Early last week, Alphabet (NASDAQ:GOOGL) (NASDAQ:GOOG) subsidiary Google made an announcement that stunned the digital advertising world. The company said that it was planning to eliminate ad-tracking cookies (something that's been in the works for more than a year), but it then went even further.
In a blog post on Google's website, product management head David Temkin said, "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." This revelation sent the stocks of digital advertising icons The Trade Desk (NASDAQ:TTD) and Magnite (NASDAQ:MGNI) plummeting. They ended the week down 18% and 23%, respectively, in the wake of the announcement.
While this knee-jerk reaction is certainly understandable, Google's move is much less ominous than it appears at first glance.
Not much has changed
While it might appear that this would be a blow to digital advertising, things aren't always what they seem. In fact, to hear The Trade Desk CEO Jeff Green tell it, this isn't a big deal. He reports "fielding dozens of calls" about what Google's latest move means for the future of The Trade Desk. His response might surprise you: "The short answer? Not much has changed. But what has changed, will ultimately prove positive."
Green points out in a blog post that, "cookies are going away after all," something we've known for some time. But that doesn't tell the whole story. "Cookies only impact the browsing internet" (emphasis added), he said. "That's about 20% of data-driven ads today."
Green went even further, saying, "Cookies don't matter much to the fastest growing areas of the digital advertising ecosystem, such as CTV [connected TV]." Consumer logins provide a mechanism to provide customized viewing experiences and better ad targeting -- and those don't rely on cookies.
Forewarned is forearmed
In fact, The Trade Desk has been planning for this moment for years. Back in 2018, The Trade Desk introduced the Unified ID, an open-source ad-tracking technology platform that doesn't rely on third-party cookies or personally identifiable information. In describing the company's value proposition early last year, Green had this to say, "Advertisers know that we can help them do their modeling work with a limited amount of data or a vast amount of data. If we operate in a world with less data, we're darn good at that. Our whole system is built around making objective choices with limited data."
The Trade Desk has continued to upgrade its capabilities and announced in mid-2020 that it would roll out Unified ID 2.0.
Magnite won't be any worse off than The Trade Desk. As the world's largest independent sell-side advertising platform, Magnite announced late last year that it endorsed and was adopting Unified ID 2.0, meaning it will have access to the same platform and ad-targeting data The Trade Desk has.
An Apples-to-Apples comparison
The Trade Desk had a similar reaction to Apple's (NASDAQ:AAPL) recent decision regarding the identifier for advertisers (IDFA). In an upcoming version of iOS 14, iPhone users will be asked to explicitly allow app publishers to track them across apps and websites. The move is expected to limit ad-tracking in Apple's ecosystem. The number of iPhone users opting to allow tracking is expected to drop to between 10% and 15%, down from 70% today.
Green's narrative was remarkably similar when discussing Apple's move to improve user privacy. Late last year, during The Trade Desk's third-quarter conference call, he made the case that Apple's decision wouldn't have much of a negative impact on the company's business. The Trade Desk looks at roughly 12 million ads every second, and only about 1 million of those are related to IDFA, resulting in minimal impact.
Much ado about nothing
Both The Trade Desk and Magnite were already caught up in the broad-based tech sell-off that has vexed investors since mid-February. The panic selling that engulfed both companies in the wake of Google's announcement left both stocks down more than 30% from their recent highs. It's worth taking a broader view, however. Since the pandemic-induced sell-off last March, The Trade Desk and Magnite have been among the stock market's best performers, returning 320% and 675%, respectively.
Armed with the knowledge that not much has changed, investors are presented with a clear buying opportunity for these two advertising kingpins -- before the rest of the market comes to its senses.