Google shook up ad-tech stocks by ditching 'cookies,' but the industry may have found a solution

Published Tue, Nov 17 202012:42 PM EST

Key Points

Nearly a year after Google announced it would be ending support for third-party cookies, analysts seem optimistic about a Plan B that several top public ad-tech firms are collaborating on.
A new targeted advertising initiative called "Unified ID 2.0" will rely on hashed and encrypted email addresses from consumers who opt-in.
Here's what analysts say the initiative means for companies that help with advertising on the "open internet."

When Google said in January it would be phasing out support for third-party cookies, the announcement immediately weighed on shares in the ad-tech space. Investors pondered whether the change would have grim effects on certain advertising companies. But 11 months later, analysts are optimistic about a new way of targeting ads that several top public ad-tech firms are working on together. The initiative, called Unified ID 2.0, bodes well for shares in companies that operate on the "open internet," or outside of "walled gardens" like Facebook or Google. Those open internet companies include The Trade Desk , which is leading the development of the ID. Other ad-tech firms Criteo and LiveRamp also recently said they were collaborating on Unified ID 2.0, along with a growing list of other companies. Cookies are small pieces of code that web sites deliver to a visitor's browser, and stick around as the person visits other sites. They can be used to track users across multiple sites, to target ads and see how they perform. Google earlier this year said it would end support for those cookies in Chrome once it had figured out how to address the needs of users, publishers and advertisers and come up with tools to mitigate workarounds. The company said its intention was to do that within two years. That's why the industry started working on this initiative, which follows guidelines outlined by the IAB Tech Lab's "Project Rearc " to create ways of digital marketing that balance consumer privacy while maintaining "personalization" in advertising. Unified ID 2.0 will rely on email addresses that are hashed and encrypted from consumers who give their consent. The Trade Desk paints the identifier as a superior alternative to cookies that better explains to consumers how relevant advertising funds the content and experiences they read or use on the internet. The initiative has gained steam with a string of other high-profile partners: On Monday, Magnite (the product of a merger of public ad tech companies Telaria and Rubicon Project) announced it would also be collaborating on Unified ID 2.0, along with independent ad exchange Index Exchange . Nielsen also recently announced its involvement. And the future of the ID looks bright. Oppenheim analysts said Unified ID 2.0 represents a "tectonic shift" in how measurement and attribution will be done, and in how digital advertising will work in the future. Some analysts remarked that the high-profile industry collaborators make the effort more viable. But a challenge ahead could be inherent competition in the ad-tech space, Andrew Frank, a marketing and advertising analyst at Gartner said. "The question I would be asking is, are the forces that favor cooperation strong enough to overrule the forces that instinctively cause these companies to see each other as competitors? And if so, does that mean that we're just creating a new walled garden?" Frank told CNBC. "And I guess the third one is, will it pass muster with the regulators and privacy advocates?" He added that it's been an impressive feat to get so many companies onboard in a short span of time, but "they're not the entire waterfront." Analysts said the benefits of the initiative will be a boon to the sector in general largely, rather than a benefit to each of the companies participating in the effort, in a "rising tide lifts all boats" fashion. Here's how some of the major players are taking part in Unified ID 2.0, and what a strong third-party cookie replacement means for them. The Trade Desk Analysts thus far have been positive on The Trade Desks' work on the ID, which has been gaining new partners by the week. The company says it's beta testing Unified ID 2.0 with several publishers and partners, and plans to become broadly available in the first half of 2021. It comes as The Trade Desk is on a hot streak. The company, which has a market cap of $35 billion, has climbed far beyond its pandemic-related lows earlier this year. It hit a new 52-week high of $847.50 earlier this month after reporting third quarter earnings that showed evidence of a rebound of advertising spend on its platform and growth in its connected TV business. Shares were up 186% year-to-date as of Monday. But The Trade Desk has said that it does not seek to benefit uniquely from the effort. Instead, it says the ID is meant to be an open-source, collaborative initiative that will eventually be administered by an independent entity. The company says the intended benefit is for the future of the open internet, which would help the company itself and the industry overall. "I think that's a believable story, because they want the ecosystem to be healthy, particularly if you think about it in contrast with the walled gardens taking over the digital media ecosystem," Gartner's Frank said. But competitive considerations remain. "There's still a lot of companies that probably feel that this is a threat to at least some of their proprietary technology... And they're also probably a little bit suspicious of what sort of hidden advantages this would give to The Trade Desk, which is a competitor." Tim Nollen, a media analyst at Macquarie, said The Trade Desk's play in the identifier space becomes a defacto standard since the company is such an industry juggernaut. "I would say the whole internet wins for it, because there is a more common currency that's going to be used," he said. "It makes life easier for everybody, and it's privacy compliant." Other analysts do see some benefit for Trade Desk. Oppenheimer analysts wrote early this month that The Trade Desk's market share for pure-play ad suppliers plus its governance of Unified ID 2.0 "should drive a reinforcing 'network effect' for the company.'" "More customers use the Unified ID 2.0 framework, so more applications, services, and partners are integrated or written to TTD's platform, driving more customers to adopt its DSP," they wrote. LiveRamp In late October, LiveRamp said the Unified ID 2.0 would be made available to publishers via its technologies, which it says help advertisers target actual people instead of cookie-based profiles or devices. LiveRamp has what it calls its "Authenticated Traffic Solution," which it says involves consumers opting in to gain control of their data, and on the other side, brands and publishers being able to use that data. It's their solution to deal with the deprecation of third-party cookies. The companies say this should help advertisers make better digital ad buys across display advertising, mobile ads and Connected TV. Needham analysts wrote in a late September note, before the partnership between LiveRamp and The Trade Desk was announced, that "Authenticated Traffic Solutions" was a "more robust and economic alternative" to the cookie. "As evidenced through several customer case studies, ATS may generate significantly higher annual revenue from an authenticated user than an anonymous visitor to a website," analysts wrote. They said studies and examples show that LiveRamp's customers are progressing positively with their moves away from cookies. When Google first announced the deprecation of third-party cookies, LiveRamp shares fell , but Morgan Stanley analysts soon said they felt the announcement was at least neutral and potentially positive for LiveRamp. They added that a move to less reliance on cookies had long been priced into shares and could help LiveRamp promote its tools enabling the purchase of inventory without 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 earlier this year. LiveRamp has a market cap of $4.1 billion. Shares as of Monday were around $62, up nearly 30% year-to-date. Criteo In late October, Criteo announced its own involvement in collaborating with Unified ID 2.0. The company said it would be providing the sign-on solution and helping develop a "transparency portal," which will let consumers have more control over their advertising experience. Susquehanna analysts, following the announcement, said that collaboration among others will be important for Criteo. "Major open internet players all working together on identity is crucial as the open internet adapts to the next phase of privacy standards," they wrote. D.A. Davidson analysts said the company was "moving decisively for a post-cookie ad tech world," but that it was remaining neutral on Criteo. "The company's thoughtful approach to the rapidly changing Ad Tech market is encouraging, but will seemingly increase the complexity of CRTO's business model, with CRTO relying more on partnerships (including a newly announced one with TTD), new approaches/data sources for ad targeting, and new ad channels like video/CTV," they wrote. When Google's third-party cookie announcement came, Criteo shares crashed . The company said at the time that it was diversifying its identity solutions to work beyond cookies and said a substantial and growing share of its business no longer relied on that technology. Though some analysts said the drop was overblown and said players would be able to weather changes in the course of two years, others argued the uncertainty around the outcome was negative for Criteo. Criteo's market cap is $1.1 billion. Shares Monday were at around $17.76, up 4% year-to-date. — CNBC's Michael Bloom contributed to this report.

The Trade Desk rings The Nasdaq Stock Market closing bell in celebration of its September 2016 IPO.

Source: Nasdaq

But 11 months later, analysts are optimistic about a new way of targeting ads that several top public ad-tech firms are working on together.

The initiative, called Unified ID 2.0, bodes well for shares in companies that operate on the "open internet," or outside of "walled gardens" like Facebook or Google. Those open internet companies include The Trade Desk, which is leading the development of the ID. Other ad-tech firms Criteo and LiveRamp also recently said they were collaborating on Unified ID 2.0, along with a growing list of other companies.