Year End #11: CRTO, A great new position

I took a position in CTRO about 5 weeks ago after a great series of three articles by Anirban. Before that they were a MF SA recommendation in July, but I read right past it. I paid between $37.50 and $40.50. As I write it’s about $40.50. I think the best thing to do would be to give you my summary of Anirban’s write-up, but first here’s a summary of their revenue over the past eight quarters, in millions of Euros (this started as a French company):

2012: xxx xxx xxx 087
2013: 095 099 114 136
2014: 153 165 194

As you can see the last four quarters revenue of $648 million is up 64% from the four previous quarters, which totaled $395 million.

Adjusted EPS over the same quarters (in Euro cents) have been:

2012: xx xx x -07 = 09
2013: 04-09 12 13 = 20
2014: 12 09 27

Current trailing earnings are 61 euro cents, and my guess for all of 2014 is a bit over 80 cents (plus or minus). That’s up from 20 euro cents in 2013. In dollars, this is trailing earnings of roughly 73 cents, and 96 cents for 2014.

Trailing 12 month earnings quarter by quarter in dollars look like this:

Dec 2013 = 24 cents
Mar 2014 = 34 cents
Jun 2014 = 55 cents
Sep 2014 = 73 cents

As you can see, in the past three quarters, trailing earnings have tripled.

Here’s my summary of Anirban’s write-up (he deserves all the credit).


Criteo started selling its solution in France in 2007 and soon expanded into Western Europe. They expanded to North America in 2009, and into the Asia-Pacific market in 2010. In August, 2012, Criteo entered into a strategic relationship with Yahoo! Japan.

The Business
Criteo is in the business of delivering personalized advertising, which is broader than “re-marketing” or “re-targetting”.

With “re-targetting” advertisers are targeting users (i.e., visitors to websites) with ads of services/products they have recently looked at but not purchased with the hope of translating these window shopping instances into purchases.

With personalised advertisements, the idea is to go one step further by trying to understanding the users (i.e., understand the users tastes and preferences, their recent browsing activities, and their purchasing habits) by mapping these patterns into models based on data from a very large sample of users using machine learning and data mining algorithms, with the express goal of facilitating ad placements that users are most likely to engage with.

For example, in July 2013, 27% of the products sold to consumers to whom we displayed our advertisements were products that such consumers saw on our ads and had not previously viewed on the client’s website prior to purchase.

So, how exactly does Criteo make this magical ad placement happen?

When a new client signs up with them, code is installed on the client’s website that allows Criteo to track visitors to that website.

Using data collected from the client website and other data sources, Criteo’s predictive algorithms model the likelihood that a user will engage with a client’s ad.

Criteo accesses available ad spots (“inventory” of impressions) through its direct relationship with 8000 publishers, ad exchanges, and ad networks

The Criteo Engine determines the price to bid for available impressions and if the impression bid is won displays a customised advert on the ad spot.

This all happens in under 150millisecs.

Feedback loop: The results of the campaign, such as whether the user clicked on an advert or made a purchase, are fed back into the Criteo Engine each time an advert is displayed; this is of tremendous value as data where we know what happened when an ad was served based on a set of parameters can be used to learn what works and what doesn’t, allowing Criteo to improve the accuracy of its production and recommendation engines.

Based on the above description, it would appear that Criteo is essentially a Demand Side Platform (DSP) as it is primarily oriented towards buying ad spots and serving adverts for its clients.

We offer our clients an integrated technology platform that enables comprehensive campaign management and execution and includes a unified and easy-to-use dashboard and a suite of software and services that automates key campaign processes. As a result, we reduce unnecessary cost associated with manual processes and multiple vendors, delivering efficiencies even as campaigns grow in size and complexity.

Criteo isn’t just a DSP though. It does have extensive publisher side relations, which feels like a Supply Side Platform (SSP). Criteo has access to a vast swathe of ad inventory through its direct relationship with over 8,000 publisher partners, and they also have a leading presence on real-time-bidding display advertising exchanges. These 8,000 (mostly small- to medium-sized) publishers use Criteo’s inventory management system called Publisher Marketplace (PuMP).

The direct partnerships with publishers is useful as it often provides preferred access wherein Criteo is able to select and buy inventory on an impression by impression basis in real time that a publisher might otherwise only sell subject to minimum volume commitments. Further, in some cases the inventory is available to Criteo before it is available to other SSPs or ad exchanges.

The strategic relationship with Yahoo! Japan, which gives Criteo privileged access to its advertising inventory for delivering personalized display advertisements is an excellent example of its success.

IMO, this aspect of Criteo’s business is pretty important. A strong relationship with publishers indicates that publishers are happy with Criteo’s ability to monetise their inventory, which in turn indicates that there must be plenty of ad buyers waiting to lap up this inventory. It speaks to Criteo’s ability to serve more effective adverts.

The proof is always in the pudding, and Criteo’s approach does seem to provide the desired results. For the year ended Dec, 2013, Criteo delivered targeted advertisements that led to approximately 1.9 billion clicks, which resulted in $9.7 billion in post-click sales.

Criteo defines a post-click sale as a purchase made by a user during the 30 day period following a click by that user on an advertisement they delivered for the client. Criteo’s clients are certainly happy with the results as reflected in the 90+% client retention rates.

Key Competitive Advantages

1. Machine-learning based understanding of consumer intent & behavior.

We have access to two types of differentiating high quality data:
(1) valuable consumer purchase behavior data, including products that a consumer has recently looked at or purchased; and

(2) Our clients grant us access to detailed consumer purchase behavior data through integration with their websites. We only use the data from each of our clients for the benefit of that specific client, and do not share this data with other clients or third parties. Our own operating data includes insights from user responses to each advertisement that we serve, which we use to continually improve our performance. The scale and breadth of our data is thus constantly growing.

The algorithmic advantages translate into cost advantages. The accuracy of their prediction algorithms allows them to charge only when users click on an advert, which is not the normal for the display advertising world where the traditional pricing model is to charge if an ad is simply displayed. In this sense Criteo is disrupting the market.

2. The relationships built with 6,600 clients and 8,000 publishers is allowing Criteo to operate a highly liquid marketplace. As long as the number of clients and publishers keep steadily growing it means Criteo is making very good headway into gaining market share. This can be sort of have a network effect. More publishers, bring more clients, more clients bring more publishers and so on.

3. Data-driven virtuous cycle.

As we attract more advertising budgets and publisher inventory and deliver advertisements, our data assets grow. This enables us to deliver even more precisely targeted and personalized ads and generate more sales. As our ability to generate sales improves, we believe more businesses will use our solution. Etc.

4. Proactive role on privacy advocacy. This I think is quite important and I didn’t see it listed as one of their strengths but I believe these guys have made some good moves to address privacy concerns.

Criteo’s Cients - Criteo’s client base consists primarily of companies in the online retail, classifieds and travel segments. These companies range from large, diversified e-commerce companies to many smaller regional companies. No single client accounts for more than 5-6% of their total revenue. Their largest ten clients represented 18.4% of their revenue.

What are the Growth Opportunities?

1. Mobile ads

2. Increase market share in existing markets and get into new markets such as Asia-Pacific region & Eastern Europe.

3. Expand verticals served beyond the three main verticals of retail, travel and classifieds. As such, their solution is generic enough to be applicable in other verticals such as automotive,
telecommunications, consumer goods and finance.

Competition - They list the following as competitors: Amazon, eBay Inc., Google Inc., Conversant, Inc. and Yahoo! Inc. as well as smaller, privately held companies.

The Basics of Online Advertising

Basic terminology:
- Publisher is the owner of online services where ads can be placed.
- Ad spot or impression is the spot for inserting ads on the publisher’s service.
- Publishers sell ad spots.
- Advertisers buy ad spots.

Online ads can be broadly classified into two categories: search ads and display ads.

Search ads are ads that are displayed near a search result; Google has pretty much a monopoly in search ads.

Display ads are ads that are displayed on websites These can be banner ads with some text or images and can also be video ads. Criteo is playing in the display ad market.

Ad Exchanges - Not too long ago, the buying and selling of ads was relatively straightforward. Ad spot buyers bought directly from ad spot sellers. However, with the exponential growth in Internet usage, this direct model became very quickly inefficient. Publishers were often left with unsold inventory of ad spots. This situation gave rise to ad exchanges for buying and selling ad inventory.

An ad exchange is similar to a stock exchange in that it’s a marketplace for advertisers and publishers to respectively buy and sell ad space, often via real-time bidding. Effectively, an ad exchange is a large pool of ad spots (or impressions) which have been made available by the publishers and now advertisers can buy ad impressions across a range of publishers. Ad exchanges provide liquidity for buying and selling of ad spots. Buying of these ad spots can be achieved very quickly, often under 150ms. Often, this speed is critical as advertisers feel that they need to grab the users attention before they navigate elsewhere. Below is a list of the some of the top ad exchanges today:

- DoubleClick Ad Exchange (Google; this is the biggest one)
- Appnexus (probably second behind Google; handled about 16 billion ad buys per day in 2013)
- Yahoo! Right Media Exchange (RMX)
- OpenX ad exchange (privately held)

Supply Side Platforms (SSPs), Demand Side Platforms (DSPs), and Data Management Platforms (DMPs) - IMHO the distinction between some of these platforms (and also ad exchanges) seems blurry. Nonetheless, let’s try to make some sense of this madness.

SSPs are tools that enable publishers to sell their ad inventory for the best possible price. SSPs connect the publishers to multiple ad exchanges, ad networks, and DSPs, essentially exposing their inventory to a large swathe of potential customers with the goal of trying to maximise the earnings one can get from the ad inventory. Sounds a lot like a big ad exchange because as a concept it is one! SSPs are offered by Google (DoubleClick), AppNexus, Yahoo, Pubmatic, and many others.

DSPs are the advertisers counterpart for SSPs. DSPs are systems that serve ads on behalf of the advertiser in realtime based on specified rules. Those rules are based on the data provided by advertisers and by inventory sources (Exchanges and SSP’s) when an impression is offered for auction or sale. DSPs may use various data sources to perform behavioral targeting, for example use tracking data to determine if the audience segment and/or content should be targetted. To summarise, DSPs often offer a centralised system for managing ad campaigns, deciding which ad spot to buy based on a host of data, some of which may be proprietary data to the DSP platform. Examples of DSPs include Criteo among others, (although we can argue that Criteo is a mashup of DSP + DMP + ad network).

DMPs can be thought of as a data warehouse. These house data from their advertisers as well as from third-party sources (like data from loyalty programs, surveys etc). With advertisers buying ad spots across multiple exchanges and SSPs, and using sometimes multiple DSPs, DMPs play the role of making sense of all the various data feeds for advertiserswith the goal of optimising ad buying decisions.

Targeting Techniques - Broadly, there are two types of advertisement campaigns, audience response (or direct marketing) and brand lifting (or brand awareness). In the former, there are specific goals that are desired (e.g., increase sales, increase website traffic etc), while the latter is about building/enhancing a brand reputation. Irrespective of the the of campaign, there’s always a specific target audience for the campaign.

What are the common techniques used to reach the target audience?

Contextual targeting – For example, online brokerage ad on the business pages of online news.

Demographic targeting - This one is self explanatory.

Keyword targeting - This is similar to contextual targeting except that the ads are relevant to certain keywords.

Lookalike targeting - The idea here is to classify users into groups based on how users reacted to ads. Then, when a new user is to be served an ad, determine which group this user is mostly likely to belong to and serve ads that were most effective for the chosen group. This is a useful tool for finding new customers.

Re-targeting or re-marketing - The idea here is to try and convert visits that didn’t result in a sale into a sale. For instance, suppose you search for a vacation package on Expedia, but don’t proceed to buy the package. Expedia could then have ads served to you, opportunistically with the goal of bringing you back and converting that missed sale into a sale. Criteo specialises in re-targeting/re-marketing.

Bottom Line - This company is growing nicely. TTM revenue is up some 65% from a year ago. The company is now profitable. They reported net income for 9-months ended Sept 30, of €17.7M versus a loss of €1.9M in the same period last year. I figured that Yahoo and Google finance are reporting TTM PE on an unadjusted basis. On an adjusted basis, the PE is about 60% of what it is on an unadjusted basis. The notes are below.

Financial Highlights for Sept quarter

- Revenue up 70.9% to €194.4 million, from €113.8 million.

- TTM Revenue up 64%. to €648.2 million.

- Revenue excluding Traffic Acquisition Costs, or Revenue ex-TAC, in quarter up 65.8% to €77.6 million, from €46.8 million.

- Net income of €11.5 million, up from €3.0 million!

- Adj EBITDA was €19.8 million, up 71.4% from €11.6 million .

- TTM net income was €20.8M or €0.31 per share. Note that Yahoo and other finance sites are using this unadjusted EPS when reporting PE. At share price around USD 40, TTM PE works out to be around 104.

- TTM adj net income is €36M, which works out to adjusted EPS of €0.53, or a PE of around 61 for share price around USD 40. Considering that revenue is growing at about a 65% rate, this may not be so pricey.

Here’s another way to look at this. The adjusted net income for 9-months was €30 million up from €3.9 million a year ago, or a 7.7x increase. This is coming off a small base and the 8x increase would be unsustainable but it demonstrates the company’s earnings growth.

Operational Highlights for quarter

Total clients grew by 450 to close to 6,600 clients. Recall that ‘client’ refers to advertisers.
Total publishers in the fold is now close to 8,000. Recall that ‘publishers’ are those with the ad spots or inventory.
Launched mobile and multi-screen solutions, which will certainly lead the way in the years ahead. In the Sept quarter, 73% of their clients were using their multi-screen solutions.
They are on-track to launch a new email marketing product.

Their clients seem to be very happy with the service being provided by Criteo. How do we know?

Business from existing clients is contributing more and more to growth. (It’s like same store growth.)

They have a very high retention rate for clients, in the high 90%’s.

Because of their performance-driven cost structure, they are able to move clients to uncapped budgets.

o 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. At the end of this quarter, they had direct relationships with 8,000 publishers.

“Our third driver this quarter is our continued success in growing our publisher base. We made remarkable progress in this area. We signed new RTB deals in various regions including a number of mobile only partnerships.”

They are on track to be among the top 3 in online advertising. Latest ComScore data also revealed that Criteo personalized ads reached almost 1 billion users worldwide in September 2014.

They are also working with Facebook on the mobile side but what it is doing wasn’t very clear to me.

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. Management indicated that they now have much higher liquidity in their platform for the US market (for buying and selling ads) and they believe a critical mass has been achieved to kick in the network effect of more clients and more publishers coming to their fold.

Management also elaborated on expanding the verticals in the US market. They noted the same pattern that as Europe, where from a base of highly concentrated customer base in retail, they expanded into travel, real-estate, automotive, job boards, and telecom.

Dec 2014 – Best Buy Now on MF SA (2nd time in a row)
Criteo repeats on our Best Buys list after posting sales and earnings results that highlight the company’s appeal to a global customer base. Sales aren’t just up big, they’re accelerating. In the Sept quarter sales expansion was fastest in the U.S.,but the more mature European operation and burgeoning Asia business make this relatively small company a truly global player with a massive addressable market yet to tap into. In short, the company is kicking butt, and we see a lot more to come as the Criteo Engine powers up.


I should have mentioned that CRTO is currently my 7th biggest position, the same order of magnitude as XPO and WAB, smaller than my big positions like BOFI and SWKS, and lots bigger than JCOM and the other small positions.

My underestimated earnings for the full year 2014 (last year now), being 93 cents US, gives us a PE of about 43.6. While I was not willing to accept a PE of over 200 in a stock like Z, I am certainly willing to accept 43 in a business that has increased earnings by over 300% in 2014.


For FAQ’s and Knowledgebase
please go to Post #4941


Here’s my summary of Anirban’s write-up (he deserves all the credit).


I say you deserve all the credit. Thank you for teaching me how to go about analysing investment decisions.



Saul thanks for posting your summary of Anirban’s write-up (and obviously, thanks to Anirban for the initial write-up).

I noticed this recommendation in SA before but for the life of me could not comprehend how the mechanism worked. I don’t like to invest in stuff I can’t comprehend. I posted a request for an explanation on some board (I forget which), but did not receive a useful reply. I let the opportunity go.

With this write-up, I have a very clear picture of what the Criteo product is and how it is generated (ironically, I proposed something similar to this to a co-worker several years ago - of course, neither of us quit our IT jobs and did anything about it).

I’ve just placed an order to sell an April $45 put for $7.30. Assuming my order executes, if the stock stays below $45, my entry price is $37.70, if it goes above $45, I keep the $730 and get to sell another put.

1 Like

This explains the big rise today. Wow!

Criteo Extends Mobile Capabilities with Launch of Facebook’s Dynamic Product Ads Solution
Criteo unveils impressive results for advertisers from Facebook pilot program

NEW YORK, Feb. 17, 2015 /PRNewswire/ – Criteo (CRTO), the performance marketing technology company, today announced its extended mobile capabilities as a result of Facebook’s new dynamic product ads. As users shift from desktops to mobile devices, Criteo’s advertisers are now able to complement their Facebook Exchange marketing efforts by reaching consumers using Facebook on their phone.

With dynamic product ads, Criteo is now able to leverage its powerful Criteo Engine to deliver recommendations and smart bidding campaigns across every device that consumers use to access Facebook, which includes smartphone, tablet, and desktop.

“As a strategic partner for Criteo, Menlook was one of the few advertisers invited to test dynamic product ads on Facebook,” said David Nedzela, e-commerce and marketing director for MenInvest ( “We are delighted to be part of a solution that gives us access to a new source of performing and mobile inventory optimized by Criteo’s technology, across devices.”

Results from a pilot program conducted with select Criteo advertisers, including e-retailers Menlook and Promod, revealed that average sales attributed to dynamic product ads accounted for 6.2 percent of all sales. Compared to all other mobile campaigns combined, the Facebook app newsfeed delivered 24.5 percent of sales. The conversion rate was in line with other mobile campaigns.

“People spend more time on Facebook’s mobile app than on any other single app, so it is a critical place for retailers to reach their customers,” said Jonathan Wolf, chief product officer, Criteo. “With dynamic product ads, Criteo delivers relevant and timely messages to these users, and generates post click sales and strong return on ad spend for our clients.”


This looks like a very very good new development.

The shift to mobile is undeniable and Facebook is the kingpin of mobile …



This is one I have been looking at since your recommendation. To me, this is more far reaching than FB stock will ever be. I’m in.

To me, this is more far reaching than FB stock will ever be. I’m in.

I 'm really bullish on CRTO but wouldn’t say they are more far reaching than Facebook. Facebook is fundamentally changing how people spend time on the Web. It’s a platform with over 1 billion people on it. I can see Facebook growing to over 2 billion in the next 5 to 7 years. The implications of a platform with so many people on it is simply immense. Their goal of providing Internet to those who don’t have it today is aligned with the idea of creating a connected world experience and essentially boils down to making Facebook the default entrance to the online world. So, I really think Facebook has immense opportunity in from of it and it could do things we can’t even imagine.

CRTO is a very good company, operating in the niche of ‘re-marketing’. I think they have a good business model and they are benefiting from some network effects (i.e., as more businesses use them for ads they get more inventory to manage which allows them better deals with the sites which hosts the ads). I think they have good data science being driven by solid engineering and business execution. But, CRTO is more likely to be disrupted or taken over by someone than Facebook, and in some sense I feel that Facebook can be a great compounding engine for many years to come; I 'm less certain of CRTO as the ad market is in constant flux and CRTO is competing with behemoths such as Google in this space.

All said, I do think CRTO offers excellent risk/reward tradeoffs and I hold an average sized position in my portfolio.



I 'm really bullish on CRTO but wouldn’t say they are more far reaching than Facebook. Facebook is fundamentally changing how people spend time on the Web. It’s a platform with over 1 billion people on it. I can see Facebook growing…

I agree that FB has a lot of space in front of it. No doubt, and I do agree that there is a lot of innovation in ad space. I guess I have always been fascinated with how companies can sell products, and it seems that CRTO has found a powerful new tool that has not been successfully created yet for the mobile space.

It seems to me that if they have figured out a way to monetize all of those billions of users, that CRTO has unlocked a significant tool for FB and for many companies that will compete with or follows FB in the social media landscape.

I think both will win, and I look forward to following how their stories develop.


I bought a small position thanks to Anirban’s excellent write up.
However, I suggest we stay watchful because ad tech has been very volatile and disruptive industry.
Anyone remembers high fliers like MM and YUME crashing just a few monther back.

Also I saw another ad tech company (but targrting different audience I think) claiming huge breakthrough… Here is the link……

Some other place, I read Criteo is 15th best platform for ad exchange… A smaller company RUBI is second best to Google.

All in all, this is extremely volatile space…

1 Like

Here’s a list, published each April, of Ad start-ups rumored to be close to an IPO. AdRoll, in particular, is one to watch out for in the re-targeting space. They do well in web and mobile re-targeting.…

Here’s market share numbers for re-targeting. Note: Adroll is 2.5x CRTO.

There are lots of players in re-targeting, so there will be lots of acquisitions, as has been mentioned, and even deaths from failure to keep pace. CRTO is but one FB partner, in a list of many. CRTO’s biggest problem is that it uses cookies. FB Atlas, which is receiving a ton of development effort, utilizes FB ID. Here’s a good article including examples of the FBID/Atlas scenario.…

IMO, CRTO is a short-term play and FB is very long-term.


  • I see RUBI as a better pick over CRTO as its platform is licensed and runs on non-Google, non-FB, content sites. It’s a nice complement to round out FB and GOOGL holdings.