The privacy changes Apple implemented this year, which allow users to select which apps can (and can’t) track their activity, were welcomed by consumers. But the same can’t be said for many social media platforms who, as a result of these changes, have experienced a downtick in advertising in the lead up to earnings season.
So far, Snapchat (SNAP) has been particularly impacted – with its share price down some 27% following guidance that revenue for next quarter will be 20% lower than previously anticipated.
In this video, Steve Johnson and Senior Analyst Chloe Stokes break down the changes, discuss some of the impacts on social media advertising, and reveal whether Twitter(TWTR) and Pinterest (PINS), two stocks held within the International Shares Fund, could face challenges of their own.
The team anticipates that while Apple’s privacy changes could be problematic for the broader industry over the short term, stocks like Twitter and Pinterest should be somewhat insulated – particularly as the industry evolves and becomes more accustomed to Apple’s privacy restrictions.
Hi everyone and welcome it’s Steve Johnson here Chief Investment Officer at Forager Funds and today we’re talking about the largest social media app that you’ve hopefully never heard of, Snapchat. Chloe, a big big day for Snapchat share price, on Friday it was down quite significantly. This is an app that hopefully a lot of our listeners are not using. It’s widely used by teens and much younger people but there’s some really important implications from Friday’s share price move for the wider social media space. So maybe kick things off by telling us what’s happened here.
So as you mentioned Snapchat reported their third quarter earnings at the end of last week and on Friday the share price was down nearly 27 percent and the issue that’s the biggest concern is guidance for revenue in the next quarter is going to be 20 percent lower than what the market was previously expecting and it’s largely due to the Apple privacy changes that have been implemented earlier this year.
Okay so talk me through exactly what’s happening. I’m an Android user not an Apple user so I haven’t seen all of this happening on my phone. Explain what the changes are.
So what’s essentially happened is that Apple has implemented new changes which means that users now need to opt in to allow any app to track your identifier for advertisers, which is your idfa. What that allows those apps to do, for example Snapchat, it would allow Snapchat to follow me after I’m off their app and see what other apps I’m using, whether I install an app and what mobile websites I’m using.
So it’s really important to advertisers for two reasons. First, the app can see what I’m interested in outside of what I’m doing on its own app and it can also track how an advertising campaign is going. It can see whether I’m installing an app, buying a product, returning to a website and the likes.
I think a lot of us have probably experienced some of this tracking and it’s spooked us somewhat. I’ve seen a lot of conspiracy theories out there about my phone is constantly listening to me but the extent to which they co-mingle a lot of this data, I think most of us are not really aware.
I saw a guy on Twitter who’s an insider talking about people who think their phone is listening to them. It’s not actually happening, but they are getting co-location data. He was talking about he got home from a holiday and he started getting advertising for toothpaste that was at his sister-in-law’s house and he was explaining how that works. It’s not that your phone is listening to you because they never talked about the toothpaste, but the shopping center rewards program will sell their data to an advertiser. They mix that data with your location data, so if you bought a specific brand of toothpaste, they know I’m at your house, they start advertising that toothpaste to me.
I think people think of these things, oh it’s tracking me and it’s advertising to me based on what’s in the app that I agreed to, but they’re co-mingling a whole heap of this stuff and that’s making the advertising extremely powerful. So you said something there about an opt-in. I think one thing I didn’t understand that you explained to me was they’ve also made people go back and opt-in to all of the old apps that were on your phone when ios updated.
Yes so once I updated my ios, every time I entered into an app for the first time since the update, say Instagram which I’ve been using for a long time, it would ask me whether I want to allow this app to track me or whether I don’t and I can’t proceed into the app until I select one of those two items. Another thing that’s impacting the apps is that Apple is not allowing much customization in terms of the language that can be used around that.
So I think the industry is expecting something like 10 to 25 percent opt-in rates which is really quite low and then once you opt out, the app is not allowed to ask you again. So they’re not allowed to customize it and they’re only allowed to ask you one time which could be quite problematic.
Yeah unlike the old days we had to keep opting out and every time they updated the app it went back to the old settings. So it seems according to the Snap results that that’s having a huge impact on their business. I mean we’ve seen lots and lots of great businesses built out there off the back of really powerful advertising through things like Snapchat and Facebook. We own Twitter and we own Pinterest in our International Fund. Obviously some implications for those two businesses. How do you see this impacting the portfolio?
So I think Pinterest and Twitter might be a little bit more insulated than Snapchat and maybe for different reasons. So Twitter for example, does a fair bit of brand advertising rather than the direct targeting ads where the measurement of roi or return on the ad campaign is a little less important. The advertisers aren’t waiting to see how many people click through, how many people install the app, they just want wider knowledge and understanding of their brand.
I also think apps like Pinterest for example, or even Instagram and Facebook that have a lot of their own customer data, I’ll use Pinterest as an example. Pinterest knows exactly what I’m interested in buying because I’m looking for you know renovations from my house I’m typing in white couches. So they know I want a white couch, they don’t need outside data to see that. If they can advertise that white couch to me and even better, if they can provide a shoppable link on their platform so that they don’t need any outside tracking to see whether or not I’ve bought this product, then I think they can be a little bit more insulated.
I do think it’s potentially going to be very problematic in the short term though while advertisers get used to the change in how things can be tracked. Then you’re also going to be missing things like, if I follow through an ad to a website I don’t purchase it now but I go back on that website in three days directly to the website and I purchased the product. How would Facebook or Pinterest ever know that I’ve done that? So there are definitely some issues here for all of the social media companies.
It’s going to be a big issue across the ecosystem. I think proprietary data is going to become more and more important. So the more information you have about your own customers the better and Snap is probably the most extreme in terms of lots of time on site but actually very little useful information without being able to co-mingle that data across a whole heap of different apps.
The other interesting space for us is the ad tech space itself. We own Tremor International which is a technology platform that lets people advertise particularly across connected tv. I think finding a way around Apple is going to become more and more important. So we’re going to see advertising spends shift from the Apple platform to elsewhere and I also think the experience in the past in this space has been big changes, big setbacks and then the industry gets pretty good at working around whatever those changes are.
So you’re probably going to see a short-term hit here and then everyone’s going to work out how best to work with it and for me, really reiterating the power of Apple and Google here as well. Google’s probably a short-term beneficiary, but they are saying they’re going to make the same changes in a couple of years time that Apple has made. So an interesting week coming up. We’ve got Facebook out tonight. By the time you watch this video Facebook will have reported its results and we’ll have Pins coming up. When’s that result due Chloe?
On the 4th of November, so next week.
Twitter out very soon as well. So a very interesting week in the social media space and we’ll be keeping a close eye on it. Thanks for tuning in.
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