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Apple Inc. has shaken up the advertising landscape by announcing new privacy controls around ad targeting, and while many internet companies have been vocal about the negative impacts on their businesses, Apple has been quiet about the potential benefits it may be reaping.
The move could benefit Apple’s
AAPL,
mobile-advertising efforts, Bernstein analysts reported this week, potentially adding $1 billion in annual revenue. That type of potential gain would typically lead to executives championing the possibilities, but Apple execs have been rather tight-lipped on potential benefits, instead focusing on the privacy benefits of the changes to their Identifier for Advertisers, or IDFA, practices.
“The feedback from customers is overwhelmingly positive,” Chief Executive Tim Cook said on Apple’s earnings call last month, when asked about consumer reception to the privacy changes, as well as the impact of these new controls on Apple’s own advertising business.
But Cook didn’t offer any information about whether Apple has benefited financially from the changes. Rather, he sought to further emphasize that Apple’s aim with the privacy controls was to give users greater choice over how their data can be used. “There’s no other motivation,” he said.
One reason Apple executives may be avoiding talking about the issue is potential antitrust scrutiny for harming potential advertising competitors while the company itself benefits financially. The IDFA changes have been pointed to as financially damaging from a variety of companies that reported earnings in recent weeks, including Facebook
FB,
Snap Inc.
SNAP,
and even Peloton Interactive Inc.
PTON,
Read: Here are the companies that Apple’s ad changes are hurting, and the ones that can withstand the pain
Whether Apple openly intends to benefit from the changes and whether it actually benefits are different issues, however. The Apple privacy controls, which started to roll out earlier this year, allow users to opt out of having their data used by third parties for ad targeting. Several analysts have speculated that the pain being felt by social-media players as a result of the privacy changes will drive gains for Apple, which can swoop in and meet some advertiser demand.
Analysts at Bernstein were among those taking that view Thursday, outlining the various ways that Apple could benefit.
“While Apple’s IDFA changes were likely principally made in the spirit of protecting user privacy, they appear to have clearly benefited Apple’s own advertising business— which we believe is largely unappreciated and could ultimately reinforce the bull narrative of high-margin services growth,” the analysts wrote. They estimate that IDFA could have increased Apple’s run-rate revenue in search advertising to about $4 billion from about $3 billion.
See also: This could be Apple’s next $20 billion business
The team at Bernstein sees a “platform-based competitive advantage” for Apple as ad-dependent internet giants scramble to come up with better measurement tools in the wake of the company’s privacy changes.
“Altogether, Apple is able to offer advertisers much more granular data,” the analysts wrote. “While Apple does not create individual user profiles, it does segment users, which would still be significantly better than the data provided by SKAN,” the application-programming interface that Apple has offered ad companies following its changes. SKAN offers “much less granular data relative to IDFA,” the identifier that users can opt out of sharing, they continued.
The story is admittedly nuanced, the analysts said, given the types of advertising Apple has gone after with its efforts thus far to build its own ad business. Specifically, the analysts see opportunities for Apple to gain share when it comes to advertisements for mobile apps on iOS devices, which they estimate is a $30 billion market. Within that, about a quarter of the market is search ads.
“We estimate that Apple’s own advertising business today is $4 billion, meaning that it has ~60% of app search-ad market share on iOS,” the analysts wrote.
Apple stands to benefit if advertising dollars move away from display ads and toward search ads, which Apple offers in its App Store. Further, Apple could seek to grow its display-ad business, which the analysts note is currently focused on platforms like Apple News and Stocks.
There could be still-larger opportunities ahead, depending on the scale of Apple’s ambitions, which could be hemmed in by concerns about more antitrust scrutiny.
“Perhaps the biggest incremental opportunity for Apple is to introduce its own Audience Network business (i.e., place ads on others’ apps),” the analysts continued. This would put Apple up against Facebook parent Meta Platforms Inc.
FB,
and Google parent Alphabet Inc.
GOOG,
Doing so would come with its own challenges, though, since “the appearance of becoming a major ad player while espousing privacy and competing directly with Google (who pays Apple an estimated $15 billion per year to be the default search engine on iOS) may be potential impediments,” the analysts said.
Apple continues to face regulatory pressures in a number of areas, including for the policies it has around App Store payment policies and its near-field communications (NFC) reader. While the analysts don’t address the likelihood of antitrust issues with the ad business, it’s possible that regulators could take aim at this part of the business as well, given that Apple’s own business stands to gain as a result of its privacy changes that impact companies rivaling it for ad dollars.
Shares of Apple have gained about 12% so far this year, as the Dow Jones Industrial Average
DJIA,
of which Apple is a component, has risen roughly 17%.
