Back in 2019, Alphabet's (GOOG 2.36%) (GOOGL 2.39%) Google started developing a "privacy sandbox" to keep users' data private while browsing the web. It revealed more detailed plans in 2020, and said the sandbox would pave a "path toward making third party cookies obsolete."
That move wasn't surprising, since Apple's (AAPL 2.14%) Safari, Microsoft's Edge, and Firefox already block third-party cookies. But Google's plans to block all third-party cookies on Chrome -- which controls nearly two-thirds of the global browser market, according to Global Stats -- still sent tremors through the online advertising market.
Google planned to implement those changes in 2022, but recently postponed the push to 2023, citing a "need to move at a responsible pace" to accommodate publishers, advertisers, and regulators.
That announcement lifted shares of many ad-tech stocks, since some investors presumed Google would leverage its sandbox to tighten its grip on the advertising supply chain. Let's examine two ad-tech stocks that could benefit from that delay: Magnite (MGNI 2.76%) and The Trade Desk (TTD 4.05%).
Magnite became the world's largest independent SSP (supply side platform) ad tech company after emerging from the merger of Rubicon Project and Telaria last April. SSPs enable publishers and digital media owners to manage and sell their ad inventories.
Google's Ad Platform also offers SSP services, but Magnite is a popular choice for publishers that don't want to be tethered to Google's ecosystem.
Last year, Magnite generated 49% of its revenue from mobile platforms, 36% from desktop platforms, and the remaining 15% from CTV (connected TV) platforms like set-top boxes and smart TVs. Its mobile and desktop revenues rose by the double digits, but it repeatedly cites its CTV business -- which it gained by merging with Telaria -- as its core growth engine.
Magnite also expects its revenue from video ads, which accounted for 45% of its pro forma revenue last year, to continue climbing after its upcoming takeover of the CTV and video platform SpotX.
Magnite's stock is still trading about 40% below its 52-week high, due to ongoing concerns about Google and Apple's privacy changes in iOS 14.5 and the broader sell-off in pricier growth stocks.
Google's proposed changes could certainly impact Magnite's mobile and desktop businesses. But now that those changes have been postponed, Magnite will have more time to expand its high-growth CTV business, which should be well-insulated from the elimination of third-party cookies.
Magnite's revenue and adjusted EBITDA rose 42% and 68%, respectively, last year, even as the pandemic temporarily throttled demand for ads. Analysts expect its revenue and adjusted earnings to grow another 79% and 241%, respectively, this year, as it integrates SpotX.
Those are stellar growth rates for a stock that trades at 44 times forward earnings and 12 times this year's sales -- so it could still have plenty of upside potential as it expands its video business and updates its SSP services to cope with the changing privacy standards on iOS and Android.
2. The Trade Desk
The Trade Desk sits on the opposite end of the ad supply chain. It's the world's largest independent DSP, or demand-side platform, enabling companies to bid on programmatic ads in real time.
Google's Ad Platform also provides DSP services -- but just like its SSP services, those tools primarily serve its own ecosystem of apps and services. However, Google's elimination of third-party cookies could still make it tougher for The Trade Desk to match ad buyers to the right targeted ads.
But like Magnite, The Trade Desk expects the secular growth of the CTV industry to reduce its dependence on mobile and desktop ads. It also expects to sell more ads to audio buyers on streaming music platforms.
The Trade Desk doesn't break down its revenue by individual platforms, but it calls CTV and audio its "fastest growing channels". Its revenue and adjusted EBITDA rose 26% and 33%, respectively, last year -- which indicates it was just as resistant to the pandemic as Magnite.
Back in March, The Trade Desk estimated Google's ban on third-party cookies could impact the browser-based ads that account for about 20% of data-driven ads today. However, it also pointed out that the ban wouldn't affect its growing CTV business, and many cookies had already been replaced by a newer privacy-oriented technology called Unified ID (UID) 2.0 -- which won't be affected by Google's privacy sandbox.
Google's delay could give The Trade Desk more time to strengthen its CTV and audio businesses, while untangling third-party cookies from its mobile and desktop platforms. Wall Street expects The Trade Desk's revenue to rise 36% this year, but for its adjusted earnings to dip 10% as it ramps up its investments in CTV platforms and expands into more overseas markets like China and Indonesia.
The Trade Desk is much pricier than Magnite at 109 times forward earnings and 33 times this year's sales -- but the bulls could remain interested in this growth stock as its near-term headwinds wane.