Wall Street was not very forgiving to Google today, punishing the company for managers’ refusal to provide details of recent modifications made to its advertising platform in quarter one results, right after an uncommon miss of targets for revenue resulting from a cleaning of questionable YouTube content. A total of eight different brokerages reduced their price expectations for platform owner Alphabet following the publicizing of its results yesterday, resulting in a drop of 8% (approximately $70 billion) off one of the most popular stocks listed on the NYSE.
Much of the discussion was centered around Google’s drive, similar to other major social media companies such as Facebook, to eliminate fraudulent and damaging material from its platforms, and the increasing costs of accomplishing this. In a call with industry analysts yesterday, Google’s management team discussed the hundreds of product modifications that it makes every quarter, but declined to provide any examples of such changes, raising analysts suspicions that the company could be concealing a trend that would point to serious problems with future advancement and growth.
One Morgan Stanley analyst explained that the fact that no one is entirely sure what changes Google actually made during the quarter is the reasoning behind the deceleration and is something that Wall Street will want to find out going forward. Alphabet, which receives the majority of its revenue from advertising, stated that its quarterly revenue increased by 17%, climbing to $36.3 billion, but that remains around $1 billion less than Wall Street’s average estimation, according to IBES data coming from Refinitiv.
Some are viewing the lack of details related to product adjustments as a new problem, with investors already being worried about the impact that competitors, regulations, and disruptive technologies have already made. YouTube, which was purchased by Google over ten years ago is now a robust earner, is being pressured by advertisers to make certain that their advertisements do not seem to be promoting any adult or questionable content.
To battle an increase in this type of content, Alphabet has added a team of thousands of reviewers and created an automated software program that is able to remove post which break the rules much faster. In addition, YouTube has implemented changes that decrease suggestions for content that may violate its rules or that provides misinformation in detrimental ways.
Some analysts feel that the algorithm changes continue previous efforts to remove over 2.4 million YouTube channels and approximately 8.8 million videos that violated terms and conditions. The general opinion was also that today’s losses are only a blip on the radar, at least for now. Of the forty-three total brokerages which cover the stock, only two of them have issued a “hold” rating, while the remaining brokerage have issued buy or even higher ratings.