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Should Apple's New Privacy Measures Make Investors Worry About the Future of Tech Stocks?

By Rachel Warren, Jason Hall, and Toby Bordelon – Nov 2, 2021 at 7:30AM

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Many top stocks in this sector had a bumpy week as third-quarter earnings season kicked off.

Apple's (AAPL 0.99%) new privacy measures have hit some tech companies hard, and companies in the adtech space particularly have seen increased share price declines and volatility. Should investors be worried about how these privacy changes could affect key tech players over the long-term? In this segment of Backstage Pass, recorded on Oct. 22, Fool contributors Jason Hall, Toby Bordelon, and Rachel Warren share their thoughts. 

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Jason Hall: Let's kick this show off, guys. First of all, we're going to talk about some topical stuff, some things that are in the news right now. We're in the middle of earnings season. The hour before this, every day, a lot of stuff about things that have happened over the past 90 days. Let's talk about the past 10 years.

S&P 500 has generated 349% in total returns. No matter what happened yesterday or what's going to happen next Monday or this week, it's been a pretty good decade. It's easy to remember to hold the line. When you remember that focus on the long term. Our first topic here on "The Five," the lead. Let me see here, I've got another chart somewhere if I can find it. I found it. I'm impressed with myself.

Go me. Yesterday, after the market closed, Snap reported earnings, so the social media platform. Find the purple one, do you guys see the purple line? That's Snap's stock today, closed down over 25%, and after-hours continued to fall, lost almost 27% today, there's a bunch of other stocks on this chart. The others are stocks on this chart, easy for me to mumble. We have Magnite ticker, MGNI down 13%. We have PubMatic ticker, PUBM down 10% 

Who else do we have here? AcuityAds, the Canadian adtech company lost 9%. Who else lost 9%? Trade Desk lost 9% today, Facebook down 5%. Twitter, almost 5%. Roku, for other reasons tied into this, and we'll talk about later, lost almost 4%.

Even Alphabet fell 3%, guys. Here's what happens, Snap, basically they reported terrible results, and blamed it on Apple. They said Apple's privacy measures with the newer versions of iOS are making it harder to measure data, and to effectively leverage the ad value of its platform.

We got a couple of questions here. I think it would be fun just to have a conversation about it, maybe you guys can share some individual thoughts. How much are Apple's privacy concerns? Do they concern you individually for the future of these companies? Then another one maybe to think about, is this a buying opportunity?

Then the third question, do you think there's a stock in this space? Maybe we'll save that when after we each share your thoughts on it. Maybe after that, we'll each share maybe a stock that we like in this space. Toby, how about you kick us off?

Toby Bordelon: Yeah. I don't know. Do the privacy measures concern me? For good companies, I don't think I'm concerned at all. I think for some marginal companies that's going to be an issue. It's like anything else, Jason. It comes down to whether the management is competent or not, honestly. Which we can have a discussion of this.

Hall: Right?

Bordelon: Yeah, exactly. You can probably rank companies in terms of which ones you think are going to do better or worse. But look, if management is confident they can figure this out. If you've done something like tied yourself in Apple, you say we're just going to take advantage of this space. We don't really know what we're doing.

We're going to advertise on the iOS platform, and we're having like this happens, you have a problem. But if you are in the ad business and I think you're not an idiot, this shouldn't be a big deal long-term.

Hall: You should've been working on this for six months.

Bordelon: Right. We've known about this. This was announced long time ago. CEOs get paid to figure this out.

Hall: Right.

Bordelon: That's what you do. I expect them to figure out and I'm not saying it's easy. There's probably some engineering challenges. It's going to take some time.

Hall: That's why you are the CEO and not me, [laughs] right?

Bordelon: Yes. That's why I'm not doing it. You are doing it. Right? But I think it's a solvable problem. We've seen some companies start to solve this. Hasn't the Trade Desk already started to deal with this?

Hall: Yeah.

Bordelon: They said, OK. Yeah, we've noticed happening. Here's how we're going to plan, although we don't think it's going to be a problem. I have a hard time taking Snap seriously, when they say it's Apple's fault when I have another company I can point to that got ahead of it and was like, OK, yeah, we are going to just rework some things then we can get ahead of this. A tale of two companies, I guess if you want.

Hall: Yeah, I think that's a good way to put it. Rachel.

Rachel Warren: I agree with you, Toby, and honestly, I really don't think this comes as a surprise to anyone that these privacy measures are having an adverse effect on companies that essentially rely on ads to fuel their businesses. I think it makes sense that you're seeing this imbalance and I think it's going to take time for companies to readjust. But I don't think it spells the end for these companies either. Stocks like Facebook were down today, and the company of course, is facing its fair share of its own media issues right now. But for example, I don't see that business faltering because of this.

I think that companies that operate in this space where the huge portion of their revenue is ad-based, I think they're going to be grappling with this for some time. I think investors are going to, especially given snaps kind of bumpy quarter, are going to be watching very closely to see what types of earnings companies like Facebook and Pinterest, for example, report next week. I think that'll be really interesting to see. I do think there's another point to make here.

While these Apple privacy measures, which now basically allow people to decide whether or not they want an app to track and disperse their data, may not be great for some companies' balance sheets, but I do think that there is a level of value on the individual level for the consumer. I think that this is a positive move in a sense, from a big tech company like Apple. Targeted ads are used for so many different purposes.

They might be used, for example, to sell a brand's products, which I think is one of the most common things we think of. But these ads have also been very problematic in recent years. Targeted ads have been behind some of the big divides we see online on social media platforms, misinformation and the like.

I actually found this really interesting on article by a D.C.-based think tank. They were explaining this move by companies to try to hold back the issues that have been happening with targeted ads. Essentially what they said was "content moderation is a downstream effort by platforms to clean up the mess caused upstream by their own systems designed for automated amplification and audience targeting."

Essentially these efforts don't change the systems that cause the problem, and they don't necessarily create greater transparency with the public about how these systems are changing, what people share, see, and know.

I think that this privacy move by Apple is very important. I think if companies had not been planning for this, that's unfortunate because I think this is a move that needs to happen in this digital sphere we're in. That's just my thoughts there.

Hall: Yeah, I tend to agree. I think at the end of the day, Toby, Rachel, if this was like the most important thing you were working on in terms of like the nuts and bolts of your app or your software or your algo, you need to be fired. You have no business operating a company in this area. That's the bottom line. But the other part of it I just hinted at, but I want to really stress it.

You also need to have great products. Because if you're Facebook or Snap, or one of these companies where your customers are the marketers and your users are the products. You have to have something that your users love. If you're working too hard to cram ads in and figure out how to maximize that ad revenue using the data, versus having an incredible product that marketers are going to want to market on because they know that users are going to be engaged. I think that's so important.

I really want to emphasize that. Because at the end of the day, there's always going to be an arms race on user privacy. There's always going to be the case. Alphabet has been working on it with Chrome. The whole thing with cookies. That's been going on for a long time. Apple as been talking about this for over a year, really. Like the cornerstone of how they market themselves, so Apple market itself is privacy and security.

That's their thing. Obviously, this is going to continue to be a challenge for the companies that are trying to attract marketers that want to put information in front of those marketers that say, hey, it's worth this much. You need to give us this much. But if your platform itself is not engaging in driving regular engagements and keeping people coming back, then you have a bigger problem than whether or not you are having trouble getting the most personalized data that you can use for targeted advertising.

Warren: Well, I think it also, it puts control back in the hand of the user to a certain extent.

Hall: Hundred percent.

Warren: I feel like that is a really important distinction because of the model of these companies where you know the users, like you said, is the product.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Jason Hall owns shares of AcuityAds Holdings Inc., Alphabet (C shares), Magnite, Inc, Pinterest, and The Trade Desk. Rachel Warren owns shares of Alphabet (A shares) and Apple. Toby Bordelon owns shares of Alphabet (A shares), Apple, and The Trade Desk and has the following options: short December 2021 $30 puts on Magnite, Inc and short January 2022 $42 puts on Pinterest. The Motley Fool owns shares of and recommends AcuityAds Holdings Inc., Alphabet (A shares), Alphabet (C shares), Apple, Facebook, Magnite, Inc, Pinterest, PubMatic, Inc., Roku, The Trade Desk, and Twitter. The Motley Fool recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.

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