a video might produce.

"People don’t understand the logistics of advertising,” ex-CEO Susan Wojcicki has said. “To have the ads purchased and run, you need to have a series of products that work together."

But with low ad rates and people’s propensity to skip ads, many YouTube videos made little to no money.

A key advantage to the business, though, is that most of the content is user-uploaded, which doesn’t cost the company. There are no production costs or infrastructure. This is hard to overstate.

The main idea: The cost of maintaining YouTube would fall as technology improved and more video content could be monetized through ads.?

As swathes of people flocked to the internet, YouTube’s popularity soared. In October 2016, Wojcicki said YouTube was "still in investment mode," implying the company was figuring out how to be profitable.

"Opportunities - the good ones - are messy, confusing, and hard to recognize. They're risky. They challenge you,” Wojcicki said.?

Final thoughts

In the last few years, the site might still be in investment mode, but it’s also remained in rapid growth mode. It has over 2.5 billion active monthly users. Over half of internet users worldwide access YouTube at least once per month, from pet videos to financial education to music and sports.?

YouTube generated $29.2 billion via advertising in 2022.

YouTube has reported more than 30% revenue growth in the past four years. It generated $28.8 billion in 2021, a 46% increase from 2020 figures. In 2010, YouTube made less than $1 billion in annual revenue, which has grown more than 30x since.

The company has also added YouTube Premium, allowing users to pay a monthly fee to watch videos without ads. After launching in 2014, it reached 50 million subscribers in 2021 and continues to grow. While Google’s search business still runs the show, YouTube is chugging along as a large component of Alphabet. (Cord-cutting certainly helps the cause.)

Said Wojcicki: "We are a consumer company, and our success is directly linked to our users trusting us…Things are always changing. Part of being successful here is being comfortable with not knowing what's going to happen."

Dive deeper

Here’s Wojcicki with insight on how to?build a brand.?

The?trivia answer?from the top of the newsletter is: October.

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