Apple CEO Tim Cook will deliver a keynote address at the European Union privacy conference in the EU Parliament in Brussels, Belgium, on October 24, 2018.
Yves Herman | Reuters
As the industry prepares to change Apple’s settings on users’ iPhones in the name of privacy, MKM Partners analysts said Tuesday that some online ad companies like Facebook and Snap are more exposed to the impact on mobile ads than their peers .
Apple’s change requires a privacy option for users to share their advertising ID, or “IDFA,” that was previously buried deep in users’ phones, and bring it to the forefront when they open an app. Before using an app like Facebook that tracks your data for targeted advertising, you will be asked to enable tracking. Companies like Facebook fear that Apple’s notification will discourage people from enabling tracking, limiting their ability to target ads, the core of their business.
Industry players currently use that ID, when available, to target ads and measure how effective they are. But the change is expected to dramatically impact advertisers’ ability to target ads as they have been as people are unlikely to sign up.
A mockup of the pop-up window that iPhone users will see before using an app that tracks their data. This image was taken by Apple.
Apple
MKM analysts said they created a framework based on seven factors to determine the risk of the change for online advertising companies. The factors include scale, access to first party data, exposure to iOS devices, relative revenue contribution from app install ads, off-platform ads, ads bought by small businesses, and ads bought by industries that rely heavily on paid acquisitions from mobile users. Broadly speaking, those companies include gaming, dating, ride-hailing, and video streaming companies.
Based on these parameters, the analysts said Facebook and Snap have the biggest potential headwinds from IDFA changes, followed by Twitter and Pinterest. They said Google and Amazon have the lowest relative exposure.
“However, when it comes to gravity, relative ad efficiency, and access to first party data versus other subscale platforms, programmatic ad networks and publishers, we expect the Big Six online ad companies to outperform the rest of the industry,” wrote “We expect more focus on this issue as we approach the 4Q / 2021 earnings forecast, and we would be buyers in the face of weakness, particularly in FB and SNAP stocks, due to upcoming iOS 14 changes.”
In a December note, Bank of America analysts also said Facebook and Snap are most at risk from the changes, potentially creating a 3% revenue headwind for Facebook and a 5% headwind for Snap. They claim that Twitter has a modest exposure to mobile app downloads, but the exposure is relatively small compared to that of Facebook and Snap. Pinterest and Google are the least exposed to IDFA, they said.
Facebook was outspoken about the change, most recently running newspaper ads, running a new website, and publishing a blog post outlining the arguments that oppose Apple about the change it claims to “ threaten the personalized ads that millions of small businesses rely on. to find and reach customers. . Facebook argued in its blog post that Apple’s new tracking rules are “about profit, not privacy” and said it believes Apple is acting anti-competitive by using control over the App Store in a way that benefits profits. comes at the expense of developers and small businesses.
Apple told CNBC that the privacy feature gives iPhone users greater control and transparency over how their data is tracked and used for advertising, and that apps can explain the benefits of tracking to users in the prompt.
In outlining arguments for the ad ecosystem as it relates to the IDFA changes, MKM analysts said companies with scale and access to data will benefit from the first party if advertising dollars are attracted to such platforms. They also said the ad ecosystem is already dealing with a growing focus on privacy, and secular trends have become stronger despite headwinds caused by privacy regulation.
But in describing their bearish arguments, they said the effectiveness of mobile ads could also decline as the measurements will be “ fuzzy ” and companies with limited data from the first party will face headwinds. They also wrote that off-platform advertising could become less effective as cross-device advertising may not rely on the same device signals as before.
– CNBCs Michael Bloom contributed reporting.