Criteo Earnings: The Ad-Tech Stack Is Minimizing the Impact of Client Strategy Changes

We are maintaining our $41 fair value estimate on Criteo CRTO. Our takeaways from Criteo’s third-quarter results and the firm’s earnings call are mostly positive. First, strong organic growth in retail media, combined with the contribution from the Iponweb acquisition, have reduced the firm’s dependency on the declining retargeting business, which for the first time represented less than half of total revenue in the quarter.

Second, Criteo’s one-stop-shop strategy is becoming more critical as some retailers are putting pricing pressure on the supply side. As advertisers and retailers demand more direct relationships with one another for digital ad buying and selling and first-party data usage, we think Criteo’s complete ad-tech stack and focus on retail will continue to differentiate it from its peers.

And third, while one of Criteo’s largest retail clients has decided to do some of its retail media in-house, the recurring fee that Criteo will continue to receive for its underlying technology will drive further margin expansion starting in 2025. While we continue to rate Criteo as a no-moat company given its platform’s lack of a network effect and minimal switching costs for its clients, the firm’s full offering could lessen the impact of client decisions to develop similar offerings in-house.

We reduced our 2024 net revenue projection for Criteo given the client decision, but increased margin assumptions offset the impact on our fair value estimate. The stock is down nearly 12% in reaction to Criteo’s client news and is now trading at a 40% discount to our fair value estimate.