Morgan Stanley Picks Winners, Losers As Browsers Build In Ad Blocking
Large social media websites, including Facebook (FB) and Twitter (TWTR), should benefit from new efforts by Apple (AAPL) and Google (GOOG, GOOGL) to prevent advertisers and publishers from tracking Internet users' activities on their browsers, according to Morgan Stanley. Amazon (AMZN) and digital game makers could also be boosted by the changes being made by Apple and Google, according to the firm's analyst. Conversely, the firm believes that retailers, small e-commerce companies, and online travel agencies could be hurt by the changes. The news is "not positive" for Criteo (CRTO), which tracks and analyzes users' browsing behavior, Morgan Stanley added. Other analysts, however, were more quicker to defend Criteo, with JPMorgan, Cowen, and Jefferies saying the stock's decline yesterday in the wake of Apple's announcement was overdone.
WINNERS: The anti-tracking initiatives will make online platforms less attractive to advertisers in the shorter term, contended Morgan Stanley analyst Brian Nowak. Over the longer term, however, the changes will make user data more valuable, boosting Facebook, Twitter and Snap (SNAP), the analyst stated. Additionally, more advertisers could turn to Amazon in an effort to connect with its user base, while digital game makers Zynga (ZNGA) and Activision (ATVI) could benefit from similar trends, according to Nowak.
POTENTIAL LOSERS: Based on the browser changes, small e-commerce companies such as eBay (EBAY) and Etsy (ETSY) could find it harder to compete against Amazon, while online travel companies may have to pay more to acquire customers, Nowak stated. The two major online travel companies are Priceline (PCLN) and Expedia (EXPE).
CRITEO OUTLOOK: The changes announced by Apple and Google are "not positive" for Criteo, Nowak warned. "It will be important to monitor" the company's efforts to work around the changes and to increase its focus on advertising within apps, he wrote. More upbeat on Criteo was Jefferies analyst Brian Fitzgerald. Apple's browser probably only accounts for less than 1.5% of Criteo's revenue, and that percentage is "rapidly shrinking," he stated. Noting that desktop ads only accounted for 37% of Criteo's revenue in the last quarter of 2016, down from 53% in December 2015, the analyst says that Criteo "is already quickly mix-shifting away from desktop browsers and away from Safari specifically." He recommended buying Criteo's stock on weakness. Similarly, JPMorgan analyst Doug Anmuth does not expect Criteo's results to be affected much by the changes being made by Apple and Google. He thinks that the decline in Criteo's stock yesterday was overdone and kept an Overweight rating on the name. Finally, Cowen analyst Thomas Champion says that Criteo's exposure to Apple's browser "seems limited," so he believes that the risk to Criteo's revenue should be "mitigated.". Champion thinks that the decline in Criteo's stock yesterday appeared to be overdone, and he reiterated an Outperform rating on the name.
PRICE ACTION: In morning trading, Criteo slid fractionally after having declined about 7% yesterday. Meanwhile, Apple shares are up fractionally the day after its Worldwide Developer's Conference reveals.
Disclosure: None.