CRTO Q4 and FY 2014 Analysis

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Press release:…



I am going to put my concluding remarks upfront.

Q4 2014 was yet another superb quarter for Criteo. Throughout 2014, the company’s execution was phenomenal. Revenues increased YoY 68%. Adjusted net income for 2014 was €53M versus €11M in 2013. The company is generating tons of cash, its making smart acquisitions, it’s one of the few investing in multi-screen solutions (i.e., looking at how views in one screen can translate into sales in another screen, think about moving b/w your iPhone, iPad, and Mac), working with Facebook to deliver ads (another big opportunity), and is rapidly expanding its footprint in the US market.

What else is there to like? Let’s see:

  • Criteo’s client retention rates are around 90% and it’s also adding clients at a rapid clip. This past quarter they added some 600 clients!
  • Clients are increasingly moving towards uncapped budgets. This combined with 90% retention rates point to the increasing appeal of Criteo’s offering.
  • Criteo’s publisher network is also showing healthy increases. It’s now sitting at some 9,000 publishers. It can be argued that publishers should want to work with Criteo given their ability to satisfy clients.

In 2015, the company is looking to make more investments to increase it’s lead over competitors. This would dampen the earnings growth somewhat but its probably the right thing to do in the face of competition and the opportunity in front of it.

What about valuation? I estimated the current GAAP PE on a trailing basis to be about 74 and non-GAAP PE on a trailing basis to be about 50. It’s expensive when looked in isolation but very reasonable when considered in conjunction with the growth rates delivered by the company. The company provides projections for ex-TAC revenue and EBITDA numbers, so it’s a bit hard for me to come up with forward estimates of earnings. Sorry, I ‘m lazy and not willing to do that more work than I have to, so I instead look at what the analysts are modelling. This company has been crushing estimates for a while, so I figure analysts estimates might be a reasonable starting point anyways. Looking at analyst estimates over at Yahoo and MarketWatch, it appears analysts are looking at EPS growth of about 40% for the year, putting the full year non-GAAP eps at around $1.05. This lines up with the company’s guidance of 40% EBITDA growth projections for 2015. So on a next twelve month basis, the adjusted forward PE (estimate) is 40. Again, not bad at all for a company demonstrating nice growth and technology advantage.

I have been slowly building up this position. I now have an above-average sized position. I had some cash available for deployment, this would be one I would certainly look to add some more.

Financial Highlights

o Revenue in the fourth quarter 2014 increased 71% (or 69% at constant currency1) to €233 million, compared with €136 million in the fourth quarter 2013. Revenue in the third quarter 2014 increased 70.9% (or 71.9% at constant currency1) to €194.4 million, compared with €113.8 million in the third quarter 2013. A few obvious points here. One, I like how they are maintaining the revenue growth run-rate around 70%. Two, I also like how they are seeing nice sequential growth.

o Revenue for fiscal year 2014 increased 68% (or 70% at constant currency) to €745 million, compared with €444 million in fiscal year 2013. That’s pretty solid growth in revenues.

o Revenue excluding Traffic Acquisition Costs, or Revenue ex-TAC, in the fourth quarter 2014 grew 76% (or 73% at constant currency) to €96 million, or 41.4% of revenue, compared with €55 million, or 40.4% of revenue, in the fourth quarter 2013. Revenue Ex-TAC was €77.6 million in Q3 2014.

o Net income in the fourth quarter 2014 increased by €14 million to €18 million, compared with €3 million in the fourth quarter 2013. Net income for fiscal year 2014 increased by €34 million to €35 million, compared with €1 million in fiscal year 2013. Again, we need to remember that net income is growing off a small base so the growth rates will come down over time. Here, I think sequential growth is interesting to look at. Net income in Q3 was €11.5 million, so we still got about 56% sequential growth.

o Adjusted Net Income for the fourth quarter 2014, or our net income adjusted to eliminate the impact of share-based compensation expense, amortization of acquisition-related intangible assets, acquisition-related deferred price consideration and the tax impact of these adjustments, was €23 million, representing a €16 million increase compared with €7 million in the fourth quarter 2013. Adjusted Net Income for fiscal year 2014 was €53 million, representing a €42 million increase compared with €11 million in fiscal year 2013.

o For fiscal year 2014, cash flow generated by operating activities increased 255% to €88 million, compared with €25 million in fiscal year 2013.

o Free cash flow, defined as cash flow from operating activities less acquisition of intangible assets, property, plant and equipment, net of proceeds from disposal, was €30 million in the fourth quarter 2014, an increase of €25 million, compared with €5 million in the fourth quarter 2013. Free cash flow for fiscal year 2014 was €52 million, an increase of €49 million, compared with €3 million in fiscal year 2013.

o The company is nicely cashed up. Total cash, cash equivalents and short-term investments were at €290 million as of December 31, 2014. This represents an increase of €55 million compared with December 31, 2013, primarily the result of €52 million in free cash flow generation over the period and proceeds from capital increases of €24 million, including €16 million in net proceeds from our follow-on equity offering in March 2014. This was offset by the €19 million cash consideration for the acquisitions of Tedemis S.A. and AdQuantic SAS, in February 2014 and April 2014, respectively.

o Let’s look at the valuation before delving into the operational highlights. The fully diluted share count was around 68.5M. Based on this, we get:

  • GAAP EPS (TTM) of €0.52
  • Non-GAAP EPS (TTM) of €0.78.
    At the end of Q3, I had estimated the GAAP and non-GAAP TTM EPS to be €0.31 and €0.53, respectively.

As I write this (6 March 2015), CRTO’s stock was at $42 or about €38.7 based on today’s exchange rates. We can calculate P/E as:

  • PE (GAAP) = 74
  • PE (Non-GAAP) = 50
    For a company growing revenues YoY at 70% rate, and income at an even greater pace, I would think the above PE numbers are quite reasonable. It’s not as pricey as it may appear to be, at least not as long as the growth continues.

Operational Highlights

o They added more than 600 clients this quarter, their highest in their operational history! This compares with about 450 clients added in Q3. Total client base grew to 7190 from around 6600. Recall that ‘client’ refers to those interested in placing adverts. Also note that there’s some client churn as well, so the numbers can’t be figured out by simply subtracting client count in Q4 with those in Q3. The total client count in the past 4 quarters:
Q1: 5,567
Q2: 6,131
Q3: 6,581
Q4: 7,190
Their client retention rates are around 90%. That’s pretty solid, and Criteo is seemingly taking big strides in adding both large and mid-market clients.

o In 2014, they grew the post click sale of their clients by 77%. Outstanding! The more sales they can generate for their clients the more clients will stick around and new ones will come aboard.

o Total publishers in the fold is now over 9,000. They added more than 900 publishers in Q4. Recall that ‘publishers’ are those with the ad spots or inventory.
As I noted in my earlier notes, growing the publisher base is important to create a dominant foothold in this industry. After all, having access to high-quality publishers will help bring clients and having access to a large client pool will help bring more publishers to the fold. This can be a nice self-reinforcing cycle and can help Criteo become a dominant force in online advertising.
They also have got deals with local real-time bidding platforms in China, Russia, and Korea.

o Their mobile and multi-screen solution rollout is nearly completion. In Q3, 73% of their clients were using their multi-screen solutions. Q4 saw that number rise to 80%.

o As noted in my Q3 review, the growth of the US market will be something to watch out. Right now, it is showing rapid growth but it is coming off a small base compared to EMEA. The US market is also more competitive according to management but they are happy with the progress they are making. YoY growth this quarter was 114%.

o Here’s another way to look at their ability to generate more from existing clients.
In Q4 our revenue ex-TAC per clients increased 24% mainly driven by significant growth from existing clients. Put differently, our Q4 2013 clients that were live with us in Q4 2014 generated 37% more revenue ex-TAC compared to the prior year. Our ability to convert a very large portion of our clients to uncapped budgets is also key driver of this growth in the revenue ex-TAC per clients.
This more revenue from existing client cohort is showing us how relevant the technology is for the people using it.

o For 2015 they are focusing on several interesting initiatives. Here are some that I found interesting:

(1) Native mobile ads on OSN platforms. In Q4, they were working with Facebook to develop a solution for their in-app inventory. The first in-app advertisements were delivered in Q4 2014 and they are looking to scale this up in 2015. This can be very exciting, given Facebook has a huge user base.

(2) Cross device solution. The idea here is to match views in one device with sales in another device. Think here about someone switching from an iPhone to a iPad to a Mac. How does one figure out how the marketing dollars allocated for mobiles result in sales say on desktops? Criteo apparently is one of the few companies offering solutions that can figure this out. Further, combined with the fact that Criteo reaches 1 billion users worldwide on a monthly basis, this cross device opportunity can be very significant. Great solution for marketeers.

(3) They continue to work on improving their prediction technology. Their next-gen solution is predicting the likelihood of sales and the value of the sales basket. This is another useful parameter for ad placements. Version 1 of this solution was release in Q4, with rollout to about 10% of their clients.

(4) Criteo offers its solution in 70 markets. In 2015, they will look to further expand their US presence and also penetrate other emerging markets such as LATAM, Russia, and China.

Guidance for 2015

o Expect to continue investing in R&D and sales & marketing. Another year of strong investment into the business. 2014 was a big year in terms of EBITDA margins, but the company says that we shouldn’t consider this margin improvement to be the new norm given they want to invest heavily into the various programs noted above.

o Q1 15 ex-TAC is expected to be between €96M and €99M. At mid-point, ex-TAC growth is about 55% versus Q1 14. However, at the mid-point this reflect zero growth with respect to Q4 2014 possibly because Q4 being the holiday quarter. I ‘m not sure about this and there were no question re. this in the conference call.

o FY ex-TAC is expected to be between €433M and €440M; roughly 44% growth with respect to 2014. The ex-TAC growth was about 68% between 2013 and 2014 but some slowdown should be expected as the company grows.

o Q1 Adjusted EBITDA between €19M and €21M. FY is expected to be between €108M and €115M. This was about €79M in 2014, reflecting about 40% growth at the mid-point. Again, some slowdown should be expected because the company was coming out of a small base in the first few years.

That’s all folks for this time … I 'm actually surprised to see that this is a relatively quiet board.



Sorry about the last line. I copied and pasted this from the SA CRTO board … and that board didn’t seem to have much activity since Q4 was announced.


Does anyone else have the reaction that, however good this business seems, I’m not sure I want to have anything to do with it … not unlike tobacco companies, for example? Given that I do everything I can to avoid being bombarded with ads (thank you Ad Block Plus!), it is hard to imagine investing in a company that is not only responsible for putting them there, but is likely to be working on ways around my defenses.


Comparing ads to tobacco is bit of a stretch. Ads don’t cause cancer and have no health direct health implications. Without ads many of the services we get for “free” would disappear or would start requiring a subscription.

Google engages in re-targeting. Yahoo is pretty active in the ad world. Most free services are ad sustained. Abhoring ads reduces the Internet investment space. Ads are pretty much a key component of the internet economics. Just saying. Of course, one should invest in what I feels comfortable with.



Tobacco is additive. Ads aren’t. They are easy to ignore and there was a time when I found ads interesting and informative. Comparing ads to tobacco is more than a stretch.

Denny Schlesinger

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Thanks Anirban for another beautiful and very useful write-up. CRTO is also an above average position for me and my fifth largest. The only thing I’d caution is that the sequential increase being so large from from the 3rd to 4th quarter is almost certainly due to the Christmas Season advertising. I’ve looked back for nine quarters, and there has always been a sequential increase as well as the huge year over year increases, but the 4th/3rd sequential increases are the largest.

If anyone isn’t familiar with this great company, I’d strongly recommend reading anirban’s wonderful three-part post describing the business and the field it works in, and which he published some months ago.


For FAQ’s and Knowledgebase
please go to Post #6412


Anirban, I’m a little worried about a 90% retention rate. For example, given that they have 7200 clients at the end of the fourth quarter, they would expect to lose 720 of them over the next year (or 180 per quarter, average). Since they added 600 net in the quarter, that’s a non-trivial number. I would like to see the retention percentage go up over time.

It’s reassuring that they give a net number of clients gained, after any attrition. My guess is that a lot of clients try them for a quarter or two and lose interest, but once a client is with them for a year at least the attrition rate drops substantially. I haven’t seen that published anywhere though.



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Hi Saul,

Excellent point!

With approximately 7200 clients at the end of Q4 2014 and a 90% retention rate, it is indeed true that they expect to see about 180 clients drop off each quarter, which is non-trivial given their net addition was about 600 in Q4 (which is indeed one of the highest seen in recent times). Ideally, yes, we would like to see the retention rate go up, but I think there are couple other useful metrics to look at.

One, we should keep an eye look on the net additions. As long as they add about 400 to 500 net clients each quarter, I think the business should do fine.

Two, and this is related to the point you (Saul) made about clients trying them out and then dropping out but the ones that find them useful stick around and potentially go for un-capped budgets or higher spend. We can track this phenomena to some extent by looking at the Average Revenue Ex-TAC per client. Here are the numbers since Q1 2013. The second column shows the Revenue Ex-TAC/Client count, the raw numbers, while the third column shows the average per client in thousands Euros.

Quarter    Ex-TAC Rev/Clients         Avg 
Q1 13          37306/3811              9.8
Q2 13          40032/4274              9.4
Q3 13          46815/4631              10.1
Q4 13          54855/5072              10.8
Q1 14          62733/5567              11.3
Q2 14          67022/6131              10.9
Q3 14          77596/6581              11.8
Q4 14          96303/7190              13.4

The table above seems to suggest that more leverage is obtained per client as the client base has grown, possibly from those clients that have been around for a while and have upped their spend or have gone to un-capped budgets.

I think the biggest worry for anyone in the online ad business is the potential implications of privacy legislations. Governments around the world have (finally!!) woken up to the need to strengthen privacy legislations … but there are so many subtleties in the online world I doubt any government will be able to do a good job of walking the fine line of privacy preservation and online innovation.

A secondary worry is the damage caused by fraudulent ads (e.g., ads that sell counterfeit products). Some months back, Facebook was showing ads from counterfeit luxury handbag makers. Apparently, these were re-targetting ads, but were not placed by Criteo … I guess it’s equally important for Criteo to ensure that they have a reputable client base so that they can continue to access premium advertising display sites such as Facebook. Here’s a link to a story about Criteo, re-targetting, and the Facebook ad example I mentioned from Sydney Morning Herald:
“Meet Criteo, the company behind some of the ads that stalk you online”…



The following comScore Ad Focus ranking for Jan 2015 might be of interest:…

In the buy side networks, Criteo is number 4 in the US, behind Google, Conversant, and Yahoo. Conversant was acquired in Dec 2014 by Alliance Data Systems for $2.4B.

If Criteo keeps performing, it’s likely to be an acquisition candidate. Someone will buy it before it becomes too big. That’s my speculation for the day!



The table above seems to suggest that more leverage is obtained per client as the client base has grown, possibly from those clients that have been around for a while and have upped their spend or have gone to un-capped budgets.

In sales school they taught us that our existing customers were our best prospects, just as the data you posted shows.

Denny Schlesinger

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In the buy side networks, Criteo is number 4 in the US

Just to clarify, this is desktop only.

Also, I think it’s important to understand that Criteo and Google Ad Network can run in the same ad space when the site owner utilizes the Passback Code. Criteo doesn’t always have an ad to show; for example, the price may not meet the established criterion. When no Criteo ad can be shown, if the Passback Code is utilized, a Google Ad Network ad is shown.

Desktop is certainly something to watch for the short term, since it’s still relevant. But, mobile is the future, so it’s important to understand where Criteo operates in that environment, if you’re going to hold CRTO long term.…
Here’s how they’ve “gotten around” the Iphone’s “no third party cookies” set-up.
Cookies can only be read by the site that creates them. So in order to establish that a user who visits site A is the same user that visits site B, a cookie needs to be dropped by a third party that’s present on both sites (usually via a tiny link called a tracking pixel). Browsers that implement Do Not Track prevent third parties from dropping cookies on sites they don’t own, which makes it impossible to connect the user’s identity and data on site A with their identity on site B.

Criteo’s solution involves a simple but clever trick. When a user visits a Criteo client’s website, they’re directed to a notification page which asks for permission to deliver customized ads. But the notification page is hosted on a domain that Criteo operates, so if the user gives consent, Criteo can drop its cookie as a first-party cookie, as though it was a publisher, before directing the user back to the main site. When the user visits another Criteo client, they’re shown the notification again; if they say yes this time, Criteo can read the cookie it set on the previous notification page. So Criteo can verify that it’s the same user on both sites, much as it would with a third-party cookie on a non-DNT browser.

It’s essentially using a notification pop-up the same way sites typically use tracking pixels. But it’s also a two-birds-one-stone approach. By showing the notification, Criteo is both getting the user’s consent to deliver customized advertising and dropping the cookie it needs to serve those ads.

It also falls into a grey area between first-party and third-party cookie targeting. From a technical standpoint, the browser interprets Criteo cookies as first-party, since Criteo is dropping cookies on its own domain. But since Criteo is neither an advertiser nor a publisher, it doesn’t seem to fit the definition of a “first party” in the transaction between users, advertisers and publishers. So is Criteo respecting Do Not Track? Or is it just circumventing it?

So, you have to opt-in, but what I’ve yet to find out is how it is that you could change your mind and easily, opt-out later, after you’re sick of the ads. It seems to me, that you’d have to go back to Criteo’s site, since they ran the “trick” of being a first party at the on-set. This may be a future big negative for Criteo as this would likely sour relations with the app owner/developer; they’d be the ones getting the complaints. Incidentally, this same quagmire (changing your mind about opting in and out) exists with Criteo on desktop. The opting is done through a cookie. The opt out is dated more recently, so when you remove cookies, you’re suddenly back in again…and the whole stalking starts again. I’m all for re-targeting, but big content providers want it done in a user-friendly way.

As just an FYI, here’s the state of Apple’s mobile re-targeting. The main thing to understand is that Apple is not into mobile ad money in any significant way, at this time. It’s more of a way to get apps developed for their platform and for app developers to make money.

At this time, I am on-the-fence as to a CRTO buy-out. Big tech has already made significant ad tech acquisitions in re-targeting. With big tech’s trend to move away from cookies and into a universal id, I could see CRTO getting squeezed out, if the top content properties move towards the same theory. The safer long-term bet in the ad tech space for a company that has a lot of future growth is RUBI, IMO. I wouldn’t be surprised if TMF recs it soon. In RUBI’s last cc “Motely pool” (I believe it was a typo!) was mentioned as a recent win - we all know how they like to rec what they use ;-).


  • I don’t own CRTO, but I’m heavily invested in the ad tech space and it’s future. I’m certainly not down on CRTO; my horizon is just longer.

Excellent commentary. I was looking at the Rubicon project as well but haven’t made much progress. Since you are already invested and based on your posts clearly knowledgable – would you mind telling us about the Rubicon project? What’s the thesis, the bull argument, the bear argument, recent business performance, and a bit on valuation? I am clearly asking for the whole lot here but if you already have notes please share :slight_smile:


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No problem. I’ll get organized and post in a new thread.

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Thanks, I’d appreciate it also.

Anirban, I think I figured out why CRTO has hardly budged in the face of continuing great results:

Their earnings are in Euros and Euro cents. As the value of the Euro has plummeted against the dollar, even though their earnings are up lots year over year, they lose some of that rise, and some of their value, when converted to dollars. Also the stock price we are looking at is in dollars. While it looks almost flat to us, a European investor looking at his or her CRTO stock in Euros, would have seen it rise significantly, as the same amount of dollars is now worth considerably more euros than it was worth 6 months or a year ago. I think that has to be the explanation, or at least a big part of it.

I do think it will take care of itself over time, as they do more and more of their business in the US. The US profits (which will be in dollars) will get an extra kick when converted to Euros, and the year over year earnings comparisons in Euros will become even more remarkable.

What do you think?




This makes sense to me. Also, I think the market’s waiting to see the next quarter’s results. The stock has been trading around 10% off its 52-week highs. Next quarter should shed more light on how the U.S. business is progressing.


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Their earnings are in Euros and Euro cents. As the value of the Euro has plummeted against the dollar, even though their earnings are up lots year over year, they lose some of that rise, and some of their value, when converted to dollars.

The added ForEx risk of foreign stocks is what keeps me away from them for the most part. I had a British stock and the New York banker managing the ADRs used to scalp the dividend. Who needs the aggravation? I’ve already mentioned the Canadian investment my Mom had that was ruined by the drop in the Loonies.

There are so many good American stocks to pick from to create a ten or twenty stock portfolio that you really need an extraordinary reason to pick a foreign stock. Professional money people use diverse markets to reduce the correlation of the assets and the volatility. I don’t have panicky investors in my portfolio and I’m OK with volatility.

Denny Schlesinger