Text size
About 80% of iOS users have declined to be tracked.
Dreamstime
Apple
could see a multibillion-dollar lift to its advertising business from its adoption of new limitations on consumer tracking on iPhones, according to Bernstein analyst Toni Sacconaghi.
As Sacconaghi said in a research note Thursday, Apple (ticker: AAPL) launched new app-tracking limitations in April for iOS devices, reducing the ability of platforms like
Facebook
and Snap to target ads at consumers based on their visits to other apps and websites. Sacconaghi said that about 80% of iOS users have opted out of being tracked, and both Facebook and Snap reported significant hits to their September quarter earnings from the changes.
A key question, he said, has been whether Apple benefits from its new rules. Sacconaghi said that while the changes were likely mainly intended to protect users’ privacy, they seem to have clearly helped Apple’s advertising business. That, he said, is “largely unappreciated and could ultimately reinforce the bull narrative of high-margin services growth.”
He sees a particular issue in the market for advertising for app installations. Sacconaghi estimates the overall digital ad market at $460 billion, with $300 billion of that for mobile ads, and $60 billion on advertising targeted to drive app installs, including about $30 billion for iOS apps. He estimates that about a quarter of that $30 billion is spent on search ads, with the rest for display advertising. That segment, in particular, he says, is where Apple’s position is the strongest.
Sacconaghi estimates that Apple’s ad business today is about $4 billion, or about 60% of the app search ad market on iOS. He said Apple is likely to benefit from any shift of ad dollars from display ads on other platforms to search ads within the Apple App Store, but sees the opportunity as modest.
“There is likely some limit to how much advertising Apple can capture, given its main vehicle today is search and display ads within the App Store,” he wrote. Sacconaghi noted that most app install ads are display ads within third-party apps.
Sacconaghi said a bigger opportunity would be for Apple to start placing ads on other companies’ apps. That would put the company in competition with Facebook, Google and other ad platforms, but he sees risks to that strategy. “Apple could potentially do so using differential privacy, though the appearance of becoming a major ad player while espousing privacy and competing directly with Google (who pays Apple an estimated $15 billion a year to be the default search engine on iOS) may be potential impediments,” he wrote.
Sacconaghi kept a Market Perform rating and $132 price target on Apple shares. The stock was little changed at $147.88 on Thursday afternoon.
Write to Eric J. Savitz at eric.savitz@barrons.com
