Apple’s new system dragged Snap down 26%. Are Facebook and Twitter okay?

Last Friday, Snap (NYSE:SNAP), the parent company of Snapchat, the most popular social media platform for young people in the United States, plunged 26.59% in its stock price because of its previously announced earnings report that was less than expected. Among the many reasons that led to the performance below expectations, the most important one is that Snap mentioned in the financial report the "disruptive" impact of Apple's iOS 14.5 system update on the company's business model.

Regarding the issue of iOS 14.5, most investors may be familiar with it. In April of this year, Apple’s iOS update system 14.5. After this update, when Apple users open a new app, a prompt box will display "Would you like this app to track your behavior on other apps?" According to mobile app research Data from the company Flurry shows that only about 15% of users will choose to "consent to tracking", and as of August, about 80% of iOS users have updated this version of the system.

This update issue has little impact on Apple itself, because more than 80% of the company's revenue comes from the sale of hardware products, and advertising revenue is only less than 1%. However, it has a greater impact on a series of companies that rely on advertising revenue, such as Snap, Facebook (NASDAQ:FB), Twitter (NYSE:TWTR), Google (NASDAQ:GOOG), and Roku Inc (NASDAQ:ROKU). As of last Friday's close, except for Snap's plunge, all related stocks have been hit.

This week, Facebook, Twitter, and Google’s parent company Alphabet will all announce the latest quarterly financial reports. By then, the loss of Apple’s iOS 14.5 system in major apps may become clearer.

Apple's move may indeed change the rules of the game in the current target advertising field.

For a long time, targeted advertising has been the backbone of the Internet economy, but Apple’s move means that “Party A’s fathers” cannot tell whether users have seen the advertisements on these apps. Snap pointed out in its earnings report, “Apple’s new system makes it harder for advertisers to target the audience they want, and it’s also harder to measure the effectiveness of advertising.”

Snap CEO Evan Spiegel said, "These changes by Apple have overturned many industry norms based on IDFA (Apple's advertising identifier, which aims to track users across applications and websites, and then achieve ad targeting and push) in the past decade. And user behavior, users now need a double choice to access IDFA directly. Although Apple has introduced a proprietary solution called SKAN, which allows APP-based advertisers to continue to measure the effectiveness of their ads on iOS. However, this new strategy It’s not very effective, and it’s not an independent choice."

Needham analyst Laura Martin pointed out that 100% of Snap’s revenue comes from mobile devices, half of which comes from direct response ads aimed at stimulating consumer purchases. According to her estimates, 70% of Snap’s advertising revenue comes from Apple devices.

More importantly, the analyst also pointed out that Facebook's advertising business is as dependent on mobile device advertising as Snap.

Earlier, Facebook bluntly warned investors that Apple’s move would greatly damage its business. The company's CFO stated in the last quarter that the impact of iOS 14.5 in the third quarter will be higher than in the second quarter. Facebook, which will release its earnings report on Monday, also fell nearly 6% in intraday trading last Friday, evaporating more than $50 billion in market value.

Previously, Facebook’s vice president of product marketing Graham Mudd once stated in a blog statement that the company’s reported iOS 14.5 page conversion rate was 15%, considering that the system has been updated for a while, and it was not recognized until September. According to the data, it seems that Facebook does have a "guilty conscience".

Previously, Facebook also tried to prevent Apple from overturning the new regulations through advertising, newspapers and other public opinion methods, but unfortunately, they still need to face the current "dilemma."

Compared with Facebook and Snap, Apple's iOS 14.5 system has a relatively smaller impact on Twitter and Google. On Friday, the two stocks fell by 4.83% and 2.91%, respectively.

Among them, Twitter is more dependent on brand advertising, rather than direct response advertising of Snap and Facebook. In addition, search ads on Google do not rely on Apple's tracking data, because search itself allows targeted ads that do not rely on personal information.

At the same time, Roku has also been affected. Although Roku does not rely on the Apple platform, it has highly targeted advertising. In addition, advertising infrastructure companies were also hit hard, with Trade Desk (TTD) down 6.7%, Magnite (MGNI) down 9.4%, and PubMatic (PUBM) down 8.9%.

However, Wall Street is not all negative and pessimistic.

Although Apple’s iOS 14.5 system has indeed had a greater impact on social media companies, Morningstar’s analyst Ali Mogharabi is still optimistic about this sector. He believes that including Snap and its peers, advertising agencies and advertising technology companies. Said that it may be possible to quickly solve this problem caused by Apple.