Google's 4%+ Weekly Drop Meaningless In The Grand Scheme Of Things

Mar. 26, 2017 3:00 AM ETAlphabet Inc. (GOOG), GOOGL22 Comments
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  • Google is in the process of taking measures to better enforce quality control on its YouTube platform.
  • In the short-term, it will suffer a reputational hit and will incur costs associated with the development of new technology to parse uploaded content to ensure it meets quality standards.
  • Revenue may take a slight dip, though YouTube’s cash contribution to the conglomerate is minimal.
  • I provide revenue and valuation estimates for YouTube.

Argument: YouTube's advertising debacle will represent a short-term cost, both in terms of the negative PR and financial cost of additional investment into machine learning and artificial intelligence ("AI") to increase quality control on the platform. The loss in advertising revenue is likely to be temporary as Google works to resolve the issue.

Moreover, YouTube, if it is profitable, is likely only marginally so. Consequently, this is unlikely to materially affect earnings in any tangible form or have much in the way of long-run implications.


Google (NASDAQ:NASDAQ:GOOG)(NASDAQ:NASDAQ:GOOGL) had a tough week, dropping more than 4%. The decline largely came on the back of a reputational imbroglio concerning large advertisers, including many Fortune 500 companies, dropping ads from Google's YouTube platform. Advertisers became concerned that their brand's association with content that could be objectionable and inconsistent with their values would do far more harm than good.

On Friday, Google suffered more advertising defections, with Wal-Mart (NYSE:WMT), PepsiCo (NYSE:PEP), and Dish Network (NASDAQ:DISH) suspending their campaigns with all Google advertising aside from search. General Motors (NYSE:GM) and Starbucks (NASDAQ:SBUX) were pulling their ads from YouTube specifically, but leaving up ads on search and other non-search Google platforms.

Despite Google's attention to the issue, cleaning this up will take time. Approximately around 600,000 hours of new video is added to YouTube each day. With this level of volume growth in the platform, addressing these concerns will take a non-trivial amount of new investment into machine learning, artificial intelligence, and new engineers to implement these filters and sufficiently parse newly uploaded content for terms of service violations. Google already provides some level of brand safety control features for advertisers for non-search platforms, such as the ability to better place ads where desired.

In the short-term, the news is negative for the stock due to

This article was written by

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NYC-based investment professional. Background in value investing and growth at reasonable price within the context of long/short equity, with additional focus on credit, sovereign debt, commodities, and currencies as part of an overall global macro focus.

Disclosure: I am/we are long GOOG. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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