In the face of a potential global recession on top of a horrendous year for ad tech stocks, companies have to find comfort in the small victories.
Wednesday was one such victory for Criteo, despite a few troubling trends.
The company reported revenue of $495 million for the second quarter, which was down year-over-year from $551 million. But Criteo’s net profit did tick up from $15 million to $18 million.
“July was slightly worse than June and June was slightly worse than May,” Criteo CFO Sarah Glickman told investors, referencing the impact of some advertisers pulling back spend – not because of diminishing sales, but because they’re taking a more conservative approach in anticipation of an economic downturn.
On top of that, platform privacy changes, primarily Apple’s ATT and other iOS-related alterations, reduced revenue by an estimated $16 million – with higher losses forecast for Q3 and Q4 of this year.
The good stuff
Wait … didn’t this article start out by say Q2 was a win for Criteo?
It was. As in, the wins outshone the bad news.
For example, Criteo won an anticompetition case against Meta last quarter and is in the process of being reinstated to the Facebook and Instagram partner program and ad platform. It’s been more than four years since Criteo last had access to Facebook inventory, and opening up such a large addressable pool of supply could bring a quick floodtide of growth.
Criteo also completed its acquisition of IPONWEB. The deal, announced in December, is a key part of Criteo’s revamped pitch as a full-funnel ad tech platform that includes both a DSP and SSP.
The acquisition was expected to close in Q1, but the war in Ukraine complicated matters and caused a delay. IPONWEB was founded in Russia and has a large contingent of product people based in the country.
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Criteo restructured the deal to excise IPONWEB’s Russian subsidiary from the purchase, and brought the deal price down to $250 million from $380 million, with another $100 million in possible incentive-based payouts over the next 18 months.
“We believe that our strategic acquisition of IPONWEB will accelerate our strategy of creating the world’s leading commerce media platform,” said Glickman, who also pointed to the value in bringing together an SSP (which Criteo gets from IPONWEB) with DSP capabilities. (Both Criteo and IPONWEB each have their own demand-side platform).
“The SSP was central to our investment thesis in getting together with IPONWEB,” said Criteo’s Chief Product Officer Todd Parsons.
Criteo has plans to cross-sell the IPONWEB MediaGrid SSP through its own DSP.
Retail margin gains
To understand why Criteo places such importance on cross-selling IPONWEB to boost its commerce media business, consider Criteo’s retail media segment. That business earned $54.67 million in Q2 2022, down 14% from last year. Criteo’s marketing solutions segment, which includes legacy retargeting, was down 10% and totaled $440.42 million.
Not very impressive at first blush.
But Criteo uses a metric it calls ex-TAC contribution – the net profit (or loss) generated by revenue after accounting for traffic acquisition costs. (It makes sense to do this, because Criteo’s retargeting business buys ads and charges by cost per conversion. Baked into the cost is the understanding that some ads it buys will be a waste.)
And if you look at Criteo’s revenue through the lens of contribution ex-TAC, although the Marketing Solutions group was still down 8%, retail media was up 36% year-over-year.
The point here being that retail media is a very high-margin business. By adding supply and demand via IPONWEB and potentially consolidating another SSP out of the pipeline, Criteo can continue driving value from that margin if the total growth slows or even ticks down again.
Uncrumbling the cookie
Criteo is also preparing for post-cookie advertising, of course. Its plan is to be a leader among independent companies using the APIs in Google’s Chrome and Android Privacy Sandboxes, according to CEO Megan Clarken.
But who are we kidding. The delay and delay again of the demise of the third-party cookie is a gift to Criteo in particular, which can continue to retarget effectively on Chrome.
Even so, Criteo is testing non-cookie IDs and targeting strategies, Clarken said, albeit in environments that don’t have data signals where advertisers are alrrady “flying blind,” including Safari, Firefox and Apple iOS.
But beyond testing post-cookie solutions on the margins – and using third-party cookies for as long as they do exist – Criteo is not making any major changes.
Although that’s not completely by Criteo’s choice.
“The use of cookies is sort of saturated through our client base, and so it’s very difficult for us to have them stop doing it, unless we can show them either a drop-dead date when they can’t use it anymore or a reason to move,” Clarken said. “And while Google continues to move the date that first part, the drop-dead date, is out of our reach.”
That said, some advertisers have validated that post-cookie products can work better than, well, flying blind.
And as buyers get more experience and a taste for how these tactics work, Clarken said, they can get a sense of “exactly what we can do once Google does actually flick the switch.”
