Retargeting might be considered a legacy business, but it held strong for Criteo – and actually grew – during the first quarter of this year.
On Criteo’s Q1 earnings call Wednesday, CEO Megan Clarken pointed to the resilience of retargeting as a driver of the company’s growth.
Not that retargeting’s rebound wasn’t also somewhat of a surprise.
“The performance of the retargeting business was a pleasant sur – actually, let me just say that it was a delightful thing to see,” Clarken told AdExchanger.
During the pandemic, Criteo saw retailers lean into retargeting in lockstep with the acceleration in online shopping and reallocation of investments into direct response advertising.
Criteo’s revenue for the first quarter was $541 million, a 7% YoY increase that was in part driven by retargeting. That’s impressive growth, but also worth noting that it’s against a relatively easy comp after advertisers sharply curtailed their spending when the pandemic first took hold at the beginning of Q1 2020.
But retargeting still makes up the majority of Criteo’s revenue – its new solutions grew 60% in Q1, but still represent only 21% of the total business – and retargeting will be greatly diminished by the loss of third-party cookies.
To mitigate the risk, Criteo has developed new and alternative solutions, including a first-party shopper graph, a commerce media platform and a new contextual targeting solution released in late April that anonymously groups people based on their transactional behavior and then uses AI to find the publisher URLs and contextual categories that have the highest affinity for those groups.
If that sounds familiar, it’s because it’s pretty much cohort-based targeting that maps the products people buy to their interest in certain content.
Speaking of cohorts, Todd Parsons, Criteo’s chief product officer, told investors the company is “very hungry” to start testing FLEDGE, which is an evolution of Google’s TURTLEDOVE proposal that lays the foundation for creating brand-specific cohorts that can later be targeted with specific ads.
It’s no wonder Criteo is hungry for it. FLEDGE is the Privacy Sandbox proposal “which most closely approximates retargeting,” Parsons said.
FLEDGE testing is to start later this year. In the meantime, Criteo is in the queue to get started on testing FLoC where it’s available, aka, not in Europe. FLoC, or Federated Learning of Cohorts, is Google’s proposal for how to create cohorts of users based on their interests using on-device machine learning.
But while the industry prepares for third-party cookies to start phasing out next year on Chrome, Apple has already made its anti-tracking move on iOS 14 with the recent release of its AppTrackingTransparency (ATT) framework.
Criteo’s business is less exposed to the app ecosystem, but it’s still anticipating a $55 million incremental impact on its revenue for the full year 2021 due to privacy and identity changes mainly related to ATT. Just $5 million of that was felt in Q1, thanks to Apple’s deadline extension. Criteo anticipates a roughly $11 million hit next quarter.
“We're executing well, certainly in retail and ecommerce,” Sarah Glickman, Criteo’s CFO, noted during the call, “and, unfortunately, some of that goodness just gets kind of sucked up with the privacy impact.”
All things considered, though, it’s not much of a gouge. Which is why Criteo is spending way more time on the coming third-party cookie changes, which have a clear and direct impact on its bottom line.
But just because third-party cookies are on the way out, doesn’t mean alternative targeting solutions can’t be effective.
“Something like cohorts, for example, will provide outcomes,” Clarken said. “The future will be about the quality of those outcomes and who can provide the better cohorts and the better performance.”