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YouTube’s $25 billion ad problem

That sounds pretty bad! But it could be much worse for Alphabet and its investors.

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Peter Kafka covers media and technology, and their intersection, at Vox. Many of his stories can be found in his Kafka on Media newsletter, and he also hosts the Recode Media podcast.

Big advertisers are punishing Google over its YouTube problem by pulling some of their ads.

The good news for Google and its Alphabet parent company: This won’t hurt Google’s core ad business.

The bad news for Google and its Alphabet parent company: Investors are worried anyway.

Here’s what the second part of the equation looks like: GOOGL shares are down more than 4 percent since Friday, when news reports about big brands’ ads running against offensive YouTube videos really got going. That means Alphabet has lost about $25 billion in market cap in less than a week.

Google’s apologies and promises to fix things, delivered in speeches and blog posts this week, haven’t reassured advertisers or investors. So it will be interesting to see what Google tries next.

In the long-term, though, Google should be able to work this out. First and foremost because advertisers aren’t complaining about the thing that really makes Google go: Its core search business.

YouTube and Google’s display ad business are fast-growing, and big by any other standards: Mizuho Securities analyst Neil Doshi thinks YouTube alone could be a $12 billion business this year.

But that’s still a sliver of the company’s search revenue. Doshi thinks that in a worst-case scenario, where advertisers cut YouTube’s revenue by 10 percent this year, Alphabet’s earnings will shrink by less than 1 percent.

Finally, a bit of perspective for Alphabet investors: A year ago, GOOGL was trading at $757. Today, even after a steep drop, it’s at $835. If you’ve held your shares for 12 months, you’re still up more than 10 percent.

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