Shares of Criteo (CRTO) are lower in morning trading after two analysts downgraded the stock following an article suggesting Google (GOOG, GOOGL) is considering making sweeping changes to its ad tools.
GOOGLE CONSIDERING CHROME AD CHANGES: Over the weekend, AdWeek's Ronan Shield reported that in a move to placate data privacy concerns, Google is considering a number of changes to its consumer- and advertiser-facing tools, with potential changes that could have a major impact on how ad-tech vendors operate within it. The potential changes span a range of outcomes, but Shields said observers are preparing for changes as major as previous ones made by Apple's (AAPL) Safari and Mozilla's Firefox, including diminished third-party cookie tracking.
POTENTIAL MEASURES BRING 'UNCERTAINTY' FOR CRITEO: SunTrust analyst Matthew Thornton downgraded Criteo to Hold from Buy and lowered his price target to $24 from $32, citing "uncertainty" over the potential changes that would restrict advertising targeting across its Marketing Platform.
The analyst believes that in the most downside scenario, to which he assigns a 35% probability, Criteo's target could fall to $11, while the upside alternative scenario, to which he assigns a 65% probability, yields a $32 price target. While the analyst thinks Criteo is executing "well," he noted that the company's efforts continue to be met "at every turn" by data privacy headwinds. The SunTrust analyst outlined three possible scenarios, including nothing coming to fruition; Google restricting cookie-based targeting but offering partners alternative options; and Google restricting cookie-based targeting and not offering partners an alternative. In that last scenario, upwards of 50% of Criteo's revenue goes away, he noted.
Thornton added that the AdWeek report said that any changes made by Google are likely to contemplate antitrust scrutiny. If Google does make changes to data privacy and targeting, he said Criteo believes Google could create an alternative means to target in the Chrome browser and would extend this to partners like Criteo, which would avoid antitrust scrutiny and prevent Google and its partners from forgoing meaningful targeting revenue.
KEYBANC ALSO LOWERS RATING: KeyBanc analyst Andy Hargreaves also downgraded Criteo to Sector Weight from Overweight. Incentives and antitrust issues make a full Intelligent Tracking Prevention-like solution in Chrome very unlikely, the analyst contended. However, he believes he will not be able to disprove the bear case until Google provides more clarity on its plans. This is likely to create an overhang on Criteo in the near term, Hargreaves said, adding that he sees uncertainty and level of risk involved in the shares.
PRICE ACTION: In morning trading, shares of Criteo are down 9% to $20.00.
OTHERS TO WATCH: Other companies in the advertising technology space include Rubicon Project (RUBI) and Rocket Fuel (FUEL).
