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Morningstar | Criteo’s Retargeting Facing Additional Risk from Another Behemoth

On the back of the growing digital ad market, Criteo has stood out among many ad-tech companies as it added clients, increased its top line, and expanded margins to remain profitable and cash flow positive. However, limitations brought forth by browser providers such as Apple and its Intelligent Tracking Prevention may adversely affect Criteo’s ability to capture additional user data, in turn weighing on the firm’s machine-learning capabilities, ad purchase and placement, and client growth. For this reason, we now view this formerly narrow-moat firm as a no-moat company. Criteo helps advertisers launch multichannel and cross-device marketing campaigns in real time using retarget digital display ads. With real-time return on investment analyses of the ads, the firm’s clients are able to adjust their marketing strategies dynamically. The company’s Criteo Engine technology has been effective in retargeting ads and optimizing their pricing and placement, which we think is evidenced by Criteo’s client retention rate of 90% for more than five years. In our view, Apple’s ITP may threaten such retention rates as it may lower the return on investment on ads purchased by Criteo’s clients. For this reason, Criteo may no longer be well positioned to benefit from the continuing double-digit growth expected in the global digital display ad market.