Media

Analyst Sees Little Impact as Google Advertisers Suspend YouTube Ads

Paul Ausick

Published: March 23, 2017 10:10 am

Last Updated: January 12, 2020 1:41 pm

Alphabet Inc. (NASDAQ: GOOGL) is caught in a bind between some major advertisers and some of the content creators it depends on to attract a younger audience. Telecom giants AT&T Inc. (NYSE: T) and Verizon Inc. (NYSE: VZ) have both issued statements stating that they have suspended non-search advertising on Google’s YouTube because, AT&T said, their ads are appearing next to “YouTube content promoting terrorism and hate.”

Verizon’s statement was similar: “Once we were notified that our ads were appearing on non-sanctioned websites, we took immediate action to suspend this type of ad placement and launched an investigation.”

Other advertisers, including the British government and pharmaceutical giant GlaxoSmithKline, have also pulled advertising from YouTube.

Mizuho Securities USA doesn’t expect much near-term damage from the advertisers’ actions:

We believe that YouTube could generate approximately $12 billion+ in gross revenue this year. If 10% of revenue is impacted by this ban, we estimate that this would impact Non-GAAP EPS by approximately $0.15 in 2017 (based on 65%/35% rev split, 30% [YouTube] operating margin and 19% tax rate). This would impact our 2017 non-GAAP EPS by less than 1%. However, if Google does not nip this issue in the bud, we think there could be a broader repercussions around YouTube’s brand, if consumers, creators and advertisers stop coming to the site.

Google’s dilemma is meeting advertiser requirements on one hand, and, on the other, alienating content creators who attract relatively small numbers of viewers, but who also appeal to the younger demographic.

In a comment cited by Recode, Google said:

We don’t comment on individual customers but as announced, we’ve begun an extensive review of our advertising policies and have made a public commitment to put in place changes that give brands more control over where their ads appear. We’re also raising the bar for our ads policies to further safeguard our advertisers’ brands.

Mizuho concludes its note by reiterating its Buy rating on Alphabet stock with the following comment:

We like the fact that Alphabet continues to innovate around ads, and we see device bidding, expanded text ads, and Google Cloud as meaningful drivers of growth in 2017. While we view this [YouTube] ad issue as a near-term concern, we believe that Google is working hard to address the issues and win back the trust of its brand advertisers.

Alphabet’s stock traded down about 1.8% Thursday morning, at $834.79 in a 52-week range of $672.66 to $874.69. The 12-month consensus price target is $987.88.