Tech

Why Google's elimination of third-party cookies is unlikely to kill ad-tech stocks

Key Points
  • Google announced Tuesday that it planned to end support for third-party cookies within two years.
  • Shares of ad-tech company Criteo fell to a record low on the news.
  • Here's what analysts are saying about how the announcement will impact Criteo, LiveRamp, The Trade Desk and Rubicon.
Sundar Pichai, senior vice president of Android, Chrome and Apps for Google Inc., speaks during the Google I/O Annual Developers Conference in San Francisco, California, U.S., on Wednesday, June 25, 2014.
David Paul Morris | Bloomberg | Getty Images

Google's announcement on Tuesday that it would end support for third-party cookies pummeled Criteo's stock and weighed on shares of other ad-tech providers on concern that they will have less data to use for targeting and retargeting ads to consumers.

Advertisers and ad networks add cookies, or small bits of code, to browsers so they can track the sites that consumers visit, creating profiles that help them target messages and campaigns. With Google facing intensifying pressure from regulators to bolster privacy protections, the company now plans to phase out third-party cookies in its Chrome browser within two years.

While the announcement was immediately felt among investors in ad-tech companies, analysts responded throughout Tuesday and Wednesday pointing out that the industry has been expecting this sort of change from Google, and the relevant companies have been preparing for a transition. They also noted that two years is a sufficient amount of time to allow more cookie-reliant companies to diversify and collect data in other ways.

That doesn't mean it's going to be easy, particularly for companies that have become increasingly reliant on data from the most popular websites and online publishers.

Here's what analysts had to say about some of the biggest ad-tech companies in the aftermath of Google's announcement.

Criteo

Criteo plunged 16% on Tuesday, closing at a record low, before dropping another 7% on Wednesday. It's lost more than 40% in the past year, pushing the French company's market capitalization to about $900 million.

In a statement on its website, Criteo said that it's diversifying its identity solutions to work beyond third-party cookies and said a "significant and growing share" no longer relies on that technology.

Citigroup analysts called the stock drop "overblown" in a note to clients and said the Chrome changes are "not necessarily bad for ad-tech," citing Google's blog post, which indicated that it intends to work with players in the ecosystem to find an alternative solution while phasing out the use of cookies.

"In our view, larger ad-tech players can likely participate in and weather any potential changes in 2-years," they wrote. It also "has the potential to accelerate consolidation within the ecosystem as smaller players struggle to adapt."

Keybanc analysts, who have a neutral rating on the stock, are more skeptical, claiming that the uncertainty around how Google will allow for targeting and retargeting in Chrome will hold back the shares.

"We continue to believe the most likely outcome includes a purpose-built identifier for advertisers similar to what exists in Apple and Google's app ecosystems," they wrote. "However, this will remain unclear for the foreseeable future, which suggests the risk to Criteo's stock is likely to persist."

The potential downside is dramatic, they wrote, because "if Google moves away from individualized targeting entirely, Criteo's business could be severely harmed."

SunTrust Robinson Humphrey analysts, who recommend buying Criteo shares, underscored that uncertainty in a note, writing that "the announcement prolongs uncertainty (as oppose to resolving it) that we cannot solve for as we do not know and may not know for some time how CRTO's solution/efficacy will be impacted by changes."

LiveRamp

LiveRamp, which helps advertisers identify consumers across devices and channels, fell 3.2% on Tuesday.

Morgan Stanley analysts wrote on Wednesday that they viewed the announcement "as at least a net neutral, and potentially a positive" for LiveRamp.

The analysts, who recommend buying the shares, wrote that a move to less reliance on third-party cookies has "long been priced into RAMP shares," and could help LiveRamp promote its product that enables the purchasing of inventory without third-party cookies.

"More than anything else, we view today's announcement as a broader message to the advertising industry for further collaboration in creating a more [privacy-centric] web, where we see [LiveRamp] fitting in very well," they wrote.

LiveRamp's CEO Scott Howe said in a statement that the announcement was in line with the company's expectations and that it has "championed several open and neutral solutions" that don't need third-party cookies.

"If anything, these changes to third-party cookies accelerate our efforts around these solutions and related initiatives, as well as underscore the importance of our neutrality and open approach," he said. 

Jeff Green, CEO of The Trade Desk
Scott Mlyn | CNBC

The Trade Desk

The Trade Desk, which is working on new approaches to drive relevant advertising without holding identifiable personal information about consumers, dropped 1.4% on Tuesday.

Citigroup analysts wrote that the company "did not appear to be impacted by the news and was largely down with its peer group" at market close.

The Trade Desk has been the one ad-tech company to break out on the public markets in recent years, climbing over 480% in the past two years to a market cap of close to $13 billion.

Dave Pickles, the company's founder and chief technology officer, wrote in a blog post on Wednesday that cookies are an "archaic technology" and argued that relevant advertising will remain.

"The majority of ad impressions that The Trade Desk processes today do not rely on cookies," he wrote. "That's because the fastest growing segments of the industry, such as the booming Connected TV market, rely on newer identity solutions. Advertisers on The Trade Desk platform can already operate effectively in a cookieless environment."

He wrote that the company has been working on new approaches to help advertising be relevant "without ever having to know or hold directly identifiable personal information about a consumer."

"We don't use this information today, and never have," he wrote.

Rubicon and Telaria

Rubicon Project actually rose 1% on Tuesday but then dropped 4.4% on Wednesday.

The company, which offers technology to automate buying and selling ads online, should see "less (if any) potential disruption/uncertainty" in comparison to Criteo, wrote analysts at SunTrust Robinson Humphrey. They have a buy rating on the stock.

Rubicon's pending merger with video ad management software platform Telaria "further cushions any impact, in our opinion," they wrote. Telaria was down 3.4% on Wednesday.

CNBC's Michael Bloom contributed to this report.

Correction: This story has been updated to reflect that The Trade Desk does use cookies, but not identifiable personal information.

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