According to analysts from Nomura Instinet, Google could potentially lose $750 million or more as a result of the advertising boycott that it is currently facing for allowing advertisements to appear on extremist videos.
Nomura Instinet released an investor note that bases this number solely on the loss of 5 of YouTube’s top 20 US advertisers. YouTube, which is the main target of this boycott, would take a 7.5 percent hit to ad revenue as a result of solely those five leaving. This would amount to around $750 million of its total revenue for 2017, estimated to be $10.2 billion. This only compounds the impact suffered by Google, as the stock of their parent company Alphabet dropped by 2 percent, losing around $20 billion in value.
The boycott started after an investigation by the Times revealed proscribed terrorist organizations were profiting from advertising on videos posted to their YouTube channels. The UK government, along with private entities such as McDonald’s UK, Audi UK, Royal Bank of Scotland, HSBC, Tesco, and M&S, then removed their advertising from YouTube, with the boycott reached the United States last week, with both AT&T and Verizon pulling all advertising from YouTube.
Matt Brittin, Google’s head for Europe, Africa, and the Middle East, subsequently apologized at a conference, saying that he was sorry to anyone who was affected and that the company was speeding up a review to crack down on hate speech. Brittin announced that the review that had been “going on for some time” is being accelerated, with Google investigating how to better define inflammatory content and hate speech, improving the removal of videos that break content guidelines, and simplifying the controls that advertisers are offered. However, the Nomura analysts argued that this could impact the company financially. “Ad buyers are likely to demand greater direct control over ad placement, which could take time and resources to implement,” the note said.
Other industry analysts were more skeptical of the impact on Google. While the boycott does hit Google in regards to YouTube and their display adverts on websites, ad buyers have maintained spending on Google’s keyword advertising on the search engine itself. Morgan Stanley’s Brian Nowak expanded on this in a note to investors:
We put a low probability on this materially impacting GOOGL’s near-term results. 3 reasons. First, advertisers who have pulled their advertising dollars from GOOGL are only pulling ad revenue from YouTube and the Google Display Network. Second, we estimate these businesses in aggregate make up 21% of GOOGL gross revenues (with YouTube 12%) and 10% of net revenue. Even if 10% of this revenue went away (which would seem draconian) it would only impact GOOGL’s net revenue by 1%. Third, we believe Google’s revenue is diversified across millions of clients – with the top 100 ad spenders likely representing less than 20% of total ad revenue – given the strength of its core search product.
However, Nowak highlighted that Google must fully address advertisers’ concerns and “needs to take stronger steps to regain the trust of brands.” Altimeter Group principal analyst Charlene Li reiterated this, recommending that Google engage advertisers directly and openly, but she isn’t hopeful. “It’s a hit on their revenue, but it is an even bigger hit on their brand; on their reputation,” she said. “Google hasn’t taken it seriously enough.”