- Snap and Twitter will be the first of the major ad-supported internet companies to report earnings on Thursday, while Alphabet's Google, Facebook, Pinterest, and Amazon will follow next week.
- The second-quarter earnings reports of major digital ad players will finally start to yield some answers about how much of an impact Apple's privacy changes are causing to these companies so far.
- "Given the ad sector tailwinds, it's likely that the IDFA revenue pressures get lost in the wash," Bernstein analysts wrote.
Wall Street has exhaustively tried to determine the kind of impact Apple's recent privacy changes will have on digital ad companies like Facebook and Snap. The second-quarter earnings reports of major ad-supported internet companies will finally start to yield some answers.
The digital ad sector has grown massively in recent quarters, as stay-at-home trends like e-commerce have benefited those players. Although this quarter has presented some speed bumps like those Apple changes, which give users more transparency and control over apps that want to track them for advertising, analysts see that momentum continuing this quarter.
"Digital advertising names should continue the strong revenue performance trajectory we've seen the past few quarters," Bernstein analysts said in a note earlier this week. "The permeable advantage of digital ads should shine through as new pockets of ad spend (travel & experiences, financial services, and B2B) replace spend from verticals with softening user interest (retail, media & games)."
Bernstein analysts said they see a modest impact to ad spend from reduced targeting capabilities and lower confidence in reported return on ad spend, which is driving ad spend away from iOS to Google's Android and shifting campaign objectives.
But there's enough strong momentum that those factors may not matter so much.
"Given the ad sector tailwinds, it's likely that the IDFA revenue pressures get lost in the wash," they wrote.
Wedbush analysts said the advertisers they surveyed are seeing an impact on return on investment from Apple's changes, showing that advertisers are reallocating budget and diversifying to other platforms.
"Despite the challenges from Apple's changes, Google and Facebook remain dominant today and are regularly the preferred platforms for advertisers," they wrote. "Google Search, Facebook, Google Shopping, and Instagram were ranked most often as the highest [return on advertising spend] platforms."
But analysts also pointed out that the impact of these changes, which started rolling out in April, could bring a tougher blow during the third quarter for these companies.
Here's what else to expect as the major digital ad players report earnings.
Twitter receives about 85% of its ad revenue from brand ad spend, meaning it's likely to sidestep many of the current issues around ad targeting, Bernstein analysts said in a note this week.
"It's likely that Twitter may deliver revenue guidance at the top of their peer group," they wrote.
J.P. Morgan analysts said last week that Twitter was one of their top picks because of sharp ad revenue acceleration, solid engagement with product improvements in areas like "topics" and its prioritization of revenue products. They also cited the company's increased pace of development velocity and innovation and activist pressure driving "operational discipline."
"Industry checks suggest the online ad market remains strong—supporting an increasingly digital economy — and we believe TWTR is benefiting from the return of events & launches, brand advertising ramping, & growth in MAP advertisers including in sports betting, crypto, & investing," they wrote.
Bank of America analysts said Twitter's MAP, or direct-response, product ramp remains a big opportunity. They added that the Olympics will be a revenue generator the third quarter, but IDFA changes could be a bigger headwind in the third quarter than in the second.
"IFDA related caution in guidance remains a 3Q risk for [the] entire sector, though ad checks suggest risk is contained for brand advertisers," they wrote.
Bank of America analysts expect second-quarter revenue of $845 million for Snap, up 86% year-over-year, above management guidance and in-line with street estimates. They said that deceleration may be a sentiment headwind for the third quarter ahead, in part because of tougher comps and an expected tougher impact from Apple's privacy changes.
"Guidance remains our big question mark as a slowing retail ad spend market may continue to be offset by historically strong back-to-school ad spend season and continued brand spend ramp for Snapchat," Bernstein analysts wrote. "There's also a lot of investor excitement around monetizing Spotlight and Maps, though we also urge a bit of caution and don't expect much revenue contribution from those platforms in the near-term."
J.P. Morgan analysts added that while iOS 14.5 is a concern and is embedded within guidance, they believe bigger platforms are managing through. They said they expect upside to the high end of revenue guidance of 80-85%.
Jefferies analysts said they believe analysts' second quarter revenue estimates are too conservative since ad demand from previously depressed verticals (like travel or movies) have exceeded prior expectations. They said their ad checks have also found iOS 14 privacy headwinds haven't materially impacted budgets.
Morgan Stanley analysts seem similarly unbothered by the impact of iOS 14, saying that though there will be some near-term "bumps" they will be "fully manageable." They model 54% ad revenue growth in the second quarter, 4% above street estimates.
"While we are hearing of some nearterm IDFA-related attribution challenges (and some dollars moving away from FB in 2H budgeting) we are not hearing of any material FB auction market pricing weakness, speaking to the ad durability that 10mn+ advertisers on FB can bring," they wrote.
Evercore ISI analysts said in a note last week they view the consensus revenue growth estimate of 49% year-over-year in the quarter as potentially conservative. They cited figures from Branch Metrics saying that fewer than 33% of iOS users have opted into tracking since the April Apple update, with 70% of iOS devices using the most recent version as of late June. They also cited figures from Tinuiti saying that they've seen client spend on iOS fall and Android spend rise between June and July.
"It remains unclear how this update has impacted overall ad spend across Google and Facebook, but our belief is the update has been immaterial to date," they wrote.
Bernstein analysts said they expect sequential growth for Google led by a continued recovery in travel and fasted-than-expected return of Google Maps offsetting any softness in retail-related searches.
"YouTube should also experience modest sequential revenue growth led by brand spend tied to Connected TV, while the Network business should have another exceptional quarter led by ad dollar rotation into Android from iOS, though these gains are temporary," they wrote.
Evercore analysts said they see the street's ad revenue growth estimate of a 1% quarter-on-quarter decline as potentially conservative. They forecast $57.1 billion in revenue, slightly above street estimates. They said the strength in online ad demand has persisted.
"We believe Google's exposure to Travel and strong positioning in Local (i.e., physical stores) will provide tailwinds for ad revenue growth under a reopening scenario," they wrote.
Amazon made its first-ever presentation at the IAB NewFronts this spring, marking its foray into digital media's take on the traditional TV upfronts, when advertisers have traditionally committed a large amount of their yearly TV spending. The company also announced it would exclusively stream Thursday Night Football, further underlining Amazon's streaming ad ambitions.
"It's clear that the company's ambitions on advertising are extending beyond product search ads – and we're here for it," Bernstein analysts said in a note Wednesday. They forecast 70% year-over-year growth in the second quarter, and said Amazon should benefit from a shift from image to video ads, "which should translate into higher priced and more effective ad units."
"The MGM deal and NFL rights win further amplify the opportunity in AVOD and diversify the advertising opportunity for Amazon," they wrote.
Evercore analysts forecast 73% growth for ads in the second quarter. They cited Jounce Media as painting Amazon's closed-loop attribution model as a key growth driver for the company.
Privacy-related changes from players like Apple and Google are expected to impact the ability of advertisers to target ads the way they have been. But Amazon has a strong first-party relationship with consumers, which means it can provide marketers with richer data than they might be able to get on other platforms when they can use less third-party data. That might position it attractively in the quarters ahead.
Evercore analysts forecast $559 million in revenue in the second quarter, up 105% year-over-year, slightly below street estimates and consistent with guidance.
Meanwhile, Bernstein analysts said in a note that investors will be closely watching what revenue guidance looks like for a retail-heavy platform.
"We expect management to focus their efforts and commentary on the company's efforts to move further down-funnel and having users transact on the platform – the BUY button," they wrote. "While always part of the roadmap, progress on this front takes on particular importance under a cloud of tough engagement comps and fears around temporary pandemic-related gains. We welcome such a direct pivot."
— CNBC's Michael Bloom contributed to this report.