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Criteo S.A. (CRTO) Q4 2023 Earnings Call Transcript

Criteo S.A. (CRTO)

Q4 2023 Earnings Conference Call

Company Participants

Melanie Dambre - Vice President of Investor Relations

Megan Clarken - Chief Executive Officer

Sarah Glickman - Chief Financial Officer

Todd Parsons - Chief Product Officer

Conference Call Participants

Justin Patterson - KeyBanc

Ygal Arounian - Citigroup

Richard Kramer - Arete Research

Mark Zgutowicz - Benchmark Company

Mark Kelley - Stifel

Presentation

Operator

Good morning, everyone and welcome to Criteo's Fourth Quarter and Fiscal Year 2023 earnings call. [Operator Instructions] Please note, this event is being recorded.

I would now like to turn the conference over to Melanie Dambre, Vice President, Investor Relations. Please go ahead.

Melanie Dambre

Good morning, everyone, and welcome to Criteo's fourth quarter and fiscal year 2023 earnings call. Joining us on the call today, Chief Executive Officer Megan Clarken and Chief Financial Officer Sarah Glickman are going to share some prepared remarks. Todd Parsons, our Chief Product Officer, will join us for the Q&A session. As usual, you will find our investor presentation on our Investor website now, as well as our prepared remarks and transcript after the call.

Before we get started, I would like to remind you that our remarks will include forward-looking statements, which reflect Criteo’s judgment, assumptions and analysis only as of today. Our actual results may differ materially from current expectations based on a number of factors affecting Criteo’s business. Except as required by law, we do not undertake any obligation to update any forward-looking statements discussed today. For more information, please refer to the risk factors discussed in our earnings release, as well as our most recent Forms 10-K and 10-Q filed with the SEC.

We'll also discuss non-GAAP measures of our performance. Definitions and reconciliations to the most directly comparable GAAP metrics are included in our earnings release published today. Finally, unless otherwise stated, all growth comparisons made during this call are against the same period in the prior year.

With that, let me now hand it over to Megan.

Megan Clarken

Thanks Melanie and good morning, everyone. Thank you for joining us today. In Q4, we delivered record top line with organic growth acceleration and record adjusted EBITDA. I’m proud of our team’s hard work and strong execution during the holiday season, when the entire organization leans in to support our clients throughout this peak time in advertising.

Our outperformance reflects the resilience of our business and was driven by the robust strategies we've implemented with large-scale commerce data and breakthrough AI technology to deliver better predictions and outcomes for our clients.

Looking back over the years since I started with Criteo and began the transformation of the company, we have made remarkable progress. I’m so proud of the work that we’ve done, what we’ve achieved and I’ve never been more excited about our future. Our better-than-expected performance in 2023 further affirms our strategic direction while setting the stage for continued growth in 2024.

In 2023, we achieved double-digit growth for the second consecutive year, with a historic milestone of crossing the $1 billion in Contribution ex-TAC mark for the first time. This is a testament to the tireless efforts our Criteo's have poured into executing our company turnaround

We also exceeded our adjusted EBITDA margin target for the year, demonstrating cost discipline while executing our turnaround. Retail Media surpassed $200 million in annual revenue, and Retargeting now represents less than 50% of our business.

Our strategy to offset declines in our Retargeting business by offering full funnel targeting, a strategic move that we announced in 2020 has proved successful with accelerated momentum for our Commerce Audiences targeting, is up 60% in the fourth quarter.

As we continue to push forward, carving out our leadership position in Commerce Media and delivering against the vision that we’ve laid out, 2023 was a big year for us as we focused on tech delivery and differentiation with the launch of our Demand Side Platform called Commerce Max and the launch of our Supply Side Platform called Commerce Grid.

We’ve built differentiated capabilities that position Criteo to offer the end-to-end platform of choice for Commerce Media, allowing data flows and access across one platform, for the frictionless data needs that our clients are looking for.

We bolstered our position as the leading Retail Media AdTech provider, gaining market share in 2023 with a remarkable 36% year-over-year growth in activated media spend, which surged to $1.2 billion now flowing through our pipes. We partner with 220 retailers globally, and they are trusting Criteo with more ad placements, more ad formats and more first-party data than ever before.

Among others, we expanded the scope of our partnership with Walgreens to now include onsite display, and we’re excited to launch sponsored video with Walmart Connect Mexico and DocMorris.

In addition, we expanded our global presence by tripling our retailer footprint in APAC over the past 12 months. We also broadened our ecosystem to include commerce companies like Uber which saw media budgets more than double sequentially in Q4. We’re pleased to continue to expand our partnership with Uber in new markets including Japan, Columbia and Peru.

We continue to gain traction with our self-service Commerce Max DSP, which gives our 2,600 brands and agencies a single access point to buy premium Retail Media inventory on retailers’ sites and across open Internet inventory offsite with closed-loop measurement. All of the major Holdco agencies are now using Commerce Max, and we’re seeing increasing adoption of multi-retailer campaigns and full-funnel campaigns across onsite and offsite advertising.

We ran multiple offsite campaigns in Q4, and we kicked off 2024 with 10 onboarded retailers such as Best Buy, Macy’s, Rite Aid, Shipt, Asda, and a growing pipeline. We’re seeing Commerce Max unlock brands’ national media budgets. Along with the growth of Retail Media as a powerful new advertising vehicle, our momentum is building.

We’re in pole position to capitalize on the largest market opportunity in advertising since Search and Social, and our team continues to work hard to differentiate, deliver and drive scale.

Turning to Marketing Solutions, we delivered our second consecutive quarter of growth with a successful holiday Cyber 6 period. This was driven by the fast growth of our Commerce Audiences solution which focuses on mid and upper funnel targeting using the largest commerce data set on the open internet and best-in-class AI.

We see more advertisers choosing Criteo for precision targeting across the entire marketing funnel, including existing clients expanding the scope of their partnership with us. A recent example is our full-funnel activation with TUI that led to successful engagement during the holiday season and resulted in a year-over-year increase of close to 60% in their media spend which they allocated to Criteo in Q4.

Our advertiser clients can move spend between performance, awareness, and broad reach tactics using shopper targets, only available with our full funnel targeting capabilities.

Our cross-selling efforts are also contributing to this success. About 70% of our media spend comes from clients that use Commerce Audiences targeting in addition to Retargeting. We also benefited from our AI-driven performance enhancements which drove an uplift in Contribution ex-TAC in the high-single-digit million range in Q4. A real output of our AI/ML practice at work.

Furthermore, we’re experiencing solid traction in our partnership with Meta, and we see further opportunities to expand into other social environments which bring access to first-party identifiers for billions of users.

The work we’ve done over the past few quarters has started to bear fruit. We ran hundreds of campaigns on Facebook and Instagram during Q4. Our advertiser clients are seeing a 25% boost in sales on average when activating Meta’s inventory in combination with the open internet.

Among others, Superpharm experienced a double digit increase in Return On Ad Spend and a 69% sales boost after adding Meta’s large-scale inventory to their campaigns in Q4. It’s important to call out that social networks are logged-in environments which offer precision and scale for first-party data matching in a cookieless world and represent one of the pillars of our multi-pronged addressability strategy, in other words, activation of first-party data at much greater scale.

Turning to 2024, we see further opportunities for Criteo ahead as we continue to focus on delivering against our transformation. In Retail Media, our top priorities this year are centered on scaling retailers and driving more demand into our platform.

We recently expanded our roster of senior leaders to further scale our business with the appointments of industry veterans Melanie Zimmermann and Stephen Howard-Sarin. We’re thrilled to have them join us at a time when we continue to gain market share.

We recently won new retailers including Albertsons in the U.S. and PcComponentes in Europe, which present exciting growth opportunities and reinforce our leadership position in the space. Albertsons chose Criteo for our technical capabilities and our platform’s ability to scale and perform along with our roadmap to continuously enhance our capabilities, and we’re off to a great start with them.

With an expanded retailer footprint, we see exciting opportunities to drive more demand, or media spend, onto our platform. Our goal is to make Retail Media easy to buy, bringing more opportunities to our clients and driving further scale. We’re proud to have recently signed multi-year global brand deals with two world-leading beauty and CPG brands.

We also anticipate sustained momentum with the major Holdco agencies, as their Retail Media spend allocated to Criteo surged in 2023 by 50% in the U.S. and experienced a twofold increase in Europe and APAC. Overall, our multi-year partnerships with leading agencies and brands represent hundreds of millions of dollars of spend predicted to come through our platform in 2024 and beyond.

According to GroupM, Retail Media is the fastest growing advertising platform worldwide and is predicted to exceed linear TV and Connected TV spend combined by 2028. Similarly, a recent study we conducted shows that more than two thirds of brands and agencies expect Retail Media to attract more spend in 2024, as 77% of brands and 82% of agencies globally say Retail Media spend is more effective in terms of sales impact compared to other channels.

Our platform unifies supply and demand to unleash the full potential of their Retail Media activation as more and more dollars flow from legacy ad channels to Retail Media, further accelerated as advertisers increasingly value retailers’ first party data in the absence of third-party cookies.

Looking at Commerce Media more broadly, we believe we have great opportunities to scale our offering and drive more innovation. We’re excited to expand our Commerce Grid partnership with Google’s Display & Video 360 to surface always-on supply deals, powered by Criteo commerce audiences inside their marketplace for activation across their advertiser portfolio. We’re already seeing incremental demand from top agencies for our proprietary commerce audience and supply packages that could expand to retailer audiences over time.

With Commerce Grid, we intend to bring demand from established third-party DSPs to drive more revenue for retailers. We recently completed our first Retail Media offsite campaign using retailer first-party data through Commerce Grid, and we look forward to building on that momentum.

Importantly, we continue to integrate cutting-edge AI into our platform with a focus on improving performance and user experience for our clients and optimizing our service delivery process. The use of impactful and engaging creatives is expected to become increasingly important to capture an audience’s attention. This is a key component of the innovation we’re bringing to market, and we've been developing and testing Generative AI-powered tools to optimize creatives and enhance performance.

We’re also innovating with AI-powered creative formats such as shoppable videos, in-bot sponsored products and affiliate product listing ads to bring more demand to publishers, retailers and social platforms....

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