Google parent Alphabet Inc. (ticker: GOOG, GOOGL) shares are down more than 4.1 percent in the past five days as the company deals with a major controversy related to its YouTube advertising business. Google uses advanced programmatic advertising algorithms to place ads on content targeting specific user demographics. A growing number of advertisers have realized that a handful of that content is inappropriate or harmful.
As of late last week, a number of high-profile advertisers, including AT&T ( T), Verizon Communications ( VZ), Volkswagen, McDonald’s Corp. ( MCD), Honda Motor Co. ( HMC), Lloyds Banking Group ( LYG), Johnson & Johnson ( JNJ) and the Royal Bank of Scotland ( RBS) have withdrawn their YouTube ads. Other major companies that are boycotting include PepsiCo ( PEP), Wal-Mart Stores ( WMT), Dish Network Corp. ( DISH), Starbucks Corp. ( SBUX) and General Motors Co. ( GM), according to The Associated Press.
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“We are deeply concerned that our ads may have appeared alongside YouTube content promoting terrorism and hate,” an AT&T spokesperson said. “Until Google can ensure this won’t happen again, we are removing our ads from Google’s non-search platforms.”
Nearly 90 percent of Google’s total revenue comes from advertising, which is why investors are concerned about the exodus of high-profile clients. However, UBS analyst Eric Sheridan says the controversy will eventually blow over. According to Sheridan, many of the advertisers intend to return to YouTube in the future.
Following the initial reports of advertisers abandoning YouTube, UBS talked to a number of ad industry contacts who expressed skepticism about the YouTube boycott.
“While many advertiser actions are focused on legitimate industry concerns over brand safety, many of the announcements also seem to have elements of opportunism,” Sheridan says.
He says the YouTube protest comes at the same time “advertisers and agencies are looking for negotiating leverage” to use against Google and other online advertisers.
UBS predicts that any ad revenue losses related to the current controversy will be temporary. In the meantime, Sheridan says investors are underestimating the long-term growth potential of Google Play, Google Maps and Google’s Enterprise/Cloud segment.
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UBS maintains a “buy” rating and a $980 price target for Alphabet’s stock.
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An Advertiser Revolt Is Hurting Google’s Stock originally appeared on usnews.com
