The ad tech hits keep coming this earnings season.
The latest example of the trend is Criteo, which on Friday reported total revenue of $446.9 million in Q3 2022, down from $508.6 million in the same period last year. The company’s net profit in the quarter dropped from $24.2 million last year to $6.5 million.
That’s getting uncomfortably close to the profitability line. Criteo’s sterling account book – steadily strong profits and cash flow, despite all headwinds on ad tech and its business specifically – has been its sword and shield with investors, who rank it alongside many other programmatic companies that have not achieved sustainable profitability.
Investors pressed the company about the retail media business, which dropped from $50 million in Q3 2021 to $41 million this quarter, and how the company tries to keep a finger on the sluggish, unpredictable pulse of global consumers right now.
Consumer misbehavior
The pandemic didn’t create just a weird quarter or two that threw off the typical year-over-year financial benchmarks. Each season has been marked its own strange and unforecastable consumer patterns.
Last year, there was a strong holiday spending season that began abnormally early. Rather than pockets of huge spending on Black Friday, Cyber Monday and just before Christmas, there was steady high purchase intent across the web beginning in October.
“We haven’t seen that this year,” Criteo CFO Sarah Glickman told investors.
In Q3 this year, Criteo saw a pullback in brand dollars and a focus on budgeting, she said. Whereas in 2021 the company had an unexpected boost at the end of Q3, since American consumers in particular purchased holiday gifts early. (Remember, 2021 was marked by supply chain disaster and cargo ships waiting for ports to open, so people bought early to guarantee they had their stuff in time for Christmas.)
“We see trends, signs and data at our fingertips,” said Criteo CEO Megan Clarken.
But even for a company that only follows buying behavior, guessing what shopping patterns will look like in the next few months is like trying to aim a paper airplane throw into a hurricane.
For instance, last year and in previous years, the Amazon Prime Day sales event created a halo of purchase intent that led to strong sales days for all retailers. Not this year, though, according to Clarken.
And it wasn’t for lack of trying, she said. Retailers launched sales event and advertised discounted items across the web. People just weren’t buying elsewhere this Prime Day.
Amazon also created a second Prime Day event this year, in October, perhaps because they too saw so much early holidays purchase intent the previous year. The sales week was after Criteo’s earning’s period, but also yielded a small shopping bump.
Does the weak halo around Prime Day say something about Amazon? About inflation? About COVID buying patterns? Is it an ominous sign for other retailers?
Clarken said the Criteo will be looking very closely at Black Friday and Cyber Monday activity, to see if perhaps shopping activity looks more like pre-pandemic days, when people clear most of their gift lists around Thanksgiving and shopped again in mid-December.
“We look forward to that … and whether there’s a lift and a halo we didn’t see from Prime Day,” she said.
Retail media
Retail media did slow down in Q3 2022.
But it remains strategically important. “Commerce media is the big place to be if you’re a retailer or an advertiser who wants to swing to somewhere where you see the results,” Clarken said.
Retailers remain committed to investing in their own advertising business, but have slowed down their pace of adoption, she said. There’s more caution about ramping up the solution and more concern about cost management in general.
But retailers need an off-site piece of their media business, which is where Criteo comes into play. “They realize that if they stick to just the traffic to their sites, they’ll never get enough reach,” she said. Amazon, in contrast, offers more natural reach.
Competing with Amazon is no fun. But comparisons are always nice. After all, Amazon reported earnings on Thursday, and its advertising services segment grew by 30%, and by 25% including currency headwinds. That while YouTube, Facebook, Criteo and many other major ad platforms report revenue decreases.
“We see ourselves as the Amazon of the open internet,” Clarken said. Its goal isn’t to disrupt advertising on Amazon, but be complementary, by enabling retailers to have their own advertising business.”
