Pivotal Makes No Changes To Google Model As Big Brands Flock Back To YouTube

Several large and notable brands took a stance against advertising on Alphabet Inc GOOG GOOGL's YouTube platform in early 2017 due to brand safety issues, one of the biggest being AT&T Inc. T which returned to the platform recently.

The Analyst

Pivotal Research Group's Brian Wieser maintains a Buy rating on Alphabet's stock with an unchanged $1,240 price target.

The Thesis

The New York Times reported Friday AT&T was "persuaded" to resume its ad campaign on the online streaming video site after the company introduced new safeguards to make the platform "brand safe." AT&T joined other large brands who returned to YouTube's platform over the past year and serves as a sign that YouTube and its parent company are taking brand safety very seriously.

YouTube's dedication towards safety comes at a time when it is already "massive" in size but still "growing rapidly," Wieser wrote in a note. Throughout 2018, the U.S. audience aged 18 and older consumed 29 percent more YouTube content compared to the prior year. YouTube's ability to target the 18 to 34 demographic group is now "comparable" to national TV.

While YouTube is unable to guarantee 100 percent brand safety to all advertisers all the time, Wieser said large advertisers who want to target the younger audience accept this risk and balance it against YouTube's status as a replacement or complement to traditional TV.

Despite big brands with multi-billion dollar spending budgets returning to YouTube, Pivotal isn't making any changes to how it views Alphabet given unchanged expectations for "solid" top-line growth and ongoing margin erosion at a time when the company is solidifying its industry position.

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