Apple’s small privacy change caused US stocks evaporate 200 billion U.S. dollars in one day


Please read my previous blog posts first"Why is Apple’s privacy policy so important?"to understand the ins and outs of the whole thing. In short, in 2020, Apple announced the Application Tracking Transparency (ATT) rule, which requires apps to obtain user consent in order to track data, which took effect in April 2021, prohibiting apps from tracking data when users choose to decline.

The IDFA privacy function of iOS

This new privacy feature on iOS, the operating system used by iPhones and iPads, is called IDFA (Identifier for Advertisers). All companies that do mobile advertising sales business use this advertising identification code to place advertisements and evaluate the effectiveness of advertising. IDFA’s impact is huge (especially for the technology industry and digital advertising industry). The root of the dispute comes from the unique device identification code that every iPhone and iPad has, called IDFA.

Why this choks advertisers?

In the new version of the Apple operating system, iOS 14.5, launched this year, almost all manufacturers in all walks of life related to mobile phones are opposed to it (not only technology companies and advertisers) because it is related to the related vendors’ pocket income.

This privacy change has been delayed for more than a year, and it is mandatory to obtain user consent for all tracking. This will cause the advertising industry to face an existential crisis, because most people don’t like to be tracked, and accurate advertising (aka targeting) cannot be placed without tracking. Apple’s changes to IDFA tracking have had a “destructive” impact on advertising revenue on iOS.

An investigation by the British “Financial Times” found that after Apple changed its privacy rules, Snapchat, Facebook, Twitter and YouTube lost approximately $9.85 billion in revenue. The respective revenue reduction ratios of these companies are as follows:

  • Facebook:13.2%
  • Snapchat:13.2%
  • Twitter:7.4%
  • YouTube:7.7%

Not everyone uses iPhone

Buildfire’s previous survey report pointed out that although the iPhone’s global market share is only about 15%, the spending power of iPhone users is more than four times that of Android phone users. The vernacular is iPhone mainly used by wealthy ethnic groups. In the third quarter of 2020, according to Asymco’s survey, the iPhone’s global market share has risen to 26%, the US has risen to more than 60%, and the UK has risen to 50%, which means that the iPhone’s influence is increasing.

And the iPhone also has a feature. As long as a new version of the iOS operating system software is released, most iPhone users will choose to upgrade to the latest version of iOS, that is, most iPhone users will use Apple’s advertiser identifier (IDFA) changes made. But Android is completely different.

Most Android phones have a service life of only two to three years, and few people will update the operating system. The willingness of both mobile phone manufacturers and users are very low. This is the Alphabet (ticker:s: GOOGL and GOOG) have long wanted to break through the weaknesses — this phenomenon is called fragmentation, which is one of the main reasons why the Android platform is far less competitive than the iPhone. The Alphabet Company is very clear on this weakness, but unable to change.

Are users willing to be tracked?

According to the actual survey in 2020, more than 80% of users will choose not to let mobile apps track IDFA. For this reason, as soon as Apple’s new privacy policy was publicly announced in 2020, it was immediately strongly opposed by 16 European advertising associations.

According to the tracking data of mobile analytics service company Flurry in May 2021, about 96% of American iPhone users who updated the iOS 14.5 version chose to refuse to be tracked by ads. Worldwide, this figure is slightly lower, at 88%.

Facts proved the huge impact of this privacy change

At the end of January 2021, the fourth quarter of 2020 earnings call began. Many related companies listed Apple’s change of privacy settings as a major business challenge, and clearly pointed out that it would lead to a substantial decrease in the company’s revenue. Snapchat (ticker: SNAP) plummeted 7.74%, and many digital media platforms, without exception, complained frantically about the incident. Game engine platform Unity (ticker: U) warned that revenue might be greatly affected, and the after-hours plummeted by more than 10.66%.

At the Facebook (ticker: META) earning release conference in the second quarter of 2021, CEO Zuckerberg and the management team “again” warned investors (because the previous Facebook’s managment team had warned investors about this matter several times). Facebook has done many market surveys and actual tests, and knows the seriousness of the incident; coupled with company and more resources, the response to the incident was quicker.

Of course, it’s also because 98% of Facebook’s revenue comes from advertising, and most of it comes from the iPhone platform. This change of Apple will cause tremendous damage to the company’s future revenue and advertising business; the company’s stock price fell by about 15% in the following quarter. Other social network listed companies that rely heavily on advertising also expressed similar views at their second quarter revenue conference.

A few days ago, when the second-largest social network platform in the United States, Snapchat, in the third quarter revenue conference on 10/21/2021, although the performance of the quarter was not bad, the chief executive confessed that this major policy change of Apple has already begun. It will affect the company’s revenue in the future, and the future impact is certain. As soon as this was said, the stock price collapsed by 26.7% the next day.

Not only that, Snapchat peers get slumped as well. On the same day, all social networks and digital advertising-related stocks plummeted – Facebook fell 5.05%,Alphabet fell 3.04%, Pinterest (ticker: PINS) fell 5.36%, Twitter (ticker: TWTR) fell 4.83%, Shopify (ticker: SHOP) fell 4.69%, The Trade Desk (ticker: TTD) fell 8.76%, Viant Technology (ticker: DSP) fell 10.63%, PubMatic (ticker: PUBM) plummeted 10.23%, and Magnite (ticker: MGNI) plummeted 13.62%, Unity (ticker: U) plunged 2.21%. This was also one of the main reasons the U.S. stock market closed down around 1%, especially on tech industries.

credit: Pixabay-ElasticComputeFarm

What have we learned from it?

This is a small software change, but the impact is strong and the impact is comprehensive:

  • Brand power: Apple and Alphabet are oligopoly powers of the mobile phone platform. Although the number of Apple phones is less than that of Alphabet phones (only 26%). However, iPhone’s influence is strong and everyone wants to strive for.
  • The influence of the platform: Apple only changed a very small function, which caused a crisis for the survival of all related vendors in the world. The point is — Apple insists on its own opinions, and others have nothing to do with it — This is the platform, this is the ecosystem. This is why I mentioned in section 2-1 of my book “The Rules of Super Growth Stocks Investing” that “Is this company a monopolistic platform company?” as a major condition for super growth stock selection.
  • Apple is on the right side and considers the interests of users. This is why Apple can stand against the crowd and take the risk of the world (Facebook has already broken up with Apple several times in front of the media because of this). The reason for insisting on implementing this change.
  • Many people always think that I spend such a large space discussing such in-depth technical issues very disapprovingly. Why do I explain so clearly? But I have repeatedly emphasized: “This is not a technical problem, this is a business problem.” If you disagree with my view, the problem is very serious-this is the insight of investment.

In the words of Buffett, “(As an investor) you have to understand a company, there is no other way.” Without in-depth understanding of a company, where will the insight of investment come from? which is Howard Marks saying “The second layer of thinking proposed”.

Don’t follow the crowd, the devil usually hides in delicate corners.

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