Criteo surpassed analysts' estimates in its third quarter — and the France-based ad tech company has visions on new revenue streams that could well see it exceed expectations again over the next fiscal year.
Revenue ex-TAC (traffic acquisition costs) grew 32% to $177 million in the three months to September 30. Analysts had predicted revenues of $173.5 million in the period.
Net income increased $154% to $14.7 million, while adjusted net income per diluted share rose 173% to $0.48, versus the $0.37 per share predicted by analysts.
Criteo's stock jumped on the news. CRTO was up 10.61% to $40.49 at 11.49 a.m. EST.
Speaking to Business Insider, Criteo CEO Eric Eichmann said the company has marked more than 20 quarters in a row of a 90% or higher retention rate.
"You don't see that many businesses [deliver that], certainly not in ad tech," Eichmann said.
"This is our 12th quarter, in our three years as a public company, that we have been setting guidance and delivering and over-delivering on our expectations. It shows our business is something advertisers and commerce companies depend on to drive sales," Eichmann added.
Criteo works with retailers to target online ads at users who are most likely to be in the market for buying products. Its key specialism is "retargeting" — serving an ad at someone that has already viewed a retailers' product or website.
As Eichmann has explained to Business Insider previously, the reason the company is a star-performer in the ad tech sector is that the majority of its clients treat Criteo as a sales cost, rather than marketing cost. Just like search, clients don't usually need to go through a lengthy process to get budget sign-off (like they would with an ad campaign) because if Criteo can prove it increased sales, ad spend on the platform goes up. And that spend is uncapped, unlike marketing budgets, which are often fixed over the course of a year or quarter.
Criteo has two big new revenue opportunities. The first is predictive search
Criteo doesn't just want its business model to be compared to search. It wants a piece of the estimated $93.82 billion search advertising market too.
On October 25, Criteo announced the launch of its Predictive Search tool, which helps retailers manage and refine their Google Shopping ads.
Retailers spend the majority of their budgets on Google Shopping ads, largely because they appear at the top of the search results page when consumers search for specific products. The ads provide an image of the product, a price, and the ability to click straight through to buy.
But while the sales opportunity is clear, managing Shopping ads is complex.
Eichmann said: "For every product you have to provide how much you are willing to bid [for the search ad] then different users lists and whether you are willing to bid or or less for them. And for certain items you don't bid at all. It's a complex environment for a retailer with thousands of products — and it can be hard to extract real performance."
The predictive search tool aims to make that process more automated, using retailers' product catalogs and its own data to handle high volumes of Shopping ads and refine them based on performance. The product rolls out in 2017 and Eichmann think sit will "drive significant performance" for its clients.
The second big new opportunity is a new brand exchange
Earlier this month, Criteo acquired ecommerce ad tech company HookLogic for $250 million. The deal is expected to close by the end of the fourth quarter.
HookLogic helps retailers generate ad revenue from their own sites. Just as large grocery chains and supermarkets make money through what is known as trade marketing — product brands advertising their wares through posters on the shelves and windows of their stores — HookLogic allows them to open up ad space on their online stores.
Apart from huge ecommerce sites like Amazon, most retailers don't generate enough traffic to their websites to be able to pull in enough digital ad dollars alone. So HookLogic created a network of retailer sites that allows brands to buy performance ads across a range of relevant ecommerce companies.
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Eichmann said: "It opens up the ability to get a whole new sector or vertical of advertisers to come into our ecosystem: brand manufacturers. Those advertisers are potentially going to open up other opportunities in our ecosystem. We can extend the exchange and increase the amount of retailers that participate in the exchange. HookLogic is mostly US centric and we can accelerate that into Europe. And the algorithmic intelligence we have can be applied to drive better performance from their ads"
Sizing up the potential revenue opportunity, Eichmann referred to the size of Amazon's ad business. Amazon is on track to generate more than $1 billion in advertising revenue in the US this year, according to eMarketer.
"[Amazon] is not in every country — we have presence in more countries. It will take time to build the business ... but what is clear is if you are a mid-size retailer ... the ability to offer brand manufacturers' [ad dollars] without the effect of a network is very hard," Eichmann said.
Eichmann's view on the Criteo vs. SteelHouse lawsuit being dropped by both parties
Criteo posted its third-quarter earnings a day after the company announced its legal dispute with rival ad tech company SteelHouse had been dropped.
Criteo filed a lawsuit in June claiming SteelHouse was running a "counterfeit click fraud" that was damaging its business. SteelHouse filed counterclaims in July accusing Criteo of using dubious methods to drive up its click numbers.
, but the two companies' differences are now being settled out of court. In a joint statement, the companies said they agreed "the focus should be on continuing to improve transparency in the ad tech industry."
Asked whether he felt relieved the dispute was over, Eichmann responded "absolutely," adding Criteo's intent, when entering into litigation, was to clarify the attribution mechanisms marketers use to assess the performance of their advertising — not to cause harm to a rival.
"I think in this process we have arrived at a place where it's very clear there are different attribution methods used by SteelHouse and us — post-click and view-through — and it's very clear they offer a different product. They resolved an issue related to a bug they had, which was corrected, and I feel very good where we are at today and I am happy we arrived at this settlement out of court," Eichmann said.
"Our business is to make advertisers richer, not lawyers, that's something we are not very comfortable with — and I say this in front of our general counsel too, by the way," he said. "For us it's very important, we have a business with a 90%-plus retention rate, where people rely on numbers and transparency and how we take credit for the sales we generate. It is very important for us to make sure people understood the system was clean."
Criteo Q3 earnings, the key numbers:
Revenue ex-TAC: $177 million, up 32%
Net income: $14.7 million, up 154%
Adjusted net income per diluted share: $0.48, up 173%
Adjusted EBITDA: $54 million, up 55%
Operating expenses: $131 million, up 33%
Cash flow from operating activities: $44 million, up 149%
Free cash flow: $24 million, up $30 million year-on-year
Total cash and cash equivalents: $407 million
Net new clients in the quarter: 1,000
Total clients: "Approaching 13,000"
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