Since the early days of Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL), there has been plenty of controversy. Often it has been about content, such as with copyright infringements. Yet GOOGL stock has usually found ways to deal with the issues.
But recently, Alphabet has found itself in another scrape, and this one may prove fairly damaging.
It all started in early February, when the Times of London reported that YouTube ads from major brands were associated with videos that involved hate speech, terrorism and violence.
What Kind of Trouble Is Alphabet In?
The backlash was quick — and GOOGL stock has already taken a hit. Over 250 brands have suspended their ad campaigns on YouTube, including some of the world’s largest like Verizon Communications Inc. (NYSE:VZ), AT&T Inc. (NYSE:T), Wal-Mart Stores Inc (NYSE:WMT) and Starbucks Corporation (NASDAQ:SBUX).
While Alphabet has responded with tough talk about taking swift actions, the fact is that the problems continue. On Mar. 24, The Wall Street Journal reported that YouTube was still running ads with major brands that had offensive content.
Yet all this is not a one-off. It seems quite likely that GOOGL has been running these kinds of ads for some time.
What’s more, the company has recently been involved in other mishaps, such as:
- GOOGL made certain LGBTQ content “restricted,” which has caused an uproar in the community.
- The company terminated one of its most popular YouTube shows, called PewDiePie, because of alleged anti-Semitic jokes.
- Google pulled an advertising agreement with a YouTube channel called “Real Women, Real Stories,” which had interviews with women who talked about sexual harassment and abuse.
Now it’s certainly understandable that advertisers should be very concerned. They understand that their brands are quite delicate and can easily be tarnished. Also, by paying for the ads, the companies are essentially subsidizing this content!
So what does all this mean for GOOGL stock? Well, some analysts have been crunching the numbers. For example, analysts at Nomura Instinet estimate that YouTube will suffer about $750 million in lost revenues.
It’s true that this is a relatively small amount when compared to Alphabet’s annual revenues of $90 billion. Yet the analysis may ultimately be too narrow. Let’s face it, brands may get concerned about other ad programs from GOOGL.
Besides, rivals like Facebook Inc (NASDAQ:FB) and Snap Inc (NYSE:SNAP) will certainly act quickly to capitalize on the situation. In fact, even traditional cable networks, such as the Hallmark Channel, can tout their brand-safe content as more attractive alternatives. Keep in mind that the “upfront” season has already started, which is when advertisers make decisions for their budgets.
Bottom Line on GOOGL Stock
In an interview with Recode, Alphabet executive Philipp Schindler noted that the content issues have been blown out of proportion, saying that it involves “very very very small numbers.” Yet, he is still focused on dealing with it, such as by using third-party audits and AI software.
Overall, this kind of corporate-speak is probably not winning points with advertisers — and it could mean further problems with GOOGL stock. Whenever there is a major controversy, it is critical for a company to react quickly and not get into the statistics of the problem. Customers want action.
A notable example of this is what happened to Airbnb a few years ago, when a customer’s home got trashed. The company swiftly made major changes, such as providing an insurance guarantee. As a result, the controversy quickly faded away. If anything, it helped to engender much more customer loyalty and confidence.
But so far, GOOGL has not taken this kind of proactive stance. Instead, the company has been more defensive — and somehow thinks technology will be the cure.
Now, this strategy may still work for Alphabet, but it will probably take time for things to simmer down. And in the meantime, this could mean that there will be a cloud over GOOGL stock, which could result in sluggish returns.
Tom Taulli runs the InvestorPlace blog IPO Playbook and is the author of various books, including Taxes 2017: Saving A Bundle. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
