GOOG Stock Is in the News for All the Wrong Reasons
Alphabet Inc (NASDAQ:GOOG, GOOGL) has been getting a lot of bad press of late as the issue of ads appearing alongside inappropriate content continues to simmer. A few big budget advertisers have pulled their campaigns and more could follow if Google-parent Alphabet is not able to convince advertisers fast. Google stock fell almost four percent last week over these developments and continues to trade subdued. What should you do?
Alphabet Inc–owned Google has many growth catalysts ahead and this incident is unlikely to impact any of them. The company must act fast as this could dent the credibility of the “YouTube” platform, but there is not going to be any major impact on the company’s revenue, which would likely bring GOOG stock back to its normal levels.
There have been reports, such as the one from Instinet that estimates that YouTube could lose $750.0 million in revenue this year as advertisers pull their campaigns. Others also have chipped in with their own calculations. However, it is too early to arrive at such estimations. Google has a number of advertisers and a few of them pulling out is unlikely to bring about any significant damage to the company’s financials or Google stock.
However, the most important entity at stake here is the YouTube brand. Google has to act fast to protect one of its most promising platforms and it is taking steps in that direction.
Google posted a blog last week, detailing the steps that the company is taking to strengthen YouTube for advertisers and creators. A few of the actions taken include implementing broader demonetization policies around videos that are perceived to be inflammatory or hateful and adding new advertiser controls that make it easier for brands to plan the placement of their ads. (Source: “Strengthening YouTube for advertisers and creators,” YouTube Blog, March 20, 2017.)
Just few days back, reports came in that Google was giving more information about where their ads appear on YouTube. According to a source, Google has supplied the world’s largest media buying firm, GroupM, with the complete list of YouTube channels that constitute the preferred advertising program of Google.
GroupM shall use video analytics company OpenSlate to analyze the content of channels on the list provided by Alphabet owned Google. Through this, GroupM can get to know ahead of time as to where its clients’ ads should run. (Source: “Google is letting its advertisers who bolted see which videos their ads could run on,” Recode, March 29, 2017.)
Such steps are positive for the GOOG stock image as it displays the management’s commitment. Alphabet is adding more controls for advertisers following the backlash that started last week. Big advertisers like AT&T Inc. (NYSE:T) and Verizon Communications Inc. (NYSE:VZ) decided to suspend their ads on YouTube after discovering that their ads were funding videos with objectionable content. Google had promised more transparency and swiftness in solving the problem and it is following up on its promises.
The YouTube community manager posted on Thursday that advertiser confidence on YouTube is critical to the financial success of creators. Due to the unfortunate incident of some advertisers suspending their campaigns, the company has started to implement new brand safety control measures. The message was, “If you are seeing fluctuations in your revenue over the next few weeks, it may be because we are fine tuning our ads systems to address these concerns.” (Source: “Advertisers and Creator Revenue,” YouTube Help Forum, March 23, 2017.)
And while this could be challenging in the short term, the company is working as fast as possible to improve its systems. This is important to make advertisers feel more confident in the platform, which would lead to more revenue to creators over the long term.
The following chart shows the impact of this news on the GOOG stock, which was inching upwards smoothly until last week. Since then, Google stock has been hurtling downwards.
Chart courtesy of StockCharts.com
Alphabet mentions in its annual reports the way it makes money. It explains how the company has invested heavily in programmatic advertising to help advertisers reach users when and where it matters, through automated ad buying. Alphabet further adds that it has allocated substantial resources to stopping bad advertising and protecting users on the web.
Hundreds of millions of bad ads are removed from the company’s systems every year and the sites and apps that show these ads are monitored closely. This automated ad buying has pushed GOOG stock to its high levels as this is the competitive edge of the search giant. But it may also pose the problems that we are witnessing today.
Google stock investors can rest assured that this is something Alphabet will not take lightly. GOOG stock has strong foundation and is poised to grow in the years to come. Such incidents are temporary blips that will help Alphabet emerge stronger and more prepared to face such challenges in the future.