Apple drops a bomb on advertising stocks with the new iOS 14.5 update

Apple is about to drop a bomb on the advertising stocks with its iOS 14.5 update (releasing next week) and anything to do with advertising is about to feel the pain.

This includes social media companies, app developers, adtechs and even e-commerce brands, just to name a few.

How will the update affect companies?

Once you update your iPhone, users will have the option to opt-out from having their activity tracked upon opening an app… And dating app, Bumble ($BMBL) is expecting at least 80% of people will opt-out.

Why does this matter? Apps like Facebook rely on tracking devices for targeted ads. Without them, advertisers have less information on consumers which could result in the performance of ads falling.

In a hail mary, Facebook even took out a full-page ad on NYT to criticize Apple’s iOS changes — saying it’ll devastate small businesses that rely on advertising for sales.

How bad is the damage?

According to Ken Rumph, a tech analyst at Jefferies, ad prices could fall over 50%  and ad performance metrics could go haywire for several months until ad prices and data stabilizes.

While the impact of the ads might not be known for months, companies are already getting ready for a drop in sales:

• Facebook ($FB) anticipates a 7% fall in its second-quarter sales according to Eric Seufert, a marketing strategy consultant.
• Unity ($U), an app development tool that also helps apps advertise their games is expecting a 3% ($30m) fall in sales.

In 2022, Google is planning on removing the third-party cookie — used by advertisers to send targeted ads  — which will also deliver yet another blow to advertisers.

Investors… Brace for impact on advertising stocks

Nearly every company that has anything to do with advertising (which is a lot) could be impacted…

But the impact depends on a company’s reliance to advertising —i.e. Facebook who generates 98% of its sales from ads could be impacted more than a dating app like Bumble that supplements its product with ads.

Some of the players that could be impacted:

• Social media companies — Pinterest ($PINS), Snap ($SNAP) and Alphabet ($GOOGL)
• AdTech platforms — TradeDesk ($TTD), Magnite ($MGNI), Pubmatic ($PUBM) and Viant Technology ($DSP)
• App developers/marketers — Unity ($APP), AppLovin ($APP)

Brands that rely heavily on social media advertising could also see the returns/performance on ads drop — leading to lower sales/higher marketing expenses.