Business Highlights
Criteo reported its third-quarter 2024 earnings on October 30. Gross revenue declined slightly year-over-year (-2% to $459 million), though net revenue grew by 8% (to $266 million) due to lower traffic acquisition costs (TAC). Despite this increase, 8% net revenue growth represents a slowdown from the 13% growth rates seen in recent quarters. Criteo maintained profitability, if narrowly, with $6 million in net income (2% of net revenue), thanks to significant cost-cutting efforts.
Criteo reports results in two segments: Retail Media and Performance Media. Retail Media, bolstered by strategic partnerships (notably with Microsoft), continued to outpace the Performance Media segment, growing by 23% year-over-year and raising its share of Criteo’s sales to 22%. In contrast, Performance Media grew by just 5%, lowering its share to 78%.
Can Retail Media Make Up For Retargeting Losses?
The decline in Criteo’s Retargeting product, driven by ongoing signal loss that complicates ad targeting, remains a key challenge. In response, Criteo has heavily invested in the high-growth Retail Media segment, leveraging its experience in e-commerce advertising.
To reinforce this focus, Brian Gleason, Criteo’s Chief Revenue Officer, was given the additional role of leading Retail Media, highlighting the strategic importance of this segment. Retail Media is now the only product line reported separately, while other offerings—Retargeting, Commerce Audiences (data), and iponweb (DSP and SSP technology)—are lumped in together in the Performance Media segment. Clearly the intent was to make it less obvious what is likely a significant decline for the Retargeting product.
However, doubts remain about whether Retail Media can fully compensate for Retargeting’s revenue decline in the long run. Retail Media’s share of Criteo’s business has hovered around 20% for over two years, and while it shows growth, it has yet to become the company’s primary growth engine. Additionally, Retail Media has lower profit margins than Retargeting, potentially impacting overall profitability even if it does become its main business.
Fortunately, other products in the Performance Media segment, such as Commerce Audiences and iponweb, are expected to grow, as indicated by recent historical data. Yet, the fact that the Performance segment overall is still stagnating demonstrates just how much of a drag the Retargeting product has become. The good news is that retargeting now represents less than 50% of revenue and, by my estimate, could soon drop below 40%. The company is successfully weaning itself from retargeting – it’s just not growing fast enough.
All in all, Criteo can show some revenue growth – but that growth is much slower than that of many AdTech companies. Not only does it underperform by a huge margin its closest competitor, The Trade Desk, but it also underperforms media spending on programmatic advertising, a proxy for a general AdTech growth rate.
Perhaps the reason why CEO Megan Clarken announced she would step down when a successor has been found -maybe some time in early 2025- could be the company’s board of directors losing patience with Criteo’s revenue being almost flat for several years now.
Revenue by Geography
One of Criteo’s strengths lies in its geographic diversification. Originally, Europe was Criteo’s largest market due to its French roots. However, Criteo has successfully expanded into the U.S., which now accounts for 42% of total revenue. Recent growth in the U.S. has been driven by expanded retail partnerships with brands like JCPenney and Office Depot.
While the U.S. share has grown, Criteo has also maintained its European market share, thanks to partnerships such as the recently entered one with Germany’s Metro AG. In contrast, sales in the APAC region have lagged behind the U.S. and Europe, though this region could offer growth potential once Western markets mature.
Stock Price Reaction
While Criteo’s revenue growth met guidance, it fell short of some analysts’ higher expectations, particularly in terms of earnings per share (EPS). Profitability exceeded both Criteo’s guidance and general analyst expectations. After the Q3 report, Criteo’s stock dropped by 21% due to missed revenue forecasts but later recovered slightly, ending with a 17% decline from pre-earnings levels.
Cash Reserves
At the end of Q3, Criteo reported $209 million in cash and equivalents, down from $336 million a year ago, largely due to stock buy-back programs aimed at supporting its share price. These buy-backs contributed to a 55% increase in the stock price over the past year, while also bolstering EPS by reducing the number of outstanding shares – which should pleasse financial analysts. However, the reduced cash reserves also limit Criteo’s ability to make strategic acquisitions to enhance its AdTech stack and expand its product portfolio.
Looking Ahead
In Q3, Criteo announced several initiatives that signal its strategic direction. CEO Megan Clarken’s planned departure within the next year marks a transition in leadership that may better align with Criteo’s focus on Retail Media. The incoming leadership will inherit a company focused on first-party data, commerce media, and AI-driven solutions.
Criteo is well-positioned to capitalize on growth in retail media and e-commerce, with ongoing partnerships, such as those with Microsoft, supporting this strategy. However, challenges remain, including competition from larger AdTech players and the impending phase-out of third-party cookies, which will continue to impact the Retargeting business.
Conclusion
Criteo’s Q3 2024 earnings reflect a company adapting to challenges with resilience, particularly through its focus on Retail Media and disciplined cost management. As it strengthens partnerships and enhances its Commerce Media Platform, Criteo is positioned to benefit from the ongoing shift toward retail media in advertising. With still solid cash reserves and a forward-looking strategy, Criteo’s future growth prospects are promising, despite a challenging competitive environment.
About Criteo
Criteo S.A. is a global leader in commerce media, connecting brands and retailers with consumers through advanced data-driven advertising solutions. Learn more at www.criteo.com.
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