Alphabet Inc.’s (GOOGL - Free Report) division, Google has teamed up with LegitScript as it intends to resume accepting advertisements from alcohol and drug addiction treatment centres in the United States. LegitScript is a provider of verification and monitoring services for online pharmacies.
Last year, Google started rejecting such advertisements on grounds of being misleading and also because a few of the treatment centers were using its algorithms to make profits.
The latest decision will help rehab and other treatment centres to advertise on all the AdWords channels of Google.
Improved Monitoring to Boost Trust
The latest partnership will examine and investigate the ads with the help of which Google will be able to tackle the illegal practices by many rehabilitation centres via ads.
All treatment ads related to alcohol and drug addiction will have to go through LegitScript’s verification process based on 15 criteria including criminal background checks, license and insurance along with their policies and procedures.
We believe the latest move will drive Google’s top-line growth since advertisement revenues account for a major portion of its total revenues. Moreover, advertiser base will improve.
Ad Business Gaining Traction
With the growing number of advertisers and their rising needs to promote products and services, Google will continue to generate revenues in the long haul. Last year, the company generated $32.3 billion of revenues, out of which ad revenues accounted for 86%.
We believe improving advertising business will continue to boost Alphabet’s share price. The stock has returned 24.8% in the past year, outperforming the industry’s gain of 5.8%.
Google’s strong efforts to improvise its search platform by curtailing all the illegal practises done by the advertisers which mislead viewers will help the company sustain momentum in the market. The initiative will also improve brand value.
Recently, the company put restrictions on all the cryptocurrency related ads to lessen the risk of consumer harm related to cryptocurrency trading.
Further, in order to showcase better ads, the company launched Funding Choices ad messaging last year and now it is available in more than 31 countries across the world. Funding Choices helps advertisers to recover their lost revenues when their ads get blocked by viewers.
Google’s AdWords program which allows advertisers to create ads also got updated recently after the launch of new AdWords UI, called Experience. The latest updates are focused on expansion of landing pages report and increase the accuracy of customer match options.
We believe Google will be able to recover the loss of almost $78 million in its ad revenues from the United States alone that happened last year as a result of the restriction of the treatment ads.
Further, business diversification strategy of the company helps it to offset loss from one sector with profit from another sector. Other than ad business, the company has a huge search platform, well growing cloud business, home automation products, smartphones and many more.
Hence, business diversification will remain the key catalyst and will continue to benefit the company’s top line and profitability. Moreover, it helps the company to gain from all the sectors where it operates. However, growing competition from Facebook (FB - Free Report) and Twitter (TWTR - Free Report) remains a concern.
Zacks Rank & Stock to Consider
Alphabet carries a Zacks Rank #4 (Sell).
Investors interested in the broader technology sector can consider a better-ranked stock like Autohome (ATHM - Free Report) . The stock sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Long-term earnings growth rate for Autohome is currently pegged at 33.48%.
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