Why Magnite, The Trade Desk, And Other Ad-Tech Stocks Dipped On Friday
The actions of a slew of digital advertising stocks took him on the chin on Friday. Programmatic Advertiser PubMatic (NASDAQ: PUBM) was down to 14.3% on Friday, platform sell side Magnite (NASDAQ: MGNI) was down 13.8%, specialist in online advertising technologies Criteo (NASDAQ: CRTO) fell by 10.5% and the digital advertising hub The trade office (NASDAQ: TTD) was down to 9.6%. As each stock rallied slightly, the quartet ended the session down 10.2%, 13.6%, 10.3% and 8.8% respectively.
The catalyst that drove ad tech stocks down was the dismal results of the social media company Break (NYSE: SNAP), and an understandable but tenuous link.
Snap shares sold strongly after the company released weaker-than-expected results and weak guidance for the fourth quarter. Investors were also frightened by management’s comments on the cause. On the earnings conference call, CEO Evan Spiegel blamed the weakness Apple (NASDAQ: AAPL), stating: âOur advertising business has been disrupted by the changes to iOS and tracking that were widely rolled out by Apple in June and Julyâ¦ making it more difficult for our advertising partners to measure and manage their advertising campaigns for iOS . “
He went on to say that the changes made by the tech giant “have shaken many of the industry standards and behaviors of advertisers based on IDFA, Apple’s unique identifier for advertising over the past year. decade”. Finally, Spiegel accused Apple’s ad measurement solution – SKAdNetwork or Scan – was “unreliable as a stand-alone measurement solution.”
So what does all of this have to do with The Trade Desk, Magnite, and other ad tech actions? Investors were clearly concerned that the “Apple effect” would spill over into digital advertising in general. In addition, a number of analysts have raised the specter that this issue could drag on for several quarters.
Piper sandler Analyst Thomas Cook summed it up in a note to customers, saying Snap’s results suggest “a more difficult earnings season,” especially for those exposed to direct response advertising. He went further, saying the changes made by Apple “increase the level of uncertainty and may worsen before the workarounds take effect.”
It was enough for investors to sell first and ask questions later.
While the knee-jerk reaction is certainly understandable, Apple doesn’t pose as great a threat to these ad tech companies as today’s sale might suggest.
Trade Desk CEO Jeff Green addressed the issue late last year, noting that overall, less than 10% of ad spend on his platform is “IDFA dependent,” stating that âhas no significant impact on our business. He went on to say that The Trade Desk scans about 12 million ads per second, and about 1 million of them depend on IDFA.
Part of the reason for its trust is the work The Trade Desk has done on its Unified ID 2.0 initiative, the company’s open source ad tracking platform that does not rely on personally identifiable information, the IDFA or ad tracking cookies. On the fourth quarter 2019 results conference call, Green said:
Advertisers know we can help them do their modeling work with a limited amount of data or a large amount of data. If we’re operating in a world with less data, we’re pretty darn good at it. Our whole system is built around objective choices with limited data.
It’s also important to remember that Magnite, PubMatic, and Criteo won’t be worse off than The Trade Desk, because each of these ad tech companies works. with company and adopted its Unified ID 2.0 platform.
There is no doubt that digital advertising is in the midst of a paradigm shift and advertising technology companies could feel a drag on their short-term results.
Having said that, it seems today’s sale was an overreaction; and for investors with a sufficient time horizon, today’s decline appears to represent an opportunity to buy quality stocks at a discount.
This article represents the opinion of the author, who may disagree with the âofficialâ recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.