Apple's Privacy Update Claims Another Casualty

When tech giant Apple (AAPL) previewed a major update to its iOS operating system, people got nervous... Announced earlier this year and put into effect in late April, the iOS 14.5 update incorporated App Tracking Transparency ("ATT"). If you own an iPhone or iPad, this ATT screen should look pretty familiar to you... Source: Appleinsider.com […] Not rendering correctly? View this e-mail as a web page [here](. [Empire Financial Daily] Apple's Privacy Update Claims Another Casualty By Berna Barshay When tech giant Apple (AAPL) previewed a major update to its iOS operating system, people got nervous... Announced earlier this year and put into effect in late April, the iOS 14.5 update incorporated App Tracking Transparency ("ATT"). If you own an iPhone or iPad, this ATT screen should look pretty familiar to you...  Source: Appleinsider.com As soon as the change was announced, advertisers – and the advertising technology ("AdTech") industry that services them – started to publicly worry that this privacy initiative would make it harder for them to target consumers effectively. If that happened, the return on investment ("ROI") for their marketing dollars would drop. With less effective digital marketing, revenue growth rates could slow. When you open an app that wants to track you, the app uses a device called Identifier for Advertisers ("IDFA"). After the iOS 14.5 update, every time the IDFA is activated, you get a pop-up asking you if you want to opt in. After a bunch of hand wringing over the impending IDFA pop-up, the consternation over the change seemed to die down... at least until August when the change claimed its first casualty... On August 10, peer-to-peer resale app Poshmark (POSH) warned that it was going to take a hit in the third quarter because of Apple's new privacy feature... POSH shares dropped 17% the next day, despite the company's assertion that the effects would be temporary. To recruit new customers, company executives touted the resale app's ability to lean on other channels – like TV advertising and celebrity endorsements. What it didn't say is that the headwind from the IDFA pop up would go away. [Poshmark is a small, newly public company](... with a market cap of a bit less than $2 billion. Its initial public offering ("IPO") was in January of this year, and its stock had already broken its IPO price over a month before the bad IDFA news – it wasn't exactly a name under close watch by the majority of investors. But Poshmark wouldn't be the only company to fall prey to business headwinds from the IDFA pop up window... Last Friday, the parent of social media app Snapchat took an even worse tumble due to headwinds from the Apple privacy changes... SNAP shares plummeted 27% last Friday when revenue came in just 3%, or $30 million, short of expectations. While Snap beat earnings estimates handily – reporting $0.17 versus expectations of $0.08 – the slowdown in revenue growth from 116% in the second quarter to 57% in the third quarter caught some investors off guard. But what really took the stock down was disappointing forward guidance... Snap said to expect its fourth-quarter revenue to come in between $1.16 billion and $1.2 billion. At the midpoint, that's about 13% below the $1.36 billion that analysts had forecasted for the fourth quarter. While Snap had previously warned that the iOS changes could be a headwind to growth, the impact of the privacy change was much larger than anticipated. CEO and co-founder Evan Spiegel commented: While we anticipated some degree of business disruption, the new Apple-provided measurement solution did not scale as we had expected, making it more difficult for our advertising partners to measure and manage their ad campaigns for iOS. The warning sent shares of other social media apps tumbling... Facebook (FB), Twitter (TWTR), and Pinterest (PINS) all traded down 5% last Friday. When Facebook reported earnings on Monday evening, it also called out the IDFA changes as a headwind to its business. Facebook claimed the inability to track users is causing it to underreport the performance of its ads. Advertisers, in turn, think they are paying more for less... which they could be, although it is hard to measure the full impact. There was also a 'dog ate my homework' aspect to Snap's earnings miss... I don't think Spiegel helped his cause much when he partially blamed Snap's revenue miss on [difficulties currently plaguing the global supply chain](. While those issues are indeed very real, it's a bit of a headscratcher how a technology company that holds no physical inventory would see revenues slip because of the supply chain. Spiegel, however, asserted that the supply chain woes reduce the "short-term appetite to generate additional customer demand through advertising." I guess that could theoretically make sense... but given that advertising conglomerate Interpublic Group (IPG) had handily beat earnings – and raised full-year guidance for organic revenue growth – earlier the same day... it's hard to believe that an industry-wide slowdown in advertising prompted by supply chain issues is broadly in effect. Snap should have talked about the Apple privacy changes and stopped there. The company's management did not do a good job handling the Street in the early days after its IPO. This far-fetched complaint about the supply chain holding it back felt like a return to prior form, back when it wasn't initially ready for prime-time post-IPO. As a result, I couldn't agree more with this underrated tweet...  Source: Twitter/@PodContrarian --------------------------------------------------------------- Recommended Links: ['The most obvious 10-bagger I've ever seen']( Enrique Abeyta spent 25 years on Wall Street... Yet he's never been this excited about a single stock before... He believes this stock could easily be his greatest pick ever. But you must act quickly. There's an extremely limited time to take advantage of this opportunity that could hand you 10x your money. [Click here to get all the details](. --------------------------------------------------------------- [Legendary Stock-Picker Reveals New No. 1 Recommendation]( Over the past 14 years, he has pinpointed over 200 stocks that soared 100%... plus over forty recommendations that went up 1,000% or more. And he just announced the name and ticker of what he says will be his NEXT big winner, live on-camera. [Watch here](. --------------------------------------------------------------- User growth at Snap continues to be healthy... Daily active users ("DAUs") hit 306 million, up 23% year over year. Snap guided to end the fourth quarter with between 316 million and 318 million DAUs, representing healthy sequential growth and beating analyst expectations for 312 million DAUs. With healthy user growth and engagement, Snap is increasingly becoming a must-use platform for advertisers trying to reach Gen Z consumers. After seeing DAU flatline shortly after its 2017 IPO, Snapchat got its mojo back and started seeing accelerated DAU growth in the second half of 2019...  As engagement improved, so did revenue growth as advertisers flocked to the app. And like many digital apps, Snapchat got a big growth windfall from the lockdowns, school closures, and social distancing brought on by the coronavirus pandemic. Separated physically from their friends, many teens and young adults turned to Snapchat as a way to stay connected and in touch. SNAP remains a very popular stock on Wall Street, with 33 "buys," seven "holds," and just one "sell" recommendation from Wall Street analysts. It's also a very richly valued stock, trading at an enterprise value ("EV") to sales multiple of 21, and an EV to earnings before interest, taxes, depreciation, and amortization ("EBITDA") ratio of around 180. I'm on the sidelines when it comes to SNAP shares, not because of this IFDA hit to sales growth, but more because of valuation and competition from TikTok, which continues to kill it with the same age group that Snapchat is targeting. The hit that many companies are taking from the IDFA changes has spurred a burst of activity in developing new ways to measure digital ad reach, conversion, and ultimately, ROI... This is bullish if you happen to be an engineer who works on these types of issues. For everyone else, it's a potential growth headwind. It’s particularly problematic for some social media platforms and potentially the advertisers that employ them in the intermediate term. As tech site The Verge explains: Across the board, ad-driven companies will have to figure out a solution to what's proving to be a seismic shift: the old way of measuring ads is no longer effective on one of the biggest platforms in the world. They'll either have to figure out new ways of making money or new ways of proving that their ads actually work. These social platforms will eventually figure it out... but it might get a little bumpy along the way as they work out their solutions. Since I wrote about social media today, it seems like a good time to return to some of the letters that trickled in about Facebook after it was in the news for its outage, as well as the whistleblower testimony... Are you a grown-up using Snapchat? If so, I want to hear how you use it and why you like it. It's the one social media platform that I have never really enjoyed... despite being immature enough to greatly appreciate TikTok, which is equally targeted to the Gen Z crowd. Also... if you have an iPhone, do you automatically opt-out of all tracking? Are there some instances where you will agree to tracking? Share your thoughts in an e-mail to feedback@empirefinancialresearch.com. "Hi Berna. 'Will you buy stocks that you think will go up even when you believe that the company or its management is acting in a way that is reckless or harmful to society?' "No. Airbnb (ABNB)... is at the top of the list with Tesla (TSLA) also on the list per their slaughter pilot consumer fraud. So too, anything involving drone deliveries. "In no way is it moral or positive for society to turn neighborhoods and condos into de facto hotels, in contravention of existing zoning and with zero concern or respect for peace, privacy, and security of neighbors. "Same with drone deliveries, per myriad noise and privacy issues. "Please suggest an investment that facilitates blocking or destroying delivery drones. One of these may be [redacted website of unregulated gun auctioneer]? Only half kidding," – Bruno Berna comment: Bruno, you sound like you are in the real estate business! Seriously though... some of these businesses that have harmful effects for some, have wonderful effects for others. For all the wrong Facebook does, it also allows people to stay in touch across the globe and has facilitated some wonderful reunions. As for Airbnb, I love staying in them. There are two sides to most coins when defining "harmful to society"... well, maybe not for tobacco companies, but for most companies. I tend to agree that Facebook's cons outweigh its pros... but I wouldn't take that position regarding Airbnb. I think defining "harmful" is clearly in the eye of the beholder. "Dear Berna, The current Facebook dilemma poses the starkest reality yet of the Christian ethic that 'the love of money is the root of all evil' as we struggle to do what we know, in our hearts, is the right thing, and you can lead the way. "Cynically, Facebook is counting on millions of Americans to continue to support their destructive and immoral corporate behavior by investing in the company and continuing to use its products. This is morally bankrupt and underscores why the United States is no longer held in high regard around the world. We have become what we most detest. We ban cigarettes in the U.S. yet permit their export to developing countries. We lecture Myanmar on the genocide of the Rohingya minority yet allow Facebook to stir up hatred against them. "I've always believed that each of us is asked to leave the world a better place than we found it. Isn't [it] our moral obligation, especially when making money, to first do no harm? Sorry, but justifying continuing to invest in Facebook is the ultimate hypocrisy. I've enjoyed getting to know you and Whitney through your writing, but your joint recommendation to buy and hold Facebook is unacceptable. Please reconsider. "Remember, we have met the enemy, and he is us. We can do better, and this is the moment of truth for us all." – Julie W. Berna comment: Julie, you make a very good ethical argument for abandoning FB stock. "Hello Empire team, "I will NOT buy FB – it's an equivalent feeling of selling my soul. Part of the investing game is to empower great companies and be sensitive to the needs of posterity. My best," – Ritu P. Berna comment: Ritu, overwhelmingly, the letters that I have received about Facebook share your perspective. Regards, Berna Barshay October 27, 2021 If someone forwarded you this e-mail and you would like to be added to my e-mail list to receive e-mails like this every weekday, simply [sign up here](. © 2021 Empire Financial Research. All rights reserved. Any reproduction, copying, or redistribution, in whole or in part, is prohibited without written permission from Empire Financial Research, 601 Lexington Ave., 20th Floor, New York, NY 10022 [www.empirefinancialresearch.com.]( You received this e-mail because you are subscribed to Empire Financial Daily. [Unsubscribe from all future e-mails](