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Criteo Splits Out Retail Media Revenue For The First Time

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Criteo has decided to show off its retail media revenue.

During its earnings call Thursday morning, the company split out its retail media business for the first time.

The retail media unit, which primarily consists of what Criteo calls Commerce Max – a network of placements across retailers and online merchants – earned $50.2 million in Q1. That’s up from $37.4 million during the same period last year.

Performance Media, meanwhile, the segment that houses Criteo’s legacy retargeting business, generated $399.2 million in Q1, a smidge down from $407 million a year ago.

Shares of Criteo’s stock price leapt by about 10% after it reported earnings.

The bottom line

It’s no surprise that investors are giving Criteo a nod of approval for its performance last quarter.

From the perspective of equity number crunchers, the state of Criteo’s balance sheet has improved.

For example, Criteo’s total revenue in Q1 improved modestly year over year from $445 million to $450 million. But in terms of profitability, Criteo went from a $12 million loss in Q1 2023 to a $9 million net gain so far this year.

Part of its improved profitability comes from headcount reduction, including a round of layoffs in April.

But there’s another reason investors are pleased: Criteo’s traffic acquisition costs (TAC) were down from $224.4 million a year ago to $196.2 million in Q1. TAC is what Criteo pays out to retailers, search engines and other places from which it must buy traffic.

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And Criteo’s TAC will continue to come down as retail media overtakes retargeting, since retargeting is the part of the business that requires large TAC expenditures.

Google’s third-party cookie deprecation plan for Chrome is also a tailwind for Criteo, CEO Megan Clarken told investors. The company forecasts a roughly $35 million loss this year, as Chrome becomes a far less hospitable place to run third-party retargeting campaigns.

But wait. Didn’t Google just delay deprecation until next year?

Criteo’s potential losses don’t just get pushed along with the deprecation deadline, Clarken said. With more time to sharpen its post-cookie identity products, deprecation-related losses diminish, she added.

That’s a somewhat bitter pill. But investors like the fact that Criteo is also heavily repurchasing shares this year, which drives up the value of any shares remaining on the market even if the company’s market cap remains unchanged. Clarken said Criteo spent $62 million on buybacks in Q1 and plans to spend at least $150 million on share repurchases throughout 2024.

The retail tale

But back to Criteo’s retail numbers.

It’s pretty clear why the company is keen to share them now and why it’s leaning so hard into being a retail media business, when in fact its revenue split remains heavily skewed toward performance media and retargeting.

For one, retail media is where the growth is.

Criteo’s total ad revenue growth rate was 3%, which is below the growth rate of advertising overall and could imply Criteo is losing market share. But its Retail Media segment grew by 33%, which far outpaces the market, Clarken said.

“We have a leading market footprint,” she said, with more than 200 retailers and 2,700 brands. “This is now miles ahead of any competitor with our scaled network of retailers.”

Criteo also saw outsized growth from agencies in Q1.

Clarken attributed the boost to a shift in how brands spend their retail media budgets. Rather than spending trade marketing dollars directly with retailers for in-store marketing, such as store displays, shelf placement and coupons, brands are giving that budget to agency media buyers running national campaigns tied to in-store and online purchases.

“That’s the magic of retail media,” Clarken said. “Leaning into that over the next few years is what’s going to get us to the place that we want to be, which is the ultimate complement to an Amazon buy.”

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