What Google’s latest cookie announcement means for top ad tech stocks, according to analysts

Analysts are sounding off on Google‘s latest guidance on its promise to not use technologies that track people individually across the internet. Some analysts say their views haven’t changed. But others at BMO have downgraded one ad tech stock, noting that “it’s too hot in the kitchen.”

Google said in a blog post Wednesday it will only use “privacy-preserving technologies” that rely on methods like anonymization or aggregation of data after it stops supporting cookies. Cookies are small pieces of code that websites deliver to a visitor’s browser and stay with them as that person visits other sites. They have been used to track users across multiple sites to target ads and see how they perform.  Google announced plans in January 2020 to end support for third-party cookies, which fuel much of the digital advertising ecosystem, in its Chrome browser within two years. 

The blog post prompted questions in the industry about the future of initiatives from ad tech players, who have been working on ways to balance consumer privacy while maintaining personalization in advertising after they can’t use cookies.

Following the announcement, here’s what analysts are saying about the shakeout for public ad tech companies, including Google: 

Bank of America analysts said Thursday that Google’s comments “suggest app developers and publishers will have to move away from all individual identifier alternatives, which could make Google’s ‘privacy sandbox’ capabilities even more valuable in the industry.” 

Analysts cite figures from Jounce Media, estimating that 40% of the money flowing from advertisers to publishers on the open internet go through Google’s ad buying tools. 

KeyBanc analysts said their real question was whether Google plans to restrict alternative identifiers from Google products. They said such a move would “clearly favor Google over the open Internet, and poses an interesting dilemma for regulators — how should consumer privacy be balanced against market power?” 

Google said Wednesday its blog post was about how its own ad products will work, and that it won’t restrict what can happen on Chrome by third parties. The company said it won’t use Unified ID 2.0 or LiveRamp ATS, two tools that say they would help target ads in a more privacy conscious way, but wouldn’t speak specifically about any one initiative. Uncertainty still looms over whether Google will restrict that activity on Chrome in the future. 

“In our view, the inherent problem with current efforts to regulate Internet companies is that efforts to provide more privacy simply make the largest companies stronger,” KeyBanc analysts said. “Until tradeoffs between privacy and competition are contemplated, we suspect regulation risks stifling competition.” 

Macquarie analysts said they believe this move “more clearly defines the roles Google will play on online advertising vs the roles open internet ad tech companies like The Trade Desk, LiveRamp and Criteo play.” 

“It appears to put Google into a different part of the ad targeting business – which it can afford to do given its scale, and probably needs to do given privacy concerns and increasing government scrutiny of its methods,” Macquarie analysts said. “But it still raises the walls around its garden even further, as any advertiser working with Google’s ad serving technology will have to adopt Google’s new API-based protocols – which target consumers in a very different way.” 

Google’s stock was up nearly 1% after market open Thursday.

KeyBanc analysts said The Trade Desk will contest changes to Google’s Chrome browser if it restricts the use of alternative identifiers.

The Trade Desk led the formation of Unified ID 2.0, a framework that will rely on email addresses that are hashed and encrypted from consumers who give their consent. The Trade Desk has painted 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 Trade Desk in February passed control of Unified ID 2.0 to a nonprofit called Prebid.

“In short, Unified ID 2.0 puts privacy back in the hands of the consumer, which appears congruent with privacy goals and the value exchange of the open Internet,” KeyBanc analysts said. “If Google is able to restrict alternative IDs, then Google just became even more powerful in the advertising industry.”

Macquarie analysts said Wednesday that the announcement appears to restrict the ability of The Trade Desk to buy ads using IDs on Google’s exchange or supply-side platform. 

“…But that only encourages TTD to work with publishers directly and across a broad spectrum of other [supply-side platforms] through private marketplace transactions,” they wrote. “We expect Unified ID 2.0 will continue to develop as a device- and browser-agnostic industry standard with [opt-in] and consent between publishers and consumers, and TTD will continue to leverage its position as the largest independent DSP by far to help advertisers reach consumers across the open web beyond Google.” 

A Trade Desk spokesman said in a statement that there is “significant industry focus on building a new identity solution that preserves the value of relevant advertising while protecting consumer privacy.” 

“Unified ID 2.0 puts the consumer in the driver’s seat, ensures that they are not identifiable, and gives them control over how their data is used,” he said.   

The Trade Desk stock was down 5% Thursday morning.

BMO downgraded LiveRamp Thursday in a note titled “Too Hot in the Kitchen.” 

Analysts said they believe Google’s confirmation that it won’t integrate “alternative identifiers” could slow LiveRamp’s sales cycle as players in the ecosystem reevaluate how best to move forward this year. 

In late October, LiveRamp said the Unified ID 2.0 will be available to publishers through its platform, which it says helps advertisers target actual people instead of cookie-based profiles or devices. LiveRamp has what it calls its “Authenticated Traffic Solution,” which it says lets consumers opt-in to gain control of their data. On the other side, brands and publishers can tap into that data. It’s the company’s solution to deal with the deprecation of third-party cookies. 

“We think further clarity and revenue re-acceleration are possible in 2022 (when GOOG finalizes its cookie roadmap, among other things), but visibility today is limited,” BMO analysts wrote. They said the industry is still waiting for Google to provide more clarity on how it will treat alternative options.

BMO analysts said they believe near-term revenue impact to LiveRamp is likely limited but warned of a lower likelihood of upward estimate revisions.

Macquarie analysts said the type of announcement that came from Google on Wednesday usually causes stock volatility on the perceived headline risk. “But we believe that while this is yet another twist in the evolving ad tech landscape, the outlook for TTD, RAMP and CRTO is more or less unchanged.” 

In a blog post responding to the news, LiveRamp said Google’s announcement is in line with what it’s been advocating. LiveRamp argued that its ATS solution embraces the ideas of first-party relationships with consumers, transparency and consumer control. 

“In short – marketers will continue to be able to buy people-based inventory on DV360 using LiveRamp,” the post says. DV360 is a Google ad tech product. 

LiveRamp stock was down 7.7% Thursday morning.

Ad tech company Criteo said in a statement that Google’s post Wednesday “does not in any way change or impact Criteo’s plan and roadmap.” 

“As we have said before, we continue to invest in our first-party media network, as well as cohort-based and contextual advertising, which allow marketers to effectively engage with their customers in a privacy-safe and consented manner,” a company spokesperson said. “User permission and consent are at the core of our solution.” 

In late October, Criteo announced its involvement in collaborating with Unified ID 2.0. The company said it will provide the sign-on solution and help develop a “transparency portal,” which gives consumers more control over their advertising experience. 

Macquarie analysts said the firm’s outlook on Criteo was unchanged following Google’s announcement, and noted Criteo has been an active contributor to Google’s privacy initiatives. 

BMO analysts raised their target price from $25 to $45 and said they’re building more confidence in Criteo’s turnaround efforts as it repositions its retargeting-heavy business. 

“For CRTO, we expect the basic use case for re-targeting will continue to draw investor questions,” the BMO analysts said. “But we continue to believe that CRTO has been developing alternative techniques for effectively reaching consumers that have previously showed interest in an advertiser’s products.” 

The BMO analysts said, moving forward, the changes may require a shift from one-to-one targeting to messaging a group of users that have shown similar interests in an advertiser’s product. 

“When combined with strong machine learning, we believe CRTO can continue to show improvement in its core business of helping advertisers remarket to interested customers,” they wrote. 

Criteo stock was down 5.4% Thursday morning.

CNBC’s Michael Bloom contributed reporting.