CRTO

Investment Analysis Clubs Saul’s Investing Discussions
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So I’m in the slow process of giving some of my older stocks a once over to see what I can sell to redistribute funds. I’ve recently changed brokers which has opened up a lot more variety!

CRTO. I haven’t had a look at it since Sept-2015!!! Wow time flies. I know Saul got out around then when growth seemed to stagnate as they kept putting more and more money into R&D. All my notes were in Euros, but they changed reporting currency to dollars in June 2015. Going back over the yearly 10-ks, this has created some discrepancies in the EPS for the 2015 quarters. I imagine due to fluctuating ForEx.

Q4 summary:
Q4 revenue increased 43%, or 43% at constant currency,1 to $567 million.
Fiscal year revenue increased 36%, or 36% at constant currency, to $1,799 million.

Hopefully someone can double check my numbers.

Revenue ex-TAC (millions dollars)


Year  Q1  Q2  Q3  Q4  total
2013
2014
2015 118 122 134 160  534
2016 162 166 177 225  730

diluted EPS (dollars)


Year  Q1  Q2  Q3  Q4  total
2013
2014
2015 .20 .05 .08 .58  0.91
2016 .26 .19 .21 .59  1.25

Number of Clients


Year   Q1     Q2     Q3     Q4  
2013
2014               7,190
2015 7,832  8,564  9,290  10,198
2016 10,962 11,874 12,882 **14,468**

02/03/2015
Stock Price: 48.57
TTM $: 1.25
PE: 38.86
1YPEG: 1.04
Stock price appreciation YTD: 17.5%

R&D spent (millions)
2014 60
2015 87
2016 124

Annual Report March 2017:

http://app.quotemedia.com/data/downloadFiling?webmasterId=10…

30 pages on risk factors make grim reading! I didn’t make it all the way through but basically saying if the ability of their Criteo Engine fails to accurately predict user engagement (their whole business), and they don’t adapt, then they’re in trouble. I suppose it’s like saying if the google search engine fails to provide accurate searches, google won’t do so well.

90% customer retention rates
Largest client represents 2.0% of revenue
Largest 10 represent 11.8%. Therefore they aren’t reliant on big customers.

Functional currency remains the euro despite reporting in dollars. Therefore subject to ForEx fluctuations.
Revenue ex-TAC by region for 2016


Region       Revenue (millions)
Americas      279
EMEA          286
Asia-Pacific  164

R&D mostly personnel costs; 600 people: expect to increase but remain constant % of revenue
Sales and OpEx to increase, but decrease over time as a % of revenue. Same with General admin expense.

For the year ended December 31, 2016, over 77% of our Revenue ex-TAC was derived from clients whose budgets were either uncapped or so large that the budget constraint did not restrict purchases of
advertisements by us. In addition, existing advertiser clients continue to increase their advertising spend with us as illustrated by our 120% revenue retention rate for Criteo Dynamic Retargeting for the year ended December 31, 2016, demonstrating our ability to drive revenue expansion within our existing client
base.

One final note. Criteo reports that their adjusted net income per diluted share for 2016 has increased 51% to $2.08. That’s quite a big difference from non-adjusted EPS of $1.25. The largest adjustment comes from “Equity awards compensation expense”, which was approximately half of net income. So they’ve taken a net income of 87 million, and adjusted it to $136 million for 2016. That paints a very different picture in regards to growth and 1YPEG.
Hopefully someone can chip in with what they think of that. Equity awards compensation expense almost doubled from the previous year, and will increase as criteo expands in search of more revenue.

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One major difference between Criteo engine and Google engine…

Consumers / average people use google search and so they won’t notice any deterioration any time soon… also, even if some better search engine comes along, people won’t easily move.
Google’s advertisers will spend money on google because there is audience there.
So google revenue is safe for a long time even when google is not the best search engine…

Criteo engine services to advertisers directly, doesn’t to have any captured audience.
So the customers will notice a better option in the market even if Criteo engine stays as good as its ever been. Customers may go to someone else who provides better result on money spent… for example, spending on TV or in trains or poster on uber taxi (throwing some wild ideas).

Just some thoughts to consider when comparing google’s ad business to Criteo’s as business.

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So they’ve taken a net income of 87 million, and adjusted it to $136 million for 2016. That paints a very different picture in regards to growth and 1YPEG. Hopefully someone can chip in with what they think of that. Equity awards compensation expense almost doubled from the previous year, and will increase as criteo expands in search of more revenue.

Saul and most folks here look at the adjusted number, and point out that SBC doesn’t take away from the business’s cash, but if done in option form actually increases cash when the options are exectued. Honestly, that doesn’t seem like an extreme amount of SBC to me. 40-something million? When revenue was 730M ex-TAC? And the market cap is around 3B, so that dilutes it just over 1%.

Thanks for the write-up. CRTO’s numbers are pretty darn good, but I just never could get my head around the business. I’d be interested if you have more to say about what they do, why they have an advantage, how much easier they make life for their clients, etc.

Thanks,
Bear

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Bear - I topped up on Criteo last night with MBLY and CY proceeds. Not as low as I wanted to but the business is growing very fast and is fairly valued.

I’m not sure I worry about getting my head around the business, it’s not that complicated - it’s just advertising targeting, I mean it isn’t as though it’s Twilio!

(I also hold Twilio).
Ant