Alphabet says YouTube's troubles over running some sponsors' ads next to inappropriate videos are behind it. Marketing chiefs say they're still concerned. It might not matter for the shares, which are marching ahead on stellar growth.
On Friday, Evercore ISI analyst Anthony DiClemente published comments from a recent internet advertising dinner. Some were unsurprising: Amazon (AMZN) is gaining traction. Google remains the leader in nearly every vertical. Facebook (FB) ads are comparatively cheap, and thus cost-effective for some marketers.
But challenges at YouTube, which like Google is owned by Alphabet (GOOGL), seem to remain a focus for many ad agencies and marketing executives, DiClemente writes:
A large agency buyer noted that spending on YouTube remains on pause following last year's brand safety issues. This sentiment was echoed by another one of our speakers, who noted that a detailed review of YouTube ad buys revealed a large amount of spend had run against content, which while not outright offensive, lacked contextual relevance to the campaign. The consensus takeaway was that YouTube still remains challenged with respect to its premium content offerings. In response to these concerns, our panel noted that some ad budgets are moving to publishers' direct marketplace offerings as an alternative.
Recall that YouTube advertisers including Mars, HP (HPQ), and Adidas suspended ads last year after learning some had run against exploitive videos of children in various stages of undress. The comments at the Evercore dinner contrast with Alphabet's report of "phenomenal" growth at YouTube last quarter. Asked about advertisers' concerns on the October earnings call, chief financial officer Ruth Porat had this to say:
Well, we've been doing a lot to protect the ecosystems and do the right things for advertisers and users and content creators and the overwhelming majority of advertisers never left and those who did, many are already back on the platform.
Alphabet is slated to report fourth-quarter results on Feb. 1. If recent trends hold, massive revenue gains as more ad dollars shift online could eclipse isolated YouTube scandals. Alphabet, up 34% over the past year, is valued at more than $750 billion, making it the second-largest U.S. company behind Apple (AAPL). Revenue is expected to rise 18% in 2018, to $105.2 billion. The dollar amount of sales Alphabet could gain more than $16 billion is more than the total yearly revenue of Omnicom (OMC), the world's second-largest advertising conglomerate behind WPP (WPP.U.K.).
Simply put, the world has never seen a company this large grow this fast.