Criteo Q4 2023 Earnings Call Transcript

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Provided by Quartr
February 7, 2024

There are 11 speakers on the call.

Operator

Good morning, and welcome to Coridio's 4th Quarter and Fiscal Year 2023 Earnings Call. All participants will be in listen only mode. After Please note this event is being recorded. I would now like to turn the conference over to Melanie Dombre, Vice President, Investor Relations. Please go ahead.

Speaker 1

Good morning, everyone, Welcome to Criteo's 4th Quarter and Fiscal Year 2023 Earnings Call. Joining us on the call today, Chief Executive Officer, Megan Clarken and Chief Financial Officer, Sarah Dickman, are going to share some prepared remarks. Todd Parsons, our Chief Product Officer will join us for the Q and A session. As usual, you will find our investor presentation on our investor website now as well as our prepared remarks and transcript after the call. Before we get started, I would like to remind you that our remarks will include forward looking statements, which reflects Criteo's judgment, assumptions and analysts as of today.

Speaker 1

Our actual results may differ materially from current expectations based on a number of factors affecting Criteo's business. Except as required by law, we do not undertake any obligation to update any forward looking statements discussed today. For more information, please refer to the risk factors discussed in our earnings release as well as our most recent 4 10 ks and 10 Q filed with the SEC. We'll also discuss non GAAP measures of our performance. Definitions and reconciliations to the most directly comparable GAAP metrics are included in our earnings release published today.

Speaker 1

Finally, unless otherwise stated, all growth comparisons made during this quarter are against the same period in the prior year. With that, let me now hand it over to Megan.

Speaker 2

Thanks, Melanie, and good morning, everyone. Thank you for joining us today. In Q4, we delivered record top line with organic growth acceleration and record adjusted EBITDA. I'm proud of our team's hard work and strong execution during the holiday season when the entire organization leans in to support our clients throughout this peak time in advertising. Our outperformance reflects the resilience of our business and was driven by the robust strategies we've implemented with large scale commerce data and breakthrough AI technology to deliver better predictions and outcomes for our clients.

Speaker 2

Looking back over the years since I started with Criteo and began the transformation of the company, we've made remarkable progress. I'm so proud of the work that we've done, what we've achieved, and I've never been more excited about our future. Our better than expected performance in 2023 further affirms our strategic direction while setting the stage for continued growth in 2024. In 2023, we achieved double digit growth for the 2nd consecutive year with a historic milestone of the $1,000,000,000 in contribution ex TAC mark for the first time. This is a testament to the tireless efforts our Criteos have poured into executing our company turnaround.

Speaker 2

We also exceeded our adjusted EBITDA margin target the year demonstrating cost discipline while executing our turnaround. Retail media surpassed $200,000,000 in annual revenue And retargeting now represents less than 50% of our business. Our strategy to offset clients in our retargeting business by offering full funnel targeting, a strategic move that we announced in 2020 has proved successful. With accelerated momentum, our commerce audience is targeting is up 60% in the 4th quarter. As we continue to push forward carving out our leadership position in Commerce Media and delivering against the vision that we've laid out, 2023 was a big year for us as we focused on tech delivery and differentiation with the launch of our demand side platform called capabilities that position Criteo to offer the end to end platform of choice for Commerce Media, allowing data flows and access across one for frictionless data needs that our clients are looking for.

Speaker 2

We bolster our position as the leading retail media ad tech provider, gaining market share in 2023 with a remarkable 36% year over year growth in activated media spend, which surged to 1 point $2,000,000,000 now flowing through our pipes. We partner with 220 retailers globally, And they are trusting Cria with more ad placements, more ad formats and more first party data than ever before. Among others, we expanded the scope of our partnership with Walgreens to now include on-site display. And we're excited to launch sponsored video with Walmart Connect Mexico and Doc Morris. In addition, we expanded our global presence by tripling our retailer footprint in APAC over the past 12 months.

Speaker 2

We also broadened our ecosystem to include commerce companies like Uber, which still media budgets more than double sequentially in Q4. We're pleased to continue to expand our partnership with Uber in markets including Japan, Colombia and Peru. We continue to gain traction with our self-service Commerce Max DSP, which gives our 2,600 brands and agencies a single access point to buy premium retail media inventory on retailer sites and across open Internet inventory off-site With closed loop measurements, all of the major HoldCo agencies are now using Commerce Max, and we're seeing increasing adoption of multi retailer campaigns and full funnel campaigns across on-site and off-site advertising. We ran multiple off-site campaigns in Q4 and we kicked off 20 24 with 10 onboarded such as Best Buy, Macy's, Rite Aid, Shift, ASDA and a growing pipeline. We've seen Commerce Max unlock brand national media budgets.

Speaker 2

Along with the growth of retail media as a powerful new advertising vehicles, Our momentum is building. We're in pole position to capitalize on the largest market opportunity in advertising since and social and our team continues to work hard to differentiate, deliver and drive scale. Turning to Marketing Solutions. We delivered our 2nd consecutive quarter of growth with a successful holiday Cyber6 period. This was driven by the fast growth of our Commerce Audiences solution, which focuses on mid An upper funnel targeting using the latest commerce data set on the open Internet and best in class AI.

Speaker 2

We see more advertisers choosing Criteo for precision targeting across the entire marketing funnel, including existing clients expanding the scope of their partnership with us. A recent example is our full funnel activation with TUI That led to successful engagement during the holiday season and resulted in a year over year increase of close to 60% in their media spend, which they allocated to Criteo in Q4. Our advertiser clients can move spend between performance, awareness and broad reach tactics using shopper targets only available with our full funnel targeting capabilities. Our cross selling efforts are also contributing to the success. About 70% of our media spend comes from clients that use commerce audiences targeting in addition to retargeting.

Speaker 2

We also benefited from our AI driven performance enhancements, which drove an uplift in contribution ex in the high single digit million range in Q4, a real output of our AI ML practice at work. Furthermore, we're experiencing solid traction in our partnership with Meta, and we see further opportunities to expand into other social environments, which bring access to 1st party identifiers for billions of users. The work we've done over the past few quarters has started to bear fruit. We ran hundreds of campaigns on Facebook and Instagram during Q4. Our advertiser clients are seeing a 25% boost in sales on average when activating Meta's inventory in combination with the open Internet.

Speaker 2

Among others, Super Farm experienced a double digit increase in return on ad spend and a 69% sales boost after adding Meta's large scale inventory to their campaigns in Q4. It's important to call out that social networks are logged in environments which offer precision and scale for 1st party data matching in a cookieless world and represent one of the pillars of our multipronged addressability strategy. In other words, activation of first party data at much greater scale. Turning to 2024, We see further opportunities for Criteo ahead as we continue to focus on delivery against our transformation. In Retail Media, our top priorities this year are centered on scaling retailers and driving more demand into our platform.

Speaker 2

We recently expanded our roster of senior leaders to further scale our business with the appointments of industry veterans Melanie Zimmerman and Stephen Howard Serene. We're thrilled to have them join us at a time when we continue to gain market share. We recently won new retailers, including Albertsons in the U. S. And PC Components in Europe, which present exciting growth opportunities and reinforce our leadership position in the space.

Speaker 2

Albertsons chose Criteo for our technical capabilities and our platform's ability to scale and perform along with our road map continuously enhance our capabilities and we're off to a great start with them. With an expanded retailer footprint, we see exciting Our goal is to make Recon Media easy to buy, bringing more opportunities to our clients and driving further scale. We're proud to have recently signed multiyear global brand deals with 2 world leading beauty and CPG brands. We also anticipate sustained momentum with the major HoldCo agencies as their retail media has been allocated to Criteo's search in 2023 by 50% in the U. S.

Speaker 2

And experienced a twofold increase in Europe and APAC. Overall, our multiyear partnerships with leading agencies and brands represent 100 of 1,000,000 of dollars of spend Predicted to come through our platform in 2024 and beyond. According to GroupM, Retail Media is the fastest growing advertising platform worldwide and is predicted to exceed linear TV and connected TV spend combined by 2028. Similarly, a recent study we conducted shows that more than twothree of brands and agencies Expect retail media to attract more spend in 2024 as 77% of brands and 80 2% of agencies globally say retail media spend is more effective in terms of sales impact compared to other channels. Our platform unifies supply and demand to unleash the full potential of their retail media activation As more and more dollars flow from legacy ad channels to retail media, further accelerated as advertisers increasingly value retailers' 1st party data and the absence of 3rd party cookies.

Speaker 2

Looking at Commerce Media more broadly, we believe we have great opportunities to scale our offering and drive more innovation. We're excited to expand our Commerce Group partnership with Google's Display and Video 360 to surface always on supply deals powered by Criteo Commerce Audiences inside their marketplace for activation across their advertiser portfolio. We're already seeing incremental demand from top agencies for our proprietary commerce audience and supply packages that could expand to retailer audiences over time. With Commerce Grid, we intend to bring demand from established 3rd party DSPs to drive more revenue for retailers. We recently completed our 1st retail media off-site campaign using retailer first party data through Commerce Grid, and we look forward to building on that momentum.

Speaker 2

Importantly, we continue to integrate cutting edge AI into our platform with a focus on improving performance and user experience for our clients and optimizing our service delivery process. The use of impactful and engaging creators is expected to become increasingly important To capture an audience's attention, this is a key component of the innovation we're bringing to market. We've been developing and testing generative AI powered tools to optimize creators and enhance performance. We're also innovating with AI powered creative formats such as shoppable videos, in bot sponsored products and affiliate product listing ads to bring more demand to publishers, retailers and social platforms. Meanwhile, we've already realized significant efficiencies using Copilot for development and our own AI system for identification for business or business opportunities.

Speaker 2

And we plan to roll out more AI driven efficiency tools this year. Lastly, 2024 is expected to be a dynamic year in digital advertising with the planned deprecation of 3rd party cookies on Chrome in the second half of the year. Now we've been preparing for this change for years with a comprehensive multi pronged addressability strategy to future proof our clients' advertising and performance. First, as you know, we've worked with Google since the very beginning of the privacy sandbox and met with them weekly on average over the last 3 years to ensure proposed solutions maintain advertising performance for our clients and partners. We're actively involved in the 5 month testing related to cookie deprecation on 1% of Chrome's users That started in early January, and we're working tirelessly to ensure proper setups and evaluate all Testing mechanisms.

Speaker 2

This testing requires a rigorous methodology and statistical significance. We expect to deliver the results for the U. K. CMA by mid June to help them determine whether 3rd party cookie deprecation can move forward. We'll also provide updates to the broader market along the way.

Speaker 2

Now several ad tech players have focused their efforts solely on using a durable ID to replace 3rd party cookies. For us, this is just one part our multi pronged approach to secure continuity. We refer to it as our 1st party media network. We leverage hash identifiers, which are universal privacy safe tool to bridge datasets from marketers and media owners across demand and supply, facilitating successful personalization and measurement. When looking at signals from publishers, we have direct integrations with.

Speaker 2

We connect over 10 times more hashed email and similar alternative industry IDs that lack scale. In addition, we have integrations with about 40 data and data collaboration platforms to activate clients' 1st party audiences. Next and as an extension of our first party data strategy, we're focused on helping our clients reach consumers in more closed environments like retailer sites and social platforms, including Facebook and Instagram. These environments facilitate 1st party data matching with precision and scale. Using best in class AI to marry these diverse solutions with contextual and other cookie list signals enables us to automatically determine to more path for driving personalized advertising that meets our clients' performance expectations.

Speaker 2

We believe we're prepared for 3rd party cookie deprecation on Chrome, and we already bring performance our clients in cooking less environments today. We continue to expand our capabilities to drive the best outcomes for our clients without third party identifiers. To conclude, we're proud To have been recently acknowledged or recognized as one of the hottest ad tech companies by Insider for the 2nd year in a row. This acknowledgment reflects our commitment to staying at the forefront of our industry with the only unified AI driven platform that directly connects advertisers with retailers and publishers to drive commerce on retailer sites and the open Internet. One last but important call out.

Speaker 2

Sustainability is a key focus at Criteo, and I'm pleased to report that we're the 1st company in our industry to have our carbon emissions reduction targets approved by the Science Based Targets initiative, meaning Our climate goals are aligned with the Paris agreement. As we step into 2024, We're laser focused on execution, and we look forward to harnessing the opportunities that lay ahead. We're confident in our strategy, And our commitment remains steadfast towards sustainable, profitable growth with a disciplined approach to capital allocation to drive shareholder value. And with that, I now want to call turn it over to Sarah, who will provide details on our financial results and our outlook. Thank you.

Speaker 2

Sarah?

Speaker 3

Thank you, Megan, and good morning, everyone. We delivered strong results in 2023 with double digit growth and margin expansion. Starting with our financial highlights for 2023, Revenue was up 1 point sorry, revenue was $1,900,000,000 and contribution ex tax grew by 11% at constant currency, reaching over $1,000,000,000 This is the first time in our history and we now have more than 50% coming from new solutions. Retail Media, revenue was $209,000,000 and contribution ex TAC was $203,000,000 up 26% year over year as we continue to expand with our retailers, brands and agency partners. In Marketing Solutions, revenue was $1,600,000,000 and contribution ex TAC was $697,000,000 With Commerce audiences up 42% at constant currency, reflecting our clients' strong adoption of broader targeting solutions, including new retention strategies.

Speaker 3

We delivered an adjusted EBITDA margin of 30%, including over $70,000,000 of annualized savings, while continuing to invest for growth. We delivered free cash flow of $110,000,000 including the one time payment to Camille of $43,000,000 This represents a conversion rate of 51% from adjusted EBITDA before this payment. Our adjusted EPS was up 15% to $3.18 in 2023. Turning to our 4th quarter performance. Revenue was $566,000,000 and contribution ex TAC was $316,000,000 This includes a year over year tailwind from foreign currency to $4,000,000 At constant currency, Q4 contribution ex TAC grew by 10%, up sequentially compared to our organic growth 8% in Q3.

Speaker 3

Our performance was driven by robust growth in Retail Media, up 29%. This was also driven by marketing solutions, up 6% year over year with impressive growth in commerce audiences targeting, up 60% more than offsetting lower retargeting down 9% year over year. These dynamics have contributed to rebalancing our top line mix with our new solutions representing 56 percent of our business in Q4. Turning to our business segments. In Retail Media, revenue was $77,000,000 and contribution ex TAC grew 29% at constant currency to $74,000,000 On top of strong growth last year, our growth was driven by continued strength in retail media on-site and new off-site campaigns.

Speaker 3

Growth from existing clients remains strong with same retailer contribution ex tech retention at 121%. We onboarded 100 more brands in Q4 and saw continued traction with our agency partners. Our 2,600 global brands are prioritizing retail media as a key channel for their investments, A trend we expect to continue as first party data becomes increasingly valuable. In Marketing Solutions, revenue was $455,000,000 and contribution ex TEP was $208,000,000 up 6% at constant currency, making our 2nd consecutive quarter of growth. We had a success holiday season around the traditional Cyber 6 peak and we experienced continued strength in December, which has carried through to the beginning of this year.

Speaker 3

We saw a sequential improvement in retail returning to growth this quarter, While travel remains strong, we also benefited from our latest AI driven performance optimization. We delivered exceptional growth in Commerce Audiences, up 60% as more clients embracing full funnel audience strategies to acquire and retain customers, demonstrating that our strategy is working. Notably, we doubled our revenue associated with customer retention solutions year over year as we increasingly leverage clients' 1st party data from customer data platforms and data management platforms for precise targeting. And we are seeing more clients shift spend from retargeting to this alternative tactic. Cross selling remains an important growth driver as 40% of our clients are now using more than 1 Criteo solution compared to 35% a year ago.

Speaker 3

This represents 70% of our media spend from clients that use commerce audience targeting In addition to retargeting and marketing solutions, we also benefited from incremental third party demand through our Commerce Grid SSP. Ipon Web revenue was up 2% this quarter. This does not capture the contribution of our acquisition to the growth of our other solutions, including Commerce Audiences. We delivered an adjusted EBITDA of 1 $139,000,000 in Q4 2023. Non GAAP operating expenses decreased 5%, driven by our rigorous focus on cost management and efficiencies, offsetting our planned growth investments.

Speaker 3

We also benefited from lower bad debt expense due to strong cash collections. Moving down the P and L, depreciation and amortization decreased 16% in Q4 2023 And share based compensation expense decreased 6% to $21,000,000 including $5,000,000 related to treasury shares granted to Ipongweb's founder as part of the acquisition. Our income from operations was $88,000,000 and our net income was $62,000,000 in Q4 2023. Our weighted average diluted share count was €59,700,000 This resulted in diluted earnings per share of 1.02 dollars Our adjusted diluted EPS was $1.52 in Q4 2023, up 81% year over year. We canceled 2,100,000 shares in 2023.

Speaker 3

We benefit from a strong financial position with solid cash generation and no long term debt. We had about $837,000,000 in total liquidity as of the end of December, which gave us significant financial flexibility to execute our growth and capital allocation strategy. Our commitment to diversity, Equity and inclusion and a sustainable plan are core to that strategy, as demonstrated by our existing $450,000,000 5 year revolving credit facility being recently converted to a sustainability linked loan. Certain terms and conditions at the credit facility are now linked to certain sustainability targets to increase the representation of women in tech roles and reductions in our GHG emissions. We delivered free cash flow of $142,000,000 in Q4, an increase of 28% year over year.

Speaker 3

Our free cash flow amounted to $110,000,000 in 2023 After the Cuneal payment of $43,000,000 $45,000,000 for restructuring and integration costs, We have a disciplined and balanced capital allocation strategy. Our priorities are to invest in high ROI organic investments and value enhancing acquisitions and to return capital to shareholders via our share buyback program. In 2023, we deployed $125,000,000 of capital or 114 percent of our free cash flow for the year for share repurchases. This included 4,300,000 shares repurchased at an average cost of $29.30 per share. As of December 31, 2023, there was $118,000,000 remaining under the current share repurchase program.

Speaker 3

In February, our Board of Directors authorized an additional $150,000,000 to be added to our existing share repurchase program. This demonstrates our confidence in our business strategy, financial strength and our ongoing commitment to enhance shareholder value.

Speaker 1

Turning to our financial outlook,

Speaker 3

which reflects our expectations as of today, February 7, 2024. Our outlook assumes 3rd party cookie deprecation on Chrome in the second half of the year. For 2024, we expect contribution ex Tech to grow mid single digit year over year at constant currency with growth in each of our segments. In Retail Media, we expect to continue to grow rapidly from a scaled $200,000,000 plus We expect our estimated media spend to grow above 30% year over year, faster than GroupM's estimated market growth of 12% as we anticipate further share gains. We expect this will translate into contribution ex TAC growth of approximately 20% at constant currency, In line with consensus expectations, our 2024 guidance includes take rate volume based fees for all our clients, which is effectively a percentage of their media spend.

Speaker 3

It also includes licensing and services revenue, which represents approximately 20% of our total expected Retail Media revenue. Overall, 80% of our retail media contribution ex TAC is derived from retailers that are driving more than half of the demand and sales and are limited in their ability to do more. As previously communicated, our 2024 guidance reflects our largest client moving some of their demand to a direct sales model as we progress through the year. We expect this to be more than offset by the growing momentum that we are seeing across the rest of our client base. Over time, we have an opportunity to increase the share of Criteo's sold demand as we tap into national media budgets from our agency partners and brands and scale cross retailer and full funnel campaigns.

Speaker 3

In addition, we expect to drive more and more demand for midsize and smaller retailers. Our strategy is focused on unit buying the retail media ecosystem, and we believe new on-site As full map, off-site and omnichannel all present exciting opportunities to drive continued strong growth going forward. We expect contribution ex tech to grow low single digit for both Marketing Solutions and Iponweb. This reflects continued traction in AI powered commerce audiences and for our commerce grid SSP. Now I'd like to address our current assumptions as it relates to the potential loss of signal in Chrome that impacts retargeting.

Speaker 3

Our 2024 guidance assumes that Google starts phasing out third party cookies in the latter half of Q3, resulting in an expected signal loss impact of approximately $30,000,000 to $40,000,000 in the second half of the year. This assumption is consistent with our previously communicated estimated impact to the signal loss on chrome, With the remainder of the signal loss impact expected in 2025, as previously communicated, we would expect We would retain approximately 60% of our retargeting contribution ex tech on Chrome post third party cookie deprecation. We intend to continue to update our assumptions as we move throughout the year. As part of our transformation, we are disciplined in strategically allocating our resources to higher growth areas, while enabling productivity and cost efficiencies. In 2024, we intend to continue to right size our organization and optimize our operating model.

Speaker 3

Overall, we anticipate an adjusted EBITDA margin of approximately 29% to 30% 2024 flat year over year. This includes continued rigor on cost efficiencies to offset wage inflation, while continuing investments in our multi pronged addressability strategy, gaining retail media capabilities and AI driven productivity tools. We expect a normalized tax rate of 28% to 30% And we expect CapEx to be down compared to last year or slightly below $100,000,000 and we expect free cash flow conversion rate of about 45% of adjusted EBITDA before any non recurring items. For modeling purposes, we assume a Flat number of shares outstanding in 2024. We're off to a solid start in January.

Speaker 3

For Q1 twenty contribution ex TAC of $240,000,000 to $247,000,000 growing by 10% to 12% at constant currency. We estimate ForEx changes to drive a negative year over year impact of about $1,000,000 to $3,000,000 on contribution ex TAC in Q1. And we expect adjusted EBITDA between $50,000,000 $54,000,000 reflecting year over year margin improvement in a seasonally low quarter. As a reminder, comparatives to the prior year get more difficult as we progress through the year. Lastly, we are contemplating updating our segment reporting structure beginning in Q1 2024.

Speaker 3

This follows the completion of the integration of our Ipron Web acquisition, which has contributed to the launch of several products and accelerated our Commerce Media platform more broadly. We intend to provide you with additional information regarding this change and a recast of historical financial information reflecting the segment change in the near future. In closing, we believe we are well positioned to deliver on our plans for growth, resilient performance, healthy profitability and strong cash generation drive shareholder value in 2024 and beyond. And with that, I will open up for questions.

Operator

The first question comes from Justin Patterson with KeyBanc. Please go ahead.

Speaker 4

Great. Thank you very much and good morning. 2 if I can. First, Sarah, I was hoping you could give us a little more detail about just Some of the assumptions that went into that 60% retention rate for retargeting, what have you been seeing so far today off of the initial Deprecation loss or signal loss from deprecation and just how was that flowing into that estimate? And then Megan, I just wanted to go back to a comment you made earlier just around opportunities to expand in social environments.

Speaker 4

Sounds like you've seen really good traction with Facebook so far. What do you think really needs to happen to just broaden that opportunity set? Is that something that requires things like Digital Markets Act in the EU or is that something you can do without regulation? Thanks so much.

Speaker 3

I'll start with the 3rd party cookie impact that we've assumed. So effectively, we have It's really very consistent with what we've already shown to all of you. But our anticipation is that we will have I mean, if you assume, let's say, about $1,000,000,000 in CXT for 2023, and we expect to grow that mid single digits in 2024, so you can assume that kind of moves up by around $75,000,000 And you assume retail seems about 45% of the business in 2024, so just under $500,000,000 Then we're assuming that there's no impact for 65% of the year or 2 thirds of the year. And the cookie deprecation will starting late August to September timeframe, so less than €200,000,000 being impacted. And only Chrome is impacted, so that's about 50% of our traffic.

Speaker 3

So you can assume that's just shy of $100,000,000 And we would retain 60% of that, so we'd lose and we said $30,000,000 to $40,000,000 So we would keep the remainder. So that's our rationale for our range of $30,000,000 to $40,000,000 And as we said, we will continue to update this assumption as we go through the testing and as we see the timing. I can hand over to Todd, who can talk on the second part or Megan can talk on the second part of your question.

Speaker 2

I'll take hi, Justin. Thanks. Great questions. In terms of the relationship with Meta, with Facebook and Instagram. These are supply relationships.

Speaker 2

And these are great opportunities for us So, a, expand the supply that we have access to with Meta, which as you remember, sort of came about earlier last year. So this has been over time us building tech that enables us to integrate and utilize Meta's environment. We're also driving that capability into TikTok, for other social platforms we gain access to audiences. The objective, of course, is to drive value for those Social environments as selling their inventory, but also drive value to the advertisers that want to reach beyond the open Internet into these very big social platforms. The 3rd benefit to us, of course, is that gaining access to the billions of users that they have really just strengthens the pool that we have available to us as part of our addressability strategy.

Speaker 2

So for as long as we have access to those audiences and we're driving commerce interactions between them and the advertisers that are advertising on them, Then this is just a supply demand scale game that will continue to be aggressive with and push forward.

Operator

Our next question comes from Ygal Arounian with Citigroup. Please go ahead.

Speaker 5

Hey, thanks. Good morning, everyone. Also 2 for me, and also starting with cookies.

Speaker 6

We're just a

Speaker 5

month in, so I know it's early, but if you could share some of the learnings the 1% duplication that we've seen so far, given your kind of close relationship with the Privacy Sandbox and how that might translate through the course of the year. And what do you think advertisers do you think They're ready or positioned here. What needs to happen to make sure that we kind of go along as and you're retaining 60% of the signal with cookies and it's not something beyond your expectations. And then given the strength in Commerce Audiences that we've seen throughout the year and kind of been the leader of growth, And maybe just parse into some of that a little bit more. How much of that is coming from the shift away from retargeting?

Speaker 5

How much is outside of that? Or Anything else you can kind of share on what you're seeing there and expectations into next year? Thanks.

Speaker 2

Yes. Thanks, Yigal. Great questions. I'll just us off and then the sort of star of the show here in terms of the one percent question is Todd. So I'll shout it quickly and pass it across them.

Speaker 2

But I do want to sort of comment on the readiness of publishers towards cookie deprecation. This mix that I think what you'll see and what you have seen and it's been printed a lot is that there is at least now a sort of an awareness and a movement towards trying to solve for this problem. Our job is to help publishers to get there through both the information that we after them as we get closer to this and understand the impact on them and also with our relationships with them directly. So we're staying very close to that. We feel very good about the 3 pronged approach that we have to this.

Speaker 2

And remember, addressability comes in different flavors depending on what the objective of the advertiser is. If they want to reach a broader audience, then What's going on with cookie deprecation becomes less problematic. If they want to get to a one to one audience and they want to get to that person multiple times and that's what this is all we're leaning in to solve for that problem. But also with the mind to bring them continuity to their business and also to the brands, advertisers, the agencies along the way. So All of these things are wrapped into a solving for this.

Speaker 2

It's complex, but as you noted, we're right smack in the center of it and we know a lot. So let me pass it across to Todd to share some of that.

Speaker 6

Thanks, Megan. Yigal, nice to hear your voice. On the 1%, I just wanted to reinforce that we've been getting ready for this testing period for well over a year technically. And the objective is for us to compare and contrast advertiser ROAS expectations at constant spend with the impact to publisher CPMs. I think we're probably the only company that is deploying that methodology, which shows the cause and effect of ad dollars to publishers' CPMs.

Speaker 6

With that, The readiness that we're preparing for the test is quite technical. It involves full pipelines, including dedicated bidding models, new infrastructure, an entirely different strategy for shopper behavior collection, storage, adapting to the interest group approach of protected audience and privacy sandbox and so forth. So what we're doing now is getting ready for using all those things, getting ready for a stable testing period, wherein we will report the relationship between ROAS and publisher CPM. And in that, we will be providing feedback consistently to both the CMA and to Google so that any improvements to the API, which will drive performance in that relationship are realized. So it's a very it's an accelerated process today, given all of the excitement and noise about the testing period And we're right on schedule.

Speaker 6

We'll report results just as soon as we have them to report.

Speaker 3

And I'll just take on the Other question you had on Commerce audience. So we're clearly thrilled at 60% growth for Q4 and 42% for the year. Approximately half or about $10,000,000 of the decline in retargeting in Q4 was a switch over to Commerce Audience. But more broadly, eCommerce audience is benefiting from our AI. It's benefiting from the multiple address solutions with contextual and other cochlear signals.

Speaker 3

And 70% of our revenue in Marketing Solutions Now it covers across marketing both retargeting and commerce audience solutions for our clients. So we feel good about it, and we do continue to I think across all the methods of retaining and acquiring new clients and that would also include with Meta as well.

Speaker 5

Thank you so much. That was very helpful.

Operator

Our next question comes from Richard Kramer with RHA Research. Please go ahead.

Speaker 7

Thanks very much. One for each of you. I'll try to make it quick. Megan, you mentioned the material scale edge and addressability In a market where obviously signal is going to get more scarce, do you think you can get a material increase in your market share of gross media spend maybe in some areas, For example, CTV, where Croteo hasn't traditionally played. Todd, you helpfully laid out in your blog post the timelines for this initial wave of privacy without scaling up headcount to support them with managed services and so forth.

Speaker 7

And lastly, Sarah, were there any one offs In this, in the take rates of marketing solutions, for example, Criteo getting paid by Google to test Privacy Sandbox, anything else that Explains that big effective take rate jump. Thanks.

Speaker 2

Hey, Richard. Great. I think we've got these. Let me take the first one. Certainly, in terms of scale driving our ability to grow share is what we hope to do.

Speaker 2

I mean, it's one of the underlying promises of the strategy is to extend towards allocation of audiences across all channels as opposed to just being limited to retargeting. There's a much, much, much bigger marketplace for that than there has ever been for retargeting. Now that's not to say retargeting is not important. It is an important tactic, as you know, in terms of bottom of the funnel. But our strategy has enabled our clients to be able to take campaigns and shift them during flight up and down the funnel in terms of tactics, but also across formats and across channels as well.

Speaker 2

CCB is a great place to talk about it. It is an environment that is not susceptible to 3rd party cookie, deprecation. But it is an environment which you don't really know who's sitting in front of The screen as it is a TV screen at high minutes, slowly becoming more programmatic, but that's not where it started. And from a retail media perspective, It's a little ways to go until it becomes a true retail media proposition. But in terms of targeting And finding allocation of audiences on that environment, yes, it's an opportunity.

Speaker 2

For us, what we have is Addressability capability with a differentiator of commerce, a differentiator of knowing where shoppers are, which is what nobody else has. And so for us, this is what's driving the strategy to over time, of course, make what we're doing in the middle and upper funnel be so much larger.

Speaker 6

I can talk about the Richard, I can talk about The allocation, the resource allocation, I think, what's important to note there is we've been working on cookie loss and signal deprecation since 2017. And so the same teams that we're working on the problem from the start have only Accelerated based on what we learned and what we accomplished to protect our clients from that signal loss. I look at it also given that we have those teams in place and they have great expertise. I look at the opportunity For us to build more quickly, on what has been learned already and capture more market on the other side of cookie deprecation, because we've already been there working the problem. So we look at the work done on Privacy Sandbox as being portable to other interest group creation that uses our unique commerce assets, whether it goes to CTB or another channel, We're sort of diagnostic too as long as it performs for clients and we have the people in place to do this work and they're doing it already.

Speaker 3

Just to address your retargeting comments, there is no one timer in that. The benefit is a strong Q4 holiday season along with our AI performance engine continuing to drive precision targeting across which some of which has been at a lower CPM. So I would say it's all the investments we've made in AI is really delivering for us on the retail casino and across our marketing solutions space.

Speaker 7

Okay, great. Thanks. Very clear.

Operator

Our next question comes from Mark Zektovich with Benchmark Company. Please go ahead.

Speaker 8

Thank you. Good morning, Megan, Sarah and Todd. 3, I think, rather quick ones for me. First one, just On the social user addressability, I'm just curious if you have a sense yet of what that may contribute to Your ongoing growth maybe more near term in 2024 and perhaps looking at this indirectly of course from the buy side The equation. And the second question, Sarah, I was just curious what your sort of assumptions were for the 20% Retail Media growth expectation, just trying to get a sense of the conservatism in that number.

Speaker 8

And then lastly, just on Retail Media take rate dynamics, I'm curious as you think about next 12 months sort of What the I guess the dynamics are there and specifically around off-site sort of how off-site is impacting perhaps take rate that would be helpful. Thanks.

Speaker 2

Yes. Hi, Mark. I'll start with the question about the social environment and its relationship to flexibility. What we have there is just Access, I guess, 1,000,000,000 of IVs to be able to match who. So if you think about Match rate for the open Internet, one of the issues that publishers have today as they get themselves ready for cookie deprecation is to have logged in environments or environments where they can pass an ID to you, whether that be a ham, a hash email address or an actual ID

Speaker 3

to be

Speaker 2

able to make that match. So that innocently, you're just getting to the right person at the right place, at the right time, at the right device. And what we like about social environments is that they have they are logged in environments and not only can you make a more precise match, but you can You can follow that up with really solid measurement for the brands, the advertiser who's spending their money with you. For us, it has an added benefit that the billions of IDs that come with that relationship just gives us another massive scale set of addressability capability to include in our 3 pronged approach. So as we get to a point where Signals, in particular, just 3rd party cookie signals on Chrome, because that's what we're looking at, are taken away then the ability to Fill in that debt by using other signals that we have access to and again this adds billions just makes our ability to provide continuity to our clients possible and that's what that brings to us.

Speaker 2

So that was that, Keith.

Speaker 3

Yes, I can address for retail growth rate. So yes, we're assuming 20% Growth rate and as we communicated in Q3, that does include the expectation of a change to our largest client contract, which we did renew on a multiyear basis. And for competitive reasons, We're not going to comment on individual customers. However, what I would say is our expectation is gross media spend will grow around 30% and we're taking share So our expectation is 30% versus kind of a 12% expectation from the market. That does assume that all of our clients are continuing to grow and expand quite considerably.

Speaker 3

So I would say it is not a conservative expectation. We are expecting strong growth across the board. Those would be the 2 key parts. And then just in terms of the quarter on quarter, our expectation is that the Changes in contracts will impact kind of Q2 onwards. And then in terms of take rate, this year the average is around 16.5%.

Speaker 3

And our expectation in 2024 is that will decline and again as community communicated previously to around about mid teens in 2024 and beyond.

Operator

Our next question comes from Mark Kelley with Stifel. Please go ahead.

Speaker 9

Great. Thank you. Good morning, everyone. Just to go back to the Retail Media commentary from the last response. So the contract change kicks in, in Q2, if I heard you correctly.

Speaker 9

I guess, Given that the exit run rate for 2023 for retail media, 30% on a reported basis, that's kind of what you think activated media spend grows for 2020 Or I guess how do we think about the start to the year for retail media? The accounts are a little bit easier, the contract with your largest Retailer sounds like it's unchanged and kicks in, in Q2. I guess, how do we think about the trajectory of the year for Retail Media? That's my first question. And then the second one, hearing you, Megan, talk about Just how publishers are adopting some of these newer cookie workarounds.

Speaker 9

I think there's a sentiment across the advertising community and definitely NatTek that maybe like ESPs, especially the smaller subscale folks, certainly not you guys, are way behind in terms of Testing the privacy stand by tools or any of the other cookie workarounds, is that an opportunity for you to take meaningful share Yes, particularly on the DSP side. And I guess, does that kind of facilitate consolidation in retail media and I guess ad tech just more broadly? Thank

Speaker 3

you. Sorry, just quickly on Q1. So we didn't give we don't give guidance And one reason we had Q1, but yes, we would anticipate stronger Q1 growth, and we are seeing that coming into the year. And that is before the new contract kind of kicks in, which will be for the most part coming through Q2.

Speaker 2

Mark, it's a great question. It's a crystal ball question. I think,

Speaker 3

well, firstly, the start of publishers, I've talked

Speaker 2

to many. And as I said before, they're in Different stages of understanding, working on being ready all being ready. And as you move out from the globe, I must say that if you're sitting in the U. S. And in Europe, We're kind of closer to this naturally than I was in Australia the other week and when we do, they know what's going on, but it just feels Sort of that as you move out from the center, it gets to this is a global problem that publishers doing their best rest of the world.

Speaker 2

I'm trying to understand what it means to them and trying to see who the new partners will be and what they have to do from the deck. I suspect that DSPs and smaller DSPs, they just need to they need to be ready. Knowing what we know and again, we've been in this for a long time, ready being ready is an absolute advantage in terms of where you are as compared to your competitors in the marketplace. And we are absolutely ready. So yes, it is big advantage that we have over the others in the ad tech space, except for those who are already with us, but there is a lot that are not.

Speaker 2

And as we sort of move through cookie deprecation, of course, there's an opportunity there to make sure that as clients are not being served by their partners that we have global governance of the services that they need to make sure that they keep business continuity and remain successful. So call that what it is, it is a major opportunity for us that we've been looking at for some time in terms of taking really taking advantage of and getting results or the work that in the years that we've put into getting ready for this.

Speaker 9

All right. Thank you both. Very helpful.

Operator

Our next question comes from Doug Anmuth with JPMorgan. Please go ahead.

Speaker 10

Yes. Hi. This is Katie on for Doug. Thanks for taking the question. I have 2.

Speaker 10

First, can you just talk a little bit more about In the post cookie deprecation world, your 3 pronged approach and just like what you think the advertising landscape is going to look like over time? And just to that end, how should we think about sizing the signal loss in 2025? Secondly, just a quick one. Can you just talk a little bit more about the AI enhancements that you called out in the quarter that drove the uplift in Marketing Solutions? Thank you.

Speaker 2

I'm going to pass the rest of

Speaker 6

the cards to take one of those. Yes. I'll do the first one. So on our multipronged strategy, Megan laid it out very well, it could be 4K and E. At the core, it's 1st party data matched from an offline identifier standpoint to offline identifier or potentially using 3rd party identifiers as the intermediaries, which we do at the core.

Speaker 6

The second piece of the multipronged strategy that we've been deploying here is focused on closed environments. Just want to reinforce login audiences at both retailers and social platforms. And the third thing outside of Privacy Sandbox It's really work that we're doing to help publishers, define their own interest groups with commerce data that we have, So that the interest of model that's being propagated by Privacy Sandbox could be innovated in addition to using our data. So we're excited to open up new opportunities through our multi pronged strategy. We're building audiences and helping publishers see better monetization through that, retailers seeing better monetization Through that and brands getting better performance.

Speaker 6

If these three things working together, using AI That I want to emphasize, makes the program much simpler for brands. The big problem with this multi prong approach, And GE Crest and Sandbox is one piece of it is it's mysterious and complicated to the space. What we have done Through our strategy has made it possible for these identity solutions to be chosen at runtime automatically using AI in such a way that our partners don't need to select or choose or take risk of maybe going too deeply into one of the pillars of our strategy versus the other. So doing things automatically at runtime And using AI to make the right decision on what identity solution to choose is really at the core of the strategy And we're just continuing to develop and hone it. It's very promising and we're very excited about it.

Speaker 3

And just to build on AI, It has impacted our year for 2023 and in Q4. And it really is continuing to enhance how we do the campaign setup, the formats and ways that we use Genesys AI to be appealing for our clients and their consumers and continued focus on optimizing How the engine works, so it's all paying off and it was an area of investment for us in 2023 with an incredibly high ROI. So we're very, Very excited about how that will drive us not only for 2023 but into the future as well.

Speaker 1

All right. Thank you, Megan, Sarah and Sarah. This does conclude our call for today. Thanks, everyone, for joining. The Investor Relations team is available for any further questions.

Speaker 1

Have a nice day.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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Key Takeaways

  • Record FY 2023 results with revenue of $1.9 billion, first-ever $1 billion contribution ex-TAC (up 11% at constant currency), 30% adjusted EBITDA margin, and Q4 contribution ex-TAC +10% CC.
  • Retail Media accelerated, generating over $200 million in annual revenue, +36% YoY activated media spend to $1.2 billion, partnerships with 220 retailers (e.g., Walgreens, Walmart, Albertsons), and Q4 Retail Media contribution ex-TAC +29%.
  • Launched the self-service Commerce Max DSP, enabling 2,600 brands and agencies to run cross-retailer, full-funnel campaigns on-site and off-site, with early adopters like Best Buy, Macy’s, Rite Aid and ASDA.
  • Marketing Solutions growth driven by Commerce Audiences (up 60% in Q4, 42% in FY), 70% of spend from clients using both retargeting and audience targeting, AI optimizations delivering a high-single-digit million uplift, and Meta integration boosting sales ~25%.
  • 2024 outlook calls for mid-single-digit contribution ex-TAC growth CC, ~20% Retail Media CXTAC growth, 29–30% adjusted EBITDA margin, and $30–40 million impact from Chrome cookie deprecation mitigated by hashed IDs, closed-environment targeting and Privacy Sandbox integration.
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Earnings Conference Call
Criteo Q4 2023
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