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Google Partners With Shopify to Improve Gain in Ad World

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Reportedly, Alphabet’s (GOOGL - Free Report) division Google has joined forces with Shopify (SHOP - Free Report) in an attempt to bolster its presence in the ad world.

The company has unveiled a new ad tool which is almost tailor-made for retailers and e-commerce businesses. By working with Shopify, which enables the merchants to build their e-commerce websites, Google will be able to strengthen its revenue stream from ad business.

The company’s new tool will enable the merchants to showcase their consumer product ads. Notably, the latest partnership will let the marketers purchase these Google Ads via Shopify’s platform.

We believe the recent move will strengthen Google’s ad services portfolio further which bodes well for its improving customer base.

Ad Business at High

The advertisement segment remains the key catalyst for the company’s top-line growth. Google generated $95.4 billion ad revenues in 2017.

Along with the above mentioned commerce tool, Google also launched three other ad tools.  Out of these, the one called “responsive search ads” deserves a mention as it strives to serve the interests of both advertisers and viewers.

With this tool, Google will able to make the ad more interesting to viewers by choosing the most appropriate combination of words and heading from a vast array of the sane as submitted by the advertisers for this ad. The company will exercise the tool by using the search patterns of the viewers.

All these endeavors will continue to benefit the market position of Google.

Growing Competition & Regulatory Actions to Hurt

The increasing use of smartphones and internet has led to the emergence of e-commerce globally. Consequently, this has fueled the demand for digital advertising.

According to report from eMarketer, the digital ad spending is expected to reach $273.29 $357.31 billion by 2020 from $232.27 billion in 2017.

We believe the company’s strong focus toward innovation and expansion of its ad services will continue to benefit its market position. However, rising competition from another major player in the market namely Facebook (FB - Free Report) remains a concern.

Notably, Facebook generated around 98% of its total revenues from advertising in 2017 which is higher than Google’s share, which came in 86% of its total revenues.

If the last-quarter figures are taken into consideration, we observe that another tech giant Amazon (AMZN - Free Report) has started gaining traction in the digital advertising market which does not bode well for the ad market share of Google.

In first-quarter 2018, Amazon recorded revenues of $2.03 billion at its “Other” segment, which primarily consists of sales of advertising services. This figure marked a whopping year-over-year increase of 130%, much higher than Google’s 23.5%.

We note that an intensifying competition might hurt the market share of Google. Further, increasing litigation issues and regulatory actions poses a serious threat to the company’s growth prospects.

The European Union (EU) has become very strict and taken regulatory actions against Google’s shopping ad service by setting up an open antitrust probe.

All these factors remain major headwinds for Google and are in sync with its present ratings.

Currently, Alphabet carries a Zacks Ranks #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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