What happened

Shares of many companies that specialize in targeted online advertising stumbled and fell on Wednesday. Ad-buying platform giant The Trade Desk (NASDAQ:TTD) dropped 12.8%, sell-side specialist Magnite (NASDAQ:MGNI) sank 12.8%, and ad retargeting expert Criteo (NASDAQ:CRTO) slumped 1.6%.

Besides getting swept up in a marketwide retreat from skyrocketing growth stocks, these companies' shares also reacted to some news from online advertising titan Google, a unit of Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL). Alphabet's stock fell more than 2%.

So what

Ad-targeting companies such as Criteo, The Trade Desk, and Magnite rely on so-called third-party browser cookies for their data gathering and organization efforts, particularly when ad campaigns are shaped around the specific browsing behavior of specific web users. When Google said that third-party cookies are going away someday soon, that was a tough blow for the ad-targeting industry. Today, Big G took the next step of promising to make it harder to replace cookies with alternative user-tracking technologies.

Falling stock charts superimposed over digital map of the world

Image source: Getty Images.

"Today, we're making explicit that once third-party cookies are phased out, we will not build alternate identifiers to track individuals as they browse across the web, nor will we use them in our products," said David Temkin, Google's director of product management, ads privacy, and trust. Furthermore, Temkin argued that workarounds such as user tracking by email addresses will eventually fail as users demand tighter browsing privacy under an evolving regulatory framework.

Google's market-leading Chrome browser will gain new privacy controls in April as the first step toward deeper privacy protections by default.

Now what

It's no surprise to see ad-tracking stocks taking Google's updated privacy plans right on the chin. At the same time, Temkin also said that online advertising will continue to be important to both users and businesses in the future, just with a different set of user-specific privacy expectations.

"This points to a future where there is no need to sacrifice relevant advertising and monetization in order to deliver a private and secure experience," he said. In addition, he expects ad campaigns to grow closer to each brand's direct relationship with each customer.

That's why Criteo took a smaller price cut than its rivals today. Some ad-tech companies are better prepared for the coming changes than others. Criteo has built a matchless network of first-party client relationships over the years and recently announced that it would shift toward the client-specific kind of ad retargeting that Temkin alluded to at the end.

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