Criteo Earnings: The Ad Tech Stack Is Nearly Complete, and Growth Is Likely To Follow

We are maintaining our $41 fair value estimate for Criteo CRTO. With a focus on retail media and advertising technology product development, both in-house and via acquisitions, Criteo has become the one-stop shop with its supply-side and demand-side ad tech platforms. While the declining ad retargeting side of the business still represents over 50% of revenue, we remain impressed by continued strong growth in other areas like the commerce audiences business. The firm burned cash during the quarter because of its investments in data centers, but it did return to profitability, which we think can continue. We did not make significant changes to our valuation model. While the shares trade at a 20% discount to our fair value estimate, they remain 3-star-rated given our Very High Uncertainty Rating.

In the second quarter, net revenue, which excludes traffic acquisition costs, came in at $240.2 million, up 12% year over year mainly due to revenue from the Iponweb acquisition. Iponweb does not have traffic acquisition costs, driving the take rate to 51% from 43% last year. Excluding Iponweb revenue, the take rate increased to 48%. Organically, net revenue declined 1% as the near extinction of third-party cookies continues to hit retargeting revenue (down 15% from last year). Criteo’s retail media segment net revenue increased 20% as more advertisers came on board and ad spending in the U.S. consumer packaged goods vertical was strong.

The client count declined 1.4% from last year to 18,646, mainly because Criteo consolidated a few accounts. According to the firm, activities per account, whether on the buy or sell side, did not change much. Gross revenue per client increased 10%.

The firm generated $56 million in adjusted EBITDA, a 12% margin versus last year’s 10% thanks to the higher-gross-margin Iponweb revenue. Cost-control efforts helped offset the additional operating expenses brought on by Iponweb.