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Stock Analyst Update

Google to End Individual User Tracking in 2022

While this may lower the effectiveness of ads, it will address some data privacy concerns.

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Similar to what we anticipated in our Feb. 3 note, Alphabet’s Google (GOOG) announced that after third-party cookies are phased out in 2022, it will not accept any substitutes that track, identify, and target individuals with ads on its Chrome browser. Instead, the firm will put users into groups and create only group identifiers based on user interests, which then can be used by advertisers to target. While contextual and group targeting may lower the effectiveness of ads, it will address some data privacy concerns, which bodes well for the firm in the long run, in our view. However, this will not help Alphabet with regard to antitrust issues, as we think it will make it more difficult for ad-tech competitors to tap into Google’s platform. We think the move may negatively affect some ad-tech firms and have a positive effect on ad holding companies and their agencies, as well as larger brand advertisers.

We do not expect Google’s decision to have much of an impact on its ad revenue much after 2022, given the firm’s dominance in search and browsers and the billions of users across many of its apps that have become necessities for consumers, all of which have helped Google’s network effect, which will continue to attract advertisers. We are maintaining our $2,605 fair value estimate for this wide-moat name, which we continue to view as attractive.

In our view, Google’s decision may lower demand for and utilization of some third-party cookie substitutes, affecting ad-techs such as no-moat Criteo. The ad-tech firm has been working with The Trade Desk’s Unified ID solution to test whether it can keep tracking and targeting individuals. Google specifically stated that it will not use personally identifiable information such as email addresses on Chrome. While The Trade Desk’s UID gives consumers more control over their data, it is based on encrypted email addresses, making it less likely to be used on Google’s browser.

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Ali Mogharabi does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.