"Alphabet, Advertising Market Contraction Inevitable... Long-Term Investment Appeal Remains"

[Asia Economy Reporter Eunmo Koo] Amid ongoing reductions in advertising and marketing by companies due to the impact of the novel coronavirus disease (COVID-19), Alphabet is also expected to be unable to escape the repercussions of the shrinking advertising market. However, considering its dominant position in the digital advertising market, it is analyzed that despite the revenue hit, its mid- to long-term investment appeal remains high.

Hwang Seung-taek, a researcher at Hana Financial Investment, stated in a report on the 19th, “The reduction in social activities caused by COVID-19 is having a negative impact on the global economy overall, and the contraction of economic activities is leading companies to reduce advertising and marketing,” adding, “Google advertising revenue accounts for about 82% of Alphabet’s total revenue, so it will be difficult to avoid the impact from the overall contraction of the advertising market.”

This trend is expected to become more pronounced in the second quarter. The consensus for Alphabet’s advertising revenue in the first and second quarters has fallen by approximately 4% and 10%, respectively, compared to the time of earnings announcements, and is projected to grow by 12% and 5% year-over-year. Considering that growth had previously exceeded 15%, this is a significantly slowed figure. Researcher Hwang explained, “Due to the slowdown in revenue growth, operating profit in the second quarter is expected to decrease compared to the same period last year,” adding, “Accordingly, Alphabet’s stock price has also shown a sluggish performance.”

Despite the hit to advertising revenue, Alphabet’s mid- to long-term investment appeal remains high. Researcher Hwang said, “It holds a dominant position in the digital advertising market, and especially YouTube advertising is showing strong growth,” adding, “Although there is uncertainty, once the COVID-19 situation settles and the economy enters a recovery phase, a rapid recovery is expected.”

He further projected that Alphabet’s advertising revenue will recover to a growth rate of around 17% next year. Researcher Hwang analyzed, “Cloud services are also showing strong growth, and recently, due to the impact of COVID-19, the number of paid G Suite customers has exceeded 6 million,” adding, “Alphabet’s stock price currently appears to reflect much of the existing concerns.”

This content was produced with the assistance of AI translation services.