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

All right. Okay. Thank you all for being here. My name is Matt Cost, Morgan Stanley U.S. Internet team. I'm very pleased to be joined by Michael Komasinski, the CEO of Criteo. Thank you for being here so much.

Thanks, Matt. Appreciate it.

I have to quickly run through the disclosures. For important disclosures, please see the Morgan Stanley research disclosure website at morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative.

All right. And with that out of the way, maybe for those in the audience that are newer to the Criteo story, maybe give us a quick overview of the company, where you fit into the ad landscape and the opportunities ahead and maybe what's changing?

Sure. Yes. So Criteo is more than an ad tech company. We increasingly position the company around commerce intelligence and decisioning. And really, it's the sort of AI-driven commerce platform that's built to sort of power the next generation of shopping, right, which as we all know, is changing rapidly by the week, it seems like sometimes these days. And in terms of where we fit into the ecosystem, we sit, like, right in the center of the commerce ecosystem. We sit in between brands, retailers, agencies who are all trying to drive commerce outcomes across an increasingly fragmented ecosystem. And our cross-channel orchestration and decisioning capabilities help them do that, right? And so a couple of, I think, facts to ground the scale of Criteo for folks that are new to the business. We see over $1 trillion of commerce transactions per year or roughly $3 billion per day. We've got about 17,000 clients globally. We have a normalized SKU catalog of over 5 billion SKUs. And in terms of the daily active users that we can reach, it's actually 750 million per day and actually extends up to 3 billion plus when you include the social channel that we now have access to. So it's a really scaled business that in some ways, that's bigger than the size of the company from a revenue and profit standpoint. In terms of where we're taking the business, I try to always simplify it down into really 3 things. One, we're pushing hard on agentic. We think this is the most powerful development in this ecosystem, and maybe ever. And we'll come on to some of the recent events that underpin our focus on that. We have a Performance Media segment. And we are focused on really reenergizing that business and scaling it through 3 pillars that I think will come on to in more detail, which is full funnel, cross-channel and self-service. And then in Retail Media, which is the fastest-growing segment of the media landscape, we've developed an industry-leading position with 235 retailers globally. And we are trying to continue to double down and accelerate that leadership position by bringing more monetization opportunities for our retailers, bringing in more demand partners and just generally continuing to scale that segment of the market. So 3 really powerful pillars, and it gives us a lot of optimism about where we're headed.

I think you're about a year into the CEO role. So maybe in light of all of everything you just went over, what are some of the key learnings about Criteo that you've gleaned in that first year?

Yes. Well, I would equate kind of learnings and hypotheses because they're kind of the same thing in hindsight. So I had sort of 4 hypotheses coming into the role. One, a belief, and I think it was true, right, that you can't do really anything meaningful in AI if you don't have scaled data assets and deep tech talent that is oriented around algorithmic and optimization-type programs. And I knew agentic would be big, although I certainly could not have predicted where we've landed at this point a year later, right? So that all sort of goes in that AI and agentic hypothesis. Two, there is a convergence of brand and performance advertising and the benefit of that convergence disproportionately accrues to the performance platforms and advertisers in the ecosystem. It's a lot easier to move up into biddable and addressable brand formats than it is to try to move down into performance. And Criteo is certainly well positioned there. I believe that the addressability landscape would quiet down. So we've all forgotten about the cookie deprecation issues and things like that. As someone who's worked in performance and data and identity for over a decade, I knew that, that was going to get resolved probably in a pretty sort of quiet and nondisruptive way, and that did turn out to be true. And then last but not least, category leadership matters. And so that head start that Criteo has in retail media, I figured was something that could be built on and accelerated. And so all 4 of those things have basically happened in this past year, sometimes in ways I couldn't have predicted, but those were my hypotheses coming into the role, like, even when I took the job.

Maybe zooming out to the market backdrop for a second. So I think on the last call, you mentioned that trends remained stable through 4Q and the holiday season was solid. As you enter 2026, what are we seeing in the ad markets to date? Are there pockets or geographies that are coming out particularly strong or where there are headwinds? And what's top of mind in your advertiser conversations as they plan for the rest of the year?

Sure. Yes. So we -- as you said, we did have a pretty solid holiday. And in our guide for Q1 indicated a little bit of softness in U.S. department stores and some year-on-year comps for our Asia Pacific region. But the macro is relatively stable, current events notwithstanding, and those would not be material to us right now, anyway. But as I look ahead to the year, we're really trying to sort of get past some of the headwinds that we had announced last year with a couple of our retail clients and just really focus on driving the underlying business as we work past those comparatives. And I think that we're on track for that. Performance Media continue to accelerate across the year. Retail Media, same thing. Product rollouts are very much on schedule. And we think we're continuing to gain momentum as the year progresses quarter-to-quarter.

I think you touched on this a little bit in your opening remarks, but just to put a finer point on what your top priorities are for 2026. So as you think about what's driving strength across the business, where are you leaning in?

Yes. Yes. So I'll just kind of go back to those -- maybe those 3 pillars in a little more detail on this. So in agentic, that really, I'd say, shows up in 3 main ways: One, the ChatGPT pilot that we announced on Monday. Two, the product recommendation service that we announced a couple of weeks ago, which shows the power of our data set and our ability to create high fidelity recommendations off the back of that. And then third, the agentic enablement of all of our products. So we are, like, quickly deprecating most of our user interfaces in favor of MCP-enabled APIs that make all of our products much more -- much easier to work with, more scalable, more accessible. And we think that, that drives adoption and stickiness. So that's kind of the agentic bucket, and it's got a couple of really big initiatives inside of that. Inside of Performance Media, we talk about that trio of full funnel, cross-channel, self-service. Full funnel and cross-channel go together, right? They're kind of the same -- they're 2 sides of the same coin, right? Competing for mid-funnel and upper funnel budgets is really the idea of the full funnel and that convergence of brand and performance is the industry tailwind that enables that. And then cross-channel really is the diversification of the supply base to support campaign optimization as we gain access to those budgets. You kind of can't do one without the other. But to be clear, you take budgets in the funnel and you enable them with a more diverse cross-channel supply base. And then self-service, that is, again, about making the product easier to use and easier to buy. And so we have a flagship product launching at the end of this quarter, so just in a couple of weeks called Commerce GO!. And that is a performance product that is focused on the SMB market. And it's full self-registration, 5 clicks to campaign is sort of the tagline. And it enables small and midsized advertisers to access the power of Criteo's cross-channel performance engine literally with a handful of clicks, and they can be running campaigns cross-channel and have all the tagging infrastructure done automatically for them. Even the creative gets pulled in automatically. So it sort of tails off of that trend of, I call it the democratization of advertising. And this is our foray into that. So I think we definitely have a fair share of market share to take with that. So really excited about those.

I want to follow up on Commerce GO!, but first, let's go back to the ChatGPT partnership. I mean, that's really exciting news that just was a couple of days ago, it was this week. Tell us a little bit about what that is, what the opportunity is and what it means for Criteo.

Yes. So here's -- the simplest way to describe it, and then I'll go into a little bit of detail is ChatGPT scales discovery and Criteo optimizes downstream cross-channel conversion. Like, that's the simplest way to sort of, like, think about the relationship and who does what in the context of a customer journey. How it works practically, we've been invited into this pilot program as an API partner. We're now integrated into that API. So there's a tech integration where advertisers with Criteo now we can pass campaign information to ChatGPT, where they then can determine contextually relevant opportunities to surface that ad. And that will allow our advertisers to be discoverable in contextually relevant situations. And discovery really is, like, kind of the new growth area in the industry. And what clients get for that besides more access to that important surface is the convenience of just working with Criteo. So we already have MSAs in place. We've got data pipes in place. We've got agreements in place. And now we just turn that on, and we let some of that demand flow into ChatGPT as those contextual opportunities arise and our clients can benefit now from additional discoverability in, like, the fastest-growing platform on the planet. So really excited about it. And the inbound interest has been unbelievable since Monday. Our sales and partner teams are just having a lot of really great conversations. It's been good.

That's really exciting and really exciting to be kind of the first ad tech partner there. So it will be interesting to watch how that develops. I guess going back to Commerce GO!, I mean, you gave a little bit of an overview of what it is. But I guess, what is the cost to serve difference for GO! campaigns versus traditional managed service? And how should we think about the revenue opportunity as you launch the full self-service, I think you said just a couple of weeks?

Yes. So here's what's interesting about Commerce GO!. So we've been transitioning existing clients to GO! since late last year. So what launches here in a couple of weeks is the net new customer acquisition program. But we learned a lot of really important things as we were transitioning existing clients. We found that they churned less. They spent more on activated media spend, so they increased their budgets. They're getting 20% better performance. And so like those are incredible statistics, right? So it gives us a lot of confidence that the product like really works. And now it's all about how effective are we in reaching potential customers and in some ways, doing the work that we do on behalf of our clients to go out and reach new customers, get them into our sales pipeline and hopefully get them on to the platform where that ease of use and the results will speak for themselves and hopefully drive incredible results for them.

I guess on the Performance Media side, I think you grew 2% in that business line in constant currency in the fourth quarter. Commerce Go! was strong. I think retail was an area that was slightly more of a headwind. So going forward, how are you addressing kind of those different category trends? And can you help us understand the offsets from Commerce Go! and CTV versus retailer category headwind?

Yes. Yes, sure. So here's how I would sort of like back up and look at the business right now. Performance Media as a segment is kind of in reacceleration mode. So I think before I arrived, the company was dealing with some of those addressability concerns across the ecosystem. Those settled down early into my tenure, and then we were able to really press on product expansion and road map acceleration. So that's really where we are right now. It will take a couple of quarters for that to show up in the results, but Commerce GO! will be a catalyst to that. We'll be rolling out a new discovery product, at least in alpha and beta in the first half of this year and then hopefully, general availability in the second half. And of course, the ability to invest client performance dollars in the agentic channel, we think will drive interest and performance for clients. So that's in reenergizing mode. In Retail Media, we announced a couple of scope reductions on some large retailers last April. And we had to announce those pretty far in advance before they actually happened. And now we're in that period of working past those comparatives. And so that will happen across the balance of this year. It does start to tail off, especially into Q4. And really, we're just focused on driving the underlying business. So continuing to scale the auction-based display product. We launched a conquesting product actually 2 months early. So that's in market now. And we continue to make significant investments in our Commerce Max platform to drive the demand side of that product set, new insights module, new cross-retail campaign support, things that make our tool easier for brands to buy the 235 retailers that we represent. So that really is like focus on the underlying business, let the comps come off as we progress through the calendar and hopefully come out here at the end of the year and show like a really strong business in both segments with some other simplification of the business that I think we'll probably come on to later in this talk as well.

Yes, of course. So maybe shifting to AI and agentic commerce. So you've obviously been active in the early stages of agentic commerce. You've talked a lot about your commerce or your agentic commerce recommendation product that you're working on, some really great stats on that in the early stages. How are you thinking about monetizing that product? Because I believe it's not part of the ChatGPT partnership. So how are you thinking about monetizing it as you expand services that it can touch? And what advantages does Criteo have when it comes to developing that recommendation service?

Yes. So I'll start with the monetization question first. So that path is not determined yet. It could go a number of ways. It could show up in a SaaS format. It could be some kind of a per query basis. But the beauty of that offering is that it can be monetized in both ad and non-ad formats, right? Because the sort of target market for that is going to vary in terms of how they're thinking about monetizing use cases that have product recommendation at the core of them. So what we're focused on right now is proving effectiveness and driving partner engagement and frankly, industry awareness because we've had this strong thesis that we have the best commerce data set in the industry outside of Amazon, but you kind of need to prove it. And so the commerce recommendation service is the attempt to do that. It says, look, you can enter product queries into this, see the carousel that you get back, analyze that for accuracy, fidelity, relevancy and put that up against any other carousel that comes back from any other platform, and it's better hands down. And in fact, if you were to co-mingle that service with, say, an LLM environment, you get a 60% uplift in the relevancy and accuracy of the products, which is powerful. And we think that as not just LLMs, but other platforms that are going to be competing for daily and monthly active users where product recommendation is a use case that drives differentiation, that makes us an attractive partner. And therefore, then there's a path to monetization from that. So there's a couple of leaps of faith, but I think standing up the service and really being able to put it out there in full general available form shows the power of that conviction. And it will lead to some interesting places.

Yes. I mean it's not hard to imagine how it could be commercialized. And obviously, Criteo is in a unique position given the data that you have access to and the other products that I think are relevant to the process of developing it. I guess what are the milestones investors should be watching to get to the point of saying like, oh, this is really heading to something that's going to be commercializable at scale. What are the milestones that you're watching?

Yes. So we've been trying to provide some disclosure on some of the testing activity that's happening with large partners. So we'll continue to update on that. After that, it really comes from those testing efforts. But I think by being really public about it, it's also starting to create other inbound interest in it. And so I guess it's really about testing updates and then what other types of partner activity do we want to -- do we get and that we want to report on. So those would be the near-term milestones.

Got it. So maybe talking about competitive positioning for a second. So as you position Criteo as this AI-driven commerce intelligence and orchestration platform, how do you differentiate from competitors who are also investing heavily in AI and commerce data? And what are the unique advantages of Criteo?

Yes. So one of the things that we've not talked about is the cross-channel setup. So we're one of the only platforms out there that has the ability to hold performance constant across channels. There just aren't very many or frankly, any that I can think of that have that same capability. And that's the way that marketers want to market. Marketers don't want to be channel marketers. You lose audience fidelity, you don't have frequency capping. You have all kinds of problems that occur when you get locked into sort of channel investments to run media. And so the cross-channel setup is how marketers think about it. I want to run discovery campaigns to find -- to attract people to my brand for the first time. I want to run customer acquisition campaigns for people that are given off some kind of a high-value behavior signal. I want to run remarketing campaigns to capture demand. And I want to run those things cross channel seamlessly where I'm getting efficiency in how impressions are served, how audiences are served and how I measure. So we map better to how marketers want to market. And that is unique. Walled gardens by definition are walled gardens. And that ability is sort of deep in the Criteo DNA of being a performance marketer for the last 20 years. We learned how to identify identity in low-signal environments. We learned how to do attribution across fragmented customer journeys. And all those are sort of IP that create that cross-channel setup. And that is unique and differentiated. And hopefully, with GO!, we can start to scale that to a new client segment and I think really demonstrate that as well as expansion into channels like CTV and of course, the agentic channel, which is how we think about it. It's just another channel that sits along others. And depending on the campaign type and the advertiser, it's going to be entitled to a certain level of investment to drive to an overall outcome.

A lot of exciting things to offer customers. I wonder if you could talk just for a second about your customer life cycle. You've had changes in scope from some large retail media clients in the past. But overall, I think your client retention as of last quarter was over 90% still. So very, very strong. I guess what's driving that retention rate? And how is the process going of meeting these customers with these new offerings?

Sure. Yes, we do have a high client retention rate, which is great. And I think it comes from, one, driving performance and being a valuable part of their P&L, right? Clients count on Criteo to deliver predictable, valuable results. And so that drives part of that. And then maybe more on the retail side, it's similar, but we are an essential monetization partner. So our retail clients really count on us to not just give them tech that provides scaled ad serving for a retail network, but to drive the demand side of that as well, right? Criteo's proposition in retail is really that of a full business partner. We stand up the tech for you, but equally, we will go out and surface demand that actually puts revenue into your P&L. So I sometimes will call it like a turnkey P&L, which is really differentiated from other competitors that might just offer tech only. And I think it's then just like more cultural things like listening to your customers. We're tight with our 235 retailers, and we listen to what they want. We incorporate those things into our road map. We meet with them frequently. It's a very client-centric organization in that regard. So yes, I think those things kind of all add up to contributing to that retention rate.

Great. Maybe on the process of redomiciling. So you're in the process of moving from France to Luxembourg, I think, in the third quarter this year with the goal of getting to the United States from Luxembourg in the first quarter of 2027. So I guess walk us through the strategic vision underlying this move and the costs and benefits associated with it.

Yes, sure. So the principles or the drivers are relatively straightforward. And in the French domicile setup, we had -- we're forced into an ADS structure for the equity shares. We had no passive index inclusion, and we had certain capital controls that limit share buyback activity. And so the move is really to address those 3 things, right? And so the move to Luxembourg gives us more flexibility on capital allocation. And then the subsequent move to the U.S. will give us more index inclusion. And we're very much on schedule for that. We just had an exceptional general meeting last Friday, where we received over 98% approval on all of the recommendations. And so we do expect to land in Luxembourg in early Q3. And then there will be a subsequent vote and move to the U.S. that could conclude in Q1 of '27. And so it's all about removing complexity from the stock. And making it more complementary to the way all of you and the way the market buys shares in public companies today, which is at least partially through passive indices. And of course, flexibility in capital allocation should be table stakes.

Of course. Before we go to capital allocation, I do want to talk about your P&L for a second. So when you're thinking through margins, how are you thinking about the puts and takes between leverage versus investing in strategic opportunities like agentic AI, increased productivity? And how should we think about OpEx discipline longer term? Do you see more efficiency coming in '27 and beyond?

Yes. Yes. So there's definitely a lot of puts and takes in the business on this right now. And I think you could see it in the profit guidance that we gave for the year, right? In light of a $75 million headwind, we were able to guide to EBITDA targets that are not too far off, relatively high performance last year. So what that shows is that we're able to drive efficiency in the business while still investing in accelerating the road map and in new channels like agentic. And I would look for that to continue. Commerce GO! creates a new lever that's kind of interesting in the self-service so it reduces our cost to serve. We might reinvest some of that efficiency on deeper service models for large advertisers. But equally, we could take some of that to the bottom line and efficiency or redirect it to maybe even more investment in agentic or into the retail road map. We'll figure all that out as we go into '27. The good news for us is that we've got multiple levers to pull, right? We've got a self-service product that we think is going to go well, that spins off efficiencies by its very nature. We've got a broad-based AI efficiency program that runs across the company that just makes us more efficient. And then we've got a nice tight road map for the 2 segments. So there's not any sort of wasted effort in terms of the investment that we put into those. So I would look for us to sort of be in and around that ballpark, but we'll get on to guidance for '27 kind of when we get there later this year.

So you're pursuing this redomiciling to the U.S., which creates opportunities, including buying back stock. But in the meantime, as we think through 2026 before those new opportunities potentially become available, how are you thinking about capital allocation this year, especially given the investments that you're making kind of on the operating side?

Yes. Yes. So it's always the same list and in the same order. We invest in the core business to drive organic growth. Then we're looking for high-value opportunistic acquisitions, and then we return capital to shareholders through buybacks. So that has been the philosophy since I got here. Sarah is good at repeating that often, and it's in the same rank order. And I guess on the second one with M&A, we haven't done anything since I've been here, but it's just we've been selective, right? We actually do have an active M&A pipeline. We look at all kinds of things that are on market or in some cases, not in market. But it's got to be the right fit. Synergies have to be there. It's got to be the right profile for where we are as a business. And the landscape changes quickly. So you also have to have like the real conviction about how it fits for the mid-term, and we do. So that's sort of why we've done what we've done.

Great. Maybe we can close out with a big picture question. When you think about the conversations that you're having with investors on the topic of AI, what do you think feels like the most underappreciated opportunity for Criteo and then maybe an underappreciated challenge that you're working on executing through?

Yes. So yes, I think the underestimated opportunity is the kind of incrementality of agentic. I think people don't appreciate -- this tend to get into a lot of zero-sum game conversations and the incrementality element gets lost. I think you guys actually put a paper out late last year that talked about sort of the accelerated contribution of agentic to e-commerce overall, and we very much agree with that thesis. So I think that is underappreciated even across this conference probably that the power of those engines unlocks commerce that otherwise would not have happened in legacy search because it was either too time-consuming, too inefficient or price discovery was too opaque. And a lot of that gets addressed with what I'll talk about then to my second point, which is the underappreciated challenge. That unlock is not going to happen unless agentic platforms have high-quality data feeds feeding high fidelity relevant product recommendations with accurate product data price and availability and other elements like that, that make it high quality. So again, that core thesis of you can't do great recommendation without good data, I think, is still underappreciated, but time will tell and we will be proven out.

Great. We can leave it there. Michael, thank you so much.

Thank you, Matt. Thanks, everyone.