Here are the companies that Apple’s advertising changes are hurting, and those that can withstand the pain
The latest batch of internet revenue has revealed the winners and losers of Apple Inc.’s privacy changes to its mobile operating system.
From Apple AAPL,
First introduced new settings several months ago that would give consumers the option to opt out of third-party tracking marketers use to help target ads, social media companies have braced for impact of these changes. Now that more and more iPhone users have chosen not to follow, it is becoming increasingly clear which social media companies are best prepared to face the changing landscape, with Alphabet Inc. GOOG ,
among the probable winners and Snap Inc. SNAP,
among the expected losers.
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Alphabet shares rose 5.8% on Wednesday afternoon and are on course for their best one-day performance since Feb. 3, after the company reported better-than-expected financial results that demonstrated resilience in the face of Apple’s changes. The company acknowledged a “modest” impact on its YouTube business as a result of the changes, but Alphabet’s business otherwise appears to be holding up strongly.
The company had “by far the strongest overall results in digital advertising in the third quarter in our opinion, with research clearly being the beneficiary of Apple’s ATT. [app-tracking transparency], and least exposed to mobile tracking and measurement issues, ”wrote Ygal Arounian, analyst at Wedbush. “Google has been at the forefront of privacy and we believe search is well positioned to lead there.”
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Scott Devitt of Stifel also pointed out that Alphabet’s research business seemed well suited to take advantage of the new environment, as search advertising is “intention-based,” although he still expects negative impacts on YouTube.
“Over time, we expect that the privacy changes that have limited the effectiveness of social media-based advertising will cause a greater share of advertiser budgets to go to Google’s core ad products,” he said. writes Devitt.
Twitter Inc. TWTR,
posted profits alongside Alphabet, but its 9.9% share sale on Wednesday reflects a more complicated story than the fallout from Apple’s privacy changes. The changes are having a big impact on direct response advertising, to which Twitter is less exposed, and the company benefited from the focus on branded advertising in the past quarter, in part because of the Olympics.
But Twitter has its own challenges. Not only is the company struggling to increase the number of users in the United States, but it is also always trying to increase its exposure to direct response ads. This means that he might face similar issues to his peers once his ad mix changes.
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“Despite limited impact from iOS, we believe disaster recovery is becoming a larger share of ad revenue, Twitter should develop workarounds due to variability in iOS reporting,” wrote James Lee, analyst at Mizuho .
Other social media companies have discussed the need to develop better measurement capabilities that help advertisers understand the effectiveness of their spend. The divergent responses to the Snap and Facebook reports show that investors favor companies that have invested more heavily in these tools.
Snap’s measurement offerings appear to be less developed than Facebook Inc.’s FB,
for now, one of the reasons its shares fell a record 27% on Friday after the company’s own earnings report. The fact that Snap shares were down 5.9% on Wednesday following more recent reports from Alphabet and Twitter suggests that investors still view the company as a relative loser in the changing advertising landscape.
Facebook shares were almost flat on Wednesday following the results of its peers after posting a 3.9% decline on Tuesday following the company’s own results. While it’s obvious that Apple’s privacy changes are affecting Facebook, analysts have applauded the company’s positioning against Snap, as Facebook appears to be going further with its measurement offerings and has a “Fortress balance sheet” which should allow new investments in this area.
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Pinterest Pins Inc.,
has yet to release third-quarter results, but its shares were still down 4.5% on Wednesday, suggesting investors are pessimistic about the company’s positioning relative to its peers given the changes at Apple as well as supply constraints that could have an impact on advertising spending.
The company’s “small advertiser base and high e-commerce exposure presents tactical risk in this macro environment,” Morgan Stanley’s Brian Nowak wrote last week. PayPal Holdings Inc. PYPL,
Reportedly had talks about acquiring Pinterest, but the payments giant said on Monday that it was not currently pursuing a deal.
Pinterest is due to publish the results on Thursday, November 4.
Unsurprisingly, analysts expect Apple to be a major beneficiary of the new environment, as marketers may feel pressured to shift more spending to the company’s own advertising business. Apple’s advertising business appears to be a growing driver of ad click-through iPhone app downloads, wrote MoffettNathanson’s Michael Nathanson.
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“In other words, the signal loss caused by Apple’s new operating system appears to have moved marketers of performance-based mobile games and app downloads to Apple,” he said. he writes.
Another possible winner is his view is Amazon.com Inc. AMZN,
Gave comments from Facebook on the measurement and targeting challenges for small businesses.
“Logically, this loss of e-commerce signal should benefit Amazon, which has the best closed-loop data that links brand advertising at the top of the funnel to the checkout at the bottom of the funnel,” he wrote. “As such, we are assuming that ecommerce performance dollars will go to Amazon given their near-perfect signal quality.”
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Apple shares were almost flat on Wednesday, while Amazon shares were up 1.4%. The two companies are expected to release their quarterly results Thursday afternoon.