Apple’s privacy changes likely not hurting second-quarter tech earnings – analysts

Wall Street has exhaustively tried to determine the kind of impact Apple’s recent privacy changes will have on digital advertising companies like Facebook and Snap. Second-quarter earnings reports from top ad-supported internet companies will finally start to give some answers.

Snap and Twitter will be the first of the major ad-supported internet companies to report earnings on Thursday, with Alphabet’s Google, Facebook, Pinterest and Amazon following next week.

The digital advertising industry has grown tremendously in recent quarters as stay-at-home trends such as e-commerce have benefited those players. Although this quarter has featured some hurdles like Apple’s changes, which give users more transparency and control over which apps they want to track for advertising, analysts see that momentum continuing this quarter.

“Digital advertising names should continue the strong revenue performance trajectory we’ve seen in recent quarters,” Bernstein analysts said in a note earlier this week. “The permeable advantage of digital ads should shine through as new ad spending pockets (travel and experiences, financial services and B2B) replace vertical spending with softer user interest (retail, media and gaming. ) “.

Bernstein analysts said they see a modest impact on ad spend due to reduced targeting capabilities and less confidence in the reported return on ad spend, which is driving ad spend from iOS to Android away from Google and shifting the objectives of the campaign.

But there is a strong enough momentum that those factors don’t matter as much.

“Given the tailwinds from the ad industry, IDFA’s revenue pressures are likely to be lost,” they wrote.

Wedbush analysts said the advertisers they surveyed are seeing an impact on ROI from Apple’s changes, showing that advertisers are reallocating budget and diversifying to other platforms.

“Despite the challenges of Apple’s changes, Google and Facebook remain dominant today and are often the platforms of choice for advertisers,” they wrote. “Google Search, Facebook, Google Shopping, and Instagram were most frequently ranked as the highest [return on advertising spend] platforms “.

But analysts also pointed out that the impact of these changes, which began rolling out in April, could bring a harder hit during the third quarter for these companies.

Here’s what to expect, as the top digital ad players report earnings.

Twitter receives about 85% of its ad revenue from the brand’s ad spend, which means it is likely to bypass many of the current problems related to ad targeting, analysts at Bernstein said in a note this week.

“Twitter can likely offer income guidance at the top of its peer group,” they wrote.

JP Morgan analysts said last week that Twitter was one of their top picks because of the sharp acceleration in ad revenue, strong commitment to product enhancements in areas like “themes,” and its prioritization of revenue products. They also mentioned the increased pace of development and innovation of the company and the pressure from activists driving “operational discipline.”

“Industry findings suggest that the online advertising market remains strong, supporting an increasingly digital economy, and we believe TWTR is benefiting from the return of events and launches, increased brand advertising, and growth of MAP advertisers, including sports betting, cryptocurrencies and investing, ”they wrote.

Bank of America analysts said the Twitter MAP, or direct response product ramp, remains a great opportunity. They added that the Olympics will be a revenue generator in the third quarter, but the IDFA changes could be a bigger headwind in the third quarter than the second.

“IFDA-related caution in guidance remains a Q3 risk for [the] industry-wide, although ad verifications suggest risk is contained for brand advertisers, “they wrote.

Bank of America analysts expect second-quarter revenue of $ 845 million for Snap, an 86% year-over-year increase, above management guidance and in line with street estimates. They said the slowdown may be a headwind for the third quarter to come, partly due to tougher comparisons and a stronger expected impact from Apple’s privacy changes.

“Targeting remains our big question mark, as a slowing ad spend retail market may continue to be offset by a historically strong season of back-to-school ad spend and an ongoing brand investment ramp for Snapchat.” Bernstein analysts wrote. “There is also a lot of excitement from investors around the monetization of Spotlight and Maps, although we also urge a bit of caution and do not expect a large revenue contribution from those platforms in the short term.”

JP Morgan analysts added that while iOS 14.5 is a concern and built into the guide, they believe the larger platforms are being managed. They said they expect a hike for the upper end of the 80-85% revenue guide.

Jefferies analysts said they believe analysts’ second-quarter revenue estimates are too conservative, as demand for ads from previously depressed verticals (such as travel or movies) has exceeded previous expectations. They said their ad checks have also found that iOS 14’s privacy headwinds haven’t materially impacted budgets.

Morgan Stanley analysts seem equally indifferent to the impact of iOS 14, saying that while there will be some “bumps” in the short term, they will be “totally manageable.” They model advertising revenue growth of 54% in the second quarter, 4% above street estimates.

“While we hear about some attribution challenges related to IDFA in closer terms (and a few dollars drifting away from FB in the 2H budget), we are not aware of any material weakness in FB auction market prices, which which refers to the durability of the ads that more than 10 million advertisers on FB can contribute, ”they wrote.

Evercore ISI analysts said in a note last week that they view the consensus revenue growth estimate of 49% year-over-year in the quarter as potentially conservative. They cited figures from Branch Metrics saying that less than 33% of iOS users have opted for tracking since Apple’s April update, and that 70% of iOS devices are using the most recent version at the end of June. They also cited figures from Tinuiti saying they have seen customer spending on iOS drop and Android spending rise between June and July.

“It is unclear how this update has impacted overall ad spend on Google and Facebook, but we believe the update has been irrelevant to date,” they wrote.

Bernstein analysts said they expect sequential growth for Google led by a continued recovery in travel and a fasting-than-expected return from Google Maps that offsets any weakness in retail-related searches.

“YouTube should also see modest sequential revenue growth led by brand spend tied to Connected TV, while the networking business should see another exceptional quarter led by ad dollar turnover on Android from iOS, although these gains are temporary. ”They wrote.

Evercore analysts said they see the street ad revenue growth estimate of a 1% QoQ drop as potentially conservative. They forecast $ 57.1 billion in revenue, slightly above street estimates. They said the strength in demand for online ads has persisted.

“We believe that Google’s exposure to travel and strong positioning in local (ie brick-and-mortar stores) will provide tailwinds for ad revenue growth in a reopening scenario,” they wrote.

Amazon made its first presentation at IAB NewFronts this spring, marking its foray into the digital media version of traditional television screens, when advertisers have traditionally committed a large amount of their annual television spending. The company also announced that it would exclusively stream Thursday Night Football, further underscoring Amazon’s streaming ad ambitions.

“It’s clear that the company’s advertising ambitions extend beyond product search ads, and we’re here for it,” Bernstein analysts said in a note Wednesday. They forecast 70% year-on-year growth in the second quarter, and said Amazon should benefit from a shift from display to video ads, “which should translate into more effective and higher-priced ad units.”

“The MGM deal and the acquisition of the NFL rights further amplify the opportunity at AVOD and diversify the advertising opportunity for Amazon,” they wrote.

Evercore analysts forecast 73% growth for ads in the second quarter. They cited Jounce Media as the painting of Amazon’s closed-loop attribution model as a key growth engine for the company.

Changes related to the privacy of gamers like Apple and Google are expected to affect the ability of advertisers to target ads the way they have. But Amazon has a strong first-party relationship with consumers, which means it can provide marketers with richer data than they could get on other platforms when they can use less third-party data. That could position it attractively for quarters to come.

Evercore analysts forecast $ 559 million in revenue in the second quarter, up 105% year-over-year, slightly below street estimates and consistent with guidance.

Meanwhile, Bernstein analysts said in a note that investors will be watching closely what the revenue guidance looks like for a high-volume retail platform.

“We hope that management will focus their efforts and feedback on the company’s efforts to move further into the funnel and get users to transact on the platform – the BUY button,” they wrote. While always part of the roadmap, progress on this front takes on particular importance under a cloud of stark turnout comparisons and fears surrounding temporary gains related to the pandemic. We welcome such a direct turn. ”

– CNBC’s Michael Bloom contributed to this report.