Snap Inc (SNAP) Baits with Millennial Advertising Weapon, Alphabet Inc (GOOGL) Faces Setback as YouTube Ad Boycott Continues

Snap Inc (NYSE:SNAP) and Alphabet Inc (NASDAQ:GOOGL) have secured buys from William Blair and Nomura- but which tech player stands to fare the best in the long-term battle for ad dollars? Whereas one analyst likes Snap’s potential to gear up as an advertising force among a strategic, young demographic, another analyst underscores slight cause for concern with Alphabet’s suddenly shaky tight rope walk amid global brand ad backlash. Let’s take a closer look:

Snap: The Platform Brands Need to Be Advertising On

Snap has divided many analysts on Wall Street since its IPO. Yet, William Blair analyst Ralph Schackart approaches the popular Snapchat app parent company with a bullish first impression, impressed with its “cool” factor among millennials, a bull’s eye from an advertising standpoint, as well as its robust social, video, and mobile ad budget growth prospects. As such, the analyst initiates coverage on SNAP with an Outperform rating without listing a price target.

As far as Schackart sizes up the new public company, “Snapchat Has What Brand Advertisers Want: Young Users,” elaborating, “By now, most advertisers we speak with know that Snapchat has a strong following among teenagers and millennials, who are becoming increasingly difficult to reach with TV advertisements. […] Given the importance of reaching this younger demographic, many brands see Snapchat as a platform they need to be advertising on.”

Considering that “Revenue [is] Just Beginning to Ramp Up, [with] Many Growth Drivers Ahead,” the analyst projects that by 2018, Snap could be circling $2 billion in revenue, indicating “a long runway for revenue growth” gleams ahead. “In the near term, we believe the largest contributors to revenue growth will be simply increasing the number of advertising clients and ads served,” continues the analyst.

Lastly, checking in with industry participants, Schackart highlights Snap’s competitive potential to steal digital ad dollars from rivals Facebook and Google for those seeking to attain a “viable third option.” With the company in solid standing to capture some of the worldwide TV ad market’s massive $186 billion share, the analyst concludes confidently cheering in Snap’s corner.

According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, four-star analyst Ralph Schackart is ranked #522 out of 4,555 analysts. Schackart has a 67% success rate and generates an average return of 12.3%. When recommending SNAP, Schackart earns 0.0% in average profits on the stock.

TipRanks analytics demonstrate SNAP as a Hold. Based on 31 analysts polled by TipRanks in the last 3 months, 12 rate a Buy on Snap, 12 maintain a Hold, while 7 issue a Sell on the stock. The 12-month average price target stands at $23.46, marking a nearly 2% downside from where the stock is currently trading.

Alphabet’s Glaring Global Ad Spend Pickle

Alphabet might have some brand image rehab on its hands from the eyes of Nomura analyst Anthony Diclemente, who after touching base with ad buyers has found some of the biggest spenders across the globe are tightening the reigns on YouTube ad spend. There is a rising apprehension from a brand advertising standpoint that brand reputation could be in jeopardy in the mix of appearing side-by-side “highly controversial content which is unsafe for brands.”

On the heels of YouTube ad campaign pullback, the analyst reiterates a Buy rating on shares of GOOGL while cutting the price target from $950 to $925, which represents a 10% increase from current levels. Furthermore, the analyst chops Google revenue and OI growth projections for the year.

Diclemente opines, “While we believe YouTube is indeed capable of introducing solutions that remedy brand safety concerns, we anticipate the direct cumulative negative impact to revenue could ultimately approximate $750mn, weighted heavily to 2Q17 and 3Q17. We also believe the cost of developing a solution may weigh on margins. Of course, investor confidence in YouTube’s ability to take incremental share of TV ad budgets has been reduced to some degree.”

Ultimately, “Checks with ad buyers highlight that when concerns over brand safety arise, approach is to ‘pull spend, ask questions later.’ Unfortunately, brand safety risk aversion from company CEO’s and CMO’s can go to extremes in well-publicized cases such as the current YouTube situation. […] ad buyers are likely to demand greater direct control over ad placement, which could take time and resources to implement, in our view,” Diclemente surmises.

As usual, we like to include the analyst’s track record when reporting on new analyst notes to give a perspective on the effect it has on stock performance. According to TipRanks, five-star analyst Anthony Diclemente is ranked #193 out of 4,555 analysts. Diclemente has a 71% success rate and realizes 11.6% in his annual returns. When recommending GOOGL, Diclemente yields 18.6% in average profits on the stock.

TipRanks analytics exhibit GOOGL as a Strong Buy. Out of 30 analysts polled by TipRanks in the last 3 months, 27 are bullish on Alphabet stock, 2 remain sidelined, and 1 is bearish on the stock. With a return potential of nearly 19%, the consensus target price stands at $996.85.

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