The world of digital advertising is once again on the verge of a sea change, the result of the latest privacy move by Apple (NASDAQ:AAPL). With an upcoming update to iOS 14, iPhone users will be required to explicitly consent to allow app publishers to track them across the apps and websites they visit. This has the digital-advertising industry up in arms.
Facebook (NASDAQ:FB) is sounding the alarm, saying its business will be "severely impacted" by Apple's decision. The company has even gone so far as to take out a full-page ad in The Wall Street Journal decrying the move and claiming it will be harmful to small businesses, though its claims are tenuous, at best.
It's important to note, however, that not all digital advertisers are created equal. Take The Trade Desk (NASDAQ:TTD), for example. It said it doesn't expect the change to create a material impact on its business. What's an investor to think?
IDFA: A primer
To understand what all the fuss is about, it's important to know what's actually happening. The identifier for advertisers (IDFA) is a unique ID assigned to each iOS device, which currently allows app publishers to track the activity on a specific device as it moves between apps and websites, in order to provide more individualized and targeted advertising.
In previous versions of iOS, users could opt-out by choosing the "limit ad tracking" option in their device settings. This resulted in roughly 30% of users opting out in 2020. Apple announced that it will roll out an update to iOS 14, now scheduled for early 2021, that will notify iPhone users of the tracking and specifically require users to opt-in for each app, in order to continue being tracked. It's estimated that after the update, the number of users sharing their data will drop to between 10% and 15%, plummeting from roughly 70% today.
With an installed base of more than 1.5 billion devices worldwide and an estimated 900 million iPhones, Apple could have a significant impact on the ability of marketers to provide relevant advertising to iOS device users.
A tale of two advertisers
Facebook has been justifiably concerned about the development, as its ability to deliver targeted ads to iPhone users will be severely limited. The company has conducted internal testing and seen "more than a 50% drop" in the revenue generated by its Audience Network advertising platform when it removed the ability to offer up these highly targeted, personalized ads. Facebook even said it's considering shuttering the platform for iOS 14.
The Trade Desk is not expecting the same kind of hit. In the latter company's third-quarter conference call, CEO Jeff Green went to great pains to lay out why Apple's move isn't expected to impact its business very much. Green said that only about 10% of the advertising spend conducted on its platform is reliant on IDFA, a figure that has been consistent for quite some time, saying it "doesn't have a material impact to our business." The Trade Desk serves more than 12 million ads every second, with only about 1 million of those related to IDFA.
Green also points out that limiting IDFA across all apps will have a negative impact on the customer experience, specifically citing cases like Netflix or Dropbox. After a time, he theorizes that companies will go back to consumers, inviting them to "upgrade" their experience by opting back in, which he believes will ultimately be successful.
A final note
By limiting its exposure to IDFA, The Trade Desk has insulated itself against the issues now faced by Facebook. It remains one of the undisputed leaders in programmatic advertising but is still just getting started. The Trade Desk generated revenue of $661 million last year, which pales in comparison to the roughly $29 billion that was spent on programmatic advertising in 2019.
Fears regarding the impact of Apple's move were partially responsible for a decline in The Trade Desk's stock price in recent weeks, as shares have dipped nearly 16%. That gives astute investors the opportunity to buy this high-flyer at a significant discount.