Criteo S.A. (CRTO) Earnings Call Transcript & Summary

Welcome, everybody. I'm Aaron Kessler, Senior Internet Analyst at Raymond James, covering advertising as well as e-commerce companies. Pleased to have with us for our first presentation, Sarah Glickman, who recently joined Criteo as CFO in September. So welcome, Sarah.

Maybe for those who didn't -- who don't know Criteo as well, maybe if you could provide a quick overview of the company, just maybe what Criteo does, maybe how Criteo has been evolving. And second, you've been with the company, I believe, since early September now. Welcome to Criteo, and the company, and ad tech as well. But it would be good to maybe your first impressions of the company, kind of maybe what attracted you to Criteo as well.

Yes, absolutely. Well, thank you. A pleasure to be here. Yes, okay. So I mean, maybe I'll kind of answer both questions. I joined Criteo because I was -- first, I love the technology space. So while I haven't been in technology, every company have worked has evolved to be a software company, including pharmaceuticals and industrial. So there was a huge appeal to kind of being in technology. I actually started my life in ad tech -- in advertising companies and many years ago when I was at PwC. So quite familiar with the advertising world and the evolution, which is obviously just launched into a whole new area with e-commerce. Criteo is really -- we see ourselves as a company -- or the ad tech company that really is focused on the open Internet. And that's been -- the history of Criteo is that it's an approach company that grew very rapidly, very focused on kind of retargeting and very successful. And then has kind of evolved over time to take on kind of new products. And now, we're a global company. We operate in 33 countries. We have a terrific company list. And what attracted to me is really our assets, I mean, our people obviously is first, but also our assets. And we have what we call the Shopper Graph, which is continuously updated every day with kind of millions of real shopper transactions. So just the value of kind of what we bring to our customers was appealing. I've worked on the other side of e-commerce in logistics. So from the other side of e-commerce over to kind of the sales vertical, I felt like an exciting area to be. For me, coming to Criteo, it was the people. So Megan Clarken, our CEO, is fantastic, and that was a real appeal to -- we have a -- head the port is a woman. The CEO is a woman. So I guess, I'm a woman, so it was kind of nice to be in a company where we're led by women and very focused on being inclusive and diverse. The culture, for me, is incredibly important. And where we're going, we're in a transformation. So the transformation is something I've kind of been involved with my whole life. It's part of my DNA. And I thought it was a super exciting opportunity to transform what is already a great company and kind of move it to the future.

Great. Thank you, Sarah. And maybe just on your point, obviously, you're new to the company. Megan's, I guess, still relatively new, and you've made a number of other kind of key hires as well. Can you just talk about some of the kind of key hires and how they're equipped to attack the opportunity in front of Criteo and maybe -- and some of the changes here going forward?

Yes, absolutely. Well, first of all, I'll say we gel as a leadership team. So I think 3 of us have onboarded remotely, and actually, we just announced today a new Chief Marketing Officer. There's also -- we've -- yes, we all know each other very, very well through Zoom and through our kind of sitting rooms. I mean, I would start with Todd Parsons, who's our Chief Product Officer, who is kind of born and bred in the ad tech world, understands everything about ad tech. He's fantastic to speak with and really inspiring. I say to him, I get giddy when I speak to him because he really just has so much excitement about the future. So he's our Chief Product Officer. David Fox is our Chief Commercial Officer, and he comes from a kind of entrepreneurial background. He knows Megan from a while back. And very focused on the front end of sales and really ensuring that we drive our go-to-market strategy. So those are probably the key hires that we have. Yes, a great team, and we spent a lot of time kind of as a leadership team, really focused on our future and on our strategy. And that's been -- I think that's been a good way to onboard, but also to get excited about the future.

Got it. Sounds great. So maybe a first question -- I guess, my second question, the impact of COVID. I think we've seen, obviously, uneven impact from COVID on the advertising landscape and e-commerce landscape in 2020. Can you just maybe -- just for those who weren't aware, kind of maybe what's the COVID been impact on your business and how that's progressed throughout the year. Obviously, we've seen pretty strong e-commerce growth, and advertising appears to be coming back for a lot of the sector. Just where we're at now in terms of COVID and maybe what does that mean as we go into 2021 here?

Sure, absolutely. So yes, for us, COVID has had an impact. It's -- we have a classified business, so really around jobs and travel, kind of your holiday cottages and things like that. That has been obviously impacted. We have a huge travel business, especially in Europe and classifieds in Asia. So that has been an impact. For us, we also have over 20,000 customers. So they range from the giants of kind of e-tail, if you will, to the retailers that have quickly adopted e-commerce. And then to the kind of smaller retailers that are not necessarily struggling but are kind of evolving to this new world. We serve all those customers. What we see is in our large customers, really a mix. We have some on fire. We have others where, unfortunately, they haven't survived the storm. And we have some that are really trying to kind of change the way that they look at marketing and allocate their marketing dollars more into the digital world. So it's good to be in the forefront, but I would say, everyone's still learning quickly kind of how to spend and then how to ensure that we meet our customer -- end-customer needs.

Yes. Great. That's helpful, Sarah. And then maybe just -- hopefully, we won't go too much into the technology weeds, but obviously, a key question we still get from investors is the impact of some of the privacy regulations, IDFA, which is coming up, I believe, in January or February, as well as third-party cookies going away, likely in early '22. So if you can talk about the potential impacts there on the business as well as the maybe early thoughts around some of the kind of noncookie-targeting technologies you might be working on in partnership with other players such as Trade Desk in the space, and what's the likelihood we see some of these, you think, getting some more traction? And then maybe how is Criteo positioned with some of your other assets as well to kind of weather the removal of some of these ad targeting techniques as well?

Okay, so thanks for the question. I'm still learning this whole area.

High level.

Yes, no, no, definitely. It's real. So I'll say that. I mean, clearly, our company evolved due to kind of -- due to cookies, right? So in some ways, that was our starting point. I mean, cookies are old. They've been around for quite a while, so it's definitely time for the next generation. So we do have what we call a kind of privacy impact theme. That being said, we're really focused on how do we look at, first, what we call first-party data, really marrying the data that we have in our Shopper Graph. So we have just a ton of information in our Shopper Graph. We have access to to kind of 5,000 publishers. So really having the ability to get kind of, if you will, quality data is what we're focused on. In terms of what the impact will be, I mean, we have had an impact. It's been smaller than we expected in kind of so far, which is a good thing. It does depend a little bit, especially for something like explicit consent on how our customers actually roll that out to their end customer. And we've seen adoption rates of 97% down to 40%. It really does depend, and we're obviously on the forefront with the regulators as well as with our customers as to how to do that in the best way. But ultimately, we see ourselves as the company of the open Internet. And with partners like the Trade Desk, we're really evolving to how do we kind of come to one unified ID that we can then use kind of going forward, marry that and really kind of think through that for the future. And we will see traction. We're already seeing traction. There's been a switch, a bit of a change to more targeted advertising as well as really focused on contextual as well. And we feel that we are in a fantastic position there with the assets that we have. And that's actually a big focus of that kind of future road map as well.

Got it. Great. And then maybe just switching a little bit to maybe some of your non-retargeting businesses. Maybe just for investors that don't know, maybe what are some of your core or key non-retargeting businesses today? I know previously Criteo had a goal of reaching kind of 30% from nonretargeting. I'm not sure if it's still the goal, but maybe you can update us on that, yes, including kind of the retail media business. And you talked about kind of more e-commerce, DSP platform, kind of self-service, provide an overview of some of the key nonretargeting businesses.

Yes, absolutely. So yes, our retargeting -- sorry, our new business is our retail media, is growing. So last quarter, I think it was over 65%. We're also focused on omni-channel and then CTV. And then our kind of product road map really is focused much more on the kind of contextual CTV and video. So those are the areas that we're focused on. We do see that being around, over time, over 30%, as you say. And we're on track to kind of move towards that over time. Retargeting for us is still, of course, kind of the base business and a pretty large part of that. We have seen some move between retargeting and targeting, kind of audience targeting within that as well. So yes, we're in good shape. We're absolutely focused on kind of the future and how we look at these new areas. But they're growing as we expect, and we're putting the right investments in them, the right focus on the product road map as well as the go-to-market as well as the partnership.

Got it. And the other area, kind of you talked about and Megan talked about, shifting the platform a little bit. Historically, Criteo has been a little bit more of a managed platform, a little bit more of a move to a software-like or software platform. Going forward maybe self-service as well as becoming kind of maybe more in e-commerce DSP. Can you just talk about that transition and what that means for the business potentially as well?

Sure. So yes, what we're focused on is what we call the commerce media platform. So that thinking has actually really evolved, I would say, especially with Todd coming on board. So what we're really focused on is how do we take, overall, the commerce kind of markets, which would include classified, retail, the travel market as well as well as some other potential verticals that are relatively small now, but obviously, we hope to grow. And we're really looking at both our partnerships with others as well as our own product road map around -- really, the most part around contextual video. And then how can we deliver the right offering to our customers in the most holistic way. So it's kind of evolved from more the technology play to, I would say, a holistic play to technology as well as partnerships as well as the data and the machine learning, but they're all together for our customers.

Got it. Great. And maybe a question for you as kind of CFO as well as kind of how are you thinking about managing kind of growth here as well as investments in some of the newer areas as well as trying to maintain solid margins as we've seen in the past from Criteo as well.

Well, I'll start with Retail Media, which is obviously a big growth area for us. And that's really taking the best of the retailers as well as the brand and kind of marrying the two. And that's been a phenomenal, that's a fact. So that, for us, we kind of really leverage the benefit of having those relationships on both sides and having the right margin with our customers. So what we're focused there is on the gross media spend and how do we kind of take, if you will, our fair share of that gross media spend. Clearly, as the products evolve, there is a kind of different take rate, if you will, on some of the new products that we're rolling out. We feel we're very competitive and that the value that we have as a customer -- or sorry, of their customer in terms of our data really does kind of give us the right, if you will, to ask for some pay per performance. So we're able to get that, and we are able to demonstrate the value of that to our customers as well. So that would be, I would say, the key area. So we feel good about the margins that we are delivering and the EBITDA that we're delivering. We have, I would say, good, robust controls and process on the revenue line. Very, very, very focused on growth, very focused on mitigating the impact of privacy and then ensuring that we deliver kind of shareholder value as well.

Got it. Great. And I think when we started, you kind of mentioned that you're really attracted to some of the data assets that Criteo had. Would you say -- is there a view kind of within the company that, obviously, you've had this nice Shopper Graph, a lot of direct connections with publishers. Yet the business historically obviously, is focused more on retargeting. Is there a view that kind of the -- a lot of this data that you've had has been underutilized, and that's obviously going to be behind some of this new product expansion as well going forward?

Yes, I would say, yes, we do -- I mean, I don't necessarily think that means underutilized, but I would say that we have an incredible source of data that is incredibly rich. So Megan will say it was one of her kind of best surprises when she came in. I would say, Todd's the same, that they really feel that we have this unbelievable kind of wealth of asset and how do we leverage that to the best visibility. So with a privacy kind of light world, if you will, that's going to become more and more important. So we see that as a huge asset for us going forward. And a lot more than it was in the past, in that we didn't necessarily need to rely on that as much, but our customers really will rely on that. And the fact that we have very rich data. And that's continuously updated, and it's global and it's over 33 countries, and how we marry that especially kind of coming with our Retail Media business as well. We get direct sources to shopper data, and we definitely see that the future, and that's something that we have that others do not have. So being able to take that and leverage that is a huge part of our future.

Got it. Just a quick question on sales strategy. Would you say there's -- any change to the sales strategy over the last couple of years? I think the narrative was you're fairly penetrated with some of the larger clients. You're much more aggressively going after maybe small, medium-sized clients, whether it's a lower penetration rate. Would you say that's still a strategy or with some of these product changes, has that strategy shifted a little bit on the maybe sales execution here?

I mean I'd say that our primary focus is, of course, on our large customers as well as what we call the mid-market. So that's really the key area of focus for us. What we're doing with our large market, it's still a very tailored and customized solution. So there's an ask and a need, which comes out back -- a little bit back to the margin rate as well for a more hands-on experience, and that's what we deliver. With the mid-market, it really kind of is -- and those include some great brands as well. So we obviously, of course, want to make sure we're doing the right thing for them. And then it goes kind of down towards more of a self-service as we kind of go to smaller clients, and that's what they're asking for. I wouldn't say there's been a shift, but I would say we definitely see in our mid-market, we're doing incredibly well. Probably a bit of a shift from the very, very small clients as the offerings become a bit more sophisticated further. Yes, we're happy about our client base and we expect that to continue to grow.

Yes, got it. Okay. Great. And then maybe just quickly on geographically. I think you mentioned a little bit of some uneven performance this year with travel, maybe higher concentration in Europe. Can you just briefly talk through some of the maybe the geographic performance in 2020 here?

Sure. I apologize, and I've got to try and wave to my landscaper. He's actually outside my window. So I think -- hopefully you can still hear me. Usually, they go on a Tuesday. Okay. So I apologize. I forgot what the question was.

Just geographically, just talk about...

Yes, yes, yes. So I would say for Asia Pac has been impacted with the Classified. That's a huge business for us. That being said, they actually did turn around in Q3. And what we're seeing, both in Asia Pac and in Europe, as soon as they reopen, their travel just comes right back. So not necessarily at the levels it was pre-COVID, but obviously a big kind of delta shift. We have less travel in Americas. So for us, Asia Pac is growing in kind of different areas, so we're kind of seeing the impact of the Classifieds and jobs. That's now kind of tracking back up in Q3. They went -- came out earlier, they went in earlier. What we have seen, though, also in Asia is one of our largest retailer, that basically doesn't need any marketing support at all. So the supply chain challenges of our customers really means that some of the e-tailers are just off. They need no support. They're actually struggling just to kind of get the goods out to their customers. Americas is still struggling a little bit with a large customer. So kind of dollar for dollar, what we've seen is it's probably $0.94 in the dollar being spent versus dollar, maybe $5 last year, right? So there's been a little bit of a kind of year-on-year, and that's really the focus. But for us, we are on track, I would say, with the guidance that we gave, which we're happy about. We're definitely seeing what we expected to see in the kind of the 5 to 6 kind of area. And we are -- we're just going through our '21 plan now. So I won't share much, but I will say, we're seeing good growth, continued growth in Europe, Asia Pac with the Classifieds and the travel kind of picking up again. And then Americas is -- it's a lot tougher at the beginning of the year and then kind of tracking in the right direction. And I think that probably tracks the economy and what we're expecting from a macro perspective as well.

Got it. Yes, and maybe on the Q4 data, we've seen, obviously, some -- a little bit of uneven performance on maybe the Cyber 5 period. You saw pretty strong growth Black Friday, Thanksgiving, maybe a little bit softer-than-expected growth for Cyber Monday. Would you say that's kind of been in line with your thinking maybe that we saw some pull-forward of e-commerce demand earlier in the period? Obviously, Amazon, Prime Day, and so maybe just the traditional Cyber Monday wasn't as strong.

Yes, I think we saw a little bit of a shift. I think some of it was -- yes, we saw a bit of a shift. I mean, it was still good, I would say, kind of long period. Obviously, a little muted, as you would expect, kind of year-on-year, and as we've seen. Well, said, but Monday, Tuesday was kind of a little bit of tail-off, but continuing. So we are seeing that there's continued traction as people kind of really focus on giving the right holiday season here so.

Right. Got it. Okay. That's helpful. And then I think we have time for questions. I don't know if there are any on the line. Operator, can you see if there's any questions on the line? Are we taking questions? I believe we are.

Aaron, they would have come through to your email.

To my email, okay. Well, if you do have questions, feel free to e-mail me at [email protected]. In the meantime, I'll continue to ask a few questions here. Maybe just quickly on capital allocation. Obviously, I think that falls under you as well, Sarah. Just a brief thoughts on kind of your cash position, potential uses of cash, share repurchases. Maybe some smaller acquisitions as well. Do you feel like you -- does Megan and Todd, yourself feel maybe you have the right assets to go forward here? Or do you think any maybe tuck-in acquisitions would be helpful at this point as well?

Yes. Well I'll start with cash is king, and we know we have cash. So we feel good about our financial position. We do have a running list of acquisitions that we look at. And there's some -- as our strategies evolve, we see more interesting tuck-ins. So we've -- we expect to do a few of those. And then we are also looking at potentially some bigger plays as well. So we feel good about the dry powder that we have and the assets that we can see, that would be a good connection with kind of what we do already. We don't need that much for kind of our own investment. We have a strong R&D organization that we continue to invest in. So there may be some incremental kind of internal investment that we feel pretty good about, kind of who we have and what we're doing. There may be some shift there with some more people that we bring in, but relatively small. But on the M&A front, I would say more tuck ins. A few interesting areas that we're focused on. We have not kind of done a live kind of share buyback recently. We obviously have done that in the past, but it would be more incremental. And so that's kind of what we're spending, what we're focused on right now.

Great. At this point, I don't see any questions, so I believe we'll wrap up. Once again, I want to thank Sarah Glickman, CFO of Criteo for joining us today, and hopefully, you get the yard work finished up. It sounds like it is.

Yes, I know, it's terrible, sorry.

No problem. But great. I appreciate you joining us today, and wish you the best of the rest of Q4 and December here. And we'll talk to you in the new year.

All right. Sounds good. Thanks. Have a great season. Bye-bye.

Thanks.