Criteo Earnings: Retargeting Pressure Continues, but Retail Media Light Is Shining Brighter

We are maintaining our $41 fair value estimate on no-moat 4-star-rated Criteo CRTO. While Criteo’s retargeting offering is still pressured with minimal recovery expected in the near term, we remain impressed with the headway that the firm is making in retail media, which we project will grow faster than the overall digital advertising. Criteo is also strengthening its position as both a supply and demand side platform provider within retail media as it continues to utilize its clients’ first-party data to not only monetize its online properties, but also more effectively market its offerings to consumers. We also expect increasing net revenue contribution from small and medium-size businesses from the firm’s Shopify partnership. While it appears that Criteo is also targeting connected TV through its Magnite partnership, we believe the upside on that front is limited in the short to medium term until connected TV ad buyers begin to focus more heavily on purchasing inventory for the bottom-of-the-funnel campaigns.

Total net revenue, or contribution excluding traffic acquisition costs (excluding TAC), increased 2% from last year or 6.3% on a constant currency basis as the organic decline was more than offset by the contribution from Iponweb which Criteo acquired in Aug. 2022. Retargeting, 56% of total contribution excluding TAC compared with 71% last year, which remains dependent on cookies, declined 12% excluding the impact of suspended operations in Russia, while retail media, 17% of total contribution excluding TAC compared with 14% last year, grew 21%. Iponweb which does not carry any traffic acquisition costs added $25.1 million (or 11%) to contribution excluding TAC during the quarter.