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

Last session of the day. Thanks, everyone, for joining. Hope everyone had a good day. Great way to end it, Criteo and Megan Clarken. Thank you for being here. Appreciate it.

Pleasure.

Yes, it's a little bit bitter sweet for me. I've enjoyed these conversations, I enjoyed working with you over the past few years and made a big announcement last week, right? That you'll be stepping down in the year. I guess it's a retirement officially.

Maybe just walk us through that thought process, transition planning, what we need to know. I think when you joined, you talked about a 6-year time frame and we're kind of getting up to that -- so on one hand, it makes sense, but you've had a lot of good success in that 6-year period. So can you just walk us through how you're thinking about it and how everyone else should be thinking about it?

Well, I would have hoped that a good CEO always knows when it's time to leave. And that's my time. So I've been working for a long, long time. Throughout my entire career, I started working very, very young. I've been at Criteo for 5 years. And I always thought it would be a 6-year turnaround when I got in the door and took a look at what was going on, and I made that pretty clear, I think, early on in my time. And we actually got it done in 5 years. The turnaround got done a year earlier. And so I really looked at it most recently, and thought, okay, I'm at the 5-year mark, we are through the turnaround story. We now have a world-class leadership team in place that know exactly what they're doing. We have a strategy in place that is very clear and concise that will take us out 3 or 5 years. We have over 3,000 people that know exactly what it is they need to do to execute against that strategy and how that affects their own jobs and what that North Star looks like. We have happy shareholders, and we have a fantastic position for me to make a choice to pass the bet on at this point. And I always point to the Olympic Games. Most recently, if you saw the 4x1 relays, and the notion that the first runner would also be the last runner, it doesn't happen. They would lose the race. It takes multiple runners to keep the story going and it's time for me as the first runner who have got us out of the starting block safely, around the corner safely to do a precision baton change to the next person who will just go with full momentum down that back straight. So what we're looking for is somebody who can do that, which is about a few things. One is their ability to execute. So a proven track record of getting stuff done, their ability to motivate a team of people to keep them moving in the right direction in the same direction. It's pretty ideal that they have ad-tech or media, advertising experience because it is a complex world that they're sort of tighten their language and understand how to make complex things simple, that they understand what shareholders need, what drives value for shareholders. And that most importantly, for Criteo is that they understand the culture, and work to the values. Criteo is a company that's culture rich. It is part French and part U.S., and it's very progressive in its thinking. It is a small company entrepreneurial, but a big company in terms of its corporate requirements because it's publicly listed. So those 2 things coming together require a certain sort of person to keep that momentum going. So we've been out -- we've already engaged Heidrick & Struggles to do an extensive search both externally and internally, and that process is underway at the moment. It will be a smooth transition. And I've dedicated myself to the company to make sure that happens. So look for that, it will be seamless. Hopefully, you won't even notice.

I'm sure we'll notice a little bit, but thank you, that was a thoughtful answer. And now that that's out of the way, let's talk about Criteo in more detail here. So under your stewardship, as we talked about, you've gone through a pretty large transformation. I think you most broadly defined that as moving from bottom of the funnel, retargeting to more full funnel products. How are advertisers responding to that? I mean, we know in your numbers, they're responding well, but you can answer more depth of how Criteo is fitting with advertisers, agencies as you're now more for a funnel approach?

Yes. They like the ability to have not just a point solution, but to have a suite of tactics that they can use in their advertising campaigns. So what this -- what we're seeing is that advertisers who have traditionally just used retargeting are seeing that during campaigns even are in flight, they can go to another tactic. All of these tactics have a precision field to them. So they're not sort of broad brand advertising. They are actually using the data sets that we have to get to somebody and acquire new customers using, again, data to get to precise targets. And then again, using data to make sure that they can retain those acquired customers. And then use the same data in the tactics that we have to be able to retarget to those customers. So it is a full suite. It is precision based, and it is based on the data sets that we have. To answer your question, the clients are -- they're getting to a point where they give us -- many clients give us budgets and say, can you move it around for me? Because I just want -- I'm going to give you $100, I want a $1,000 back. And so we'll make decisions for them around the right tactic to take. And that's just sort of built out the suite of solutions that we have around performance marketing, which is really sort of blow and retargeting out and produce more capability around the tech that we've already had.

Right. And that's a pretty big deal to...

Big deal.

The full budget. So you're getting larger budgets to allocate kind of across the board versus specific retargeting budgets [indiscernible] ?

Yes. And it really does open up aperture to us to get new budgets, because of the services that we offer. So retargeting has always been sort of -- when I came on board, it was just a retargeting company. That's all I did. That's what Criteo did. But now with the solutions that we have, that again, are based on precision, there's an opportunity for us to take share from other targets that are DSPs or other targets that are out in the marketplace. And so that's sort of been a breadth of life into that entire suite. And you see that in the numbers that we're producing out of performance.

Okay. Well, let's talk about retail media. It's been broadly at an industry level, I think that in CTV have kind of been the most exciting areas. And how are you seeing advertisers focus shift there, whether it's budget or whatever it is attention? And maybe I think it's worth talking about it relative to other digital formats like search, social, video?

Yes. Advertisers want to make money. They want to sell product. And what they love about retail media is that it is close to the point of sale. It is close to the shopping cart. They're looking for more and more supply, so access to inventory on retailer sites, and that's what we're lighting up inside of retail media. Today, we have 225 retailers there. And I guess we'll talk about Microsoft soon, who we have the ability to bring across more advertisers from Microsoft and really build out a, call it, walled garden around these retailers that can stand there and compete against the dollars going to Amazon and the dollars going to Walmart because advertisers want choice. They want to be able to advertise wherever the consumer is, and ultimately, they want to make sales. And so this is a really exciting category as it does all of the things that I talked through before. As compared to what it's competing against, which is social and search, mostly those 2 categories have always been dominant because of the impressions or the reach that they have, the amount of people who are actually seeing ads that ads get in front of is enormous. And retail media may not ever get to a point where it has the same sort of reach as Meta, but retail media has relevance. So if you're an advertiser advertising on Meta a social platform, it's just a little further away from the point of sale than if you're advertising straight on to a retail media side. So we really like this proposition. It's new in the scheme of things. I mean, Walmart has been building this out for 10 years. Amazon has been around a bit longer. But our clients are as you compare them to Meta or as you compare them to Google, our clients are just so nascent, they're just getting started, but you can see why the proposition is just so exciting to advertising.

Okay. So how are you seeing budget allocations trends? Are they becoming more kind of consistent? Is it still a lot of testing budgets? Are they coming from offline trade promotion? Are they coming from other digital channels? How has that been evolving?

There's more and more -- so the budgets traditionally that have been coming into retail media have been coming in through trade marketing. So, in other words, if you're a retailer and you have a bricks-and-mortar store and you have a relationship with a big brand, you want to extend what you do with that big brand to the e-commerce site as well. So you've got an end cap in a store and hey, I can give you a banner ad or I can give you from a search result. So we've sort of seen it start at that place. And Criteo has been responsible for bringing the national media spends, the media budgets into retail media through, firstly, directly through us and now more and more through the agencies. And this is important because this is a budget that would typically go to search and to social and to the open web and now advertisers are looking at that spend and going actually, I'm getting a better result if I spend it on retail media. They'll either do that directly, as I said or they will do that through agencies. Now we lit up a platform last year called Commerce Max, which helps agencies actually drive those dollars into Retail Media or into Criteo's Retail Media Network. And that's proving to be something that's driving momentum as well.

Okay. So let's talk about the agencies a little bit more. Investors often like to talk about innings. Where or what inning are you winning, building out that -- those agency relationships and the national media budgets?

Yes. I think it's early. If you see how much is coming through from the national media budgets, I think firstly, when I started, we had no relationships with agencies. It didn't really exist. But we've been building that up over time. Now that -- now we have all of the major holdcos that work with us and our, I would say, in early innings on their retail media spend. This is growing fast. So the spend that we saw come through Commerce Max last quarter was 50% up on the previous quarter. So it's growing at those sorts of rates. And it's growing because as they see the ease of use of Commerce Max to get to this sort of array of retailers and the tools that it has to give them better results, results that they can show over and over again to the advertisers. That momentum drives momentum, drives momentum. And that's the sort of thing that we're seeing is this sort of snowball effect of just showing that there's good results across retail media.

Got it. Let's talk a little bit more about Microsoft. I think we want to talk about Microsoft, I want to talk about the competitive landscape and Criteo's differentiation. There's a lot in the Microsoft answer, so let's start there. It's multipronged, right? There's a buy-side element, there's a sell-side element and then there's a creative AI co-element that maybe further down the road. Can you talk about those components? How they roll through? And how should investors think about the impact of the Microsoft relationship?

Well, first, it's wildly exciting for us for -- let's just put it out there from a market positioning perspective as Microsoft was our next biggest competitor. And we've been saying that for a while. It was us, Microsoft and then CitrusAd. And Microsoft just basically said white flag, we're stepping back from this, and we'd like Criteo to be our preferred partner. So that is a massive. When you're in that position where your biggest competitor can see, it's just unbelievable, yes. But it's happened. And kudos to Microsoft, they focus on other areas. And I would say we deserve the business that they've got because we'll do a good job with it. What they have is 3 components. They have 0.5 million advertisers through Microsoft advertising, which they're not giving them to us. But they're saying that for those advertisers who want to spend on retail media, they will promote Criteo's platform, the Criteo platform, which is absolutely fantastic. Quantifying that, we haven't done yet. So we've still got some work to do.

When it's going start?

2025. So you'll start to see this roll through 2025. The second part of it is they had a platform that competed with ours, Commerce Yield called PromoteIQ. It was a business that they had acquired. And that has their retailers sitting on top, and they serve the retailers a similar solution set to what we do out. They have said they will shut that platform down and they would -- [indiscernible] their preferred partner to take over their clients. Now that's not a given, the clients always have the choice. So right now, we're working hard to win the trust of those clients and move them across, again, 2025. And then the third part is what you mentioned, which is really interesting. It's about tapping into -- collaborating with Microsoft to really experiment with AI in a retail media environment. And that, again, is just golden, is that if you think of the other mediums that retail media is competing against having a giant like that sort of lean into looking at what's possible in advertising, creative advertising in a retail media environment is just gold because what you want to do is create a medium, which stands out as compared to others, and this is great.

Okay. So if there's less competition in the third-party partner world, I guess I would view the main competition and maybe disagree -- happy to hear it as going -- as a brand going direct to any of the kind of multiplying number of retail media networks. So how do you see that evolving and the role that you play connecting both sides?

I think I understand the question, but [indiscernible].

[indiscernible] CPG goes directly to Walmart or Target versus working through third-party network like that?

Yes. Well, look, what we know about advertisers is that they want choice, and they want more than 2. And so what we offer them is that choice. They can always go to Amazon. They can go to Walmart, but then they really also want to come in to Criteo to get access to that 225-plus retailers. So I don't see that changing. I think certainly, retailers don't want to go anywhere near Amazon and Walmart, they're competing against them. And the world is -- needs more choice than just those 2 big walled gardens. And that's what we're leaning into the advertisers that want to make the best bets. Now we have capabilities on the platform that makes those 225 retailers look very attractive too in the way that we use their data to get a more precise target, which I think is highly competitive as compared to what Amazon's offering and Walmart's offering. The game for us now is to continue to differentiate our retailers to make sure that they remain attractive to drive the demand into them and help them with their supply strategies so that they're compelling to advertisers.

Okay. You talked about Commerce Max a few times. Commerce Grid was another one of them the kind of major marquee products. Last year, at this time, both of those were brand new. What's been the evolution over the last year? I don't know if there are specific KPIs that you could talk to in terms of adoption or volume that is driving. But what's been the progress there? And we were with you [indiscernible] and as nice as the setup is, that one was a little bit nicer, but you spoke there about this kind of SKU level buying on MAX. So I think it's worth elaborating on and what impact that's had and kind of the competitive positioning you are in?

Yes. Well, let me start by saying, our strategy was always to build an end-to-end platform for commerce media. And so that meant that we had DSP and we had an SSP. We had sort of smaller versions of those 2 things, but they weren't built out, fleshed out to how far we needed them to go. So we acquired IPONWEB. And so just some history of why IPONWEB is in the mix. And so now we have these full-fledged DSP, SSP capabilities that are helping to pull together sort of the bookings, if you like, of the retail media strategy. Both of them are functioning exactly how we expect them to function as part of this ecosystem. The SSP is working incredibly well, and we're doing things like using the SSP to pull together audience -- blocks of audience or commerce audiences and offer them out to third-party DSPs. So there's some things going on in the SSP environment, which is just bringing more and more demand to us. On Commerce Max, again, the fact that it's there and it's providing capability for the agencies to get access to the retailers is exactly what we wanted it to do. And it just -- the momentum is there, the 50% growth is good for us. We just keep seeing these dollars flowing. But the example that you raised in terms of the innovation that's going on inside of that DSP is really interesting stuff. SKU-based, we don't see anywhere else. And basically, what it is, this is going to sound simple, but it's actually quite complex is, if an advertiser wants to -- has a brand, has a product, and they want to make sure that they have the same campaign running across all of the retailers that stock that product, it's a flick of the switch on Commerce Max. And so I'm going to make it up. So it's P&G and they want to make sure that their latest Pampers ad is on all retailer sites. So forget about Walmart and Amazon, We now have 225 of them, of which maybe 25 of them are stocking Pampers because they're the big retail outlets, grocery outlets. Flick of the switch, it goes to all of those retailer sites at the same time. So these sorts of things are -- they're light years away from what advertising has looked like in the past. Advertising in the past has just been hampers. I want to get to new moms and therefore, I'm going to have to throw this out very wide to as many impressions that I can get of new moms that might be across sort of 10 sites on the open Internet, and I'll throw it across social as well, and I'm going to hope that it sticks. Whereas here, in this environment, it is very, very precise. You're coming to a site, which is like so close to the point of sale, so your ROI measurement is real measurement that's happening on the site at the same time. And you're reducing all of that waste of throwing an ad out and somebody either not even seeing it or not interested in Pampers. So it's tools like that, that really make a difference.

And is that driving greater adoption with the agencies?

Yes. Yes, it does. I mean anything like that agencies that can say -- I mean, agencies are there to drive sales back to advertisers, basically, anything they can do to prove that they're making a difference is gold and for them, that's how advertisers continue to use them. And sorry, back to your national media budgets, this is what's the sort of things that are driving national media budgets across into mediums that are performing.

Great. Retail media has been great. Commerce audiences has been better. I don't know if you would characterize it like that. I mean certainly, the growth rate has been higher, maybe more surprising to some in terms of how it's contributed over the last couple of quarters. You talked about the full funnel approach and advertisers giving your budgets when you run with it. And is that all it is? What's happening there? What's driving that growth? Sometimes investors are trying to understand the sustainability of not the level of growth we've seen, right? comp tougher numbers, but the sustainability of the strength in that segment?

Yes, it's a good question. It's tech and data and a lot of AI. So when we looked at retargeting and said, okay, what else can we do? We've got all of this tech, and we've got this data that's not being -- we can do more with it. And so with that, as I said before, we lit up the ability to target for acquisition and the ability to target for retention. And that has taken off because it's actually performance-driven. It's using AI to make sure that it's very precise in getting results. And we're able to just dial in the dials all the time using the AI capability that we have, to make sure those results are as good as anybody can give them. And so this is what's building the momentum through that full funnel precision-based marketing capability that goes beyond retargeting and clients are loving it.

Great. Okay, retargeting cookies. Major news out of Google was a month ago, 2 months ago, that there will be user choice cookie deprecation because of talk a little bit [indiscernible] went into some length at earnings about what that might look like. Obviously, we don't fully know. But net-net, it feels like that's a -- you said it, that's a better outcome for you. So how does that change the trajectory? Or how do you -- how should we think about retargeting in a semi-cookies environment?

Well, it's a better result for us. And we always say one cookie is better than none. And we haven't -- while we have modeled what we think it will look like, there's still unknowns there that we can't apply to the model yet, and it's based around timing. And I would say, opt-in opt-out results, but I would say more about the language that's used. So let me explain. There's 2 paths that they're taking. One is that it starts with a user choice, which is a page that we've all seen, and we're very used to this. And you can opt in or opt out. If you opt in, then it's cookies as usual. And every cookie for us is a good day. We'll use that just because we've used it forever. We don't need to use it, but we'll use it for -- we'll use it. If you opt out, then your browser identification, whatever they use will go into the privacy sandbox to be worked into sort of a cohort, if you like. Exactly the same as they've been working on for the last 4 years. And we're very close to that, and we've been working with them on this for a long time where we've got part of what we need inside of the cohort working, so what comes out of the cohort, what gets set out to us is exactly what we know how to work with. So for us, these 2 outputs are the important ones. And they place -- they play right to the strategy that we've laid out and has laid out for the last 3 years, which is multipronged, which is cookies if we see them, the privacy sandbox data, first-party data where we have it and data that we get from social platforms because there's so much reach there. So nothing's changed there, except that we have better signals, more signals likely to come at us. What we don't know again is timing. And what we don't know again yet, which we're sort of acutely interested in is the framing or the wording of the user choice panel, the screen, so that we could get a sense as to whether or not it will be sort of more favorable or less favorable to people accepting the use of cookies.

A lot of uncertainty. How does that impact -- how you're preparing for this? Because you -- there was a certain road map in preparing, right? A set of expectations. And now there's a lot of uncertainty around that. Is it wait and see? Or can you continue to build [indiscernible] ?

Yes, it doesn't affect anything. We have the same team that's working on it. They're working on privacy sandbox. We have the same strategy, the same teams working on the strategy. We're just as close to Google today as we were yesterday. Nothing changes. So the way to think about it is that depending on the construct of the user choice screen, is it a better day for us? Or is it a wildly better day for us. It's not a worst day for us. So we just keep doing what we're doing.

Okay. And on the sandbox part, you guys published data about effectiveness of sandbox and that there are a lot of improvements needed. Is that path to improvement still being worked on? Or is the sandbox -- sandbox, whatever it is, Okay, we'll toss you with some cookies, but the sandbox is going to be what it is at this point?

The sandbox is still being worked on. We have a number of asks of Google that they are actually working on. And the kind of good side about this is that there's some more time. So while we were looking at our requirements for sandbox against the original time frame, now they're actually working on them. And we feel good about the state of the sandbox when all of this is done.

Okay. Great. I want to open up if there's any questions in the audience. Keep going otherwise. Okay. If anyone has, we've got one in the back.

Just on the retail revenue, I'm curious, it seems like a lot of the growth has been coming from your existing retail partners. Are there significant retail partners that you have still yet to add that are non-Amazon, Walmart that are part of the growth story. And just while we're on the inverse of that in the last 1 to 2 years, have there been any significant retail partner departures?

There's always more partners that we can have our strategy is to extend the footprint to win more retailers, to win more retailers globally. So we had some very exciting wins out of Japan, for instance, and to continue to build out that footprint and through Europe. . And the third part of it, of course, is the obvious, which is to increase volume or increase the supply and demand inside of existing retailers. So we have -- it's funny because it's not really a game of numbers here. It's a game of quality. And so we want to make sure that we have as many retailers as we need to provide quality inventory to advertisers. And so we're really focused on making sure that the retailers that we have are utilizing the medium as best they can, and there's a long way to go there, while bringing in new retailers who have potential to do the same.

Just back to Microsoft. I know it's early until it starts until 2025, but have you or might you provide some kind of framework as to how material it could be and when?

We haven't. No. We haven't provided anything, put it that way. There's a lot to unpack there. Starting with the clients that they have, as I said, are not a given that they come across to us. We have to earn them. And while we're very confident in our ability to do that, they will go to RFPs maybe or they'll use it as an opportunity to look to see if there's something else that they'll do. So we're running full belt at making sure that they do come across to us, but it's hard for us to make an assumption right now while that's going on. The same around the advertisers, 0.5 million is a lot of advertisers. Some of them are overlapped with the advertisers that we already have. And it's hard for us to get across 0.5 million advertisers and work out the buckets of all the profit opportunities inside of the advertiser base. But as soon as we can, we will, but more likely just see this start to flow through in 2025.

Over what time period will these customers be kind of going to RFP and deciding? At what point will that part be done?

Well, you would imagine that, that happens between now and the end of the year, yes. And so for those that come across, they may come across sooner. But we're just sticking to the -- it's a 2025 plan. This is still unpacking. It's just very, very new. It is a great story for us. So I mean, if you stand back and look at this opportunity, it's a massive opportunity. It's just we've got to do the work to bring it on board.

Yes. Just curious on M&A, how -- where that ranks in your capital allocation priorities and just if you were to go down that route over the next couple of years, what capabilities you'd look to add if you were to acquire or anything along those lines?

Yes. So capital allocation, we're seeing sort of 3 buckets. One is M&A. The other is organic investment and the other is buybacks. In terms of M&A, we have a really healthy pipeline. It's pretty deep. And one of the areas that we're interested in just as a sort of teaser of where we go, is around the notion of driving demand. Demand for us is kind of critical. So where there's an opportunity to make an acquisition that helps us in that area is amongst the top candidates on that list. Know that we are very serious about diligence, and we're very careful when it comes to the price tag on these things. And so there's always a pretty -- a very rigorous process involved in getting to the right outcome, but there is a deep pipeline.

All right. We're out of time, so we'll leave it there. Thanks so much for your time Megan and Congrats on the retirement.

Thanks a lot.

Looking forward to the next CEO, next year.

All right. Thank you.