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

Well, so Uber is really interesting for us because with -- we feel like we're market makers to some extent. We coined the phrase retail media early on. We coined the phrase commerce media, and it was very difficult for us to explain the difference between the 2, but Uber absolutely explains it. They're not a retailer, but they're a commerce player. So we start off with the retailers that sit in the center and there's -- we've been really focused on them. But Uber comes along, and they're part of this entire new TAM opportunity in commerce media. And so it means for us that other Uber-type players could come along and do exactly the same thing. Again, I'd encourage you to look at the Uber site because you can sort of picture what I'm talking about, if you take a look at it. It is laid out in a very similar way to Amazon. And if you think that Uber's aspirations here is, perhaps I'm going to make this up, they haven't said this to me, but be the Amazon for grocery. Like, if that's as big as they're thinking it to be, then what we're doing for them is what is happening on Amazon. So the proposition here is really exciting in terms of the opportunities. And there's others like Uber out there. So we love that. We also -- this is for Uber Eats. It is a 3-year deal. It's exclusive for Uber Eats, and it focuses on just the sponsored ads. For us, we have the ability to extend that out beyond Uber Eats into the other Uber categories and also globally. So this in itself has the ability to be as big as Uber can make it. And they're very serious clearly about this business. But the other side of it, of course, is that it -- as I said, it just attracts -- it attracts others. One will -- the momentum drives momentum. One gets going and then the others start coming in. And we saw that with pure retail media. One player came along and then others started to come along. And so this is what we're seeing actually around retail media and commerce media is this sort of swarm towards this area. It's been interesting coming into 2023 because I've spoken to a number of CEOs who now actually have a retail media number in their P&Ls and their plans for 2023. Never seen that before. So we would expect that, that is only going to become more common, and Criteo is sitting in this pole position, is in a really good shape to take -- not take advantage of this but help them to take advantage of us to reach that number.

Okay. So maybe just to wrap there on retail media, you are targeting 30% growth in retail media this year. How do we think about that mix of growth between existing partners ramping up that spend versus new partners to the platform?

Yes. Well, we saw same client increases of 130% in 2022. So we expect that sort of trend to continue. And so meaning that existing clients will continue to grow on top of the platform. So that's the first place. Bringing the network effect, as I said, the features and functions to them will help them to become bigger to grow. They're all -- clearly, they want to grow in this area. So we've got a willing and capable audience. The second is new. We went into this year with a part of our -- one of our pillars was to secure the retailers -- or secure retailers, so we've done that. We've gone out and used 2023 as the year to go after as many retailers as we possibly can. And we've got some great logos that have come onboard and we'll continue to roll them out, announce them as we can. And this is to get scale across the platform and see the benefits of that with those clients. The third area is in geo. So I think I mentioned this briefly in our last earnings, but we saw about 5 new retail media clients in Japan. So just as an example of the power of geo, we have a strong business in Europe. We have a strong business in the U.S. But Japan, Japan is around a $30 billion advertising -- digital advertising marketplace. It's big. And because we have a presence in Japan, an actual team there, and it's not a small team, Japanese retailers are loving the fact that there's a local flavor to doing -- forming a partnership with Criteo. And that's given us a really strong first-mover advantage in a marketplace that's heavy in digital retail and digital commerce. And so we see that momentum as being really positive. And it's just one example of some of the endeavors that we're making in international markets. We acquired a business called Brandcrush last quarter and Brandcrush has a presence throughout Asia Pac, and it's just giving us this extra opportunity to lean into their network and fill out the suite for their clients beyond the omnichannel piece. So between new clients, existing clients and geo, we've got a pretty good line of sight into further growth.

Yes. Okay. Great. Let's shift gears a little bit, talk about Commerce Max. So you mentioned September, pretty highly anticipated launch. Maybe if you could give a little deeper overview of the product and then talk about what some of your early learnings have been in the testing that you've done thus far.

So Commerce Max is exciting. It's sort of -- I like to see it as a way to stitch everything together, if you like. We've been building out an end-to-end commerce media capability, starting from the acquisitions that we had of HookLogic in the on-site capability. That's the ability for us to manage the display and the sponsored ads on the retailers' side, so that piece, with the extension of that into off-site using our performance marketing capabilities and retargeting and targeting. The Brandcrush acquisition helps us take -- helps us manage the retailers' digital inventory in store. So now we've got this sort of line of platform that supports the retailers' advertising from in-store to on-site to off-site. Sitting across the top of that is the demand engine, which is Commerce Max. So Commerce Max surfaces for the agencies and the brands the ability to buy the inventory, so buy the retailer's inventory and also buy inventory on the open Internet. So now you see us sitting alongside the big inventory players like the Amazon, like the Google, like the Meta and then Criteo. And Criteo lights up our retail media network. This has been really important for agencies and brands because today, it's difficult for them to buy across a suite of retailers or commerce players. They have to go and do it bespoke. Even through us, they have to do it bespoke. So this lights up the ability for them to say, "I want to put this budget across into retailers or into commerce players, and I'm going to do it through my Criteo spend". So it goes through one single platform that's sitting on the desktop of the buyers and sellers. So that's the first part of it. So it stitches, makes everything available that's underneath. The second part of it, which is really key, is that it then lights up this -- the capability to measure. And I talked about this earlier around AI, is to take the flow of advertising from off-site to on-site -- sorry, from in-store, in-home, on-site, off-site and stitch together how a campaign has performed, regardless of the tactic, how it's performed, using data at the source, meaning using the retailer's data all the way through, or Criteo data when it comes to off-site and stitch those pieces together all the way through and create true closed-loop measurement across the entire activation. The reason why this is important, and now I'd sort of put on my Nielsen hat, is that for years at Nielsen, I would sit in front of CMOs and they would tell me how they cannot -- the worst thing about them advertising on digital was measurement. The single worst thing, the thing that needed to be fixed was measurement. And it was elusive because it was third-party, because they would get their viewability and their brand safety from somebody or from 1 player. They would get their digital exposure or their consumer exposure from somebody else, from Nielsen, and they'd be lucky if they got demographics past age and gender. Then they'd have another player that would use cobbled-together credit card data to pull together sort of attribution or ROI, then use their mixed models to be able to tell whether or not a suite of campaigns over a period of time -- it was just like -- it was a nightmare. And so with this, with Commerce Max and our end-to-end closed-loop capability of data, which is truly at the source, which is happening in real time, which answers all of those questions at the same time with high fidelity, that is sort of the holy grail of measurement in a digital environment. And that's the promise that commerce media brings over and above any other media unless you're in a closed-loop environment. So this one is just a game changer, and we're -- as you can see, we're excited about this one coming through when we launch Commerce Max in September.

Okay. Great. So let's see, we've got about 6 minutes. A few things I want to get through. Google Privacy Sandbox, a major industry-wide initiative. Maybe you can just talk about how closely you've been working with Google here and then provide an update on results to date, what we should think about next and impacts on the industry.

So Google last week announced that they would continue to stand by their dates, which was -- which are the second half of 2024. We've been working towards those dates for a long time now. We stand by what Google is saying, and we believe that that's the date. They also opened up some more testing capability just to start to open the aperture a bit more as they get closer to those dates. We've been working with Google now since 2020, early 2020, in the Sandbox. And we've been helping them to get ready for the CMA's ask that they don't deprecate cookies until they have something that is workable by the AdTech community. And so we've offered a lot of that. We've had input into their APIs. We've been testing their APIs. There's a lot of Criteo stuff behind the scenes with Google to help make sure that they're doing the right thing for the industry. It's an industry-wide initiative, but clearly to make sure that we are ready as well. So we're ready. We're ready to go. When they go, we're absolutely ready. It's a collaboration with them to get us to this point. And I think that, as I said, we're ready.

Okay. Great. So clearly, just thinking about guide for 2Q markets overall. I mean, macro certainly remains challenged. Maybe you could just give us some flavor and context for what your conversations are like with marketers in the current environment.

Yes. On the retail media side, there's a lot of enthusiasm around what's going on there. And this is new money for a lot of retailers. It's also a big opportunity for them to utilize or use that opportunity to make up for any shortfalls that they have in other places. So there's a lot of enthusiasm going on in the retail media front. On the -- more on the retargeting front, there is -- we continue to have caution around the rest of the year, as we've said coming into the year. We see sort of some changes in the data that we see ourselves around different industry sectors. So for instance, department stores, fashion has not performed as well as what we would have expected. But for us, we have sectors in other areas. So we've always hedged by the fact that we've got clients across all different sectors. But basically, there are some that are pulling back a bit. And what we're mostly seeing is that market is just holding back or reevaluating their spend on a more regular basis. So as opposed to them releasing spend at the beginning of the year for the whole year, we've seen them come back to month-by-month, reassessing what budgets they release and just being a little bit more prudent around where they're spending. Marketers are still advertising. They want bang for buck. So they're going to the things that they know. Search and social are doing well. Retail media is doing well. As I said, CTV is doing well, while it continues to shift from linear. And so we feel good about it, but we're cautious about the rest of the year.

So just on the rest of the year, so the 2Q guide does suggest modest improvement in organic performance and then the back half implies an acceleration. So what gives you confidence in 2Q and back half at least improving somewhat?

Well, we had some comps into the first quarter. We -- if you go back to first quarter last year, March, we lost our Russian business. So there was some comps that we're making some changes. We've got development happening that make us feel confident about the second half of the year, development in Commerce Max, for example, its development plus other features and functions that we're rolling out, which gives us confidence around the second half of the year. Plus, Q4 is usually our biggest, strongest quarter. So we get into more of a -- we lose some of the comps from previous year -- or also this year, beginning of this year upfront, we had loaded some headwinds from signals. So all of that's behind us, and we expect that the second half of the year, we'll have that sort of uptick.

Okay. Great. Last question just on profitability. How do you think about margins over the medium to long term? I know you've got some stuff, IPONWEB kind of a little bit dilutive, but obviously, retail media contributing more here. How do you think about margins?

Well, we're, like everybody, I guess, in cost control mode and making sure that we can take away any internal costs that we don't need to have. And so we put a target on that for this year, which we're halfway through. So we're on plan to be achieving the cost savings number in totality by the end of the year. And that's really been about taking some head count out but also reducing some of the discretionary spend that we have in travel and different things that we've got some control over. We'll continue to do that through the rest of the year. So we feel on track in terms of the productivity numbers that we've put in the plan. I think the thing that's most interesting is that as we evolve, as this company is evolving towards a Commerce Media Platform, it has the ability now for us to reshape the organization to be a leaner, meaner machine going forward. And so there's work going on right now, which is targeting, putting some parameters around that, reshaping some teams, working out ways in which to do a job better, faster, and to come out of it with something that, over this transformation that we're going through, is just a much different, much leaner, faster-looking Criteo. And that's what's going to I think -- I always think that instead of cost cutting, it's just to redesign the entire engine so that it's much more built for speed than trying to do some activity every year, and that's exactly what we're doing.

All right. Great. Thank you, Megan.

Okay. Thank you.