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UBS Securities said that with the upcoming Google and Yahoo's email changes investors are bracing for minor impact, but uncertainty still persists.
In February 2024, Google, a unit of Alphabet (GOOGL) (NASDAQ:GOOG), and Yahoo will gradually start enforcing bulk email senders (more than 5,000 messages sent per day) to comply with certain requirements. The analysts said that the concern amongst investors and looming bear case is that these changes could reduce the number of emails sent through marketing software providers and the revenue tied to these email volumes
Those with an email marketing solution include Salesforce (CRM), Adobe (ADBE) Intuit (INTU) (Mailchimp), HubSpot (HUBS), Braze (BRZE), KYVO and Twilio (TWLO), the analysts added.
The analysts said that the majority of their checks are not expecting this change to have a material negative impact on marketing software contracts because the requirements are already largely addressed by common business practices and provided by the marketing solutions.
That being said, the largest risk seems to be that the greater complexity and strictness results in the email channel being deemed less viable/effective, pressuring volumes overtime (perhaps in favor of other channels or higher quality/more targeted emails), the analysts noted.
The analysts' checks showed uncertainty regarding the likelihood of this outcome, saying they would have to wait until February to get clarity. For these reasons, the analysts have kept email marketing revenues estimates unchanged across their coverage, but would be monitoring this closely.
The 0.3% spam rate biggest concern. The analysts noted that the three requirements include the implementation of certain email authentication protocols, the ability to unsubscribe in one-click, and keeping email spam rates below 0.3%. Most concerns centered on the spam rate (characterizing 0.3% as low) and is steering the uncertainty.
That combined with the easier unsubscribe seem to be dictating the fate of email volumes. SPF, DKIM and DMARC is the required email authentication. The first two are commonly included in marketing solutions, but DMARC is the responsibility of the sender. The analysts were told that these are the norm rather than exception, but some did acknowledge that a minority of brands could lack compliance.
The analysts heard that the authentication is simple to implement, and Google will first provide warnings before gradually rejecting a percentage of uncompliant emails in April 2024 to allow fixes to be made.
Business-to-consumer, or B2C, and Mass Emailing Marketing Solutions Most Exposed: The analysts heard that high volume senders are more prevalent amongst B2C businesses, suggesting that predominately B2B marketing solutions, such as Adobe (ADBE) and HubSpot (HUBS) have the lowest risk. Braze (BRZE), KYVO and Twilio (TWLO) (5-10% of revenue) seem to have the highest B2C exposure, followed by CRM (about 10% of revenues) and Mailchimp (8% of revenues).
Though, checks flagged Mailchimp as being most at risk if headwinds materialize, pointing to its mass emailing roots and arguing that it might be less sophisticated in areas such as personalization, according to the analysts. Meanwhile, Braze (BRZE), reportedly, is doing a good job preparing customers.
In addition, the analysts said that changes could drive upside/benefit marketing solutions. Checks said it could facilitate purchases of marketing software as senders seek compliance and place a greater focus on email quality, personalization and message timing, benefiting Braze (BRZE) and Salesforce (CRM). Likewise, if email is increasingly ineffective, it could shift more demand to other channels such as SMS, benefiting Twilio (TWLO).
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