YouTube (s GOOG) has grown up fast of the last several years, with more than 35 hours of videos being uploaded every minute. And with the firm monetizing more than 2 billion video views each week, the amount of money YouTube makes is accelerating dramatically, with one analyst estimating that the video site could top $1.3 billion in revenues this year.
Citi (s C) analyst Mark Mahaney gave an update on the YouTube forecast as part of his “Updating The Long Thesis – Five Key Updates” research note issued this morning. In it, Mahaney estimated that YouTube revenues were approximately $825 million in 2010, and are expected to grow to $1.3 billion in 2011 and $1.7 billion in 2012. At the same time, the amount of money that Google actually takes home after deducting the revenue share from its partners will grow from $544 million in 2010 to $876 million this year and $1.1 billion in 2012.
The increase in revenues is a result of overall increased views of videos on YouTube, but also from the company’s ability to better monetize those views. Mahaney notes in his report that Citi’s YouTube Ad Tracking Analysis found that 81 of the top 100 videos on YouTube had some form of advertising against them in its most recent study, compared to 77 in December and 60 a year ago.
Not only are more of those videos being served with ads, but they’re being served with more ads and better ads. In 2009, about 95 percent of videos tracked had only one ad attached. Now, about 37 percent of those videos have one ad, with 63 percent showing two ads or more. And those aren’t just remnant AdSense ads anymore: In the most recent study, Mahaney found that most of the ads came from brands like Amazon, (s AMZN) AT&T, (s T) and Verizon, (s VZ) among others.
After five years under the Google umbrella, “When will YouTube be profitable?” has become a recurring theme. Despite all the improvement in monetization, Google still has yet to report a profit from the YouTube part of its business. But Mahaney argues that YouTube is more important than just as a profit-making entity — it helps Google compete in the social realm, while also picking up TV ad dollars that are moving online. He writes:
“Over time, we have become increasingly impressed by the size and growth of Google’s YouTube asset. Further, we view YouTube as giving Google a great platform against two of the biggest trends on the Internet today – the Migration of TV/Video Ad Budgets to the Internet and the Rise of Social Networks, specifically Facebook. Put it this way, we believe that Google’s long-term value would be materially less if it didn’t own YouTube.”