Alphabet stocks fell by at least 7 per cent after the US tech giant announced a sharp drop in its ad revenue growth. The fall has been blamed on an algorithm in YouTube which caused lower engagement and consequent lower growth in revenues on the site, said Alphabet’s CFO Ruth Porat.

“While YouTube clicks continue to grow at a substantial pace in the first quarter, the rate of YouTube click growth rate decelerated versus a strong Q1 last year, reflecting changes that we made in early 2018, which we believe are overall additive to the user and advertiser experience,” Porat said on the company’s earnings call.

No details about the exact changes in YouTube that ultimately caused a drop in ad revenue growth were provided by Porat or Google.

At the beginning of last year, changes in algorithms on YouTube had been initiated by Google with the aim of preventing the uploading and spread of harmful content in the feed of recommended videos that is suggested to users on the side of a video page.

The aim of the move was to make it more difficult for users to find videos that contained conspiracy theories, fake news and other elements that had resulted in advertisers shying away from the platform. For example, as a consequence of the changes in algorithm, users were suggested and directed by YouTube to videos from “authoritative” news sources which the company believed would be useful for delivering accurate information to the users, when the users se4arched for a conspiracy theory about the latest school shooting.

In addition to that change, millions of channels and videos that violated the company’s harmful content policies, were removed from YouTube.

But despite such videos being potentially harmful for users, they were also critical in increasing engagement on the platform. Such engagement kept the users glued on to their feeds even after they had finished watching the video they had initially intended to watch on YouTube. The company however had claimed that such garbage videos conly comprised of less than 1 per cent of all videos on the platform.

The rout in the stocks of the company after the announcement of the results saw more than $70 billion from its market cap.

In an interview with YouTube’s Chief Product officer Neal Mohan with The New York Times, he said that the new system has quite a way to go before it gets perfect.

However despite the comments form the company about YouTube, analysts did not seem too worried about its long term success potential and instead tried to point out other issues that have impacted the growth of ad revenues.

“YouTube has increased its focus on responsibility and safety, and it adjusted its algorithm in 1Q to reduce recommendations of content that comes close to violating guidelines or is misinformed or harmful,” J.P. Morgan analysts wrote in a research note. They added that, “we don’t think there’s a single clear answer for Google’s [deceleration], but a number of factors are at work.”

(Adapted from CNBC.com)