Z| Ly is| | | S fe} ir Capital Markets iets September 30, 2021 Facebook, Inc. There's Just Nothing Else Quite Like It; Initiating at Outperform ‘Our view: F8 has captured unmatched knowledge of the world's consumers but the next leg of growth, and stack appreciation, in our view, depends on the company’s ability to deepen its relationship with its nearly 3 billion users. Through multiple product initiatives, we think the company is well positioned to transition from a sacial-centric platform to a fuller source of online utility, which should steadily benefit shareholders over time. Our channel checks detected little fundamental impact owed to recent IDFA changes though we'll be monitoring this going forward, Initiate at Outperform with a $425 PT based on 13x EV/'23E EBITDA. Key points: + More users + better data is a plenty-durable foundation. FB has created fone of the most valuable ad franchises in the world through gaining. differentiated knowledge of the consumer, which enables its best.in- class targetabllty and ROI for advertisers. As digital both expands the ‘$478 billion global advertising TAM as well as shifts from offline to online, ‘we view FB as well positioned to continue capturing share gains. + Robust down-funnel strategy plus multiple opportunities for huge vertical expansion (aka super-app potential). Beyond core ad growth, we're most intrigued by the company’s ongoing push down-funnel towards commerce, messaging and potentially other adjacencies like payments/fintech or other enterprise opportunities as ameans to driving deeper connections between advertisers and consumers. in particular, ‘we think Shops has enormous potential across broader horizontal E- commerce, messaging should continue to emerge as a critical customer brand & retailer access point while enabling commerce, payments & fintech should increasingly evolve as the logical next step from commerce and finally, other enterprise capabilities could seemingly ‘emerge with Workplace representing an initial foray that has already arguably surpassed pet project status. CChecks indicate relatively minimal impacts so far from ATT, but the industry is perceiving some performance impact, which Is reflected in ‘our modestly below-Street estimates. In speaking with 12 ad channel contacts, we believe performance has likely fallen in the eyes of advertisers but given it's not yet quantifiable, advertisers have not really changed their spend as FB properties are viewed as unparalleled in terms, of targeting with or without IDFA. Relative to the 15% under-reporting, FB recently disclosed, we heard a wide range bracketing this figure of between 10% and 50% signal loss. Ultimately, we have to think that the performance lass could become a headwind, which is the thinking with our slightly below-Street estimates. If spending were to leave Facebook, YouTube and CTV are the top two channels as next-best alternatives. \We intend to continue to monitor the channel for indications that the performance declines are translating to adverse spending changes. + Ad business is a compounder, down-funnel strategy represents bigger upside. ‘Brad Erickson Analyst) (503) 830-9488, brad erickson @rbeem com Daniel Par (Associate) (646) 618-096, ciel par@rbeem.com Outperform NASDAQ: FB; USD 339.61 Price Target USD 425.00 Scenario Analysis* Donnside current Price Ups Sconato ‘Bete’ Teget__Seenaro 41% tam te Key Statistics Sores SMM; 287 Maat Capi 977.058 iden 000 ld om Freorprie Vt (MN 06 68 Jog Day ote: 2616,001 RBC Estimates Fy Dee 2020R 20018 20 20236 Revenue 85,9660 119,1709 142.2732 166,071. EBITDA, Ad) 46,0590 65,5930 75,7185 88,535. Revenue a a@ ao a 2000 1,737.08 18,687.04 21,470.0828,072.08 2021 26,171.0829,077 0A 29,2283 34,538.26 2022 31,186 SE 32,792 6€ 36077 6€ 42216 26 EBITDA, Ad 2020 8,525.0 9,352.08 11,460.04 16,422.08 2001 435,180.08 16,900.04 15,081 6€ 18,431 4¢ 2022 16,541.08 17 8108 18,798.96 22,457 56Copital Markets LS, Key fundamental questions Can F8's platforms keep up with less penetrated upstarts on a net basis? Are CPM trends sustainable going forward? How realistic is FB’s path down- funnel? Metaverse? September 30, 2021 Facebook, Inc. ‘Our view ‘We think so. Clearly Instagram is the standout here where we think the depth of ‘engagement has and likely should continue to deepen both for core usage of Feed, Stories and Reels but also for things like Shops and Facebook Messaging. Based ‘on our checks, we believe Instagram has arguably done the best job in social to date of optimizing advertisers’ desire for wanting the broadest user base in terms ‘of demographics while also being further dawn the funnel vs. similarly situated ‘competitors like SNAP and TikTok. And while slower growth out of Facebook is to be expected going forward, we believe few others in the space can come close ‘to matching FB's scale for incremental spend and thus, we expect FB to at least ‘maintain share going forward. We see potential for cross-currents but generally, yes on the basis that FB's targetability doesn't change post-IDFA relative to competitors. Given some of the perceived lower performance trends we heard in our checks related to IDFA, we have to think there should logically be some CPM softening at some point on the platform. Offsetting this, however, is the potential for larger advertiser share shift ‘where we think those advertisers with broader historical 1P data of their own may find ROI arbitrage opportunities in FB's auction and may actually choose to increase their spend in efforts to exploit this. Very. Less than a year after announcing Facebook Shops in mid-2020, the company had already exceeded 250M MAUs and 1M sellers where cross- platform functionality was enabling new means of customer connectivity and likely ‘compelling incremental ad spend. While it's difficult to quantify the effect other than to sayit'lldefinitely be years vs. quarters before the business becomes more material relative to the ad business, between the audience size, engagement potential and ‘ever-higher targetability, we see no reason why FB's various channels could become ether an incremental or viable alternative selling channel as user habits on the platform evolve. For a subset of FB's user base, we think a virtual world revolving around mostly leisure-based consumer activities could be compelling one day and if anyone was, positioning themselves to colonize and capitalize best off of this opportunity, it's very likely to be FB. With that said, given the regulatory scrutiny FB's been under for many years alongside what has arguably been a sometimes questionable public relations strategy in efforts to address those criticisms, we wonder if some type Of presumptive metaverse would only continue to expand FB's exposure to the usual negative perceptions of its platform (privacy/security, negative/hatefu//illegal ‘activity, mental health controls, etc). The metaverse certainly has the potential to be one of the most transformative investment themes we've heard of in a long time (remember 5 years ago when autonomous vehicles were just around the corner?) but for the foreseeable future, we think it'll be just that - a concept situation that's, likely further out than investors may currently appreciate nel uhinepemsensmemes 3:Copital Markets LS, Key ESG questions Facebook, Inc. This section i intended to highlight key ESG discussion points relevant to this company, as well as our views on the outlook. Bath the questions we highlight and our responses will evolve ever time asthe dialogue between management, analysts and investors continues ta advance. We welcome any feedback on the topics. What are the most material ESG issues facing this company? Does the company integrate ESG considerations into its strategy? What is diversity lke at board / ‘management level? September 30, 2021 ‘our view For some of the world's most polarizing debates over the past several years, FB has often been at the center of the controversy over topics such as user privacy and security concerns, the potential harmful societal effects from the excessive use of, technology, cyberbullying, terrorism, hate-speech, free speech/free press, election controversy and geo-political relations. Additionally, its dual-class share structure tlves its founder & CEO nearly 60% of the voting power. Finally, with its enormous user base, the company leverages a tremendous amount of energy for its total ‘company infrastructure around the world Absolutely, We believe FB's management recognizes it plays a leading role in all issues surrounding ESG due to its high profile. The company has a well articulated strategy related to several key socially conscious initiatives including community safety & support, diversity & inclusion, privacy & cybersecurity, promoting community economic improvement, social impact and a sustainability ‘and responsibility supply chain. In particular, the company recently pledged to get ‘to net-zero emissions across its entire operation by 2030. ‘Across its publicly isted executive management team, 29% are female. 44% of its board of directors are female. eeluhinenpemsensmemmaes 3:Copital Markets ile September 30, 2021 Facebook, Inc. Conclusion/Comparable Valuations ‘Ad business is a compounder, down-funnel strategy represents bigger upside. While the app-tracking headwinds are meaningful and worth monitoring should the loss of signal affect, performance - we believe Facebook is doing everything in its power to develop an alternative to providing its advertiser base with tools to build the leading mosaic to measure campaigns and drive its algorithm for best-in-class targeting. Given the feedback suggesting that in the social space, no alternative platform compares to FB in terms of both data or size, we see FB as working ‘through these challenges over time and retaining its strong market share position. Our checks indicate that the company has talked with customers about running over 85 experiments on its algorithm in the past quarter alone and has already produced several wins, which is encouraging and reinforces our confidence that it can work through these challenges over time. Looking a bit further out, we believe the ad business should continue to grow above market levels which combined with stable margins should drive at least 15-20% earnings growth. On top ‘of this, we believe the company is positioning itself well to expand its commerce presence by using advertising promotions (free CPMs for link to Shop) to attract new sellers to the platform. ‘With 10% of its ad customers already selling, we'd think penetration could rise to 30-50% over time when the benefit would come nat only from selling commissions (estimate revenues in the low- to mid-single-digit billion dollar range within ~3-4 years) but also the associated CPM uplift {as those selling customer are able to spend more due to the better targeting stemming from the transaction data generation. With the stock trading at 10.5x EV/ our '23 EBITDA estimate, we view it as an attractive ‘earnings compounder with commerce’s potential positive effects on the business representing an inexpensive call option. Own FB. Exhibit 1 - Comparable Valuations aay | Sesavyyergyy) sss seyvasssgu ayes sspi8: Seek SEGRERE Basa ioavaserasa9zs) Advertising Industry Channel checks We spoke toa dozen agency and corporate performance marketing channel contacts foro broad perspective around all of the major ad channels including Google/YouTube, Facebook/Instagram, Amazon/Prime Video/CTY, Snap, Pinterest and TikTok. Brad Erickson (500) 280-5088; bradoridnen@rbcemcom 4Copital Markets LS, September 30, 2021. Facebook, Inc. Facebook/instagram: Everyone is losing signal on FB in particular and the industry has only just begun figuring out what to do about it - ie, we detected very little if any change in ‘spending. Consensus feedback indicated that most advertisers are losing signal with platforms ‘where there's meaningful value garnered from view-through conversions or app-installs-namely FB, We came away feeling like performance has likely fallen in the eyes of advertisers but given it's not yet quantifiable, advertisers have not really changed their spend as Facebook properties are viewed as unparalleled in terms of targeting with or without IDFA. Relative to the 15% under- reporting Facebook recently disclosed, we heard a wide range bracketing this figure of between 10% and 50% signal loss. Ultimately, we have to think that the performance loss could become ‘a headwind, which is the thinking with our slightly below-Street estimates. If spending were to leave Facebook, YouTube and CTV are the top two channels as next-best alternatives. We intend to continue to monitor the channel for indications that the performance declines are translating to adverse spending changes. Google/YouTube: No news is good news unless it's about YouTube, which appears to be the largest share gainer in the industry. Given all the controversy surrounding Apple's IDFA ‘changes, feedback on Google spend seemed remarkably inline with YouTube feedback sounding Incredibly bullish. Google remains the gold-standard for finding high-intent, relatively further- Funnel migration — the pervasive trend going on right now across the internet space een k ere ae ANGI, CARG, CARS, FB, GOOGL, PINS, SNAP, TRIP, TRUE, ZG Top of Funnel Discovery + Objective is to be huge (traffic), nothing else matters + ANGI, CARG, CARS, FB, GOOGL, PINS, SNAP, TRIP, TRUE, YELP, 2G Mid-Funnel Research, Price + Can user take what they've eae Comparison, Shopping leaned off-platform (or offline completely)? Bottom of Funnel * Conversion = Monetization + Data AMZN, CHWY, CVNA, DASH, FVRR, LYFT, MELI, RDFN, UBER, UPWK, W Conversion + ABNB, AMZN, BKNG, CHWY, CVNA, DASH, EXPE, FVRR, LYFT, MELI, OPEN, RDFN, UBER, UPWK, W Source: RBC Capital MarketsWhat's Happening by Vertical? Discovery Dene Re oc co med Down Aiea ‘Ads/Social Mixed Car Retail Mixed Consumer trust Home/Local Low Real Estate High Research, Price ‘omparison, Shopping Dating Low Delivery Mixed E-Commerce High Audience Size Gaming Mixed Pro. Services Mixed Conversion Travel Low Source: RBC Capital MarketsEveryone's trying to build a platform — expanding customers’ wallet E-Commerce Professional Services $1.2T fiverr. Rpt intuit zg Brevoron Apparel and Services $1.0T Google FE Microsoft ing @ Search/Mapping Food $1.5T Real Estate $2.5T Angi Reorm Z a Pech tone so) MET2 — ‘ays ome buceil ‘Consumer Spending — 2/3 of $217 US GDP Coc Crpse Travel $700B Healthcare $3.8T Education $4008 Source: Company Reports, RBC Capital Markets, US Census Bureau, USTravel.Org Mobile (Devices and Ecosystem) Entertainment $350B Transportation $1.8T Uber Wyk a vroom Q via SHIFT Ls | Hinge japon — Dating >$8B Google € amazon SAMSUNGSearching for the next WeChat + WeChat out of China (owned by Tencent) is the mode! that everyone is shooting for with 1.258 users, = 900M credit cards 3.2M merchants Integrated functionality including — Comprehensive messaging Search Location services Banking & financial services — Digital walletP2P/P2E payments — Social media Physical and digital commerce tools — Food & grocery delivery ~ Utilities biting Online travel Shared mobilty (transportation) — Entertainment & media — Online real estate ~ CRM — Enterprise communication suite = Why haven't North American and European consumers adopted a super-app? — Mobile wasn't our first interaction with the intemet — We don't like to “be watched” ~ We are well-banked — Companies are smart — no one will take the first leap — Only thing that would change this is inertia of specific platform from SMB sellers me hues E-Commerce Payments Devices amazon prime (@ WhatsApp Uber nce Or Source: Company reports, QPSoftware.com, RBC Capital MarketsWhere does Mega-Tech want to go? Very nearly everywhere és amazon @ Nl siey erate’ NS ter E-Commerce Search/Maps tesa) #1 Player AMZN ‘AAPL FB ‘GOOGL Core Platform| Prime ios Messenger/WhatsApp Google Account Me Healthcare v. v. v v Food v Transportation v v v Search/Ads| v v v v Entertainment v v v v Real Estate ‘Automotive v v Travel v Education v v v v ‘Apparel/Services v v v Gaming v v v Dating Source: Company reports, RBC Capital MarketsDigital Advertising and E-commerce Market Opportunities Capital MarketsGlobal digital advertising TAM (incl. China) — $478 billion and incrementally growing = Two key drivers: e-commerce and new business formation = Offline hasn't really declined much — much of digital’s growth has been incremental $700,000 ‘$600,000 $500,000 Revenue ($MM) $400,000 $300,000 $200,000 $100,000 $0 $339,616 $383,922 $478,415 $539,512 $583,524 $636,605 2019 2020 2021 2022 2023 2024 Source: M Group, Company filings, RBC Capital Markets estimates 70.0% i 8 3 Digital Share of Global Advertising Market g ; 3 10.0% 0.0% == Outdoor Digital Cinema ces Magazines j= Newspapers en Audio smn TV / Pro. Video Digital ShareDigital advertising TAM = Estimate global digital ad spend ex. China will grow ‘$500,000 ata 14% 5-Year CAGR to ~$450B by 2024. @ $450,000 & $200,000 = Search spend ex. China growth slower than overall 3 $350,000 but still strong at ~10% CAGR through 2024. i $300,000 Ey con = Estimate U.S. ad spend to grow modestly faster $200,000 than International ex. China, though remain slightly 3 $150,000 below in terms of overall digital ad spend. j ‘$100,000 © $50,000 30 2019 © 2020» 202120222023 2024 Global Search Ad Spend ex. China vs. Global Non-Search Ad Spend ex. China Forecast, 2019-2024E $250,000 , = $450,000 = $200,000 S $400,000 a S008 $150,000 |, ooo i 5 $250,000 $100,000 28 s200000 3 5150,000 $50,000, | 3 $100,000 50,000 0 i” 2019 2020 2021 2022 2023 Global Digital Ad Spend ex. China Global 2019 ©2020-2021 2023 ©2024 = Digital-US Digital - International Ex-China Search ex.China = Non-Search ex. China Source: M Group, Company filings, RBC Capital Markets estimatesHigh-correlation between e-commerce and digital ad spend = Historically, digital advertising Digital Advertising Spend Relative to Retail E-Commerce GMV ~ Consistently at ~10% spend relative to e-commerce $7,000 12.0% GMV has hovered around 10% $6,000 — = We expect global retail e-commerce & market to grow ~$L.ST from 2021to $5 ina 2024 = g i 5 B $4,000 ts —Implies baseline of ~$150B of eT em Of incremental digital advertising Tsao e spend a ¢ 4.0% uv — As much as ~$1,5-$2T of $2,000 j implied equity value creation 3 $1,000 fe i » = a a a a | 2019 2020 2o21E 20226 20236 20245 Digital Advertising» E-Commerce Source: M Group, Company filings, RBC Capital Markets estimatesVCs and tech start-ups are huge LT tailwinds for ad spend going forward = We believe ~$0.40 of every $1 of venture capital raised for virtually all consumer companies will be spent on digital advertising. : a Brick and Mortar Retail Advertising Spend as a % of Revenue (as = Legacy consumer companies spend <2% of revenue on ATRL as Ue oe OVID warnces advertising. ‘sis 33% : ‘ee ons stlase a , lak so 45% 1s9 = Sample of public internet spending ~12% on digital ads $840 19% $500 — Net revenue marketplaces frequently spend 25-50% es ie sa00s $637 42% i683 suits 18 sm10.25 : i ‘isn 20% 15.32 = Relative to $14T consumer TAM in the U.S. — every 100 bps 3854 or $122,286 of the gap is worth $140B of incremental digital spend a Fy oa — ~30% incremental relative to 2021 Rost $14 osm $16,039 1st siser 21% sreaiz aK ‘sis 1s sony $180 40% uta saa 43% 7.398 0 ly get tag SB ¢—$§_S5, 8 E-commerce Retail Advertising Spend as a % of Revenue (as of aca a a aon FY2019 as we consider COVID nuances, TT EE netbe a5 0% 7 uae 2s 4 E eve coptat air oo tie dio & tovested eM 204 52% $390 im0 3 Eoar s1400 0% 10800 erst 175 20% 218 ¥ seo ee ciel ren pad ane ior . FrOW $303 166% sas 15% ‘Company REAL sa 27% S38 $60 ‘Ad Spend ‘Sra 68 98% sum & w s.086 12.05 sa. ts 10% i Weighted Average $3,079 a7 ‘h05r $20 3% 5 $0 0% 2016 = 2017,—S 201820192020 Source: Company filings, RBC Capital MarketsThe four determinants of success for digital advertising Intent — Why are your users really there? What are they trying to do? 1.AMZN 2.GOOGL 3. FB 4. PINS 5. SNAP First-party data quality — how much do you know about your user (deterministic or probabilistic)? 1.AMZN 2.FB 3. GOOGL 4, PINS 5. SNAP Demographic width — Are your users interested in all types of products or only some? 1.FB 2. GOOGL 3. AMZN 4, SNAP 5. PINS Audience size — limited size drives limited spend leading to limited equity value creation. 1.GOOGL 2.FB 3. AMZN 4, PINS 5. SNAPDigital advertising funnel positioning Funnel Top TikTok Demographics Narrow amazon — Bottom Source: RBC Capital MarketsFor social platforms, it’s just like 2000, it’s all about eyeballs = Our checks indicate advertisers need more than ‘a few million’ incremental users on social platforms to consider a channel strategy spending change. = SNAP and PINS need incremental way to find more users. — Content ~ Creator incentive — Seamless shopping experience = Spotlight (125M-+ users so far) is intended to be that product for SNAP. = PINS lacks the new product/content driver. — Native checkout helps but that's monetization of existing base more than attracting new users Source: RBC Capital Markets estimates RBC FB, SNAP, PINS MAU/DAU Esti 3E FB MAU Estimates (Total and Segments, in MM) Eee aero Poros Total Company MAUs] 2.852 23895-2930 2,956 | 2,908. aaa | 5.8% wy} 96% 72% = 69% 7m | 7am Sam | Aom Us@canada] 259 259592 260 202 | 265 12% wy) 24% = 12% tam tom | nee | tom | tom Ewope| 423 a0 zs, as | gas | asa | ao 22% wy] 42% = 24% 25% asm | 2% | age | 20% AsiaPac! 1230 3.265 323 aza9 | azo | nasa | ass | 7.7% wy} 125% 108% tow = 75% | goam | sam | 6a Restof World) 940 95165 sat sss | sos | 107 | cox wy} w0s% ex = sm sm | rae | Sam | Sm SNAP DAU Estimates (Total and Segments, in MIM) Eres er? OO“ SC COI TCT SI Seer Total Company DAUs| 29002530 00s sin.s | sea | 333 | 3609 | 147% vo] 223% aaax 20% 7.7% | go9m | aaaw | tam Nothameria] 930 950 © 959 ors | 53 | 102 | oer | sox vw] 57% sex osx sos | ame | Sam | 40m Ewope] 770 780= 78a | 7e6 | saz | ssa | 72% wo} 100% 93% 95% 08 | 96% | 7am | 50m Restofwoid] 1110 120062 t37_| azzy | asoo | ams | 205% voL_s6ax___ssax___4sow 35.0% | 489M | 280K | asi EO ee) Er ee eee Toralmaus| 4730 4540 © asa aa | agr7 | soo7 | sss | 90% wy} 302% ase ass ase | gam | 90m | oem us| 980 10 «= 908 ons | 928 | 950 | 999 | 15% wy) sox 52% ay) se | gee | am | Sam International] 3800 363.0 «3687-3881 | 3750 | aaa7 | ase7 | 22% vy} 372K sam suze | asam | aoe | 108%TikTok vs. Reels vs. Spotlight — everyone’s a creator ikTok oo TikTok USER INTERFACE Video Length (seconds) Direct messaging Livestream Stories Shareable sound clips Search by: Linking on videos In-feed ads Augmented Reality In-app currency in-app shopping New Content Location Create original sounds Identifies paid posts Shows total #of users posts Shows total # of sound clip uses Tagged photos and videos Verified creators Hashtags, follower counts following Engagement Metrics Source: MediaKix, BBC, Takesomerisk.com, Adweek, RBC Capital Markets ae 310180 Lo 40 it v v v v v v v v Top, accounts, | people, hashtags Top, users, videos | tags. places, |i tor cemren tr sounds hashtags _|indirect search for tse audio Landing pages, | Efects and sound| Landing pages, effects, sound clips clips effects, soundclips v v v v v v v v v Explore page & dedicated reels |< Dedicated For you page Spotiight section section v. v. v v v. v. v. v. v v v v v. v. Vv. Likes, comments, | Likes, comments Views shares and views and views:E-commerce penetration going ever higher from 20% Global Retail Forecast 2019-2024E ($B. = COVID has created new level of customer expectation on timing, highlighting ever-present ae $95,000 25% % shipping elasticity. $30,000 oe ee pebzi = AMZN making critical investments in logistics and @ $20,000 5 J I ganna 822835 3 fulfillment, working towards same-day and on- i $15,000 591 308 $19,498 $20,191 $21,164 "ns wm 8 demand. 3 2000 j f j i i 3 3 $5,000 5% 60 e shan s5aze $500 $6308 = O% = Europe remains particularly underpenetrated. $0 2019 2020 20216 2022 © 2023E | 2024E — Prime: F1, Premier League, other live sports —==E-Commerce ===Offline E-Commerce Penetration Global Retail E-Commerce Forecast 2019-2024E (SB) US Retail ‘orecast 2019-2024E $7,000 $1,600 . $1,449 alae oT sa i ot 8 1,200 & 5,000 a i Mi $1,089- ® ev $1,000 $933 $400 6 : $800 8 $3,000 a $600 ,000 g Jo 1 8 $1,000 s200 8 30 30 2019 20202071 ©2022» «2023-20248 2019 2020-«-2021E—« 2022 —«2023E Source: eMarketer, Oberlo, RBC Capital Markets estimatesWhere's the outsized growth going to come from in e-commerce? US Retail E-commerce Penetration by Product Books, music & vicoo __SSSEEESSSS ESS ESSE ESS SESS Computer & consumer electrics Rca Office equipment 6 spe: Bierce Apparel & accessories Furniture & home furnishings III Health, personal care & beauty Auto & parts Food & beverage 0% 2x 30% 40% 50% 60% 70% ——— 5 Retail E-Commerce Sales by Product Category ee Source: eMarketer, RBC Capital MarketsControversy and Channel Checks Capital MarketsBiggest controversy in online advertising: Signal loss = Apple's late-Q2 rollout of (0S 14.5 including App Tracking Transparency (ATT) is causing a loss of signal primarily for social players who use data from other apps on iPhone for targeting and campaign measurement/reporting. ~ Identification for advertisers (IDFA): an anonymized unique identifier on all iPhones (Android has its own as well) that allows an app developer to see what happens on other apps on your phone. — We view this as a sign that Apple may want to compete in global advertising Best positioned pre-ATT = So what do app developers like FB lose? — The ability to track off-platform activity Google — The loss of view-through conversions on mobile devices (mainly impacting re- targeting) — Loss of attribution for campaign-driven app downloads = With app tracking gone and cookies likely gone in '23/'24, what will advertisers do? — Clear trend away from unique user activity towards targeting based on Al-fueled modeling of anonymized cohort level activity. ~ Google testing its Federated Learning of Cohorts (FLoC) platform — Server-side attribution — Advertiser allows data distribution from its website server to a vendor server using on-site data collection pixels (tags). ~ Targeting based on people like you (probabilistic data) vs. targeting based on your activity (deterministic data) ~ Improves data collection across all channels for better campaign performance measurability = Helps manage tags without degrading user experience —FB, SNAP and PINS either are or will likely promote 1P data tagging with advertisers.The potential advertising share gainers of the future: Amazon...and Apple? = ...and one more thing —- Amazon is testing its own 1P tagging platform. —We believe this could address a key advertiser pain point we detected in our checks ~ As AMZN's ad business grows, so too will the desire for advertisers to share its data with AMZN for better targeting, conversion and ROI... —...which should feed the e-commerce business incrementally — Most important: Amazon already has some of the broadest and best 1P data in the industry in terms of unique user purchasing intent/history. —This addition would only make it stronger. = We think Apple’s user privacy changes reflect a LT desire to enter the advertising market — Apple possesses the world’s highest value user base. = Peat (1.65B devices) in active use as of J an — Can use data privacy as cover while it invests in a search algorithm behind the scenes. ~The trillion dollar question: —What would create more equity value for AAPL — search advertising revenue or Google's traffic acquisition payment? Who could benefit from le’s privacy changes amazon —T 4Channel work — Apple’s App Tracking Transparency (ATT) sends the industry backwards = We spoke to 12 digital advertising channel contacts regarding their use & views of the major digital ad channels (Google, YouTube, Facebook, Instagram, Twitter, Linkedin, Snap, TikTok, Pinterest) = Key takeaways: — FB: Advertisers have no choice but to fly blind (for now) with the loss of signal from Apple. —Advertisers’ perception is that performance is off ~10% though we heard bigger range for reporting loss of 10-50% related to iOS 14 update. — Strangely, we did not find evidence that this has led to meaningful spending churn but will continue monitoring for effects of perceived worse performance. —Most likely alternative if FB were to see spending churn: YouTube or CTV. — GOOGL: Not changing their cookie game until they know they can retain control of it. —Pricing power (ad inflation) continues to amaze the industry as there is no alternative given how much more intentful Google users are considered vs. social channels. ~ YouTube is industry's leading share gainer — differentiated targetability, conversion and scale. —Recent launch of increased Al self-serve tools for SMBs may cause agency consternation. —Recent SEO algorithm change driving very little traffic dislocation. — AMZN: Feedback indicated meaningful pent-up demand — but industry still trying to figure out exactly how to best use Amazon given different data, interfaces & intent vs. other channels. —Hesitance (if any) comes from AMZN being a low trustworthy channel partner.