Alphabet Will Not Share YouTube’s Revenue With The SEC

Alphabet – Google’s (and therefore YouTube’s) parent company – just won a passive aggressive email war with the Securities and Exchange Commission. As a result, the digital giant won’t have to report YouTube’s financial information, at least not for now.

Through months of email exchanges beginning in July 2017, the SEC asked Alphabet to clear up its foggy financial filings for Q2 last year. The SEC took a specific interest in YouTube, which it inquired about in its initial letter to Alphabet and then followed up on in a letter dated November 8, 2017.

First in July, the SEC told Larry Page, Alphabet’s CEO, to “please clarify whether YouTube and Google Play represent or comprise operating segments that are aggregated into the Google reportable segment.” When the SEC failed to receive an adequate reply, the agency followed up, asking Alphabet to further clarify how involved Page and Google co-founder/Alphabet president, Sergey Brin, are in YouTube and what kind of financial information they receive about the video platform.

Alphabet’s ultimate response to the SEC’s repeated requests to gain more insight into the company’s financials boiled down to, simply, “no.” To which the SEC eventually just shrugged.

The SEC has been asking Alphabet pesky questions about YouTube’s revenue because of a rule created by the agency. It says a public company’s investors have the right to access the same financial information to which the company’s CEO is privy. If Page, as Alphabet’s CEO, has information on YouTube’s financials, so should Alphabet’s shareholders.

This is where Alphabet’s defense begins. According to the company, Page doesn’t see much in the way of YouTube’s numbers, nor does Brin. Rather, Google CEO Sundar Pichai gets this information and then reports directly to Page, at which times he shares Google’s overall financial information, but doesn’t break it out specifically into Google’s different operations, like YouTube and Google Cloud.

With its own CEO, Susan Wojcicki, and its status as the internet’s second largest search engine, it seems suspect that YouTube doesn’t independently report its numbers to Alphabet’s head honcho. Furthermore, YouTube offers a distinct advertising product from Google—video vs. text/image ads. Lumping the two together as a singular Google profit category doesn’t seem quite right.

Even though the SEC is letting the issue go for now, analysts have taken a crack at guessing YouTube’s revenue. According to MarketWatch, Rob Sanderson, senior research analyst at MKM Partners, believes YouTube revenues will get to $26 billion by next year, while GBH Insights researcher Daniel Ives predicts YouTube’s 2018 sales will reach $13 billion. Just this month, an analyst at R.W. Baird put YouTube’s value at “probably $15 billion.”

In the end, the SEC left Alphabet with a warning, “We remind you that the company and its management are responsible for the accuracy and adequacy of their disclosures, notwithstanding any review, comments, action, or absence of action by the staff.” With enough pressure, Alphabet may one day reveal YouTube’s financials to investors. In the meantime, the company’s statement that “Google is largely a single online advertising business, with other smaller product areas within the Google ecosystem,” will have to suffice.