Advertising Community Says Google's YouTube Ad Scandal 'A Real Issue'

Alphabet Inc GOOG GOOGL's ad controversy in the United Kingdom is showing no signs of dissipating and is impacting the company's stock. Earlier this week, analysts at Pivotal Research Group downgraded Alphabet's stock to Hold from Buy after several notable British brands decided to no longer advertise on Alphabet's properties.

On Thursday, Dow Jones reported that American brands, including AT&T Inc. T and Verizon Communications Inc. VZ have pulled all of their advertising campaigns from YouTube but will continue spending money on Google's keyword search properties.

Wall Street Paying Close Attention

Needless to say, this is a growing concern for YouTube and the Street is paying particularly close attention. The latest reaction comes from Morgan Stanley's Brian Nowak, who reiterated an Overweight rating on Alphabet's stock with an unchanged $1,000 price target but cautioned the scandal is "a real issue." The analyst also suggested that the company "isn't yet fully addressing advertisers' concerns and needs to take stronger steps to regain the trust of brands."

Nowak expects more brands to cut or eliminate their advertising budgets on YouTube. This may pose a headwind to Alphabet's stock performance and trading multiples over time.

Nevertheless, Nowak holds optimistic views that Alphabet can navigate the near-term concerns and investors should consider buying shares on any dip. Even under a somewhat worst-case scenario, Google's revenue is diversified across millions of clients and the top 100 ad spenders represent just 20 percent of total ad revenue.

Trip Chowdhry: YouTube 'Screwed Up'

Trip Chowdhry of Global Equities Research briefly commented in a report that YouTube "screwed up big time" on its algorithms, and advertisers have reason to be upset that their brand is being shown alongside ISIS and other terrorist/hate content.

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