America's Best Growth Stock: YouTube?

Google's YouTube crashed Twitter's seventh anniversary party yesterday. But, before we spoil Twitter's special day, I'll pause to congratulate the company for seven years, 400 million tweets per day, and well over 200 million active users -- well done, Twitter. Now on to YouTube: Google announced yesterday that YouTube has reached 1 billion monthly active users. It has taken the video streaming service just eight years to reach the impressive milestone. With viewing trends in the company's favor, YouTube is just getting warmed up.

Generation C loves video
On Google's official YouTube blog, the company adds perspective:

So what's driving this phenomenal growth? Generation C. Media measurement company Nielsen defines this group by their connected behavior. Gen C thrives on:

  • Connection: watching YouTube on multiple screens, and constantly switching between devices

  • Creation: engaging with online video, watching, creating, and uploading videos on YouTube

  • Community: thriving on community, defining which YouTube videos are popular by sharing content

  • Curation: finding content that matters to them

Nielsen's findings indicate that this demographic group's engagement with content is deepening at a mind-boggling pace. As much as 76% of young adults between the ages of 18 and 34 now own smartphones. The "amount of time Gen C spends watching YouTube on their smartphones is up 74% from last year," the report asserts.

This YouTube-friendly audience has very different video consumption habits from the general population -- 20% of them don't even subscribe to cable. They fall in the category of "light TV viewer," watching, on average, just 39 minutes of TV a day.

Though Gen C does watch less TV, they also consume video content at times others may not. To illustrate, 41% of Gen C watched YouTube on their smartphone while waiting for something or someone, 18% while commuting, and 15% while TV commercials are playing.

While the implications are huge for YouTube, it's also great news for social platforms like Facebook ; 18% of Gen C watches videos because someone shared a video with them on a social network. Twitter is already trying to take advantage of this trend by introducing earlier this year a new tool, called Vine, for posting six-second videos.

The explosive growth of video advertising
Gen C's collective embrace of online video is translating into real ad dollars. According to a Pew Research Center report, digital video advertising spending in the U.S. grew from $2 billion in 2011, to $2.93 billion in 2012, climbing faster than all digital advertising segments.

The largest benefactors are the social platforms like YouTube and Facebook, which facilitate video access and dissemination. Every time a user engages in an action such as "liking" a post or sharing a video, these tech giants gain additional data they can use to give advertisers useful information for their campaigns. Even more, this data is becoming available in an increasingly more real-time fashion.

Traditional media outlets, like the New York Times , will struggle to compete, as social tech companies offer increasingly targeted advertising options. Chief Information Officer Marc Frons vented on the issue to State of the News Media 2013, an annual report on American Journalism: "The networks [e.g. Google and Facebook] have led a shift in ad dollars away from classic display ads toward targeted, real-time purchases that are driving down rates and disintermediating news publishers." Frons of the New York Times adds, "Traditional ads are not going away, but they aren't growing as they once were."

YouTube: the ultimate benefactor
eMarketer estimates that digital video advertising will reach 15% of the digital U.S. ad market by 2016, up from just 8% today -- and there is no brand better positioned to ride this wave than Google's YouTube. This is yet another reason I've made an outperform CAPScall on Google.

As one of the most dominant Internet companies ever, Google has made a habit of driving strong returns for its shareholders. However, like many other web companies, it's also struggling to adapt to an increasingly mobile world. Despite gaining an enviable lead with its Android operating system, the market isn't sold. That's why it's more important than ever to understand each piece of Google's sprawling empire. In The Motley Fool's new premium research report on Google, we break down the risks and potential rewards for Google investors. Simply click here now to unlock your copy of this invaluable resource.

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Fool contributor Daniel Sparks has no position in any stocks mentioned. The Motley Fool recommends Facebook and Google. The Motley Fool owns shares of Facebook and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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