EUR 850.00 For Business Accounts Only

Morningstar | Criteo Beats Revenue Expectations Due to More Festive Ad Spending; Maintaining $35 FVE

Criteo reported fourth-quarter net revenue above our expectations as the seasonally better quarter saw more strength than usual from holiday ad spending. However, General Data Protection Regulations, or GDPR, continued to impact Criteo’s top line negatively. While management’s 2019 revenue guidance was slightly above our projection, we remain cautious as uncertainty continues to surround the firm’s ability to generate higher revenue per client with its new offerings. Criteo’s EBITDA margin guidance for 2019 was only slightly lower than our projection. The firm plans to increase investments in sales and marketing, and R&D, which we think is prudent in order to take advantage of its buildout of solutions to address more stages of the marketing funnel. We are maintaining our $35 fair value estimate for this no-moat, very high uncertainty, and 4-star-rated name.

Criteo reported $272 million in net revenue (ex-TAC revenue) for the quarter, down around 2% as weakness in Europe as a result of increasing implementation of GDPR continued, which offset strength in the U.S. and Europe thanks to seasonally higher ad spending. According to management, GDPR brought down total revenue generated from its clients in Europe by roughly $5 million (or nearly 2% of total net revenue), as the firm had projected. Criteo does believe that overall GDPR will bring more trust to the industry, making online marketing more sustainable in the long run. We tend to agree.

The firm’s diversified offerings are slowly paying off as revenue from Criteo’s new solutions grew 54% from last year and represented more than 13% of total net revenue. Criteo Customer Acquisition and Criteo Audience Match posted triple-digit growth. While the firm added 7% more clients and maintained a 90% retention rate, per client monetization was unchanged.

We note that Criteo’s one-stop-shop strategy appears to be progressing as now 13% of its clients are using more than one of its offerings, compared with only 4% in 2017. This could help improve retention rate and average revenue generated per client in the future. In 2019, Criteo expects ex-TAC revenue to grow at 3% to 6% at constant currency but anticipates this rate to pick up in the back-end of the year.

Criteo’s operating margin dipped 120 basis points from last year to 9.3% mainly due to higher depreciation and amortization costs along with other expenses related to the acquisition of Manage. The firm foresees lower adjusted EBITDA margin this year as investments are made into its mobile business and self-service platform, which we think can help the firm also attract ad agencies as clients in the future.