Google Downgraded On European Ad Concerns

Alphabet Inc GOOG GOOGL was slapped with a rare downgrade on Monday as Pivotal Research Group's Brian Wieser lowered his rating on the stock to Hold from Buy with a price target lowered to $950 from a previous $970 due to ongoing concerns in the United Kingdom.

According to U.K.-based Daily Mail, several notable local brands, including retail giant Marks & Spencer, are no longer going to advertise on Google's YouTube platform. Companies have concerns that their brand image is being shown alongside content from extremist channels and groups, including neo-Nazi and even jihadist groups.

Global Repercussions

According to Wieser, Alphabet's Google unit faces brand safety issues in the United Kingdom, but this can have global repercussions. The analyst expanded that ad quality and brand safety represent the biggest issues facing the advertising agency. In addition, advertisers are effectively putting money in the pockets of terror and extremist groups.

Google has since apologized and pledged to fix the problem by improving controls it gives advertisers and working faster to remove hateful content. However, Wieser argued that the approach isn't enough to remedy concerns.

"The approach comes across to us as attempting to minimize the problem rather than eliminating it, which is the standard we think that many large brand advertisers expect," the analyst argued. "We think that Google will probably need to articulate goals that sound more like a zero tolerance policy, to alleviate concerns before it can fully recover."

Bottom Line

The analyst also suggested that U.K. marketers could expand their local boycott of advertising on Google's platform to other global markets which prompted the analyst to lower his full-year revenue estimate for Alphabet by one percent point. In addition, Wieser noted that Alphabet's recent run up now puts the stock well within the 15 percent band he uses to justify a Buy rating.

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