Analysts are concerned about the threat of regulation for YouTube, as Google broke out ad revenues for the video streaming site for the first time on Monday.
YouTube ads made $15.15 billion in revenue for Google, and parent company Alphabet, during the 2019 financial year, though the company did not disclose profit. Chief Financial Officer Ruth Porat said the majority of YouTube's ad revenue goes to content creators.
But Cyrus Mewawalla, head of thematic research at GlobalData, raised the threat of regulation for the internet giant.
"YouTube's model is an ad-funded model, they're generating $15 billion from ads … that is a massive business and it's successful without having too many paying subscribers … (but) I worry about what regulators might do to that business," he told CNBC's "Squawk Box Europe" on Tuesday.
In September, YouTube was fined $170 million to settle claims it violated child privacy laws. Google tracks what people do online and makes money from serving targeted ads based on their activity and the Children's Online Privacy Protection Rule (COPPA) requires sites that children visit to disclose data practices and get parental consent for collecting information on children under 13.
Google's ad business is being investigated by 50 attorneys general over antitrust concerns, with lawmakers worried about the company's dominance in the advertising market and the use of consumer data.
Mewawalla said Google's core advertising business is "pretty strong" but added: "Everybody's asking the question what comes next: Are they going to be strong in hardware, in cloud, in internet TV via YouTube, is regulation going to knock them down?"
He also noted the rise of video streaming competitors. "I think the core business is not under immediate threat. I think what's under threat for investors, if you want to invest in this stock, is what comes next. How strong will YouTube be in a market where Netflix and Disney are at war and everybody's coming into this market?" he stated. YouTube now has 20 million Premium subscribers, compared to Netflix, which has 167 million.
A note from Pivotal senior research analyst Michael Levine also noted the risk of regulation in the wake of Alphabet's results. "Government regulation around data and privacy — required changes cause a much sharper than anticipated deceleration to ad growth," was listed as a risk, according to an email to CNBC on Tuesday. Another risk is the prospect that anti-trust regulations might require Alphabet to "change business practice."
