Apple's data privacy changes impact on AppLovin (APP)

Investment Analysis Clubs Saul’s Investing Discussions
1

This past week Apple was expected to release SKAdNetwork (SKAN) version 5, and instead they switched to a new product called AdAttributionKit. AppLovin’s was down about 5-10% over the course of the week on the news because of the uncertainty around the data privacy changes which could impact ad advertising.

After diving into the changes a bit, I don’t see this as a big change or threat to AppLovin’s business model and I will explain why.

The two big changes going from SKAN 4 → AdAttributionKit are,

  1. Re-engagement tracking, this is the ability for an ad to be targeted at someone who previously used an app and prompting them to use/install it again

  2. Alternative app stores, advertisers can now reference or link to other marketplaces and app stores

The new privacy changes add some elements of crowd anonymity where when an ad is ramping up certain fields will be obscured until there are enough users in the pool. The point of this is to reduce the chance any device can be tracked/tied to a user and uses the safety in crowds principal. Also Apple adds random time elements to returning from ad networks to further obscure specific users. Some sources seem to indicate that these privacy features where inherited from SKAN4 so I’m not sure how new this is.

Another practice of ending “fingerprinting” has been mentioned again by Apple. Fingerprinting is a practice of uniquely identifying a hardware device and tracking the specific device. I don’t believe any part of AppLovin’s platform relies on this mechanism.

There’s a few more reasons why I’m not too concerned for AppLovin about this move to AdAttributionNetwork,

  • SKAN4 and AdAttributionNetwork are compatible and upgrading to AdAttributionNetwork is not required
  • It sounds like the selling point to switch is for advertisers to enable re-engagement, and link to 3rd party marketplaces
  • AdAttributionNetwork features were “largely built on top of SKAN”
  • SKAN and AdAttributionNetwork can be used at the same time
  • Apple mentioned ROAS (return of ad spend) is still a problem for marketers, and this is where AppLovin specializes well

This Youtube video explains AdAttributionNetwork more and it has some technical details,

Overall AppLovin has adapted to changes well over the years with different mobile ad policies. I see this move from SKAN4 to AdAttributionNetwork as being fairly incremental, and mostly a renaming rather then a new paradigm. This sounds much different than the 2022 ad networking changes which turned the industry upside down.

All that being said, I may trim my position a little bit until we get confirmation from AppLovin that these changes are at least neutral for the business. My hope is the re-engagement feature could be something to leverage for AppLovin to open up some new ways to advertise.

22 Likes
2

Need to update one important piece of information here is that when I asked AI if AppLovin uses fingerprinting some resources say they do. AI also told me that Instagram does use fingerprinting too. This fingerprinting topic seems to be a lot more nuanced than I originally understood.

To understand what fingerprinting is it’s the usage of hardware level data to uniquely identify a device. This could be anything like IP address, language, timezone, OS version, fonts used, or battery level. And some of these factors obviously change like battery level or timezone so they are “uniquely” identifying in a short time period. This is not the same as “Permission to track” which is not permission to fingerprint.

It’s important to note that since 2022 WWDC Apple has said “Fingerprinting is never allowed”. However, Apple themselves contradicts this by allowing fingerprinting for fraud detection. Additionally, any app which collects hardware level information needs to justify to Apple why they need it.

The exact methods that AppLovin uses to fingerprint are not public too. Either way it seems AppLovin is able to work effectively within the framework Apple has setup. Because Apple is moving more to explicitly banning fingerprinting, AppLovin may need to rework their algorithms some for parts that depended on this. The definition of fingerprinting itself seems murky at best though for what actually constitutes it, and the fact Apple uses it itself for fraud detection is why I mentioned this is a nuanced issue.

There’s definitely some unknowns here which have caused me to trim my position, but I’m still holding a large position here as I have some confidence AppLovin can navigate these changes successfully.

19 Likes