CRTO Earnings Review

This is more of a summary of my notes from the conference call. I don’t have the best handle on their historic numbers as they just converted to reporting in US dollars.

Their two main metrics are Revenue Ex-TAC (Traffic Acquisition Costs) and Adjusted EBITDA. I’ll report numbers impacted by ForEx and the constant currency numbers will be in parentheses.

For Q1:

Rev Ex-TAC grew 37% (41% cc) to $162M driven by growth with their large clients and the 2nd highest net client addition ever (760 customers).
Total Revenues were $401M so Rev Ex-TAC margin is 40.5% consistent with prior quarters.

Non-GAAP OpEx was $104M up 30%. Headcount makes up 75% of Non-GAAP OpEx and grew 30% to over 1,970 employees. By segment, R&D grew 50%, Sales & Operations grew 23%, Quota carrying headcount grew 26%, G&A grew 37%.

Adjusted EBITDA was up 54% (56% cc) to $49M. Their over performance is 60% based on higher than anticipated sales and 40% on lower than expected expenses. However, some of the expense savings is simply deferred to next quarter. Adjusted EBITDA margin was 12.2% of revenue - a 140 basis point improvement. 60 basis points of the improvement was due to lower spend.

Net income was up 36% and without a ForEx hedge loss would have been up 45%. CapEx was 3% and below the 5% target due to the delayed spending.
Free Cash Flow was $7M and was apparently negatively impacted by abnormal working capital. The expectation is this will be normalized in 2016 and will impact FCF positively.

Total Cash was $386M up from $33M

Q2 Guidance:

Rev Ex-TAC - $158 - $162M
Adjusted EBITDA - $32 - $36M
$12M in additional expenses will fall into Q2 for a global company summit, the aforementioned spending delay and continued increased headcount.

FY 16 Guidance:
Rev Ex-TAC - 30 - 34% Growth
Adjusted EBITDA Margin - 60 - 100 basis point growth

Summary of Management’s Remarks

The vision of CRTO is all about performance advertising and that “data driven, people centric marketing held accountable to performance metrics” is the trend of the future in advertising. And they believe they are the best by providing “relevant ads {that} result in unmatched performance increasing value to clients.”

Three big trends are providing them opportunity:
(1) Continued digitization of off-line activity/tracking off-line sales.
(2) Increase in marketing spend based on the performance their solutions provides (i.e. greater value creation for the client)
(3) Optimizing cross channel and cross device performance for marketer’s

As stated in #2 above, existing clients are spending more money with CRTO than ever. The same clients from Q1 2015 spent 21% more with CRTO this quarter due to 75% of them having uncapped budgets with CRTO. I don’t know about you, but I can’t envision giving a company free reign to spend my money without knowing for sure there will be a positive ROI.

Three other important points brought up by management:
(1) Mobile Commerce is driving sales and makes up more than 50% of Rev.
In App sales grew over 450%
In App ads provide a 2x conversion rate for clients

(2) Cross Device Commerce makes up over 40% off all e-commerce.
Universal Match is a product now adopted by 60% of clients
“Matched Users” (x-device users) made up 40% of rev. Up from 25%

(3) They will continue to innovate to create compelling ads.
1st Generation product has been rolled out to 100% of customers.
Next generation is in the works and will be developed over the next few quarters.
They have completed the transition to HTML5 format away from flash (FWIW).

Other Highlights

Total clients at over 11,000 now with client retention at 90%.
Mid-Market clients (of which they talked a lot about) are up 80% and are now 25% of revenues with increasing average rev per client.

2,300 new Publishers were added now totaling over 16,000.

Rolled out DPA (Dynamic Product Ads) on Facebook. From the Q&A, this sounded like a tough process, but they got it done and it is starting to pay. They continue to work to improve their product with FB, but are in the deployment phase now. There are 5,000 advertisers live with DPA on Facebook in both mobile and PC.

“Native Ads”, though this author knows little about them, sound as if they are very customized ad solutions for large customers and now make up 15% of revenues.

Their “Taboola” relationship ramped up over 100% - yet another point that confounds this author.

Likewise, their relationship with Kakao, who sounds like the Korean WeChat, is growing nicely.

Americas were up 48% with mid-market up 100%.
EMEA was up 30% due to increased existing client spend.
APAC was up 52% as is a major focus going forward.

Top Four Priorities for 2016

(1) Innovate Core product with universal match. CRTO claims universal match which has been rolled out to 60% of clients that are now sharing anonymized CRM data with them will allow “building a large scale user graph and infrastructure to leverage it in the whole platform.” They see this as a strategic advantage. I feel a moat developing.

(2) Expanding to vast sources of Inventory. Drivers here will be social media, In-App inventory especially in APAC and “native ads” with large customers.

(3) Strengthening APAC position. They are investing in SE Asia and brought a new hire on board. India operations will go live in Q2 and they expect China to develop over time.

(4) Develop new disruptive products.

Final Commentary

I have a small position in CRTO and it seems like a compelling investment though certainly not cheap right now. As I stated early on, I don’t have a great handle on their numbers. They don’t emphasize EPS, but are now reporting it. This quarter was 43 cents. Next quarter will be down, but we would expect the last two quarters to be higher. Let’s just say they earn 43 cents every quarter. Annual EPS would be $1.72 and would yield a PE of 24.6. So, the PE is coming down.

Even though CRTO is spending, they aren’t doing so in a profligate fashion. This is shown in their operative leverage guidance of 60 to 100 basis point increase in Adjusted EBITDA as a percent of revenues.

Finally, I don’t know how CRTO does what it does. And there is a little part of me that thinks it is kind of creepy. However, the client retention, massive amount of customers, increasing sales and operating leverage make me feel they have a great competitive position in the industry. With their vastly increasing cash position, they may be in a position to add to their services via acquisitions and/or take out smaller start-up competitors on the verge of developing better technology. They certainly seem like they have the technological lead and are happy to tout the fact that their customers can measure performance of their advertising spend.

Hope this has helped some folks out there and hope to hear what others think.

Take care,


Very helpful AJ. It looks like these results were well received. I certainly like what I saw and feel even better about this company now than a year ago.

Same here. I don’t have a great understanding of how they make money and
half their terminology goes over my head. I got into CRTO at $32 the day after they reported a fantastic quarter in Feb.

I go by statistics. A great quarter is very likely to be followed by more
good quarters. These are not random coin flips…